<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1999
REGISTRATION NO. 333-89077
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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
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NEOFORMA.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 5961 77-0424252
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3255-7 SCOTT BLVD.
SANTA CLARA, CALIFORNIA 95054
(408) 654-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. ZOLLARS
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
3255-7 SCOTT BLVD.
SANTA CLARA, CALIFORNIA 95054
(408) 654-5700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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GORDON K. DAVIDSON, ESQ. WILLIAM H. HINMAN, JR., ESQ.
DAVID K. MICHAELS, ESQ. SHEARMAN & STERLING
SCOTT J. LEICHTNER, ESQ. 1550 EL CAMINO REAL
FENWICK & WEST LLP MENLO PARK, CA 94025
TWO PALO ALTO SQUARE (650) 330-2200
PALO ALTO, CA 94306
(650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE
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Common Stock, $0.001 par value per
share................................. 8,050,000(2) $10.00 $80,500,000 $21,252(3)
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes 1,050,000 shares subject to the underwriters' over-allotment
option.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT 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 THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 23, 1999
PROSPECTUS
7,000,000 SHARES
[NEOFORMA.COM LOGO]
COMMON STOCK
------------------------
This is Neoforma.com, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $8.00 and $10.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the common stock will be quoted on the Nasdaq National
Market under the symbol "NEOF."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Neoforma.com, Inc............ $ $
</TABLE>
The underwriters may also purchase up to an additional 1,050,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 2000.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
VOLPE BROWN WHELAN & COMPANY
WILLIAM BLAIR & COMPANY
------------------------
The date of this prospectus is , 2000.
<PAGE> 3
COVER ARTWORK
INSIDE FRONT COVER OF PROSPECTUS:
OVERLEAF PAGE
CAPTION AT TOP OF PAGE: "empowering healthcare commerce"
In the middle of the page, there is a photograph of the Neoforma.com
homepage with links to Neoforma.com's three primary services: Shop, Auction and
Plan.
CAPTION AT LOWER MIDDLE OF PAGE: "Empowering healthcare worldwide by
uniting people, information, and commerce."
The Neoforma.com logo appears at the bottom right corner.
GATE FOLD PAGES
CAPTION AT CENTER PAGES: "Healthcare Purchasing Lifecycle"
In the background, there are images of healthcare professionals at work. In
the center of the gatefold pages, there are three images of web pages from the
Neoforma.com website, arranged in a circular pattern. The three images depict
web pages for Neoforma.com's three primary services: Shop, Auction and Plan.
There are arrows connecting each image, with the word "Information" embedded in
each arrow.
CAPTION AT TOP RIGHT OF PAGES: Neoforma.com's Plan, Auction and Shop
services together address all stages of the healthcare purchasing process, from
planning through procurement to liquidation."
CAPTION AT BOTTOM RIGHT OF PAGES: "Neoforma.com Shop - Our Shop service
enables transactions between purchasers and sellers of new medical equipment,
products, and supplies by providing them with online access to one another and
the cost-efficiencies of e-commerce." This caption is next to the image of the
web page for Neoforma.com's Shop service.
CAPTION AT BOTTOM LEFT OF PAGES: "Neoforma.com Auction - Our Auction
service offers a comprehensive solution to the challenge of managing used and
refurbished equipment and surplus products through online listings and both live
and online auctions." This caption is next to the image of the web page for
Neoforma.com's Auction service.
CAPTION AT TOP LEFT OF PAGES: "Neoforma.com Plan - Our Plan service
provides photographic images and interactive content demonstrating the use of
medical supplies and equipment in various procedural settings, simplifying the
process of planning and equipping medical facilities." This caption is next to
the image of the web page for Neoforma.com's Plan service.
The Neoforma.com logo appears at the bottom right corner.
<PAGE> 4
TABLE OF CONTENTS
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Prospectus Summary.......................................... 3
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements and
Industry Data............................................. 19
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Consolidated Financial Data........................ 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 34
Management.................................................. 50
Certain Transactions........................................ 63
Principal Stockholders...................................... 68
Description of Capital Stock................................ 71
Shares Eligible for Future Sale............................. 75
Underwriting................................................ 77
Legal Matters............................................... 80
Experts..................................................... 80
Where You Can Find More Information......................... 80
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date of
this prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
Except as otherwise indicated, all information in this prospectus assumes:
- the conversion of all outstanding shares of preferred stock into
41,420,953 shares of common stock upon the consummation of this offering,
based upon an assumed initial offering price of $9.00 per share; and
- no exercise of the underwriters' over-allotment option.
Neoforma, Neoforma.com, the Neoforma.com logo, Shop, Auction and Plan are
our trademarks or service marks. Each trademark or service mark of any other
company appearing in this prospectus belongs to its holder.
We incorporated in California on March 4, 1996 and reincorporated in
Delaware on November 4, 1998. Our address is 3255-7 Scott Boulevard, Santa
Clara, California, 95054, and our telephone number is (408) 654-5700.
2
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PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should carefully read the entire prospectus, including "Risk
Factors" and the financial statements and related notes included in the
prospectus, before making an investment decision.
NEOFORMA.COM, INC.
Neoforma.com is a leader in the emerging market of providing
business-to-business e-commerce services to purchasers and sellers of medical
products, supplies and equipment. Our services provide an open, online
marketplace where any manufacturer or distributor may list and sell medical
products. By aggregating a large number of suppliers and products, our services
enable physicians, hospitals and other healthcare providers to efficiently
purchase a wide range of new and used medical products. To increase the breadth
and usage of our services, we have entered into strategic alliances with leading
Internet, technology and healthcare-related organizations and medical products
suppliers, such as Dell, General Electric Medical Systems, Healtheon/WebMD,
Owens & Minor, SAP, Superior Consultant and VerticalNet.
We offer three primary services that together address the entire healthcare
purchasing lifecycle. Our Shop service, introduced in August 1999, provides a
unified marketplace where purchasers can easily locate and buy new medical
products, and suppliers can access new customers and markets. Healthcare
providers can use Shop to purchase a wide range of products, from disposable
gloves to surgical instruments and diagnostic equipment. Our Auction service
creates an efficient marketplace for idle assets by enabling users to list, sell
and buy used and refurbished equipment and surplus medical products. We
introduced our initial Auction service, an online listing service called
AdsOnline, in May 1999, our second Auction service, a live auction service
called AuctionLive, in August 1999, and our third Auction service, an online
auction service called AuctionOnline, in November 1999. Our Plan service,
introduced in July 1998, provides interactive content to healthcare planners and
designers, including 360 degree interactive photographs of rooms and suites in
medical facilities that we believe represent industry best practices, together
with floor plans and information about the products in the room. This
information helps reduce the complexities of planning and outfitting healthcare
facilities, which we believe increases the appeal of our website to the facility
planners responsible for many product purchasing decisions.
According to information published by the Health Industry Manufacturers'
Association, we estimate that the worldwide market for new medical products,
supplies and equipment is more than $145 billion, and is growing at an estimated
6% per year. In the U.S. alone, there are over 20,000 manufacturers and
distributors that supply new medical products to over 200,000 healthcare
providers, including hospitals, physicians' offices and other healthcare
delivery sites. In the market for used or surplus medical products, sellers
typically are manufacturers and large healthcare providers located in U.S. urban
centers, while buyers typically are healthcare providers located outside of the
U.S. or in rural markets in the U.S. Recently the widespread adoption of the
Internet for business communications and transactions has created an opportunity
for organizations to streamline business processes and to connect purchasers and
sellers in otherwise fragmented markets. Because of the inefficiencies inherent
in the traditional procurement process for medical products and the industry's
high degree of fragmentation, we believe that participants in this industry will
increasingly conduct business online to take advantage of the efficiencies of
business-to-business e-commerce.
Our online marketplace provides significant benefits to both purchasers and
sellers of new and used medical products, supplies and equipment. By aggregating
product information from numerous suppliers, we offer healthcare providers a
central, easy-to-use location for the purchase of medical products, enabling
them to significantly reduce transaction and procurement costs. By aggregating a
wide range of purchasers, we enable any supplier to offer its new and used
medical products on a global
3
<PAGE> 6
basis, significantly expanding its market exposure without the expense
associated with building or extending traditional distribution channels.
Our objective is to become the leading online marketplace for new and used
medical products. Key elements of our strategy to meet this objective include:
- Build on our position as one of the first to offer comprehensive
e-commerce services to our market and increase recognition of our brand;
- Increase adoption of our online marketplace to create a network effect
where the value of our marketplace significantly increases with each
additional user;
- Increase functionality of our services to drive broad market adoption;
- Establish strategic alliances with leading industry participants; and
- Expand internationally.
Because we have only recently introduced our services, it is difficult to
evaluate our business and our future prospects. We have generated revenue of
only $464,000 for the nine months ended September 30, 1999, which consisted
primarily of transaction fees paid by sellers of medical products using our
AuctionLive service. We have recognized limited revenue to date from services
offered through our website. We expect that in the future, our principal source
of revenue will be transaction fees paid by the sellers of medical products that
use our Shop and Auction services. We also expect to generate revenue from
sponsorship fees paid by suppliers and service providers for the right to
feature their brands and products on our Plan service. We expect to continue to
have operating losses and negative cash flow for the foreseeable future.
THE OFFERING
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Common stock offered............................... 7,000,000 shares
Common stock to be outstanding after this
offering......................................... 57,794,833 shares
Use of proceeds.................................... For general corporate purposes, including
sales and marketing, product development and
working capital.
Proposed Nasdaq National Market symbol............. NEOF
</TABLE>
The number of shares of our common stock that will be outstanding after
this offering is based on the actual number outstanding on September 30, 1999,
and includes the shares of common stock issuable upon conversion of the
12,693,633 shares of our Series E and Series E-1 preferred stock that we issued
in October 1999 and of the 176,057 shares of our Series E preferred stock that
in November 1999 we agreed to issue and sell to Fisher Scientific International,
Inc., and the 350,000 shares of common stock that we issued to the former
shareholders of FDI Information Resources, Inc. in connection with our
acquisition of substantially all of the assets of FDI in November 1999. The
number of shares outstanding also assumes the conversion of all outstanding
shares of preferred stock into 41,420,953 shares of common stock based upon an
assumed initial offering price of $9.00 per share. The number of shares
outstanding excludes:
- 5,112,965 shares issuable upon the exercise of stock options outstanding
as of September 30, 1999, at a weighted average exercise price of $0.20
per share;
- 858,147 shares issuable upon the exercise of warrants outstanding as of
September 30, 1999, at a weighted average exercise price of $0.61 per
share; and
- 8,409,309 shares available for future issuance under our stock plans as
described under "Management -- Employee Benefit Plans"; since September
30, 1999, we have granted options to purchase 1,520,000 of these shares
to new members of our management team.
- up to 2,000,000 shares of our common stock that we would issue if we
complete the acquisition of a developer of content management software
that we are currently negotiating.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The summary consolidated financial information below should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and the related notes
included elsewhere in this prospectus.
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<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED NINE MONTHS ENDED
(MARCH 6, 1996) DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ---------------- ------------------
1996 1997 1998 1998 1999
---------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenue....................... $ -- $ -- $ -- $ -- $ 464
Loss from operations................ (196) (408) (4,607) (2,350) (25,420)
Net loss............................ (54) (416) (4,563) (2,308) (25,614)
Basic and diluted net loss per
share............................. (0.01) (0.05) (1.65) (0.61) (14.20)
Weighted-average shares -- basic and
diluted........................... 8,000 8,083 2,762 3,807 1,804
Pro forma basic and diluted loss per
share............................. (0.36) (0.94)
Weighted average shares -- pro forma
basic and diluted................. 12,848 27,225
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 655 $72,155 $129,345
Working capital...................................... (9,110) 62,390 119,580
Total assets......................................... 16,003 87,503 144,693
Notes payable, less current portion.................. 8,069 8,069 8,069
Mandatorily redeemable convertible preferred stock... 15,870 -- --
Total stockholders' equity (deficit)................. (18,771) 74,902 132,092
</TABLE>
See Note 2 of notes to consolidated financial statements for a description
of the method we used to compute our basic and diluted net loss per share.
The above table summarizes our consolidated balance sheet as of September
30, 1999:
- on an actual basis;
- on a pro forma basis to reflect
- the sale of 12,418,633 shares of our Series E and Series E-1 preferred
stock for net proceeds of approximately $70.5 million and the issuance of
275,000 shares of our Series E-1 preferred stock in connection with a
strategic alliance in October 1999,
- the issuance of 176,057 shares of our Series E preferred stock that in
November 1999 we agreed to sell to Fisher Scientific for net proceeds of
approximately $1.0 million,
- the issuance of 350,000 shares of common stock to the former shareholders
of FDI Information Resources in connection with our acquisition of
substantially all of the assets of FDI in November 1999, and
- the conversion of all outstanding shares of preferred stock into
41,420,953 shares of common stock, based upon an assumed initial offering
price of $9.00 per share; and
- on a pro forma as adjusted basis to further reflect the application of
the net proceeds from the sale of 7,000,000 shares of common stock in
this offering at an assumed initial public offering price of $9.00 per
share, after deducting the underwriting discount and estimated offering
expenses.
5
<PAGE> 8
RISK FACTORS
Before you invest in our common stock, you should carefully consider the
risks described below, together with all of the other information included in
this prospectus.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE ONLY RECENTLY INTRODUCED OUR PRIMARY SERVICES AND BECAUSE WE
OPERATE IN A NEW AND RAPIDLY EVOLVING MARKET, YOU MAY HAVE DIFFICULTY ASSESSING
OUR BUSINESS AND OUR FUTURE PROSPECTS
We incorporated in March 1996. Prior to May 1999, our operations consisted
primarily of the initial planning and development of our marketplace and the
building of our operating infrastructure. We introduced our initial Auction
service, AdsOnline, in May 1999, our second Auction service, AuctionLive, in
August 1999 and our third Auction service, AuctionOnline, in November 1999 and
we introduced our Shop service in August 1999. As a result, we have generated
revenues of only $464,000 for the nine months ended September 30, 1999. Because
we have only recently introduced our services, it is difficult to evaluate our
business and our future prospects. For example, it is difficult to predict
whether the market will accept our services and the level of revenue we can
expect to derive from our services. Because we are an early stage company in the
online market for the purchase and sale of new and used medical products,
supplies and equipment, which is a new and rapidly evolving market, we cannot be
certain that our business strategy will be successful. Our business will be
seriously harmed, and may fail entirely, if we do not successfully execute our
business strategy or if we do not successfully address the risks we face. In
addition, due to our limited operating history, we believe that period-to-period
comparisons of our revenue and results of operations are not meaningful.
WE HAVE A HISTORY OF LOSSES, ANTICIPATE INCURRING LOSSES IN THE FORESEEABLE
FUTURE AND MAY NEVER ACHIEVE PROFITABILITY
We have experienced losses from operations in each period since our
inception, including net losses of $25.6 million for the nine months ended
September 30, 1999. In addition, as of September 30, 1999, we had an accumulated
deficit of approximately $30.6 million. We have not achieved profitability and
we expect to continue to incur substantial operating losses for the foreseeable
future. We have generated limited revenue to date. If our revenue does not
increase substantially or if our expenses increase further than we expect, we
may never become profitable.
We anticipate that our operating losses will increase in the future, as we
expect substantial increases in our costs and expenses in a number of areas,
including:
- marketing and promotion of our company and our services, including
building recognition of our brand name;
- expanding our direct field sales force;
- expanding and enhancing our operating infrastructure, including hardware
and software systems and administrative personnel;
- extending the functionality of our online marketplace; and
- expanding our services.
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OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT, AND IF WE FAIL TO
MEET THE EXPECTATIONS OF INVESTORS OR SECURITIES ANALYSTS, THE MARKET PRICE OF
OUR COMMON STOCK WOULD LIKELY DECLINE SIGNIFICANTLY
Our revenue and operating results are likely to fluctuate significantly
from quarter to quarter, due to a number of factors. These factors include:
- the amount and timing of payments to our strategic partners;
- variability in the amount of equipment that we auction in a given
quarter;
- changes in the fees we charge users of our services;
- budgetary fluctuations of purchasers of medical products, supplies and
equipment; and
- changes in general economic and market conditions.
Fluctuations in our operating results may cause us to fail to meet the
expectations of investors or securities analysts. If this were to happen, the
market price of our common stock would likely decline significantly.
In addition, as a result of our limited operating history, the emerging
nature of our market and the evolving nature of our business model, we are
unable to accurately forecast our revenue. We incur expenses based predominantly
on operating plans and estimates of future revenue. Our expenses are to a large
extent fixed. We may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfalls. Accordingly, a failure to meet
our revenue projections would have an immediate and negative impact on
profitability.
IF BUYERS AND SELLERS OF MEDICAL PRODUCTS DO NOT ACCEPT OUR BUSINESS MODEL OF
PROVIDING AN ONLINE MARKETPLACE FOR THE PURCHASE AND SALE OF MEDICAL PRODUCTS,
DEMAND FOR OUR SERVICES MAY NOT DEVELOP AND THE PRICE OF OUR COMMON STOCK WOULD
DECLINE
We offer an online marketplace that aggregates a number of suppliers and
purchasers of medical products. This business model is new and unproven and
depends upon buyers and sellers in this market adopting a new way to purchase
and sell medical products, supplies and equipment. If buyers and sellers of
medical products do not accept our business model, demand for our services may
not develop and the price of our common stock would decline. Suppliers and
purchasers of medical products could be reluctant to accept our new, unproven
approach, which involves new technologies and may not be consistent with their
existing internal organization and procurement processes. Suppliers and
purchasers may prefer to use traditional methods of selling and buying medical
products, such as using paper catalogs and interacting in person or by phone
with representatives of manufacturers or distributors. In addition, many of the
individuals responsible for purchasing medical products do not have ready access
to the Internet and may be unwilling to use the Internet to purchase medical
products. Even if suppliers and purchasers accept the Internet as a means of
selling and buying medical products, they may not accept our online marketplace
for conducting this type of business. Instead, they may choose to establish and
operate their own websites to purchase or sell new and used medical products.
Reluctance of suppliers and purchasers to use our services would seriously harm
our business.
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IF WE CANNOT QUICKLY BUILD A CRITICAL MASS OF PURCHASERS AND SUPPLIERS OF
MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT, WE WILL NOT ACHIEVE A NETWORK EFFECT
AND OUR BUSINESS MAY NOT SUCCEED
To encourage suppliers to list their products on our online marketplace, we
need to increase the number of purchasers who use our services. However, to
encourage purchasers to use our marketplace, it must offer a broad range of
products from a large number of suppliers. If we are unable to quickly build a
critical mass of purchasers and suppliers, we will not be able to benefit from a
network effect, where the value of our services to each participant
significantly increases with the addition of each new participant. Our inability
to achieve a network effect would reduce the overall value of our Shop and
Auction services to purchasers and suppliers and, consequently, would harm our
business.
IF WE ARE UNABLE TO EXPAND OUR REGISTERED USER BASE AND THE FUNCTIONALITY OF OUR
SERVICES, WE MAY NOT PROVIDE AN ATTRACTIVE ALTERNATIVE TO THE WEBSITES OR
SYSTEMS USED BY LARGE HEALTHCARE ORGANIZATIONS AND WE MAY NOT ACHIEVE MARKET
ACCEPTANCE WITH THESE ORGANIZATIONS
Currently, we believe that most of the registered users of our website are
relatively small healthcare providers such as physicians offices, and these
users have accounted for most of the purchases of new medical products through
Shop. It is important to our success that our services be used by large
healthcare organizations, such as hospitals, integrated delivery networks and
members of large purchasing organizations. In order for these large
organizations to accept our services, we must integrate our services with their
information systems. In addition, we will need to develop customer-specific
pricing capabilities before these organizations can use our services to purchase
products covered by their negotiated agreements with suppliers. Finally, we will
need to significantly increase the number of suppliers using our services to
address the needs of these large organizations, which typically require a wide
range of medical products. Many of these large healthcare organizations have
established, or may establish, websites that enable sales of their products
directly to consumers or electronic data interchange systems designed
specifically for their needs and integrated with their existing processes and
technologies. If we are unable to extend our capabilities and expand our
registered user base as described above, we may not provide an attractive
alternative to these websites or systems and may not achieve market acceptance
by these large organizations.
IF WE DO NOT SUCCEED IN EXPANDING THE BREADTH OF THE PRODUCTS OFFERED THROUGH
OUR ONLINE MARKETPLACE, SOME PURCHASERS OF MEDICAL PRODUCTS MAY CHOOSE NOT TO
UTILIZE OUR SERVICES WHICH WOULD LIMIT OUR POTENTIAL MARKET SHARE
The future success of our Shop service depends upon our ability to offer
purchasers a wide range of medical products. The products currently listed on
our Shop service are primarily oriented to the physicians' office market. Large
healthcare organizations generally require a much broader range of products. To
increase the breadth of the products listed on Shop, we must establish
relationships with additional suppliers and expand the number and variety of
products listed by existing suppliers. If we are unable to maintain and expand
the breadth of medical products, supplies and equipment listed on Shop, the
attractiveness of our services to purchasers will be diminished, which would
limit our potential market share.
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A number of factors could significantly reduce, or prevent us from
increasing, the number of suppliers and products offered on our online
marketplace, including:
- reluctance of suppliers to offer medical products in an online
marketplace that potentially includes their competitors;
- exclusive or preferential arrangements signed by suppliers with our
competitors;
- perceptions by suppliers that we give other suppliers preferred treatment
on our online marketplace; and
- consolidation among suppliers, which we believe is currently occurring.
WE EXPECT THAT A SIGNIFICANT PORTION OF THE MEDICAL PRODUCTS, SUPPLIES AND
EQUIPMENT SOLD THROUGH OUR SHOP SERVICE WILL COME FROM A LIMITED NUMBER OF KEY
MANUFACTURERS AND DISTRIBUTORS, AND THE LOSS OF A KEY MANUFACTURER OR
DISTRIBUTOR COULD RESULT IN A SIGNIFICANT REDUCTION IN THE REVENUE WE GENERATE
THROUGH THIS SERVICE
Although to date we have generated only minimal revenues from our Shop
service, we expect that a significant portion of the products to be sold through
and revenue to be generated from our Shop service will come from a limited
number of key manufacturers and distributors. These parties are generally not
obligated to list any medical products on our Shop service. If any of these key
manufacturers or distributors cease doing business with us or reduce the number
of products they list on our Shop service, the revenue we generate through this
service could be significantly reduced. Our supplier agreements are nonexclusive
and, accordingly, these suppliers can sell their medical products, supplies and
equipment to purchasers directly or through our competitors.
IF WE DO NOT TIMELY ADD PRODUCT INFORMATION TO OUR ONLINE MARKETPLACE OR IF THAT
INFORMATION IS NOT ACCURATE, OUR REPUTATION MAY BE HARMED AND WE MAY LOSE USERS
OF OUR ONLINE SERVICES
Currently, we are responsible for entering product information into our
database and categorizing the information for search purposes. If we do not do
so in a timely manner, we will encounter difficulties in expanding our online
marketplace. We currently have a backlog of products to be entered in our
system. We will not derive revenue from the sale of products by these suppliers
until the information is entered in our system. Timely entering of this
information in our database depends upon a number of factors, including the
format of the data provided to us by suppliers and our ability to accurately
enter the data in our product database, any of which could delay the actual
entering of the data. We use an independent company to assist us in digitizing
and inputting the data provided to us by suppliers, and we rely on this company
to accurately input the data. If this company fails to input data accurately,
our reputation could be damaged, and we could lose users of our online services.
IF SUPPLIERS DO NOT TIMELY PROVIDE US WITH ACCURATE, COMPLETE AND CURRENT
INFORMATION ABOUT THEIR PRODUCTS, WE MAY BE EXPOSED TO LIABILITY OR THERE MAY BE
A DECREASE IN THE ADOPTION AND USE OF OUR ONLINE MARKETPLACE
If suppliers do not provide us in a timely manner with accurate, complete
and current information about the products they offer and promptly update this
information when it changes, our database will be less useful to purchasers. We
cannot guarantee that the product information available from our services will
always be accurate, complete and current, or that it will comply with
governmental regulations. This could expose us to liability if this incorrect
information harms users of our services or result in decreased adoption and use
of our online marketplace.
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BECAUSE SOME OF THE PARTICIPANTS IN OUR ONLINE MARKETPLACE ARE STOCKHOLDERS OR
HAVE STRATEGIC RELATIONSHIPS WITH US, WE MAY FIND IT DIFFICULT TO ATTRACT
COMPETING COMPANIES, WHICH COULD LIMIT THE BREADTH OF PRODUCTS OFFERED ON AND
USERS OF OUR ONLINE MARKETPLACE
Some suppliers participating in our online marketplace are our stockholders
or have strategic relationships with us. For example, General Electric Medical
Systems is entitled to sponsor rooms in our Plan service and has agreed to
conduct other activities with us, and an affiliate of General Electric Medical
Systems has recently acquired 2,035,563 shares of our preferred stock which will
convert into 2,261,737 shares of common stock upon the completion of the
offering, based upon an assumed initial public offering price of $9.00 per
share. See "Business -- Suppliers." These relationships may deter other
suppliers, particularly those that compete directly with these participants,
from participating in our online marketplace due to perceptions of bias in favor
of one supplier over another. This could limit the array of products offered on
our online marketplace, damage our reputation and limit our ability to maintain
or increase our user base.
IF WE FAIL TO DEVELOP THE CAPABILITY TO INTEGRATE OUR ONLINE SERVICES WITH
ENTERPRISE SOFTWARE SYSTEMS OF PURCHASERS AND SUPPLIERS OF MEDICAL PRODUCTS AND
TO ENABLE OUR SERVICES TO SUPPORT CUSTOMER-SPECIFIC PRICING, THESE ENTITIES MAY
CHOOSE NOT TO UTILIZE OUR ONLINE MARKETPLACE, WHICH WOULD HARM OUR BUSINESS
If we do not maintain and expand the functionality and reliability of our
services, purchasers and suppliers of medical products may not use our
marketplace. We believe that we must develop the capability to integrate our
online services with enterprise software systems used by many suppliers of
medical products and by many large healthcare organizations, and to enable our
services to support customer-specific pricing. We may incur significant expenses
to develop these capabilities, and may not succeed in developing them in a
timely manner. In addition, developing the capability to integrate our services
with suppliers' and purchasers' enterprise software systems will require the
cooperation of and collaboration with the companies that develop and market
these systems. Suppliers and purchasers use a variety of different enterprise
software systems provided by third-party vendors or developed internally. This
lack of uniformity increases the difficulty and cost of developing the
capability to integrate with the systems of a large number of suppliers and
purchasers. Failure to provide these capabilities would limit the efficiencies
that our services provide, and may deter many purchasers and suppliers from
using our online marketplace, particularly large healthcare organizations.
WE FACE INTENSE COMPETITION, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, WE MAY
BE UNABLE TO MAINTAIN OR EXPAND THE BASE OF PURCHASERS AND SELLERS OF MEDICAL
PRODUCTS USING OUR SERVICES AND WE MAY LOSE MARKET SHARE OR BE REQUIRED TO
REDUCE PRICES
The online market for medical products, supplies and equipment is new,
rapidly evolving and intensely competitive. Our primary competition includes
e-commerce providers that have established online marketplaces for medical
products, supplies and equipment. We also face potential competition from a
number of sources. Many companies have created websites to serve the information
needs of healthcare professionals. Many of these companies are introducing
e-commerce functions that may compete with our services. In addition, providers
of online marketplaces and online auction services that currently focus on other
industries could expand the scope of their services to include medical products.
Existing suppliers of medical products may also establish online marketplaces
that offer services to suppliers and purchasers, either on their own or by
partnering with other companies. Moreover, live auction houses focusing on
medical products may establish online auction services. See
"Business -- Competition" for more information about our current and potential
competitors.
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Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:
- enter into strategic or commercial relationships with larger, more
established healthcare, medical products and Internet companies;
- secure services and products from suppliers on more favorable terms;
- devote greater resources to marketing and promotional campaigns;
- secure exclusive or preferential arrangements with purchasers or
suppliers that limit sales through our marketplace; and
- devote substantially more resources to website and systems development.
Many of our existing and potential competitors have longer operating
histories in the medical products market, greater name recognition, larger
customer bases and greater financial, technical and marketing resources than we
do. As a result of these factors, our competitors and potential competitors may
be able to respond more quickly to market forces, undertake more extensive
marketing campaigns for their brands and services and make more attractive
offers to purchasers and suppliers, potential employees and strategic partners.
In addition, new technologies may increase competitive pressures. We cannot be
certain that we will be able to maintain or expand our user base. We may not be
able to compete successfully against current and future competitors and
competition could result in price reductions, reduced sales, gross margins and
operating margins and loss of market share.
IF WE ARE NOT ABLE TO INCREASE RECOGNITION OF THE NEOFORMA.COM BRAND NAME, OUR
ABILITY TO ATTRACT USERS TO OUR ONLINE MARKETPLACE WILL BE LIMITED
We believe that recognition and positive perception of the Neoforma.com
brand name in the healthcare industry are important to our success. We intend to
significantly expand our advertising and publicity efforts in the near future.
However, we may not achieve our desired goal of increasing the awareness of the
Neoforma.com brand name. Even if recognition of our name increases, it may not
lead to an increase in the number of visitors to our online marketplace or
increase the number of users of our services.
IF PARTICIPATING SELLERS ON OUR SHOP AND AUCTION SERVICES DO NOT PROVIDE TIMELY
AND PROFESSIONAL DELIVERY OF MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT,
PURCHASERS MAY NOT CONTINUE USING OUR SERVICES
We rely on suppliers to deliver the medical products, supplies and
equipment sold through our Shop service to purchasers. We also often rely on
sellers to deliver products sold through our Auction service. In addition,
suppliers do not guarantee the availability or timely delivery of products
listed on to Shop. If these sellers fail to make delivery in a professional,
safe and timely manner, then our services will not meet the expectations of
purchasers, and our reputation and brand will be damaged. In addition,
deliveries that are non-conforming, late or are not accompanied by information
required by applicable law or regulations could expose us to liability or result
in decreased adoption and use of our services.
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WE MAY BE SUBJECT TO LITIGATION FOR DEFECTS IN PRODUCTS SUPPLIED BY SELLERS
USING OUR SERVICES, AND THIS TYPE OF LITIGATION MAY BE COSTLY AND TIME-CONSUMING
TO DEFEND
Because we facilitate the sale of new and used medical products by sellers
using our services, we may become subject to legal proceedings regarding defects
in these medical products, even though we generally do not take title to these
products. Any claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation; or
- divert management's attention and resources.
IF WE ARE UNABLE TO ATTRACT QUALIFIED PERSONNEL OR RETAIN OUR EXECUTIVE OFFICERS
AND OTHER KEY PERSONNEL, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN OUR
INDUSTRY
Our success depends on our ability to attract and retain qualified,
experienced employees. Competition for qualified, experienced employees in both
the Internet and the healthcare industry, particularly in the San Francisco Bay
Area, is intense, and we may not be able to compete effectively to retain and
attract employees. Should we fail to retain or attract qualified personnel, we
may not be able to compete successfully in our industry, and our business would
be harmed.
We believe that our success will depend on the continued services of
executive officers and other key employees. Other than initial offer letters
containing information regarding compensation, we currently have employment
agreements with only two members of our senior management. However, these
agreements do not prevent these executives from terminating their employment at
any time. As a result, our employees, including these executives, serve at-will
and may elect to pursue other opportunities at any time. The loss of any of our
executive officers or other key employees could harm our business.
Other than the limited key person life insurance policies we have with our
founders, Jeffrey H. Kleck and Wayne D. McVicker, we do not maintain any key
person life insurance.
MANY OF OUR EXECUTIVES AND OTHER EMPLOYEES HAVE RECENTLY JOINED OUR COMPANY, AND
IF THEY ARE UNABLE TO EFFECTIVELY WORK TOGETHER, WE MAY NOT BE ABLE TO
EFFECTIVELY MANAGE OUR GROWTH AND OPERATIONS
Many of our executive officers and other employees joined us only recently
and have had a limited time to work together. For example, our Chief Executive
Officer, Robert J. Zollars, joined us in July 1999, our Chief Financial Officer,
Frederick J. Ruegsegger, joined us in July 1999, our Executive Vice President of
Products and Services, Bhagwan D. Goel, joined us in October 1999, our Executive
Vice President of Sales, Daniel A. Eckert, accepted employment with us in July
1999 and joined us in November 1999 and our Executive Vice President of Strategy
and Marketing, Robert W. Rene, joined us in December 1999. We cannot assure you
that they will be able to work effectively together to manage our growth and
continuing operations.
OUR STRATEGY TO EXPAND OUR SERVICES INTERNATIONALLY IN ORDER TO INCREASE THE USE
OF OUR ONLINE MARKETPLACE BY SUPPLIERS AND PURCHASERS OF MEDICAL PRODUCTS MAY
REQUIRE SIGNIFICANT MANAGEMENT ATTENTION AND FINANCIAL RESOURCES, AND IF WE ARE
UNABLE TO EXECUTE THIS STRATEGY, OUR GROWTH WILL BE LIMITED AND OUR OPERATING
RESULTS MAY BE HARMED
In order to increase the market awareness and the use of our online
marketplace by suppliers of medical products, we intend to expand our services
internationally. If we fail to execute this strategy,
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our growth will be limited and our operating results may be harmed. We have
limited experience with the healthcare industry outside the U.S. and with
marketing our services internationally. Our entry into international markets may
require significant management attention and financial resources, which may harm
our ability to effectively manage our existing business. Furthermore, entry into
some international markets would require us to develop foreign language versions
of our services. Accordingly, our planned international expansion may not be
successful. We cannot be sure that we will be able to attract purchasers and
sellers of medical products in foreign jurisdictions to our online marketplace.
In addition, the market for the purchase and sale of medical products in many
foreign countries is different from that in the U.S. For example, in many
foreign countries, the government or a government-controlled entity is the
principal purchaser of medical products. Competitors which have greater local
market knowledge may exist or arise in these international markets and impede
our ability to successfully expand in these markets.
WE MAY CONTINUE TO MAKE NEW ACQUISITIONS, WHICH COULD HARM OUR PROFITABILITY,
PUT A STRAIN ON OUR RESOURCES, OR CAUSE DILUTION TO OUR STOCKHOLDERS
We may find it necessary to make acquisitions of technologies and other
companies in order to expand our business and the services we offer. For
example, on August 6, 1999, we acquired General Asset Recovery LLC, a live
auction house and asset management company focused on medical products. In
addition, on November 18, 1999, we acquired substantially all of the assets of
FDI Information Resources, Inc., a developer of software that facilitates the
planning and design of healthcare facility projects. Integrating newly acquired
organizations and technologies into our company could be expensive, time
consuming and may strain our resources. In addition, we may lose current users
of our services if any acquired companies have relationships with competitors of
our users. Consequently, we may not be successful in integrating any acquired
businesses or technologies and may not achieve anticipated revenue and cost
benefits. In addition, future acquisitions could result in potentially dilutive
issuances of equity securities or the incurrence of debt, contingent liabilities
or amortization expenses related to goodwill and other intangible assets, any of
which could harm our business. For example, in connection with the acquisition
of General Asset Recovery, we recorded approximately $9.7 million in goodwill,
which will be amortized over a period of seven years, and in connection with the
FDI acquisition, we will record an aggregate of approximately $3.3 million in
goodwill in the fourth quarter of 1999, which will be amortized over a period of
three years.
IF WE ARE UNABLE TO MAINTAIN OUR STRATEGIC ALLIANCES OR ENTER INTO NEW
ALLIANCES, WE MAY BE UNABLE TO INCREASE THE ATTRACTIVENESS OF OUR ONLINE
MARKETPLACE OR PROVIDE SATISFACTORY SERVICES TO USERS OF OUR SERVICES
Our business strategy includes entering into strategic alliances with
leading technology and healthcare-related companies to increase users of our
online marketplace, increase the number and variety of products that we offer
and provide additional services and content to our users. We may not achieve our
objectives through these alliances. These agreements do not, and future
relationships may not, afford us any exclusive marketing or distribution rights.
Many of these companies have multiple relationships and they may not regard us
as significant for their business. These companies may pursue relationships with
our competitors or develop or acquire services that compete with our services.
In addition, in many cases these companies may terminate these relationships
with little or no notice. If any existing alliance is terminated or we are
unable to enter into alliances with leading technology and healthcare-related
companies, we may be unable to increase the attractiveness of our online
marketplace or provide satisfactory services to purchasers and suppliers of
medical products.
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OUR RECENT GROWTH HAS PLACED A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES, AND IF WE FAIL TO SUCCESSFULLY MANAGE FUTURE GROWTH, WE MAY NOT BE
ABLE TO MANAGE OUR BUSINESS EFFICIENTLY AND MAY BE UNABLE TO EXECUTE OUR
BUSINESS PLAN
We have grown rapidly and will need to continue to grow to execute our
business strategy. Our total number of employees grew from four as of December
31, 1997, to 48 as of December 31, 1998, 148 as of September 30, 1999 and 235 as
of December 16, 1999, and we anticipate further significant increases in the
number of our employees. Our growth has placed significant demands on management
as well as on our administrative, operational and financial resources and
controls. We expect our future growth to cause similar, and perhaps increased,
strain on our systems and controls. For example, our rapid growth requires that
we integrate and manage a large number of new employees. In addition, we will
need to substantially upgrade our information systems including our accounting
system. We also will need to institute new systems such as an auction inventory
tracking system. Any failure to successfully upgrade our systems and controls
could result in inefficiencies in our business and could cause us to be unable
to implement our business plan.
IF OUR SYSTEMS ARE UNABLE TO PROVIDE ACCEPTABLE PERFORMANCE AS THE USE OF OUR
SERVICES INCREASES, WE COULD LOSE USERS OF OUR SERVICES AND WE WOULD HAVE TO
SPEND CAPITAL TO EXPAND AND ADAPT OUR NETWORK INFRASTRUCTURE, EITHER OF WHICH
COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS
We introduced our Shop service in August 1999, the AdsOnline component of
our Auction service in August 1999 and the AuctionOnline component of our
Auction service in November 1999. Accordingly, we have processed a limited
number and variety of transactions on our website. To date, these transactions
have consisted of sales of new medical products through Shop and sales of used
and refurbished medical products on AdsOnline. Our systems may not accommodate
increased use while providing acceptable overall performance. We must continue
to expand and adapt our network infrastructure to accommodate additional users
and increased transaction volumes. This expansion and adaptation will be
expensive and will divert our attention from other activities. If our systems do
not continue to provide acceptable performance as use of our services increases,
our reputation may be damaged and we may lose users of our services.
OUR INFRASTRUCTURE AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED EVENTS, AND IF ANY OF THESE EVENTS OF A SIGNIFICANT MAGNITUDE WERE TO
OCCUR, THE EXTENT OF OUR LOSSES COULD EXCEED THE AMOUNT OF INSURANCE WE CARRY TO
COMPENSATE US FOR ANY LOSSES
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service and attract and
retain users of our services. Currently, our infrastructure and systems are
located at one site at Exodus Communications in Sunnyvale, California, which is
an area susceptible to earthquakes. We depend on our single-site infrastructure
and any disruption to this infrastructure resulting from a natural disaster or
other event could result in an interruption in our service, reduce the number of
transactions we are able to process and, if sustained or repeated, could impair
our reputation and the attractiveness of our services or prevent us from
providing our services entirely.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan or alternative provider
of hosting services. In addition, we may not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any failure
on our part to expand our system or Internet infrastructure to keep up with the
demands of our users, or any system failure that causes an interruption in
service or a decrease in responsiveness of our online services or website, could
result in
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fewer transactions and, if sustained or repeated, could impair our reputation
and the attractiveness of our services or prevent us from providing our services
entirely.
IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF THE CONFIDENTIAL
INFORMATION OF THE USERS OF OUR ONLINE MARKETPLACE, THESE USERS MAY DISCONTINUE
USING OUR SERVICES
A significant barrier to the widespread adoption of e-commerce is the
secure transmission of personally identifiable information of Internet users as
well as other confidential information over public networks. If any compromise
or breach of security were to occur, it could harm our reputation and expose us
to possible liability. We use SSL, or secure sockets layer, an Internet security
technology, at appropriate points in the transaction flow and encrypt
information on our servers to protect user information during transactions, and
we employ a security consulting firm that periodically tests our security
measures. Despite these efforts, a party may be able to circumvent our security
measures and could misappropriate proprietary information or cause interruptions
in our operations. We may be required to make significant expenditures to
protect against security breaches or to alleviate problems caused by any
breaches.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITORS MAY GAIN
ACCESS TO OUR TECHNOLOGY, WHICH COULD HARM OUR BUSINESS
We regard our intellectual property as critical to our success. If we are
unable to protect our intellectual property rights, our business would be
harmed. We rely on trademark, copyright and trade secret laws to protect our
proprietary rights. We have applied for registration of several marks including
the Neoforma.com logo. Our trademark registration applications may not be
approved or granted, or, if granted, may be successfully challenged by others or
invalidated through administrative process or litigation.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY CLAIMS AND WE COULD SUBSEQUENTLY LOSE
OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD RESULT IN OUR INABILITY TO OPERATE
OUR CURRENT BUSINESS
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own trademarks, patents or other
intellectual property rights are invalid. Any claims of this type, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention and resources or require us to enter into royalty or
license agreements. License agreements may not be available on commercially
reasonable terms, if at all. In addition, there has been a recent increase in
the number of patent applications related to the use of the Internet to perform
business processes. Enforcement of intellectual property rights in the Internet
sector will become a greater source of risk as the number of business process
patents increases. The loss of access to any key intellectual property right
could result in our inability to operate our current business.
IF WE FAIL TO LICENSE THIRD-PARTY SOFTWARE INCORPORATED IN OUR SERVICES, WE MAY
NOT BE ABLE TO OPERATE OUR ONLINE MARKETPLACE
We currently rely on software that we have licensed from a number of
suppliers. For example, we use software that we license from NetDynamics, Inc.,
a subsidiary of Sun Microsystems, to provide part of our website infrastructure,
we use information retrieval software that we license from SearchCafe
Development Corporation to provide part of our search capabilities and we use
software that we license from Moai, Inc. to provide a substantial part of the
functionality of our AuctionOnline service. These licenses may not continue to
be available to us on commercially reasonable terms, or at all. In addition, the
licensors may not continue to support or enhance the licensed software. In the
future, we expect to license other third party technologies to enhance our
services, to meet evolving
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user needs or to adapt to changing technology standards. Failure to license, or
the loss of any licenses of, necessary technologies could impair our ability to
operate our online marketplace until equivalent software is identified, licensed
and integrated or developed by us. In addition, we may fail to successfully
integrate licensed technology into our services, which could similarly harm
development and market acceptance of our services.
RISKS RELATED TO OUR INDUSTRY
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE PARTICIPANTS IN THE MARKET FOR
MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT ACCEPTING THE INTERNET FOR DISTRIBUTION
AND PROCUREMENT
Business-to-business e-commerce is currently not a significant sector of
the market for medical products, supplies and equipment. The Internet may not be
adopted by purchasers and suppliers in the medical products, supplies and
equipment market for many reasons, including:
- reluctance by the healthcare industry to adopt the technology necessary
to engage in the online purchase and sale of medical products;
- failure of the market to develop the necessary infrastructure for
Internet-based communications, such as wide-spread Internet access,
high-speed modems, high-speed communication lines and computer
availability;
- their comfort with existing purchasing habits, such as ordering through
paper-based catalogs and representatives of medical manufacturers and
distributors;
- their concern with respect to security and confidentiality; and
- their investment in existing purchasing and distribution methods and the
costs required to switch methods.
Should healthcare providers and suppliers of medical products choose not to
utilize or accept the Internet as a means of purchasing and selling medical
products, our business model would not be viable.
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF E-COMMERCE AND LIMIT THE MARKET FOR OUR SERVICES
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, such as user privacy,
taxation of goods and services provided over the Internet and the pricing,
content and quality of services. Legislation could dampen the growth in Internet
usage and decrease or limit its acceptance as a communications and commercial
medium. If enacted, these laws and regulations could limit the market for our
services. In addition, existing laws could be applied to the Internet, including
consumer privacy laws. Legislation or application of existing laws could expose
companies involved in e-commerce to increased liability, which could limit the
growth of e-commerce.
IF REGULATIONS WITH RESPECT TO HOW AUCTIONS MAY BE CONDUCTED ARE IMPOSED BY
STATES, OUR BUSINESS COSTS MAY INCREASE, WHICH WOULD HARM OUR RESULTS OF
OPERATIONS
Numerous states, including the State of California, where our headquarters
are located, have regulations regarding how auctions may be conducted and the
liability of auctioneers in conducting these auctions. No legal determination
has been made with respect to the applicability of these regulations to our
online business to date and little precedent exists in this area. One or more
states
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may attempt to impose these regulations upon us in the future, which could
increase our cost of doing business.
IF THERE ARE CHANGES IN THE POLITICAL, ECONOMIC OR REGULATORY HEALTHCARE
ENVIRONMENT THAT AFFECT THE PURCHASING PRACTICE AND OPERATION OF HEALTHCARE
ORGANIZATIONS, OR IF THERE IS CONSOLIDATION IN THE HEALTHCARE INDUSTRY, WE COULD
BE REQUIRED TO MODIFY OUR SERVICES OR TO INTERRUPT DELIVERY OF OUR SERVICES
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Factors such as changes in
reimbursement policies for healthcare expenses, consolidation in the healthcare
industry and general economic conditions affect the purchasing practices and
operation of healthcare organizations. Changes in regulations affecting the
healthcare industry, such as any increased regulation by the Food and Drug
Administration of the purchase and sale of medical products, could require us to
make unplanned enhancements of our services, or result in delays or
cancellations of orders or reduce demand for our services. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry providers operate. We do not know what effect any proposals would have
on our business.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide services to industry
participants will become more intense and the importance of establishing a
relationship with each industry participant will become greater. These industry
participants may try to use their market power to negotiate fee reductions of
our services. If we were forced to reduce our fees, our operating results could
suffer if we cannot achieve corresponding reductions in our expenses.
OUR BUSINESS DEPENDS UPON THE DELIVERY OF ACCURATE ELECTRONIC INFORMATION VIA
THE INTERNET, AND IF YEAR 2000 ISSUES CAUSE LONG-TERM INOPERABILITY OF THE
INTERNET OR OUR ONLINE MARKETPLACE, WE COULD LOSE USERS OF OUR SERVICES OR BE
UNABLE TO CONTINUE OUR BUSINESS
Significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance problems. Any year 2000 compliance
problems faced by us, users of our online marketplace and strategic partners
could seriously harm our business. In addition, our ability to operate our
business depends upon delivery of accurate, electronic information via the
Internet. To the extent year 2000 issues result in the long-term inoperability
of the Internet or our online marketplace, our business would be seriously
harmed. For more information regarding this risk, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000."
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD LEAD TO
LOSSES FOR INDIVIDUAL STOCKHOLDERS
The trading prices of many stocks of Internet-related companies have
experienced extreme price and volume fluctuations. Because we are an
Internet-related company, we expect our stock price to be similarly volatile.
These fluctuations often have been unrelated or disproportionate to the
operating performance of these companies. These fluctuations may continue and
could harm our stock price.
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Any negative change in the public's perception of the prospects of
Internet-related companies could also depress our stock price, regardless of our
results.
WE COULD BE SUBJECT TO SECURITIES CLASS ACTION LITIGATION IF OUR STOCK PRICE IS
VOLATILE, WHICH COULD BE COSTLY AND TIME-CONSUMING TO DEFEND AND COULD DAMAGE
OUR REPUTATION
In the past, there have been class action lawsuits filed against companies
after periods of fluctuations in the market price of their securities. If we
were subject to this type of litigation, it would be a strain on our personnel
and financial resources, and divert management's attention from running our
company and could negatively affect our public image and reputation.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL CONTINUE TO HOLD A
SUBSTANTIAL PORTION OF OUR STOCK SUBSEQUENT TO THE COMPLETION OF THIS OFFERING,
AND, CONSEQUENTLY, COULD MAKE SOME TRANSACTIONS MORE DIFFICULT OR IMPOSSIBLE TO
COMPLETE WITHOUT THE SUPPORT OF THESE STOCKHOLDERS
Based on the number of shares of our common stock outstanding as of
September 30, 1999, executive officers, directors and current holders of 5% or
more of our outstanding common stock will, in the aggregate, own approximately
58.2% of our outstanding common stock after this offering. As a result, these
stockholders will be able to influence significantly all matters requiring
approval by our stockholders, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also delay, deter or prevent a change in control of our company and may make
some transactions more difficult or impossible without the support of these
stockholders.
WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT THE SALE OF
OUR COMPANY AND DIMINISH THE VOTING RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Provisions of our certificate of incorporation, bylaws 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. For a description of these provisions,
see "Description of Capital Stock -- Anti-Takeover Provisions."
AN AGGREGATE OF 50,734,833 SHARES, OR 87.8%, OF OUR OUTSTANDING STOCK, WILL
BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET BETWEEN 180 DAYS AND ONE YEAR
AFTER THIS OFFERING, AND FUTURE SALES OF THIS STOCK MAY CAUSE OUR STOCK PRICE TO
DECLINE
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock. Of
the 57,794,833 shares of common stock to be outstanding upon the closing of this
offering, the 7,000,000 shares offered in this offering will be freely tradable
without restriction or further registration, other than shares purchased by our
officers, directors or other affiliates within the meaning of Rule 144 under the
Securities Act of 1933, which will be restricted from sale until 180 days after
the date of this prospectus under the terms of agreements between these
affiliates and the underwriters. The underwriters may, at their discretion and
without notice, release all or a portion of the shares subject to lock-up
agreements. An additional 60,000 shares held by an existing stockholder prior to
this offering will be eligible for immediate sale in the public market without
restriction. The remaining 50,734,833 shares of our common stock held
18
<PAGE> 21
by existing stockholders upon the completion of this offering will become
eligible for resale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OUTSTANDING AFTER
THE OFFERING DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET
- ----------------- -----------------------------------------------------------------
<C> <S>
34,830,623 180 days after the date of this prospectus under the terms of
agreements between the stockholders and the underwriters or us,
provided that the underwriters can waive this restriction at any
time. 28,173,146 of these shares will also be subject to sales
volume restrictions under Rule 144 under the Securities Act.
15,904,210 Upon expiration of applicable one-year holding periods under Rule
144, which will expire between August 27, 2000 and October 14,
2000, subject to sales volume restrictions under Rule 144.
</TABLE>
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act after the date of this offering to register shares of our
common stock issued or reserved for issuance under our various stock plans.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "intend,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions. We cannot guarantee future
results, levels of activity, performance or achievements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks outlined under
"Risk Factors" and elsewhere in this prospectus.
This prospectus contains estimates of market growth related to the
Internet. These estimates have been included in studies published by Forrester
Research, Efficient Healthcare Consumer Response and the Health Industry
Manufacturers' Association. These estimates assume that certain events, trends
and activities will occur. Although we believe that these estimates are
generally indicative of the matters reflected in those studies, these estimates
are inherently imprecise, and we caution you to read these estimates in
conjunction with the rest of the disclosure in this prospectus, particularly the
"Risk Factors" section.
19
<PAGE> 22
USE OF PROCEEDS
The net proceeds to us from the sale of the 7,000,000 shares of common
stock offered by us will be approximately $57.2 million, or approximately $66.0
million if the underwriters' over-allotment option is exercised in full, based
on an assumed initial public offering price of $9.00 per share and after
deducting the underwriting discount and estimated offering expenses.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including sales and marketing, product development and
working capital. We may use a portion of the net proceeds from this offering to
acquire or invest in businesses, technologies or services that are complementary
to our business. However, we have no present commitments with respect to any
transactions of this type. We will retain broad discretion in the allocation and
use of the net proceeds of this offering. Pending these uses, we intend to
invest the net proceeds in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
intend to retain any future earnings to finance future growth and do not
anticipate paying cash dividends for the foreseeable future. In addition, the
terms of our credit facilities prohibit us from paying cash dividends on our
capital stock without prior consent of the lender.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect
- the sale of 12,418,633 shares of our Series E and Series E-1 preferred
stock for net proceeds of approximately $70.5 million and the issuance
of 275,000 shares of our Series E-1 preferred stock in connection with a
strategic alliance we entered into in October 1999,
- the issuance of 176,057 shares of our Series E preferred stock that in
November 1999 we agreed to sell to Fisher Scientific for net proceeds of
approximately $1.0 million,
- the issuance of 350,000 shares of common stock to the former
shareholders of FDI Information Resources in connection with our
acquisition of substantially all of the assets of FDI in November 1999,
and
- the conversion of all outstanding shares of preferred stock into
41,420,953 shares of common stock, based upon an assumed initial public
offering price of $9.00 per share; and
- on a pro forma as adjusted basis to further reflect the application of
the net proceeds from the sale of 7,000,000 shares of common stock in
this offering at an assumed initial public offering price of $9.00 per
share, after deducting the underwriting discount and estimated offering
expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 655 $ 72,155 $129,345
======== ======== ========
Notes payable, less current portion......................... 8,069 8,069 8,069
-------- -------- --------
Mandatorily redeemable convertible preferred stock, $0.001
par value, 15,682,823 shares authorized, 15,261,298 issued
and outstanding, actual; 15,682,823 shares authorized, no
shares issued and outstanding, pro forma and pro forma as
adjusted.................................................. 15,870 -- --
-------- --------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; 11,860,000 shares
authorized, 11,860,000 shares issued and outstanding,
actual; 11,860,000 shares authorized, no shares issued
and outstanding, pro forma; 5,000,000 shares authorized,
no shares issued and outstanding, pro forma as
adjusted................................................ 12 -- --
Common stock, $0.001 par value; 200,000,000 shares
authorized, 9,023,880 shares issued and outstanding,
actual; 200,000,000 shares authorized, 50,794,833 shares
issued and outstanding, pro forma; 200,000,000 shares
authorized, 57,794,833 shares issued and outstanding,
pro forma as adjusted................................... 9 51 58
Additional paid-in capital.................................. 55,833 149,486 206,676
Valuation of warrants....................................... 3,621 3,621 3,621
Notes receivable from stockholders.......................... (1,302) (1,302) (1,302)
Deferred compensation....................................... (46,297) (46,297) (46,297)
Deficit accumulated during the development stage............ (30,647) (30,647) (30,647)
-------- -------- --------
Total stockholders' equity (deficit).................... (18,771) 74,902 132,092
-------- -------- --------
Total capitalization............................... $ 5,168 $ 82,971 $140,161
======== ======== ========
</TABLE>
- -------------------------
The number of shares of common stock outstanding set forth in the table
above excludes the following:
- 5,112,965 shares issuable upon the exercise of stock options outstanding
as of September 30, 1999, at a weighted average exercise price of $0.20
per share;
- 858,147 shares issuable upon the exercise of warrants outstanding as of
September 30, 1999, at a weighted average exercise price of $0.61 per
share; and
- 8,409,309 shares available for future issuance under our stock plans as
described under "Management -- Employee Benefit Plans"; since September
30, 1999, we have granted options to purchase 1,520,000 of these shares to
new members of our management team.
- up to 2,000,000 shares of our common stock that we would issue if we
complete the acquisition of a developer of content management software
that we are currently negotiating.
The number of shares of common stock into which each share of our Series E
and Series E-1 preferred stock will be converted upon completion of this
offering may be adjusted under some circumstances as described in Note 9 of
notes to consolidated financial statements.
21
<PAGE> 24
DILUTION
As of September 30, 1999, our pro forma net tangible book value was
approximately $61.0 million, or $1.20 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by 50,794,833 shares of common stock outstanding
after giving effect to the sale of 12,693,633 shares of our Series E and Series
E-1 preferred stock in October 1999, the issuance of 176,057 shares of our
Series E preferred stock that in November 1999 we agreed to sell to Fisher
Scientific, the issuance of 350,000 shares of common stock to the former
shareholders of FDI Information Resources in connection with our acquisition of
substantially all of the assets of FDI in November 1999 and the conversion of
all outstanding shares of preferred stock into 41,420,953 shares of common stock
upon completion of this offering, based upon an assumed initial public offering
price of $9.00 per share.
After giving effect to the receipt of the proceeds from the sale of
7,000,000 shares of our common stock in this offering and after deducting the
estimated underwriting discount and estimated offering expenses, our pro forma
net tangible book value as of September 30, 1999 would have been approximately
$118.2 million, or $2.05 per share. This represents an immediate increase in pro
forma net tangible book value of $0.85 per share to existing stockholders and an
immediate dilution of $6.95 per share to new investors purchasing shares at the
assumed initial public offering price. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Pro forma net tangible book value per share as of
September 30, 1999..................................... $ 1.20
Increase per share attributable to new investors.......... 0.85
Pro forma net tangible book value per share after this
offering.................................................. 2.05
------
Dilution per share to new investors......................... $ 6.95
======
</TABLE>
The following table summarizes as of September 30, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total cash consideration paid to us and the average price per share paid by
existing stockholders and by new investors purchasing shares of common stock in
this offering, before deducting the underwriting discount and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 50,794,833 87.9% $ 89,012,000 58.6% $1.75
New investors....................... 7,000,000 12.1 63,000,000 41.4 9.00
---------- ----- ------------ -----
Total..................... 57,794,833 100.0% $152,012,000 100.0%
========== ===== ============ =====
</TABLE>
The above discussion and tables assume no exercise of any stock options or
warrants outstanding as of September 30, 1999. As of September 30, 1999, we had
outstanding options to purchase 5,112,965 shares of our common stock at a
weighted average exercise price of $0.20 per share and warrants to purchase
858,147 shares of our common stock at a weighted average exercise price of $0.61
per share. If all of these options and warrants are exercised,
- there will be an additional $0.17 per share of dilution to new public
investors;
- existing stockholders would hold 89.0% of our common stock and new
investors would hold 11.0% of our common stock; and
- existing stockholders would have paid 59.0% of total consideration for
our common stock, at an average price per share of $1.60, and new
investors would have paid 41.0% of total consideration.
Please see "Capitalization," "Management -- Employee Benefit Plans" and
Notes 10 and 11 of notes to consolidated financial statements.
22
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the period from inception
(March 6, 1996) through December 31, 1996, as of and for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and
1999 are derived from our consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this prospectus. The consolidated balance sheet data as of December
31, 1996 are derived from audited financial statements not included in this
prospectus. When you read this selected consolidated financial data, it is
important that you also read the historical financial statements and related
notes included in this prospectus, as well as the section of this prospectus
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Historical results are not necessarily indicative of
future results.
See Note 2 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in computing per share
amounts.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED NINE MONTHS ENDED
(MARCH 6, 1996) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------
1996 1997 1998 1998 1999
--------------------- ------ -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Transaction fees................................ $ -- $ -- $ -- $ -- $ 451
Website sponsorship fees and other.............. -- -- -- -- 13
------ ------ -------- ------- --------
Total revenue................................. -- -- -- -- 464
Operating Expenses:
Operations...................................... -- -- 627 458 2,399
Product development............................. 31 179 1,491 801 4,321
Selling and marketing........................... 111 153 1,409 761 5,096
General and administrative...................... 54 76 1,075 330 5,812
Amortization of intangibles..................... -- -- -- -- 230
Amortization of deferred compensation........... -- -- 5 -- 5,662
Cost of warrant issued to recruiter............. -- -- -- -- 2,364
------ ------ -------- ------- --------
Loss from operations.......................... (196) (408) (4,607) (2,350) (25,420)
Other Income (Expense):
Interest income................................. -- -- 66 51 173
Interest expense................................ -- (15) (22) (9) (337)
Other........................................... 142 7 -- -- (30)
------ ------ -------- ------- --------
Net loss...................................... $ (54) $ (416) $ (4,563) $(2,308) $(25,614)
====== ====== ======== ======= ========
Basic and diluted net loss per share.............. $(0.01) $(0.05) $ (1.65) $ (0.61) $ (14.20)
====== ====== ======== ======= ========
Weighted-average shares -- basic and diluted...... 8,000 8,083 2,762 3,807 1,804
====== ====== ======== ======= ========
Pro forma basic and diluted loss per share
(unaudited)..................................... $ (0.36) $ (0.94)
======== ========
Weighted-average shares -- pro forma basic and
diluted (unaudited)............................. 12,848 27,225
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998 1999
---- ----- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7 $ 32 $ 812 $ 655
Working capital............................................. 38 (23) 214 (9,110)
Total assets................................................ 51 55 1,672 16,003
Notes payable, less current portion......................... 75 385 279 8,069
Mandatorily redeemable convertible preferred stock.......... -- -- 3,884 15,870
Total stockholders' equity (deficit)........................ (34) (390) (3,155) (18,771)
</TABLE>
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our consolidated financial statements
and related notes. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of factors
including those discussed in "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Neoforma.com is a leading provider of business-to-business e-commerce
services in the large and highly fragmented market for medical products,
supplies and equipment. Our marketplace aggregates suppliers of a wide range of
new and used medical products and presents their offerings to the physicians,
hospitals and other healthcare organizations that purchase these products. We
believe that our services will streamline procurement processes and extend the
reach of existing sales and distribution channels, as well as reduce transaction
costs for both buyers and sellers of medical products, supplies and equipment.
We offer three primary services. Our Shop service provides a unified
marketplace where purchasers can easily identify, locate and purchase new
medical products and suppliers can access new customers and markets. Healthcare
providers can use Shop to purchase a wide range of products, from disposable
gloves to surgical instruments and diagnostic equipment. Our Auction service
creates an efficient marketplace for idle assets by enabling users to list, sell
and buy used and refurbished equipment and surplus medical products. Our Plan
service provides interactive content to healthcare facility planners and
designers, including 360 degree interactive photographs of rooms and suites in
medical facilities that we believe represent industry best practices, together
with floor plans and information about the products in the room. This
information helps reduce the complexities of planning and outfitting facilities,
which we believe increases the appeal of our website to the facility planners
responsible for many product purchasing decisions.
We incorporated on March 4, 1996. From inception, our operating activities
have related primarily to the initial planning and development of our
marketplace and the building of our operating infrastructure. We first
introduced the Neoforma.com website in 1997 and have since released a number of
enhancements to provide new services and content. Initially, our website
provided only information for healthcare professionals. We began offering
e-commerce services with the introduction of our initial Auction service,
AdsOnline, in May 1999 and expanded our services with the introduction of our
second Auction service, AuctionLive, in August 1999, our third Auction service,
AuctionOnline, in November 1999 and Shop in August 1999. Since we introduced our
Auction and Shop services, we have focused on expanding and enhancing our
services, establishing relationships with suppliers of medical products,
expanding our purchaser base, developing strategic alliances, promoting our
brand name and building our operating infrastructure.
We have recognized limited revenue to date. We expect that our principal
source of revenue will be transaction fees paid by the sellers of medical
products that use our Shop and Auction services. These transaction fees
represent a negotiated percentage of the sale price of the medical products sold
through Shop or Auction. We expect our Plan service to facilitate transactions
on our Shop and Auction services by linking Plan content to products and
equipment listed on Shop and Auction. We recognize transaction fees as revenue
when the seller confirms a purchaser's order. For live and online
24
<PAGE> 27
auction services, we recognize seller transaction fees, as well as a buyer's
premium, when the product is sold. We also expect to receive revenue from the
following sources:
- sponsorship fees paid by sellers of medical products and services used in
planning and outfitting healthcare facilities in exchange for the right
to feature their brands and products on our Plan service;
- subscription fees paid by healthcare providers and manufactures and
distributors of medical products for our management and disposition of
their used medical equipment through our asset recovery service on
Auction;
- license fees from the sale of software tools and related technical
information for the equipping and planning of healthcare facilities;
- development fees from participating sellers to digitize their product
information for display on our website; and
- product revenue related to the sale of medical equipment that we purchase
for resale through our live and online auction services.
Development fees are recognized as development services are performed.
Sponsorship and subscription fees will be recognized ratably over the period of
the agreement. Product revenue representing the difference between the amount we
pay for the equipment and the price paid on resale is recognized when the
product is shipped or delivered, depending on the shipping terms associated with
each transaction. With respect to software licenses, we expect to generally
recognize revenue upon shipment of the product and will recognize revenue from
related service contracts, training and customer support ratably over the period
of the related contract.
Our operating expenses have increased significantly since our inception,
and the rate of this increase has accelerated since our introduction of our
Auction and Shop services. These increases are primarily due to additions to our
staff as we have expanded all aspects of our operations. We incurred expenses in
the amount of $3.1 million, including $2.4 million related to the valuation of a
warrant issued to an executive search firm, in connection with the hiring of
Robert J. Zollars, our Chief Executive Officer, and five other executive
officers who have been hired since February 1999. As a result of our expansion,
we have grown from four employees as of December 31, 1997, to 48 full-time
employees as of December 31, 1998, to 148 full-time employees as of September
30, 1999 to 235 full-time employees as of December 16, 1999.
If the initial public offering price of our common stock is less than
$10.00 per share, we will record a non-cash preferred stock dividend of up to
approximately $22.0 million relating to the beneficial conversion rights held by
our Series E and Series E-1 preferred stockholders that would be triggered on
the effective date of this offering. If the public offering price is $10.00 per
share or more, there will not be a preferred stock dividend charge.
On August 6, 1999, we acquired General Asset Recovery LLC, or GAR, a live
auction house and asset management company focused on medical products. The
total purchase price was approximately $9.7 million, including $1.7 million in
cash, the issuance of a promissory note in the principal sum of $7.8 million,
the assumption of $100,000 in liabilities and acquisition-related expenses of
approximately $100,000. The promissory note is payable over five years and bears
interest at 7% per annum. This acquisition was accounted for using the purchase
method of accounting. As a result of this acquisition, we began recording an
aggregate of approximately $9.7 million in goodwill beginning in the third
quarter of fiscal year 1999, which will be amortized on a straight-line basis
over a seven-year period.
25
<PAGE> 28
On November 18, 1999, we acquired substantially all of the assets of FDI
Information Resources, Inc., or FDI, a developer of software that facilitates
the planning and design of healthcare facility projects. The total purchase
price consisted of 350,000 shares of our common stock and up to $75,000 to
reimburse costs incurred by FDI in connection with the acquisition. This
acquisition was accounted for using the purchase method of accounting. As a
result of this acquisition, we will record an aggregate of approximately $3.3
million in goodwill beginning in the fourth quarter of fiscal 1999, which will
be amortized on a straight-line basis over a three-year period.
In order to acquire certain software and technology, we are currently in
negotiations to acquire a content software management company. If we complete
this transaction, we would issue up to 2,000,000 shares of our common stock,
including shares issuable upon the exercise of assumed options, to the former
shareholders of the acquired company.
Since inception, we have incurred significant losses and, as of September
30, 1999, had an accumulated deficit of $30.6 million. We expect operating
losses and negative cash flow to continue for the foreseeable future. We
anticipate our losses will increase significantly due to substantial increases
in our expenses for sales and marketing, product development, operating
infrastructure, general and administrative staff and development of strategic
alliances.
We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as the online market for the purchase and sale of new and used medical
products, supplies and equipment. To address these risks, we must, among other
things, expand the number of users of our online services, enter into new
strategic alliances, increase the functionality of our services, implement and
successfully execute our business and marketing strategy, respond to competitive
developments and attract, retain and motivate qualified personnel. We may not be
successful in addressing these risks, and our failure to do so could seriously
harm our business.
RESULTS OF OPERATIONS
Due to our limited operating history, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as an indication of future performance.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenue. Since inception, we have been in the development stage and have
had only limited revenue. We had total revenue of $464,000 for the nine months
ended September 30, 1999 primarily from transaction fees paid by sellers of
medical products using our AuctionLive service. We did not have any revenue for
the nine months ended September 30, 1998.
Operations. Operations expenses consist primarily of expenditures for
digitizing and inputting content and for the operation and maintenance of our
website. These expenditures consist primarily of fees for independent
contractors and personnel expenses for our customer support and site operations
personnel. Operations expenses increased from approximately $458,000 for the
nine months ended September 30, 1998 to $2.4 million for the nine months ended
September 30, 1999. The increase was primarily due to an increase in operations
personnel costs from approximately $127,000 to $1.3 million and an increase in
payments to third party consultants from approximately $207,000 to $936,000.
These increases were primarily due to increased expenditures for digitizing and
inputting content and for the enhancement of the infrastructure of our website.
We expect our operations
26
<PAGE> 29
expenses to significantly increase as we expand our operating infrastructure and
add content and functionality to our website.
Product Development. Product development expenses consist primarily of
personnel expenses and consulting fees associated with the development and
enhancement of our services and website. Product development expenses increased
from $801,000 for the nine months ended September 30, 1998 to $4.3 million for
the nine months ended September 30, 1999. The increase was primarily due to an
increase in personnel costs from approximately $236,000 to $2.1 million and an
increase in fees paid to third parties from approximately $476,000 to $1.9
million. These increases were primarily due to increased expenses incurred
during development of our Auction and Shop services. We believe that continued
investment in product development is critical to attaining our strategic
objectives and, as a result, expect product development expenses to increase
significantly in future periods. We expense product development costs as they
are incurred.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, commissions, advertising, promotions and related marketing costs.
Selling and marketing expenses increased from approximately $761,000 for the
nine months ended September 30, 1998 to $5.1 million for the nine months ended
September 30, 1999. The increase was primarily due to an increase in sales and
marketing personnel costs from approximately $355,000 to $2.4 million, an
increase in expenses related to travel from approximately $37,000 to $494,000
and an increase in expenses related to advertising and attendance at trade shows
from approximately $141,000 to $1.6 million. These increases were primarily due
to significant expansion of our sales and marketing efforts and the hiring of
additional sales and marketing personnel. We intend to significantly increase
our selling and marketing expenses as we expand our sales force and invest in
new marketing campaigns. In addition, we expect to make significant payments in
connection with our strategic alliances with Superior Consultant, ECRI and
VerticalNet, which will further increase our selling and marketing expenses in
the periods in which these payments are made. See "-- Liquidity and Capital
Resources."
General and Administrative. General and administrative expenses consist of
expenses for executive and administrative personnel, facilities, professional
services and other general corporate activities. General and administrative
expenses increased from approximately $330,000 for the nine months ended
September 30, 1998 to $5.8 million for the nine months ended September 30, 1999.
The increase was primarily due to an increase in executive and administrative
personnel costs from approximately $54,000 to $1.6 million, an increase in
facilities expenses from approximately $135,000 to $552,000, an increase in
recruiting, legal and accounting and litigation settlement expenses from
approximately $109,000 to $1,646,000, primarily as a result of litigation with
respect to the hiring of one of our executive officers, and an increase in
expenses related to other consultants from approximately $109,000 to $849,000,
in each case associated with our growth. We expect general and administrative
expenses to increase as we continue to expand our staff and incur additional
costs to support the growth of our business and the costs of being a public
company. We further expect our general and administrative expenses to increase
due to the integration of GAR and FDI with our business.
Amortization of Intangibles. Intangibles include goodwill and the value of
software purchased in acquisitions. Intangibles are amortized on a straight-line
basis over a period of three to seven years. Amortization of intangibles
increased to $230,000 for the nine months ended September 30, 1999. The increase
was a result of the acquisition of GAR in August 1999. We expect that the
amortization of intangibles will increase significantly in future periods due to
the acquisition of substantially all of the assets of FDI in November 1999.
Amortization of Deferred Compensation. Deferred compensation represents the
aggregate difference, at the date of grant, between the exercise price of stock
options and the estimated fair
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value for accounting purposes of the underlying stock. Deferred compensation is
amortized over the vesting period of the underlying options, generally four
years, based on an accelerated vesting method. In connection with the grant of
stock options to employees during fiscal 1998 and for the nine months ended
September 30, 1999, we recorded deferred compensation of $52 million. For the
nine months ended September 30, 1999, we recognized amortization of deferred
compensation of $5.7 million.
At September 30, 1999, the remaining deferred compensation of approximately
$46.3 million will be amortized as follows: $6.8 million in the last quarter of
fiscal 1999, $21.1 million during fiscal 2000, $11.1 million during fiscal 2001,
$5.6 million during fiscal 2002 and $1.7 million during fiscal 2003. The
amortization expense relates to options awarded to employees in all operating
expense categories. The amount of deferred compensation has not been separately
allocated to these categories. The amount of deferred compensation expense to be
recorded in future periods could decrease if options for which accrued but
unvested compensation has been recorded are forfeited.
During the year ended December 31, 1998 and the nine months ended September
30, 1999, we recorded deferred compensation of $52,000 and $651,000 related to
options granted to non-employees as determined based upon the fair value at the
date of issuance.
Cost of warrant issued to recruiter. For the nine months ended September
30, 1999, we recorded $2.4 million related to the valuation of a warrant issued
to an executive search firm in connection with services rendered in the search
for our Chief Executive Officer.
Other Income (Expense). Other income (expense) consists of interest and
other income and expense. Interest income for the nine months ended September
30, 1999 was $173,000 compared to $51,000 for the nine months ended September
30, 1998. The increase in interest income was due to an increase in our average
net cash and cash equivalents balance as a result of our issuance of preferred
stock in February 1999. Interest expense increased from $9,000 for the nine
months ended September 30, 1998 to $337,000 for the nine months ended September
30, 1999, primarily as a result of the amortization of the fair value of a
warrant issued in connection with a loan received during the period, together
with an increase in debt.
PERIOD FROM INCEPTION TO DECEMBER 31, 1996, AS COMPARED TO YEAR ENDED DECEMBER
31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenue. We had no revenue for the period from inception to December 31,
1998.
Operations. We had no operations expenses in 1996 and 1997. We began
operating and maintaining our website and acquiring and processing content in
1998, and as a result, incurred operations expenses of $627,000.
Product Development. Product development expenses increased from $31,000 in
1996 to $179,000 in 1997 to $1.5 million in 1998. The increase in 1998 was
primarily due to increased personnel expenses as we developed features and added
functionality to our website.
Selling and Marketing. Selling and marketing expenses increased from
$111,000 in 1996 to $153,000 in 1997 to $1.4 million in 1998. The increase in
1998 was primarily due to the significant expansion of our sales and marketing
efforts and the hiring of additional sales and marketing personnel.
General and Administrative. General and administrative expenses increased
from $54,000 in 1996 to $76,000 in 1997 to $1.1 million in 1998. The increase in
1998 was primarily due to expenses related to increased personnel, professional
service fees and facility expenses associated with our growth.
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Amortization of Deferred Compensation. Amortization of deferred
compensation for the fiscal year ended December 31, 1998 was $5,000. No
amortization of deferred compensation was expensed for fiscal years 1997 or
1996.
Other Income (Expense). Interest income increased from none in 1996 and
1997 to $66,000 in 1998. The increase in interest income was due to an increase
in cash and cash equivalents that resulted from our issuance of preferred stock
during 1998. Interest expense increased from none in 1996 to $15,000 in 1997 to
$22,000 in 1998. Other income was $142,000 in 1996, $7,000 in 1997 and none in
1998. Other income was primarily related to fees received from projects
unrelated to our current business model.
Income Taxes. As of December 31, 1998, we had federal and state net
operating loss carryforwards of approximately $4.5 million which will be
available to reduce future taxable income. The federal net operating loss
carryforwards expire beginning in 2013 through 2018. A valuation allowance has
been recorded for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset due to our lack of earnings history.
Federal and state tax laws impose significant restrictions on the amount of the
net operating loss carryfowards that we may utilize in a given year. See Note 12
of notes to consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through the private
placement of equity securities, through which we have raised net proceeds of
$17.5 million through September 30, 1999. We have also financed our operations
through an equipment loan and lease financing and bank and other borrowings. As
of September 30, 1999, we had outstanding bank and other borrowings of $11.6
million. As of September 30, 1999, we had approximately $655,000 of cash and
cash equivalents. Since September 30, 1999, we have raised additional net cash
proceeds of $70.5 million from our October 1999 sale of our Series E and Series
E-1 preferred stock. In November 1999, we agreed to issue Series E preferred
stock to Fisher Scientific for net proceeds of $1.0 million.
In June 1998, we entered into a $750,000 secured credit facility with
Silicon Valley Bank. This facility included a $225,000 term loan due December
1999 and an equipment loan facility providing for up to $525,000 of equipment
loans. In July 1999, we converted the $404,000 of outstanding equipment loans
into a term loan due July 2000. Our term loans from Silicon Valley Bank bear
interest at the lender's prime rate (8.25% as of September 30, 1999). At
September 30, 1999, there were borrowings of approximately $225,000 outstanding
under the term loan and $404,000 outstanding under the equipment loan. This
facility is secured by substantially all of our assets other than equipment. In
consideration for this credit facility, we granted Silicon Valley Bank a warrant
to purchase 45,000 shares of our Series C preferred stock at an exercise price
of $0.77 per share. In consideration for the conversion of our equipment loan to
a term loan and the release of its security interest in equipment, we granted
Silicon Valley Bank a warrant to purchase 10,000 shares of our Series D
preferred stock at an exercise price of $1.18 per share.
In May 1999, Comdisco provided us with a $2.0 million subordinated loan to
provide working capital. We agreed to pay Comdisco principal and interest at a
rate of 12.5% per annum in 36 equal monthly installments, commencing July 1999.
This loan is secured by all of our assets. In connection with this loan, we
issued Comdisco a warrant to purchase 228,813 shares of our Series D preferred
stock at $1.18 per share. As of September 30, 1999, the outstanding balance on
the note was approximately $1.9 million.
In July 1999, Comdisco provided us with a $2.5 million loan and lease
facility to finance computer hardware and software equipment. Amounts borrowed
to purchase hardware bear interest at
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9% per annum and are payable in 48 monthly installments consisting of interest
only payments for the first nine months and principal and interest payments for
the remaining 39 months, with a balloon payment of the remaining principal
payable at maturity. Amounts borrowed to purchase software bear interest at 8%
per annum and are payable in 30 monthly installments consisting of interest only
payments for the first four months and principal and interest payments for the
remaining 26 months, with a balloon payment of the remaining principal payable
at maturity. As of September 30, 1999, we had outstanding approximately $1.3
million in hardware loans due September 2003 and approximately $254,000 in
software loans due March 2002. This facility is secured by the computer
equipment purchased with the loans. In connection with this facility, we issued
Comdisco a warrant to purchase 137,711 shares of our Series D preferred stock at
$1.18 per share.
In August 1999, as a result of the GAR acquisition, we issued a promissory
note in the principal amount of $7.8 million payable monthly over five years
bearing interest at a rate of 7% per annum. As of September 30, 1999, the
outstanding balance on the note was approximately $7.6 million.
In May 1999, we entered into an agreement with ECRI, a non-profit health
services research agency focusing on healthcare technology. The agreement
provides us with content from ECRI's database of information about medical
products and manufacturers and a license to use elements of its classification
system. In addition, the agreement provides for joint marketing activities and
collaboration in the development of Plan's database of product and vendor
information. This agreement requires us to make revenue sharing payments to ECRI
during the three-year term of the agreement and for two years following
expiration or termination of the agreement based on a percentage of revenue
derived from our Plan service. During the second and third years of the term of
the agreement, we are required to pay to ECRI a minimum nonrefundable fee equal
to $600,000 per year, which shall be credited against any revenue sharing
payments payable to ECRI.
In October 1999 we entered into an agreement with Superior Consultant
Company, Inc., a wholly owned subsidiary of Superior Consultant Holdings
Corporation, providing for collaboration between us and Superior. Superior is a
supplier of Digital Business Transformation(TM) services to large healthcare
organizations, including Internet-related services, systems integration,
outsourcing and consulting, which enable Superior clients to utilize digital
technologies and process innovations to improve their businesses. Under the
agreement, we have agreed to market Superior's services to our users, and
Superior has agreed to introduce our services to appropriate clients, based on
their interests, and to incorporate our services into its Digital Business
Transformation(TM) offerings. The agreement also provides for joint marketing
activities. In consideration, we have agreed to make payments to Superior in an
aggregate amount of up to approximately $2.0 million, as well as a percentage of
specified Neoforma.com e-commerce transaction revenue and potential fixed
payments based on the success of our joint marketing activities. We have also
agreed to utilize Superior's services on a preferred basis for systems
integration, development, infrastructure, process improvement and consulting
assistance, totaling at least $1.5 million of services from Superior, at a
discount from Superior's standard fees. Our agreement with Superior expires in
October 2002. See "Certain Transactions -- Commercial Transactions" for more
information regarding this agreement and our relationship with Superior.
In October 1999, we entered into an agreement with Dell Marketing, L.P.
pursuant to which we agreed to develop complementary marketing programs with
Dell and establish hyperlinks between our respective internet websites. We
agreed to use Dell as our exclusive supplier of desktops, portables,
workstations, servers and storage devices unless such products did not meet our
reasonable technical requirements. We also agreed to purchase at least $5.0
million of Dell products and $100,000 of data center consulting services. See
"Certain Transaction -- Commercial Transactions" for more information regarding
this agreement and our relationship with Dell.
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In November 1999, we entered into a co-branding agreement with VerticalNet,
Inc. Under the agreement, VerticalNet will transfer to our website all listings
of new and used medical products offered for sale through its website (on an
exclusive basis to the extent it has the right to do so), and we will transfer
to VerticalNet all listings of used and excess laboratory products offered for
sale on our website (on an exclusive basis to the extent we have the right to do
so). We have also agreed to establish links between our respective websites. In
addition, VerticalNet will develop and maintain a co-branded career center and a
co-branded training and education center, and will provide us with specified
content created for its medical online communities. VerticalNet also has the
non-exclusive right to sell sponsorships on our Plan service and the exclusive
right to sell advertising on the co-branded sites. We have agreed to pay
VerticalNet $2,000,000 of development and promotional fees over the next two
years under this agreement, of which we paid $687,000 in the fourth quarter of
1999. We and VerticalNet have agreed to each pay the other commissions equal to
a percentage of net revenues earned through product listings transferred to its
website by the other, and to share specified sponsorship and advertising
revenue.
Net cash used in operating activities was $87,000 for the period from
inception through December 31, 1996, $322,000 for the year ended December 31,
1997 and $4.0 million for the year ended December 31, 1998. Net cash used in
operating activities for the nine months ended September 30, 1999 was $10.4
million. Net cash used in operating activities from inception through September
30, 1999 related primarily to funding net operating losses and increases in
prepaid expenses, which were partially offset by increases in accrued expenses
and accounts payable.
Net cash used in investing activities was $1,000 for the period from
inception through December 31, 1996, $13,000 for the year ended December 31,
1997 and $825,000 for the year ended December 31, 1998. Net cash used in
investing activities for the nine months ended September 30, 1999 was $5.4
million. Net cash used in investing activities from inception through the nine
months ended September 30, 1999 related primarily to the purchase of equipment
to operate our website and cash paid for the acquisition of General Asset
Recovery LLC.
Net cash provided by financing activities was $95,000 for the period from
inception through December 31, 1996, $360,000 for the year ended December 31,
1997 and $5.6 million for the year ended December 31, 1998. For the nine months
ended September 30, 1999, net cash provided by financing activities was $15.7
million. Net cash provided from financing activities for the period from
inception to September 30, 1999 related primarily to preferred stock issuances
of approximately $17.1 million.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through the next 12 months. Our future
long-term capital needs will depend significantly on the rate of growth of our
business, the timing of expanded service offerings and the success of these
services once they are launched. Any projections of future long-term cash needs
and cash flows are subject to substantial uncertainty. If the net proceeds of
this offering, together with our available funds and cash generated from
operations, are insufficient to satisfy our long-term liquidity requirements, we
may seek to sell additional equity or debt securities, obtain a line of credit
or curtail expansion of our services. If we issue additional securities to raise
funds, those securities may have rights, preferences or privileges senior to
those of the rights of our common stock and our stockholders may experience
dilution. We cannot be certain that additional financing will be available to us
on favorable terms when required, or at all.
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YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000.
We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. We depend on a third party to host our servers, telecommunications
vendors to maintain our network and other third-party carriers to deliver orders
to customers. Because we are a comparatively new enterprise, the majority of
software and hardware we use to manage our business has all been recently
purchased or developed by us. While this does not completely protect us against
year 2000 exposure, we believe our exposure is limited because the technology we
use to manage our business is not based upon legacy hardware and software
systems.
State of Readiness. We are in the process of reviewing the year 2000
compliance of both internally developed and third-party systems. Internally
developed systems include the software used to provide our website's search,
customer interaction, transaction-processing and monitoring capabilities. Our
third-party systems include software and hardware, and computer technology,
back-up, hosting, accounting, database and security systems. We are working with
vendors of these third-party systems to obtain assurances that their software,
hardware or services are year 2000 compliant. To ensure that both our internally
developed and third-party systems are year 2000 compliant, we continually
assess, analyze and, where necessary, correct potential non-compliance issues.
We expect to complete this assessment process during the fourth quarter of 1999.
Based on our assessment to date and our planned activities, we believe that
our internally developed and third-party systems will be year 2000 compliant.
The failure of our software and computer systems, or those of our third-party
suppliers, to be year 2000 compliant, would seriously harm our business.
The year 2000 readiness of the general system necessary to support our
operations is difficult to assess. For instance, we depend on the integrity and
stability of the Internet to provide our services. We also depend on the year
2000 compliance of the computer systems used by consumers. Thus, the system
necessary to support our operations consists of a network of computers and
telecommunications systems located throughout the world and operated by numerous
unrelated entities and individuals, none of which has the ability to control or
manage the potential year 2000 issues that may impact the entire system. Our
ability to assess the reliability of this system is limited and relies on
generally available news reports, surveys and industry data. Based on these
sources, we believe most entities and individuals that rely significantly on the
Internet are reviewing and attempting to remediate issues relating to year 2000
compliance, but it is not possible to predict whether these efforts will be
successful in reducing or eliminating the potential negative impact of year 2000
issues. The failure of our software and computer systems and those of our
third-party suppliers to be year 2000 complaint would seriously harm our
business.
Cost. As of September 30, 1999, we had incurred immaterial costs in
connection with identifying, evaluating and addressing year 2000 compliance
issues. We anticipate that any future costs will not exceed $500,000. Most of
these expenses are expected to relate to operating costs associated with time
spent by our employees in the evaluation process. There may be some charges
related to remediation if any issues are identified during our assessment
process. If these expenses are higher than anticipated, our business could
suffer.
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Risks. We cannot assure you that we will achieve full year 2000 compliance
before the end of 1999. A failure of our computer systems or the failure of
purchasers or suppliers of medical products to effectively upgrade their
software and systems for transition to the year 2000 could seriously harm our
business.
In addition, we cannot be certain that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be year 2000 compliant. The failure by these
entities to be year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical failure,
that could prevent us from delivering our services to our customers, decrease
the use of the Internet or prevent users from accessing our website, any of
which could seriously harm our business.
Contingency Plan. At this time, we are developing a contingency plan to
address situations that may result if we or our vendors are unable to achieve
year 2000 compliance. The cost of developing and implementing such a plan, if
necessary, could be material. Any failure of our material systems, our vendors'
material systems or the Internet to be year 2000 compliant could have material
adverse consequences for us. Such consequences could include difficulties in
operating our website effectively, taking product orders, making product
deliveries or conducting other fundamental parts of our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
year ending December 31, 2000. This statement establishes a new model for
accounting for derivatives and hedging activities. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Because we currently hold no derivative financial instruments and do not
currently engage in hedging activities, adoption of SFAS No. 133 is expected to
have no material impact on our financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
entities to capitalize some of the costs related to internal-use software once
the applicable criteria have been met. SOP No. 98-1 is effective for our 1999
financial statements. The adoption of SOP No. 98-1 did not have a material
impact on our June 30, 1999 financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting for the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations to be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
SOP No. 98-5 is effective for our 1999 financial statements. The adoption of SOP
No. 98-5 did not have a material impact on our June 30, 1999 financial
statements.
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BUSINESS
Neoforma.com is a leading provider of business-to-business e-commerce
services in the large and highly fragmented market for medical products,
supplies and equipment. Our services enable users to efficiently and
cost-effectively buy and sell new and used medical products in an open, online
marketplace. Our marketplace aggregates suppliers of a wide range of medical
products and presents their offerings to the physicians, hospitals and other
healthcare organizations that purchase these products. We believe that our
services provide supply chain efficiencies for both suppliers and purchasers of
medical products and extend the reach of existing sales and distribution
channels.
Neoforma.com offers three primary services that together address the entire
healthcare purchasing lifecycle, from planning through procurement to
liquidation. Our Shop service provides a unified marketplace where purchasers
can easily locate and buy new medical products, and suppliers can access new
customers and markets. Our Auction service creates an efficient marketplace for
idle assets by enabling users to list, sell and buy used, refurbished and
surplus medical products. Our Plan service provides interactive content to
healthcare facility planners to reduce the complexities of planning and
outfitting facilities.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The Internet is rapidly changing the competitive landscape of many
industries, creating significant opportunities for companies to expand and
improve their businesses. Companies have increasingly begun to use the Internet
to create business-to-business networks to streamline complex processes,
purchase and sell goods and exchange information among fragmented groups of
customers, manufacturers and distributors. Forrester Research has estimated that
U.S. business-to-business e-commerce, defined as the total volume of
intercompany trade of goods and services in which the final order is placed over
the Internet, will increase from $109 billion in 1999 to $1.3 trillion in 2003.
Business-to-business e-commerce enables purchasers and sellers in
fragmented markets to reduce supply chain inefficiencies. Sellers are able to
cost-effectively access global markets, streamline their sales, marketing and
distribution operations, reduce their time to market and efficiently distribute
updated product information. Buyers can improve their purchasing process and
easily access current product information and a broad range of products and
services. Because a growing number of businesses are establishing their own
e-commerce websites, it is difficult for any individual business to attract a
significant number of online customers. As a result, companies are increasingly
realizing the value of a global online marketplace that aggregates purchasers
and sellers.
MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT MARKET
Market for New Products
According to information published by the Health Industry Manufacturers'
Association, we estimate the market for new medical products, supplies and
equipment totaled more than $145 billion worldwide in 1998, including more than
$60 billion in the U.S. This market is currently growing at a rate of 6% per
year worldwide and 7% per year in the U.S. This market is comprised of a wide
range of products, including consumable supplies such as syringes and gloves,
reusable medical products such as surgical instruments, and sophisticated
diagnostic equipment such as magnetic resonance imaging systems.
The traditional supply chain for new medical products is highly fragmented
and inefficient. In the U.S. alone, products are supplied by over 20,000
manufacturers and distributors, ranging from
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small companies offering single products to Fortune 500 corporations with
comprehensive offerings. These suppliers serve a diverse group of buyers,
including hospitals, physician practices and clinics. The U.S. market includes
approximately 6,000 hospitals, 185,000 physicians' offices and thousands of
non-hospital healthcare delivery sites such as outpatient care facilities,
nursing homes and ambulatory surgery centers. These organizations may purchase
medical products directly or through centralized buying organizations such as
group purchasing organizations, or GPOs, and integrated delivery networks of
care providers, or IDNs. Buyers within each of these organizations may purchase
products from thousands of suppliers. The high degree of buyer and supplier
fragmentation results in significant inefficiencies at each step of the
procurement process.
In the U.S., healthcare providers are under increasing pressure to reduce
costs because of increased competition, as well as the ongoing tightening of
reimbursement policies by private payors and the government. According to
Efficient Healthcare Consumer Response, a 1996 independent study commissioned by
a number of industry participants, the supply-chain costs of distributing
medical products total approximately $23 billion per year, of which an estimated
$11 billion could be eliminated by more efficient sharing of information,
management of orders and movement of products. As a result, healthcare providers
are increasingly seeking new ways to make their supply chain more efficient.
Market for Used and Surplus Products
Healthcare providers must continuously upgrade their medical equipment in
order to remain competitive and keep up with advances in medical technology.
Without an efficient, global market for the sale of replaced equipment, these
organizations are left with idle equipment for either storage or disposal.
Manufacturers taking trade-ins of existing equipment in connection with sales of
new products also generate significant used equipment inventory. For both
healthcare providers and manufacturers, an inability to efficiently dispose of
idle assets increases their operational costs and ties up capital that could be
used for more productive purposes.
It has traditionally been difficult for buyers and sellers in the market
for used, refurbished and surplus medical products, supplies and equipment to
locate one another. While much of the demand for used equipment comes from
healthcare providers located outside of the U.S. or in rural markets in the
U.S., much of the supply comes from healthcare providers in urban centers in the
U.S. or from manufacturers. The market is currently served primarily by local
auction houses, equipment brokers and refurbishers that are often unable to
reach buyers and sellers outside their local markets. As a result, we believe
this market is significantly under-served and highly inefficient and a
significant opportunity exists to provide buyers and sellers of used medical
products, supplies and equipment with a unified marketplace.
LIMITATIONS OF TRADITIONAL APPROACHES TO BUYING AND SELLING MEDICAL PRODUCTS
Healthcare Providers
Purchasing decisions in physicians' offices and other small healthcare
facilities are generally made by nurses, office managers or administrative
staff. Purchasing activities include searching through paper catalogs, placing
and tracking orders via telephone or fax machines and receiving frequent,
time-consuming visits from numerous medical supply representatives. This
approach makes it difficult and time-consuming for buyers to identify, compare
and purchase specific items. Moreover, these inefficiencies can lead to clinical
delays and purchases that are based on convenience instead of best practices or
cost.
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Large healthcare organizations manage their buying activity through a
centralized purchasing group as well as at the departmental level. Pricing is
either negotiated or based on long term contracts, depending on the
institution's buying power, membership in an IDN or GPO affiliations. The
purchasing process involves evaluating products, negotiating price and delivery,
ensuring compliance with purchasing contracts and placing and tracking orders
through a variety of paper and electronic means. Outdated product and price
information, lack of compliance with negotiated contracts and the significant
effort required to manage a multitude of suppliers and orders can result in
errors and inefficiencies.
Manufacturers and Distributors
Manufacturers and distributors have limited resources to support the
growing challenge of marketing and selling to the increasingly complex worldwide
healthcare market. Many organizations lack the necessary infrastructure to
establish a worldwide sales and marketing presence. In addition, the high cost
of printing and distributing paper catalogs limits the ability of suppliers to
cost-effectively provide timely updates of important catalog product and pricing
information. Although many suppliers offer online versions of their catalogs,
this does not address the primary cause of inefficiency for buyers -- the
inability to quickly and easily find products and consolidate orders from
different suppliers through a single source.
MARKET OPPORTUNITY
We believe that a significant opportunity exists for a business-to-business
e-commerce solution that creates an open and efficient marketplace for
purchasers and sellers of both new and used medical products, supplies and
equipment. A unified online marketplace can offer several important advantages:
- Purchasers and sellers of new and used medical products can have global
access to each other, creating new levels of efficiency in the supply
chain;
- Industry, product and pricing information can be centralized, updated and
organized for simplified access; and
- The time and costs involved with traditional paper, telephone and fax
purchasing methods can be significantly reduced.
THE NEOFORMA.COM SOLUTION
Neoforma.com is a leading provider of business-to-business e-commerce
solutions for purchasers and suppliers of medical products, supplies and
equipment. Our services address the traditional limitations of the medical
products supply chain by enabling our users to efficiently and cost-effectively
buy and sell new and used medical products in an open, online marketplace. Shop,
Auction and Plan together address the entire healthcare purchasing lifecycle,
from planning through procurement to liquidation.
We believe that our services provide a number of benefits that will attract
a growing number of purchasers and suppliers of new and used medical products to
our marketplace. As more purchasers realize these benefits and use our services,
we believe that they will attract more suppliers to our marketplace. As more
suppliers offer products and content through our marketplace, we believe that
more buyers will be encouraged to use our services, resulting in a network
effect, where the value of our services to each participant increases
significantly with the addition of each new participant.
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BENEFITS TO HEALTHCARE PROVIDERS:
- Convenient, Unified Marketplace. We provide healthcare providers a
central, easy-to-use location to identify and purchase a wide range of
medical products from many suppliers. This reduces the time required
to contact multiple distributors and suppliers using traditional paper
or telephone approaches, or single-supplier Internet-based or
electronic data interchange solutions.
- Reduced Processing Costs. Our services streamline the purchasing
process, allowing healthcare providers to reduce their procurement
costs and benefit from centralized purchasing, tracking and
record-keeping.
- Improved Access to Current Information. We provide online access to
current product information, which is a significant improvement over
paper-based catalogs that are often outdated. Our easy-to-use search
capabilities enable healthcare providers to quickly locate products
and obtain current information from multiple suppliers. Additionally,
we provide previously unavailable information regarding used,
refurbished and surplus medical products.
- Efficient Marketplace for Idle Assets. Our Auction service provides an
efficient marketplace for the purchase and sale of used and surplus
medical products, allowing healthcare providers to maximize the value
of their idle assets.
BENEFITS TO MANUFACTURERS AND DISTRIBUTORS:
- Access to New Customers and Markets. Our Shop and Auction services
allow sellers to offer new and used products globally, extending their
reach to new customers and markets. Our Plan service provides a new
way for suppliers to feature their products being used in a best
practices environment.
- Participation in an Open Marketplace. We believe that by providing an
open marketplace where any supplier can list and sell its products, we
increase the attractiveness of our marketplace to a large number of
suppliers. By providing purchasers with access to products from a wide
range of suppliers, we can attract more purchasers to our marketplace,
further increasing the value of our services to suppliers.
- Increased Efficiencies and Reduced Transaction Costs. Because our
services streamline and extend their distribution channels, suppliers
can reduce their selling and marketing costs and time to market. For
example, suppliers can reduce their costs of printing and distributing
paper catalogs and taking individual orders by fax or by telephone. In
addition, our services eliminate the costs and expenditures required
for suppliers to establish and maintain their own e-commerce sites.
- Efficiency in Distributing New Information. Our marketplace allows
suppliers to efficiently reach customers and distribute product
information, reducing the delays associated with printed catalog
distribution. We enable suppliers to quickly and easily update
product, pricing and other information on our website to address
changes in their product line and respond to market requirements.
STRATEGY
Our objective is to become the leading online marketplace for new and used
medical products, supplies and equipment. Our goal is to provide comprehensive
services that together address the
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entire healthcare purchasing lifecycle, from planning through procurement to
liquidation. Key elements of our strategy include:
Build on First Mover Advantage and Increase Brand Recognition. We believe
that our position as one of the first companies to offer comprehensive
business-to-business e-commerce services for new and used medical products,
supplies and equipment provides us with a first mover advantage that can enable
us to attract a critical mass of suppliers and purchasers. To increase the
number of purchasers and sellers that use our services, we intend to
aggressively promote the Neoforma.com brand by advertising, participating in
industry events and trade shows and conducting targeted promotions and public
relations.
Increase Adoption of Our Online Marketplace to Create Network Effect. We
intend to continue to add suppliers and purchasers to become the most
comprehensive online marketplace for medical products, supplies and equipment.
By adding suppliers and broadening the range of products available in our
marketplace, we create additional value for purchasers. By attracting more
purchasers to our marketplace, we create additional value for suppliers. As a
result, we believe that we can create a network effect, where the value of our
services to each participant increases significantly with the addition of each
new participant.
Increase Functionality to Drive Broad Market Adoption. We plan to expand
the functionality of our services, increasing their value to both current and
future purchasers and suppliers. For example, we intend to develop new
information reporting and order management features as well as the capability to
integrate our services with the information systems used by many suppliers and
purchasers. In addition, we intend to develop the functionality to allow
suppliers to provide customer-specific pricing. We believe that these
enhancements will allow our services to become more closely integrated into the
supply chain processes of distributors and group purchasing organizations and
will be particularly important to large purchasers of medical products.
Establish Strategic Alliances With Leading Industry Participants. We intend
to continue to enter into alliances with leading Internet, technology and
healthcare-related organizations to increase usage of our services, broaden the
scope of our content, extend our technology and gain additional marketing
resources. Our current strategic partners include Cisco, Dell, Healtheon/WebMD,
SAP, Superior Consultant and VerticalNet. In addition, we have strategic
relationships with key suppliers, such as General Electric Medical Systems and
Owens & Minor. We plan to strengthen and broaden these relationships and enter
into new strategic alliances and key supplier relationships.
Expand Internationally. We believe that the capabilities of the Internet
and the fragmented nature of many international markets for new and used medical
products provide a significant opportunity for the creation of a global
marketplace. We intend to capitalize on this opportunity by developing
country-specific web pages for selected international markets and actively
marketing and promoting our services. Based on information provided by
registered users, or visitors to our website who have completed the registration
process, we believe that our registered user base already includes approximately
14,000 users located in over 100 countries. Approximately 4% of these registered
users have purchased products on our online marketplace.
NEOFORMA SERVICES
We offer three primary services -- Shop, Auction, and Plan -- that together
address the entire healthcare purchasing lifecycle, from planning through
procurement to liquidation. We also offer a wide range of content to healthcare
practitioners and purchasers to enable them to make more informed purchasing
decisions.
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Shop
Our Shop service, released in August 1999, provides a unified marketplace
where purchasers can easily identify, locate and purchase new medical products,
and suppliers can access new customers and markets. Shop currently has over
109,000 different stockkeeping units, or SKUs, available for purchase under
agreements with 132 manufacturers and distributors. Our agreements with
distributors provide listings of products from an additional 550 manufacturers.
We have agreements with additional manufacturers and distributors that will
provide us with access to an estimated 32,000 additional SKUs, which we are
currently adding to Shop. The products currently available through Shop range
from disposable gloves to surgical instruments and diagnostic equipment. We
believe that these products represent a significant portion of the products
commonly used in physicians' offices, our initial target market.
Shop provides detailed descriptions, photographic images and vendors'
shipping and billing policies for listed products. We currently provide pricing
information for more than 75% of the SKUs listed on Shop. With regard to
products that do not contain pricing information, prospective purchasers are
provided with contact information to allow them to obtain price quotes directly
from the seller of the product. Listings are displayed in a consistent format
and organized by standard classification schemes to facilitate the selection of
products. Shop's search capabilities further assist purchasers in locating and
selecting products from multiple suppliers. Moreover, we also provide suppliers
the ability to directly update their product information on our website to
include revised pricing, new product introductions or additional information.
Purchasers can use Shop to order products at listed prices or to obtain
price quotes from the supplier. Shop accelerates the process of negotiating and
completing transactions between purchasers and sellers. Our system automatically
notifies the supplier via an email when the purchaser places an order through
Shop. When the supplier responds to or updates the order in any fashion, our
system automatically notifies the buyer. This process is aided by our customer
service organization, which answers questions about our system as necessary.
We do not take ownership or possession of the products sold through Shop.
Suppliers are responsible for providing product availability and delivery
information through our website. They are also responsible for shipping,
delivery, and returns. Suppliers can choose to accept payment by open accounts
with the purchasers, payment upon delivery, letter of credit, or credit card.
The purchaser is required to provide payment information to the supplier through
our website when placing the order, and the supplier is responsible for payment
processing and collection. We derive our revenue from Shop from transaction fees
charged to suppliers for confirmed orders, and fees to digitize their product
information for display on our website and for maintenance of product
information and content on our website. As of December 16, 1999, we have derived
approximately $38,000 in revenues from our Shop services.
Shop product information is provided to us by suppliers in a variety of
electronic formats or in paper form, and is internally reviewed and categorized
by our medical editors. We use an independent firm to assist us in converting
this information into a consistent electronic format that conforms to our
classification systems. We believe that our ability to process large volumes of
product information allows us to rapidly increase our product database and
provides significant flexibility to suppliers in loading and updating
information.
We plan to extend Shop's functionality by introducing new information
reporting and order management features, allowing users to track their use of
our services and helping them better ensure compliance with their procurement
procedures and policies. We also intend to enable Shop to electronically
transmit information directly to the order management and purchasing systems
used by
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many large suppliers and medical product purchasers. In addition, we intend to
develop customer-specific pricing capabilities, allowing our services to better
integrate with the processes of distributors and large purchasing organizations.
We believe these enhancements will be particularly important to large purchasing
organizations, such as hospitals, IDNs and members of GPOs, that are focused on
achieving new efficiencies and frequently rely on pre-negotiated pricing. Our
future success relies on our ability to address the needs of large healthcare
providers by successfully developing and introducing these capabilities in a
timely manner. See "Risk Factors -- If we are unable to expand our registered
user base and the functionality of our services, we may not provide an
attractive alternative to the websites or systems used by large healthcare
organizations and we may not achieve market acceptance with these
organizations."
Auction
Our Auction service enables users to list, sell and buy used and
refurbished equipment and surplus medical products. Auction includes online
listings of used, refurbished and surplus products for bids through our
AdsOnline service, live auctions through our AuctionLive service and online
auctions through our AuctionOnline service.
We introduced our AdsOnline service in May 1999, which enables sellers to
list their used, refurbished and surplus medical products for bids from
prospective buyers. When a buyer submits a bid for a product listed on
AdsOnline, the seller is automatically notified via an email from our website
that a buyer has placed a bid for one of its products. The seller can then
access our website to obtain information about the bid, including the identity
of the buyer, the amount of the bid and the period of time that the buyer has
indicated that it will keep its bid open. The seller can accept the bid it finds
most attractive or choose not to accept any bids. The buyer is automatically
notified via an email if a seller has accepted its bid.
We introduced our AuctionLive service in August 1999 with the acquisition
of General Asset Recovery, a live auction house and asset management company
focused on medical products. Our live auctions are conducted by us either at one
of our warehouses in Chicago or onsite at a seller's facility. These auctions
are conducted by an auctioneer, where each product may have a minimum opening
price and the product is sold to the highest bidder. In addition, our website
contains photographs and more detailed information regarding products that will
be available in future live auctions.
We introduced our AuctionOnline service in November 1999. This service
enables sellers to sell their used and surplus medical products, individually or
in lots, to the highest bidder in an online auction. Prospective bidders can
access a product webpage for each item that typically features a concise product
description and full-color image. In addition, a table lists the minimum opening
bid, the bid range, the minimum incremental bid, the current winning bidders and
the amount of their bids and the time of auction close. After a prospective
buyer bids on a product, the corresponding bidder list is instantly updated to
reflect the bid and the prospective buyer's new position in the list of bidders.
When the auction closes, the highest bidder wins the product at his or her final
bid price. Our AuctionOnline service automatically determines the winning bidder
and sends an e-mail message to confirm his or her purchase the same day.
We offer a complete solution for managing used, refurbished and surplus
healthcare equipment. We work with sellers to determine which of our three
Auction services is the best method for selling their used, refurbished and
surplus medical products. Our Auction agreements typically appoint us as
seller's agent for the purpose of selling their designated used, refurbished and
surplus medical products through any of our Auction services. Purchasers may
choose to remit the purchase price to us in a variety of payment methods and we
then send these proceeds, net of our commissions and
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fees and any taxes owed by the purchaser, to the seller within a specified time
period. We generally take possession of products sold through our Auction
services, and in shipping the sold items to the winning bidders, we transfer the
risk of loss or damage to the purchaser once the product leaves our warehouse.
We are not responsible for delivery and returns. For products sold through our
AdsOnline service for which we do not take possession, payment alternatives,
shipping, delivery and return obligations are substantially identical to those
for our Shop service.
We also provide an online asset recovery service that allows sellers to
specify that their products initially be offered to their other departments and
facilities and subsequently to the public. In addition, the seller may choose to
offer unsold products for charitable donation. We have entered into agreements
with several IDNs and a number of other healthcare providers to allow them to
use this additional service.
We derive revenue from our Auction service primarily from commissions paid
by sellers, equal to a percentage of the sale price. In addition, in our live
and online auctions, the purchaser also typically pays a fee, commonly referred
to as a buyer's premium, equal to a percentage of the purchase price. We also
derive revenues from subscription fees we charge sellers that utilize our asset
recovery service.
Plan
Our Plan service, first introduced in July 1998 and enhanced in November
1999, provides interactive content to architects, healthcare facility planners
and materials managers and purchasers to reduce the complexities of planning and
outfitting facilities. Plan offers interactive photographic images of actual
rooms and suites from medical facilities that we believe represent industry best
practices, together with floor plans and descriptions of products typically used
in these rooms. This service allows users to conduct virtual tours of these
facilities, providing rich information for considering room plans and equipment
purchases. Visitors can zoom in to see room details, including equipment
placement, and can navigate to view different parts of the room in these 360
degree panoramic images. Plan currently displays more than 1,000 rooms from the
University of Chicago's Center for Advanced Medicine and three additional
facilities, and we intend to continue to add rooms from other advanced
facilities. Site visitors can browse a list of departments or can search to find
specific rooms.
The responsibility for designing and equipping facilities is shared by
architects, facility and equipment planners and materials managers and
purchasers. Because there is little standardized information, these
professionals must spend substantial time determining and coordinating project
requirements. The information provided through Plan allows these professionals
to match facility requirements to real-world examples. This enables these
professionals to find necessary information that may not have been included in
their original project plans and to move quickly from information gathering to
creating designs and equipment lists. Plan associates each room with a list of
product categories, typically found there. These categories link to our Shop and
Auction services, enabling these professionals to view and purchase equipment in
a few steps.
We have recently begun offering suppliers and service providers the
ability, for a fee, to sponsor rooms on Plan. By sponsoring rooms that feature
one or more of their products or that are associated with the services they
provide, suppliers and service providers can use these rooms as part of their
own marketing campaigns. As a result of our acquisition of FDI Information
Resources, Inc. in November 1999, we began selling licenses for software tools
and technical specification information for the construction and redesign of
healthcare facility projects. We intend to add new fee-based services to Plan,
such as subscription-based access to more detailed content and data.
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Resources
In addition to our three principal services, since July 1998, we have
provided healthcare professionals with information resources to assist them in
making informed and efficient purchasing decisions. Healthcare professionals can
receive personalized news, review online product and vendor information and
obtain information from other websites. In addition, users can access online
continuing medical education courses and research regulatory and shipping
requirements that may affect the price or delivery of their purchases. In
September 1999, we significantly expanded the amount of information that we
provide, and organized this information into a separate Resources section of our
website to facilitate its use.
SUPPLIERS
Shop. As of December 16, 1999, we had online commerce agreements with 132
manufacturers and distributors to list their products on Shop. The following
representative suppliers have products listed directly on Shop:
<TABLE>
<CAPTION>
DISTRIBUTORS MANUFACTURERS
------------ -------------
<S> <C>
Alimed Accurate Surgical
Independence Medical ARO Surgical Instruments
Maintenance Warehouse Critikon
Medline General Electric Medical Systems
Optimal Wholesale Medical Hospital Associates
Owens & Minor Howard Instruments
PSS World Medical Protocol Systems
Sammons Preston Sparta Surgical
Ves International
</TABLE>
Our agreements with distributors provide listings of products from an additional
550 manufacturers, including 3M, Beckman Coulter, Becton Dickinson, C.R. Bard
and Smith & Nephew. Our agreements with these suppliers provide for the payment
to us of a fee equal to a negotiated percentage of the purchase price of
products than they sell through Shop. These agreements generally do not require
that the supplier list any specific number of products or maintain any listing
for any period of time.
Auction. On Auction, suppliers include hospitals and healthcare
organizations liquidating used equipment, manufacturers and distributors selling
surplus products and finance companies selling leased equipment at the end of
the lease term. We have entered into agreements with a number of Auction
suppliers for whom we provide asset recovery services, including manufacturers
such as General Electric Medical Systems and Stryker and large healthcare
organizations such as Banner Health System, Saint Barnabas Health Care System
and Voluntary Hospitals of America. See "-- Neoforma Services -- Auction" for a
description of these agreements.
Strategic Supplier Relationships. We work with a number of key suppliers,
including Owens & Minor, General Electric Medical Systems or GEMS, and
GeriMedix. We currently list from Owens & Minor approximately 1,625 products
aimed at traditional physician's offices for sale through Shop.
Under our October 1999 agreement with General Electric Medical Systems,
GEMS has agreed to list products on Shop. GEMS also has the option to sponsor
rooms on Plan on mutually agreed upon terms, and in the event that it sponsors
any rooms, GEMS has agreed to promote Plan to its customers. In addition, GEMS
has agreed to use Auction to sell a specified number of items of
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equipment. This agreement expires in December 2000, subject to automatic renewal
unless either party elects to terminate. In connection with this agreement, we
issued approximately 275,000 shares of our preferred stock to GE Capital Equity
Investments, an affiliate of GEMS, in October 1999. GE Capital Equity
Investments, Inc., also purchased 1,760,563 additional shares of preferred stock
in our October 1999 financing.
Under our November 1999 agreement with GeriMedix, a regional distributor of
medical products and supplies to the long-term care facility market, we have
agreed to collaborate with GeriMedix to enable GeriMedix to offer its products
for sale in our online marketplace and through a co-branded website. In
connection with this agreement, we agreed to purchase 5% of the equity interest
of IntraMedix LLC, the majority owner of GeriMedix, for $2.5 million.
PURCHASERS
Purchasers currently using Shop include physician offices, multi-specialty
groups, clinics and other healthcare providers. Buyers for large organizations,
such as hospitals, IDNs and GPOs that purchase a large volume of products under
negotiated contracts with suppliers, currently use Shop primarily to purchase
products for which they do not have existing supplier contracts. We plan to add
customer-specific pricing capabilities in order to enable these organizations to
use Shop for their purchases of products for which they have contracts.
Our Auction services have been used by a wide range of healthcare providers
to purchase used, refurbished and surplus medical products. We believe that a
large percentage of the products that are sold through our Auction services are
purchased for use outside the U.S. or in rural communities in the U.S.
If we are not able to quickly build a critical mass of purchasers who use
our services, and increase the use of our services by large healthcare
providers, our ability to expand our business would be seriously harmed.
STRATEGIC ALLIANCES
We enter into alliances with leading Internet, technology and
healthcare-related organizations and medical products suppliers to increase
usage of our services, broaden the scope of our content, extend the
functionality of our technology and build additional marketing resources. We
have entered into strategic alliances in the following areas.
Web Portals. Many healthcare professionals use specific portal websites
that provide a variety of healthcare-related information, online interaction and
e-commerce services. We believe that, by entering into relationships with
companies that operate these websites, we can attract their visitors to use our
services and build our brand recognition. We have developed strategic alliances
with VerticalNet, Healtheon/WebMD and MD On-Line to provide us with increased
market visibility and site traffic.
VerticalNet owns and operates a number of industry-specific websites known
as vertical trade communities, including health industry communities such as
Medical Design Online, Hospital Networks.com and Nurses.com. Under our recent
agreement, VerticalNet has agreed to use our marketplace to offer any medical
products listed for sale on its vertical trade communities, and we have agreed
to use VerticalNet to offer any used and excess laboratory products listed for
sale on our marketplace. We have also agreed to establish links between our
respective websites. In addition, VerticalNet will develop and maintain a
co-branded career center and a co-branded training and education center, and
will provide us with specified content created for its medical online
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communities. VerticalNet will also have the non-exclusive right to sell
sponsorships on our Plan service website and the exclusive right to sell
advertising on the co-branded sites. Our agreement with VerticalNet expires in
2001, subject to automatic renewals for additional one-year periods unless
either party elects to terminate. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for more information about our agreement with VerticalNet.
Under our agreement with Healtheon/WebMD, we are an e-commerce provider of
medical supplies and equipment for Healtheon's registered users, which include
physicians and hospital and clinical administrators. Healtheon's registered
users can purchase medical products, supplies and equipment in a co-branded
environment on Neoforma.com without the need to register on our site. We also
provide e-commerce services for MD On-Line, an Internet-based content provider
for the physician market. Our agreements with Healtheon and MD On-Line require
us to pay these companies specified percentages of our revenue generated by
their users. These agreements each expire in 2000, subject to automatic renewals
for additional one-year periods unless either party elects to terminate.
Computer Hardware Providers. We believe that alliances with computer
hardware providers will help us build recognition of our brand. We have
established relationships with Dell Marketing, an affiliate of Dell Computer,
and Cisco Systems. We have entered into an agreement with Dell to develop and
undertake complementary marketing programs and to link our websites. See
"Certain Transactions -- Commercial Agreements" for more information about our
agreement with Dell. Our agreement with Cisco provides for complementary
marketing efforts and for joint promotional activities. For example, Cisco uses
our website as a means of demonstrating its equipment to healthcare providers.
As a result, we gain increased exposure of our services to large healthcare
organizations. In addition, we agreed to use Cisco technologies in our website.
This agreement expires in 2002.
Information Technology Partners. We believe that by integrating our
services with existing information systems used by many purchasers and sellers
of medical products, we will further streamline their medical products supply
chains. We have entered into an agreement with Superior Consultant, a supplier
of Digital Business Transformation(TM) services to large healthcare
organizations, including Internet-related services, systems integration,
outsourcing and consulting, which enable Superior clients to utilize digital
technologies and process innovations to improve their businesses. Under the
agreement, we have agreed to market Superior's services to our users, and
Superior has agreed to introduce our services to appropriate clients, based on
their interests, and to incorporate our services into its Digital Business
Transformation(TM) offerings. The agreement also provides for joint marketing
activities. See "Certain Transactions -- Commercial Agreements" for more
information about our agreement with Superior Consultant.
We are collaborating with SAP, a leading provider of enterprise software,
to integrate our services with SAP's R/3 enterprise software products. This
integration is intended to further automate the procurement process by allowing
transactions to be communicated directly to these systems. In addition, we are
integrating our services with MySAP.com, SAP's Internet business service.
Content Providers. We believe that as we increase the breadth and depth of
our content for our online marketplace, we will be able to attract and retain
more users. Since content is often expensive and time-consuming to develop, we
enter into relationships with other companies to provide content for our
marketplace. ECRI, a leading non-profit health services research agency focusing
on healthcare technology, provides us with detailed information about medical
products and technology and facility planning. NewsReal has created a
specialized healthcare headlines service to provide our users with personalized
healthcare business news from over 60 different sources. Reuters provides us
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with its standard healthcare business news feed. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a description of our agreement with ECRI.
Medical Product Suppliers. We believe that by establishing relationships
with key suppliers of medical products, we increase the depth and breadth of the
products listed on our online marketplace, and benefit from their marketing
resources. We have entered into agreements with Owens & Minor, General Electric
Medical Systems and GeriMedix. See "Suppliers -- Strategic Supplier
Relationships" for more information about our strategic supplier relationships.
TECHNOLOGY
In order to establish a secure and reliable marketplace for suppliers and
purchasers of new and used medical products, our underlying infrastructure is
built on an open, multi-tier, distributed architecture using well-established
applications and hardware from leading technology companies such as Sun
Microsystems, Netscape and Oracle. Our infrastructure enables us to continuously
enhance the features and functionality of our services to meet the evolving
needs of our users.
INFRASTRUCTURE
Open Architecture. Our open architecture supports integration with our
users' many existing legacy systems. The ability to integrate these diverse
systems has enabled us to aggregate a wide range of purchasers and suppliers in
our marketplace. Our architecture is based on industry standards such as Java,
enabling us to rapidly introduce new features and functionality.
Scalability, Performance and Availability. Our highly modular, distributed
architecture is designed to enable us to readily add capacity as the number of
users and transactions increase on our system. We have fully redundant hardware
systems, which when combined with our distributed architecture, enables us to
provide our services on an uninterrupted basis, even in the event of partial
system failure. By locating our data center at an Exodus Communications hosted
facility, we are able to easily and rapidly expand our network bandwidth and
maintain the physical security of our systems.
Secure e-Commerce Marketplace. Our platform contains a variety of features
to ensure the secure transmission of business information among multiple trading
partners and to protect against communication failures. We use SSL, or secure
sockets layer, an Internet security technology, at appropriate points in the
transaction flow to protect user information during transactions. User
information is encrypted to provide a high degree of security. Our employees do
not have access to user information, except as necessary to perform customer
service functions. The system authenticates users through standard secure login
and password technologies.
FUNCTIONALITY
Our systems are designed to replace manual processes traditionally used by
purchasers and suppliers. We have incorporated these processes into an
easy-to-use, intuitive online marketplace that can be accessed with standard web
browsers, without requiring any special software.
To support our online marketplace, we have developed customized search
technologies to meet the requirements of purchasers of medical products,
supplies and equipment. In order to enable users to quickly navigate to
individual products, we have incorporated industry standard classifications,
which support the purchasing process by grouping items that are similar and by
mapping to other industry standard classification systems. Our search function
allows users to continually refine and
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hone their searches to help them to quickly and efficiently locate a particular
item. Additionally, we use three-dimensional visualization technologies which
enhance suppliers' ability to display and feature their medical products,
supplies and equipment.
Although to date we have not experienced unscheduled system interruptions
of our online marketplace, outages may occur from time to time as system usage
increases. The volume of traffic on our website and the number of transactions
being conducted by users has been increasing and will require us to expand and
upgrade our technology, transaction processing systems and network
infrastructure and add new engineering personnel. We may be unable to accurately
project the rate or timing of increases, if any, in the use of our services or
timely expand and upgrade our systems and infrastructure to accommodate such
increases in a timely manner. Any failure to expand or upgrade our systems to
keep pace with the growth in demand for capacity could cause the website to
become unstable and possibly cease to operate for periods of time. Unscheduled
downtime could harm our business.
SALES, MARKETING AND SUPPORT
We sell our services through our direct field sales force and our internal
telemarketing staff. Our direct field sales force focuses on purchasers in
physician offices, clinics, hospitals and large healthcare organizations. Our
direct field sales force has significant experience in the sale of medical
products, equipment and information technology systems. Our telemarketing
programs are directed primarily at suppliers of medical products, supplies and
equipment. We plan to augment our internal sales resources by working with the
sales forces of our strategic partners.
Our marketing programs include traditional and Internet-based marketing
initiatives to increase awareness of the Neoforma.com brand and attract new
purchasers and suppliers to our services. These programs include a variety of
public relations initiatives, such as participation in industry conferences and
trade shows, and ongoing relationships with healthcare, Internet and technology
reporters and industry analysts. We also promote our services through
advertising in healthcare industry trade journals and business publications. In
addition, we conduct web-based marketing activities to attract new users to our
online marketplace.
Our relationships with Internet healthcare companies such as
Healtheon/WebMD and MD On-Line, suppliers such as General Electric Medical
Systems and Owens & Minor, technology companies such as Cisco, Dell and SAP, and
professional services providers such as Superior Consultant provide us with
additional marketing resources. These companies conduct a number of activities
designed to strengthen awareness of our brand and our services.
Our worldwide sales and marketing group consisted of 75 full-time employees
as of December 16, 1999. We intend to expand our sales and marketing group and
to establish additional sales offices. Competition for sales and marketing
personnel is intense, and we may not be able to attract, assimilate or retain
additional qualified personnel in the future.
We believe that we can strengthen our relationships with purchasers and
suppliers by providing good account management, customer support and service.
Our customer service group provides ongoing support to customers, including site
assistance, product searches, basic product questions and order processing
questions.
PRODUCT DEVELOPMENT
We intend to continue to expand and enhance the functionality of our
services. We are currently focusing our product development resources on
integrating our services with other information
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systems used by suppliers and purchasers of healthcare products. In addition, we
are developing the capability to allow suppliers to provide customer-specific
pricing through Shop, and providing increased functionality to our online
Auction service. Our future success, and in particular, our ability to fully
address the needs of large healthcare providers, depends on our ability to
successfully develop and introduce these capabilities in a timely manner. There
are a number of risks and challenges involved in the development of new features
and technologies. See "Risk Factors -- If we fail to develop the capability to
integrate our online services with enterprise software systems of purchasers and
suppliers of medical products and to enable our services to support
customer-specific pricing, these entities may choose not to utilize our online
marketplace, which would harm our business."
Our product development organization includes our product strategy group
and our engineering group. The product strategy group is responsible for
translating user needs into specifications and prototypes for new functions and
services. Our engineering group is responsible for developing the technology
that implements these initiatives, and maintaining and improving the technology,
infrastructure and databases that we use to provide our services. As of December
16, 1999, our product development organization included 54 full-time employees.
Our quality assurance group works with our product development organization
throughout the development cycle to ensure that the new features and functions
of our website meet our standards. In addition, we have a seven person group
that focuses on emerging technologies and market opportunities. In cases
requiring specialized expertise, we have augmented the resources of our product
development organization with independent contractors.
Our product development expenses were $179,000 in 1997, $1.5 million in
1998 and $4.3 million in the first nine months of 1999. To date, substantially
all software development costs related to our services have been expensed as
incurred. We believe that significant investments in product development will be
required to remain competitive.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete depend on our ability to develop and
maintain the proprietary aspects of our technology. We rely on a combination of
copyright, trademark and trade secret laws and contractual restrictions to
establish and protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. Finally, we seek to avoid
disclosure of our intellectual property by restricting access to our source code
and by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements with us.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could seriously harm our business.
Our success and ability to compete also depend on our ability to operate
without infringing upon the proprietary rights of others. In the event of a
successful claim of infringement against us and our failure or inability to
license the infringed technology, our business would be seriously harmed.
COMPETITION
The online market for medical products, supplies and equipment is new,
rapidly evolving and intensely competitive. Our primary competition includes
e-commerce providers that have established online marketplaces for medical
products, supplies and equipment. These competitors include
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companies such as Medibuy, Promedix and Cimtek Medical. Medibuy provides an
auction site for the sale of used, refurbished and surplus products, and has
announced plans to introduce e-commerce services for new products. Cimtek
Medical and Promedix have websites for the sale of new products. Promedix has
recently entered into an agreement to be acquired by Chemdex, a leading provider
of e-commerce solutions to the life sciences industry.
We also face potential competition from a number of sources. Many companies
have created websites to serve the information needs of healthcare
professionals, providing medical information, discussion groups, bulletin boards
and directories. Many of these companies are introducing e-commerce functions
that may compete with our services. In addition, providers of online
marketplaces and online auction services that currently focus on other
industries could expand the scope of their services to include medical products.
Existing suppliers of medical products may also establish online marketplaces
that offer services to suppliers and purchasers, either on their own or by
partnering with other companies. Moreover, live auction houses focusing on
medical products may establish online auction services. New companies may also
be formed that compete with us.
We believe that companies in our market compete to provide services to
suppliers based on:
- brand recognition;
- number of purchasers using their services, and the volume of their
purchases;
- level of bias, or perceived bias, towards particular suppliers;
- compatibility with suppliers' existing distribution methods;
- the amount of the fees charged to suppliers;
- ease of use and convenience;
- ability to integrate their services with suppliers' existing systems and
software; and
- quality and reliability of their services.
In addition, we believe that companies in our market compete to provide
services to purchasers based on:
- brand recognition;
- breadth, depth and quality of product offerings;
- ease of use and convenience;
- ability to integrate their services with purchasers' existing systems and
software;
- quality and reliability of their services; and
- customer service.
Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:
- enter into strategic or commercial relationships with larger, more
established healthcare, medical products and Internet companies;
- secure services and products from suppliers on more favorable terms;
- devote greater resources to marketing and promotional campaigns;
- secure exclusive arrangements with buyers that impede our sales; and
- devote substantially more resources to website and systems development.
Our current and potential competitors' services may achieve greater market
acceptance than ours. Our existing and potential competitors may have longer
operating histories in the medical products market, greater name recognition,
larger customer bases or greater financial, technical and marketing resources
than we do. As a result of these factors, our competitors and potential
competitors may be able to respond more quickly to market forces, undertake more
extensive marketing campaigns for their brands and services and make more
attractive offers to purchasers and suppliers, potential employees and strategic
partners. In addition, new technologies may increase competitive pressures. We
cannot be certain that we will be able to expand our purchaser and
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supplier base, or retain our current purchasers and suppliers. We may not be
able to compete successfully against current and future competitors and
competition could seriously harm our revenue, gross margins and market share.
EMPLOYEES
As of December 16, 1999, we had 235 full-time employees, including 54 in
product development, 75 in sales, marketing and customer service, 14 in business
development, 62 in operations, and 30 in general and administrative functions.
Our future success will depend in part on our ability to attract, train, retain,
integrate and motivate highly qualified sales, technical and management
personnel, for whom competition is intense. Our employees are not represented by
any collective bargaining unit, and we have never experienced a work stoppage.
We believe our relations with our employees are good. We also use independent
contractors to support our services. We use a firm based in India to digitize
and format product information for our Shop service. We plan to use a third
party specializing in Internet support to respond to our most common customer
service requests. We also use independent contractors for specific product
development services requiring specialized expertise.
FACILITIES
Our executive, administrative and operating offices are located in
approximately 33,378 square feet of leased office space located in Santa Clara,
California under leases expiring in April 2004 and September 2006. We are
currently seeking a larger facility in the Santa Clara area to support our
growth. We also maintain 19,875 square feet of office and warehouse space for
our AuctionLive service in the metropolitan area of Chicago, Illinois. We have
also entered into a lease for a second warehouse in the Chicago, Illinois
metropolitan area, expiring in November 2001, to provide an additional 120,000
square feet of space to store consigned items until they are sold in auctions.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors as of December 21, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Robert J. Zollars.................... 42 Chairman, President and Chief Executive Officer
Jeffrey H. Kleck..................... 39 Co-founder and Vice President
Wayne D. McVicker.................... 40 Co-founder, Senior Vice President of Research and
Development and Director
Frederick J. Ruegsegger.............. 44 Chief Financial Officer
Bhagwan D. Goel...................... 36 Executive Vice President of Products and Services
Robert Flury......................... 49 Senior Vice President of Business Development
Daniel A. Eckert..................... 35 Executive Vice President of Sales and President of
Neoforma Shop
Robert W. Rene....................... 42 Executive Vice President of Strategy and Marketing
S. Wayne Kay......................... 49 Senior Vice President
Erik Tivin........................... 34 Vice President of Auction Services and President of
Neoforma GAR, Inc.
David Douglass....................... 47 Director
Terence Garnett...................... 42 Director
Madhavan Rangaswami.................. 44 Director
Richard D. Helppie................... 43 Director
Andrew J. Filipowski................. 49 Director
</TABLE>
Robert J. Zollars has served as our Chairman, President and Chief Executive
Officer since July 1999. From January 1997 to July 1999, he served as Executive
Vice President and Group President of Cardinal Health, Inc., a healthcare
products and services company, where he was responsible for four of its
wholly-owned subsidiaries: Pyxis Corporation, Owen Healthcare, Inc., Medicine
Shoppe International and Cardinal Information Corporation. From January 1992 to
December 1996, he served as President of Hospital Supply, Scientific Products
and U.S. Distribution of Baxter Healthcare Corporation, which in October of 1996
was spun off as Allegiance Corporation, a healthcare products and service
company. Mr. Zollars holds an M.B.A. in finance from John F. Kennedy University
and a B.S. in marketing from Arizona State University.
Jeffrey H. Kleck has served as a Vice President since July 1999, and
co-founded Neoforma.com in April 1996. Dr. Kleck served as our Chief Executive
Officer from March 1996 to July 1999 and as one of our directors from April 1996
to October 1999. Dr. Kleck was a senior engineer from June 1991 to February 1997
and Marketing Product Manager from February 1997 to February 1998 at Varian
Associates, Inc., a manufacturer of medical radiology equipment. He is a
visiting scientist at Los Alamos Laboratory. Dr. Kleck holds a Ph.D. in
biomedical physics from, and is a member of the faculty of the School of
Medicine at, the University of California, Los Angeles. He holds an M.S. in
engineering management from Stanford University and M.S. and B.S. degrees in
nuclear engineering from Texas A&M University.
Wayne D. McVicker has served as our Senior Vice President of Research and
Development since October 1999 and as a director since April 1996. Mr. McVicker
co-founded Neoforma.com in April 1996, and served as our President from April
1996 to February 1999 and as our Vice President of
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Strategy from February 1999 to October 1999. From September 1987 to February
1997, Mr. McVicker worked at Varian Associates, Inc., as manager of its
architectural planning department. In addition, Mr. McVicker is a licensed
architect.
Frederick J. Ruegsegger has served as our Chief Financial Officer since
July 1999. From December 1996 to July 1999, Mr. Ruegsgegger worked at Axys
Pharmaceuticals, Inc., a biopharmaceutical company, most recently as Senior Vice
President of Finance and Corporate Development and Chief Financial Officer. From
July 1993 to December 1996, Mr. Ruegsegger was President, Chief Executive
Officer and a director of EyeSys Technologies Inc., an eye care diagnostic
equipment and software company. Mr. Ruegsegger holds a Master of Management from
J. L. Kellogg Graduate School of Management, Northwestern University, and a B.S.
in economics from the University of Illinois.
Bhagwan D. Goel has served as our Executive Vice President of Products and
Services since October 1999. From October 1998 to September 1999, Mr. Goel was
Senior Vice President and General Manager, Commerce at InfoSeek Corporation, a
provider of Internet services and software. From October 1996 to September 1998,
Mr. Goel was Vice President of Products and Services at Internet Shopping
Network Inc., an online retailer. From November 1993 to October 1995, Mr. Goel
was Vice President of Product Development at Worldview Systems Corporation, a
provider of online travel information. From October 1989 to October 1995, Mr.
Goel worked at Knowledgeset Corporation, a software company that provides
electronic retrieval systems, most recently as Director of Product Development.
Mr. Goel holds an M.S. in electrical engineering from the University of Toledo
and a B.S. in electrical engineering from the Indian Institute of Technology,
New Delhi.
Robert Flury has served as our Senior Vice President of Business
Development since February 1999. From December 1997 to January 1999, Mr. Flury
was Vice President and General Manager of the healthcare business unit at
PeopleSoft Inc., an enterprise software company. From February 1997 to December
1997, Mr. Flury was a senior vice president at Visix Software Inc., a software
company. From October 1994 to February 1997, Mr. Flury was a Senior Vice
President of the middleware line of business at Software AG, an enterprise
software company. Mr. Flury is a C.P.A. and holds an M.B.A. and a B.B.A. in
accounting from Georgia State University.
Daniel A. Eckert has served as our Executive Vice President of Sales since
August 1999 and President of Neoforma Shop since November 1999. From April 1998
to August 1999, Mr. Eckert was President and Chief Operating Officer of Fisher
Healthcare, a division of Fisher Scientific International, which is a
distributor of medical products. From September 1992 to April 1998, Mr. Eckert
held several positions at McKesson Corporation, including Senior Vice President
of Corporate Sales for the Health Systems Group, Senior Vice President of Sales
and Marketing for McKesson/General Medical Corporation and Vice President of
Acute Care. Mr. Eckert holds an A.B. degree in English and political science
from Occidental College, and completed the Fuqua School of Business' Healthcare
Distributor Executive Program at Duke University.
Robert W. Rene has served as our Executive Vice President of Strategy and
Marketing since December 1999. From April 1999 to December 1999, Mr. Rene was a
strategy, marketing and Internet business development consultant to e-commerce
companies. From January 1998 to April 1999, Mr. Rene was Executive Vice
President, Marketing at United Paramount Network, a television network. From
April 1996 to September 1997, Mr. Rene held several positions at Americast, a
company which provides digital cable service, including Senior Vice President,
Marketing/Strategy/ Business Development, Chief Marketing Officer and Senior
Vice President, Marketing/Advertising. From December 1993 to March 1996, Mr.
Rene held several positions at Young & Rubicam, Inc., a marketing and
communications enterprise, including Senior Vice President, Marketing/Corporate
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Ventures and Account Managing Director. Mr. Rene holds a J.D. and an M.B.A. from
Stanford University and a B.A. in Economics/Government from Cornell University.
S. Wayne Kay has served as our Senior Vice President since December 1999.
From February 1994 to December 1999, Mr. Kay was the President and Chief
Executive Officer of the Health Industry Distributors Association, a business
trade association of medical products distributors and home healthcare
providers. Mr. Kay holds a B.S. in microbiology from Virginia Tech, a B.A. in
Business Administration from the University of San Francisco and an M.B.A. from
Pepperdine University.
Erik Tivin has served as our Vice President of Auction Services and
President of Neoforma GAR, Inc. since August 1999. From July 1998 to August
1999, Mr. Tivin served as owner and President of General Asset Recovery, LLC., a
live auction house, which was acquired by Neoforma.com. From January 1990 to
July 1998, he served as President of General Industrial Tool, a wholesale
industrial equipment company.
David Douglass has served as one of our directors since February 1999.
Since February 1990, Mr. Douglass has served as a General Partner at Delphi
Ventures L.P., a venture capital firm. Mr. Douglass holds an M.B.A. from
Stanford University and a B.A. in political science from Amherst College.
Terence Garnett has served as one of our directors since April 1998. Mr.
Garnett has been a managing director of Garnett Capital since January 2000.
Before joining Garnett Capital, from April 1995 to December 1999, Mr. Garnett
was a venture partner of Venrock Associates, a venture capital firm. From August
1994 to April 1995, Mr. Garnett was a private investor. From October 1991 to
August 1994, he was a senior vice president of worldwide marketing and business
development and senior vice president of the new media division at Oracle
Corporation, a software company. He also serves as a director of Niku Corp.,
CrossWorlds Software, Inc. and several other private companies. Mr. Garnett
holds an M.B.A. from Stanford University and a B.S. in computer science from the
University of California, Berkeley.
Madhavan Rangaswami has served as one of our directors since April 1998.
Since February 1997, Mr. Rangaswami has served as a Managing Director at Sand
Hill Group LLC, a consulting and private investment company. From March 1995 to
March 1996, Mr. Rangaswami served as Vice President of Worldwide Marketing at
the Baan Company N.V., an enterprise software company. Prior to that, he held
executive positions at Avalon Software Inc., a software company, and Oracle
Corporation. Mr. Rangaswami holds an M.B.A. from Kent State University, and
degrees in law and accounting from the University of Madras.
Richard D. Helppie has served as one of our directors since October 1999.
Since August 1996, he has served as Chairman of the board of directors and Chief
Executive Officer of Superior Consultant Holdings Corporation, a consulting firm
comprised of two subsidiaries founded by Mr. Helppie, Superior Consultant
Company, Inc. and UNITIVE Corporation. He has served as Chairman of the board of
directors and Chief Executive Officer of Superior Consultant Company, a
healthcare management and information systems consulting firm, since 1984 and as
Chief Executive Officer of UNITIVE Corporation, a information technology
consulting firm, since 1993. He has also served as President of Clearwater
Aviation Company, Inc. since 1993. In addition, Mr. Helppie is a director of
drkoop.com, Inc.
Andrew J. Filipowski has served as one of our directors since October 1999.
He is the President, Chief Executive Officer and Chairman of the Board of divine
interVentures, inc., a venture investment firm that he co-founded in May 1999.
He is also Chairman of the Board of PLATINUM Venture Partners, Inc., a venture
investment firm that he founded in February 1992. Mr. Filipowski
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founded PLATINUM technology, inc. in April 1987 and served as its President,
Chief Executive Officer and Chairman of the Board until it was acquired by
Computer Associates in June 1999. PLATINUM technology, inc. was a software
company that produced, acquired and distributed system software tools. Mr.
Filipowski serves on the board of directors of Blue Rhino Corporation, Bluestone
Software, Inc., eShare Technologies, Inc., Platinum Entertainment, Inc., and
System Software Associates, Inc.
BOARD COMPOSITION
Our amended and restated bylaws provide for a board of directors consisting
of seven members. Our amended and restated certificate of incorporation and
bylaws, each of which will become effective following the completion of this
offering, provide that our board of directors will be divided into three
classes, each serving staggered three-years terms: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2000; Class II, whose
term will expire at the annual meeting of stockholders to be held in 2001; and
Class III, whose term will expire at the annual meeting of stockholders to be
held in 2002. As a result, only one class of directors will be elected at each
annual meeting of our stockholders, with the other classes continuing for the
remainder of their terms. Messrs. Douglass, McVicker and Rangaswami have been
designated as Class I directors; Messrs. Filipowski and Garnett have been
designated as Class II directors; and Messrs. Helppie and Zollars have been
designated as Class III directors.
BOARD COMMITTEES
The audit committee consists of Messrs. Filipowski, Garnett and Rangaswami.
The audit committee:
- reviews our financial statements and accounting practices;
- makes recommendations to the board of directors regarding the selection
of independent public accountants; and
- reviews the results and scope of the audit and other services provided by
our independent public accountants.
The compensation committee consists of Messrs. Douglass, Filipowski and
Helppie. The compensation committee:
- reviews and recommends to the board of directors the compensation and
benefits of all of our officers, directors and consultants; and
- reviews general policy relating to compensation and benefits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of our board of directors is currently comprised
of Messrs. Douglass, Filipowski and Helppie. None of these individuals has at
any time been one of our officers or employees. For a description of the
transactions between Neoforma.com and members of the compensation committee and
entities affiliated with the compensation committee members, see "Certain
Transactions." Robert J. Zollars, our President and Chief Executive Officer, is
a member of the board of directors of divine interVentures, inc., of which Mr.
Filipowski is President, Chief Executive Officer and Chairman of the board of
directors.
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EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Zollars. In July 1999, we entered into an at-will employment agreement
with Robert J. Zollars for him to serve as our Chairman, President and Chief
Executive Officer. Under this agreement, Mr. Zollars receives a salary equal to
$500,000 for the first year of the agreement, which can be increased by us in
subsequent years. Mr. Zollars is also entitled to a $250,000 bonus if he
continues to be employed by us on December 31, 1999. Beginning in 2000 and for
each following year while he is employed by us, Mr. Zollars is eligible to
receive a bonus payment of at least $500,000 for that fiscal year, based upon
whether we achieve revenue and profitability targets and/or other organizational
milestones to be specified by our board of directors.
Upon entering into this employment agreement, Mr. Zollars received an
option to purchase 1,637,160 shares of our common stock and an option to
purchase 3,602,315 shares of our common stock, each at an exercise price of
$0.10 per share. Both options were immediately exercisable and Mr. Zollars
exercised these options in full in July 1999. As of September 30, 1999, all of
the shares purchased under the option for 3,602,315 shares were subject to a
repurchase right that lapses at a rate of 900,578 shares after his first year of
employment and 75,048 shares per month thereafter. If we are acquired or if a
change in control of Neoforma.com occurs, the then unvested portion of his
option will become vested.
Mr. Zollars is eligible to receive from us a moving assistance loan of $2.5
million, which will be forgiven in equal monthly installments on the last day of
each month from the date of closing on his new home through June 30, 2003. Mr.
Zollars also has the right to be reimbursed by us up to $300,000 for any loss on
the sale of his previous home. We are obligated to reimburse Mr. Zollars for an
additional $338,000 plus additional moving expenses incurred in connection with
his joining us.
If Mr. Zollars' employment is terminated other than for disability or
cause, or if Mr. Zollars resigns for good reason, he will be entitled to receive
an amount equal to his annual salary, bonus and benefits. In addition, our right
to repurchase all outstanding stock held by Mr. Zollars will lapse and the
forgiveness of the home loan will be treated as if he had been employed by us
for 12 additional months after the termination of employment. Good reason
includes a reduction in his duties or responsibilities or a reduction in his
salary, bonus or other benefits.
Mr. Tivin. In August 1999, we entered into an employment agreement with
Erik Tivin for him to serve as our Vice President of Auction Services and
President of Neoforma GAR, Inc. This agreement expires on December 31, 2001.
Under this agreement, Mr. Tivin receives a salary equal to $100,000 per year.
Mr. Tivin is also eligible to receive a bonus payment of at least $50,000 per
year that he is still employed by us, based upon our financial performance. Upon
entering into this employment agreement, Mr. Tivin received an option to
purchase 550,000 shares of our common stock at $0.10 per share. This option is
immediately exercisable. As of September 30, 1999, 33,333 of the shares
underlying the option had vested and none had been exercised. The shares
underlying the option vest at a rate of 33,333 shares per month for the first 12
months of his employment and at a rate of 4,167 shares per month during each of
months 13 through 47, with the balance of the remaining options vesting in month
48, so long as he is employed by us. In addition, in the event of a change of
control of Neoforma.com and termination of Mr. Tivin's employment, 50% of the
then unvested portion of Mr. Tivin's option shall immediately vest.
Mr. Ruegsegger. In June 1999, we entered into an offer letter with
Frederick J. Ruegsegger for him to serve as our Chief Financial Officer. Under
this offer letter, Mr. Ruegsegger receives a salary equal to $200,000 per year.
Mr. Ruegsegger is eligible to receive a bonus of up to $12,500 each quarter,
based upon performance milestones to be specified by our president and assessed
by our board of directors. Mr. Ruegsegger is also entitled to repayment of the
outstanding amount of a
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$25,000 relocation loan. Upon entering into employment with us, Mr. Ruegsegger
received an option to purchase 604,555 shares of our common stock at $0.50 per
share. This option is immediately exercisable and Mr. Ruegsegger has exercised
the option in full. As of September 30, 1999, all of the shares underlying the
option were subject to a right of repurchase. The shares underlying the option
vest over four years, with one fourth of the shares vesting at the end of the
first year of employment with us and an additional one forty-eighth vesting each
month thereafter, for so long as he is employed by us. If Mr. Ruegsegger's
employment is terminated other than for cause, he will be entitled to receive an
amount equal to three months of his salary. In addition, in the event of a
change of control of Neoforma.com and termination of Mr. Ruegsegger's
employment, 50% of the then unvested portion of Mr. Ruegsegger's option shall
immediately vest.
Mr. Goel. In September 1999, we entered into an offer letter with Bhagwan
D. Goel for him to serve as our Executive Vice President of Products and
Services. Under this offer letter, Mr. Goel receives a salary equal to $225,000
per year. Mr. Goel received a $50,000 bonus when he commenced his employment
with us and is entitled to receive a bonus of $50,000 after one year of
employment. Upon entering into employment with us, Mr. Goel received an option
to purchase 595,000 shares of our common stock at $3.00 per share. This option
is immediately exercisable. As of September 30, 1999, this option had not yet
been granted. The shares underlying the option vest in equal monthly
installments over four years, for so long as he is employed by us. If Mr. Goel's
employment is terminated other than for cause, he will be entitled to receive an
amount equal to 12 months of his salary. In addition, in the event of a change
of control of Neoforma.com and termination of Mr. Goel's employment, 50% of the
then unvested portion of Mr. Goel's option shall immediately vest.
Mr. Flury. In December 1998, we entered into an offer letter with Robert
Flury for him to serve as our Vice President of Enterprise Sales. Under this
offer letter, Mr. Flury receives a salary equal to $175,000 per year. Mr. Flury
is entitled to receive a bonus of $25,000 each quarter during his first year
with us, and thereafter is eligible to earn a bonus of up to $25,000 each
quarter, based upon performance milestones to be specified by our president and
assessed by our board of directors. Upon entering into employment with us, Mr.
Flury received an option to purchase 609,392 shares at $0.10 per share. This
option is immediately exercisable. As of September 30, 1999, none of the shares
underlying the option had vested and none had been exercised. The shares
underlying the option vest over four years, with one fourth of the shares
vesting at the end of the first year of employment with us and an additional one
forty-eighth vesting each month thereafter, for so long as he is employed by us.
If Mr. Flury's employment is terminated other than for cause, he will be
entitled to receive an amount equal to three months of his salary. In addition,
in the event of a change of control of Neoforma.com and termination of Mr.
Flury's employment, 50% of the then unvested portion of Mr. Flury's option shall
immediately vest.
Mr. Eckert. In July 1999, we entered into an offer letter with Daniel A.
Eckert for him to serve as our Executive Vice President of Sales. Under this
offer letter, Mr. Eckert receives a salary equal to $250,000 per year. Mr.
Eckert received a $50,000 bonus when he commenced his employment with us and is
entitled to receive a bonus of $50,000 per year, based upon performance
milestones to be specified by our president and assessed by our board of
directors. Upon entering into employment with us, Mr. Eckert received an option
to purchase 450,000 shares of our common stock at $0.50 per share. This option
is immediately exercisable and Mr. Eckert has exercised the option in full. The
shares underlying the option vest in equal monthly installments over four years,
for so long as he is employed by us. If Mr. Eckert's employment is terminated
other than for cause, he will be entitled to receive an amount equal to 6 months
of his salary. In the event of a change of control of Neoforma.com, 50% of the
then unvested portion of Mr. Eckert's option shall immediately vest.
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Mr. Rene. In December 1999, we entered into an offer letter with Robert W.
Rene for him to serve as our Executive Vice President of Strategy and Marketing.
Under this offer letter, Mr. Rene receives a salary equal to $150,000 per year
for the first year of his employment with us, during which he is not entitled to
receive a bonus. During Mr. Rene's second year of employment with us, his
minimum compensation, salary plus bonus, will be $350,000 per year. Mr. Rene's
compensation for his third and subsequent years of employment with us will be
determined in future discussions. The annual bonus for Mr. Rene's second and
subsequent years of employment with us will be based upon the achievement of
performance milestones to be specified by our Chairman or Chief Executive
Officer and assessed by our board of directors. The amount of this annual bonus
will be determined by our board of directors. Upon entering into employment with
us, Mr. Rene received an option to purchase 700,000 shares of our common stock
at $7.00 per share. This option is immediately exercisable and Mr. Rene
exercised this option in full. The shares underlying the option vest over four
years, with one fourth of the shares vesting at the end of the first year of
employment with us and an additional one forty-eighth vesting each month
thereafter, for so long as he is employed by us. In the event of a change of
control of Neoforma.com and termination of Mr. Rene's employment without cause
or constructive termination of Mr. Rene's employment without good reason, our
right to repurchase Mr. Rene's option shall lapse as to 50% of the then unvested
portion of Mr. Rene's option.
Mr. Kay. In December 1999, we entered into an offer letter with S. Wayne
Kay for him to serve as a Senior Vice President. Under this offer letter, Mr.
Kay receives a salary equal to $200,000 per year. Mr. Kay received a $40,000
bonus when he commenced his employment with us and is entitled to receive a
quarterly bonus of $12,500 based upon the achievement of milestones to be
specified by our Chairman or Chief Executive Officer and assessed by our board
of directors. Upon entering into employment with us, Mr. Kay received an option
to purchase 225,000 shares of our common stock at $7.00 per share. This option
is immediately exercisable. The shares underlying the option vest in equal
monthly installments over four years, for so long as he is employed by us. If
Mr. Kay's employment is terminated other than for cause, he will be entitled to
receive an amount equal to 12 months of his salary. In addition, in the event of
a change of control of Neoforma.com and termination of Mr. Kay's employment
without cause or constructive termination of Mr. Kay's employment without good
reason, 50% of the then unvested portion of Mr. Kay's option shall immediately
vest.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses for
attending board and board committee meetings.
Each eligible director who is not our employee and who is or becomes a
member of our board will be automatically granted an option to purchase 100,000
shares of common stock under our 1999 Equity Incentive Plan, unless that
director has previously received an option grant. Immediately following each
annual meeting of stockholders, each eligible director will automatically be
granted an option to purchase 25,000 shares of common stock under our 1999
Equity Incentive Plan, provided that the director is a member of the board on
that date and has served continuously as a member of the board for a period of
at least one year since the date of the director's initial grant. All options
will have an exercise price equal to the fair market value of our common stock
on the date of grant. The options will have 10-year terms and will terminate
three months following the date the director ceases to be one of our directors
or consultants or 12 months after any termination due to death or disability.
Options granted under the plan will generally vest over four years. Any unvested
shares subject to these options will become immediately vested and exercisable
upon a transaction which results in a change in our control.
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EXECUTIVE COMPENSATION
The following table shows all compensation awarded to, earned by or paid
for services rendered to us in all capacities during 1998 by our then chief
executive officer and our other current or former executive officers who earned
at least $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
--------------------------- -------- -------- ------------------
<S> <C> <C> <C>
Jeffrey H. Kleck.................................... $ 91,929 $ -- --
Co-founder and Vice President(1)
Wayne D. McVicker................................... 122,150 -- --
Co-founder, Senior Vice President of Research and
Development and a director(2)
Stephen A. Pieraldi................................. 104,421 -- 175,000
Vice President of Business Development(3)
</TABLE>
- ---------------
(1) Mr. Kleck was our Chief Executive Officer and a director in 1998.
(2) Mr. McVicker was our President in 1998.
(3) Mr. Pieraldi was our Vice President of Sales in 1998.
The executive officers listed below joined us after 1998 and are not
included in the tables relating to summary compensation and option grants in
1998.
Robert J. Zollars, our Chairman, President and Chief Executive Officer,
joined us in July 1999. Mr. Zollars is compensated at an annual rate of
$500,000. He will receive a bonus of $250,000 if he continues to be employed by
us on December 31, 1999. Mr. Zollars received an option to purchase 1,637,160
shares of our common stock and an option to purchase 3,602,315 shares of our
common stock, each at $0.10 per share. Both options were immediately exercisable
and Mr. Zollars exercised these options in full in July 1999. As of September
30, 1999, all of the shares underlying the option for 3,602,315 shares were
subject to a repurchase right that lapses at a rate of 900,578 after his first
year of employment and 75,048 shares per month thereafter.
Frederick J. Ruegsegger, our Chief Financial Officer, joined us in July
1999. Mr. Ruegsegger is compensated at an annual rate of $200,000. He is
eligible to receive a bonus of up to $12,500 each quarter. Mr. Ruegsegger was
also granted an option to purchase 604,555 shares of our common stock at $0.50
per share. This option is immediately exercisable and Mr. Ruegsegger has
exercised the option in full. As of September 30, 1999, all of the shares
underlying the option were subject to a repurchase right that lapses at a rate
of 151,138 shares after his first year of employment and 12,594 shares per month
thereafter.
Bhagwan D. Goel, our Executive Vice President of Products and Services,
joined us in October 1999. Mr. Goel is compensated at an annual rate of
$225,000. He received a $50,000 bonus upon joining us. Mr. Goel was also granted
an option to purchase 595,000 shares of our common stock at $3.00 per share.
This option is immediately exercisable. The shares underlying the option will
vest at a rate of 12,395 shares per month.
Robert Flury, our Senior Vice President of Business Development, joined us
in February 1999. Mr. Flury is compensated at an annual rate of $175,000. He is
entitled to receive a bonus of $25,000 each quarter. Mr. Flury was also granted
an option to purchase 609,392 shares of our common stock
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at $0.10 per share. This option is immediately exercisable. As of September 30,
1999, the option had not yet been exercised. The shares underlying the option
will vest at a rate of 152,348 shares after his first year of employment and
12,695 shares per month thereafter.
Daniel A. Eckert, our Executive Vice President of Sales and President of
Neoforma Shop, accepted employment with us in July 1999. Mr. Eckert is
compensated at an annual rate of $250,000. He received a $50,000 bonus upon
joining us and is entitled to receive a bonus of up to $50,000 each year. Mr.
Eckert was also granted an option to purchase 450,000 shares at $0.50 per share.
This option is immediately exercisable and Mr. Eckert has exercised this option
in full. The shares underlying the option will vest in equal monthly
installments over four years.
For more information regarding the terms of employment agreements and offer
letters with our executive officers, see "-- Employment Contracts and Change of
Control Arrangements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the executive officers named in
the Summary Compensation Table above. We granted the option listed below at an
exercise price equal to the fair market value of our common stock, as determined
by our board of directors on the date of grant. The option becomes exercisable
as to 25% of the underlying shares upon the first anniversary of the date of
grant and an additional 2.083% per month thereafter. The option expires on the
earlier of 10 years from the date of grant or three months after termination of
employment.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER PERCENTAGE OF VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED IN 1998(1) PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Kleck................ -- -- -- -- -- --
Wayne D. McVicker............... -- -- -- -- -- --
Stephen A. Pieraldi............. 175,000 12.2% $0.05 05/26/2008 $11,756 $36,640
</TABLE>
- -------------------------
(1) Based on an aggregate of 1,457,700 shares underlying the options granted to
our employees during fiscal 1998.
(2) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the deemed fair market
value of the underlying common stock at December 31, 1999, (b) compounding
the aggregate stock value derived from the foregoing calculation at an
annual rate of 5% or 10% over the 10 year term of the option, and (c)
subtracting from that result the aggregate option exercise price. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent
our estimates or projections of future common stock prices.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table sets forth the number of shares of common stock
acquired and the value realized upon exercise of stock options during 1998 and
the number of shares of common stock subject to exercisable and unexercisable
stock options held as of December 31, 1998 by each of the executive officers
named in the Summary Compensation Table. Value at fiscal year end is the
difference between the exercise price and the deemed fair market value of the
underlying common stock at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Kleck............... -- -- -- -- -- --
Wayne D. McVicker.............. -- -- -- -- -- --
Stephen A. Pieraldi............ -- -- -- 175,000 -- $8,750
</TABLE>
EMPLOYEE BENEFIT PLANS
1997 Stock Plan
Our 1997 Stock Plan was adopted by our board of directors in January 1997.
As of September 30, 1999, there were outstanding options to purchase a total of
5,128,549 shares of common stock under this plan, and 2,659,309 shares remained
available for future grants. This plan will terminate immediately prior to this
offering, and no further options will be granted. However, the termination of
this plan will not affect any outstanding options, which will remain outstanding
until they are exercised, terminate or expire.
1999 Equity Incentive Plan
Our 1999 Equity Incentive Plan will become effective on the date of this
prospectus and will serve as the successor to our 1997 Stock Plan. We have
reserved 5,000,000 shares of common stock for issuance under this plan. The
number of shares reserved for issuance under this plan will be increased to
include:
- any shares reserved under our 1997 Stock Plan not issued or subject to
outstanding grants on the date of this prospectus;
- any shares issued under our 1997 Stock Plan that are repurchased by us at
the original purchase price; and
- any shares issuable upon exercise of options granted under our 1997 Stock
Plan that expire or become unexercisable without having been exercised in
full.
The number of shares reserved under this plan will be increased
automatically on January 1 of each year by an amount equal to 5% of our total
outstanding shares as of the immediately preceding December 31. Our board of
directors or compensation committee may reduce the amount of the increase in any
particular year. The following shares will be available for grant and issuance
under our 1999 Equity Incentive Plan:
- shares issuable upon exercise of an option granted under this plan that
is terminated or cancelled before the option is exercised;
- shares issued upon exercise of an option granted under this plan that are
subsequently repurchased by us at the original purchase price;
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- shares subject to awards granted under this plan that are subsequently
forfeited or repurchased by us at the original issue price; and
- shares subject to stock bonuses granted under this plan that otherwise
terminate without shares being issued.
Our 1999 Equity Incentive Plan will terminate in 2009, unless earlier
terminated in accordance with the terms of the plan. Our 1999 Equity Incentive
Plan authorizes the award of options, restricted stock awards and stock bonuses.
No person will be eligible to receive more than 4,000,000 shares in any calendar
year under this plan (4,500,000 in the case of new employees). This plan is
administered by the compensation committee of our board of directors, which
currently consists of Messrs. Douglass, Filipowski and Helppie, all of whom are
outside directors, as defined under applicable federal tax laws. The committee
has the authority to interpret this plan and any agreement made under the plan,
grant awards and make all other determinations for the administration of this
plan. Also, our outside directors are entitled to receive automatic annual
grants of options to purchase shares of our common stock, as described under
"-- Director Compensation." Our 1999 Equity Incentive Plan provides for the
grant of both incentive stock options that qualify under Section 422 of the
Internal Revenue Code, and nonqualified stock options. Incentive stock options
may be granted only to employees. Nonqualified stock options, and all other
awards other than incentive stock options, may be granted to employees,
officers, directors, consultants, independent contractors and advisors of
Neoforma.com or subsidiary of Neoforma.com. However, consultants, independent
contractors and advisors are only eligible to receive awards if they render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. The exercise price of incentive stock options must
be at least equal to the fair market value of our common stock on the date of
grant. The exercise price of incentive stock options granted to 10% stockholders
must be at least equal to 110% of that value. The exercise price of nonqualified
stock options must be at least equal to 85% of the fair market value of the our
common stock on the date of grant. The maximum term of options granted under our
1999 Equity Incentive Plan is 10 years. Except as provided under the 1999 Equity
Incentive Plan, awards granted under the plan may not be transferred in any
manner other than by will or by the laws of descent and distribution. The
compensation committee may allow exceptions to this restriction with respect to
awards that are not incentive stock options. Options granted under our 1999
Equity Incentive Plan generally expire three months after the termination of the
optionee's service. Except for options granted to outside directors, in the
event of a change in control of Neoforma.com, if the successor does not assume
outstanding options, they will expire upon conditions determined by the
compensation committee. Alternatively, the compensation committee may accelerate
the vesting of awards upon a change in control.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan will become effective on the first
day on which price quotations are available for our common stock on the Nasdaq
National Market. We have initially reserved 750,000 shares of common stock for
issuance under this plan. The number of shares reserved for issuance under our
1999 Employee Stock Purchase Plan will be increased automatically on January 1
of each year by an amount equal to 1% of our total outstanding shares as of the
immediately preceding December 31. Our board of directors or compensation
committee may reduce the amount of the increase in any particular year. Our
compensation committee will administer our 1999 Employee Stock Purchase Plan.
Employees generally will be eligible to participate in our 1999 Employee Stock
Purchase Plan if they are employed by Neoforma.com, or any subsidiaries that
Neoforma.com designates, for more than 20 hours per week and more than five
months in a calendar year. Employees are not eligible to participate in our 1999
Employee Stock Purchase Plan if they are 5% stockholders, or would become 5%
stockholders as a result of their participation in this plan.
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Under our 1999 Employee Stock Purchase Plan, eligible employees may acquire
shares of our common stock through payroll deductions. Eligible employees may
select a rate of payroll deduction between 1% and 15% of their cash compensation
and are subject to maximum purchase limitations. Participation in this plan will
end automatically upon termination of employment for any reason. A participant
will not be able to purchase shares having a fair market value of more than
$25,000, determined as of the first day of the applicable offering period, for
each calendar year in which the employee participates in this plan. Each
offering period under this plan will be for two years and will consist of four
six-month purchase periods. The first offering period is expected to begin on
the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. The first purchase period may be more
or less than six months long. Offering periods thereafter will begin on February
1 and August 1. The purchase price for common stock purchased under this plan
will be 85% of the lesser of the fair market value of our common stock on the
first day of the applicable offering period or the last day of each purchase
period. The compensation committee will have the power to change the duration of
offering periods. Our 1999 Employee Stock Purchase Plan is intended to qualify
as an employee stock purchase plan under Section 423 of the Internal Revenue
Code. This plan will terminate in 2009, unless it is terminated earlier pursuant
to its terms.
401(k) Plan.
We sponsor a defined contribution plan intended to qualify under Section
401 of the Internal Revenue Code. Participants may make pre-tax contributions to
the plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Participants are fully vested in their contributions
and the investment earnings. We do not make matching contributions to the 401(k)
plan. Contributions by the participants to the 401(k) plan, and the income
earned on these contributions, are generally not taxable to the participants
until withdrawn. Contributions are held in trust as required by law. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our amended and restated certificate of incorporation includes a provision
that eliminates the personal liability of a director for monetary damages
resulting from breach of his fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation law, subject to
limited exceptions;
- the rights conferred in the amended and restated bylaws are not
exclusive; and
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- we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions.
In addition to the indemnification required by our amended and restated
certificate of incorporation and bylaws, before the completion of this offering,
we intend to enter into indemnity agreements with each of our current directors
and officers. These agreements provide for the indemnification of our officers
and directors for all expenses and liabilities incurred in connection with any
action or proceeding brought against them by reason of the fact that they are or
were our agents. We also intend to obtain directors' and officers' insurance to
cover our directors, officers and some of our employees for certain liabilities,
including public securities matters. We believe that these indemnification
provisions and agreements and this insurance are necessary to attract and retain
qualified directors and officers.
The limitation of liability and indemnification provisions in our amended
and restated certificate of incorporation and bylaws may discourage stockholders
from bringing a lawsuit against our directors for breach of their fiduciary
duty. They may also reduce the likelihood of derivative litigation against
directors and officers, even though an action, if successful, might benefit us
and other stockholders. Furthermore, the value of a stockholder's investment may
decline to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions. At
present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification from us is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification by us.
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CERTAIN TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described in "Management," and the transactions described below, since we
incorporated in March 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000, and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
The agreements described below are included as exhibits to the registration
statement of which this prospectus forms a part.
TRANSACTIONS WITH PROMOTER
In May 1996, in connection with our formation and initial financing,
Jeffrey H. Kleck, our co-founder and Vice President, purchased four million
shares of our common stock at $0.00375 per share in exchange for $10,000 in cash
and intellectual property relating to our Plan service and Wayne D. McVicker,
our co-founder, Senior Vice President of Research and Development and a
director, purchased four million shares of our common stock at $0.00375 per
share in exchange for $10,000 in cash and intellectual property relating to our
Plan service. Messrs. Kleck and McVicker each hold more than 5% of our common
stock.
STOCK FINANCINGS/STOCK EXCHANGES
Series A preferred stock exchange
In April 1998, we issued 9,000,000 shares of our Series A preferred stock
in exchange for 9,000,000 shares of previously issued common stock. The
following directors, executive officers and/or 5% stockholders purchased our
Series A preferred stock:
- Wayne D. McVicker -- 4,000,000 shares; and
- Jeffrey H. Kleck -- 4,000,000 shares.
Series B preferred stock financing
In April 1998, we sold 2,860,000 shares of our Series B preferred stock for
approximately $0.50 per share. The following directors, executive officers
and/or 5% stockholders purchased our Series B preferred stock:
- Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust
UDT 4/2/97 -- 500,000 shares; and
- Madhavan Rangaswami -- 200,000 shares.
Terence J. Garnett, one of our directors, is a trustee of the Garnett
Family Trust UDT 4/2/97.
Madhavan Rangaswami is one of our directors.
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Series C preferred stock financing
In June 1998, we sold 5,064,937 shares of our Series C preferred stock for
approximately $0.77 per share. The following directors, executive officers
and/or 5% stockholders purchased our Series C preferred stock:
- Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust
UDT 4/2/97 -- 754,870 shares;
- Venrock Associates -- 1,467,073 shares;
- Venrock Associates II, L.P. -- 1,944,724 shares; and
- Madhavan Rangaswami -- 351,732 shares.
Venrock Associates and Venrock Associates II, L.P. together hold more than
5% of our common stock. Both entities are limited partnerships managed by a
group of individuals who serve as general partners of both partnerships. Terence
J. Garnett, one of our directors, is a consultant to Venrock Associates and
Venrock Associates II, L.P. but does not share voting or dispositive power over
the shares held by these entities.
Series D preferred stock financing
In February 1999, we sold 10,196,361 shares of our Series D preferred stock
for approximately $1.18 per share. The following directors, executive officers
and/or 5% stockholders purchased our Series D preferred stock:
- Delphi BioInvestments IV, L.P. -- 59,915 shares;
- Delphi Ventures IV, L.P. -- 2,906,187 shares;
- Terence J. Garnett -- 50,848 shares;
- Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust
UDT 4/2/97 -- 423,728 shares;
- Venrock Associates -- 694,915 shares; and
- Venrock Associates II, L.P. -- 1,000,000 shares.
Delphi Ventures IV, L.P. and Delphi BioInvestments IV, L.P. together hold
more than 5% of our common stock. Both entities are limited partnerships managed
by Delphi Management Partners IV, L.L.C., of which David L. Douglass, one of our
directors, is a managing member.
Series E and Series E-1 preferred stock financing
In October 1999, we sold an aggregate of 12,418,633 shares of our Series E
and Series E-1 preferred stock for approximately $5.68 per share and issued an
additional 275,000 shares of Series E-1 preferred stock in connection with
entering into a strategic alliance in October 1999. The following directors,
executive officers and/or 5% stockholders purchased our Series E and Series E-1
preferred stock:
- Dell USA L.P. -- 4,401,408 shares;
- Venrock Associates -- 133,033 shares;
- Venrock Associates II, L.P. -- 191,438 shares;
- Venrock Entrepreneurs Fund -- 17,077 shares;
- Superior Consultant Company -- 880,282 shares;
- divine interVentures, inc. -- 1,056,338 shares; and
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- Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust
UDT 4/2/97 -- 10,563 shares.
Dell USA L.P. holds more than 5% of our common stock.
Venrock Entrepreneurs Fund, L.P., together with Venrock Associates and
Venrock Associates II, L.P., holds more than 5% of our common stock. Venrock
Entrepreneurs Fund, L.P., is a limited partnership managed by Venrock Management
LLC, its sole general partner. The managing members of Venrock Management LLC
are a group of individuals, most of whom are general partners of Venrock
Associates and Venrock Associates II, L.P. Terence J. Garnett, one of our
directors, is a consultant to Venrock Entrepreneurs Fund, L.P. and does not
share voting or dispositive power over shares held by such entity.
Richard D. Helppie, one of our directors, is Chairman of the Board and
Chief Executive Officer of Superior Consultant Holdings Corporation.
Andrew J. Filipowski, one of our directors, is the President, Chief
Executive Officer and Chairman of the Board of divine interVentures, inc.
Appointment of Board Members. Messrs. McVicker, Garnett, Douglass, Helppie
and Filipowski were appointed to our board of directors pursuant to rights held
by our preferred stockholders. These rights terminate upon the closing of this
offering.
Investor Rights Agreement. In October 1999, we entered into a Second
Amended and Restated Investor Rights Agreement with some of our stockholders,
including some of our officers and directors, or their affiliated entities,
under which they have registration rights with respect to their stock. See
"Description of Capital Stock -- Registration Rights."
CONSULTING AGREEMENTS
In April 1998, we entered into a consulting agreement with Sand Hill Group
LLC. Madhavan Rangaswami, one of our directors, is a member of Sand Hill Group
LLC. Sand Hill Group LLC provides 16 hours per month of services to us through
the end of 1999 in exchange for our sale of 250,000 shares of our common stock
to each of Mr. Rangaswami and another member of Sand Hill Group LLC and our
reimbursement of Sand Hill's out-of-pocket expenses. We retained a right to
repurchase these shares, which right lapses ratably over six quarters after the
issuance of the shares.
In July 1999, we entered into a consulting agreement with Mr. Rangaswami.
Under the agreement, Mr. Rangaswami agreed to provide us with consulting
services for a period of three months in exchange for an option to purchase
95,325 shares of our common stock at an exercise price of $0.10, which vested at
the end of the three month period.
LOANS
On July 10, 1999, we made a loan to Robert J. Zollars, our Chairman,
President and Chief Executive Officer, in connection with his exercise of a
stock option granted to him under the terms of his employment agreement. The
loan is evidenced by a promissory note in the principal amount of $162,078.84,
with interest compounded quarterly on the unpaid balance at a rate of 5.70% per
year.
On July 10, 1999, we made a loan to Robert J. Zollars in connection with
his exercise of a stock option granted to him under the terms of his employment
agreement. The loan is evidenced by a promissory note in the principal amount of
$356,629.19, with interest compounded quarterly on the unpaid balance at a rate
of 5.70% per year.
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On September 7, 1999, we made a loan to Frederick J. Ruegsegger, our Chief
Financial Officer, in connection with his exercise of a stock option granted to
him under the terms of his offer letter. The loan is evidenced by a promissory
note in the principal amount of $301,672.95, with interest compounded quarterly
on the unpaid balance at a rate of 5.85% per year.
On September 7, 1999, we made two loans to Daniel A. Eckert, our Executive
Vice President of Sales, in connection with his exercise of a stock option
granted to him under the terms of his offer letter. The loans are evidenced by
promissory notes in the aggregate principal amount of $224,550, with interest
compounded quarterly on the unpaid balance of each note at a rate of 5.85% per
year.
On October 4, 1999, we made a loan to Bhagwan D. Goel, our Executive Vice
President of Products and Services, in connection with his exercise of a stock
option granted to him under the terms of his offer letter. The loan is evidenced
by a promissory note in the principal amount of $1,784,404.90, with interest
compounded quarterly on the unpaid balance at a rate of 5.89% per year.
On December 14, 1999, we made a loan to Robert W. Rene, our Executive Vice
President of Strategy and Marketing, in connection with his exercise of a stock
option granted to him under the terms of his offer letter. The loan is evidenced
by a promissory note in the principal amount of $4,899,300.00, with interest
compounded quarterly on the unpaid balance at a rate of 6.06% per year.
On various dates from March 1997 through December 1997, Wayne D. McVicker,
our co-founder, Senior Vice President of Research and Development and a
director, made loans to us in an aggregate amount of $190,000. In April 1998, we
issued a convertible note for $197,047.80 to Mr. McVicker in consideration of
his agreement to cancel the outstanding promissory notes representing these
loans. The convertible note paid interest at a rate of 8% per year. This note
has been paid in full.
On various dates from September 1996 through November 1997, Jeffrey H.
Kleck, our co-founder and a Vice President, made loans to us in an aggregate
amount of $195,000. In April 1998, we issued a convertible note for $206,670.95
to Dr. Kleck in consideration of his agreement to cancel the promissory notes
representing these loans. The convertible note paid interest at a rate of 8% per
year. The convertible note was converted into 60,000 shares of Series B
preferred stock at a price per share of $0.50 and the remaining balance was paid
in full.
In August 1999, we paid $1.7 million cash and issued a promissory note to
Erik Tivin, our Vice President of Auction Services, in the amount of $7.8
million as payment of the purchase price of our acquisition of GAR. The note is
payable over a five year period.
On October 1, 1999, we made a loan to Mr. Tivin in connection with his
exercise of a stock option granted to him under the terms of his employment
agreement. This loan is evidenced by a promissory note in the principal amount
of $47,850.07, with interest compounded quarterly on the unpaid balance at a
rate of 5.89% per year.
COMMERCIAL TRANSACTIONS
In October 1999, Richard D. Helppie, the Chairman and Chief Executive
Officer of Superior Consultant Holdings Corporation, joined our board of
directors as the representative of the holders of our Series E preferred stock.
In addition, in October 1999 we entered into an agreement with Superior
Consultant Company, Inc., a wholly owned subsidiary of Superior Consultant
Holdings Corporation, providing for collaboration between us and Superior.
Superior is a supplier of Digital Business Transformation(TM) services to large
healthcare organizations, including Internet-related services, systems
integration, outsourcing and consulting, which enable Superior clients to
utilize digital technologies and process innovations to improve their
businesses. Under the agreement, we
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have agreed to market Superior's services to our users, and Superior has agreed
to introduce our services to appropriate clients, based on their interests, and
to incorporate our services into its Digital Business Transformation(TM)
offerings. The agreement also provides for joint marketing activities. In
consideration, we have agreed to make payments to Superior in an aggregate
amount of up to approximately $2.0 million, as well as a percentage of specified
Neoforma.com e-commerce transaction revenue and other potential fixed payments
based on the success of our joint marketing activities. We have also agreed to
utilize Superior's services on a preferred basis for systems integration,
development, infrastructure, process improvement and consulting assistance,
totaling at least $1.5 million of services from Superior, at a discount from
Superior's standard fees. Our agreement with Superior expires in October 2002.
In October 1999, we entered into an agreement with Dell Marketing, L.P., an
affiliate of Dell Computer, under which we agreed to develop complementary
marketing programs with Dell and to establish links between our respective
internet websites. We agreed to use Dell as our exclusive supplier of desktops,
portables, workstations, servers and storage devices unless its products did not
meet our reasonable technical requirements. We also agreed to purchase at least
$5.0 million of Dell products and $100,000 of data center consulting services.
Our agreement with Dell expires in 2001, subject to renewal for additional
one-year periods. In addition, Dell purchased approximately 4.4 million shares
of our preferred stock in October 1999 at an average price per share of $5.68
and an aggregate purchase price of approximately $25 million.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of September 30, 1999 and as
adjusted to reflect the sale of the common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- each executive officer listed in the Summary Compensation Table; and
- all executive officers and directors as a group.
The percentage of outstanding shares beneficially owned before this
offering in the following table is based on 50,794,833 shares of common stock
outstanding as of September 30, 1999, assuming the following:
- issuance of the shares of common stock issuable upon conversion of the
12,693,633 shares of our Series E and Series E-1 preferred stock that we
issued in October 1999;
- issuance of the shares of common stock issuable upon conversion of the
176,057 shares of our Series E preferred stock that we, in November 1999,
agreed to issue and sell to Fisher Scientific International, Inc.;
- issuance of 350,000 shares of common stock to the former shareholders of
FDI Information Resources, Inc. in connection with our acquisition of
substantially all of the assets of FDI in November 1999; and
- conversion of all outstanding shares of preferred stock into 41,420,953
shares of common stock based upon an assumed initial public offering
price of $9.00 per share.
The percentage of outstanding shares beneficially owned after this offering in
the following table is based on 57,794,833 shares of common stock outstanding
after the completion of this offering.
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<PAGE> 71
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes voting or investment power with respect to securities and
includes the shares issuable under stock options or warrants that are
exercisable within 60 days of September 30, 1999. Shares issuable under stock
options or warrants are deemed outstanding for computing the percentage held by
the person holding options but are not outstanding for computing the percentage
of any other person. Unless otherwise indicated, the address for each listed
stockholder is: c/o Neoforma.com, Inc., 3255-7 Scott Boulevard, Santa Clara,
California 95054. To our knowledge, except as indicated in the footnotes to this
table and under applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of common
stock.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Robert J. Zollars(1)...................... 5,239,475 10.3% 9.1%
Jeffrey H. Kleck.......................... 4,000,000 7.9% 6.9%
Wayne D. McVicker......................... 4,000,000 7.9% 6.9%
Stephen J. Pieraldi(2).................... 175,000 * *
David Douglass(3)......................... 3,066,102 6.0% 5.3%
Terence J. Garnett(4)..................... 2,241,182 4.4% 3.9%
Madhavan Rangaswami(5).................... 997,057 2.0% 1.7%
Richard D. Helppie(6)..................... 978,091 1.9% 1.7%
Andrew J. Filipowski(7)................... 1,173,708 2.3% 2.0%
All 15 executive officers and directors as
a group(8).............................. 23,909,562 46.0% 40.6%
OTHER 5% STOCKHOLDERS
Dell USA L.P.(9).......................... 4,890,453 9.6% 8.5%
Delphi Ventures(3)(10).................... 3,066,102 6.0% 5.3%
Venrock Associates(11).................... 5,486,208 10.8% 9.5%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 3,602,315 shares of common stock subject to a repurchase right
that lapses at a rate of 900,578 shares in July 2000 and 75,048 shares per
month thereafter.
(2) Includes 113,021 shares of common stock issuable under an option held by
Mr. Pieraldi that is presently exercisable in full.
(3) Includes 59,915 and 2,906,187 shares of common stock held of record by
Delphi BioInvestments IV, L.P. and Delphi Ventures IV, L.P. subject to
repurchase rights that lapse over time. Also includes 67,170 shares of
common stock held of record by individual partners of Delphi Ventures IV,
L.P. Mr. Douglass, one of our directors, is a managing member of Delphi
Management Partners IV, L.L.C., the sole general partner of both Delphi
BioInvestments IV, L.P. and Delphi Ventures IV, L.P. Mr. Douglass disclaims
beneficial ownership of the shares held by these entities and partners.
(4) Represents 550,848 shares of common stock held by Terence J. Garnett and
1,690,334 shares of common stock held by Terence J. and Katrina A. Garnett,
Trustees of the Garnett Family Trust UDT 4/2/97. 58,334 of these shares of
common stock are subject to a repurchase right that lapses over time. This
number does not include 2,309,802, 3,157,432 and 18,974 shares of common
stock held by Venrock Associates, Venrock Associates II, L.P. and Venrock
Entrepreneurs Fund. Mr. Garnett, one of our directors, is a consultant to
Venrock Associates,
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<PAGE> 72
Venrock Associates II, L.P. and Venrock Entrepreneurs Fund, L.P. but does
not share voting or dispositive power over the shares held by these
entities.
(5) Includes 58,334 shares of common stock that are subject to a repurchase
right that lapses over time.
(6) Represents 978,091 shares of common stock held by Superior Consultant
Holdings Corporation. Mr. Helppie, one of our directors, is the Chairman,
Chief Executive Officer and President of Superior. Mr. Helppie disclaims
beneficial ownership of the shares held by Superior.
(7) Represents 1,173,708 shares of common stock held by divine interVentures,
Inc. Mr. Filipowski, one of our directors, is President, Chief Executive
Officer and Chairman of the Board of divine interVentures, Inc. Mr.
Filipowski disclaims beneficial ownership of the shares held by divine
interVentures, Inc.
(8) Includes 1,159,392 shares of common stock issuable under options held by
directors and executive officers that are presently exercisable within 60
days of September 30, 1999. Also includes 4,764,163 outstanding shares that
are subject to repurchase rights that lapse over time. Does not include
595,000 shares of our common stock issued to Bhagwan D. Goel, 700,000
shares of our common stock issued to Robert W. Rene and 225,000 shares of
common stock issuable under options held by S. Wayne Kay, in each case
issued or granted after September 30, 1999 and the 175,000 shares
beneficially owned by Stephen J. Pieraldi who is not currently one of our
executive officers. These shares are subject to a repurchase right that
lapses over time.
(9) Includes 59,915 and 2,906,187 shares of common stock held by Delphi
BioInvestments IV, L.P. and Delphi Ventures IV, L.P. Both entities are
limited partnerships for which Delphi Management Partners IV, L.L.C., is
the sole general partner. The address of Dell USA L.P. Corporation is One
Dell Way, Round Rock, TX 78682.
(10) Both entities are limited partnerships managed by a group of individuals
who serve as general partners of both partnerships. The address of Delphi
Ventures is 3000 Sand Hill Road, Bldg. 1 #135, Menlo Park, CA 94025.
(11) Represents 2,309,802, 3,157,432 and 18,974 shares of common stock held by
Venrock Associates, Venrock Associates II, L.P. and Venrock Entrepreneurs
Fund. The address of Venrock Associates is 2494 Sand Hill Road, Suite 200,
Menlo Park, CA 94025.
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<PAGE> 73
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 200 million shares of common stock, $0.001 par value per
share, and five million shares of preferred stock, $0.001 par value per share.
As of September 30, 1999, assuming the following:
- issuance of the shares of common stock issuable upon conversion of the
12,693,633 shares of our Series E and Series E-1 preferred stock that we
issued in October 1999,
- issuance of the shares of common stock issuable upon conversion of the
176,057 shares of our Series E preferred stock that we, in November 1999,
agreed to issue and sell to Fisher Scientific International, Inc.,
- issuance of 350,000 shares of common stock to the former shareholder of
FDI Information Resources, Inc. in connection with our acquisition of
substantially all of the assets of FDI in November 1999, and
- conversion of all outstanding shares of preferred stock into 41,420,953
shares of common stock, based upon an assumed initial offering price of
$9.00 per share,
there were outstanding 50,794,833 shares of common stock held of record by
approximately 86 stockholders, options to purchase 5,112,965 shares of our
common stock and warrants to purchase 858,147 shares of our common stock. The
number of shares of common stock into which each share of our Series E and
Series E-1 preferred stock will be converted upon completion of this offering
may be adjusted under some circumstances as described in Note 9 of notes to
consolidated financial statements.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available at the times and
in the amounts as our board of directors may determine.
Each holder of common stock is entitled to one vote for each share of
common stock held on all matters submitted to a vote of stockholders. Cumulative
voting for the election of directors is not provided for in our amended and
restated certificate of incorporation. As a result, commencing at our first
annual meeting of stockholders, the holders of a majority of the shares voted
can elect all of the directors then standing for election.
Our common stock is not entitled to preemptive rights and is not subject to
conversion or redemption.
Upon our liquidation, dissolution or winding-up, the holders of our common
stock are entitled to share ratably with holders of any participating preferred
stock in all assets remaining after payment of all liabilities and the
liquidation preferences of any outstanding preferred stock. Each outstanding
share of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred
stock will be converted into shares of common stock. See Notes 8 and 9 of notes
to consolidated financial statements for a description of our outstanding
preferred stock.
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<PAGE> 74
Following this offering, our board of directors will be authorized, subject
to limitations prescribed by Delaware law, without stockholder approval, to
issue up to five million shares of preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board of directors can also increase or decrease the number of shares of any
series, but not below the number of shares of such series then outstanding,
without any further vote or action by the stockholders. The board of directors
may authorize the issuance of preferred stock with voting, conversion or other
rights that are superior to the rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of
Neoforma.com and may adversely affect the market price of the common stock and
the voting and other rights of the holders of common stock. We have no current
plan to issue any shares of preferred stock after the offering.
WARRANTS
As of September 30, 1999, we had issued warrants to purchase an aggregate
of 858,147 shares of our common stock at a weighted average exercise price of
$0.61. These warrants will remain outstanding after the completion of this
offering and will represent warrants to purchase shares of our common stock.
These warrants have expiration dates from 2003 to 2009. See Note 10 of notes to
consolidated financial statements.
REGISTRATION RIGHTS
As a result of an investors' rights agreement between Neoforma.com and some
of our stockholders, the holders of approximately 41,420,953 shares of common
stock are entitled to rights with respect to the registration of these shares
under the Securities Act, as described below.
Demand Registration Rights. At any time beginning six months after the
completion of this offering, the holders of at least 75% of the shares of common
stock issuable upon conversion of our preferred stock can request that we
register all or a portion of their shares. We will only be required to file two
registration statements in response to their demand registration rights. We may
postpone the filing of a registration statement for up to 90 days once in a 12
month period if we determine that the filing would be seriously detrimental to
us or our stockholders.
Piggyback Registration Rights. If we register any securities for public
sale, the holders of the shares of common stock issuable upon conversion of our
preferred stock will have the right to include their shares in the registration
statement. However, this right does not apply to a registration relating to any
of our employee benefit plans or a corporate reorganization. The managing
underwriter of any underwritten offering will have the right to limit the number
of shares registered by these holders to 15% of the total shares covered by the
registration statement due to marketing reasons.
Form S-3 Registration Rights. The holders of the shares of common stock
issuable upon conversion of our preferred stock can request that we register
their shares if we are eligible to file a registration statement on Form S-3 and
if the aggregate price of the shares offered to the public is at least $1.0
million. The holders may only require us to file three registration statements
on Form S-3 per calendar year.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
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<PAGE> 75
The registration rights will expire with respect to a particular
stockholder if it can sell all of its shares in a three month period under Rule
144 of the Securities Act. In any event, the registration rights described above
will expire five years after this offering is completed.
Holders of these registration rights have waived the exercise of these
registration rights for 180 days following the date of this prospectus.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our amended and restated certificate of
incorporation and bylaws may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets with any interested stockholder, or a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as affiliates
and associates of stockholder, for three years following the date that
stockholder became an interested stockholder unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained that status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board and authorized at an annual or special meeting of stockholders by
at least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. The statute could prohibit or
delay mergers or other takeover or change in control attempts and, accordingly,
may discourage attempts to acquire us.
Charter and Bylaw Provisions
Our amended and restated certificate of incorporation and bylaws provide
that:
- following the completion of this offering, no action shall be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act by
written consent;
- following the completion of this offering, the approval of two-thirds of
the stockholders shall be required to adopt, amend or repeal our bylaws;
- stockholders may not call special meetings of the stockholders or fill
vacancies on the board;
- following the completion of this offering, our board of directors will be
divided into three classes, each serving staggered three-year terms,
which means that only one class of directors will be elected at each
annual meeting of stockholders, with the other classes continuing for the
remainder of their respective terms, and directors may only be removed
for cause; and
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- we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
These provisions of our certificate of incorporation and bylaws may have
the effect of delaying, deferring or discouraging another person from acquiring
control of our company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, 46th Floor, New York,
NY 10005 and its telephone number is 1-718-921-8200.
LISTING
We have applied to list our common stock on The Nasdaq National Market
under the trading symbol "NEOF."
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<PAGE> 77
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
A significant public market for our common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of our common stock in
the public market, or the possibility of these sales occurring, could adversely
affect prevailing market prices for our common stock or our future ability to
raise capital through an offering of equity securities.
Upon completion of this offering, we will have 57,794,833 shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of September 30, 1999, and the conversion of all outstanding shares of preferred
stock. Of these shares, the 7,000,000 shares sold in this offering (8,050,000 if
the underwriters' over-allotment option is exercised in full) and an additional
60,000 shares held by an existing stockholder will be freely tradable in the
public market without restriction or registration under the Securities Act,
unless the shares are held by our "affiliates", as that term is defined in Rule
144 under the Securities Act.
The remaining 50,734,833 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. We
issued and sold these restricted securities in private transactions in reliance
on exemptions from registration under the Securities Act. Restricted securities
may be sold in the public market only if they are registered or if they qualify
for an exemption from registration under Rule 144 or Rule 701 under the
Securities Act, as summarized below.
Under the terms of "lock-up" agreements, all the executive officers,
directors and stockholders of Neoforma.com, who collectively hold an aggregate
of 45,289,155 of these restricted securities, have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any of
these shares for a period of 180 days from the date of this prospectus, subject
to limited exceptions. However, Merrill Lynch, Pierce, Fenner & Smith
Incorporated may, in its sole discretion, at any time without notice, release
all or any portion of the shares subject to lock-up agreements.
Taking into account the lock-up agreements, and assuming Merrill Lynch,
Pierce, Fenner & Smith Incorporated does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
- on the date of this prospectus, the 7,000,000 shares sold in the offering
will be immediately available for sale in the public market;
- 180 days after the date of this prospectus, approximately 34,830,623
shares will be eligible for sale under Rule 701 upon the expiration of
our repurchase right with respect to those shares or under Rule 144, of
which 28,173,146 will be subject to volume, manner of sale and other
limitations under Rule 144; and
- of the remaining shares, 15,904,210 will be eligible for sale under Rule
144 upon the expiration of various one-year holding periods.
Following the expiration of the lock-up period, shares issued upon exercise
of options we granted prior to the date of this prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act or Rule 144. Rule 701 permits resales of these shares beginning
90 days after the date of this prospectus. In general, under Rule 144, after
expiration of the lock-up period, a person who has beneficially owned restricted
securities for at least one year would be
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<PAGE> 78
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the then outstanding shares of our common stock, or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and the availability of current public information about us. Under
Rule 144(k), a person who has not been our affiliate at any time during the
three months before a sale and who has beneficially owned the shares proposed to
be sold for at least two years can sell these shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
After the effective date of this offering, we intend to file a registration
statement on Form S-8 to register shares of our common stock outstanding or
reserved for issuance under our various stock plans. The registration statement
will become effective automatically upon filing. Shares issued under the
foregoing employee benefit plans, after the filing of a registration statement
on Form S-8, may be sold in the open market, subject, in the case of some
holders, to the Rule 144 limitations applicable to affiliates, the lock-up
agreements and our repurchase rights held by us. We also intend to file a
registration statement to register resales in the open market of shares issued
upon exercise of options we granted prior to the close of this prospectus that
are not otherwise eligible for resale under Rule 701 as described above.
In addition, following this offering, the holders of 41,420,953 shares of
outstanding common stock will, under some circumstances, have right to require
us to register their shares for future sale. See "Description of Capital
Stock -- Registration Rights."
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UNDERWRITING
We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co., Inc.,
FleetBoston Robertson Stephens Inc., Volpe Brown Whelan & Company, LLC and
William Blair & Company, L.L.C. are acting as representatives of each of the
underwriters named below. Subject to the terms and conditions set forth in a
purchase agreement between us and the underwriters, we have agreed to sell to
the underwriters, and each of the underwriters severally and not jointly has
agreed to purchase from us, the number of shares of common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITERS ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Bear, Stearns & Co., Inc. ..................................
FleetBoston Robertson Stephens Inc. ........................
Volpe Brown Whelan & Company, LLC...........................
William Blair & Company, L.L.C..............................
----------
Total......................................... 7,000,000
==========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in that agreement, to purchase all of the
shares of our common stock being sold pursuant to the agreement if any of the
shares of common stock being sold pursuant to the agreement are purchased. In
the event of a default by an underwriter, the purchase agreement provides that,
in some circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the purchase agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of various legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of our common stock to the public at the initial public
offering price set forth on the cover page of this prospectus, and to dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may re-allow, a discount not in
excess of $ per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
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The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price........................ $ $ $
Underwriting discount........................ $ $ $
Proceeds, before expenses, to Neoforma.com... $ $ $
</TABLE>
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $1.4 million and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of an
additional 1,050,000 shares of our common stock at the public offering price set
forth on the cover of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated to
purchase a number of additional shares of our common stock proportionate to such
underwriter's initial amount reflected in the foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 630,000 of the shares offered hereby to be sold to
individuals and entities designated by us. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of the offering will be
offered by the underwriters to the general public on the same terms as the other
shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, and our executive officers and directors and existing stockholders have
agreed without the prior written consent of Merrill Lynch on behalf of the
underwriters for a period of 180 days after the date of this prospectus, not to
directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act of 1933 relating to any shares of our common
stock, or
- enter into an swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise;
provided that we may at any time and from time to time grant options to purchase
shares of our common stock under our existing stock plans and issue shares of
our common stock upon the exercise of outstanding options, and our executive
officers and directors and existing stockholders may make
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limited transfers to immediate family and affiliated parties and may transfer
shares purchased in this offering or in the open market after this offering.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"NEOF."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters. The factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, are the valuation multiples of publicly traded
companies that the representatives believe to be comparable to us, some of our
financial information, the history of, and the prospects for, our company and
the industry in which we compete, and an assessment of our management, its past
and present operations, the prospects for, and timing of, our future revenue and
the present state of our development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to ours. There can be no assurance that an active trading
market will develop for our common stock or that our common stock will trade in
the public market subsequent to the offering at or above the initial public
offering price.
The underwriters do not expect sales of our common stock to be made to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered hereby.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
some selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment options described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that 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, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transaction or that such transactions, once commenced, will
not be discontinued without notice.
79
<PAGE> 82
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus for
Neoforma.com. Shearman & Sterling, Menlo Park, California, will pass upon
specified legal matters in connection with this offering for the underwriters.
F&W Investments 1999, an investment partnership comprised of partners of Fenwick
& West LLP, holds 35,212 shares of our common stock.
EXPERTS
The financial statements of Neoforma.com, Inc. from inception (March 6,
1996) to December 31, 1998 and for the nine months ended September 30, 1998 and
1999, General Asset Recovery LLC for the years ended December 31, 1997 and 1998,
and FDI Information Resources, L.L.C. from inception (November 4, 1997) to
December 31, 1998 included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect 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 to the
registration statement. For further information with respect to Neoforma.com and
our common stock, we refer you to the registration statement and the exhibits
and schedules filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; we refer you to the
copy of each contract or document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by reference to that
exhibit. Upon completion of the offering, we will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information, as well as the
registration statement, exhibits and schedules, may be inspected, without
charge, or copied, at prescribed rates, at the public reference facility
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In
addition, the Commission maintains an Internet site that contains reports, proxy
and information statements, and other information, regarding issuers that file
electronically with the Commission. The address of the Commission's site is
http://www.sec.gov.
80
<PAGE> 83
NEOFORMA.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NEOFORMA.COM, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit).............................................. F-5
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-8
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Overview.................................................. F-28
Unaudited Pro Forma Condensed Combined Balance Sheets..... F-29
Unaudited Pro Forma Condensed Combined Statements of
Operations............................................. F-30
Notes to the Unaudited Pro Forma Condensed Combined
Financial Information.................................. F-32
GENERAL ASSET RECOVERY LLC
Report of Independent Public Accountants.................. F-33
Balance Sheets............................................ F-34
Statements of Operations.................................. F-35
Statements of Members' Equity (Deficit)................... F-36
Statements of Cash Flows.................................. F-37
Notes to Financial Statements............................. F-38
FDI INFORMATION RESOURCES, LLC
Report of Independent Public Accountants.................. F-41
Balance Sheets............................................ F-42
Statements of Operations.................................. F-43
Statements of Changes in Members' Equity (Deficit)........ F-44
Statements of Cash Flows.................................. F-45
Notes to Financial Statements............................. F-46
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Neoforma.com, Inc.:
We have audited the accompanying consolidated balance sheets of
Neoforma.com, Inc. (a Delaware corporation in the development stage) as of
September 30, 1999, and December 31, 1998 and 1997, and the related statements
of operations, changes in stockholders' deficit and cash flows for the nine
months ended September 30, 1999 and 1998 and the three years in the period ended
December 31, 1998 and for the period from inception (March 6, 1996) to September
30, 1999, and for the period from inception (March 6, 1996) to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neoforma.com, Inc. as of
September 30, 1999, and December 31, 1998 and 1997, and the results of its
operations and its cash flows for the nine months ended September 30, 1999 and
1998 and the three years in the period ended December 31, 1998 and for the
period from inception (March 6, 1996) to September 30, 1999, and for the period
from inception (March 6, 1996) to December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
November 19, 1999
F-2
<PAGE> 85
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS' EQUITY AT
--------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999 (NOTE 8)
----- ------- ------------- -----------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 32 $ 812 $ 655
Accounts receivable....................................... -- -- 277
Prepaid expenses and other current assets................. 5 45 380
Deferred debt costs, current portion...................... -- 11 413
----- ------- --------
Total current assets................................ 37 868 1,725
----- ------- --------
PROPERTY AND EQUIPMENT, net................................. 12 731 3,735
INTANGIBLES................................................. -- -- 9,445
OTHER ASSETS................................................ 6 63 393
DEFERRED DEBT COSTS, less current portion................... -- -- 705
----- ------- --------
Total assets........................................ $ 55 $ 1,662 $ 16,003
===== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable, current portion............................ $ -- $ 139 $ 3,560
Accounts payable.......................................... 22 285 4,226
Accrued payroll........................................... 13 141 935
Other accrued liabilities................................. 25 89 2,114
----- ------- --------
Total current liabilities........................... 60 654 10,835
----- ------- --------
NOTES PAYABLE, less current portion......................... 385 279 8,069
----- ------- --------
COMMITMENTS (Note 6)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series C-
Authorized -- 5,110 shares at September 30, 1999
Issued and outstanding; none at December 31, 1997; 5,065
shares at December 31, 1998 and September 30, 1999
(none pro forma); par value -- $0.001; liquidation
preference -- $3,900.................................. -- 3,884 3,884 $ --
----- ------- -------- --------
Series D-
Authorized -- 10,573 shares at September 30, 1999
Issued and outstanding: none at December 31, 1997; none
at December 31, 1998; 10,196 shares at September 30,
1999 (none pro forma); par value $0.001; liquidation
preference -- $12,032................................. -- -- 11,986 --
----- ------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A-convertible preferred stock; Authorized -- 9,000
shares at September 30, 1999
Issued and outstanding -- none at December 31, 1997;
9,000 shares at December 31, 1998 and September 30,
1999 (none pro forma); par value -- $0.001;
liquidation preference -- $2,250.................... -- 9 9 --
Series B-convertible preferred stock; Authorized -- 2,860
shares at September 30, 1999
Issued and outstanding -- none at December 31, 1997;
2,860 shares at December 31, 1998 and September 30,
1999 (none pro forma); par value -- $0.001;
liquidation preference -- $1,430.................... -- 3 3 --
Common Stock $0.001 par value:
Authorized -- 75,000 shares at September 30, 1999
Issued and outstanding -- 8,200 shares at December 31,
1997; 1,216 shares at December 31, 1998 and 9,024
shares at September 30, 1999 and 36,145 shares pro
forma................................................. 8 1 9 36
Warrants.................................................. -- 7 3,611 3,611
Additional paid-in capital................................ 72 1,915 55,843 71,698
Notes receivable from stockholders........................ -- (10) (1,302) (1,302)
Deferred compensation..................................... -- (47) (46,297) (46,297)
Deficit accumulated during the development stage.......... (470) (5,033) (30,647) (30,647)
----- ------- -------- --------
Total stockholders' equity (deficit)................ (390) (3,155) (18,771) $ (2,901)
===== ======= ======== ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 55 $ 1,662 $ 16,003
===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 86
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS FROM INCEPTION
ENDED (MARCH 6, 1996) THROUGH
YEARS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------
------------------------- ------------------ DECEMBER 31, SEPTEMBER 30,
1996 1997 1998 1998 1999 1998 1999
------ ------ ------- ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Transaction fees............. $ -- $ -- $ -- $ -- $ 451 $ -- $ 451
Website sponsorship fees and
other...................... -- -- -- -- 13 -- 13
------ ------ ------- ------- -------- ------- --------
Total revenue......... -- -- -- -- 464 -- 464
OPERATING EXPENSES:
Operations................... -- -- 627 458 2,399 627 3,026
Product development.......... 31 179 1,491 801 4,321 1,701 6,022
Selling and marketing........ 111 153 1,409 761 5,096 1,673 6,769
General and administrative... 54 76 1,075 330 5,812 1,205 7,017
Amortization of
intangibles................ -- -- -- -- 230 -- 230
Amortization of deferred
compensation............... -- -- 5 -- 5,662 5 5,667
Cost of warrant issued
to recruiter............... -- -- -- -- 2,364 -- 2,364
------ ------ ------- ------- -------- ------- --------
Total operating
expenses............ 196 408 4,607 2,350 25,884 5,211 31,095
------ ------ ------- ------- -------- ------- --------
Loss from
operations.......... (196) (408) (4,607) (2,350) (25,420) (5,211) (30,631)
OTHER INCOME (EXPENSE):
Interest income.............. -- -- 66 51 173 66 239
Interest expense............. -- (15) (22) (9) (337) (37) (374)
Other income (expense)....... 142 7 -- -- (30) 149 119
------ ------ ------- ------- -------- ------- --------
Net loss.............. $ (54) $ (416) $(4,563) $(2,308) $(25,614) $(5,033) $(30,647)
====== ====== ======= ======= ======== ======= ========
NET LOSS PER SHARE:
Basic and diluted............ $(0.01) $(0.05) $ (1.65) $ (0.61) $ (14.20)
====== ====== ======= ======= ========
Weighted-average
shares -- basic and
diluted.................... 8,000 8,083 2,762 3,807 1,804
====== ====== ======= ======= ========
PRO FORMA NET LOSS PER
SHARE (unaudited):
Basic and diluted............ $ (0.36) $ (0.94)
======= ========
Weighted-average
shares -- basic and
diluted.................... 12,848 27,225
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE> 87
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (MARCH 6, 1996) THROUGH SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL NOTES RECEIVABLE
--------------- --------------- --------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL STOCKHOLDERS
------ ------ ------ ------ ------ ------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 6, 1996
(inception)..................... -- $-- -- $-- -- $-- $ -- $ -- $ --
Common stock issued for cash of
$20 and intellectual property
valued at $10 at $0.00375 per
share in March 1996........... -- -- -- -- 8,000 8 -- 22 --
Net loss........................ -- -- -- -- -- -- -- -- --
----- --- ----- --- ------ --- ------ ------- -------
BALANCE, DECEMBER 31, 1996....... -- -- -- -- 8,000 8 -- 22 --
Common stock issued for cash at
$0.25 per share in May 1997... -- -- -- -- 100 -- -- 25 --
Common stock issued for cash at
$0.25 per share in October
1997.......................... -- -- -- -- 100 -- -- 25 --
Net loss........................ -- -- -- -- -- -- -- -- --
----- --- ----- --- ------ --- ------ ------- -------
BALANCE, DECEMBER 31, 1997....... -- -- -- -- 8,200 8 -- 72 --
Common stock issued for cash at
$0.25 per share in February
1998.......................... -- -- -- -- 800 1 -- 199 --
Common stock issued in exchange
for consulting services valued
at $0.25 per share in March
1998.......................... -- -- -- -- 500 -- 125 --
Conversion of founders stock to
Series A preferred stock at
$0.00375 per share in April
1998.......................... 8,000 8 -- -- (8,000) (8) -- -- --
Conversion of common stock to
Series A preferred stock at
$0.25 per share in April
1998.......................... 1,000 1 -- -- (1,000) (1) -- -- --
Preferred stock issued for cash
at $0.50 per share in April
and May 1998, net of issuance
costs......................... -- -- 2,520 3 -- -- -- 1,252 --
Conversion of notes payable to
Series B preferred stock at
$0.50 per share in May 1998... -- -- 340 -- -- -- -- 170 --
Common stock issued for cash as
a result of options exercised
at $0.05 per share in May
1998.......................... -- -- -- -- 516 1 -- 25 --
Issuance of warrants to purchase
common stock in November
1998.......................... -- -- -- -- -- -- 7 -- --
Common stock issued for cash as
a result of options exercised
at $0.10 per share in November
1998.......................... -- -- -- -- 200 -- -- 20 (10)
Deferred compensation........... -- -- -- -- -- -- -- 52 --
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- -- --
----- --- ----- --- ------ --- ------ ------- -------
BALANCE, DECEMBER 31, 1998....... 9,000 9 2,860 3 1,216 1 7 1,915 (10)
<CAPTION>
TOTAL
DEFICIT ACCUMULATED STOCKHOLDERS'
DEFERRED DURING THE EQUITY
COMPENSATION DEVELOPMENT STAGE (DEFICIT)
------------ -------------------- -------------
<S> <C> <C> <C>
BALANCE, MARCH 6, 1996
(inception)..................... $ -- $ -- $ --
Common stock issued for cash of
$20 and intellectual property
valued at $10 at $0.00375 per
share in March 1996........... -- -- 30
Net loss........................ -- (54) (54)
-------- -------- --------
BALANCE, DECEMBER 31, 1996....... -- (54) (24)
Common stock issued for cash at
$0.25 per share in May 1997... -- -- 25
Common stock issued for cash at
$0.25 per share in October
1997.......................... -- -- 25
Net loss........................ -- (416) (416)
-------- -------- --------
BALANCE, DECEMBER 31, 1997....... -- (470) (390)
Common stock issued for cash at
$0.25 per share in February
1998.......................... -- -- 200
Common stock issued in exchange
for consulting services valued
at $0.25 per share in March
1998.......................... -- -- 125
Conversion of founders stock to
Series A preferred stock at
$0.00375 per share in April
1998.......................... -- -- --
Conversion of common stock to
Series A preferred stock at
$0.25 per share in April
1998.......................... -- -- --
Preferred stock issued for cash
at $0.50 per share in April
and May 1998, net of issuance
costs......................... -- -- 1,255
Conversion of notes payable to
Series B preferred stock at
$0.50 per share in May 1998... -- -- 170
Common stock issued for cash as
a result of options exercised
at $0.05 per share in May
1998.......................... -- -- 26
Issuance of warrants to purchase
common stock in November
1998.......................... -- -- 7
Common stock issued for cash as
a result of options exercised
at $0.10 per share in November
1998.......................... -- -- 10
Deferred compensation........... (52) -- --
Amortization of deferred
compensation.................. 5 -- 5
Net loss........................ -- (4,563) (4,563)
-------- -------- --------
BALANCE, DECEMBER 31, 1998....... (47) (5,033) (3,155)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 88
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MARCH 6, 1996) THROUGH SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL NOTES RECEIVABLE
--------------- --------------- --------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL STOCKHOLDERS
------ ------ ------ ------ ------ ------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998....... 9,000 9 2,860 3 1,216 1 7 1,915 (10)
Repayment of note receivable from
shareholder...................... -- -- -- -- -- -- -- -- 10
Common stock issued as a result
of options exercised at $0.10
to $0.50 per share............ -- -- -- -- 7,797 8 -- 1,365 (1,302)
Valuation of stock options to
consultants for services
rendered...................... -- -- -- -- -- -- -- 644 --
Valuation of preferred stock
warrants issued to lender in
conjunction with debt in July
1999.......................... -- -- -- -- -- -- 640 -- --
Valuation of preferred stock
warrants issued to lender in
conjunction with debt in July
1999.......................... -- -- -- -- -- -- 600 -- --
Valuation of common stock issued
to consultants in September
1999.......................... -- -- -- -- 11 -- -- 7 --
Valuation of warrants to
purchase common stock issued
to consultants at $0.10 per
share in September 1999....... -- -- -- -- -- -- 2,364 -- --
Deferred compensation........... -- -- -- -- -- -- -- 51,912 --
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- -- --
----- --- ----- --- ------ --- ------ ------- -------
BALANCE, SEPTEMBER 30, 1999...... 9,000 $ 9 2,860 $ 3 9,024 $ 9 $3,611 $55,843 $(1,302)
===== === ===== === ====== === ====== ======= =======
<CAPTION>
TOTAL
DEFICIT ACCUMULATED STOCKHOLDERS'
DEFERRED DURING THE EQUITY
COMPENSATION DEVELOPMENT STAGE (DEFICIT)
------------ -------------------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1998....... (47) (5,033) (3,155)
Repayment of note receivable from
shareholder...................... -- -- 10
Common stock issued as a result
of options exercised at $0.10
to $0.50 per share............ -- -- 71
Valuation of stock options to
consultants for services
rendered...................... -- -- 644
Valuation of preferred stock
warrants issued to lender in
conjunction with debt in July
1999.......................... -- -- 640
Valuation of preferred stock
warrants issued to lender in
conjunction with debt in July
1999.......................... -- -- 600
Valuation of common stock issued
to consultants in September
1999.......................... -- -- 7
Valuation of warrants to
purchase common stock issued
to consultants at $0.10 per
share in September 1999....... -- -- 2,364
Deferred compensation........... (51,912) -- --
Amortization of deferred
compensation.................. 5,662 -- 5,662
Net loss........................ -- (25,614) (25,614)
-------- -------- --------
BALANCE, SEPTEMBER 30, 1999...... $(46,297) $(30,647) $(18,771)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 89
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS FROM INCEPTION
YEARS ENDED ENDED (MARCH 6, 1996) THROUGH
DECEMBER 31, SEPTEMBER 30, ----------------------------
----------------------- ------------------ DECEMBER 31, SEPTEMBER 30,
1996 1997 1998 1998 1999 1998 1999
---- ----- ------- ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.......................................... $(54) $(416) $(4,563) $(2,308) $(25,614) $(5,033) $(30,647)
Adjustment to reconcile net loss to net cash used
in operating activities:
Common stock issued in connection with consulting
services........................................ -- -- 125 125 7 125 132
Valuation of common stock options issued in
connection with consulting services............. -- -- -- -- 644 -- 644
Depreciation and amortization of property and
equipment....................................... 1 1 96 17 417 98 515
Amortization of intangibles....................... -- -- -- -- 230 -- 230
Amortization of deferred compensation............. -- -- 5 -- 5,662 5 5,667
Cost of warrant issued to recruiter............... -- -- -- -- 2,364 -- 2,364
Amortization of deferred debt costs............... -- -- 6 -- 133 6 139
Change in assets and liabilities, net of
acquisitions:
Accounts receivable, net........................ -- -- -- -- (277) -- (277)
Prepaid expenses and other assets............... (44) 43 (97) (70) (650) (98) (748)
Accounts payable................................ 10 12 263 164 3,866 285 4,151
Accrued liabilities and accrued payroll......... -- 38 192 248 2,794 230 3,024
---- ----- ------- ------- -------- ------- --------
Net cash used in operating activities......... (87) (322) (3,973) (1,824) (10,424) (4,382) (14,806)
---- ----- ------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for the acquisition of General Asset
Recovery LLC, net of cash acquired.............. -- -- -- -- (1,800) -- (1,800)
Cash paid on note issued in connection with the
acquisition of General Asset Recovery LLC....... -- -- -- -- (184) -- (184)
Purchases of property and equipment............... (1) (13) (825) (681) (3,411) (839) (4,250)
---- ----- ------- ------- -------- ------- --------
Net cash used in investing activities......... (1) (13) (825) (681) (5,395) (839) (6,234)
---- ----- ------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes payable....... 75 358 418 -- 3,741 851 4,592
Repayments of notes payable....................... -- (48) (215) (215) (146) (263) (409)
Proceeds from the issuance of Series B preferred
stock, net of issuance costs.................... -- -- 1,255 1,255 -- 1,255 1,255
Proceeds from the issuance of Series C mandatorily
redeemable convertible preferred stock, net of
issuance costs.................................. -- -- 3,884 3,884 -- 3,884 3,884
Proceeds from the issuance of Series D mandatorily
redeemable convertible preferred stock, net of
issuance costs.................................. -- -- -- -- 11,986 -- 11,986
Repayments of notes receivable from
stockholders.................................... -- -- -- -- 10 -- 10
Proceeds from the issuance of common stock, net of
notes receivable issued to common
stockholders.................................... 20 50 236 226 71 306 377
---- ----- ------- ------- -------- ------- --------
Net cash provided by financing activities..... 95 360 5,578 5,150 15,662 6,033 21,695
---- ----- ------- ------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................. 7 25 780 2,645 (157) 812 655
CASH AND CASH EQUIVALENTS, beginning of period...... -- 7 32 32 812 -- --
---- ----- ------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, end of period............ $ 7 $ 32 $ 812 $ 2,677 $ 655 $ 812 $ 655
==== ===== ======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Intellectual property acquired from founders in
exchange for common stock....................... $ 10 $ -- $ -- $ -- $ -- $ 10 $ 10
==== ===== ======= ======= ======== ======= ========
Cash paid during the period for interest.......... $ -- $ -- $ 14 $ -- $ 204 $ 14 $ 218
==== ===== ======= ======= ======== ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
Conversion of common stock into Series A preferred
stock........................................... $ -- $ -- $ 280 $ 280 $ -- $ 280 $ 280
==== ===== ======= ======= ======== ======= ========
Conversion of notes payable into Series B
preferred stock................................. $ -- $ -- $ 170 $ 170 $ -- $ 170 $ 170
==== ===== ======= ======= ======== ======= ========
Issuance of warrants to purchase common stock..... $ -- $ -- $ 7 $ -- $ 2,364 $ 7 $ 2,371
==== ===== ======= ======= ======== ======= ========
Issuance of warrants to purchase mandatorily
redeemable convertible preferred stock.......... $ -- $ -- $ -- $ -- $ 1,240 $ -- $ 1,240
==== ===== ======= ======= ======== ======= ========
Issuance of note payable to related party in
connection with acquisition of General Asset
Recovery LLC.................................... $ -- $ -- $ -- $ -- $ 7,800 $ -- $ 7,800
==== ===== ======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE> 90
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DEVELOPMENT STAGE RISKS:
Neoforma, Inc. (the "Company"), was incorporated on March 4, 1996 in the
state of California for the purpose of providing business-to-business e-commerce
services for the medical products, supplies and equipment marketplace. On
November 4, 1998, the Company re-incorporated in the state of Delaware. On
September 14, 1999, the Company changed its name to Neoforma.com, Inc. All
information for the year ended December 31, 1996 represents the period from
inception (March 6, 1996) to December 31, 1996.
From inception, the Company has been primarily engaged in organizational
activities, including designing and developing its website, recruiting
personnel, establishing office facilities, raising capital and developing a
marketing plan. The Company began revenue generation activities in 1999 but no
significant revenue has been generated as of September 30, 1999. Accordingly,
the Company is classified as a development stage company. Successful completion
of the Company's development program and, ultimately, the attainment of
profitable operations is dependent upon future events, including obtaining
adequate financing to fulfill its development activities, increasing its
customer base, implementing and successfully executing its business and
marketing strategy and hiring and retaining quality personnel. Negative
developments in any of these conditions could have a material adverse effect on
the Company's business, financial condition and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Neoforma.com,
Inc. and its wholly owned subsidiary General Asset Recovery LLC. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company categorizes its services into three primary service lines.
These service lines are Shop, Auction and Plan. Shop revenue is derived from
transaction fees paid by sellers of medical products on the Company's website
and development fees from participating sellers to digitize the seller's product
information for display on the Company's website. Auction revenue is derived
from transaction fees paid by sellers of medical products on the Company's
website and from consigned inventory sold at live auctions. In addition, Auction
revenue includes product revenue related to the sale of medical equipment
purchased by the Company for sale on the Company's website and at live auctions,
and subscription fees for asset recovery services. Plan revenue is derived from
sponsorship fees and software license fees for facilities planning services.
F-8
<PAGE> 91
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Transaction fee revenue represents the Company's percentage of the gross
transaction fees at the time the buyer's order is confirmed or accepted by the
seller. The gross transaction fees include fees paid or payable to sellers. The
Company defers a portion of the transaction fee at the time of acceptance for
potential returns.
Development fee revenue is recognized as development services are
performed. Sponsorship and subscription fee revenues are recognized ratably over
the period of the service agreement.
Product revenue represents the net revenue derived from deducting the
direct costs of products sold from the gross sales amount. Product revenue is
recognized when the product is shipped or delivered, depending on the shipping
terms associated with each transaction. At the time of sale, the Company defers
a portion of product revenue for potential returns. The Company did not have
product revenue for any of the periods presented.
CONCENTRATION OF CREDIT RISK
Financial instruments that may subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents. Cash is on deposit
with one financial institution. Cash investments include high quality short-term
money market instruments through a high credit quality financial institution.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Cash and cash equivalents consist of cash in banks, investments in money
market accounts and treasury bills and are stated at cost which approximates
fair market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and are depreciated on a
straight-line basis over two to four years. Leasehold improvements are
amortized, using the straight-line method, over the shorter of the lease term or
the useful lives of the improvements. Repairs and maintenance costs are expensed
as incurred.
INTANGIBLES
Intangibles consist of goodwill, which represents the amount of purchase
price in excess of the fair value of the tangible net assets resulting from the
acquisition of General Asset Recovery LLC (see Note 3). The goodwill is
amortized on a straight-line basis over a period of seven years. Goodwill will
be evaluated quarterly for impairment and written down to net-realizable value,
if necessary. No impairment has been recorded to date.
F-9
<PAGE> 92
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS No. 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets.
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop and enhance the Company's website. Product development costs are
expensed as incurred.
COST OF WARRANT ISSUED TO RECRUITER
For the nine months ended September 30, 1999, the Company recorded $2.4
million of cost of warrant issued to recruiter related to the valuation of a
warrant issued to an executive search firm in connection with services rendered
in the search for the Company's Chief Executive Officer (See Note 10).
STOCK BASED COMPENSATION PLAN
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which became effective
for the Company's 1996 fiscal year. SFAS No. 123 allows companies which have
stock-based compensation arrangements with employees to adopt a new fair-value
basis of accounting for stock options and other equity instruments or to
continue to apply the existing accounting rules under Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," but with
additional financial statement disclosure. The Company has elected to account
for stock-based compensation expense under APB No. 25 and make the required pro
forma disclosures for compensation expense (see Note 11).
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, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. Through September 30, 1999 the Company
has not had any transactions that are required to be reported in comprehensive
income.
SEGMENT INFORMATION
The Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the years ended
December 31, 1996, 1997 and 1998 and the nine months ended September 30, 1999,
the Company operated in a single business segment providing e-commerce content
to healthcare professionals in the medical product, supplies, and
F-10
<PAGE> 93
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equipment industry. For the nine months ended September 30, 1999, the Company
generated 97% of its revenues from transaction fees associated with live auction
sales. Through September 30, 1999, foreign operations have not been significant
in either revenue or investment in long-lived assets.
BASIC AND DILUTED NET LOSS PER SHARE AND PRO FORMA BASIC AND DILUTED NET LOSS
PER SHARE
Basic net loss per share on a historical basis is computed using the
weighted-average number of shares of common stock outstanding. Diluted net loss
per common share was the same as basic net loss per share for all periods
presented since the effect of any potentially dilutive security is excluded, as
they are anti-dilutive as a result of the Company's net losses. The total number
of shares excluded from the diluted loss per share calculation relating to these
securities was approximately none, 300,000, 18.0 million, 18.2 million and 33.1
million shares for the years ended December 31, 1996, 1997, and 1998 and for the
nine months ended September 30, 1998 and 1999, respectively.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, convertible preferred stock and common stock issued or granted
for nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if they had been outstanding for all periods presented.
To date, the Company has not had any issuance or grants for nominal
consideration.
Pro forma basic and diluted net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding
for the period (excluding shares subject to repurchase) plus the weighted
average number of common shares resulting from the automatic conversion of
outstanding shares of convertible preferred stock, which will occur upon the
closing of the planned initial public offering.
F-11
<PAGE> 94
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net loss.............................. $ (54) $ (416) $(4,563) $(2,308) $(25,614)
====== ====== ======= ======= ========
Basic and diluted:
Weighted average shares of common
stock outstanding................ 8,000 8,083 2,977 3,973 3,261
Less: Weighted average shares of
common stock subject to
repurchase....................... -- -- (215) (166) (1,457)
Weighted average shares used in
computing basic and diluted net
loss per share................... 8,000 8,083 2,762 3,807 1,804
====== ====== ======= ======= ========
Basic and diluted net loss per
common share..................... $(0.01) $(0.05) $ (1.65) $ (0.61) $ (14.20)
====== ====== ======= ======= ========
Pro forma:
Net loss......................... $(4,563) $(25,614)
======= ========
Shares used above..................... 2,762 1,804
Pro forma adjustment to reflect
weighted average effect of assumed
conversion of convertible preferred
stock (unaudited)................... 10,086 25,421
------- --------
Weighted average shares used in
computing pro forma basic and
diluted net loss per share
(unaudited)......................... 12,848 27,225
======= ========
Pro forma basic and diluted net loss
per share (unaudited)............... $ (0.36) $ (0.94)
======= ========
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal use." SOP No. 98-1
requires entities to capitalize certain costs related to internal-use software
once certain criteria has been met. Neoforma.com adopted SOP No. 98-1 in fiscal
1999. The adoption of SOP No. 98-1 did not have a material impact on the
Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" SFAS No. 133 will be effective for
Neoforma.com on January 1, 2000. SFAS No. 133 requires certain accounting and
reporting standards for derivative financial instruments and hedging activities.
Because the Company does not currently hold any derivative instruments and does
F-12
<PAGE> 95
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
not engage in hedging activities, management does not believe that the adoption
of SFAS No. 133 will have a material impact on the Company's financial position
or results of operations.
3. ACQUISITION:
In August 1999, the Company acquired substantially all of the assets of
General Asset Recovery LLC ("GAR"), a live auction house and asset management
company focused on medical products. Accordingly, the operations of GAR have
been included in the accompanying September 30, 1999 statement of operations
from the date of acquisition. The acquisition was accounted for using the
purchase method of accounting and accordingly, the purchase price was allocated
to the tangible and intangible assets acquired and liabilities assumed on the
basis of their respective fair values on the acquisition date. According to the
terms of the agreement, a segment of GAR's operations which related to the
auction of non-medical industrial products ("Industrial") was sold back to one
of the original owners of GAR for nominal consideration. Accordingly, the
revenue and direct costs associated with the Industrial operations eliminated in
the pro forma tables presented below.
The total purchase price of approximately $9.7 million consisted of $1.7
million in cash, a note payable of $7.8 million, the assumption of $100,000 of
liabilities and acquisition-related expenses of $100,000. In the allocation of
the purchase price, $25,000 was allocated to tangible assets and $9,675,000 was
allocated to goodwill. The intangible assets will be amortized over an estimated
life of seven years. The note payable is due over a five-year period and bears
interest at 7% per annum.
The unaudited pro forma results of operations of the Company and GAR for
the year ended December 31, 1998 and the nine months ended September 30, 1999,
assuming the acquisition took place at the beginning of each period, are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Revenue.............................................. $ 1,514 $ 2,028
======= ========
Net loss............................................. $(6,778) $(26,828)
======= ========
Basic and diluted net loss per share................. $ (2.45) $ (14.87)
======= ========
</TABLE>
F-13
<PAGE> 96
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
As of December 31, 1997, 1998 and September 30, 1999, property and
equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Computers and test equipment................................ $10 $580 $2,797
Software.................................................... 4 78 696
Furniture and fixtures...................................... -- 140 610
Leasehold improvements...................................... -- 41 147
--- ---- ------
14 839 4,250
Less: Accumulated depreciation and amortization............. (2) (108) (515)
--- ---- ------
Property and equipment, net................................. $12 $731 $3,735
=== ==== ======
</TABLE>
5. LOANS AND NOTES PAYABLE:
In 1996 and 1997, certain stockholders exchanged cash for notes payable.
The interest rate for the notes was 5.6%. These notes were convertible into
Series B preferred stock. As of December 31, 1998, $170,000 of the $385,000
notes payable were converted and the remainder was paid in full.
In June 1998, the Company entered into a $750,000 secured credit facility
with a bank. This facility included a $225,000 term loan due December 1999 and
an equipment loan facility providing for up to $525,000 of equipment loans. In
July 1999, the Company converted $433,000 of outstanding equipment loans into a
term loan due June 2000, which bears interest at the lender's prime rate (8.25%
as of September 30, 1999). At September 30, 1999, there were borrowings of
approximately $225,000 and $404,000 under the term loan and equipment loan,
respectively. This facility is secured by substantially all of the Company's
assets other than equipment. In consideration for this credit facility, the
Company granted the bank a warrant to purchase 45,000 shares of Series C
preferred stock at an exercise price of $0.77 per share. In July 1999, in
consideration for the conversion of the equipment loan to a term loan and the
release of the security interest in equipment, the Company granted the bank a
warrant to purchase 10,000 shares of Series D preferred stock at an exercise
price of $1.18 per share (see Note 10).
In May 1999, the Company entered into a subordinated loan agreement (the
"loan agreement") with a lender under which it can borrow up to $2.0 million.
The loan agreement bears interest at 12.5% and expires in July 2002. At
September 30, 1999 there were borrowings of approximately $1.9 million
outstanding under the loan agreement. The loan agreement is collateralized by
all of the assets of the Company. In addition, a warrant to purchase 228,813
shares of Series D preferred stock at an exercise price of $1.18 per share was
issued in conjunction with the loan agreement (see Note 10).
In July 1999, the Company entered into a $2.5 million loan/lease facility
with a lender to finance computer hardware and software equipment. Hardware
amounts bear interest at 9% per annum and are payable in 48 monthly installments
consisting of interest-only payments for the first nine months and principal and
interest payments for the remaining 39 months, with a balloon payment of the
remaining principal payable at maturity. Software amounts bear interest at 8%
per annum and are payable in 30 monthly installments consisting of interest-only
for the first four months
F-14
<PAGE> 97
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and principal and interest for the remaining 26 months, with a balloon payment
of the remaining principal payable at maturity. The computer equipment purchased
secures this facility. In connection with this facility, the Company issued the
lender a warrant to purchase 137,711 shares of our Series D preferred stock at
$1.18 per share (see Note 10). At September 30, 1999, the principal balance was
1.6 million.
As part of the purchase price of GAR (see Note 3), the Company issued in
August 1999 a promissory note payable to an owner of GAR in the amount of $7.8
million. The note bears interest at 7% per annum and is payable in 60 monthly
installments of scheduled principal amounts plus interest. At September 30, 1999
the remaining principal balance was approximately $7.6 million.
Future maturities of principal on the loans and notes payable as of
September 30, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................... $ 3,560
2001........................................... 2,835
2002........................................... 2,706
2003........................................... 1,931
2004........................................... 596
-------
$11,628
=======
</TABLE>
6. COMMITMENTS
The Company leases its office facilities under an operating lease. Rent
expense for the years ended December 31, 1996, 1997 and 1998 and for the nine
months ended September 30, 1998 and 1999 was approximately $22,000, $40,000,
$304,000, $81,000 and, $370,000, respectively.
Future minimum obligations under the non-cancelable operating lease at
September 30, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................ $1,132
2001............................................ 1,109
2002............................................ 1,150
2003............................................ 1,191
2004............................................ 885
Thereafter...................................... 847
------
$6,314
======
</TABLE>
In May 1999, the Company entered into an agreement with a non-profit health
services research organization (the "Organization"), which allows the Company to
use content from the Organization's database of information about medical
products and manufacturers and obtain a license to use elements of its
classification system. Additionally, the agreement provides for joint marketing
activities and collaboration in the creation of a database of product and vendor
information. This agreement requires the Company to make revenue sharing
payments to the Organization during the three-year term of the agreement and for
two years following expiration or termination of the agreement with respect to
revenue derived from the Company's Plan service. During the second and
F-15
<PAGE> 98
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
third years, the Company is required to pay a nonrefundable fee of $600,000 per
year, in equal monthly installments, which shall be credited against any revenue
sharing amounts payable.
7. LITIGATION
On August 6, 1999, Fisher Scientific International, Inc. ("Fisher") filed a
petition in the District Court of Montgomery County, Texas, against the Company
and an individual that the Company had hired to serve as Executive Vice
President of Sales. Fisher previously employed this individual and Fisher
alleged, among other things, unfair competition and breach of a covenant not to
compete. On November 11, 1999, the case was settled out of court. The terms of
the settlement are such that the Company agreed to issue 176,057 shares of the
Company Series E Preferred Stock at $5.68 per share to Fisher in exchange for
cash and reimbursement of Fisher's legal fees. The Company recorded a liability
of $650,000 representing estimated legal fees and the related expense is
included in general and administrative expenses for the nine months ended
September 30, 1999. As of September 30, 1999, no settlement costs have been
paid.
8. STOCKHOLDERS' EQUITY
On October 12, 1999 the Company amended and restated its articles of
incorporation. The number of authorized shares of was increased to 200,000,000
and 40,747,048 shares of common stock and preferred stock, respectively. The
preferred stock authorized is designated as 9,000,000, 2,860,000, 5,109,937,
10,572,886, 11,168,662, and 2,035,563 shares of Series A, B, C, D, E, and E-1
preferred stock, respectively (see Note 9).
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
In October 1999, the Company's board of directors authorized the filing of
a registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with the proposed initial public
offering ("IPO"). If the IPO is consummated under the terms presently
anticipated, all of the currently outstanding shares of preferred stock and the
mandatorily redeemable convertible preferred stock will be converted into shares
of common stock upon the closing of the IPO. The effect of this conversion has
been reflected as unaudited pro forma stockholders' equity in the accompanying
consolidated balance sheet as of September 30, 1999.
COMMON STOCK
As of September 30, 1999, the Company has reserved the following shares of
common stock for future issuance as follows (in thousands):
<TABLE>
<S> <C>
Conversion of Series A outstanding preferred stock.......... 9,000
Conversion of Series B outstanding preferred stock.......... 2,860
Conversion of Series C outstanding preferred stock.......... 5,065
Conversion of Series D outstanding preferred stock.......... 10,196
1997 Stock Option Plan...................................... 7,769
Conversion of warrants outstanding.......................... 858
------
35,748
======
</TABLE>
F-16
<PAGE> 99
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 1998, the Company amended an agreement
to issue approximately 26,000 shares of common stock in exchange for services
rendered. As of December 31, 1998 approximately 17,000 of the shares were due
but had not been issued. In February 1999, approximately 13,000 of the shares
were issued. Approximately 9,000 additional shares of common stock were due
under the terms of the same agreement for the period ended September 30, 1999.
As of September 30, 1999, such shares had not been issued; however, the related
expense associated with the issued shares is included in the accompanying
consolidated statements of operations.
PREFERRED STOCK
Preferred stock consists of 9,000,000 shares designated as Series A
preferred stock ("Series A") and 2,860,000 shares designated as Series B
preferred stock ("Series B"). The Series A preferred stock was issued in
exchange for 9,000,000 shares of previously issued common stock. The Series B
preferred stock was issued for cash at $0.50 per share.
The rights and preferences of the outstanding Series A and B preferred
stock are as follows:
DIVIDENDS
The holders of Series A and B preferred stock are entitled to receive
non-cumulative dividends at $.02 and $.04 per share, respectively, or, if
greater, an amount equal to that paid on any other outstanding shares of the
Company, except that the shares of a given series of preferred stock shall not
receive any greater dividend as a result of the Company's payment of a dividend
on any such series of preferred stock. Such dividends shall be payable only
when, as, and if declared by the board of directors. No dividends shall be
payable on any common stock until dividends to Series A and Series B preferred
stock have been paid or declared by the board of directors. As of September 30,
1999, no dividends had been declared.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A and B are entitled to receive (along with the liquidation
preference available to Series C and D stockholders -- see Note 9), in
preference to holders of common stock, the amount of $0.25 and $0.50 per share,
respectively, plus all declared but unpaid dividends. Such amounts will be
adjusted for any stock split, stock dividends and recapitalizations. If such
assets of the Company are not available to sufficiently satisfy the full
preferential amount of all series of preferred stock then the entire assets and
funds of the Company shall be distributed among the holders of all series of the
preferred stock in accordance with the aggregate preference payment to which
they are entitled. After the payment or the setting aside of the payment set
forth above, the remaining assets of the corporation shall be distributed on a
pro-rata basis to the holders of the preferred stock, on an as-converted basis,
and the holders of common stock until the holders of the Series A, B, C and D
have received an additional $0.25, $0.50, $0.77 and $1.18 per share,
respectively. After the distributions to the holders of preferred stock and
redeemable preferred stock have been made the remaining assets of the
corporation available for distribution to shareholders shall be distributed
pro-rata among the holders of common stock.
F-17
<PAGE> 100
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
VOTING RIGHTS
The holders of the Series A and B are entitled to a number of votes equal
to a number of shares of common stock into which such preferred stock is
convertible.
CONVERSION
Each share of Series A and B is convertible into one share of common stock
at the option of the holder at any time after the date of issuance of such
shares, and automatically converts at the consummation of the Company's sale of
common stock in an underwritten public offering which results in net cash
proceeds to the Company of at least $60,000,000 and an offering price to the
public of a least $7.00 per share. The conversion rate is subject to adjustment
for dilution, including but not limited to, stock splits, stocks dividends and
stock combinations.
9. MANDATORILY REDEEMABLE PREFERRED STOCK:
In August 1998, the Company completed an offering of 5,064,937 shares of
Series C mandatorily redeemable preferred stock ("Series C") at $0.77 per share.
Total proceeds of the offering amounted to approximately $3.9 million.
On February 19, 1999 the Company completed an offering of 10,196,361 shares
of Series D mandatorily redeemable preferred stock ("Series D") at $1.18 per
share. Total proceeds of the offering amounted to approximately $12.0 million.
On October 12, 1999 the Company completed an offering of 10,658,070 shares
of Series E mandatorily redeemable preferred stock ("Series E") and 2,035,563
shares of Series E-1 mandatorily redeemable preferred stock ("Series E-1") at
$5.68 per share. Included in the issuance of the Series E-1 is 275,000 shares
issued in connection with a strategic alliance the Company entered into in
October 1999. Thus, the net cash proceeds amounted to approximately $70.5
million. In addition, the Company agreed to issue 176,057 shares of the
Company's Series E at $5.68 per share in settlement of a lawsuit in exchange for
cash and reimbursement of legal fees (see Note 7).
The rights and preferences of the outstanding Series C, D, E and E-1 are as
follows:
DIVIDENDS
The holders of Series C, D, E and E-1 are entitled to receive
non-cumulative dividends at $0.062, $0.0944, $0.4544, and $0.4544 per share
annum, respectively, or, if greater, an amount equal to that paid on any other
outstanding shares of the Company, except that the shares of a given series of
preferred stock shall not receive any greater dividend as a result of the
Company's payment of a dividend on any such series of preferred stock. Such
dividends shall be payable only when, as, and if declared by the board of
directors. As of September 30, 1999, no dividends had been declared.
If the offering price to the public of the Company's Common Stock in the
IPO is at least $7.00 per share but less than $10.00 per share, the Company will
record a preferred stock dividend of up to approximately $22 million relating to
the Series E and E-1 beneficial conversion rights that will be triggered on the
effective date of the Company's IPO. If the public offering price is $10.00 per
share or more, there will not be a preferred stock dividend charge.
F-18
<PAGE> 101
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
holders of Series C, D, E, and E-1 are entitled to receive (along with the
liquidation preference available to Series A and B stockholders -- see Note 8)
in preference to the amount of $0.77, $1.18, $5.68, and $5.68 per share,
respectively, plus all declared but unpaid dividends. Such amounts will be
adjusted for any stock split, stock dividends and recapitalizations. In the
occurrence, or in the event the Company assets and funds are unable to
sufficiently satisfy the full preferential amounts of all series of preferred
stock, the Company will then distribute their entire assets and funds that are
legally available among the holders of all series of preferred stock in
accordance with the aggregate preference payment to which they are entitled.
After the payment or the setting aside of the payment set forth above, the
remaining assets and funds of the Company that are legally available shall be
distributed, on a pro-rata basis to the holders of the preferred stock, on an
as-converted basis, and the holders of common stock until the holders of the
Series A, B, C, D, E, and E-1, have received an additional $0.25, $0.50, $0.77,
$1.18, $5.68 and $5.68 per share, respectively.
After the distributions to the holders of preferred stock and redeemable
preferred stock have been made, the remaining assets of the corporation
available for distribution to stockholders shall be distributed pro rata solely
among the holders of common stock.
VOTING RIGHTS
The holders of the Series C, D, E and E-1 are entitled to the number of
votes equal to a number of shares of common stock into which such redeemable
preferred stock is convertible.
CONVERSION
Each share of Series C, D, E, and E-1 is convertible into one share of
common stock at the option of the holder at any time after the date of issuance
of such shares, and automatically converts at the consummation of the Company's
sale of common stock in an underwritten public offering which results in net
cash proceeds to the Company of at least $60,000,000 and an offering price to
the public of at least $7.00 per share. The conversion rate is subject to
adjustment for dilution, including, but not limited to, stock splits, stock
dividends and stock combinations.
The Series E and E-1 will be subject to the following adjustment:
If the offering price to the public of the Company's common stock in the
IPO is at least $7.00 per share but less than $10.00 per share, each share of
Series E and E-1 will convert into the number of shares of common stock
determined by (1) dividing the offering price to the public by $10.00 and
multiplying the quotient obtained by the conversion price of the Series E and
E-1 then in effect (the "Conversion Price") and (2) dividing $5.68 by the
Conversion Price.
The Series E-1 will be subject to the following additional adjustments:
(1) If the Company achieves $11.75 million or more of combined revenue from
its Shop and Plan operations for fiscal year 2000, as set forth in the financial
plan provided to the investors by the
F-19
<PAGE> 102
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company (the "Financial Plan"), then each share of Series E-1 will be converted
into 0.7143 shares of common stock; and
(2) If the Company achieves $5 million or less of combined revenue from its
Shop and Plan operations for fiscal year 2000, as set forth in the Financial
Plan, and a holder of Series E-1 shares is in compliance with the terms of its
commercial agreement with the Company, then each share of Series E-1 will be
converted into 1.6667 shares of common stock.
MANDATORY REDEMPTION
Upon the affirmative vote of the holders of the majority of the Series C,
D, E, and E-1 the Company can be required to redeem all shares of Series C, D, E
and E-1 outstanding as of the date of such demand, which date shall hereinafter
be referred to as the "Redemption Date." The Redemption Price of the Series C,
D, E and E-1 will be $0.77, $1.18, $5.68 and $5.68 per share, respectively,
subject to adjustment for dilution. The stockholders cannot require redemption
prior to seven years after the issuance of the Series C, D, E, and E-1.
Beginning with the first year anniversary of the Redemption Date, the
Company shall be required to redeem annually no more than that number of shares
of Series C, D, E and E-1, equal to 25% of the Series C, D, E, and E-1,
outstanding as of the Redemption Date. From and after the Redemption Date, all
rights of the shares designated for redemption shall cease with respect to such
shares. If the funds of the Company legally available for redemption of Series
C, D, E and E-1 on any Redemption Date are insufficient to redeem the total
number of shares of the Series C, D, E, and E-1 to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
number of such shares on a pro rata basis among the holders of Series C, D, E
and E-1 based on each holder's share of the total redemption price. At any time
thereafter when additional funds of the Company are legally available for the
redemption of the shares of the Series C, D, E and E-1, such funds will
immediately be set aside for the Redemption Date but which it has not redeemed.
10. WARRANTS:
In June 1998, the Company issued a warrant to purchase 45,000 shares of
Series C at an exercise price of $0.77 per share in conjunction with a loan
agreement. The fair value of the warrant at the date of issuance was determined
to be approximately $7,000 and was estimated using the Black-Scholes valuation
model with the following assumptions: risk-free rate of 5.6%; expected life of
one year; and expected volatility of 70%. This amount is being recognized as
additional interest expense over the expected life of the loan agreement.
In May 1999, the Company issued a warrant to purchase 228,813 shares of
Series D at $1.18 per share in connection with a loan agreement. The warrant is
exercisable immediately and expires the later of May 12, 2006 or three years
from the effective date of an initial public offering. The fair value of the
warrant at the date of issuance was determined to be approximately $640,000 and
was estimated using the Black-Scholes valuation model with the following
assumptions: risk-free interest rate of 5.0%; expected life of one year; and
expected volatility of 70%. This amount will be recognized as additional
interest expense over the expected life of the loan agreement.
F-20
<PAGE> 103
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1999, the Company issued a warrant to purchase 10,000 shares of
Series D at an exercise price of $1.18 per share in conjunction with a loan
agreement. The fair value of the warrant at the date of issuance was determined
to approximately $40,000 and was estimated using the Black-Scholes valuation
model with the following assumptions: risk-free rate of 5.3%; expected life of
one year; and expected volatility of 70%. This amount will be recognized as
additional interest expense over the expected life of the loan agreement.
In July 1999, the Company issued a warrant to purchase 137,711 shares of
Series D at $1.18 per share in connection with an equipment lease line. The
warrant is exercisable immediately and expires the later of July 7, 2006 or
three years from the effective date of an initial public offering. The fair
value of the warrant at the date of issuance was determined to be approximately
$559,000 and was estimated using the Black-Scholes valuation model with the
following assumptions: risk-free interest rate of 5.3%; expected life of one
year; and expected volatility of 70%. This amount will be recognized as
additional interest expense over the expected life of the lease line.
In September 1999, the Company issued to a retained executive search firm a
warrant to purchase 436,623 shares of the Company's common stock at an exercise
price of $0.10 per share. The warrant is exercisable immediately and expires on
September 9, 2009. The fair value of the warrant was determined to be
approximately $2.4 million and was estimated using the Black-Scholes valuation
model with the following assumptions: risk-free interest rate of 5.5%; expected
life of four months; and expected volatility of 70%. This expense is included in
cost of warrant issued to recruiter for the nine months ended September 30,
1999.
As of September 30, 1999, none of the warrants mentioned above had been
exercised.
11. STOCK OPTIONS:
1997 STOCK PLAN
The Company, under the 1997 Stock Plan (the "Plan"), reserved approximately
14.7 million shares of common stock. The stock is reserved for the employees,
directors, and consultants. The term of each option will be stated in the option
agreement and is not to exceed 10 years after the grant date. If the optionee
owns stock representing more than 10% of the voting power the term of the option
will not exceed 5 years after the grant date.
Option pricing shall be no less than 85% of the fair market value per share
on the date of the grant. If the optionee owns stock representing more than 10%
of the voting power the option price shall not be less than 110% of the fair
market value per share on the date of the grant. If the stock option is an
incentive stock option, then the price for the stock cannot be less than 100% of
the fair market value per share on the date of the grant.
Any option granted shall be exercisable at such times and under such
conditions as determined by the board of directors. However, for most options,
25% of the shares subject to the option shall vest 12 months after the vesting
commencement date, and 1/48 of the shares shall vest each month thereafter.
Options under the Plan are exercisable immediately, subject to repurchase rights
held by the Company, which lapse over the vesting period as determined.
F-21
<PAGE> 104
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's right of repurchase will lapse at a rate determined by the
board of directors. However, for most options the Company's right to repurchase
will lapse at a rate of 25% of the shares after the first 12 months and 1/48 of
the shares, per month, after the vesting commencement date.
Activity under the Plan was as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------
SHARES WEIGHTED-
AVAILABLE AVERAGE
FOR GRANT NUMBER EXERCISE PRICE
--------- ------ --------------
<S> <C> <C> <C>
BALANCE, JANUARY 24, 1997..................... 1,000 -- $ --
Granted under the Plan........................ (300) 300 $0.05
------- ------ -----
BALANCE, DECEMBER 31, 1997.................... 700 300 $0.05
Authorized.................................. 1,000 -- $ --
Granted..................................... (1,458) 1,458 $0.08
Exercised................................... -- (716) $0.06
Canceled.................................... 30 (30) $0.10
------- ------ -----
BALANCE, DECEMBER 31, 1998.................... 272 1,012 $0.09
Authorized.................................. 12,656 -- $ --
Granted under the Plan...................... (10,912) 10,912 $0.20
Granted outside of the Plan(a).............. -- 1,637 $0.10
Exercised................................... -- (7,808) $0.20
Canceled.................................... 640 (640) $0.10
------- ------ -----
BALANCE, SEPTEMBER 30, 1999................... 2,656 5,113 $0.20
======= ====== =====
</TABLE>
- -------------------------
(a) In July 1999, the Company granted on option to purchase approximately
1,637,000 shares of common stock to the Company's Chief Executive Officer.
Such options were issued outside of the Plan.
The Company accounts for the Plan under the provisions of APB No. 25. Had
compensation expense for the stock option plans been determined consistent with
SFAS No. 123, net losses would have increased to the following pro forma amounts
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
DECEMBER 31, ENDED
----------------- SEPTEMBER 30,
1997 1998 1999
------ ------- -------------
<S> <C> <C> <C>
Net loss as reported........................... $ (416) $(4,563) $(25,614)
====== ======= ========
Net loss pro forma............................. $ (424) $(4,597) $(36,041)
====== ======= ========
Net loss per share as reported................. $(0.05) $ (1.65) $ (14.20)
====== ======= ========
Net loss per share pro forma................... $(0.05) $ (1.66) $ (19.98)
====== ======= ========
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999 was
$0.03, $0.07, and $4.26, respectively.
F-22
<PAGE> 105
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following assumptions: risk-free
interest rates ranging from 4.22 to 5.99 percent; expected dividend yields of
zero percent for all four periods; an average expected life of 3.5 years; and
expected volatility of 0.001% for all periods except the nine months ended
September 30, 1999, for which a volatility factor of 70% was used.
The following table summarizes the stock options outstanding and
exercisable as of September 30, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICE NUMBER YEARS PRICE NUMBER PRICE
- -------- ------ --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$0.05 193 8.7 $0.05 193 $0.05
$0.10 3,566 9.5 $0.10 3,566 $0.10
$0.50 1,354 9.9 $0.50 1,354 $0.50
----- --- ----- ----- -----
5,113 9.6 $0.20 5,113 $0.20
===== === ===== ===== =====
</TABLE>
During October 1999 the board of directors approved a change in the Plan
providing for the exercise of options prior to an employee's vesting date. At
September 30, 1999, 5,421,178 shares previously issued under the Plan were
subject to repurchase at a weighted-average exercise price of $0.21 per share.
At September 30, 1999, 183,609 outstanding options were vested and exercisable.
DEFERRED COMPENSATION
In connection with the grant of certain stock options to employees during
fiscal 1998 and for the nine months ended September 30, 1999, the Company
recorded deferred compensation of approximately $52 million, representing the
difference between the estimated fair value of the common stock for accounting
purposes and the option exercise price of these options at the date of grant.
Such amount is presented as a reduction of stockholders' equity and amortized
over the vesting period of the applicable options using an accelerated method of
amortization. Under the accelerated method, each vested tranche of options is
accounted for as a separate option grant awarded for past services. Accordingly,
the compensation expense is recognized over the period during which the services
will be provided; however, the method results in a front-loading of the
compensation expense. Based on the above assumptions, the weighted-average fair
values per share of options granted were $0.29 and $4.60 for the year ended
December 31, 1998 and for the nine months ended September 30, 1999,
respectively. The Company recorded amortization of deferred compensation of $5.7
million during the nine months ended September 30, 1999.
12. INCOME TAXES:
Effective January 1, 1998, the Company accounts for income taxes pursuant
to the provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS 109
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
F-23
<PAGE> 106
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined using the current applicable enacted tax rate and
provisions of the enacted tax law.
Due to the Company's loss position, there was no provision for income taxes
for the year ended December 31, 1998 and nine months ended September 30, 1999.
At inception, the Company elected S-Corporation status. As of January 1,
1998, the Company elected C-Corporation status for Federal and state purposes.
As a result, the Company is not entitled to any tax benefits associated with the
period prior to C-Corporation election.
At September 30, 1999, the Company had cumulative net operating loss carry
forwards of approximately $19.0 million for Federal and state income tax
purposes, expiring in the years ended 2018 and 2006, respectively.
At September 30, 1999, the Company had cumulative research and development
credit carry forwards of approximately $116,000 and $126,000 for Federal and
state income tax purposes, respectively. These credits are subject to expiration
through various periods through 2018.
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss and credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership.
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Temporary differences................................ $ 943 $ 943
Net operating loss carryforwards..................... 1,845 8,337
Research and development tax credit carryforwards.... 102 242
------- -------
2,890 9,522
Valuation allowance.................................. (2,890) (9,522)
------- -------
$ -- $ --
======= =======
</TABLE>
Due to uncertainty surrounding the realization of the deferred tax
attributes in future years, the Company has recorded a valuation allowance
against its net deferred tax assets.
The provision for income taxes at the Company's effective tax rate differed
from the benefit from income taxes at the statutory rate due mainly to the
increase in valuation allowance and no benefit of the operating losses was
recognized.
F-24
<PAGE> 107
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income tax rate of 35% to loss before
taxes is as follows:
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Federal statutory rate............................... 35.0% 35.0%
State taxes, net of federal benefit.................. 5.8 5.8
Change in valuation allowance........................ (40.8) (40.8)
----- -----
0.0% 0.0%
===== =====
</TABLE>
13. RELATED PARTY TRANSACTIONS:
During 1996 and 1997, the Company borrowed a total of $433,000 from certain
stockholders and officers. During 1997, $48,000 of the loans from these
individuals was repaid in cash. At December 31, 1997, $385,000 of the loans from
these individuals is included in notes payable. During 1998, $170,000 of the
notes payable were converted to 340,000 shares of Series B and the remaining
$215,000 was repaid in cash.
14. SUBSEQUENT EVENTS (UNAUDITED):
COMMITMENTS
In October 1999, the Company entered into a three-year agreement with a
consulting firm (the "Consultant"), which is a stockholder as a result of the
Series E financing, in which the Consultant agreed to introduce the Company's
services to appropriate clients, based on their interests, and to incorporate
the Company's services into certain of its service offerings. The agreement also
provides for joint marketing activities. In consideration, the Company has
agreed to make payments to the Consultant in an aggregate amount of up to
approximately $2.0 million, as well as a percentage of specified Neoforma.com
e-commerce transaction revenue and other payments. The Company has also agreed
to utilize the Consultant's services on a preferred basis for systems
integration, development, infrastructure, process improvement and consulting
assistance, totaling at least $1.5 million of services from the Consultant, at a
discount from the Consultant's standard fees.
In October 1999, the Company entered into an agreement with a hardware
vendor, which is a stockholder as a result of the Series E financing, pursuant
to which the Company agreed to develop complementary marketing programs with the
vendor and establish hyperlinks between their respective internet websites. The
Company agreed to use the vendor as its exclusive supplier of certain hardware
products and agreed to purchase at least $5.0 million of the vendor's products
and $100,000 of consulting services on a mutually agreed upon schedule. As of
September 30, 1999, the Company had approximately $256,000 of payables due to
this stockholder.
F-25
<PAGE> 108
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITIONS
In November 1999, the Company completed an asset purchase agreement with
FDI Information Resources, LLC in exchange for 350,000 shares of the Company's
common stock. Under the terms of the agreement, the Company acquired the rights
to software and customer contracts. The acquisition will be accounted for using
the purchase method of accounting and accordingly, the purchase price will be
allocated to the intangible assets acquired and liabilities assumed on the basis
of their respective fair values on the acquisition date.
The total purchase price of approximately $3.3 million, including estimated
acquisition-related expenses of $125,000 and estimated assumed liabilities of
$50,000, will be allocated to intangible assets according to their respective
fair market values. In the initial allocation of the purchase price,
approximately $600,000, $240,000, and $2,485,000 was allocated to acquired
software, assembled workforce and trade names, and goodwill type assets,
respectively. The intangible assets will be amortized over an estimate useful
life of three years.
LOANS AND NOTES PAYABLE
In October 1999, the Company borrowed approximately $37,000 and $275,000
under the software and hardware provisions of the loan/lease agreement dated
July 1999 (see Note 5).
1999 EQUITY INCENTIVE PLAN
In November 1999, the board of directors approved the 1999 Equity Incentive
Plan ("the 1999 Plan") to replace the 1997 Stock Plan. The Company has reserved
approximately 5,000,000 shares of common stock for issuance under the 1999 Plan,
and the 1999 Plan stipulates that the amount authorized will automatically be
increased each year by shares equal to 5% of the total outstanding shares as of
December 31 of the preceding year. Incentive stock options may only be granted
to employees under the 1999 plan, and they must be granted at an option price no
less than 100% of the fair market value of the common stock on the date of
grant. If the optionee owns stock representing more than 10% of the outstanding
voting stock, incentive stock options must be granted at an option price no less
than 110% of the fair market value of the common stock on the date of grant.
Nonqualified stock options may be granted to employees, officers, directors,
consultants, independent contractors or advisors to the Company, and must be
granted at an option price no less than 85% of the fair market value of the
common stock on the date of grant. All options granted under the 1999 Plan carry
a maximum term of 10 years from the date of grant, and shall be exercisable at
such times and under such conditions as determined by the board of directors at
the date of grant. However, for most options, 1/4 of the shares subject to the
option shall vest 12 months after the vesting commencement date, and 1/48 of the
shares subject to the option shall vest each month thereafter.
F-26
<PAGE> 109
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
In November 1999, the board of directors approved the 1999 Employee Stock
Purchase Plan (the "ESPP") to become effective on the first day on which price
quotations are available for the Company's common stock on the NASDAQ National
Market. The Company has reserved 750,000 shares of common stock for issuance
under the ESPP, and the terms of the ESPP stipulate that that amount will
automatically be increased each year by shares equal to 1% of the total
outstanding shares of common stock as of December 31 of the preceding year.
Subject to certain eligibility requirements, employees may elect to withhold up
to a maximum of 15% of their cash compensation for participation in the ESPP.
Each offering period under the ESPP will be two years in duration and will
consist of four six-month purchase periods. The first offering period is
expected to commence on the first day on which price quotations are available
for the Company's common stock on the NASDAQ National Market with subsequent
purchasing periods commencing on February 1 and August 1 each year. The purchase
price for common stock purchased under this plan will be 85% of the lesser of
the fair market value of our common stock on the first day of the applicable
offering period or the last day of the purchase period.
F-27
<PAGE> 110
NEOFORMA.COM, INC.
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
On August 6, 1999, Neoforma.com, Inc. ("Neoforma.com") completed the
acquisition of General Asset Recovery LLC ("GAR"). The acquisition of GAR has
been accounted for as a purchase. Accordingly, the results of operations of GAR
have been included in the historical consolidated statement of operations of
Neoforma.com commencing on the date of acquisition.
In November 1999, Neoforma.com acquired certain assets and operations of
FDI Information Resources, LLC ("FDI"). The acquisition of FDI will be accounted
for as a purchase.
The accompanying pro forma condensed combined statements of operations of
Neoforma.com for the twelve months ended December 31, 1998 and for the nine
months ended September 30, 1999 assume that the acquisitions of GAR and FDI took
place as of the beginning of each of these periods. The statements combine
Neoforma.com's, GAR's and FDI's statements of operations for the twelve months
ended December 31, 1998 and for the nine months ended September 30, 1999,
respectively, as if the acquisitions took place at the beginning of each period.
The pro forma condensed combined balance sheet as of September 30, 1999
combines Neoforma.com's September 30, 1999 balance sheet with FDI's September
30, 1999 balance sheet.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually occurred if the
acquisition had been consummated as of the date indicated, nor is it necessarily
indicative of future operating results or financial position. The pro forma
adjustments are based on the information available at the time of the printing
of this prospectus.
The historical financial statements of Neoforma.com, GAR and FDI are
included elsewhere in this prospectus and the unaudited pro forma condensed
combined information presented herein should be read in conjunction with those
financial statements and related notes.
F-28
<PAGE> 111
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NEOFORMA.COM FDI ADJUSTMENTS COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 655 $ 53 $ (53)(C) $ 655
Accounts receivable.................... 277 4 (4)(C) 277
Prepaid expenses and other current
assets.............................. 380 6 (6)(C) 380
Deferred debt costs, current portion... 413 -- -- 413
------- ---- ------ -------
Total current assets................ 1,725 63 (63) 1,725
PROPERTY AND EQUIPMENT, net.............. 3,735 12 (12)(C) 3,735
OTHER ASSETS............................. 393 18 (18)(C) 393
DEFERRED DEBT COSTS, less current
portion................................ 705 -- -- 705
GOODWILL................................. 9,445 -- 3,325(D) 12,770
------- ---- ------ -------
Total assets........................ $16,003 $ 93 $3,232 $19,328
======= ==== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable, current portion......... $ 3,560 $ 6 $ (6)(C) $ 3,560
Accounts payable....................... 4,226 307 (307)(C) 4,226
Deferred revenue and other accrued
liabilities......................... 3,049 74 (24)(C) 3,224
125(B)
------- ---- ------ -------
Total current liabilities........... 10,835 387 (212) 11,010
NOTES PAYABLE, less current portion...... 8,069 236 (236)(C) 8,069
SERIES C AND D MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK............ 15,870 -- -- 15,870
Members' contributions................... -- 10 (10) --
STOCKHOLDERS' EQUITY
(DEFICIT).............................. (18,771) (540) 540(C) (15,621)
3,150(B)
------- ---- ------ -------
Total liabilities and stockholders'
equity (deficit).................. $16,003 $ 93 $3,232 $19,328
======= ==== ====== =======
</TABLE>
F-29
<PAGE> 112
NEOFORMA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ELIMINATION OF
INDUSTRIAL
PRODUCTS PRO FORMA PRO FORMA
NEOFORMA.COM GAR FDI OPERATIONS ADJUSTMENTS COMBINED
------------ ------ ----- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE...................... $ -- $2,986 $ 47 $(1,472) $ -- $ 1,561
COST OF SALES................ -- 1,273 18 (754) -- 537
------- ------ ----- -------- ------- -------
-- 1,713 29 (718) -- 1,024
------- ------ ----- -------- ------- -------
OPERATING EXPENSES:
Operations................. 627 -- -- -- -- 627
Product development........ 1,491 -- -- -- -- 1,491
Selling and marketing...... 1,409 345 260 (45) -- 1,969
General and
administrative........... 1,075 1,756 110 (264) -- 2,677
Amortization of
intangibles.............. -- -- -- -- 2,494(A) 2,494
Amortization of deferred
compensation............. 5 -- -- -- -- 5
------- ------ ----- -------- ------- -------
Total operating
expenses.............. 4,607 2,101 370 (309) 2,494 9,263
------- ------ ----- -------- ------- -------
Loss from operations..... (4,607) (388) (341) (409) (2,494) (8,239)
OTHER INCOME (EXPENSE),
net........................ 44 (32) (19) -- -- (7)
------- ------ ----- -------- ------- -------
Loss from operations....... $(4,563) $ (420) $(360) $ (409) $(2,494) $(8,246)
------- ------ ----- -------- ------- -------
NET LOSS PER SHARE:
Basic and diluted.......... $ (2.65)
=======
Weighted average shares --
basic and diluted........ 3,112
=======
</TABLE>
F-30
<PAGE> 113
NEOFORMA.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ELIMINATION OF
INDUSTRIAL
PRODUCTS PRO FORMA PRO FORMA
NEOFORMA.COM GAR FDI OPERATIONS ADJUSTMENTS COMBINED
------------ ------- ------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE.................... $ 464 $ 2,164 $ 196 $ (600) $ -- $ 2,224
COST OF SALES.............. -- 1,189 17 (489) -- 717
-------- ------- ------- ------- -------- --------
464 975 179 (111) -- 1,507
-------- ------- ------- ------- -------- --------
OPERATING EXPENSES:
Operations............... 2,399 -- -- -- -- 2,399
Product development...... 4,321 -- -- -- -- 4,321
Selling and marketing.... 5,096 446 182 (85) -- 5,639
General and
administrative......... 5,162 809 137 (143) -- 5,965
Amortization of
intangible............. 230 -- -- -- 1,661(A) 1,891
Amortization of deferred
compensation........... 5,662 -- -- -- -- 5,662
Non-recurring charges.... 3,014 -- -- -- -- 3,014
-------- ------- ------- ------- -------- --------
Total operating
expenses............ 25,884 1,255 319 (228) 1,661 28,891
-------- ------- ------- ------- -------- --------
Income (loss) from
operations.......... (25,420) (280) (140) 117 (1,661) (27,384)
OTHER INCOME (EXPENSES),
net...................... (194) (11) (16) -- -- (221)
-------- ------- ------- ------- -------- --------
Net income (loss)...... $(25,614) $ (291) $ (156) $ 117 $ (1,661) $(27,605)
======== ======= ======= ======= ======== ========
NET LOSS PER SHARE:
Basic and diluted........ $ (12.82)
========
Weighted-average shares--
basic and diluted...... 2,154
========
</TABLE>
F-31
<PAGE> 114
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The total purchase price of the FDI acquisition has been allocated to
acquired assets based on estimates of their fair values. The purchase price of
approximately $3.3 million has been assigned to the intangible assets acquired
as follows:
<TABLE>
<S> <C>
Assembled work force and customer list.................... $ 240,000
Software.................................................. 600,000
Goodwill.................................................. 2,485,000
----------
$3,325,000
Less: Liabilities Assumed................................. (50,000)
$3,275,000
==========
</TABLE>
The adjustments to the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1998 and for the nine months ended
September 30, 1999 assume the acquisition occurred as of January 1, 1998 and
January 1, 1999, respectively, and are as follows:
(A) To reflect the amortization of approximately $13.0 million of estimated
goodwill and other intangibles resulting from the acquisitions. The
intangible assets will be amortized over three to seven years.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of September 30, 1999 are as follows:
(B) To reflect the purchase price paid as follows: issuance of the
Company's common stock valued at approximately $3.2 million, the
assumption of $50,000 of liabilities, and acquisition-related expenses
of approximately $125,000.
(C) To adjust asset values to fair value at the acquisition date.
(D) To reflect goodwill and other intangibles of approximately $3.3 million
resulting from the acquisition of FDI.
The Industrial Products operations of GAR was sold to an owner of GAR
("Owner") prior to its acquisition. Accordingly the revenue and direct expenses
(consisting of only the salary of the Owner and certain employees) are
eliminated in the accompanying pro forma statements of operations.
F-32
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
General Asset Recovery LLC:
We have audited the accompanying balance sheets of GENERAL ASSET RECOVERY,
LLC (an Illinois limited liability company) as of December 31, 1997 and 1998,
and the related statements of operations, members' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of General Asset Recovery LLC
as of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 1, 1999
F-33
<PAGE> 116
GENERAL ASSET RECOVERY LLC
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................................ $ 29,712 $ 24,805 $ 88,146
Accounts receivable............................... 78,523 49,288 718,314
Prepaid expenses.................................. -- 2,587 --
--------- -------- ----------
Total current assets......................... 108,235 76,680 806,460
--------- -------- ----------
PROPERTY AND EQUIPMENT, NET......................... 30,479 60,188 83,665
--------- -------- ----------
OTHER ASSETS:
Employee advances................................. -- -- 26,674
--------- -------- ----------
Deposits.......................................... 17,310 21,223 21,223
--------- -------- ----------
Total assets................................. $ 156,024 $158,091 $ 938,022
========= ======== ==========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit.................................... $ 374,540 $147,500 $ 125,000
Accounts payable.................................. 68,749 67,445 1,208,885
Accrued expenses.................................. 164,156 36,771 38,695
--------- -------- ----------
Total current liabilities.................... 607,445 251,716 1,372,580
COMMITMENTS AND CONTINGENCIES (NOTE 7)
MEMBERS' EQUITY (DEFICIT):
Total members' (deficit)..................... (451,421) (93,625) (434,558)
--------- -------- ----------
Total liabilities and members' (deficit)..... $ 156,024 $158,091 $ 938,022
========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-34
<PAGE> 117
GENERAL ASSET RECOVERY LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ -------------------------
1997 1998 1998 1999
---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE............................... $2,404,654 $2,986,099 $1,667,908 $1,675,852
COST OF SALES......................... 1,349,462 1,273,333 696,072 885,714
---------- ---------- ---------- ----------
1,055,192 1,712,766 971,836 790,138
OPERATING EXPENSES:
Selling and marketing............... 296,885 344,365 239,806 363,053
General and administrative.......... 1,059,130 1,756,355 720,551 700,140
---------- ---------- ---------- ----------
Total operating expenses.... 1,356,015 2,100,720 960,357 1,063,193
---------- ---------- ---------- ----------
Operating income (loss)..... (300,823) (387,954) 11,479 (273,055)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Other income........................ 2,357 13,425 13,425 --
Rental income....................... 210,047 134,150 57,172 --
Interest expense, net............... (35,326) (47,768) (6,073) (11,287)
---------- ---------- ---------- ----------
Total other income
(expense)................ 177,078 99,807 64,524 (11,287)
---------- ---------- ---------- ----------
Net income (loss)........... $ (123,745) $ (288,147) $ 76,003 $ (284,342)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE> 118
GENERAL ASSET RECOVERY LLC
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE SIX MONTHS ENDED JUNE 30,
1999
<TABLE>
<CAPTION>
TOTAL
MEMBERS'
EQUITY (DEFICIT)
-----------------
<S> <C>
BALANCE, December 31, 1996.................................. $(218,525)
Net loss.................................................. (123,745)
Member distributions...................................... (109,151)
---------
BALANCE, December 31, 1997.................................. (451,421)
---------
Net loss.................................................. (288,147)
Member distributions...................................... (37,612)
Member contributed capital................................ 683,555
---------
BALANCE, December 31, 1998.................................. (93,625)
---------
Net loss.................................................. (284,342)
Member distributions...................................... (56,591)
---------
BALANCE, June 30, 1999 (unaudited).......................... $(434,558)
=========
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE> 119
GENERAL ASSET RECOVERY, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ----------------------
1997 1998 1998 1999
--------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss)............................... $(123,745) $(288,147) $ 76,003 $ (284,342)
Adjustments to reconcile net income(loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization........... 2,458 27,814 3,294 11,560
Changes in operating assets and
liabilities..........................
Accounts receivable.................. 123,380 29,235 46,645 (669,026)
Prepaid expenses..................... -- (2,587) 2,587
Other assets......................... -- (3,913) (19,175) (26,674)
Accounts payable..................... 35,914 (1,304) 26,318 1,141,440
Accrued expenses..................... 118,671 (127,385) (163,156) 1,924
--------- --------- --------- ----------
Net cash provided by (used in)
operating activities......... 156,678 (366,287) (30,071) 177,469
--------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........... (32,937) (57,523) (148) (35,037)
--------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital.......................... -- 683,555 -- --
Dividends.................................... (109,151) (37,612) (16,500) (56,591)
Net borrowings (repayments) under
line-of-credit agreement.................. (10,460) (227,040) 17,007 (22,500)
--------- --------- --------- ----------
Net cash provided by (used in)
financing activities......... (119,611) 418,903 507 (79,091)
--------- --------- --------- ----------
Net increase (decrease) in cash
and cash equivalents......... 4,130 (4,907) (29,712) 63,341
CASH AND CASH EQUIVALENTS, beginning of year... 25,582 29,712 29,712 24,805
--------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, end of year......... $ 29,712 $ 24,805 $ -- $ 88,146
========= ========= ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest.................... $ 35,326 $ 32,767 $ 11,287 $ 21,074
========= ========= ========= ==========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
Assumption of debt by majority member........ $ -- $ 683,555 $ -- $ --
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE> 120
GENERAL ASSET RECOVERY LLC
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
General Asset Recovery LLC (the "Company") is in the business of conducting
live auctions and appraisals of medical equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies of the Company are as follows:
REVENUE RECOGNITION
Auction revenue is recognized when the equipment is sold which is
represented by an auction commission received from the buyer and seller. Auction
commissions represent a percentage of the final price at auction sales. Buyers
pay an additional percentage of the final price as a buyer's premium. The
Company does not provide any guarantee with respect to the authenticity of
property offered for sale at auction. Each item is sold on an "as-is" basis with
guarantee only of title.
Upon completion of a final appraisal or inventory report, the Company
recognizes appraisal and inventory revenue. Typically a final payment is due
upon delivery of the report.
MANAGEMENT'S 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.
CONCENTRATION OF CREDIT RISK
The Company may extend trade credit in connection with its auction sales
which are held throughout the United States. The Company evaluates each
customer's creditworthiness on a case-by-case basis; generally, the customers
who receive trade credit are professional dealers who have regularly purchased
property at the Company's auctions or whose reputation within the industry is
known and respected by the Company.
In situations where trade credit is extended, the purchaser does not take
possession of the property before payment is made by the purchaser to the
Company, and the Company is liable to the consignor for the net sales proceeds
(final auction price less commission to the Company). The Company pays the
consignor generally not later than the 10th day after the sale, and when trade
credit is extended, the Company assumes all risk of loss associated with the
trade credit, and the responsibility of collection of the trade credit amount
from the purchaser. Losses to date under these situations have not been
material.
INVENTORY
The majority of the warehouse inventory is on consignment from the seller.
For purchased inventory, the Company periodically reviews the age and turnover
of its inventory to determine whether any inventory has become obsolete or has
declined in value and incurs a charge to operations for known and anticipated
inventory obsolescence. Inventories are stated at the lower of cost or market.
Cost is determined by specific identification.
F-38
<PAGE> 121
GENERAL ASSET RECOVERY LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recognized using
both accelerated and straight-line methods. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in results of operations
for the period. The cost of repairs and maintenance is charged to operations as
incurred.
3. RECEIVABLES
Receivables represent advance payments, or loans, to the consignor prior to
the auction sale, collateralized by the items received and held by the Company
for the auction sale and the proceeds from such sale. Such advances generally
are not outstanding for more than one month from the date of the note.
4. PROPERTY AND EQUIPMENT, NET
As of December 31, 1998, property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
AMOUNT LIFE
------- -----------
<S> <C> <C>
Computer equipment........................................ $11,074 5 - 7 years
Furniture and fixtures.................................... 79,387 5 - 7 years
Less accumulated depreciation............................. (30,273)
-------
Net property and equipment.............................. $60,188
=======
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 was
approximately $3,000 and $28,000, respectively.
5. LEASES
The Company conducts its business on premises leased under leases that
expire through the year 2004. Future minimum lease payments under noncancellable
leases in effect at December 31, 1998, are set forth below:
<TABLE>
<S> <C>
1999.................................................. $ 83,309
2000.................................................. 50,198
2001.................................................. 45,060
2002.................................................. 45,828
2003.................................................. 46,786
2004.................................................. 7,826
--------
Total future minimum lease payments................. $279,007
========
</TABLE>
Rent expense was approximately $97,000 and $111,000 for the years ended
December 31, 1997 and 1998, respectively.
6. LINE OF CREDIT
As of December 31, 1998, the Company had a line of credit agreement with a
bank that allowed for maximum borrowings of $400,000. Interest was at the bank's
prime rate plus 0.5%. Borrowings
F-39
<PAGE> 122
GENERAL ASSET RECOVERY LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
were collateralized by all assets of the Company. At December 31, 1998,
borrowings outstanding on the line of credit were $147,500 with a final payment
due July 30, 1999. The Company paid off and terminated the entire line of credit
on July 30, 1999.
7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to occasional lawsuits,
investigations and claims arising out of the normal conduct of business.
Management does not believe the outcome of any pending claims will have a
material adverse effect on the Company's financial position or results of
operations.
8. AGREEMENTS
In March 1997, the Company entered into an agreement with a hospital to
sell the hospital's surplus assets. The hospital engaged the Company to be its
exclusive agent for a five-year period for the purpose of selling the surplus
assets. In the event that an item does not sell within thirty days of the
possession by the Company, the Company will return such items to the hospital.
The gross sales, less a fee to the Company, are required to be disbursed to the
hospital within five days of the end of the month of the sale.
In December 1998, the Company entered into a one-year services agreement
with a hospital organization to market and promote the Company's services to
members and affiliates of the hospital organization. The Company is required to
pay a marketing fee equal to a percentage of the total net proceeds, as defined,
received from the current month's sale of the assets. During 1999, various
auction agreements have been signed with hospitals in the organization. The
agreements appoint the Company as the exclusive independent agent for periods up
to three years for the purpose of selling the assets privately or at public
auction. The Company must move the assets, catalog the assets, advertise the
auction by publication and mailing of circulars and auction the assets for cash,
"as is" and "where is", among other obligations. The net proceeds are required
to be paid within 10 days of the auction sale. The Company receives a percentage
of the net proceeds as a commission.
In June 1999, a hospital appointed the Company as its exclusive agent for
the purposes of selling auction assets. The Company receives a percentage of the
net proceeds, less expenses and any buyers premium as a commission. The Company
must, among other obligations, advertise the auction sale by publication and
mailing of circulars, sell the assets for cash, keep accurate records of the
auction sale and provide the records to the hospital within ten days of the sale
and provide adequate personnel to supervise the removal of the assets sold.
9. INCOME TAXES
The Company has elected to include its income and expenses with those of
its members for federal income tax purposes. Accordingly, the statements of
operations for the years ended December 31, 1997 and 1998 do not include a
provision for federal income taxes.
10. SUBSEQUENT EVENT
In August 1999, Neoforma.com, Inc. acquired the Company. The acquisition
will be accounted for using the purchase method of accounting on Neoforma.com,
Inc.'s financial statements.
F-40
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Neoforma.com and
FDI Information Resources, L.L.C.:
We have audited the accompanying balance sheets of FDI Information
Resources, L.L.C. (an Arizona limited liability company) (the Company) as of
December 31, 1998 and 1997, and the related statements of operations, changes in
members' equity (deficit) and cash flows for the year ended December 31, 1998
and for the period from inception (November 4, 1997) to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
year ended December 31, 1998 and for the period from inception (November 4,
1997) to December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
November 18, 1999.
F-41
<PAGE> 124
FDI INFORMATION RESOURCES, L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 59,934 $ 37,512 $ 53,330
Accounts receivable............................... -- 32,282 4,312
Related party receivable, net..................... 16,421 -- --
Prepaid expenses and other assets................. 96 5,570 5,500
-------- -------- ---------
Total current assets...................... 76,451 75,364 63,142
PROPERTY AND EQUIPMENT, net......................... 4,803 10,592 11,860
SOFTWARE DEVELOPMENT COSTS, net..................... 47,222 30,555 18,063
-------- -------- ---------
$128,476 $116,511 $ 93,065
======== ======== =========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................. $ 22,578 $ 8,004 $ 3,480
Related party payable, net........................ -- 141,765 302,803
Deferred revenue and other accrued liabilities.... 8,198 98,211 74,012
Current portion of notes payable to related
parties........................................ -- 3,448 6,293
-------- -------- ---------
Total current liabilities................. 30,776 251,428 386,588
-------- -------- ---------
NOTES PAYABLE TO RELATED PARTIES, net of current
portion........................................... 120,000 239,052 236,207
-------- -------- ---------
MEMBERS' EQUITY (DEFICIT):
Members' contributions............................ 2,000 10,000 10,000
Accumulated deficit............................... (24,300) (383,969) (539,730)
-------- -------- ---------
Total members' equity (deficit)........... (22,300) (373,969) (529,730)
-------- -------- ---------
$128,476 $116,511 $ 93,065
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-42
<PAGE> 125
FDI INFORMATION RESOURCES, L.L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 14, NINE MONTHS ENDED
1997) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1998 1999
------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Software license and other revenue
($46,675 and $6,458 in 1997 and 1998,
respectively, is related party
revenue)............................. $ 46,675 $ 46,557 $ 42,595 $ 196,268
COST OF PRODUCTS SOLD..................... 2,884 18,040 13,635 16,630
-------- --------- --------- ---------
Gross Margin.................... 43,791 28,517 28,960 179,638
-------- --------- --------- ---------
OPERATING EXPENSES:
Salaries................................ 45,212 280,562 222,035 202,767
Marketing............................... 2,532 53,245 41,017 29,801
General and administrative.............. 19,602 35,705 27,889 86,661
-------- --------- --------- ---------
Total operating expenses........ 67,346 369,512 290,941 319,229
-------- --------- --------- ---------
LOSS FROM OPERATIONS...................... (23,555) (340,995) (261,981) (139,591)
-------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income......................... 5 561 546 --
Interest expense and other.............. (750) (19,235) (12,908) (16,170)
-------- --------- --------- ---------
Total other income (expense).... (745) (18,674) (12,362) (16,170)
-------- --------- --------- ---------
NET LOSS.................................. $(24,300) $(359,669) $(274,343) $(155,761)
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 126
FDI INFORMATION RESOURCES, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
MEMBERS' ACCUMULATED
CONTRIBUTIONS DEFICIT TOTAL
------------- ----------- ---------
<S> <C> <C> <C>
BALANCE, inception (November 14, 1997)............... $ -- $ -- $ --
Members' investment.................................. 2,000 -- 2,000
Net loss........................................... -- (24,300) (24,300)
------- --------- ---------
BALANCE, December 31, 1997........................... 2,000 (24,300) (22,300)
Members' investment................................ 8,000 -- 8,000
Net loss........................................... -- (359,669) (359,669)
------- --------- ---------
BALANCE, December 31, 1998........................... 10,000 (383,969) (373,969)
Net loss (unaudited)............................... -- (155,761) (155,761)
------- --------- ---------
BALANCE, September 30, 1999 (unaudited).............. $10,000 $(539,730) $(529,730)
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 127
FDI INFORMATION RESOURCES, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 14, NINE MONTHS ENDED
1997) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1998 1999
------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(24,300) $(359,669) $(274,343) $(155,761)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........ 3,031 20,088 14,748 14,805
Changes in assets and liabilities:
Accounts receivable................ -- (32,282) (22,610) 27,970
Related party receivable/payable,
net............................. (16,421) 158,186 125,570 161,038
Prepaid expenses and other
assets.......................... (96) (5,474) (6,022) 70
Accounts payable................... 22,578 (14,574) (14,679) (4,524)
Deferred revenue and other accrued
liabilities..................... 8,198 90,013 22,255 (24,199)
-------- --------- --------- ---------
Net cash provided by (used in)
operating activities......... (7,010) (143,712) (155,081) 19,399
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (5,056) (9,210) (11,076) (3,581)
Payments for capitalized software....... (50,000) -- -- --
-------- --------- --------- ---------
Net cash used in investing
activities................... (55,056) (9,210) (11,076) (3,581)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
to related parties................... 125,000 122,500 122,500 --
Payments on note payable to related
parties.............................. (5,000) -- -- --
Proceeds from member contributions...... 2,000 8,000 8,000 --
-------- --------- --------- ---------
Net cash provided by financing
activities................... 122,000 130,500 130,500 --
-------- --------- --------- ---------
Net increase (decrease) in
cash......................... 59,934 (22,422) (35,657) 15,818
CASH, beginning of period................. -- 59,934 59,934 37,512
-------- --------- --------- ---------
CASH, end of period....................... $ 59,934 $ 37,512 $ 24,277 $ 53,330
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 128
FDI INFORMATION RESOURCES, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) FORMATION OF THE COMPANY AND NATURE OF THE OPERATIONS:
FDI Information Resources, L.L.C. (the Company), an Arizona limited
liability company formed on November 4, 1997, operates under an operating
agreement between its various members. The Company is in the business of
developing and licensing equipment planning software. In addition, the Company
supports its products with product installation, training and system support.
RELATED BUSINESS ENTITIES
The Company is related to other business entities through common ownership
or control. Specifically, the Company is related to Facilities Development, Inc.
(FDI). FDI is a medical equipment planning and consulting firm. All related
party revenue represents sales of the Company's products to FDI. These financial
statements do not include any other related business entities that are under
common ownership or in which the members have a direct or indirect controlling
financial interest. The financial effects of control for two or more business
enterprises by common ownership are more appropriately reflected in combined
financial statements presented in accordance with generally accepted accounting
principles applicable.
OPERATING AGREEMENT
The Managers, as defined in the operating agreement, shall direct, manage,
and control the business with full and complete authority, power and discretion
to make any and all decisions to accomplish the business and objectives of the
Company. Only a Manager shall have the authority to act for or bind the Company.
The Company's members have made capital contributions of $10,000, and the
ownership is divided 37.5%, 37.5% and 25% amongst its three members.
Distributions shall be made to the members at such times and in such
amounts as determined by the Managers in the Managers' sole discretion. Upon
dissolution or liquidation of the Company, each member will solely look to the
assets of the Company for return of capital contributions without any recourse
against the Company.
The Company shall continue until such time of dissolution. Dissolution will
occur upon one of the following: the written consent of a majority in interest
of the members, the sale of all or substantially all of the Company's assets, or
the occurrence of an event of withdrawal of the last remaining member.
EXPENSE ALLOCATIONS
The majority of the Company's expenses are paid through its related
business entities. Such expenses are allocated to the Company either through a
specific identification of expenses, or on a percentage basis. Expenses incurred
in this manner are reflected as related party receivable (payable), net in the
accompanying balance sheets.
F-46
<PAGE> 129
FDI INFORMATION RESOURCES, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of and for the nine months
ended September 30, 1999 and for the nine months ended 1998 have been prepared
on the same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. Operating
results for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and are depreciated on a
straight-line basis over three to five years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". Under SFAS No. 121, long-lived assets and certain identifiable intangible
assets, including goodwill, are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. An impairment loss is recognized if the sum of the expected
long-term undiscounted cash flows is less than the carrying amount of the
long-lived assets being evaluated.
SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, the Company capitalizes
software development costs by project commencing when technological feasibility
is established and concluding when the product is ready for commercial release.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic product lives and changes in
software and hardware technology. Software development costs are amortized on a
straight-line basis over three years or the expected life of the product,
whichever is less. The Company periodically evaluates the net realizable value
of capitalized software development costs based on factors such as budgeted
sales, product development cycles and
F-47
<PAGE> 130
FDI INFORMATION RESOURCES, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
management's market emphasis. Research and development costs are charged to
expense when incurred.
INCOME TAXES
The Company, with the consent of its members, is a limited liability
company, which qualifies for tax treatment as a partnership for federal and
state income tax purposes. As a result, the Company's results of operations are
included in the income tax returns of its members. Therefore, the accompanying
financial statements do not include any provision for income taxes.
REVENUE RECOGNITION
The Company recognizes revenues in accordance with the provisions of
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-4, Deferral of the Effective Date of Certain Provisions of SOP 97-2.
Under SOP 97-2, the Company recognizes revenue for software sales upon shipment
of the product, provided collection of the resulting receivable is deemed
probable and any remaining obligations under the license agreements are
insignificant. Revenue from service contracts, instruction and user training and
post-contract customer support is recognized ratably over the period of the
related contract. Deferred revenue represents the Company's obligation to
perform under existing contracts.
For contracts with multiple obligations (e.g., deliverable and
undeliverable products, maintenance and other services), the Company allocates
revenue to each component of the contract based on vendor specific objective
evidence of its fair value, which is specific to the Company or for products not
being sold separately, the price established by management. The Company
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Computers and equipment..................................... $5,056 $14,266
Less: accumulated depreciation.............................. (253) (3,674)
------ -------
$4,803 $10,592
====== =======
</TABLE>
Depreciation expense was approximately $253 and $3,421 for the period from
November 4, 1997 to December 31, 1997 and the year ended December 31, 1998,
respectively.
F-48
<PAGE> 131
FDI INFORMATION RESOURCES, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(4) SOFTWARE DEVELOPMENT COSTS:
Software development costs consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Capitalized software costs.................................. $50,000 50,000
Less: accumulated amortization.............................. (2,778) (19,445)
------- --------
$47,222 $ 30,555
======= ========
</TABLE>
The Company's policy is to amortize capitalized software costs by the
greater of (a) the ratio that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for that product or (b)
the straight-line method over the remaining estimated economic life of the
product including the period being reported on. It is reasonably possible that
those estimates of anticipated future gross revenues, the remaining estimated
economic life of the product, or both will be reduced significantly in the near
term. As a result, the carrying amount of the capitalized software costs may be
reduced materially in the near term.
Amortization of capitalized software development costs are included in
costs of products sold and was approximately $2,778 and $16,667 for the period
from November 4, 1997 to December 31, 1997 and the year ended December 31, 1998,
respectively. The Company did not capitalize any software development costs
during the year ended December 31, 1998.
(5) NOTES PAYABLE TO RELATED PARTIES:
Notes payable to related parties consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Various notes payable totaling $197,500 payable to a
member of the Company. Eight annual installments of
$23,198, including interest at 10%, are due, beginning
on December 31, 1999. ................................ $ 75,000 197,500 $197,500
Note payable to FDI in the amount of $45,000. Interest
at 10% is payable annually on November 1. Principal is
due on November 1, 2002. ............................... 45,000 45,000 45,000
-------- -------- --------
120,000 242,500 242,500
Less: current portion.............................. -- (3,448) (6,293)
-------- -------- --------
$120,000 $239,052 $236,207
======== ======== ========
</TABLE>
Maturities of long term debt are as follows at December 31:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
1999........................................................ $ 3,448
2000........................................................ 3,793
2001........................................................ 4,172
2002........................................................ 49,590
Thereafter.................................................. 181,497
--------
$242,500
========
</TABLE>
F-49
<PAGE> 132
FDI INFORMATION RESOURCES, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(6) SUBSEQUENT EVENT:
On November 18, 1999, the Company sold substantially all its assets to
Neoforma.com in exchange for 350,000 shares of Neoforma.com's common stock and
$75,000 in cash for transaction-related expenses. Under the terms of the
agreement, Neoforma.com acquired the rights to the software and customer
contracts of the Company.
F-50
<PAGE> 133
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
7,000,000 SHARES
[NEOFORMA.COM LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
VOLPE BROWN WHELAN & COMPANY
WILLIAM BLAIR & COMPANY
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by
Neoforma.com in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the SEC registration
fee, the NASD filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 22,379
NASD filing fee............................................. 8,550
Nasdaq National Market initial filing fee................... 5,000
Printing and engraving...................................... 400,000
Legal fees and expenses of the Registrant................... 500,000
Accounting fees and expenses................................ 350,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 15,000
Miscellaneous............................................... 94,071
----------
Total............................................. $1,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances and subject to certain limitations. The
terms of Section 145 of the Delaware General Corporation Law are sufficiently
broad to permit indemnification under certain circumstances for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act
of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
amended and restated certificate of incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a directory, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
amended and restated bylaws provide that:
- the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions; and
- the rights conferred in the bylaws are not exclusive.
II-1
<PAGE> 135
In addition, the Registrant intends to enter into indemnity agreements with
each of our current directors and officers. These agreements provide for the
indemnification of officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were agents of the Registrant.
The Registrant intends to obtain directors' and officers' insurance to
cover its directors, officers and some of its employees for certain liabilities,
including public securities matters.
The Underwriting Agreement filed as Exhibit 1.01 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its directors and officers for certain liabilities under the Securities Act of
1933, or otherwise.
Reference is made to the following documents filed as exhibits to the
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein.
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Underwriting Agreement...................................... 1.01
Registrant's Amended and Restated Certificate of
Incorporation............................................... 3.02
Registrant's Amended and Restated Bylaws.................... 3.04
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the effective date of this Registration
Statement, we have issued and sold the following unregistered securities:
(1) In May 1996, the Registrant sold 8,000,000 shares of Common Stock to
two founders of the Registrant for $0.00375 per share.
(2) In April 1998, the Registrant issued 9,000,000 shares of its Series A
preferred stock in exchange for 9,000,000 shares of previously issued
common stock.
(3) In April 1998, the Registrant sold 2,860,000 shares of its Series B
preferred stock for approximately $0.50 per share.
(4) In June 1998, the Registrant sold 5,064,937 shares of its Series C
Preferred Stock for approximately $0.77 per share.
(5) In February 1999, the Registrant sold 10,196,361 shares of its Series
D Preferred Stock for approximately $1.18 per share.
(6) In October 1999, the Registrant sold 12,418,633 shares of its Series E
and Series E-1 preferred stock for $5.68 per share and issued 275,000
shares of its Series E-1 preferred stock in consideration for certain
obligations in connection with a strategic alliance.
(7) In November 1999, the Registrant agreed to issue and sell 176,057
shares of its Series E preferred stock for $5.68 per share.
(8) In November 1999, the Registrant issued 350,000 shares of common stock
to the former shareholders of FDI Information Resources, Inc. in
connection with our acquisition of substantially all of the assets of
FDI.
(9) As of September 30, 1999, the Registrant had issued an aggregate of
12,660,161 shares of Common Stock pursuant to exercises of stock
options and stock purchase rights granted under the Registrant's 1997
Stock Plan at prices ranging from $0.05 to $0.50 per share.
II-2
<PAGE> 136
(10) In October 1999, the Registrant issued a warrant to purchase 436,623
shares of Common Stock at a price of $0.10 per share to an executive
search firm in connection with recruitment services.
(11) In June 1998, the Registrant issued a warrant to purchase 45,000
shares of Series C Preferred Stock at a price of $0.77 per share to
Silicon Valley Bank in connection with a financing transaction.
(12) In May 1999, the Registrant issued a warrant to purchase 228,814
shares of Series D Preferred Stock at a price of $1.18 per share to
Comdisco, Inc. in connection with a financing transaction.
(13) In July 1999, the Registrant issued a warrant to purchase 10,000
shares of Series D Preferred Stock at a price of $1.18 per share to
Silicon Valley Bank in connection with a financing transaction.
(14) In July 1999, the Registrant issued a warrant to purchase 137,711
shares of Series D Preferred Stock at a price of $1.18 per share to
Comdisco, Inc. in connection with a financing transaction.
All sales of common stock made pursuant to the exercise of stock options were
made in reliance on Rule 701 of the Securities Act or on Section 4(2) of the
Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the shares were being acquired
for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
1.01* Form of Underwriting Agreement.
2.01** Securities Purchase Agreement By and Among Neoforma GAR,
Inc. and Neoforma, Inc. and General Asset Recovery, LLC,
Erik Tivin and Fred Tivin dated as of July 16, 1999. Certain
schedules have been omitted and will be furnished to the
Commission upon request.
2.02** Agreement for Purchase of Assets, dated November 18, 1999,
by and among the Registrant, FDI Information Resources, Inc.
and FDI Information, LLC. Certain schedules have been
omitted and will be furnished to the Commission upon
request.
3.01** Amended and Restated Certificate of Incorporation of the
Registrant, as amended through October 12, 1999.
3.02** Form of Second Amended and Restated Certificate of
Incorporation of the Registrant to be effective upon the
closing of the offering made pursuant to this Registration
Statement.
3.03** Restated Bylaws of the Registrant, as adopted on November
12, 1999.
4.01** Form of Specimen Certificate for Registrant's common stock.
4.02** Second Amended and Restated Investors' Rights Agreement, as
amended in November 1999.
4.03** Warrant to Purchase Common Stock of Registrant issued to
Heidrick & Struggles.
</TABLE>
II-3
<PAGE> 137
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
4.04** QuickStart Warrant to Purchase Series C Preferred Stock of
Registrant dated June 25, 1998 issued to Silicon Valley
Bank, as amended on March 5, 1999.
4.05** Warrant Agreement to Purchase Series D Preferred Stock of
Registrant dated as of May 12, 1999 issued to Comdisco, Inc.
4.06** QuickStart Warrant to Purchase Series D Preferred Stock of
Registrant dated July 20, 1999 issued to Silicon Valley
Bank.
4.07** Warrant to Purchase Series D Preferred Stock of Registrant
dated as of July 7, 1999 issued to Comdisco, Inc.
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01** Form of Indemnity Agreement between the Registrant and its
directors and officers.
10.02** Neoforma, Inc. 1997 Stock Plan, as amended.
10.03 Neoforma.com, Inc. 1999 Equity Incentive Plan.
10.04 Neoforma.com, Inc. 1999 Employee Stock Purchase Plan.
10.05+** Development and License Agreement dated May 14, 1999 between
ECRI and the Registrant.
10.06+** Distribution and Services Agreement dated October 1, 1999
between Superior Consultant Company, Inc. and the
Registrant.
10.07+** Strategic Alliance Agreement dated October 11, 1999 between
Dell Marketing L.P. and the Registrant.
10.08** Consulting Agreement dated July 1, 1999 between Madhavan
Rangaswami and the Registrant.
10.09 Employment Agreement dated July 1, 1999 between Robert J.
Zollars and the Registrant.
10.10** Employment Agreement dated August 1999 between Erik Tivin
and the Registrant.
10.11** Offer Letter dated September 17, 1999 with Bhagwan D. Goel.
10.12** Offer Letter dated December 19, 1998 with Robert Flury, as
amended on January 5, 1999.
10.13** Offer Letter dated June 29, 1999 with Frederick Ruegsegger.
10.14** Consulting Agreement dated August 1999 between Fred Tivin
and the Registrant.
10.15** Promissory Note for $7,800,000 dated August 1999 payable to
Erik Tivin.
10.16** Quickstart Loan and Security Agreement dated June 25, 1998
between Silicon Valley Bank and the Registrant, as amended
on July 20, 1999.
10.17** Subordinated Loan and Security Agreement dated May 12, 1999
between Comdisco, Inc. and the Registrant.
10.18** Subordinated Promissory Note for $2,000,000 dated May 27,
1999 payable to Comdisco, Inc.
10.19** Loan and Security Agreement dated as of July 7, 1999 between
Comdisco, Inc. and the Registrant.
10.20** Hardware Secured Promissory Note for $1,032,001.98 dated
September 3, 1999 payable to Comdisco, Inc.
10.21** Softcost Secured Promissory Note for $240,363.61 dated
September 3, 1999 payable to Comdisco, Inc.
10.22** Lease Agreement dated July 30, 1998 between the Registrant
and John Arrillaga, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (John Arrillaga Survivor's Trust) as amended,
and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust) as
amended.
</TABLE>
II-4
<PAGE> 138
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.23** Amendment No. 1 dated March 1, 1999 to Lease Agreement dated
July 30, 1998 between the Registrant and John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Survivor's Trust) as amended, and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended.
10.24** Lease Agreement dated March 1, 1999 between the Registrant
and John Arrillaga, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (John Arrillaga Survivor's Trust) as amended,
and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust) as
amended.
10.25** Lease Agreement dated August 16, 1999 between the Registrant
and John Arrillaga, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (John Arrillaga Survivor's Trust) as amended,
and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust) as
amended.
10.26+** Co-Branding Agreement, dated as of November 19, 1999, by and
between the Registrant and VerticalNet, Inc.
10.27** Offer Letter dated July 28, 1999 with Daniel A. Eckert.
10.28 Industrial Building Lease, dated as of October 1999, by and
between the Registrant and Centerpoint Properties Trust.
10.29* Offer Letter dated December , 1999 with Robert W. Rene.
10.30* Offer Letter dated December 11, 1999 with S. Wayne Kay.
21.01** Subsidiary of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP, independent public
accountants.
24.01** Power of Attorney (included on signature page).
27.01** Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment has been requested for portions of this exhibit.
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, 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
II-5
<PAGE> 139
indemnification by it is against public policy as expressed in the Securities
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 Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Clara, State of California, on the 23rd day of December, 1999.
NEOFORMA.COM, INC.
By: /s/ ROBERT J. ZOLLARS*
------------------------------------
ROBERT J. ZOLLARS
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ ROBERT J. ZOLLARS* President, Chief December 23, 1999
- ----------------------------------------------------- Executive Officer,
ROBERT J. ZOLLARS Chairman of the Board
and Director
/s/ FREDERICK J. RUEGSEGGER Chief Financial December 23, 1999
- ----------------------------------------------------- Officer
FREDERICK J. RUEGSEGGER
/s/ DAVID DOUGLASS* Director December 23, 1999
- -----------------------------------------------------
DAVID DOUGLASS
/s/ TERENCE GARNETT* Director December 23, 1999
- -----------------------------------------------------
TERENCE GARNETT
/s/ RICHARD D. HELPPIE* Director December 23, 1999
- -----------------------------------------------------
RICHARD D. HELPPIE
/s/ WAYNE D. MCVICKER* Director December 23, 1999
- -----------------------------------------------------
WAYNE D. MCVICKER
/s/ ANDREW J. FILIPOWSKI* Director December 23, 1999
- -----------------------------------------------------
ANDREW J. FILIPOWSKI
/s/ MADHAVAN RANGASWAMI* Director December 23, 1999
- -----------------------------------------------------
MADHAVAN RANGASWAMI
*By: /s/ FREDERICK J. RUEGSEGGER
-----------------------------------------------
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 141
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
1.01* Form of Underwriting Agreement.
2.01** Securities Purchase Agreement by and among Neoforma GAR,
Inc. and Neoforma, Inc. and General Asset Recovery, LLC,
Erik Tivin and Fred Tivin dated as of July 16, 1999. Certain
schedules have been omitted and will be furnished to the
Commission upon request.
2.02** Agreement for Purchase of Assets, dated November 18, 1999,
by and among the Registrant, FDI Information Resources, Inc
and FDI Information, LLC. Certain schedules have been
omitted and will be furnished to the Commission upon
request.
3.01** Amended and Restated Certificate of Incorporation of the
Registrant, as amended through October 12, 1999.
3.02** Form of Second Amended and Restated Certificate of
Incorporation of the Registrant to be effective upon the
closing of the offering made pursuant to this Registration
Statement.
3.03** Restated Bylaws of the Registrant, as adopted on November
12, 1999.
4.01** Form of Specimen Certificate for Registrant's common stock.
4.02** Second Amended and Restated Investors' Rights Agreement, as
amended in November 1999.
4.03** Warrant to Purchase Common Stock of Registrant issued to
Heidrick & Struggles.
4.04** QuickStart Warrant to Purchase Series C Preferred Stock of
Registrant dated June 25, 1998 issued to Silicon Valley
Bank, as amended on March 5, 1999.
4.05** Warrant Agreement to Purchase Series D Preferred Stock of
Registrant dated as of May 12, 1999 issued to Comdisco, Inc.
4.06** QuickStart Warrant to Purchase Series D Preferred Stock of
Registrant dated July 20, 1999 issued to Silicon Valley
Bank.
4.07** Warrant to Purchase Series D Preferred Stock of Registrant
dated as of July 7, 1999 issued to Comdisco, Inc.
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01** Form of Indemnity Agreement between the Registrant and its
directors and officers.
10.02** Neoforma, Inc. 1997 Stock Plan, as amended.
10.03 Neoforma.com, Inc. 1999 Equity Incentive Plan.
10.04 Neoforma.com, Inc. 1999 Employee Stock Purchase Plan.
10.05+** Development and License Agreement dated May 14, 1999 between
ECRI and the Registrant.
10.06+** Distribution and Services Agreement dated October 1, 1999
between Superior Consultant Company, Inc. and the
Registrant.
10.07+** Strategic Alliance Agreement dated October 11, 1999 between
Dell Marketing L.P. and the Registrant.
10.08** Consulting Agreement dated July 1, 1999 between Madhavan
Rangaswami and the Registrant.
10.09 Employment Agreement dated July 1, 1999 between Robert J.
Zollars and the Registrant.
10.10** Employment Agreement dated August 1999 between Erik Tivin
and the Registrant.
10.11** Offer Letter dated September 17, 1999 with Bhagwan D. Goel.
10.12** Offer Letter dated December 19, 1998 with Robert Flury, as
amended on January 5, 1999.
10.13** Offer Letter dated June 29, 1999 with Frederick Ruegsegger.
10.14** Consulting Agreement dated August 1999 between Fred Tivin
and the Registrant.
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.15** Promissory Note for $7,800,000 dated August 1999 payable to
Erik Tivin.
10.16** Quickstart Loan and Security Agreement dated June 25, 1998
between Silicon Valley Bank and the Registrant, as amended
on July 20, 1999.
10.17** Subordinated Loan and Security Agreement dated May 12, 1999
between Comdisco, Inc. and the Registrant.
10.18** Subordinated Promissory Note for $2,000,000 dated May 27,
1999 payable to Comdisco, Inc.
10.19** Loan and Security Agreement dated as of July 7, 1999 between
Comdisco, Inc. and the Registrant.
10.20** Hardware Secured Promissory Note for $1,032,001.98 dated
September 3, 1999 payable to Comdisco, Inc.
10.21** Softcost Secured Promissory Note for $240,363.61 dated
September 3, 1999 payable to Comdisco, Inc.
10.22** Lease Agreement dated July 30, 1998 between the Registrant
and John Arrillaga, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (John Arrillaga Survivor's Trust) as amended,
and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust) as
amended.
10.23** Amendment No. 1 dated March 1, 1999 to Lease Agreement dated
July 30, 1998 between the Registrant and John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Survivor's Trust) as amended, and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended.
10.24** Lease Agreement dated March 1, 1999 between the Registrant
and John Arrillaga, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (John Arrillaga Survivor's Trust) as amended,
and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust) as
amended.
10.25** Lease Agreement dated August 16, 1999 between the Registrant
and John Arrillaga, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (John Arrillaga Survivor's Trust) as amended,
and Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (Richard T. Peery Separate Property Trust) as
amended.
10.26+** Co-Branding Agreement, dated as of November 19, 1999, by and
between the Registrant and VerticalNet, Inc.
10.27** Offer Letter dated July 28, 1999 with Daniel A. Eckert.
10.28 Industrial Building Lease, dated as of October 1999, by and
between the Registrant and Centerpoint Properties Trust.
10.29* Offer Letter dated December , 1999 with Robert W. Rene.
10.30* Offer Letter dated December 11, 1999 with S. Wayne Kay.
21.01** Subsidiary of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP, independent public
accountants.
24.01** Power of Attorney (included on signature page).
27.01** Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment has been requested for portions of this exhibit.
<PAGE> 1
EXHIBIT 5.01
December 22, 1999
Neoforma.com, Inc.
3255-7 Scott Boulevard
Santa Clara, California 95054
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-89077) (the "REGISTRATION STATEMENT") filed by you with the
Securities and Exchange Commission (the "COMMISSION") on or about October 15,
1999, as subsequently amended, in connection with the registration under the
Securities Act of 1933, as amended, of an aggregate of 8,050,000 shares of your
Common Stock (the "STOCK).
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the Exhibits filed as a part
thereof;
(2) the Prospectus prepared in connection with the Registration Statement;
(3) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books that are in our possession;
(4) the stock records that you have provided to us (consisting of a list
of stockholders and a list of option and warrant holders respecting
your capital and of any rights to purchase capital stock that was
prepared by you and dated as of September 30, 1999 verifying the
number of such issued and outstanding securities); and
(5) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all natural persons
executing the same and the lack of any undisclosed termination, modification,
waiver or amendment to any documents reviewed by us.
<PAGE> 2
Neoforma.com, Inc.
December 22, 1999
Page 2
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records referred to above. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; however, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any shares of Stock, the Registration
Statement will have been declared effective under the Securities Act of 1933, as
amended, that the registration will apply to such shares of Stock and will not
have been modified or rescinded and that there will not have occurred any change
in law affecting the validity or enforceability of such shares of Stock.
Based upon the foregoing, it is our opinion that the up to 8,050,000 shares
of Stock to be issued and sold by you, when issued and sold in accordance with
the manner referred to in the relevant Prospectus associated with the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof.
Very truly yours,
FENWICK & WEST LLP
By: /s/ David K. Michaels
----------------------
David K. Michaels
<PAGE> 1
EXHIBIT 10.03
NEOFORMA.COM, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted November 12, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 5,000,000 Shares plus Shares that are subject to: (a) issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option; (b) an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price; and (c)
an Award that otherwise terminates without Shares being issued. In addition, any
authorized shares not issued or subject to outstanding grants under the
Neoforma, Inc.'s 1997 Stock Option Plan (the "PRIOR PLAN") on the Effective Date
(as defined below) and any shares issued under the Prior Plan that are forfeited
or repurchased by the Company or that are issuable upon exercise of options
granted pursuant to the Prior Plan that expire or become unexercisable for any
reason without having been exercised in full, will no longer be available for
grant and issuance under the Prior Plan, but will be available for grant and
issuance under this Plan. In addition, on each January 1, the aggregate number
of Shares reserved and available for grant and issuance pursuant to this Plan
will be increased automatically such that the total number of Shares reserved
under the Plan after such automatic increase shall equal 5% of the total
outstanding shares of the Company as of the immediately preceding December 31,
provided that no more than 25,000,000 shares shall be issued as ISOs (as defined
in Section 5 below). At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 4,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 4,500,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
<PAGE> 2
Neoforma.Com, Inc.
1999 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this
Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any
Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required
by the terms of Section 9 hereof, will be in such form and contain such
2
<PAGE> 3
Neoforma.Com, Inc.
1999 Equity Incentive Plan
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than
3
<PAGE> 4
Neoforma.Com, Inc.
1999 Equity Incentive Plan
the Participant's death or Disability, or (b) twelve (12) months
after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
4
<PAGE> 5
Neoforma.Com, Inc.
1999 Equity Incentive Plan
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the number
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant.
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Prior to the payment of any Stock Bonus, the Committee shall determine the
extent to which such Stock Bonuses have been earned. Performance Periods may
overlap and Participants may participate simultaneously with respect to Stock
Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Company by use of a
promissory note, such note has been fully paid with
respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of
income under Sections 483 and 1274 of the Code; provided,
however, that Participants who are not employees or
directors of the Company will not be entitled to purchase
Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the
Participant for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the Exercise
Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant
and a NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
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(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
9.1 Types of Options and Shares. Options granted under this Plan and
subject to this Section 9 shall be NQSOs.
9.2 Eligibility. Options subject to this Section 9 shall be granted
only to Outside Directors.
9.3 Initial Grant. Each Outside Director who first becomes a member
of the Board on or after the Effective Date will automatically be granted an
Option for 100,000 Shares (an "INITIAL GRANT") on the date such Optionee first
becomes a member of the Board, unless such Outside Director received a grant of
Options before the Effective Date. Each Optionee who became a member of the
Board prior to the Effective Date will receive an Initial Grant immediately
following the Effective Date.
9.4 Succeeding Grants. Immediately following each Annual Meeting of
stockholders, each Outside Director will automatically be granted an Option for
25,000 Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member
of the Board on such date and has served continuously as a member of the Board
for a period of at least one year since the date of such Outside Director's
Initial Grant.
9.5 Vesting. The date an Outside Director receives an Initial Grant
or a Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to 33.3%
of the Shares on the first anniversary of the Start Date
for such Initial Grant, and as to 2.78% of the Shares on
each subsequent monthly anniversary of the Start Date
until all of the Shares are fully vested, so long as the
Outside Director continuously remains a director or a
consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
8.33% of the Shares on each subsequent monthly anniversary
of the Start Date until all of the Shares are fully
vested, so long as the Outside Director continuously
remains a director or a consultant of the Company.
Notwithstanding any provision to the contrary, in the event of a corporate
transaction described in Section 18.1, the vesting of all options granted to
Outside Directors pursuant to this Section 9 will accelerate and such options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and must be exercised,
if at all, within three months of the consummation of said event. Any options
not exercised within such three-month period shall expire.
9.6 Exercise Price. The exercise price of an Option pursuant to an
Initial Grant shall be the Fair Market Value of the Shares, at the time that the
Option is granted.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for
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such Shares. Whenever, under this Plan, payments in satisfaction of Awards are
to be made in cash, such payment will be net of an amount sufficient to satisfy
federal, state, and local withholding tax requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
11. TRANSFERABILITY.
11.1 Except as otherwise provided in this Section 11, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than NQSO's
shall be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
12.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
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1999 Equity Incentive Plan
12.3 Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
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18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. Except for
automatic grants to Outside Directors pursuant to Section 9 hereof, in the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date on which the registration statement filed by the Company with the
SEC under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the
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Board. Upon the Effective Date, the Committee may grant Awards pursuant to this
Plan; provided, however, that: (a) no Option may be exercised prior to initial
stockholder approval of this Plan; (b) no Option granted pursuant to an increase
in the number of Shares subject to this Plan approved by the Board will be
exercised prior to the time such increase has been approved by the stockholders
of the Company; (c) in the event that initial stockholder approval is not
obtained within the time period provided herein, all Awards granted hereunder
shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled
and any purchase of Shares issued hereunder shall be rescinded; and (d) in the
event that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Neoforma.com, Inc. or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on
the date of determination on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street
Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal;
(d) in the case of an Award made on the Effective Date, the
price per share at which shares of the Company's Common
Stock are initially offered for sale to the public by the
Company's underwriters in the initial public offering of
the Company's Common Stock pursuant to a registration
statement filed with the SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee
in good faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law of the
Participant, including any such person with such
relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than
fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or
the Participant own more than fifty percent of the voting
interest.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"OUTSIDE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Parent, Subsidiary or Affiliate of the Company.
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1999 Equity Incentive Plan
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the
Committee from among the following measures to determine whether the performance
goals established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Neoforma.com, Inc. 1999 Equity Incentive Plan,
as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the
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1999 Equity Incentive Plan
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the
Award Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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EXHIBIT 10.04
NEOFORMA.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted November 12, 1999
1. ESTABLISHMENT OF PLAN. Neoforma.com, Inc. (the "COMPANY") proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Participating Subsidiaries (as hereinafter defined)
pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of
this Plan, "PARENT CORPORATION" and "Subsidiary" shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 750,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. In addition, on each January 1, the aggregate number of shares
reserved and available for grant and issuance pursuant to this Plan will be
increased automatically such that the total number of shares reserved under the
Plan after such automatic increase shall equal 1% of the total outstanding
shares of the Company as of the immediately preceding December 31; provided,
that the Board or the Committee may in its sole discretion reduce the amount of
the increase in any particular year; and, provided further, that the aggregate
number of shares issued over the term of this Plan shall not exceed 7,000,000
shares. Such number shall be subject to adjustments effected in accordance with
Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
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1999 Employee Stock Purchase Plan
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on January 31, 2002. Except for the first
Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the power
to change the duration of Offering Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company not later than five (5) days before such Offering Date.
Notwithstanding the foregoing, the Committee may set a later time for filing the
subscription agreement authorizing payroll deductions for all eligible employees
with respect to a given Offering Period. An eligible employee who does not
deliver a subscription agreement to the Company by such date after becoming
eligible to participate in such Offering Period shall not participate in that
Offering Period or any subsequent Offering Period unless such employee enrolls
in this Plan by filing a subscription agreement with the Company not later than
five (5) days preceding a subsequent Offering Date. Once an employee becomes a
participant in an Offering Period, such employee will automatically participate
in the Offering Period commencing immediately following the last day of the
prior Offering Period unless the employee withdraws or is deemed to withdraw
from this Plan or terminates further participation in the Offering Period as set
forth in Section 11 below. Such participant is not required to file any
additional subscription agreement in order to continue participation in this
Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (x) the maximum number of shares set by the Committee pursuant to
Section 10(c) below with respect to the applicable Purchase Date, or (y) the
maximum number of shares which may be purchased pursuant to Section 10(b) below
with respect to the applicable Purchase Date. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
below.
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8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the price per share
at which shares of the Company's Common Stock are initially offered for sale to
the public by the Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than 1%, nor greater than 15% or such lower limit set by the Committee.
Compensation shall mean all W-2 cash compensation, including, but not limited
to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus
draws against commissions, provided, however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday of the Offering Period and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after the Company's receipt of the authorization and shall continue for the
remainder of the Offering Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during an Offering
Period, but not more than one (1) change may be made effective during any
Purchase Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Company a new
authorization for payroll deductions not later than fifteen (15) days before the
beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Company a request for
cessation of payroll deductions. Such reduction shall be effective beginning
with the next payroll period commencing more than fifteen (15) days after the
Company's receipt of the request and no further payroll deductions will be made
for the duration of the Offering Period. Payroll deductions credited to the
participant's account prior to the effective date of the request shall be used
to purchase shares of Common Stock of the Company in accordance with Section (e)
below. A participant may not resume making payroll deductions during the
Offering Period in which he or she reduced his or her payroll deductions to
zero.
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(d) All payroll deductions made for a participant are credited to
his or her account under this Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(e) On each Purchase Date, so long as this Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Committee may, in its sole discretion, set a maximum number of shares which may
be purchased by any employee at any single Purchase Date (hereinafter the
"MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there
shall be no Maximum Share Amount. In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The Maximum Share
Amount shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
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1999 Employee Stock Purchase Plan
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Company a written notice to that effect on
a form provided for such purpose. Such withdrawal may be elected at any time at
least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current
Offering Period in which a participant is enrolled is higher than the Fair
Market Value on the first day of any subsequent Offering Period, the Company
will automatically enroll such participant in the subsequent Offering Period.
Any funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Subsidiary in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose
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Neoforma.com, Inc.
1999 Employee Stock Purchase Plan
determination shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the
Committee and give each participant the right to purchase shares under this Plan
prior to such termination. In the event of (i) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the options under this Plan are assumed, converted or replaced by
the successor corporation, which assumption will be binding on all
participants), (ii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (iii) the sale of all or
substantially all of the assets of the Company or (iv) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, the Plan will continue with regard to Offering
Periods that commenced prior to the closing of the proposed transaction and
shares will be purchased based on the Fair Market Value of the surviving
corporation's stock on each Purchase Date, unless otherwise provided by the
Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section
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Neoforma.com, Inc.
1999 Employee Stock Purchase Plan
423 or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company,
the Committee or the Board, be reformed to comply with the requirements of
Section 423. This Section 19 shall take precedence over all other provisions in
this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the end
of an Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
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(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial accounting treatment for
the Plan that is different from the financial accounting treatment in effect on
the date this Plan is adopted by the Board.
8
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EXHIBIT 10.09
NEOFORMA, INCORPORATED
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of July 1, 1999 (the
"Effective Date"), by and between Neoforma, Incorporated, a Delaware corporation
(the "Company"), and Robert J. Zollars (the "Executive").
WHEREAS, the Company desires to employ the Executive as of the Effective
Date and the Executive desires to accept employment with the Company an the
terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. During the Employment Period (as defined in
paragraph 2 below), the Executive will serve as President and Chief Executive
Officer of the Company. The duties and responsibilities of the Executive shall
include the duties and responsibilities for the Executive's corporate offices
and positions as set forth in the Company's bylaws from time to time in effect
and such other duties and responsibilities as the board of directors of the
Company (the "Board of Directors") may from time to time reasonably assign to
the Executive, in all cases to be consistent with the Executive's corporate
offices and positions. The Executive shall perform faithfully the executive
duties assigned to him to the best of his ability. At the next meeting of the
Board of Directors, the Executive will be nominated to serve as a Director, and
if so elected will be nominated as Chairman of the Board of Directors of the
Company, and, if elected, the Executive shall serve in such capacity without
additional compensation.
2. Employment Period.
(a) Basic Rule. The employment period shall begin July 1, 1999
and shall continue thereafter (the "Employment Period") unless terminated
pursuant to the provisions of this Agreement.
(b) Termination. The Company may terminate the Executive's
employment by giving the Executive notice in writing. If the Company terminates
the Executive's employment for any reason other than Cause or Disability, both
as defined below, or if the Executive terminates his employment for Good Reason,
as defined below, the provisions of paragraphs 13(a)(i), 13(b) and 13(c) shall
apply. The Executive may terminate his employment by giving the Company 30 days'
advance written notice. If the Executive terminates his employment other than
for Good Reason, the provisions of paragraph 13(b)(ii) shall apply. Upon
termination of the Executive's employment with the Company, the Executive's
rights under any applicable benefit plans shall be determined under the
provisions of those plans. Any waiver of notice shall be valid only if it is
made in writing and expressly refers to the applicable notice requirement of
this subparagraph 2(b).
<PAGE> 2
(c) Death. The Executive's employment shall terminate in the
event of his death. In that event, any portion of the Option (as defined in
paragraph 6(a) below) that was scheduled to vest within one (1) year of the
Executive's death shall become vested as of the date of death and the Company's
right of repurchase shall lapse as to those shares. The Company shall have no
obligation to pay or provide any other compensation or benefits under this
Agreement on account of the Executive's death, or for periods following the
Executive's death, provided that the Company's obligations under paragraphs
13(a)(i) and 13(c) shall not be interrupted as a result of the Executive's
death. The Executive's rights under the benefit plans of the Company in the
event of the Executive's death shall be determined under the provisions of those
plans.
(d) Cause. The Company may terminate the Executive's employment
for cause by giving the Executive notice in writing. For all purposes under this
Agreement, "Cause" shall mean (A) fraud, misappropriation embezzlement or
material misconduct on the part of the Executive, (B) the Executive's willful
failure to substantially perform his duties for the Company when, and to the
extent, requested by the Board, or its lawfully departed representative, to do
so and failure to correct same within five (5) business days after notice from
the Board or its lawfully designated representative requesting the Executive to
do so, or (C) the Executive's willful breach of any material provision of this
Agreement, or other agreements between the Executive and the Company and such
breach continues for a period of five (5) business days after notice from the
Board or its lawfully designated representative of such breach.
(e) Disability. The Company may terminate the Executive's
employment for Disability by giving the Executive notice in writing. For all
purposes under this Agreement, "Disability" shall mean that the Executive, at
the time notice is given, has been unable to substantially perform his duties
under this Agreement for a period of not less than six (6) consecutive months as
the result of his incapacity due to physical or mental illness. In that event,
any portion of the Option (as defined in paragraph 6(a) below) that was
scheduled to vest within one (1) year of the Executive's termination due to
Disability shall become vested as of the date of such termination and the
Company's right of repurchase shall lapse as to those shares. If the Executive
resumes the performance of substantially all of his duties hereunder before the
termination of his employment under this subparagraph (e) becomes effective, the
notice of termination and the accelerated Option vesting shall automatically be
deemed to have been revoked. No compensation or benefits will be paid or
provided to the Executive under this Agreement on account of termination for
Disability, or for periods following the date when such a termination of
employment is effective. The Executive's rights under the benefit plans of the
Company shall be determined under the provisions of those plans.
(f) Good Reason. Employment with the Company may be regarded as
having been constructively terminated by the Company, and the Executive may
therefore terminate his employment for Good Reason and thereupon become entitled
to the benefits of paragraphs 13(a)(i), 13(b) and 13(c) below, if he resigns his
employment within six (6) months of the occurrence of any one or more of the
following events:
(i) without the Executive's express written consent, the
assignment to the Executive of any duties or the reduction of the Executive's
duties, either of which is substantially inconsistent with Executive's position
or responsibilities with the Company in effect immediately prior to such
assignment;
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(ii) a reduction by the Company in the Base Salary of the
Executive as in effect immediately prior to such reduction;
(iii) a material reduction by the Company in the kind of level of
employee benefits, including the Bonus to which the Executive is entitled
immediately prior to such reduction, with the result that the Executive's
overall benefits package is significantly reduced, unless similar reductions are
made to the overall benefits package of all other senior executives of the
Company;
(iv) the relocation of the Executive to a facility or a location
more than 50 miles from the Company's present location, without the Executive's
express written consent; or
(v) any material breach by the Company of any material provision
of this Agreement.
3. Place of Employment. The Executive's services shall be performed at
the Company's principal executive offices in Santa Clara, California. The
parties acknowledge, however, that the Executive may be required to travel in
connection with the performance of his duties hereunder.
4. Base Salary. For all services to be rendered by the Executive
pursuant to this Agreement, the Company agrees to pay the Executive during the
Employment Period a base salary (the "Base Salary") at an annual rate of not
less than $500,000. The Base Salary shall be paid in periodic installments in
accordance with the Company's regular payroll practices. The Company agrees to
review the Base Salary at least annually as of the payroll payment date nearest
each anniversary of the Effective Date (beginning in 2000) and to make such
increases therein as the Board of Directors may approve.
5. Bonus. The Executive shall be entitled to a guaranteed bonus payment
of $250,000 on December 31, 1999, provided that he is an employee of the Company
on such date. An additional guaranteed bonus payment of $250,000 will be paid to
the Executive on June 30, 2000, provided that he is an employee of the Company
on such date, and provided further that such bonus shall offset any bonus
otherwise earned during the Company's 2000 fiscal year as defined below.
Beginning with the Company's 2000 fiscal year and for each fiscal year
thereafter during the Employment Period, the Executive will be eligible to
receive an annual bonus (the "Bonus") of at least $500,000 for such fiscal year
based upon certain financial criteria to be specified by the Board of Directors
including revenue and profitability targets and/or other organizational
milestones. Any Bonus payable hereunder shall be payable annually in accordance
with the Company's normal practices and policies.
Furthermore, if the Executive, after making a good faith effort to
receive payment, is not paid the $338,000 bonus to which he is entitled by
Cardinal Health, Inc. by September 30, 1999, the Executive is entitled to be
reimbursed, by the Company, the amount he is not paid, will assign any legal
claim he may have to that payment and agrees to cooperate fully with the Company
should the Company pursue the legal claim.
6. Stock and Stock Option.
(a) Stock and Stock Option. As of the Effective Date, the Company
shall issue the Executive (with no right to repurchase) 1,601,029 shares of the
Company's common stock (the
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<PAGE> 4
"Bonus Shares"), which represents 4% of the Company's fully diluted outstanding
common stock immediately following such stock grant (including common shares and
assumed conversion into common stock of all series of preferred shares,
warrants, options (including the option described in the following sentence) and
shares available for option grants). The Executive shall pay a per share price
for the Bonus Shares equal to $0.10 per share. Further, the Company shall grant
the Executive an option (the "Option") to purchase 3,602,315 shares of the
Company's common stock, which represents 9% of the Company's fully diluted
outstanding common stock immediately following the grant of the Option and of
the Bonus Shares (but including all other common shares and assumed conversion
into common stock of all series of preferred shares, warrants, options and
shares available for other option grants). The per share exercise price for the
shares subject to the Option (the "Option Shares") shall be $.10 per share. At
the Executive's election, the form of payment for both the Bonus Shares and the
Option Shares may be in separate promissory notes signed by the Executive. Any
such promissory note shall be secured by the Bonus Shares. Any such note and
associated security agreement shall be made in the form specified by the
Company, and shall bear interest at the then Applicable Federal Rate determined
under the Internal Revenue Code. The principal and interest on such notes shall
be fully due and payable upon the earlier of four (4) years from their effective
date, two (2) years after the initial public offering of the Company's common
stock, three (3) months after the Executive's termination of employment, or upon
the sale of the shares purchased with the note. The Option Shares shall vest as
described in paragraph 6(b) below and shall be subject to such other terms and
conditions as are described in paragraph 6(b) and (c) below. The issuance of the
Bonus Shares and Option Shares are each subject to the Executive's execution of
the Shareholder Agreement that exists by and among certain of the Company's
shareholders, as it may be amended from time to time.
(b) Vesting. The Option Shares shall vest in equal monthly
installments on the last day of each month over the 48-month period that begins
July 1, 1999 and ends June 30, 2003, provided that the Executive remains an
employee of the Company on each such vesting date. In addition, in the event of
a Change in Control (as defined below), the unvested portion of the Option shall
immediately accelerate as to all shares so that the Company's right to
repurchase such shares shall lapse as of the Change of Control (as defined
below). If there is a Change of Control (as defined below) that results in
constructive termination of the Executive for Good Reason within twelve (12)
months of the Change of Control (as defined below), then the balance of the Loan
(as defined in paragraph 8) will be forgiven. For purposes of this Agreement the
term "Change of Control" shall mean the occurrence of any of the following
events subsequent to the equity financing described in paragraph 13(d) below:
(i) Any "Person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
is or becomes the "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
forty percent (40%) or more of the total voting power represented by the
Company's then outstanding voting securities; provided, however, that a Change
in Control shall be deemed to occur in the event any one individual becomes the
"beneficial owner" (as defined in Rule l3d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing thirty percent (30%) or
more of the voting power represented by the Company's then outstanding voting
securities; or
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<PAGE> 5
(ii) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
(iii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least seventy percent (70%)
of the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(c) Option Provisions. The Option shall be granted under the July
1, 1999 Stock Option Plan (the "Stock Plan") and, except as expressly provided
otherwise in this paragraph 6, shall be subject to the terms and conditions of
the Stock Plan and form of option agreement; provided, however, that the
Company's Board of Directors may, in its discretion, grant the Option and/or any
additional option(s), if any, outside of the Stock Plan, and any such Options
shall include such other terms as the Board of Directors may specify that are
not inconsistent with the terms hereof. The Option will expire on the first to
occur of: (i) in the event the Executive's employment terminates by reason of
the Executive's death or by the Company as a result of the Executive's
Disability, twelve (12) months from the date of such termination; (ii) in the
event the Executive terminates his employment for Good Reason, or in the event
the Company terminates the Executive's employment other than for Cause, twelve
(12) months from the date of such termination; (iii) in the event the Executive
resigns (other than for Good Reason) or is terminated by the Company for Cause,
ninety (90) days after the date of such resignation or termination; or (iv) ten
(10) years from the date of grant of each such Option.
7. Expenses. The Executive shall be entitled to prompt reimbursement by
the Company for all reasonable ordinary and necessary travel, entertainment, and
other expenses incurred by the Executive during the Employment Period (in
accordance with the policies and procedures established by the Company for its
senior executive officers) in the performance of his duties and responsibilities
under this Agreement; provided, that the Executive shall properly account for
such expenses in accordance with Company policies and procedures.
8. Real Estate Assistance. The Company will provide the Executive with a
moving assistance loan (the "Loan") of up to $2,500,000 to assist the Executive
in moving into a home similar in lifestyle to that in which he presently
resides. The Loan will be forgiven in equal monthly installments on the last day
of each month from the date of closing on such home through June 30, 2003,
provided that the Executive remains in his position through each such date. The
loan will be interest free. To the extent required by the Internal Revenue Code,
the Executive will have taxable
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<PAGE> 6
income for imputed interest and the amount of any loan forgiveness. At the
Company's election, this Loan will be secured by stock and/or the real estate
itself, and is subject to the Executive executing a promissory note and security
agreement satisfactory to the Company.
9. Relocation Expenses. The Company will provide the Executive with a
full relocation package to cover all closing costs on the sale of his home plus
all acquisition costs on the purchase of his now home. The Company will also
provide packing and unpacking of household goods, relocation of household goods,
two house-hunting trips, plus temporary living expenses for up to three months.
The Company will also provide a gross-up on relocation expenses that are not
deductible for tax purposes. In the event the Executive prefers not to relocate,
the Company will provide an apartment or condominium plus a leased car for two
(2) years or until a permanent move is completed.
Additionally, the Company will provide up to $300,000 to the Executive
to compensate for any financial loss realized in the sale of his present home as
measured against the $1,200,000 cost of building that home. Furthermore, any
relocation expense reimbursement up to $100,000 owed by the Executive to
Cardinal Health, Incorporated and required to be repaid will be reimbursed to
the Executive by the Company.
10. Other Benefits. During the Employment Period, the Executive shall be
entitled to participate in employee benefit plans or programs of the Company, if
any, to the extent that his position, tenure, salary, age, health and other
qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto.
11. Vacations and Holidays. The Executive shall be entitled to four (4)
weeks paid vacation and Company holidays in accordance with the Company's
policies in effect from time to time for its senior executive officers.
12. Other Activities. The Executive shall devote substantially all of
his working time and efforts during the Company's normal business hours to the
business and affairs of the Company and its subsidiaries and to the diligent and
faithful performance of the duties and responsibilities duly assigned to him
pursuant to this Agreement, except for vacations, holidays and sickness.
However, the Executive may devote a reasonable amount of his time to civic,
community, or charitable activities and, with the prior written approval of the
Board of Directors, to serve as a director of other corporations and to other
types of business or public activities not expressly mentioned in this
paragraph. The Company agrees that the Executive may continue serving as a
director of Epitope, Incorporated and Act Medical, Incorporated consistent with
this provision.
13. Termination Benefits. In the event the Executive's employment
terminates prior to the end of the Employment Period, then the Executive shall
be entitled to receive severance and other benefits as follows:
(a) Severance.
(i) Involuntary Termination. If the Company terminates the
Executive's employment other than for Disability or Cause, or if the Executive
terminates his employment for Good Reason, then, in lieu of any severance
benefits to which the Executive may otherwise be entitled
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<PAGE> 7
under any Company severance plan or program, the Executive shall be entitled to
payment equivalent to one (1) year of his Base Salary, Bonus and benefits to be
paid according to normal payroll practices. In addition, the Company's right to
repurchase as to all outstanding stock held by the Executive will lapse and the
forgiveness of the Loan will be treated as if the Executive had been employed
for twelve (12) additional months after the termination of employment.
(ii) Other Termination. In the event the Executive's employment
terminates for any reason other than as described in paragraph 13(a)(i) above,
including by reason of the Executive's death, Disability or resignation other
than for Good Reason, then the Executive shall be entitled to receive severance
and any other benefits only as may then be established under the Company's
existing severance and benefit plans and policies at the time of such
termination.
(iii) Limitation on Payments. In the event that the severance and
other benefits (including, without limitation, accelerated vesting of stock
options) provided for in this Agreement or otherwise payable to the Executive
(i) constitute "parachute payments" within the meaning of Section 280G of the
Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then Executive's benefits under this Agreement shall be
reduced to the extent necessary in order to avoid such benefits being subject to
the Excise Tax.
Unless the Company and the Executive otherwise agree in writing, any
determination required under this Section shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 280G and 4999 of the Code.
The Company and the Executive shall furnish to the Accountants such information
and documents as the Accounts may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
(b) Options. In the event the Executive's employment is
terminated by the Company as described in paragraph 13(a)(i) above, then the
Executives unvested portion of the Option and any additional options granted to
the Executive will be accelerated and the Company's right to repurchase will
lapse as if the Executive had worked for one (1) additional year from the date
of such termination. If such termination occurs during the first year of this
Agreement, the Executive is entitled to accelerate the vesting of the first
twenty-four (24) months of the stock options granted to him under this
Agreement, that is, the Company's right to repurchase will lapse as if the
Executive had been employed for twenty-four (24) months from the Effective Date.
(c) Bonuses. In the event the Executive's employment is
terminated by the Company as described in paragraph 13(a)(i) above, then the
Executive shall be entitled to receive an amount equivalent to one (1) year's
Bonus as described in paragraph 5. In the event the Executive's employment
terminates for any other reason (other than Cause) during any fiscal year of the
Company ending during the Employment Period, then the Executive (or his estate)
shall be entitled to payment of a portion of the Bonus determined, after the end
of such fiscal year, by multiplying the amount of the Bonus which would have
become payable to the Executive had he remained employed until the
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<PAGE> 8
end of such fiscal year, by a fraction, the numerator of which will be the
number of days in which he was employed by the Company (or any of its
subsidiaries) in such fiscal year, and the denominator of which shall be the
number of days in such fiscal year. To the extent all or any portion of the
Bonus is payable to the Executive pursuant to the preceding sentence, such
amount shall be paid in accordance with paragraph 5. In the event the Company
terminates the Executive's employment for Cause, then the Executive shall not be
entitled to any Bonus for the fiscal year in which such termination occurs.
14. Proprietary Information. During the Employment Period and
thereafter, the Executive shall not, without the prior written consent of the
Board of Directors, disclose or use for any purpose (except in the course of his
employment under this Agreement and in furtherance of the business of the
Company or any of its affiliates or subsidiaries) any confidential information
or proprietary data of the Company. As an express condition of the Executive's
employment with the Company, the Executive agrees to execute confidentiality
agreements as requested by the Company, including but not limited to the
Company's Employment, Confidential Information and Invention Assignment
Agreement which is attached hereto as Exhibit A and incorporated herein by
reference.
15. Non-Solicit. The Executive covenants and agrees with the Company
that during his employment with the Company and for a period expiring one (1)
year after the date of termination of such employment, he will not solicit any
of the Company's then-current employees to terminate their employment with the
Company or to become employed by any firm, company or other business enterprise
with which the Executive may then be connected.
16. Right to Advice of Counsel. The Executive acknowledges that he has
consulted with counsel and is fully aware of his rights and obligations under
this Agreement. Furthermore, the Company agrees to reimburse the Executive for
all reasonable costs for an attorney to review this Agreement.
17. Successors. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption agreement
prior to the effectiveness of any such succession shall entitle the Executive to
the benefits described in paragraphs 13(a)(i), 13(b) and 13(c) of this
Agreement, subject to the terms and conditions therein.
18. Arbitration. As an express condition of the Executive's employment
with the Company, the Executive agrees to arbitrate any and all disputes or
controversies arising out of this Agreement pursuant to the Arbitration
Agreement, which is attached hereto as Exhibit B and incorporated herein by
reference.
19. Absence of Conflict. The Executive represents and warrants that his
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship and that he is not aware of any claims, pending or threatened,
against him in relation to any such prior agreement or relationship.
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20. Assignment. This Agreement and all rights under this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and assigns.
This Agreement is personal in nature, and neither of the parties to this
Agreement shall, without the written consent of the other, assign or transfer
this Agreement or any right or obligation under this Agreement to any other
person or entity; except that the Company may assign this Agreement to any of
its affiliates or wholly-owned subsidiaries, provided, that such assignment will
not relieve the Company of its obligations hereunder. If the Executive should
die while any amounts are still payable to the Executive hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
21. Notices. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Robert J. Zollars
4542 Sixpenny Circle
Dublin, Ohio 43016
If to the Company: Neoforma, Incorporated
3255-7 Scott Blvd.
Santa Clara, CA 95054
Attention: General Counsel
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three days after they have been mailed as provided
above.
22. Integration. This Agreement and the Exhibits hereto and any other
agreements referred to herein represent the entire agreement and understanding
between the parties as to the subject matter hereof and supersede all prior or
contemporaneous agreements whether written or oral. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.
If there is any inconsistency between this Agreement and any other agreement
referred to herein, then the terms of this Agreement will govern.
23. Waiver. Failure or delay on the part of either party hereto to
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver thereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent breach by such other party.
24. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
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jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
25. Taxes. All payments made pursuant to this Agreement shall be subject
to withholding of applicable income and employment taxes.
26. Indemnity. The Company will indemnify and provide a defense to the
Executive to the full extent permitted by law with respect to any claims arising
out of the performance of his duties under this Agreement. In addition, the
company will also indemnify and provide a defense to the Executive should
Cardinal Health, Incorporated or any of its affiliates bring any claim against
the Executive in connection with his acceptance of this Agreement or the
performance of his duties thereunder.
27. Headings. The headings of the paragraphs contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this Agreement.
28. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of California.
29. Counterparts. This Agreement may be executed in one or more
counterparts, none of which need contain the signature of more then one party
hereto, and each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
NEOFORMA, INCORPORATED
/s/ JEFF KLECK
-------------------------------------------
Jeff Kleck, President and CEO
EXECUTIVE:
/s/ ROBERT J. ZOLLARS
-------------------------------------------
Robert J. Zollars
EXHIBIT A - Employment, Confidential Information and Invention
Assignment Agreement
EXHIBIT B - Arbitration Agreement
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EXHIBIT A
NEOFORMA, INCORPORATED
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with Neoforma, Incorporated, its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by Company, I agree to the following:
1. CONFIDENTIAL INFORMATION.
(a) COMPANY INFORMATION. I agree at all times during the term of
my employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of the Board of Directors of the
Company, any Confidential Information of the Company. I understand that
"Confidential Information" means any Company proprietary information, technical
data, trade secret or know-how, including, but not limited to, research, product
plans, products, services, customer lists and customers (including, but not
limited to, customers of the Company on whom I called or with whom I became
acquainted during the term of my employment), markets, software, developments,
inventions, processes, formulas, technology, designs, drawings, engineering,
hardware configuration information, marketing, finances or other business
information disclosed to me by the Company either directly or indirectly in
writing, orally or by drawings or observation of parts or equipment. I further
understand that Confidential Information does not include any of the foregoing
items which has been made publicly known and made generally available through no
wrongful act of mine or of others who were under confidentiality obligations as
to the item or items involved or improvements or new versions thereof.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not, during
my employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company any
unpublished document or proprietary information belonging to any such employer,
person or entity unless consented to in writing by such employer, person or
entity.
(c) THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as
<PAGE> 12
necessary in carrying out my work for the Company consistent with the Company's
agreement with such third party.
2. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as
Exhibit A(1), a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets which were made by me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to me, which relate to the Company's proposed business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into a Company product, process or machine a Prior Invention owned by me or in
which I have an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make
full written disclosure to the Company, will hold in trust for the sole right
and benefit of the Company, and hereby assign to the Company, or its designee,
all my right, title, and interest in and to any and all inventions, original
works of authorship, developments, concepts, improvements, designs, discoveries,
ideas, trademarks or trade secrets, whether or not patentable or registrable
under copyright or similar laws, which I may solely or jointly conceive or
develop or reduce to practice, or cause to be conceived or developed or reduced
to practice, during the period of time I am in the employ of the Company
(collectively referred to as "Inventions"), except as provided in Section 3(f)
below. I further acknowledge that all original works of authorship which are
made by me (solely or jointly with others) within the scope of and during the
period of my employment with the Company and which are protectible by copyright
are "works made for hire," as that term is defined in the United States
Copyright Act. I understand and agree that the decision whether or not to
commercialize or market any invention developed by me solely or jointly with
others is within the Company's sole discretion and for the Company's sole
benefit and that no royalty will be due to me as a result of the Company's
efforts to commercialize or market any such invention.
(c) INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to assign
to the United States government all my right, title, and interest in and to any
and all Inventions whenever such full title is required to be in the United
States by a contract between the Company and the United States or any of its
agencies.
(d) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
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(e) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or original works
of authorship assigned to the Company as above, then I hereby irrevocably
designate and appoint the Company and its duly authorized officers and agents as
my agent and attorney in fact, to act for and in my behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by me.
(f) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention which qualifies fully under the provisions of California Labor
Code Section 2870 (attached hereto as Exhibit A(2)). I will advise the Company
promptly in writing of any inventions that I believe meet the criteria in
California Labor Code Section 2870 and not otherwise disclosed on Exhibit A(1).
3. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other activities that conflict
with my obligations to the Company.
4. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the
employ of the Company, I will deliver to the Company (and will not keep in my
possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications, drawings
blueprints, sketches, materials, equipment, other documents or property, or
reproductions of any aforementioned items developed by me pursuant to my
employment with the Company or otherwise belonging to the Company, its
successors or assigns, including, without limitation, those records maintained
pursuant to paragraph 3(d). In the event of the termination of my employment, I
agree to sign and deliver the "Termination Certification" attached hereto as
Exhibit A(3).
-3-
<PAGE> 14
5. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of
the Company, I hereby grant consent to notification by the Company to my new
employer about my rights and obligations under this Agreement.
6. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12)
months immediately following the termination of my relationship with the Company
for any reason, whether with or without cause, I shall not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees
to leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the Company, either for
myself or for any other person or entity.
7. CONFLICT OF INTEREST GUIDELINES. I agree to diligently adhere to the
Conflict of Interest Guidelines attached as Exhibit A(4) hereto.
8. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. have not entered
into, and I agree I will not enter into, any oral or written agreement in
conflict herewith.
9. GENERAL PROVISIONS.
(a) GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This
Agreement will be governed by the laws of the State of California. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in California for any lawsuit filed there against me by the Company
arising from or relating to this Agreement.
(b) ENTIRE AGREEMENT. This Agreement and an Employment Agreement
and an Arbitration Agreement between the parties, both dated this date, set
forth the entire agreement and understanding between the Company and me relating
to the subject matter herein and supersedes all prior discussions between us. No
modification of or amendment to these Agreements, nor any waiver of any rights
under these agreements, will be effective unless in writing signed by the party
to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.
(c) SEVERABILITY. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon
my heirs, executors, administrators and other legal representatives and will be
for the benefit of the Company, its successors, and its assigns.
-4-
<PAGE> 15
10. I acknowledge and agree to each of the following items:
(a) I am executing this Agreement voluntarily and without any
duress or undue influence by the Company or anyone else; and
(b) I have carefully read this Agreement and the Rules. I have
asked any questions needed for me to understand the terms, consequences and
binding effect of this Agreement and fully understand them; and
(c) I sought the advice of an attorney of my choice if I wanted
to before signing this Agreement.
Date: 6/24/99 /s/ ROBERT J. ZOLLARS
---------------------- ------------------------------------
Robert J. Zollars
[SIGNATURE ILLEGIBLE]
- ---------------------------
Witness
-5-
<PAGE> 16
EXHIBIT A(1)
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TITLE DATE IDENTIFYING NUMBER OR BRIEF DESCRIPTION
----- ---- ---------------------------------------
</TABLE>
[ X ] No inventions or improvements
[ ] Additional Sheets Attached
Signature of Employee: /s/ ROBERT J. ZOLLARS
----------------------------
Print Name of Employee: Robert J. Zollars
----------------------------
Date: 6/24/99
---------
-6-
<PAGE> 17
EXHIBIT A(2)
CALIFORNIA LABOR CODE SECTION 2870
INVENTION ON OWN TIME - EXEMPTION FROM AGREEMENT
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
-7-
<PAGE> 18
EXHIBIT A(3)
NEOFORMA, INCORPORATED
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Neoforma, Incorporated, its subsidiaries, affiliates,
successors or assigns (together, the "Company").
I further certify that I have complied with all the terms of the
Company's Employment, Confidential Information and Invention Assignment and the
Arbitration Agreement signed by me, including the reporting of any inventions
and original works of authorship (as defined therein), conceived or made by me
(solely or jointly with others) covered by that agreement.
I further agree that, in compliance with the Employment, Confidential
Information and Invention Assignment, and the Arbitration Agreement, I will
preserve as confidential all trade secrets, confidential knowledge, data or
other proprietary information relating to products, processes, know-how,
designs, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not
hire any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.
Date:
------------------ --------------------------------
Robert J. Zollars
-8-
<PAGE> 19
EXHIBIT A(4)
NEOFORMA, INCORPORATED
CONFLICT OF INTEREST GUIDELINES
It is the policy of Neoforma, Incorporated to conduct its affairs in
strict compliance with the letter and spirit of the law and to adhere to the
highest principles of business ethics. Accordingly, all officers, employees and
independent contractors must avoid activities which are in conflict, or give the
appearance of being in conflict, with these principles and with the interests of
the Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a violation
of this policy whether or not for personal gain and whether or not harm to the
Company is intended. (The Employment, Confidential Information, and Invention
Assignment Agreement as well as the Arbitration Agreement elaborate on this
principle and are binding agreements.)
2. Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue influence or
otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might
involve divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family relationship or is
or appears to be a personal or social involvement.
5. Initiating or approving any form of personal or social harassment of
employees.
6. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such investment or
directorship might influence in any manner a decision or course of action of the
Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
9. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
-9-
<PAGE> 20
10. Unlawfully discussing prices, costs, customers, sales or markets
with competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to
prices.
12. Improperly using or authorizing the use of any inventions which are
the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every
necessary action to ensure compliance with these guidelines and to bring problem
areas to the attention of higher management for review. Violations of this
conflict of interest policy may result in discharge without warning.
-10-
<PAGE> 21
EXHIBIT B
NEOFORMA, INCORPORATED
ARBITRATION AGREEMENT
Arbitration. In consideration of your employment with NEOFORMA,
INCORPORATED (the "Company"), its promise to arbitrate all employment-related
disputes and your receipt of the compensation, pay raises and other benefits
paid to you by the Company, at present and in the future, you agree that any and
all controversies, claims, or disputes with anyone (including the Company and
any employee, officer, director, shareholder or benefit plan of the Company in
their capacity as such or otherwise) arising out of, relating to, or resulting
from your employment with the Company or the termination of your employment with
the Company, including any breach of this Agreement, shall be subject to binding
arbitration under the Arbitration Rules set forth in California Code of Civil
Procedure Section 1280 through 1294.2, including section 1283.05 (the "Rules"),
the AAA's National Rules for the Resolution of Employment Disputes and pursuant
to California law. Disputes which you agree to arbitrate, and thereby agree to
waive any right to a trial by jury, include any statutory claims under state or
federal law, including, but not limited to, claims under Title VII of the Civil
Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age
Discrimination in Employment Act of 1967, the Older Workers Benefit Protection
Act, the California Fair Employment and Housing Act, the California Labor Code,
claims of harassment, discrimination or wrongful termination and any statutory
claims. You further understand that this Agreement to arbitrate also applies to
any disputes that the Company may have with you.
Procedure. You agree that any arbitration will be administered by the
American Arbitration Association ("AAA") and that the arbitrator will be
selected in a manner consistent with its National Rules for the Resolution of
Employment Disputes. You agree that the arbitrator shall have the power to
decide any motions brought by any party to the arbitration, including motions
for summary judgment and/or adjudication and motions to dismiss and demurrers,
prior to any arbitration hearing. You also agree that the arbitrator shall have
the power to award any remedies, including attorneys, fees and costs, available
under applicable law. You understand the Company will pay for any administrative
or hearing fees charged by the arbitrator or AAA except that you shall pay the
first $200.00 of any filing fees associated with any arbitration you initiate.
You agree that the arbitrator shall administer and conduct any arbitration in a
manner consistent with the Rules and that to the extent that the AAA's National
Rules for the Resolution of Employment Disputes conflict with the Rules, the
Rules shall take precedence.
Remedy. Except as provided by the Rules, arbitration shall be the sole,
exclusive and final remedy for any dispute between you and the Company.
Accordingly, except as provided for by the Rules, neither you nor the Company
will be permitted to pursue court action regarding claims that are subject to
arbitration. Notwithstanding the above, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator shall not order or
<PAGE> 22
require the Company to adopt a policy not otherwise required by law which the
Company has not adopted.
Availability of Injunctive Relief. In addition to the right under the
Rules to petition the court for provisional relief, you agree that any party may
also petition the court for injunctive relief where either party alleges or
claims a violation of the Employment, Confidential Information, Invention
Assignment Agreement between you and the Company or any other agreement
regarding trade secrets, confidential information, nonsolicitation or Labor Code
Section 2870. In the event either party seeks injunctive relief, the prevailing
party shall be entitled to recover reasonable costs and attorneys fees.
Administrative Relief. You understand that this Agreement does not
prohibit you from pursuing an administrative claim with a local, state or
federal administrative body such as the Department of Fair Employment and
Housing, the Equal Employment Opportunity Commission or the workers'
compensation board. This Agreement does, however, preclude you from pursuing
court action regarding any such claim.
Voluntary Nature of Agreement. You acknowledge and agree that you are
executing this Agreement voluntarily and without any duress or undue influence
by the Company or anyone else. You further acknowledge and agree that you have
carefully read this Agreement and that you have asked any questions needed for
you to understand the terms, consequences and binding effect of this Agreement
and fully understand it, including that you are waiving your right to a jury
trial. Finally, you agree that you have been provided an opportunity to seek the
advice of an attorney of your choice before signing this Agreement.
/s/ ROBERT J. ZOLLARS
-----------------------------------
Robert J. Zollars
6/24/99
-----------------------------------
Date
2
<PAGE> 23
FIRST AMENDMENT TO
NEOFORMA, INCORPORATED EMPLOYMENT AGREEMENT
OF ROBERT J. ZOLLARS
This First Amendment (the "AMENDMENT") to the Neoforma, Incorporated
Employment Agreement by and between Neoforma, Inc. and Robert J. Zollars dated
July 1, 1999 (the "AGREEMENT") is made and entered into as of December ___, 1999
by and among Neoforma.com, Inc., a Delaware corporation (the "COMPANY"),
formerly known as Neoforma, Inc., and Robert J. Zollars (the "EXECUTIVE")
(collectively, the Company and the Executive, the "PARTIES"). Each capitalized
term herein not otherwise defined shall have the meaning ascribed to it in the
Agreement.
W I T N E S S E T H:
WHEREAS, the Parties have determined that certain provisions of the
Agreement should be amended to precisely reflect the original agreement of
Parties; and
WHEREAS, the Parties have agreed that certain provisions of the Agreement
should be amended to reflect certain recent approvals and/or amended policies
adopted by the board of directors of the Company:
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. The number of Bonus Shares, "1,601,029 shares" in the first sentence
of Section 6(a) of the Agreement is deleted and is replaced by "1,637,160
shares".
2. The sixth (6th) sentence of Section 6(a) of the Agreement is deleted
in its entirety and is replaced with the following:
Any such promissory note for the purchase of the Bonus Shares shall be
secured by the Bonus Shares, and any such promissory note for the
purchase of the Option Shares shall be secured by the Option Shares.
3. The last sentence of Section 6(a) of the Agreement is deleted in its
entirety and is replaced with the following:
The issuance of the Bonus Shares and Option Shares are each subject to
the Executive's execution of the Amended and Restated Right of First
Refusal and Co-Sale Agreement dated February 19, 1999 by and among
certain of the Company's shareholders, as it may be amended from time
to time.
4. The first (1st) sentence of Section 6(b) of the Agreement is deleted
in its entirety and is replaced with the following:
(b) Vesting. One fourth (1/4) of the Option Shares shall vest
upon the one (1) year anniversary of July 1, 1999 and one forty-eighth
(1/48) of the Option Shares shall vest at the end of each full month
following such anniversary, provided that the Executive remains an
employee of the Company on each such vesting date.
<PAGE> 24
5. The part of the fourth sentence of Section 6(b) of the Agreement that
precedes Section 6(b)(i) is deleted in its entirety and is replaced with the
following:
For purposes of this Agreement, "Change of Control" shall mean the
occurrence of any of the following events:
6. Survival. Except as modified hereby, all other provisions of the
Agreement shall remain in full force and effect and without amendment.
7. Governing Law; Severability. This Amendment will be governed by and
construed in accordance with the internal laws of the State of California,
excluding that body of law relating to conflicts of law. Should one or more of
the provisions of this Amendment be determined by a court of law to be illegal
or unenforceable, the other provisions nevertheless will remain effective and
will be enforceable.
8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same amendment.
[The remainder of this page has intentionally been left blank]
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
COMPANY: EXECUTIVE:
NEOFORMA.COM, INC.
(f.k.a. Neoforma, Inc.)
By:
------------------------------------- -------------------------------------
Fred J. Ruegsegger Robert J. Zollars
Its: Chief Financial Officer
and Secretary
[SIGNATURE PAGE TO FIRST AMENDMENT TO NEOFORMA,
INCORPORATED EMPLOYMENT AGREEMENT OF ROBERT J. ZOLLARS]
<PAGE> 1
EXHIBIT 10.28
INDUSTRIAL BUILDING LEASE
LANDLORD:
CENTERPOINT PROPERTIES TRUST,
a Maryland real estate investment trust
TENANT:
NEOFORMA.COM, INC.
a Delaware corporation
Property Address:
1601 Estes Avenue
Elk Grove Village, Illinois
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
Lease Terms ......................................................... 1
Section 1.1. Definitions ......................................... 1
Section 1.2. Significance of Definitions ......................... 2
Section 1.3. Enumeration of Exhibits ............................. 2
ARTICLE II
Premises ............................................................ 2
Section 2.1. Lease ............................................... 2
ARTICLE III
Term ................................................................ 2
Section 3.1. Term ................................................ 2
ARTICLE IV
Condition of Demised Premises ....................................... 3
Section 4.1. Condition of Premises ............................... 3
ARTICLE V
Rent ................................................................ 3
Section 5.1. Base Rent ........................................... 3
Section 5.2. Base Rent Adjustment ................................ 3
Section 5.3. Interest and Late Charges on Late Payments .......... 5
ARTICLE VI
Utilities ........................................................... 6
Section 6.1. Utilities ........................................... 6
ARTICLE VII
Use ................................................................. 6
Section 7.1. Use ................................................. 6
Section 7.2. Prohibited Uses ..................................... 6
ARTICLE VIII
Maintenance, Repair and Replacements of Premises .................... 6
Section 8.1. Maintenance ......................................... 6
Section 8.2. Governmental Requirements ........................... 7
Section 8.3. Tenant's Responsibilities ........................... 7
ARTICLE IX
Tenant's Insurance .................................................. 7
Section 9.1. Coverage Required ................................... 7
Section 9.2. Policies ............................................ 9
Section 9.3. Subrogation ......................................... 9
Section 9.4. Miscellaneous Insurance Provisions .................. 9
i
<PAGE> 3
ARTICLE X
Damage or Destruction ............................................... 10
Section 10.1. Total Damage ........................................ 10
Section 10.2. Partial Damage ...................................... 11
ARTICLE XI
Liens ............................................................... 11
Section 11.1. Lien Claims ......................................... 11
Section 11.2. Landlord's Right to Cure ............................ 11
ARTICLE XII
Tenant Alterations .................................................. 12
Section 12.1. Alterations ......................................... 12
Section 12.2. Ownership of Alterations ............................ 12
Section 12.3. Signs ............................................... 12
Section 12.4. Tenant Indemnity .................................... 13
Section 12.5. Environmental Impact ................................ 13
ARTICLE XIII
Condemnation ........................................................ 13
Section 13.1. Taking: Lease to Terminate ......................... 13
Section 13.2. Taking: Lease to Continue .......................... 13
ARTICLE XIV
Assignment -- Subletting by Tenant .................................. 13
Section 14.1. No Assignment, Subletting or Other Transfer ......... 13
Section 14.2. Operation of Law .................................... 14
Section 14.3. Excess Rental ....................................... 14
Section 14.4. Merger or Consolidation ............................. 14
Section 14.5. Unpermitted Transaction ............................. 14
ARTICLE XV
Annual Statements ................................................... 15
Section 15.1. Annual Statements ..................................... 15
ARTICLE XVI
Indemnity for Litigation ............................................ 15
Section 16.1. Indemnity for Litigation ............................ 15
ARTICLE XVII
Estoppel Certificates ............................................... 15
Section 17.1. Estoppel Certificate ................................ 15
ARTICLE XVIII
Inspection of Premises .............................................. 15
Section 18.1. Inspections ......................................... 15
Section 18.2. Signs ............................................... 15
ARTICLE XIX
Fixtures ............................................................ 16
Section 19.1. Building Fixtures ................................... 16
ii
<PAGE> 4
Section 19.2. Tenant's Equipment .................................. 16
Section 19.3. Removal of Tenant's Equipment ....................... 16
ARTICLE XX
Default 16
Section 20.1. Events of Default ................................... 16
Section 20.2. Waivers ............................................. 17
Section 20.3. Bankruptcy .......................................... 18
ARTICLE XXI
Landlord's Performance of Tenant's Covenants ........................ 19
Section 21.1. ....................................................... 19
ARTICLE XXII
Exercise of Remedies ................................................ 19
Section 22.1. Cumulative Remedies ................................... 19
Section 22.2. No Waiver ............................................. 19
Section 22.3. Equitable Relief ...................................... 20
ARTICLE XXIII
Subordination to Mortgages .......................................... 20
Section 23.1. Subordination ....................................... 20
Section 23.2. Mortgage Protection ................................. 20
ARTICLE XXIV
Indemnity and Waiver ................................................ 20
Section 24.1. Indemnity ........................................... 20
Section 24.2. Waiver of Claims .................................... 21
ARTICLE XXV
Surrender ........................................................... 22
Section 25.1. Condition ........................................... 22
Section 25.2. Removal of Tenant's Equipment ....................... 22
Section 25.3. Holdover ............................................ 22
ARTICLE XXVI
Covenant of Quiet Enjoyment ......................................... 22
Section 26.1. Covenant of Quiet Enjoyment ......................... 22
ARTICLE XXVII
No Recording ........................................................ 23
Section 27.1. No Recording ........................................ 23
ARTICLE XXVIII
Notices ............................................................. 23
Section 28.1. Notices ............................................. 23
ARTICLE XXIX
Covenants Run with Land ............................................. 23
Section 29.1. Covenants ........................................... 23
Section 29.2. Release of Landlord ................................. 23
iii
<PAGE> 5
ARTICLE XXX
Environmental Matters ............................................... 24
Section 30.1. Defined Terms ....................................... 24
Section 30.2. Tenant's Covenants with Respect to
Environmental Matters ............................... 25
Section 30.3. Conduct of Tenant ................................... 26
Section 30.4. Exacerbation ........................................ 27
Section 30.5. Rights of Inspection ................................ 27
Section 30.6. Copies of Notices ................................... 27
Section 30.7. Tests and Reports ................................... 27
Section 30.8. Indemnification ..................................... 28
Section 30.9. Tenant Acknowledgments with respect to
Environmental Matters ............................... 29
Section 30.10. No Liability of Landlord ............................ 29
ARTICLE XXXI
Security Deposit .................................................... 30
Section 31.1. Security Deposit .................................... 30
ARTICLE XXXII
Miscellaneous ....................................................... 30
Section 32.1. Captions ............................................ 30
Section 32.2. Severability ........................................ 30
Section 32.3. Applicable Law ...................................... 30
Section 32.4. Amendments in Writing ............................... 30
Section 32.5. Relationship of Parties ............................. 30
Section 32.6. Brokerage ........................................... 31
Section 32.7. No Accord and Satisfaction .......................... 31
Section 32.8. Joint Effort ........................................ 31
Section 32.9. Waiver of Jury Trial ................................ 31
Section 32.10. Time ................................................ 31
Section 32.11. Landlord's Consent .................................. 31
Section 32.12. No Partnership ...................................... 31
Section 32.13. Landlord's Liability ................................ 31
Section 32.14. Landlord Rights ..................................... 31
Section 32.15. Entire Agreement .................................... 32
Section 32.16. Rent Absolute ....................................... 32
Section 32.17. Tenant Authority .................................... 32
iv
<PAGE> 6
Property Address:
1601 Estes Avenue
Elk Grove Village, Illinois
INDUSTRIAL BUILDING LEASE
THIS LEASE is made as of this 15 day of November, 1999 between
CENTERPOINT PROPERTIES TRUST, a Maryland real estate investment trust
("Landlord"), and NEOFORMA.COM, INC., a Delaware corporation ("Tenant").
1 ARTICLE LEASE TERMS
SECTION 1.1. SECTION DEFINITIONS. In addition to the other terms,
which are elsewhere defined in this Lease, the following terms and phrases,
whenever used in this Lease shall have the meanings set forth in this Section
1.1, and only such meanings, unless such meanings are expressly contradicted,
limited or expanded elsewhere herein.
A. BASE RENT SCHEDULE:
<TABLE>
<CAPTION>
ANNUAL MONTHLY
PERIOD BASE RENT BASE RENT
------ --------- ---------
<S> <C> <C>
November 15, 1999-November 30, 2000 $462,072.00 $38,506.00
December 1, 2000-November 30, 2001 $471,313.44 $39,276.12
December 1, 2001-November 30, 2002 $480,739.70 $40,061.64
</TABLE>
B. SECURITY DEPOSIT: $38,506.00
C. TENANT'S PROPORTION: 80.32%
D. INITIAL TERM: The initial three (3) full year term, commencing
as of the Commencement Date.
E. COMMENCEMENT DATE: November 15, 1999
F. TERMINATION DATE: November 30, 2001
G. TERM: The Initial Term as same may be extended or sooner
terminated.
H. USE: Warehousing and distribution of equipment and supplies
related to the medical or aircraft industry.
I. LANDLORD'S MAILING ADDRESS:
1808 Swift Road
Oak Brook, Illinois 60690
Attn: Michael M. Mullen
J. TENANT'S MAILING ADDRESS:
3255-7 Scott Boulevard
Santa Clara, California 95054
K. LANDLORD'S BROKER: Colliers Bennet & Kahnweiler
<PAGE> 7
L. TENANT'S BROKER: None
SECTION 1.2. SIGNIFICANCE OF DEFINITIONS. Each reference in this
Lease to any of the Definitions contained in Section 1.1 of this Article shall
be deemed and construed to incorporate all of the terms provided under each such
Definition.
SECTION 1.3. ENUMERATION OF EXHIBITS. The exhibits in this Section
and attached to this Lease are incorporated in this Lease by this reference and
are to be construed as a part of this Lease.
EXHIBIT "A" - Premises
EXHIBIT "B" - Legal Description
EXHIBIT "C" - Form of Estoppel Certificate
ARTICLE II
PREMISES
SECTION 2.1. LEASE. Landlord, for and in consideration of the rents
herein reserved and of the covenants and agreements herein contained on the part
of Tenant to be kept, observed and performed, does by these presents, lease to
Tenant, and Tenant hereby leases from Landlord, the demised premises
("Premises"), being depicted in the plan attached hereto as EXHIBIT "A" in the
building located at 1601 Estes Avenue, Elk Grove Village, Illinois ("Building"),
and legally described on EXHIBIT "B" attached hereto and by this reference
incorporated herein ("Land") (the Land and Building are sometimes collectively
referred to as the "Project"), subject to covenants, conditions, agreements,
easements, encumbrances and restrictions of record as of the date hereof
affecting the Land and the Building ("Restrictions").
ARTICLE III
TERM
SECTION 3.1. TERM. The Initial Term of this Lease shall commence on
the Commencement Date and shall end on the Termination Date, unless sooner
terminated as hereinafter set forth. If the Commencement Date is a day other
than the first (1st) day of a calendar month, the Initial Term shall expire
thirty six (36) full calendar months after the first (1st) day of the first
(1st) full calendar month after the Commencement Date and shall, accordingly,
include the period between the Commencement Date and the end of the calendar
month in which the Commencement Date occurs, with Rent (as hereinafter defined)
for such partial month to be calculated pro rata on a daily basis. If the
Landlord shall be unable to give possession of the Premises on the Commencement
Date for any reason the Rent reserved and covenanted to be paid herein shall not
commence until the Premises are available for occupancy by Tenant. No such
failure to give possession on the Commencement Date of the Term hereof shall
subject Landlord to any liability for failure to give possession nor shall same
affect the validity of this Lease or the obligation of the Tenant hereunder, nor
shall the same be construed to extend the Term. At the option of Landlord to be
exercised within thirty (30) days of the delayed delivery of possession to
Tenant, the Lease shall be amended so that the Term shall be extended by the
period of time possession is delayed. Notwithstanding the foregoing, in the
event the Premises are not delivered to Tenant by January 1, 2000, Tenant shall
have the right to terminate this Lease upon notice to Landlord delivered on or
before January 10, 2000.
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ARTICLE IV
CONDITION OF DEMISED PREMISES
SECTION 4.1. CONDITION OF PREMISES. Tenant agrees to accept the
Premises in an absolutely "as-is" condition, and Tenant acknowledges that
Landlord, its agents, attorneys, representatives and employees have not and do
not make any representations or warranties, express or implied, to Tenant
regarding the Premises or the Project, including, but not limited to: (i) the
zoning of the Premises or the Project; (ii) the condition of any underground,
above ground or surface improvements; (iii) the size, area, use or type of the
Premises or the fitness of the Premises for any intended or particular use; (iv)
the nature of the soil on and underlying the Premises or the Project or its
suitability for development or any other use thereof; (v) any financial
information pertaining to the operation of the Premises or the Project; (vi) the
status of any requirements or obligations imposed, implied or to be undertaken
by the owner or developer of the Premises or the Project pursuant to any zoning,
subdivision, development laws or agreements with any governmental entities;
(vii) the presence or absence of any toxic wastes, hazardous materials or
structural defects in, on or under the Premises or the Project or any
improvements thereon; or (viii) the presence or absence of any rights of any
governmental authority, or of owners of property in the vicinity of the Premises
or the Project, to obtain reimbursement, recapture or special assessments from
any owner of the Premises or the Project for all or a portion of the cost of any
utilities, roads or other improvements heretofore or hereafter located on or in
the vicinity of the Premises or the Project, any and all such representations
and warranties, express or implied, being hereby expressly waived by Tenant and
disclaimed by Landlord. Tenant waives any claim that may exist for patent and/or
latent defects or for mutual or unilateral mistake of fact. No promise of
Landlord to alter, remodel, decorate, clean or improve the Premises or any
portion thereof and no representation respecting the condition of the Premises
or any portion thereof have been made by Landlord to Tenant.
Notwithstanding the foregoing, Landlord agrees that the HVAC,
mechanical, electrical and plumbing systems will be in working order on the
Commencement Date.
Landlord further agrees to clean the warehouse floor and to paint all
walls in the warehouse (including the columns), office and restrooms in the
Premises (collectively, "Work"), provided Tenant shall pay all costs incurred by
Landlord in connection with the Work. Landlord shall provide Tenant with
estimates for the cost of the Work and Tenant shall pay the amount set forth in
such estimate to Landlord within five (5) days after delivery of such estimates.
In the event the actual cost of the Work exceeds the estimates, Tenant will pay
such excess to Landlord within five (5) days after notice from Landlord.
ARTICLE V
RENT
SECTION 5.1. BASE RENT. In consideration of the leasing aforesaid,
Tenant agrees to pay Landlord, without offset or deduction, base rent for the
Initial Term ("Base Rent"), payable monthly in advance in the amount of the
Monthly Base Rent set forth in the Base Rent Schedule commencing on the
Commencement Date and continuing on the first (1st) day of each month thereafter
for the balance of the Term of this Lease, and in addition thereto, shall pay
such charges as are herein described as "Additional Rent". The term "Rent" when
used in this Lease shall include all Base Rent payable under this Section 5.1.,
as well as the charges herein described as Additional Rent. All Rent payable
hereunder shall be payable to Landlord at 135 S. LaSalle Street, Dept. 2023,
Chicago, Illinois 60674-2023, or as Landlord may otherwise from time to time
designate in writing.
SECTION 5.2. BASE RENT ADJUSTMENT. In addition to the Base Rent payable
by Tenant hereunder, Tenant shall pay to Landlord, as Additional Rent, the Rent
Adjustment described in this Section 5.2 without set off or deduction.
A. For the purposes of this Lease:
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(1) The term "Calendar Year" shall mean each
calendar year or a portion thereof during the Term.
(2) The term "Expenses" shall mean and include all
expenses paid or incurred by Landlord or its beneficiaries for
managing, owning, maintaining, operating, insuring, replacing
and repairing the Project, the Land, appurtenances and personal
property used in conjunction therewith. Expenses shall not
include (i) depreciation charges, (ii) interest and principal
payments on mortgages, (iii) ground rental payments, (iv) real
estate brokerage and leasing commissions, (v) legal fees for the
negotiation or enforcement of leases, (vi) Taxes, (vii) cost of
repair from a casualty or taking, and (viii) cost of altering
the space of other tenants. Notwithstanding the foregoing, the
cost of any Capital Item (defined below) shall be amortized at
the Lease Interest Rate (as hereinafter defined) over the useful
economic life of the replacement and Expenses shall include, on
an annual basis, that portion of said amortized cost which
relates to the portion of the Term (including any renewal term)
remaining hereunder commencing on the date of the replacement
and ending on the Termination Date (including any renewal term).
"Capital Items" as used herein shall mean any replacement to the
Premises, the Building or the Project the cost of which is
deemed to be a capital expenditure in accordance with generally
accepted accounting principles. If the Building is not fully
occupied during all or a portion of any Calendar Year, then
Landlord may elect to make an appropriate adjustment of the
Expenses which vary due to occupancy for such Calendar Year
employing sound accounting and management principles, to
determine the amount of Expenses that would have been paid or
incurred by Landlord had the Building been fully occupied and
the amount so determined shall be the amount of Expenses
attributable to such Calendar Year.
(3) The term "Rent Adjustments" shall mean all
amounts owed by Tenant as Additional Rent on account of Expenses
or Taxes, or both.
(4) The term "Rent Adjustment Deposit" shall mean an
amount equal to Landlord's estimate of Rent Adjustments due for
any Calendar Year made from time to time during the Term.
(5) The term "Taxes" shall mean real estate taxes,
assessments, sewer rents, rates and charges, transit taxes,
taxes based upon the receipt of rent, and any other federal,
state or local governmental charge, general, special, ordinary
or extraordinary, which accrue during the Term and are levied or
assessed or become a lien against the Project or any portion
thereof in any Calendar Year during the Term and any tax in
substitution of any of the foregoing; provided, however, in
determining the income of Landlord with respect to any such
substituted tax, only the income derived from the Building shall
be included. Taxes shall not include any franchise, capital,
stock, transfer, inheritance or income (other than rental
income) tax imposed on Landlord. In case of special taxes or
assessments which may be payable in installments, only the
amount of each installment and interest paid thereon paid during
a Calendar Year shall be included in Taxes for that Calendar
Year. Taxes shall also include any personal property taxes
(attributable to the year in which paid) imposed upon the
furniture, fixtures, machinery, equipment, apparatus, systems
and appurtenances of Landlord to the extent used in connection
with the operation of the Building. Taxes also include
Landlord's reasonable costs and expenses (including reasonable
attorney's fees) in contesting or attempting to reduce any taxes
assessed during the Term and any extension or renewal thereof.
Taxes shall be reduced by any recovery or refund received of
Taxes previously paid by the Landlord, provided such refund
relates to taxes paid during the Term of this Lease.
B. Tenant shall pay to the Landlord as Additional Rent Tenant's
Proportion of the amount by which Expenses and
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Taxes attributable to each Calendar Year of the Term exceed the amount
of Expenses and Taxes attributable to calendar year 1999. The amount of
Taxes attributable to a Calendar Year shall be the amount assessed for
any such Calendar Year, even though the assessment for such Taxes may be
payable in a different Calendar Year.
C. As soon as reasonably feasible after the expiration of each
Calendar Year, Landlord will furnish Tenant a statement ("Adjustment
Statement") showing the following:
(1) Expenses and Taxes for Calendar Year last ended and the
amount of Expenses and Taxes payable by Tenant for such Calendar
Year;
(2) The amount of Rent Adjustments due Landlord for the
Calendar Year last ended, less credits for Rent Adjustment
Deposits paid, if any; and
(3) The Rent Adjustment Deposit due in the current Calendar
Year.
D. Within thirty (30) days after Tenant's receipt of each
Adjustment Statement, Tenant shall pay to Landlord:
(1) The amount of Rent Adjustment shown on said statement to
be due Landlord for the Calendar Year last ended; plus
(2) The amount, which when added to the Rent Adjustment
Deposit theretofore paid in the current Calendar Year would
provide that Landlord has then received such portion of the Rent
Adjustment Deposit as would have theretofore been paid to
Landlord had Tenant paid one twelfth (1/12) of the Rent
Adjustment Deposit, for the current Calendar Year, to Landlord
monthly on the first (1st) day of each month of such Calendar
Year.
Commencing on the first (1st) day of the first (1st) month after
Tenant's receipt of each Adjustment Statement, and on the first day of
each month thereafter until Tenant receives a more current Adjustment
Statement, Tenant shall pay to Landlord one twelfth (1/12) of the Rent
Adjustment Deposit shown on said statement. During the last complete
Calendar Year, Landlord may include in the Rent Adjustment Deposit its
estimate of the Rent Adjustment which may not be finally determined
until after the expiration of the Term. The Tenant's obligation to pay
the Rent Adjustment and Landlord's obligation to refund any excess Rent
Adjustment Deposits shall survive the Term.
E. Tenant's payment of the Rent Adjustment Deposit for each
Calendar Year shall be credited against the Rent Adjustments for such
Calendar Year. All Rent Adjustment Deposits may be co-mingled and no
interest shall be paid to Tenant thereon. If the Rent Adjustment Deposit
paid by Tenant for any Calendar Year exceeds the Rent Adjustments for
such Calendar Year, then Landlord shall give a credit to Tenant in an
amount equal to such excess against the Rent Adjustments due for the
next succeeding Calendar Year, except that if any such excess relates to
the last Calendar Year of the Term, then, provided that Tenant is not in
default for the nonpayment of Rent due hereunder, Landlord shall refund
such excess to Tenant.
F. Tenant or its representative shall have the right to examine
Landlord's books and records with respect to the items in the Adjustment
Statement during normal business hours at any time within thirty (30)
days following the furnishing by Landlord to Tenant of such Adjustment
Statement. Unless Tenant shall take written exception to any item within
thirty (30) days after the furnishing of the foregoing statement, such
statement shall be considered as final and accepted by Tenant. Any
amount due to Landlord as shown on any such statement, whether or not
written exception is taken thereto, shall be paid
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by Tenant within thirty (30) days after Landlord shall have submitted
the statement, without prejudice to any such written exception.
G. If the Commencement Date is on any day other than the first
(1st) day of January or if the Termination Date is on any day other than
the last day of December, then any Rent Adjustments due Landlord shall
be prorated.
SECTION 5.3. INTEREST AND LATE CHARGES ON LATE PAYMENTS . Rent not paid
within five (5) days of the date when due shall bear interest from the date when
the same is payable under the terms of this Lease until the same shall be paid
at an annual rate of interest equal to the rate of interest announced from time
to time by the First National Bank of Chicago as its Corporate Base Rate, plus
three percent (3%), unless a lesser rate shall then be the maximum rate
permissible by law, in which event said lesser rate shall be charged ("Lease
Interest Rate"). The term "Corporate Base Rate" means that rate of interest
announced by The First National Bank of Chicago ("First") from time to time as
its "Corporate Base Rate" of interest, changing automatically and simultaneously
with each change in the Corporate Base Rate made by First from time to time. Any
publication issued or published by First from time to time or a certificate
signed by an officer of First stating its Corporate Base Rate as of a date shall
be conclusive evidence of the Corporate Base Rate on that date. Tenant further
acknowledges that its late payment of any Rent will cause Landlord to incur
certain costs and expenses not contemplated under this Lease, the exact amount
of which is extremely difficult or impracticable to fix. Such costs and expenses
will include, without limitation, loss of use of money, administrative and
collection costs and processing and accounting expenses. Therefore, if any
installment of monthly Base Rent is not received by Landlord within five (5)
days of the date when due or any other sum due hereunder is not paid when due,
Tenant shall immediately pay to Landlord a late charge equal to three percent
(3%) of the unpaid amount. Such late charge is in addition to any interest due
pursuant to the first (1st) sentence of this Section 5.3. Landlord and Tenant
agree that this late charge represents a reasonable estimate of costs and
expenses incurred by Landlord from, and is fair compensation to Landlord for,
its loss suffered, by such non-payment by Tenant. Acceptance of the late charge
shall not constitute a waiver of Tenant's default with respect to such
non-payment by Tenant or prevent Landlord from exercising any other rights and
remedies available to Landlord under this Lease. Failure to pay the late charge
shall constitute a default under this Lease.
ARTICLE VI
UTILITIES
SECTION 6.1. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, all costs of natural gas, electricity, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Premises. Landlord shall, at Landlord's sole cost and expense,
separately meter the Premises. If, however, at any time, any services or
utilities are jointly metered, Landlord shall make a reasonable determination of
Tenant's Proportionate share thereof and Tenant shall pay its proportionate
share, as Additional Rent hereunder, within fifteen (15) days after receipt of
Landlord's written statement. Landlord shall not in any way be liable or
responsible to Tenant for any cost or damage or expense which Tenant may sustain
or incur if either the quality or character of such service is changed or is no
longer available or suitable for Tenant's requirements unless that quality or
character of such service is altered as a result of the negligence or willful
misconduct of Landlord.
ARTICLE VII
USE
SECTION 7.1. USE. The Premises shall be used for the Use only, and for
no other purpose.
SECTION 7.2. PROHIBITED USES. Tenant shall not permit the Premises, or
any portion thereof, to be used in such manner which impairs Landlord's right,
title or interest in the Premises or any portion thereof, or in such manner
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which gives rise to a claim or claims of adverse possession or of a dedication
of the Premises, or any portion thereof, for public use. Tenant shall not use or
occupy the Premises or permit the Premises to be used or occupied contrary to
any statute, rule, order, ordinance, requirement, regulation or restrictive
covenant applicable thereto or in any manner which would violate any certificate
of occupancy affecting the same or which would render the insurance thereon void
or the insurance risk more hazardous, or which would cause structural injury to
the Building or cause the value or usefulness of the Premises or any part
thereof to materially diminish or which would constitute a public or private
nuisance or waste, and Tenant agrees that it will, promptly upon discovery of
any such use, immediately notify Landlord and take all necessary steps to compel
the discontinuance of such use. 1.4.
ARTICLE VIII
MAINTENANCE, REPAIR AND REPLACEMENTS OF PREMISES
SECTION 8.1 MAINTENANCE.
A. TENANT'S MAINTENANCE. Subject to Landlord's obligations set
forth in Section 8.1.B below, Tenant agrees, at Tenant's sole cost and expense,
to take good care of the Premises and keep same and all parts thereof, together
with any and all alterations and additions thereto, in good order, condition and
repair, suffering no waste or injury. Tenant shall, at its sole cost and
expense, promptly make all necessary repairs and replacements, ordinary as well
as extraordinary, foreseen as well as unforeseen, in and to any equipment now or
hereafter located in the Premises, including without limitation, water, sewer,
gas, HVAC and electricity connections, pipes, mains and all other fixtures,
machinery, apparatus, equipment, overhead cranes and appurtenances now or
hereafter belonging to, connected with or used in conjunction with the Premises.
All such repairs and replacements shall be of first class quality and sufficient
for the proper maintenance and operation of the Premises. Tenant shall keep and
maintain the Premises safe, secure and clean, specifically including, but not by
way of limitation, removal of waste and refuse matter. Tenant shall not permit
anything to be done upon the Premises (and shall perform all maintenance and
repairs thereto so as not) to invalidate, in whole or in part, or prevent the
procurement of any insurance policies which may, at any time, be required under
the provisions of this Lease. Tenant shall not obstruct or permit the
obstruction of any parking area, adjoining street or sidewalk.
B. LANDLORD'S MAINTENANCE. Subject to the provisions of Articles X
and XIII hereof, Landlord shall keep, maintain, repair and replace the roof and
structural members of the Building and the parking lot, sidewalks and
appurtenances thereto, including, as necessary, snow and ice removal and the
cost thereof shall be deemed an Expense. In addition to the foregoing, to the
extent that any component of the Building (other than structural components)
requires replacement and if such replacement constitutes a capital expenditure
under generally accepted accounting principals, then Landlord shall, at its
cost, replace the item in question and the cost thereof shall be included in
Expenses in the manner set forth in Section 5.2(A)(2) hereof.
SECTION 8.2. GOVERNMENTAL REQUIREMENTS. Tenant at its own cost and
expense also shall promptly comply with any and all governmental requirement to
or affecting the Premises or any part thereof, irrespective of the nature of the
work required to be done, extraordinary as well as ordinary, whether or not the
same involve or require any structural changes or additions in or to the
Improvements to the extent such changes or additions be required on account of
any particular use to which the Premises or any part thereof are being put.
Included in the obligations set forth above, but not in limitation thereof,
Tenant, at its own cost and expense, shall promptly comply with OSHA regulations
relating to overhead cranes (CFR 1910-179(j)(2) and 184(d), CFR 1910-179(j)(3),
CFR 1910-179(e)(1) through (4) and CFR 1910-179(b)(5)).
SECTION 8.3. TENANT'S RESPONSIBILITIES . Landlord shall not be required
to furnish any services or facilities whatsoever to the Premises. Except as set
forth in Section 8.1.B. above, Tenant hereby assumes full and sole
responsibility for condition, operation, repair, alteration, improvement,
replacement, maintenance and management
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of the Premises. Landlord shall not be responsible for any loss or damage to the
person or property of Tenant, any guests or invitees, any persons using or
working on the Premises, or any persons claiming by, through or under, or any
agents, employees, heirs, legal representatives, successors or assigns of, any
of the foregoing except to the extent the same arise out of the negligent act or
wilful misconduct of Landlord.
ARTICLE IX
TENANT'S INSURANCE
SECTION 9.1. COVERAGE REQUIRED. Tenant shall procure and maintain, or
cause to be maintained, at all times during the term of this Lease, at Tenant's
sole cost and expense, and until each and every obligation of Tenant contained
in the Lease has been fully performed, the types of insurance specified below,
with insurance companies authorized to do business in the State of Illinois
covering all operations under this Lease, whether performed by Tenant or by
Contractors. For purposes of this Article IX, "Contractors" shall mean Tenant
and contractors and subcontractors and materialmen of any tier providing
services, material, labor, operation or maintenance on, about or adjacent to the
Premises, whether or not in privity with Tenant.
A. IN GENERAL. Upon execution of the Lease, Tenant shall
procure and maintain the following kinds and amounts of
insurance:
(i) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE
INSURANCE. Worker's Compensation and Occupational Disease
Insurance, in statutory amounts, covering all employees who
provide a service under this Lease. Employer's liability
coverage with limits of not less than $100,000 each accident or
illness shall be included.
(ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY AND
UMBRELLA). Commercial Liability Insurance or equivalent with
limits of not less than $5,000,000 per occurrence, combined
single limit, for bodily injury, personal injury, and property
damage liability. Products/completed operation, independent
contractors, broad form property damage and contractual
liability (with no limitation) coverages are to be included.
Landlord is to be named as additional insureds, on a primary,
non-contributory basis for any liability, arising directly or
indirectly from this Lease.
(iii) AUTOMOBILE LIABILITY INSURANCE. When any motor
vehicles are used in connection with this Lease, Tenant shall
provide Automobile Liability Insurance with limits of not less
than $2,000,000 per occurrence combined single limit, for
bodily and property damage. Landlord is to be named as
additional insureds on a primary non-contributory basis.
(iv) CONTENTS INSURANCE. Insurance against fire,
sprinkler leakage, vandalism, and the extended coverage perils
for the full insurable value of all contents of Tenant within
the Premises, and of all office furniture, trade fixtures,
office equipment, merchandise and all other items of Tenant's
property on the Premises and business interruption insurance.
B. CONSTRUCTION. During any construction performed by or on
behalf of Tenant, Tenant shall procure and maintain, or cause to
be maintained, the following kinds and amounts of insurance:
(i) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE
INSURANCE. Worker's Compensation and Occupational Disease
Insurance, in statutory amounts, covering all employees who are
to provide a service under this construction. Employer's
liability coverage with limits of not less than $500,000 for
each accident or illness shall be included.
(ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY AND
UMBRELLA). Commercial Liability Insurance or equivalent with
limits of not less than $5,000,000 per occurrence, combined
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single limit, for bodily injury, personal injury, and property
liability. Products/completed operations, explosion, collapse,
underground, independent contractors, broad form property damage
and contractual liability coverages are to be included. Landlord
is to be named as additional insureds on a primary
non-contributory basis for any liability arising directly or
indirectly from the Lease.
(iii) AUTOMOBILE LIABILITY INSURANCE (PRIMARY AND
UMBRELLA). When any motor vehicles are used in connection with
work to be performed, Tenant or contractor shall provide
Automobile Liability Insurance with limits of not less than
$5,000,000 per occurrence combined single limit, for bodily
injury and property damage. Landlord is to be named as an
additional insured on a primary non-contributory basis.
(iv) ALL RISK BUILDERS RISK INSURANCE. Tenant or
Contractor shall provide All Risk Blanket Builder's Risk
Insurance to cover the materials, supplies, equipment, machinery
and fixtures that are or will be part of the Project. Coverage
extensions shall include the following: right to partial
occupancy, material stored off-site and in-transit, boiler and
machinery, earthquake, flood (including surface water backup),
collapse, water damage, debris removal, faulty workmanship or
materials, testing, mechanical-electrical breakdown and failure,
deletion of freezing and temperature exclusions, business
interruption, extra expense, loss of revenue, loss of rents and
loss of use of property, as applicable, Landlord shall be named
as loss payee.
(v) PROFESSIONAL LIABILITY. When any architects,
engineers, or consulting firms perform work in connection with
this Lease, Professional Liability Insurance shall be maintained
with limits of $1,000,000. The policy shall have an extended
reporting period of two (2) years. When policies are renewed or
replaced, the policy retroactive date must coincide with, or
precede, start of work.
SECTION 9.2. POLICIES. All insurance policies shall be written with
insurance companies and shall be in form satisfactory to Landlord. All insurance
policies shall name Landlord as an additional insured and loss payee as their
respective interests may appear and shall provide that they may not be
terminated or modified without thirty (30) days' advance written notice to
Landlord. All policies shall also contain an endorsement that Landlord, although
named as additional insured, shall nevertheless be entitled to recover for
damages caused by the negligence of Tenant. The minimum limits of insurance
specified in this Section shall in no way limit or diminish Tenant's liability
under this Lease. Tenant shall furnish to Landlord, not less than five (5) days
prior to the Commencement Date for the insurance required in Section 9.1.A.
above and not less than fifteen (15) days prior to the date any additional
insurance is first required to be carried by Tenant, and thereafter at least
fifteen (15) days prior to the expiration of each such policy, true and correct
photocopies of all insurance policies required under this Section, together with
any amendments and endorsements to such policies, certificates of insurance, and
such other evidence of coverages as Landlord may reasonably request, and
evidence of payment of all premiums and other expenses owed in connection
therewith. Upon Tenant's default in obtaining or delivering the policy for any
such insurance or Tenant's failure to pay the charges therefor, Landlord may, at
its option, on or after the tenth (10th) day after written notice thereof is
given to Tenant, procure or pay the charges for any such policy or policies and
the total cost and expense (including attorneys' fees) thereof shall be
immediately paid by Tenant to Landlord as Additional Rent upon receipt of a bill
therefor.
SECTION 9.3. SUBROGATION. Landlord and Tenant agree to have all fire and
extended coverage and material damage insurance which may be carried by either
of them endorsed with a clause providing that any release from liability of or
waiver of claim for recovery from the other party or any of the parties named in
Section 9.2 above entered into in writing by the insured thereunder prior to any
loss or damage shall not affect the validity of said policy or the right of the
insured to recover thereunder, and providing further that the insurer waives all
rights of subrogation which such insurer might have against the other party or
any of the parties named in Section 9.2 above.
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Without limiting any release or waiver of liability or recovery contained in any
other Section of this Lease but rather in confirmation and furtherance thereof,
Landlord and any beneficiaries of Landlord waive all claims for recovery from
Tenant, and Tenant waives all claims for recovery from Landlord, any
beneficiaries of Landlord and the managing agent for the Project and their
respective agents, partners and employees, for any loss or damage to any of its
property insured under valid and collectible insurance policies to the extent of
any recovery collectible under such insurance policies. Notwithstanding the
foregoing or anything contained in this Lease to the contrary, any release or
any waiver of claims shall not be operative, nor shall the foregoing
endorsements be required, in any case where the effect of such release or waiver
is to invalidate insurance coverage or invalidate the right of the insured to
recover thereunder or increase the cost thereof (provided that in the case of
increased cost the other party shall have the right, within ten (10) days
following written notice, to pay such increased cost, thereby keeping such
release or waiver in full force and effect). 1.4. 1.5. SECTION MISCELLANEOUS
INSURANCE PROVISIONS . Landlord and Tenant further agree as follows: 1.6. A.
Tenant expressly understands and agrees that any insurance coverages and limits
furnished by the Tenant or Contractors shall in no way limit the Tenant's
liabilities and responsibilities specified under the Lease, or contracts
executed relating to the Project, or by law.
SECTION 9.4. MISCELLANEOUS INSURANCE PROVISIONS. Landlord and Tenant
further agree as follows:
A. Tenant expressly understands and agrees that any insurance
coverages and limits furnished by the Tenant or Contractors shall in no
way limit the Tenant's liabilities and responsibilities specified under
the Lease, or contracts executed relating to the Project, or by law.
B. The failure of Landlord to obtain such evidence from Tenant or
Contractors before permitting Tenant or Contractors to commence work
shall not be deemed to be a waiver by Landlord, and Tenant or
contractors shall remain under continuing obligation to maintain the
insurance coverage.
C. Any and all deductibles on referenced insurance coverages shall
be borne by Tenant and Contractors.
D. Tenant expressly understands and agrees that any insurance
maintained by Landlord shall apply in excess of and not contribute with
insurance provided by the Tenant or Contractor under the Lease.
E. If Tenant or any Contractors desire additional coverage, higher
limits of liability, or other modifications for their own protection,
Tenant and such Contractors shall be responsible for the acquisition and
cost of such additional protection.
F. Tenant agrees, and shall cause each Contractor in connection
with the Project to agree, that all insurers shall waive their rights of
subrogation against Landlord.
G. Tenant and Contractors shall not violate or permit to be
violated any of the conditions or provisions of any of the insurance
policies, and Tenant and Contractors shall so perform and satisfy or
cause to be performed and satisfied the requirements of the companies
writing such policies so that at all times companies of good standing,
satisfactory to Landlord shall be willing to write and continue such
insurance.
H. Landlord shall not be limited in the proof of any damages which
Landlord may claim against Tenant and Contractors arising out of or by
reason of Tenant's and Contractor's failure to provide and keep in force
insurance, as aforesaid, to the amount of the insurance premium or
premiums not paid or incurred by Tenant and Contractors and which would
have been payable under such insurance, but Landlord shall also be
entitled to recover as damages for such breach the uninsured amount of
any loss, to the extent of any deficiency in the insurance required by
the provisions of this Lease, and damages, costs and expenses of suit
suffered or incurred by reason of damage to, or destruction of, the
Project or the Premises occurring during any period when Tenant or
Contractors shall have failed or neglected to provide insurance as
aforesaid.
<PAGE> 16
I. The insurance required by this Lease, at the option of Tenant or
Contractors, may be effected by blanket or umbrella policies issued to
Tenant or Contractors covering the Premises and other properties owned
or leased by Tenant or Contractors, provided that the policies otherwise
comply with the provisions of this Lease and allocate to the Premises
the specified coverage, without possibility of reduction or coinsurance
by reason of, or damage to, any other premises covered therein.
J. All insurance companies shall have a Best rating of not less than
A/VII, or an equivalent rating in the event Best ceases to exist or
provide a rating.
K. Tenant and Contractors shall provide and keep in force such other
insurance in such amounts as may from time to time be reasonably
required by Landlord or a holder of a Mortgage (defined in Section 23.1
hereof) against such other insurable hazards as at the time are commonly
insured against in the case of prudent owners of properties similar to
the Project and the Premises, and in that connection Landlord may
require changes in the forms, types and amounts of insurance required
pursuant to this Section or add to, modify or delete other requirements;
and in any event, if under applicable law, rule, regulation or ordinance
of any governmental authority, state or federal, having jurisdiction in
the Premises, liability may be imposed upon Landlord on account of the
use or operation of the Premises or the Project or other improvements,
insurance within limits reasonably satisfactory to Landlord shall be
maintained by Tenant and Contractors against any such liability.
L. The required insurance to be carried shall not be limited by any
limitations expressed in the indemnification language herein or any
limitation placed on the indemnity therein given as a matter of law.
<PAGE> 17
ARTICLE X
DAMAGE OR DESTRUCTION
SECTION 10.1. TOTAL DAMAGE. In the event that (a) the Premises are made
untenantable by fire or other casualty and Landlord shall decide not to restore
or repair same, or (b) the Building is so damaged by fire or other casualty that
Landlord shall decide to demolish or not rebuild the same, then, in any of such
events, Landlord shall have the right to terminate this Lease by notice to
Tenant given within ninety (90) days after the date of such fire or other
casualty and the Rent shall be apportioned on a per diem basis and paid to the
date of such fire or other casualty. In the event the Premises are made
untenantable by fire or other casualty and Landlord shall decide to rebuild and
restore the same, this Lease shall not terminate and Landlord shall repair and
restore the Premises promptly after receipt of the insurance proceeds. Landlord
shall commence the repair, restoration or rebuilding thereof and shall complete
such restoration, repair or rebuilding within one hundred eighty (180) days
after the receipt of such proceeds, subject to extension due to delay because of
changes, deletions, or additions in construction requested by Tenant, acts of
Tenant, strikes, lockouts, casualties, acts of God, war, fuel or energy
shortages, material or labor shortages, governmental regulation or control,
severe weather conditions or other causes beyond the control of Landlord
("Extension Events"). In the event of any such casualty all insurance proceeds
shall be payable to Landlord. In no event shall Landlord be required to repair
or replace (i) any alterations or improvements made by Tenant which are not
related to the Improvements, (ii) any of Tenant's Equipment, (iii) or any other
fixtures, furnishing and personal property of Tenant. Tenant agrees that Tenant
shall deposit with Landlord prior to the commencement of such restoration an
amount equal to Tenant's Proportion of any deductible amounts carried by
Landlord under its insurance policies, provided Tenant's Proportion of any such
deductible amount shall not exceed $5,000.00. Landlord's obligation to repair,
restore or rebuild the Premises shall be limited to restoring the Premises to
substantially the condition in which the same existed prior to the casualty.
Rent and all other charges payable by Tenant hereunder shall abate during the
period of such repair, restoration or rebuilding to the extent that the
Improvements are not tenantable because of any damage or destruction. In the
event the casualty causes fifty percent (50%) or more of the Premises to be
untenantable during the last twelve (12) months of the Term, Tenant may
terminate this Lease as of the date of such casualty by providing notice to
Landlord within thirty (30) days after occurrence of the fire or other casualty
causing the damage, in which event, all insurance proceeds shall be paid to the
Landlord.
SECTION 10.2. PARTIAL DAMAGE. In the event the Premises are partially
damaged by fire or other casualty but are not made wholly untenantable, then
Landlord shall, except during the last year of the Term hereof, proceed with all
due diligence to repair and restore the Premises, subject, however, to (i)
reasonable delays for insurance adjustments, and (ii) delays caused by forced
beyond Landlord's control. In such event, Rent shall abate in proportion to the
non-useability of the Premises during the period while repairs are in progress
unless such partial damages are due to the fault or neglect of Tenant. If the
partial damage is the result of the fault or neglect of Tenant, Rent shall not
abate during said period. If the Premises are made partially untenantable as
aforesaid during the last year of the Term hereof, Landlord or Tenant shall have
the right to terminate this Lease as of the date of fire or other casualty upon
thirty (30) days' prior notice to the other party, in which event, Rent shall be
apportioned on a per diem basis and paid to the date of such fire or other
casualty.
<PAGE> 18
ARTICLE XI
LIENS
SECTION 11.1. LIEN CLAIMS. Tenant shall not do any act which shall in
any way encumber the title of Landlord in and to the Premises or the Building,
nor shall any interest or estate of Landlord in the Premises or the Building be
in any way subject to any claim by way of lien or encumbrance, whether by
operation of law or by virtue of any express or implied contract by Tenant, and
any claim to or lien upon the Premises or the Building arising from any act or
omission of Tenant shall accrue only against the leasehold estate of Tenant and
shall in all respects be subject and subordinate to the paramount title and
rights of Landlord in and to the Premises or the Building. Tenant will not
permit the Premises or the Building to become subject to any mechanics',
laborers' or materialmen's lien on account of labor or material furnished to
Tenant or claimed to have been furnished to Tenant in connection with work of
any character performed or claimed to have been performed on the Premises by or
at the direction of sufferance of Tenant; provided, however that Tenant shall
have the right to contest in good faith and with reasonable diligence, the
validity of any such lien or claimed lien if Tenant shall first give to Landlord
cash or other security acceptable to Landlord (which may include a bond in favor
of Landlord from an agent acceptable to Landlord) in an amount equal to one
hundred twenty percent (120%) of the amount of the lien or claimed lien which,
together with interest earned thereon, shall be held by Landlord as security to
insure payment thereof and to prevent any sale, foreclosure or forfeiture of the
Premises by reason of non-payment thereof. The amount so deposited with Landlord
shall be held by Landlord in an account established at a federally insured
banking institution until satisfactory removal of said lien or claim of lien. On
any final determination of the lien or claim for lien, Tenant will immediately
pay any judgment rendered, with all proper costs and charges, and will, at its
own expense, have the lien released and any judgment satisfied. Should Tenant
fail to diligently contest and pursue such lien contest, Landlord may, at its
option, use the sums so deposited to discharge any such lien upon the renewal of
such lien or encumbrance Landlord shall pay all such sums remaining on deposit
to Tenant.
SECTION 11.2. LANDLORD'S RIGHT TO CURE. If Tenant shall fail to
contest the validity of any lien or claimed lien or fail to give security to
Landlord to insure payment thereof, or shall fail to prosecute such contest with
diligence, or shall fail to have the same released and satisfy any judgment
rendered thereon, then Landlord may, at its election (but shall not be so
required) remove or discharge such lien or claim for lien (with the right, in
its discretion, to settle or compromise the same), and any amounts advanced by
Landlord, including reasonable attorneys' fees, for such purposes shall be so
much additional rent due from Tenant to Landlord at the next rent date after any
such payment, with interest thereon at the Lease Interest Rate from the date so
advanced.
<PAGE> 19
ARTICLE XII
TENANT ALTERATIONS
SECTION 12.1. ALTERATIONS. Tenant shall not at any time during the
Term of this Lease make any openings in the roof or exterior walls of the
Building or make any Tenant alteration, addition or improvement to the Premises
or any portion thereof (collectively "Alterations") without in each instance,
the prior written consent of Landlord; which consent shall not be unreasonably
withheld, provided, however, upon notice to, but without the consent of
Landlord, Tenant shall have the right to make any Alterations where same are
non-structural, do not require openings on the roof or exterior walls of the
Building, do not affect any Building system, and do not exceed TWENTY FIVE
THOUSAND AND NO/100 ($25,000.00) DOLLARS in the aggregate in any twelve (12)
month period. No Alteration to the Premises for which Landlord's consent is
required shall be commenced by Tenant until Tenant has furnished Landlord with a
satisfactory certificate or certificates from an insurance company acceptable to
Landlord in accordance with Article IX hereof, protecting Landlord against
public liability and property damage to any person or property, on or off the
Premises, arising out of and during the making of such Alterations. Any
Alteration by Tenant hereunder shall be done in a good and workmanlike manner in
compliance with any applicable governmental law, statute, ordinance or
regulation. Upon completion of any Alteration by Tenant hereunder, Tenant shall
furnish Landlord with a copy of the "as built" plans covering such construction.
Tenant, at its sole cost and expense, will make all Alterations on the Premises
which may be necessary by the act or neglect of any other person or corporation
(public or private), except Landlord, its agents, employees or contractors.
Before commencing any Alterations for which Landlord's approval is required
hereunder: (a) plans and specifications therefor, prepared by a licensed
architect, shall be submitted to and approved by Landlord (such approval shall
not be unreasonably withheld or delayed); (b) Tenant shall furnish to Landlord
an estimate of the cost of the proposed work, certified by the architect who
prepared such plans and specifications; (c) all contracts for any proposed work
shall be submitted to and approved by Landlord; and (d) Tenant shall either
furnish to Landlord a bond in form and substance satisfactory to Landlord, or
such other security reasonably satisfactory to Landlord to insure payment for
the completion of all work free and clear of liens. Before commencing any
Alteration, Tenant shall provide Landlord with a written certification that the
Alteration does not have any environmental impact on the Premises. Prior to the
commencement of any construction activity for which Landlord's consent shall be
required, certificates of such insurance coverages shall be provided to Landlord
and renewal certificates shall be delivered to Landlord prior to the expiration
date of the respective policies.
SECTION 12.2. OWNERSHIP OF ALTERATIONS. All Alterations (except
Tenant's Equipment, as defined in Section 19.2 hereof), put in at the expense of
Tenant shall become the property of Landlord and shall remain upon and be
surrendered with the Premises as a part thereof at the termination of this
Lease, or at Landlord's option, provided Landlord shall have advised Tenant in
writing at the time of its consent to said Alteration is sought that same must
be removed and restored to its original condition.
SECTION 12.3. SIGNS. Tenant shall not place any signs on any part of
the Building or Land without the prior written consent of Landlord.
Notwithstanding any of the immediately foregoing provisions of this Section
12.3, upon notice to and with the consent of Landlord, which consent shall not
be unreasonably withheld, Tenant may place a monument sign adjacent to the
Premises, provided that (i) the installation and dimensions of said sign is in
strict accordance with applicable law, ordinances and Restrictions; (ii) Tenant
continually maintains said sign in a first-class manner and (iii) Tenant, at
Tenant's sole cost and expense, removes said sign at the expiration of the Term
and restores the area in which said sign is placed to its condition prior to the
installation of said sign.
SECTION 12.4. TENANT INDEMNITY. Tenant hereby agrees to indemnify and
hold the Landlord, its beneficiaries, shareholders, partners or members and
their respective agents and employees harmless from any and all liabilities of
every kind and description which may arise out of or be connected in any way
with said Alterations. Any mechanic's lien filed against the Premises for work
claimed to have been furnished to Tenant shall be discharged of record by Tenant
within ten (10) days after Tenant receives notice thereof, at Tenant's expense.
Upon completing any Alterations, Tenant shall furnish Landlord with contractors'
affidavits and full and final waivers of lien and
<PAGE> 20
receipted bills covering all labor and materials expended and used. All
Alterations shall comply with all insurance requirements and with all ordinances
and regulations of any pertinent governmental authority. All alterations and
additions shall be constructed in a good and workmanlike manner and only good
grades of materials shall be used.
SECTION 12.5 ENVIRONMENTAL IMPACT. Notwithstanding any other term,
covenant or condition contained in this Lease, in the event that any Alteration
has any material, adverse environmental impact on the Premises, Landlord may
deny the Tenant the right to proceed in Landlord's sole and absolute discretion.
ARTICLE XIII
CONDEMNATION
SECTION 13.1 TAKING: LEASE TO TERMINATE. If a portion of the
Building or the Premises shall be lawfully taken or condemned for any public or
quasi-public use or purpose, or conveyed under threat of such condemnation and
as a result thereof the Premises cannot be used for the same purpose and with
the same utility as before such taking or conveyance, the Term of this Lease
shall end upon, and not before, the date of the taking of possession by the
condemning authority, and without apportionment of the award. Tenant hereby
assigns to Landlord, Tenant's interest in such award, if any. Current Rent shall
be apportioned as of the date of such termination. If any part of the Building
shall be so taken or condemned, or if the grade of any street or alley adjacent
to the Building is changed by any competent authority and such taking or change
of grade makes it necessary or desirable to demolish, substantially remodel, or
restore the Building, the Landlord shall have the right to cancel this Lease
upon not less than ninety (90) days' prior notice to the date of cancellation
designed in the notice.
SECTION 13.2 TAKING: LEASE TO CONTINUE. In the event only a part of
the Premises shall be taken as a result of the exercise of the power of eminent
domain or condemned for a public or quasi-public use or purpose by any competent
authority or sold to the condemning authority under threat of condemnation, and
as a result thereof the balance of the Premises can be used for the same purpose
as before such taking, sale or condemnation, this Lease shall not terminate and
Landlord, at its sole cost and expense up to the amount of any condemnation
award, shall, to the extent practical, promptly repair and restore the Premises,
subject to extension due to delay because of changes, deletion or additions,
acts of Tenant, strikes, lockouts, casualties, acts of God, war, fuel or energy
shortages, material or labor shortages, governmental regulation or control,
severe weather conditions or other causes beyond the actual control of Landlord
and Landlord's receipt of insurance proceeds. Any award paid as a consequence of
such taking, sale or condemnation, shall be paid to Landlord. Any sums not so
disbursed shall be retained by Landlord. In the event of a taking of land only,
this Lease shall not terminate and Landlord shall not be obligated to repair or
restore the Premises.
SECTION 13.3 TENANT'S AWARD. To the extent permitted by law and
subject to the rights of any lender with respect to the Premises, Tenant shall
be allowed to pursue a claim against the condemning authority (hereinafter
referred to as the "Tenant's Claim") that shall be independent of and wholly
separate from any action, suit or proceeding relating to any award to Landlord
for reimbursement of relocation expenses or for Tenant's Equipment and personal
property, provided: (i) Tenant's Claim shall in no way limit, affect, alter or
diminish in any kind or way whatsoever Landlord's award as a result of such
taking, sale or condemnation; (ii) Tenant's Claim shall in no event include any
claim for any interest in real property, it being expressly understood and
agreed that all sums paid with respect to the real property interests taken,
sold or condemned shall be the sole property of Landlord; and (iii) Tenant's
Claim shall in no event be joined with Landlord's proceeding or argued or heard
concurrently therewith and if the tribunal hearing Tenant's Claim orders such
joinder, Tenant agrees to voluntarily dismiss Tenant's Claim without prejudice
until such time as Landlord has received its award for such taking, sale or
condemnation.
<PAGE> 21
ARTICLE XIV
ASSIGNMENT -- SUBLETTING BY TENANT
SECTION 14.1 NO ASSIGNMENT, SUBLETTING OR OTHER TRANSFER. Tenant
shall not assign this Lease or any interest hereunder, nor shall Tenant sublet
or permit the use or occupancy of the Premises or any part thereof by anyone
other than Tenant, without the express prior written consent of Landlord which
consent shall not be unreasonably withheld or delayed. No assignment or
subletting shall relieve Tenant of its obligations hereunder, and Tenant shall
continue to be liable as a principal and not as a guarantor or surety, to the
same extent as though no assignment or sublease had been made, unless
specifically provided to the contrary in Landlord's consent. Consent by Landlord
pursuant to this Article shall not be deemed, construed or held to be consent to
any additional assignment or subletting, but each successive act shall require
similar consent of Landlord. Landlord shall be reimbursed by Tenant for any
costs or expenses incurred pursuant to any request by Tenant for consent to any
such assignment or subletting. In the consideration of the granting or denying
of consent, Landlord may, at its option, take into consideration: (i) the
business reputation and credit worthiness of the proposed subtenant or assignee;
(ii) any required alteration of the Premises; (iii) the intended use of the
Premises by the proposed subtenant or assignee; and (iv) any other factors which
Landlord shall deem relevant.
Notwithstanding the foregoing, Landlord hereby consents to a sublease of
all or a portion of the Premises to AAR Aircraft and Engine Group, Inc. provided
the form and content of any sublease document are acceptable to Landlord.
SECTION 14.2 OPERATION OF LAW. Tenant shall not allow or permit any
transfer of this Lease, or any interest hereunder, by operation of law, or
convey, mortgage, pledge or encumber this Lease or any interest hereunder.
SECTION 14.3 EXCESS RENTAL. If Tenant shall, with Landlord's prior
consent as herein required, sublet the Premises, an amount equal to one hundred
percent (100%) of the rental in excess of the base rent and any additional rent
herein provided to be paid shall be for benefit of Landlord and shall be paid to
Landlord promptly when due under any such subletting as additional rent due
hereunder.
SECTION 14.4 MERGER OR CONSOLIDATION. If Tenant is a corporation
whose stock is not publicly traded, any transaction or series of transactions
(including, without limitation, any dissolution, merger, consolidation or other
reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of
any capital stock of Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, other than by reason of death, shall be deemed to
be a voluntary assignment of this Lease by Tenant subject to the provisions of
this Section 14. If Tenant is a partnership, any transaction or series of
transactions (including without limitation any withdrawal or admittance of a
partner or a change in any partner's interest in Tenant, whether voluntary,
involuntary or by operation of law, or any combination of any of the foregoing
transactions) resulting in the transfer of control of Tenant, other than by
reason of death, shall be deemed to be a voluntary assignment of this Lease by
Tenant subject to the provisions of this assignment of this Lease by Tenant
subject to the provisions of this Section 14. If Tenant is a corporation, a
change or series of changes in ownership of stock which would result in direct
or indirect change in ownership by the stockholders or an affiliated group of
stockholders of less than fifty percent (50%) of the outstanding stock as of the
date of the execution and delivery of this Lease shall not be considered a
change of control. Notwithstanding the immediately foregoing, Tenant may, upon
notice to, but without Landlord's consent, assign this Lease to any corporation
resulting from a merger or consolidation of Tenant, provided that the total
assets and the total net worth of such assignee after such consolidation or
merger shall be in excess of the greater of (i) the net worth of Tenant
immediately prior to such consolidation or merger, or (ii) the net worth of
Tenant as of the date hereof, determined by generally accepted accounting
principles and provided that Tenant is not at such time in default hereunder,
and provided further that such successor shall execute an instrument in writing,
acceptable to Landlord in its reasonable discretion, fully assuming all of the
obligations and liabilities imposed upon Tenant hereunder and deliver the same
to Landlord. Tenant shall provide in its notice to Landlord such information as
may be reasonably required by Landlord to
<PAGE> 22
determine that the requirements of this Section 14.4 have been satisfied. As
used in this Section 14.4, the term "control" means possession of the power to
vote not less than a majority interest of any class of voting securities and
partnership or limited liability company interests or to direct or cause the
direction (directly or indirectly) of the management or policies of a
corporation, or partnership or limited liability company through the ownership
of voting securities, partnership interests or limited liability company
interests, respectively.
SECTION 14.5. UNPERMITTED TRANSACTION. Any assignment, subletting,
use, occupancy, transfer or encumbrance of this Lease or the Premises without
Landlord's prior written consent shall be of no effect and shall, at the option
of Landlord, constitute a default under this Lease.
ARTICLE XV
ANNUAL STATEMENTS
SECTION 15.1. ANNUAL STATEMENTS. Tenant agrees to furnish Landlord
annually, within ninety (90) days of the end of such fiscal year with a copy of
its annual audited statements, together with applicable footnotes and any other
financial information reasonably requested by Landlord (hereinafter collectively
referred to as, the "Financial Information") and agrees that Landlord may
deliver such Financial Information to any mortgagee, prospective mortgagee or
prospective purchaser of the Premises on a confidential basis.
ARTICLE XVI
INDEMNITY FOR LITIGATION
SECTION 16.1. TENANT'S INDEMNITY FOR LITIGATION. Tenant agrees to pay,
and to indemnify and defend Landlord against, all costs and expenses (including
reasonable attorney's fees) incurred by or imposed upon Landlord by or in
connection with any litigation to which Landlord becomes or is made a party
without fault on its part, whether commenced by or against Tenant, or any other
person or entity or that may be incurred by Landlord in enforcing any of the
covenants and agreements of this Lease with or without the institution of any
action or proceeding relating to the Premises or this Lease, or in obtaining
possession of the Premises after an Event of Default hereunder or upon
expiration or earlier termination of this Lease. The foregoing notwithstanding,
Tenant's responsibility under this Section 16.1 to pay Landlord's costs and
expenses (including reasonable attorneys' fees) shall not extend to such costs
and expenses incurred in defending an action brought by Tenant to enforce the
terms of this Lease in which there is a court determination that Landlord failed
to perform its obligations under this Lease. The provisions of this Section 16.1
shall survive the expiration or earlier termination of this Lease.
SECTION 16.2. LANDLORD'S INDEMNITY FOR LITIGATION. Landlord agrees
to pay, and to indemnify and defend Tenant against all costs and expenses
(including reasonable attorney's fees) incurred by or imposed upon Tenant by or
in connection with any litigation by Tenant to enforce Landlord's obligations
under this Lease in which Tenant is the prevailing party.
ARTICLE XVII
ESTOPPEL CERTIFICATES
SECTION 17.1. ESTOPPEL CERTIFICATE. Tenant agrees that on the
Commencement Date and at any time and from time to time thereafter, upon not
less than ten (10) business days' prior written request by Landlord, it will
execute, acknowledge and deliver to Landlord, or Landlord's mortgagee to the
extent factually accurate, a statement in writing in the form of EXHIBIT "C"
attached hereto and by this reference incorporated herein; provided, however,
that Tenant agrees to certify to any prospective purchaser or mortgagee any
other reasonable information specifically requested by such prospective
purchaser or mortgagee.
<PAGE> 23
ARTICLE XVIII
INSPECTIONS
SECTION 18.1 INSPECTIONS. Tenant agrees to permit Landlord and any
authorized representatives of Landlord, to enter the Premises at all reasonable
times on reasonable advance notice, except in the case of emergency, for the
purpose of inspecting the same. Any such inspections shall be solely for
Landlord's purposes and may not be relied upon by Tenant or any other person.
SECTION 18.2 SIGNS. Tenant agrees to permit Landlord and any authorized
representative of Landlord to enter the Premises at all reasonable times during
business hours on reasonable advance notice to exhibit the same for the purpose
of sale, mortgage or lease, and during the final twelve month period of the Term
hereof or any extension thereof, Landlord may display on the Premises customary
"For Sale" or "For Rent" signs.
ARTICLE XIX
FIXTURES
SECTION 19.1 BUILDING FIXTURES. All improvements and all plumbing,
heating, lighting, electrical and air conditioning fixtures and equipment, and
other articles of personal property used in the operation of the Premises (as
distinguished from operations incident to the business of Tenant), whether or
not attached or affixed to the Premises ("Building Fixtures"), shall be and
remain a part of the Premises and shall constitute the property of Landlord.
SECTION 19.2 TENANT'S EQUIPMENT. All of Tenant's trade fixtures and all
personal property, fixtures, apparatus, machinery and equipment now or hereafter
located upon the Premises, other than Building Fixtures, as shall be and remain
the personal property of Tenant, and the same are herein referred to as
"Tenant's Equipment."
SECTION 19.3 REMOVAL OF TENANT'S EQUIPMENT. Tenant's Equipment may be
removed from time to time by Tenant; provided, however, that if such removal
shall injure or damage the Premises, Tenant shall repair the damage and place
the Premises in the same condition as it would have been if such Tenant's
Equipment had not been installed.
ARTICLE XX
DEFAULT
SECTION 20.1 EVENTS OF DEFAULT. Tenant agrees that any one or more of
the following events shall be considered "Events of Default" as said term is
used herein:
(a) If an order, judgment or decree shall be entered by any
court adjudicating Tenant a bankrupt or insolvent, or approving a
petition seeking reorganization of Tenant or appointing a receiver,
trustee or liquidator of Tenant, or of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed and
in effect for any period of sixty (60) days; or
(b) Tenant shall file an answer admitting the material
allegations of a petition filed against Tenant in any bankruptcy,
reorganization or insolvency proceeding or under any laws relating to
the relief of debtors, readjustment or indebtedness, reorganization,
arrangements, composition or extension; or
(c) Tenant shall make any assignment for the benefit of
creditors or shall apply for or consent to the appointment of a
receiver, trustee or liquidator of Tenant, or any of the assets of
Tenant; or
<PAGE> 24
(d) Tenant shall file a voluntary petition in bankruptcy, or
shall admit in writing its inability to pay its debts as they come due,
or shall file a petition or an answer seeking reorganization or
arrangement with creditors or take advantage of any insolvency law; or
(e) A decree or order appointing a receiver of the property of
Tenant shall be made and such decree or order shall not have been
vacated within sixty (60) days from the date of entry or granting
thereof; or
(f) Tenant shall abandon the Premises during the Term hereof;
or
(g) Tenant shall default in making any payment of Rent or other
payment required to be made by Tenant hereunder when due as herein
provided, and such default continues for five (5) days after written
notice from Landlord; provided, however, that if Tenant defaults more
than two (2) times in any such payment in any consecutive twelve (12)
month period or four (4) times over the Term of the Lease, then no
written notice of any subsequent default from Landlord shall be
required; or
(h) Tenant shall be in default in the performance of or
compliance with any of the agreements, terms, covenants or conditions in
this Lease other than those referred to in the foregoing subparagraphs
(a) through (g) of this Section for a period of twenty (20) days after
notice from Landlord to Tenant specifying the items in default, or in
the case of a default which cannot, with due diligence, be cured within
said twenty (20)-day period, Tenant fails to proceed within said twenty
(20) day-period to cure the same and thereafter to prosecute the curing
of such default with due diligence (it being intended in connection with
a default not susceptible of being cured with due diligence within said
twenty (20)-day period that the time of Tenant within which to cure the
same shall be extended for such period as may be necessary to complete
the same with all due diligence).
Upon the occurrence of any one or more of such Events of Default,
Landlord may at its election terminate this Lease or terminate Tenant's right to
possession only, without terminating this Lease. Upon termination of this Lease
or of Tenant's right to possession, Tenant shall immediately surrender
possession and vacate the Premises, and deliver possession thereof to Landlord,
and Landlord or Landlord's agents may immediately or any time thereafter without
notice, re-enter the Premises and remove all persons and all or any property
therefrom, either by any suitable action or proceeding at law or equity, without
being liable in indictment, prosecution or damages, therefor, and repossess and
enjoy the Premises, together with the right to receive all income of, and from,
the Premises.
Upon termination of this Lease, Landlord shall be entitled to recover as
liquidated damages, because the parties hereto recognize that as of the date
hereof actual damages are not ascertainable and are of imprecise calculation and
not as a penalty, all Rent and other sums due and payable by Tenant through the
date of termination plus (i) an amount equal to sixty percent (60%) of the Rent
and other sums provided herein to be paid by Tenant for the residue of the Term,
and (ii) the costs of performing any other covenants to be performed by Tenant.
If Landlord elects to terminate Tenant's right to possession only,
without terminating this Lease, Landlord may, at Landlord's option, enter into
the Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as hereinabove provided, without such entry and
possession terminating this Lease or releasing Tenant, in whole or in part, from
Tenant's obligations to pay the Rent hereunder for the full Term or from any
other obligations of Tenant under this Lease. Landlord shall use commercially
reasonably efforts to relet all or any part of the Premises for such rent and
upon terms as are commercially reasonable (including the right to relet the
Premises for a term greater or lesser than that remaining of the Term of
premises and the right to relet the Premises as a part of a larger area, the
right to change the character or use made of the Premises and the right to grant
concessions of free rent). For the purpose of such reletting, Landlord may
decorate or make any repairs, changes, alterations, or additions in or to the
Premises that may be necessary or desirable. If Landlord is unable to relet the
Premises after using such commercially reasonably efforts to do so, Landlord
shall have the right to
<PAGE> 25
terminate this Lease, in which event, Tenant shall pay to Landlord liquidated
damages (because the parties hereto recognize that as of the date hereof actual
damages are not ascertainable and are of imprecise calculation and not as a
penalty) equal to sixty percent (60%) of the Rent, and other sums provided
herein to be paid by Tenant for the remainder of the Term. If the Premises are
relet and sufficient sums shall not be realized from such reletting after
payment of all expenses of such decorations, repairs, changes, alterations,
additions and the expenses of repossession and such reletting, and the
collection of the Rent herein provided and other payments required to be made by
Tenant under the provisions of this Lease for the remainder of the Term of this
Lease then, in such event, Tenant shall pay to Landlord on demand any such
deficiency and Tenant agrees that Landlord may file suit to recover any sums
falling due under the terms of this Section from time to time, and all costs and
expenses of Landlord, including attorneys' fees, incurred in connection with any
such suit shall be paid by Tenant.
SECTION 20.2 WAIVERS. Tenant hereby expressly waives, so far as
permitted by law, the service of any notice of intention to re-enter provided
for in any statute, and except as is herein otherwise provided. Tenant for and
on behalf of itself and all persons claiming through or under Tenant, also
waives any and all rights of redemption or re-entry or repossession in case
Tenant shall be dispossessed by a judgment or by warrant of any court or judge
or in case of re-entry or repossession by Landlord or in case of any expiration
or termination of this Lease. The terms "enter," "re-enter," "entry" or
"re-entry" as used in this Lease are not restricted to their technical legal
meanings.
SECTION 20.3 BANKRUPTCY. If Landlord shall not be permitted to
terminate this Lease, as provided in this Article XX because of the provisions
of the United States Code relating to Bankruptcy, as amended (the "Bankruptcy
Code"), then Tenant as a debtor-in-possession or any trustee for Tenant agrees
promptly, within no more than sixty (60) days after the filing of the bankruptcy
petition, to assume or reject this Lease. In such event, Tenant or any trustee
for Tenant may only assume this Lease if: (a) it cures or provides adequate
assurances that the trustee will promptly cure any default hereunder; (b)
compensates or provides adequate assurance that Tenant will promptly compensate
Landlord of any actual pecuniary loss to Landlord resulting from Tenant's
default; and (c) provides adequate assurance of performance during the fully
stated term hereof of all of the terms, covenants, and provisions of this Lease
to be performed by Tenant. In no event after the assumption of this Lease shall
any then-existing default remain uncured for a period in excess of the earlier
of ten (10) days or the time period set forth herein. Adequate assurance of
performance of this Lease, as set forth hereinabove, shall include, without
limitation, adequate assurance (i) of the source of rent reserved hereunder; and
(ii) that the assumption of this Lease will not breach any provision hereunder.
If Tenant assumes this Lease and proposes to assign the same pursuant to
the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant, then notice of such proposed assignment, setting forth: (i) the name
and address of such person; (ii) all of the terms and conditions of such offer;
and (iii) the adequate assurance to be provided Landlord to assure such person's
future performance under the Lease, including, without limitation, the assurance
referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to
Landlord by the Tenant no later than twenty (20) days after receipt by the
Tenant but in any event no later than ten (10) days prior to the date that the
Tenant shall make application to a court of competent jurisdiction for authority
and approval to enter into such assignment and assumption, and Landlord shall
thereupon have the prior right and option, to be exercised by notice to the
Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code any and all monies or other considerations
payable or otherwise to be delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of the Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting the Landlord's property
<PAGE> 26
under the preceding sentence not paid or delivered to the Landlord shall be held
in trust for the benefit of Landlord and shall be promptly paid to the Landlord.
Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be conclusively deemed without further
act or deed to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption. Any
such assignee shall be permitted to use the Leased Premises only for the Use.
Nothing contained in this Section shall, in any way, constitute a waiver
of the provisions of Article XIV of this Lease relating to alienation. Tenant
shall not, by virtue of this Section, have any further rights relating to
assignment other than those granted in the Bankruptcy Code. Notwithstanding
anything in this Lease to the contrary, all amounts payable by Tenant to or on
behalf of Landlord under this Lease, whether or not expressly denominated as
rent, shall constitute rent for the purpose of Section 501(b)(6) or any
successive section of the Bankruptcy Code.
ARTICLE XXI
LANDLORD'S PERFORMANCE OF TENANT'S COVENANTS
SECTION 21.1. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. In the
event Tenant shall fail to maintain any insurance required to be paid by it
under the terms hereof, or in an Emergency Situation or upon occurrence of an
Event of Default, Landlord may (but shall not be obligated so to do), and
without waiving or releasing Tenant from any obligation of Tenant hereunder,
make any payment or perform any other act which Tenant is obligated to make or
perform under this Lease in such manner and to such extent as Landlord may deem
desirable; and in so doing Landlord shall also have the right to enter upon the
Premises for any purpose reasonably necessary in connection therewith and to pay
or incur any other necessary and incidental costs and expenses, including
reasonable attorneys' fees. All sums so paid and all liabilities so incurred by
Landlord, together with interest thereon at the rate per annum which is the
lesser of (i) the Lease Interest Rate or (ii) the highest rate permitted by law
shall be deemed Additional Rent hereunder and shall be payable to Landlord upon
demand as Additional Rent. Landlord shall use reasonable efforts to give prior
notice (which may be oral) of its performance, if reasonably feasible under the
circumstances. The performance of any such obligation by Landlord shall not
constitute a waiver of Tenant's default in failing to perform the same. Inaction
of Landlord shall never be considered as a waiver of any right accruing to it
pursuant to this Lease. Landlord, in making any payment hereby authorized: (a)
relating to Taxes, may do so according to any bill, statement or estimate,
without inquiry into the validity of any tax, assessment, sale, forfeiture, tax
lien or title or claim thereof; (b) for the discharge, compromise or settlement
of any lien, may do so without inquiry as to the validity or amount of any claim
for lien which may be asserted; or (c) in connection with the completion of
construction of improvements to the Premises or the repair, maintenance or the
payment of operating costs thereof, may do so in such amounts and to such
persons as Landlord reasonably may deem appropriate. Nothing contained herein
shall be construed to require Landlord to advance monies for any purpose.
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant or any other occupant of
the Premises or any part thereof, by reason of making repairs or the performance
of any work on the Premises or on account of bringing materials, supplies and
equipment into or through the Premises during the course thereof and the
obligations of Tenant under this Lease shall not thereby be affected in any
manner. In doing so, however, Landlord shall use reasonable efforts not to
interfere with the normal operation of the Premises. The term "EMERGENCY
SITUATION" shall mean a situation which has caused or is likely to cause bodily
injury to persons, contamination of or physical damage to the Premises or
adjoining property or economic liability or criminal jeopardy to Landlord.
<PAGE> 27
ARTICLE XXII
EXERCISE OF REMEDIES
SECTION 22.1. CUMULATIVE REMEDIES. No remedy contained herein or
otherwise conferred upon or reserved to Landlord, shall be considered exclusive
of any other remedy, but the same shall be cumulative and shall be in addition
to every other remedy given herein, now or hereafter existing at law or in
equity or by statute, and every power and remedy given by this Lease to Landlord
may be exercised from time to time and as often as occasion may arise or as may
be deemed expedient. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or shall be
construed to be a waiver of any such default or an acquiescence therein.
SECTION 22.2. NO WAIVER. No waiver of any breach of any of the covenants
of this Lease shall be construed, taken or held to be a waiver of any other
breach, or a waiver, acquiescence in or consent to any further or succeeding
breach of the same covenant. The acceptance by Landlord of any payment of Rent
or other sums payable hereunder after the termination by Landlord of this Lease
or of Tenant's right to possession hereunder shall not, in the absence of
agreement in writing to the contrary by Landlord, be deemed to restore this
Lease or Tenant's right to possession hereunder, as the case may be, but shall
be construed as a payment on account and not in satisfaction of damages due from
Tenant to Landlord. Receipt of Rent by Landlord, with knowledge of any breach of
this Lease by Tenant or of any default by Tenant in the observance or
performance of any of the conditions or covenants of this Lease, shall not be
deemed to be a waiver of any provision of this Lease.
SECTION 22.3. EQUITABLE RELIEF. In the event of any breach or threatened
breach by either party of any of the agreements, terms, covenants or conditions
contained in this Lease, the other party shall be entitled to enjoin such breach
or threatened breach and shall have the right to invoke any right and remedy
allowed at law or in equity or by statute or otherwise as though re-entry,
summary proceedings, and other remedies were not provided for in this Lease.
ARTICLE XXIII
SUBORDINATION TO MORTGAGES
SECTION 23.1. SUBORDINATION. Landlord may execute and deliver a mortgage
or trust deed in the nature of a mortgage (both sometimes referred to as
"Mortgage") against the Premises or any portion thereof. This Lease and the
rights of Tenant hereunder, shall automatically, and without the requirement of
the execution of any further documents, be and are hereby made expressly subject
and subordinate at all times to the lien of any Mortgage now or hereafter
encumbering any portion of the Project, and to all advances made or hereafter to
be made upon the security thereof; provided, however, the holder of said
Mortgage agrees in writing not to disturb the rights of Tenant under this Lease
so long as Tenant is not in default hereunder. Notwithstanding the foregoing,
Tenant agrees to execute and deliver such instruments subordinating this Lease
to the lien of any such Mortgage as may be requested in writing by Landlord from
time to time. Notwithstanding anything to the contrary contained herein, any
mortgagee under a Mortgage may, by notice in writing to the Tenant, subordinate
its Mortgage to this Lease.
SECTION 23.2. MORTGAGE PROTECTION. Tenant agrees to give the holder of
any Mortgage, by registered or certified mail, a copy of any notice of default
served upon the Landlord by Tenant, provided that prior to such notice Tenant
has received notice (by way of service on Tenant of a copy of an assignment of
rents and leases, or otherwise) of the address of such mortgagee and containing
a request therefor. Tenant further agrees that if Landlord shall have failed to
cure such default within the time provided for in this Lease, then said
mortgagee shall have an additional thirty (30) days after receipt of notice
thereof within which to cure such default or, if such default cannot be cured
within that time, then such additional time as may be necessary, if, within such
thirty (30) days, any mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure). Such
period of time shall be
<PAGE> 28
extended by any period within which such mortgagee is prevented from commencing
or pursuing such foreclosure proceedings by reason of Landlord's bankruptcy.
Until the time allowed as aforesaid for said mortgagee to cure such defaults has
expired without cure, Tenant shall have no right to, and shall not, terminate
this Lease on account of default. This Lease may not be modified or amended so
as to reduce the Rent or shorten the Term, or so as to adversely affect in any
other respect to any material extent the rights of the Landlord, nor shall this
Lease be cancelled or surrendered, without the prior written consent, in each
instance, of the mortgagee.
ARTICLE XXIV
INDEMNITY AND WAIVER
SECTION 24.1. INDEMNITY. Tenant shall not do or permit any act or
thing to be done or omit to do any act or thing upon the Premises which may
subject Landlord to any liability or responsibility for injury, damage to
persons or property, or to any liability by reason of any violation of
applicable laws and shall exercise such control over the Premises so as to fully
protect Landlord against any such liability. Tenant shall defend, indemnify and
save Landlord, and any official, agent, beneficiary, contractor, director,
employee, lessor, mortgagee, officer, parent, partner, shareholder and trustee
of Landlord (each an "INDEMNIFIED PARTY") and each of their representatives,
successors and assigns harmless from and against any and all liabilities, suits,
judgments, settlements, obligations, fines, damages, penalties, claims, costs,
charges and expenses, including, without limitation, engineers', architects' and
attorneys' fees, court costs and disbursements, which may be imposed upon or
incurred by or asserted against any Indemnified Party by reason of any of the
following occurring during or after (but attributable to a period of time
falling within) the Term:
A. any demolition or razing or construction of any
improvements or any other work or thing done in, on or about the
Premises or any part thereof by Tenant or any member of the Tenant Group
(defined below), including any claim that such work constitutes "public
works";
B. any use, nonuse, possession, occupation, alteration,
repair, condition, operation, maintenance or management of the Premises
or any part thereof or of any tunnel, creek, ditch, detention area,
sidewalk, curb or vault adjacent thereto by Tenant or any member of the
Tenant Group;
C. any act or failure to act on the part of Tenant or any
member of the Tenant Group;
D. any accident, injury (including death) or damage to any
person or property occurring in, on or about the Premises or any part
thereof or in, on or about any tunnel, creek, ditch, detention area,
sidewalk, curb or vault adjacent thereto as a result of the act or
neglect of Tenant or any member of the Tenant Group;
E. any failure to perform or comply with any of the
covenants, agreements, terms or conditions in this Lease on Tenant's
part to be performed or complied with (other than the payment of money);
F. any lien or claim which may be alleged to have arisen
against or on the Premises, or any lien or claim which may be alleged to
have arisen out of this Lease and created or permitted to be created by
Tenant or any member of the Tenant Group against any assets of Landlord,
or any liability which may be asserted against Landlord with respect
thereto;
G. any failure on the part of Tenant to keep, observe and
perform any of the terms, covenants, agreements, provisions, conditions
or limitations contained in the contracts and agreements affecting the
Premises on Tenant's part to be kept, observed or performed; and
H. any contest permitted pursuant to the provisions of this
Lease.
<PAGE> 29
No agreement or covenant of Tenant in this Section 24.1 shall be deemed
to exempt Landlord from, and Tenant's obligations under this Section 24.1 shall
not include liability or damages for injury to persons or damage to property
caused by or resulting from the negligence of Landlord, its agents or employees,
in the operation or maintenance of the Project or from the breach by Landlord of
its obligations under this Lease.
The obligations of Tenant under this Section 24.1 shall not be affected
in any way by the absence in any case of covering insurance or by the failure or
refusal of any insurance carrier to perform any obligation on its part under
insurance policies affecting the Premises or any part thereof.
SECTION 24.2. WAIVER OF CLAIMS. Tenant waives all claims it may have
against Landlord and Landlord's agents for damage or injury to person or
property sustained by Tenant or any persons claiming through Tenant or by any
occupant of the Premises, or by any other person, resulting from any part of the
Premises becoming out of repair, or resulting from any accident on or about the
Premises or resulting directly or indirectly from any act or neglect of any
person, excluding the negligence of Landlord, its agents, contractors and
employees. This Section 24.2. shall include, but not by way of limitation,
damage caused by water, snow, frost, steam, excessive heat or cold, sewage, gas,
odors or noise, or caused by bursting or leaking pipes or plumbing fixtures, and
shall apply equally whether any such damage results from the act or neglect of
Tenant or of any other person, excluding the negligence of Landlord, and whether
such damage be caused or result from anything or circumstance above mentioned or
referred to, or to any other thing or circumstance whether of a like nature or
of a wholly different nature. All Tenant's Equipment and other personal property
belonging to Tenant or any occupant of the Premises that is in or on any part of
the Premises shall be there at the risk of Tenant or of such other person only,
and Landlord shall not be liable for any damage thereto or for the theft or
misappropriation thereof.
ARTICLE XXV
SURRENDER
SECTION 25.1. CONDITION. Upon the termination of this Lease whether by
forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises to Landlord, broom clean, in good order, condition and repair,
reasonable wear and tear excepted. "Broom clean" means free from all debris,
dirt, rubbish, personal property of Tenant, oil, grease, tire tracks or other
substances, inside and outside of the Improvements and on the grounds comprising
the Premises. Any damage caused by removal of Tenant from the Premises,
including any damages caused by removal of Tenant's Equipment as defined above,
shall be repaired and paid for by Tenant prior to the expiration of the Term.
All Alterations temporary or permanent, excluding Tenant's Equipment, in
or upon the Premises placed there by Tenant, shall become Landlord's property
and shall remain upon the Premises upon such termination of this Lease by lapse
of time or otherwise, without compensation or allowance or credit to Tenant,
unless Landlord requests their removal at the time Tenant has requested
Landlord's consent to the installation of such Alteration. If Landlord so
requests removal of said additions, hardware, Alterations or improvements and
Tenant does not make such removal by the termination of this Lease, or within
ten (10) days after such request, whichever is later, Landlord may remove the
same and deliver the same to any other place of business of Tenant or warehouse
same, and Tenant shall pay the cost of such removal, delivery and warehousing to
Landlord on demand.
SECTION 25.2. REMOVAL OF TENANT'S EQUIPMENT. Upon the termination of
this Lease by lapse of time, or otherwise, Tenant may remove Tenant's Equipment
provided, however, that Tenant shall repair any injury or damage to the Premises
which may result from such removal. If Tenant does not remove Tenant's Equipment
from the Premises prior to the end of the Term, however ended, Landlord may, at
its option, remove the same and deliver the same to any other place of business
of Tenant or warehouse the same, and Tenant shall pay the cost of such removal
(including the repair of any injury or damage to the Premises resulting from
such removal), delivery and warehousing to Landlord on demand, or Landlord may
treat tenant's equipment as having been conveyed to Landlord with this Lease as
a Bill of Sale, without further payment or credit by Landlord to Tenant.
<PAGE> 30
SECTION 25.3. HOLDOVER. If Tenant retains possession of the Premises
or any part thereof after the termination of the Term, by lapse of time and
otherwise, then Tenant shall pay to Landlord monthly rent, at one hundred fifty
percent (150%) of the rate payable for the month immediately preceding said
holding over (including increases for additional rent which Landlord may
reasonably estimate), computed on a per-month basis, for each month or part
thereof (without reduction for any such partial month) that Tenant thus remains
in possession, and in addition thereto, Tenant shall pay Landlord all damages,
consequential as well as direct, sustained by reason of Tenant's retention of
possession. Alternatively, in the event such holdover continues for a period in
excess of thirty (30) days, at the election of Landlord expressed in a written
notice to Tenant and not otherwise, such retention of possession shall
constitute a renewal of this Lease for one (1) year, at a rental equal to one
hundred twenty percent (120%) of the Rent during the previous year. The
provisions of this paragraph do not exclude the Landlord's rights of re-entry or
any other right hereunder. Any such extension or renewal shall be subject to all
other terms and conditions herein contained. 1.4.
ARTICLE XXVI
COVENANT OF QUIET ENJOYMENT
SECTION 26.1. COVENANT OF QUIET ENJOYMENT. Landlord covenants that
Tenant, on paying the Rent and all other charges payable by Tenant hereunder,
and on keeping, observing and performing all the other terms, covenants,
conditions, provisions and agreements herein contained on the part of Tenant to
be kept, observed and performed, all of which obligations of Tenant are
independent of Landlord's obligations hereunder, shall, during the Term,
peaceably and quietly have, hold and enjoy the Premises subject to the terms,
covenants, conditions, provisions and agreement hereof free from hindrance by
Landlord or any person claiming by, through or under Landlord.
ARTICLE XXVII
NO RECORDING
SECTION 27.1. NO RECORDING. This Lease shall not be recorded.
ARTICLE XXVIII
NOTICES
SECTION 28.1. NOTICES. All notices, consents, approvals to or demands
upon or by Landlord or Tenant desired or required to be given under the
provisions hereof, shall be in writing. Any notices or demands from Landlord to
Tenant shall be deemed to have been duly and sufficiently given if a copy
thereof has been personally served, forwarded by expedited messenger or
recognized overnight courier service with evidence of delivery or mailed by
United States registered or certified mail in an envelope properly stamped and
addressed to Tenant at Tenant's Mailing Address, or at such other address as
Tenant may theretofore have furnished by written notice to Landlord. Any notices
or demands from Tenant to Landlord shall be deemed to have been duly and
sufficiently given if forwarded by expedited messenger or recognized overnight
courier service with evidence of delivery or mailed by United States registered
or certified mail in an envelope properly stamped and addressed to Landlord at
Landlord's Mailing Address, with a copy to Mark S. Richmond, Katz Randall &
Weinberg, 333 West Wacker Drive, Suite 1800, Chicago, Illinois 60606, or at such
other address as Landlord may theretofore have furnished by written notice to
Tenant. The effective date of such notice shall be the date of actual delivery,
except that if delivery is refused, the effective date of notice shall be the
date delivery is refused.
<PAGE> 31
ARTICLE XXIX
COVENANTS RUN WITH LAND
SECTION 29.1. COVENANTS. All of the covenants, agreements, conditions
and undertakings in this Lease contained shall extend and inure to and be
binding upon the heirs, executors, administrators, successors and assigns of the
respective parties hereto, the same as if they were in every case specifically
named, and shall be construed as covenants running with the Land, and wherever
in this Lease reference is made to either of the parties hereto, it shall be
held to include and apply to, wherever applicable, the heirs, executors,
administrators, successors and assigns of such party. Nothing herein contained
shall be construed to grant or confer upon any person or persons, firm,
corporation or governmental authority, other than the parties hereto, their
heirs, executors, administrators, successors and assigns, any right, claim or
privilege by virtue of any covenant, agreement, condition or undertaking in this
Lease contained.
SECTION 29.2. RELEASE OF LANDLORD. The term "Landlord", as used in this
Lease, so far as covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner or owners at the time in
question of title to the Premises, and in the event of any transfer or transfers
of the title, Landlord herein named (and in the case of any subsequent transfers
or conveyances, the then grantor) shall be automatically freed and relieved,
from and after the date of such transfer or conveyance, of all personal
liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed; provided
that any funds in the hands of such Landlord or the then grantor at the time of
such transfer, in which Tenant has an interest, shall be turned over to the
grantee.
ARTICLE XXX
ENVIRONMENTAL MATTERS
SECTION 30.1. DEFINED TERMS.
A. "HAZARDOUS MATERIAL" shall include but shall not be limited
to any substance, material, or waste that is regulated by any federal,
state, or local governmental authority because of toxic, flammable,
explosive, corrosive, reactive, radioactive or other properties that may
be hazardous to human health or the environment, including without
limitation asbestos and asbestos-containing materials, radon, petroleum
and petroleum products, urea formaldehyde foam insulation, methane,
lead-based paint, polychlorinated biphenyl compounds, hydrocarbons or
like substances and their additives or constituents, pesticides,
agricultural chemicals, and any other special, toxic, or hazardous
substances, materials, or wastes of any kind, including without
limitation those now or hereafter defined, determined, or identified as
"hazardous substances," "hazardous materials," "toxic substances," or
"hazardous wastes" in any Environmental Law.
B. "ENVIRONMENTAL LAW" shall mean any federal, state, or local
law, statute, ordinance, code, rule, regulation, policy, common law,
license, authorization, decision, order, or injunction which pertains to
health, safety, any Hazardous Material, or the environment (including
but not limited to ground, air, water, or noise pollution or
contamination, and underground or aboveground tanks) and shall include,
without limitation, the Resource Conservation and Recovery Act, 42
U.S.C. 86901 et seq., as amended by the Hazardous and Solid Waste
Amendments of 1984; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. 89601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of 1986; the
Hazardous Materials Transportation Act, 49 U.S.C. 81801 et seq.; the
Federal Water Pollution Control Act, 33 U.S.C. 81251 et seq.; the Clean
Air Act, 42 U.S.C. 87401 et seq.; the Toxic Substances Control Act, 15
U.S.C. 82601 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f et seq.; the Illinois Environmental Protection Act, 415 ILCS 4/1 et
seq.; the Municipal Code of the City of Chicago; the Rivers and Harbors
Act, (33 U.S.C. 8401 et seq.); the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. 11001 et seq. ("EPCRA"),
<PAGE> 32
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. 136 to
136y; the Oil Pollution Act of 1990, 33 U.S.C. 2701 et seq.; and the
Occupational Safety and Health Act, 29 U.S.C. 651 et seq.; and any other
federal, state, or local environmental requirements, together with all
rules, regulations, orders, and decrees now or hereafter promulgated
under any of the foregoing, as any of the foregoing now exist or may be
changed or amended or come into effect in the future.
C. "ENVIRONMENTAL CLAIM" shall mean and include any demand,
notice of violation, inquiry, cause of action, proceeding, or suit for
damages (including reasonable attorneys', consultants', and experts'
fees, costs or expenses), losses, injuries to person or property,
damages to natural resources, fines, penalties, interest, cost recovery,
compensation, or contribution resulting from or in any way arising in
connection with any Hazardous Material or any Environmental Law.
D. "PRE-EXISTING CONDITION" shall mean the presence of any
Hazardous Material on the Premises, to the extent such Hazardous
Material was not introduced onto the Premises after the Commencement
Date.
E. "ENVIRONMENTAL CONDITION" shall mean (i) the presence on
the Premises of one or more underground storage tanks or (ii) the
existence of any Hazardous Material on the Premises, other than a
Pre-Existing Condition,
(a) in violation of or requiring cleanup under any
Environmental Law or the provisions of this Article XXX, or
(b) in concentrations or at levels exceeding
applicable federal, state, or local standards for soil,
groundwater, or waste on residential properties,
either of which subjects Landlord to liability for any Environmental
Claim or which must be remediated to prevent Landlord from incurring
loss of any kind.
F. "ENVIRONMENTAL REMEDIATION" shall mean any
investigation, cleanup, removal, containment, remediation, or other
action relating to an Environmental Condition (i) required pursuant to
any Environmental Law, or (ii) necessary to prevent Landlord from
incurring, or relieve Landlord from, loss of any kind as a result of an
Environmental Claim.
G. "REMEDIATING PARTY" shall mean the party which has
elected (or is deemed to have elected) to perform any Environmental
Remediation.
H. "TENANT GROUP" shall mean any or all of Tenant's agents,
employees, representatives, contractors, workmen, mechanics, suppliers,
customers, guests, licensees, invitees, sublessees, assignees and all of
their respective successors and assigns or any party claiming by,
through or under any of them.
I. "PERMITTED MATERIALS" shall mean Hazardous Materials in
de minimis amounts customarily used, stored or generated in the ordinary
course of Tenant's business.
SECTION 30.2. TENANT'S COVENANTS WITH RESPECT TO ENVIRONMENTAL MATTERS.
During the Term, Tenant, at its sole cost and expense, shall:
A. comply with all Environmental Laws relating to the use
and operation of the Premises;
B. keep the Premises free of any Hazardous Material except
for the Permitted Materials;
<PAGE> 33
C. not exacerbate a Pre-Existing Condition;
D. upon the discovery of an Environmental Condition:
(i) promptly, but not later than three (3) business days
after the discovery of the Environmental Condition, notify
Landlord of the Environmental Condition;
E. upon the discovery of an Environmental Condition caused
by Tenant or any member of the Tenant Group:
(i) furnish a letter of credit, personal guaranty,
escrow of funds, or other security reasonably acceptable to
Landlord to secure performance of Environmental Remediation and
to assure Landlord that all necessary funds are readily
available to Landlord to pay the costs and expenses of
Environmental Remediation;
(ii) prior to commencement of any Environmental
Remediation, submit a proposed scope of work for the
Environmental Remediation, together with a timetable and a cost
estimate, to Landlord for review and approval;
(iii) after obtaining Landlord's approval, diligently
perform the approved Environmental Remediation;
(iv) submit to Landlord in a timely manner for
Landlord's review and comment the documentation and information
required by Sections 30.6 and 30.7 of this Lease relating to
each phase of the Environmental Remediation;
(v) comply with applicable release reporting
requirements and provide Landlord with any information necessary
for Landlord to comply with Environmental Law; and
(vi) obtain a so-called "no further action letter" or
other acknowledgment from the federal, state, or local
governmental agency with jurisdiction over the Environmental
Condition that the Premises have been fully remediated without
reliance on institutional controls (including but not limited to
deed restrictions) or engineered barriers;
F. not install or operate any above or below ground tank,
sump, pit, pond, lagoon, or other storage or treatment vessel or
device on the Premises without first obtaining Landlord's prior
written consent;
G. not handle, use, generate, treat, dispose of, or permit
the use, handling, generation, treatment, storage, or disposal
of any Hazardous Material except for the Permitted Materials in,
on, under, around, or above the Premises at any time during the
Term;
H. not use any above-ground tank (including barrels and
drums), of any size within or without the Premises, except (i)
in compliance with all Environmental Laws, and (ii) if secondary
containment approved by Landlord is provided. Empty tanks,
barrels and drums shall be presumed to have one (1) inch of
product remaining when declared empty.
SECTION 30.3. CONDUCT OF TENANT. If Tenant, with the prior written
authorization of Landlord, which authorization may be granted or denied by
Landlord in its sole and absolute discretion, generates, uses, transports,
stores, treats, or disposes of any Hazardous Material in, on or around the
Project:
<PAGE> 34
A. Tenant shall, at its own cost and expense, comply with
all Environmental Laws relating to any Hazardous Material used, stored,
generated or disposed of in, on or around the Project;
B. Tenant shall (i) not dispose of any Hazardous Material in
dumpsters or trash containers or at any other location at the Premises;
(ii) not discharge any Hazardous Material into drains or sewers; (iii)
not cause or allow the release, discharge, emission, or run-off of any
Hazardous Material to air, surface waters, the land, or ground water,
whether directly or indirectly; (iv) at Tenant's own cost and expense,
arrange for the lawful transportation and off-site disposal of all
Hazardous Materials generated by Tenant: (v) provide secondary
containment around all Hazardous Material storage containers, storage
facilities, and above-ground storage tanks; (vi) conduct all necessary
environmental inspections, including but not limited to asbestos
inspections prior to any renovation or demolition as required by 40 CFR
Part 61, and provide copies of all reports associated with such
inspections to Landlord; (vii) comply with all reporting requirements
under any federal, state, or local ordinance, statute, or regulation,
including but not limited to toxics inventory reporting under EPCRA, the
provisions of 40 CFR Part 61, or various regulations controlling the
emissions of volatile organic compounds, and Tenant shall provide copies
of all such reports and notifications to Landlord; and (viii) use only
highly skilled people acceptable to Landlord to address all
environmental issues associated with the Premises, and ensure that such
people and all employees of the Tenant shall receive all training or
certification required under any federal, state, or local legal
requirement specifically mentioned or alluded to in Section 30.1 of this
Lease;
C. Tenant shall promptly provide Landlord with copies of all
communications, permits, or agreements with any governmental authority
or agency (federal, state, or local) or any private entity relating in
any way to the violation or alleged violation of any Environmental Laws
or to any violation of Tenant's obligations under subparagraph (B)
above;
D. Landlord and Landlord's agents and employees shall have
the right to enter the Premises and/or conduct appropriate tests for the
purpose of ascertaining that Tenant complies with all applicable laws,
rules or permits relating in any way to the presence of any Hazardous
Materials on the Premises; and
E. Upon the written request of Landlord no more frequently
than once every year, or on any other occasion in the event that
Landlord has reason to believe an environmental problem exists at the
Premises, Tenant shall provide Landlord the results of appropriate tests
of air, water, and soil to demonstrate (i) that Tenant is in compliance
with all applicable laws, rules or permits relating in any way to the
presence of any Hazardous Material on the Premises and (ii) the lack of
any releases, discharges, or emissions.
If the presence, release, threat of release, or placement of any
Hazardous Material on or in the Premises occurs or is caused in whole or in part
by Tenant or any member of the Tenant Group during the Term of this Lease, or
the generation, transportation, storage, treatment, or disposal of any Hazardous
Material at the Premises occurs or is caused in whole or in part by Tenant or
any member of the Tenant Group during the Term of this Lease, and such gives
rise to liability (including, but not limited to, a response action, remedial
action, or removal action) under any Environmental Law or common law theory,
including but not limited to nuisance, strict liability, negligence and
trespass, Tenant shall promptly take any and all action necessary to clean up
the Premises and mitigate exposure to liability arising from the Hazardous
Material, whether or not required by law.
SECTION 30.4. EXACERBATION. If Tenant exacerbates a Pre-Existing
Condition (as a result of Tenant's investigative or remedial activities or
otherwise) during the Lease Term, the provisions of this Article XXX shall apply
to such exacerbation of the Pre-Existing Condition as if it were an
Environmental Condition, and Tenant shall perform Environmental Remediation as
to such exacerbation. Tenant shall be responsible for all fines and penalties
caused by Tenant or to the extent exacerbated by Tenant at any time during the
Lease Term.
<PAGE> 35
SECTION 30.5. RIGHTS OF INSPECTION. Landlord and their respective
agents and representatives shall have a right of entry and access to the
Premises at any time in Landlord's discretion for the purposes of (i) inspecting
the documentation relating to Hazardous Materials or environmental matters
maintained by Tenant or occupant of the Premises; (ii) ascertaining the nature
of the activities being conducted on the Premises and investigating whether
Tenant is in compliance with its obligations under Article XXX of this Lease;
and (iii) determining the type, kind, and quantity of all products, materials,
and substances brought onto the Premises, or made or produced thereon. Landlord
and its agents and representatives shall have the right to take samples in
quantities sufficient for analysis of all products, materials, and substances
present on the Premises including, but not limited to, samples, products,
materials, or substances brought onto or made or produced on the Premises by
Tenant or occupant of the Premises or their respective agents, employees,
contractors or invitees and shall also have the right to conduct other tests and
studies as may be reasonably determined by Landlord to be appropriate in order
to investigate whether Tenant is in compliance with its obligations under
Article XXX.
SECTION 30.6. COPIES OF NOTICES. During the term of this Lease, Tenant
and Landlord shall each provide the other promptly with copies of all summons,
citations, directives, information inquiries or requests, notices of potential
responsibility, notices of violation or deficiency, orders or decrees,
Environmental Claims, complaints, investigations, judgments, letters, notices of
environmental liens or response actions in progress, and other communications,
written or oral, actual or threatened, received in the case of Tenant, by Tenant
or occupant of the Premises, or in the case of Landlord, by Landlord, from the
United States Environmental Protection Agency, Occupational Safety and Health
Administration, Illinois Environmental Protection Agency, Illinois Office of the
State Fire Marshall, Chicago Department of the Environment, or other federal,
state, or local agency or authority, or any other entity or individual
(including both governmental and non-governmental entities and individuals),
concerning (a) any actual or alleged release of any Hazardous Material on, to,
or from the Premises; (b) the imposition of any lien on the Premises relating to
any Hazardous Material; (c) any actual or alleged violation of or responsibility
under Environmental Laws; or (d) any actual or alleged liability under any
theory of common law tort or toxic tort, including without limitation,
negligence, trespass, nuisance, strict liability, or ultrahazardous activity.
SECTION 30.7. TESTS AND REPORTS.
A. Upon written request by Landlord, Tenant shall provide
Landlord, at Tenant's expense, with (i) copies of all environmental
reports and tests prepared or obtained by or for Tenant or occupant of
the Premises; (ii) copies of transportation and disposal contracts (and
related manifests, schedules, reports, and other information) entered
into or obtained by Tenant with respect to any Hazardous Material; (iii)
copies of any permits issued to Tenant under Environmental Laws with
respect to the Premises; (iv) prior to filing, copies of any and all
reports, notifications, and other filings to be made by Tenant or
occupant of the Premises to any federal, state, or local environmental
authorities or agencies, and after filing, copies of such filings; and
(v) any other relevant documents and information with respect to
environmental matters relating to the Premises in Tenant's possession or
available to Tenant. Tenant shall be obligated to provide such
documentation only to the extent that the documentation is within
Tenant's possession or control.
B. In addition, if Landlord ever reasonably believes that
Tenant has breached the terms of this Article XXX, or if any
Environmental Claim is made or threatened, or if a default shall have
occurred under the Lease, or at Landlord's discretion, one (1) time per
Lease Year, Landlord shall have the right, but not the duty, to enter
upon the Premises and conduct an environmental assessment of the
Premises, including but not limited to a visual site inspection, review
of records pertaining to the site, and interviews of Tenant's
representatives or others concerning the site use and history and other
matters. The investigation may also include reasonable subsurface or
other invasive investigation of the Premises, including but not limited
to soil borings and sampling of site soil and ground or surface water
for laboratory analysis, as may be recommended by the Landlord's
consultant (discussed below) as part of its inspection of the Premises
or based upon such other reasonable evidence of Environmental Conditions
warranting such subsurface or other invasive investigation. Landlord
shall have the right, but not the duty, to retain any independent
<PAGE> 36
professional consultant to conduct any such environmental assessment;
provided, however, that Landlord agrees to limit, in the absence of an
Environmental Claim or default under this Article XXX, the number of such
environmental assessments to one (1) per Lease Year for the Lease Term. Tenant
will cooperate with the Landlord's consultant and will supply to the consultant,
promptly upon request, any information reasonably requested by Landlord to
facilitate the completion of the environmental assessment. Landlord and its
designees are hereby granted access to the Premises at any time or times, upon
reasonable notice (which may be written or oral) to perform such environmental
assessment. In exercising its right, Landlord shall use its reasonable efforts
to minimize disruption of operations at the Premises. Any costs associated with
performance of the environmental assessment, including but not limited to the
consultant fees and restoration of any property damaged by such environmental
assessment, shall be paid by Landlord unless such investigation discloses an
Environmental Condition caused by Tenant or any member of the Tenant Group, in
which case Tenant shall pay such costs.
C. In the event of an Environmental Condition caused by Tenant or
any member of the Tenant Group, Tenant shall pay costs incurred by Landlord
(including consultants' fees, costs and expenses) to review and comment on all
reports and other documentation and information required by Sections 30.5 and
30.6, and to monitor the performance of any Environmental Remediation performed
by Tenant.
SECTION 30.8. INDEMNIFICATION. Tenant shall reimburse, defend with
counsel chosen by Landlord, indemnify, and hold Landlord and any other
Indemnified Party free and harmless from and against any and all Environmental
Claims, response costs, losses, liabilities, damages, costs, and expenses,
including without limitation loss of rental income, loss due to business
interruption, and reasonable attorneys' and consultants' fees, costs and
expenses arising out of or in any way connected with any or all of the
following:
A. any Hazardous Material (other than a Pre-Existing Condition)
which, at any time during the Term, is or was actually or allegedly generated,
stored, treated, released, disposed of, or otherwise located on or at the
Premises as a result of the act or omission of Tenant or any member of the
Tenant Group (regardless of the location at which such Hazardous Material is now
or may in the future be located or disposed of), including, but not limited to
any and all (i) liabilities under any common law theory of tort, nuisance,
strict liability, ultrahazardous activity, negligence, or otherwise based upon,
resulting from or in connection with any Hazardous Material; (ii) obligations to
take response, cleanup, or corrective action pursuant to any Environmental Laws;
and (iii) the costs and expenses of investigation or remediation in connection
with the decontamination, removal, transportation, incineration, or disposal of
any of the foregoing; and
B. any actual or alleged illness, disability, injury, or death of any
person, in any manner arising out of or allegedly arising out of exposure to any
Hazardous Material or other substances or conditions present at the Premises as
a result of the act or omission of Tenant or any member of the Tenant Group
(including, but not limited to, ownership, operation, and disposal of any
equipment which generates, creates, or uses electromagnetic files, x-rays, other
forms of radiation and radioactive materials), regardless of when any such
illness, disability, injury, or death shall have occurred or been incurred or
manifested itself; and
C. any actual or alleged failure of Tenant or any member of the Tenant
Group at any time and from time to time to comply with all applicable
Environmental Laws or any permit issued thereunder;
D. any failure by Tenant to comply with any obligation under this
Article XXX relating to an Environmental Condition for which Tenant is
Remediating Party;
E. Tenant's failure to provide any information, make any submission, and
take any step required by any relevant governmental authorities;
<PAGE> 37
F. the imposition of any lien for damages caused by, or the
recovery of any costs for, the remediation or cleanup of any Hazardous
Material as a result of events that took place during the Term of this
Lease as a result of the act or omission of Tenant or any member of the
Tenant Group;
G. costs of removal of any and all Hazardous Materials from
all or any portion of the Premises, which Hazardous Materials came to be
present at the Premises during the Term of this Lease as a result of the
act or omission of Tenant or any member of the Tenant Group;
H. costs incurred to comply, in connection with all or any
portion of the Premises, with all governmental requirements with respect
to any Hazardous Material on, in, under or affecting the Premises, which
Hazardous Material came to be present at the Premises during the Term of
this Lease as a result of the act or omission of Tenant or any member of
the Tenant Group;
I. any spills, charges, leaks, escapes, releases, dumping,
transportation, storage, treatment, or disposal of any Hazardous
Material which occur during the Term of this Lease, but only to the
extent that such Hazardous Material originated from or were or are
located on the Premises and are caused by Tenant or any member of the
Tenant Group.
In the event Environmental Claims or other assertion of liability shall
be made against any Indemnified Party for which the Indemnified Party is
entitled to indemnity hereunder, the procedure set forth in Section 24.1 shall
apply. The obligations of Tenant under this Section 30.8 shall survive any
termination or expiration of this Lease.
SECTION 30.9. TENANT ACKNOWLEDGMENTS WITH RESPECT TO ENVIRONMENTAL
MATTERS. Tenant acknowledges that the Premises are being leased in their present
"as is" condition. Tenant further acknowledges that Landlord has made no
representation whatsoever regarding any Hazardous Material on or about the
Premises.
SECTION 30.10. NO LIABILITY OF LANDLORD.
A. Landlord shall not have any liability to Tenant or any
of its employees, agents, shareholders, officers or directors, or any
other persons as a result of any Hazardous Material now or hereafter
located on the Premises.
B. Tenant hereby waives and releases Landlord from all
Environmental Claims arising from or relating to Pre-Existing
Conditions.
<PAGE> 38
ARTICLE XXXI
SECURITY DEPOSIT
SECTION 31.1. SECURITY DEPOSIT. Tenant agrees to deposit with
Landlord, upon the execution of this Lease, the Security Deposit as security for
the full and faithful performance by Tenant of each and every term, provision,
covenant and condition of this Lease. If Tenant defaults beyond any applicable
grace and/or cure period in respect to any of the terms, provisions, covenants
and conditions of this Lease including, but not limited to, payment of all
rental and other sums required to be paid by Tenant hereunder, Landlord may use,
apply or retain the whole or any part of the Security Deposit for the payment of
such rent in default, for any sum which Landlord may expend or be required to
expend by reason of Tenant's default including, without limitation, any damages
or deficiency in the reletting of the Premises, whether such damages or
deficiency shall have accrued before or after re-entry by Landlord. If any of
the Security Deposit shall be so used, applied or retained by Landlord at any
time or from time to time, Tenant shall promptly, in each such instance, within
five (5) business days of written demand therefor by Landlord, pay to Landlord
such additional sums as may be necessary to restore the Security Deposit to the
original amount set forth in the first Section of this Lease. If Tenant shall
fully and faithfully comply with all the terms, provisions, covenants and
conditions of this Lease, the Security Deposit, or the balance thereof, shall be
returned to Tenant after the following: (a) the time fixed as the expiration of
the Term of this Lease; (b) the removal of Tenant from the Premises; (c) the
surrender of the Premises by Tenant to Landlord in accordance with this Lease;
and (d) final determination of all amounts payable by Tenant hereunder and
payment of same. Except as otherwise required by law, Tenant shall not be
entitled to any interest on the aforesaid Security Deposit. In the absence of
evidence satisfactory to Landlord of an assignment of the right to receive the
Security Deposit or the remaining balance thereof, Landlord may return the
security deposit to the original Tenant, regardless of one or more assignments
of this Lease.
ARTICLE XXXII
MISCELLANEOUS
SECTION 32.1. CAPTIONS. The captions of this Lease are for
convenience only and are not to be construed as part of this Lease and shall not
be construed as defining or limiting in any way the scope or intent of the
provisions hereof.
SECTION 32.2. SEVERABILITY. If any covenant, agreement or condition
of this Lease or the application thereof to any person, firm or corporation or
to any circumstances, shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such covenant, agreement or
condition to persons, firms or corporations or to circumstances other than those
as to which it is invalid or unenforceable, shall not be affected thereby. Each
covenant, agreement or condition of this Lease shall be valid and enforceable to
the fullest extent permitted by law.
SECTION 32.3. APPLICABLE LAW. This Lease shall be construed and
enforced in accordance with the laws of the state where the Premises are
located.
SECTION 32.4 AMENDMENTS IN WRITING. None of the covenants, terms or
conditions of this Lease, to be kept and performed by either party, shall in any
manner be altered, waived, modified, changed or abandoned, except by a written
instrument, duly signed, acknowledged and delivered by the other party.
SECTION 32.5 RELATIONSHIP OF PARTIES. Nothing contained herein shall
be deemed or construed by the parties hereto, nor by any third party, as
creating the relationship of principal and agent or of partnership, or of joint
venture by the parties hereto, it being understood and agreed that no provision
contained in this Lease nor any acts of the parties hereto shall be deemed to
create any relationship other than the relationship of Landlord and Tenant.
<PAGE> 39
SECTION 32.6 BROKERAGE. Landlord and Tenant each warrant to the
other that it has no dealings with any real estate broker or agent in connection
with this lease other than Landlord's Broker and Tenant's Broker, and each party
covenants to pay, hold harmless and indemnify the other party from and against
any and all cost, expense or liability for any compensation, commissions and
charges claimed by any other broker or other agent with respect to this Lease or
the negotiation thereof arising out of any acts of the indemnifying party.
SECTION 32.7 NO ACCORD AND SATISFACTION. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly rent herein stipulated
and additional rent shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
SECTION 32.8 JOINT EFFORT. The preparation of this Lease has been a
joint effort of the parties hereto and the resulting documents shall not, solely
as a matter of judicial construction, be construed more severely against one of
the parties than the other.
SECTION 32.9 WAIVER OF JURY TRIAL. Tenant hereby waives a jury
trial in action brought by Landlord hereunder. If Landlord commences any
proceeding for nonpayment of rent or any other sum due to be paid by Tenant
under this Lease, Tenant hereby agrees that Tenant will not impose any
counterclaim of any nature or description in any such proceeding, provided
however, that such agreement of Tenant shall not be construed as a waiver of the
right of Tenant to assert such claim in a separate action or actions brought by
Tenant.
SECTION 32.10 TIME. Time is of the essence of this Lease, and all
provisions herein relating thereto shall be strictly construed.
SECTION 32.11 LANDLORD'S CONSENT. Landlord's granting of any consent
under this Lease, or Landlord's failure to object to any action taken by Tenant
without Landlord's consent required under this Lease, shall not be deemed a
waiver by Landlord of its rights to require such consent for any further similar
act by Tenant. No waiver by Landlord of any other breach of the covenants of
this Lease shall be construed, taken or held to be a waiver of any other breach
or to be a waiver, acquiescence in or consent to any further or succeeding
breach of the same covenant. None of the Tenant's covenants under this Lease,
and no breach thereof, shall be waived, altered or modified except by a written
instrument executed by Landlord.
SECTION 32.12 NO PARTNERSHIP. Landlord is not, and shall not be
deemed to be, in any way or for any purpose, the partner, employer, principal,
master or agent of or with Tenant.
SECTION 32.13 LANDLORD'S LIABILITY. Notwithstanding anything to the
contrary herein contained, there shall be absolutely no personal liability
asserted or enforceable against Landlord or on any persons, firms or entities
who constitute Landlord with respect to any of the terms, covenants, conditions
and provisions of this Lease, and Tenant shall, subject to the rights of any
mortgagee, look solely to the interest of Landlord, its successors and assigns
in the Project for the satisfaction of each and every remedy of Tenant in the
event of default by Landlord hereunder; such exculpation of personal liability
is absolute and without any exception whatsoever. If the entity constituting
Landlord is a partnership, Tenant agrees that the deficit capital account of any
such partner shall not be deemed an asset or property of said partnership.
SECTION 32.14 LANDLORD RIGHTS. This Lease does not grant any rights
to light or air over or about the Premises. Landlord specifically excepts and
reserves to itself the use of any roofs, the exterior and structural components
of the Building, all rights to the land and improvements below the improved
floor level of the Building, to the improvements and air rights above the
Building and to the improvements and air rights located outside the demising
walls of the building and to such areas within the Building required for
installation of utility lines and other
<PAGE> 40
installations and to such portions of the Premises necessary to access, maintain
and repair same, and no rights with respect thereto are conferred upon Tenant.
SECTION 32.15. ENTIRE AGREEMENT. It is understood and agreed that all
understandings and agreements heretofore had between the parties hereto are
merged in this Lease, the exhibits annexed hereto and the instruments and
documents referred to herein, which alone fully and completely express their
agreements, and that no party hereto is relying upon any statement or
representation, not embodied in this Lease, made by the other. Each party
expressly acknowledges that, except as expressly provided in this Lease the
other party and the agents and representatives of the other party have not made,
and the other party is not liable for or bound in any manner by, any express or
implied warranties, guaranties, promises, statements, inducements,
representations or information pertaining to the transactions contemplated
hereby.
SECTION 32.16. RENT ABSOLUTE. Except as otherwise expressly provided
herein, this Lease shall be deemed and construed to be a "net lease" and Tenant
agrees to pay all costs and expenses of every kind and nature whatsoever,
ordinary and extraordinary, arising out of or in connection with the ownership,
maintenance, repair, replacement, use and occupancy of the Premises during the
Term of this Lease, which, except for the execution and delivery hereof, would
otherwise have been payable by Landlord.
SECTION 32.17. TENANT AUTHORITY. Simultaneously with the execution and
delivery of this Lease by Tenant, Tenant shall deliver to Landlord:
A. Certified resolutions of its board of directors of Tenant
executing this Lease on behalf of Tenant authorizing the execution and
delivery of this Lease.
B. A certificate of incumbency executed by the secretary of any
corporate partner of Tenant executing this Lease on behalf of Tenant
identifying by name, office and facsimile signature the officers of
Tenant.
C. A current certificate of good standing issued by the
Secretary of State of the state of incorporation of Tenant and the State
of Illinois.
ARTICLE XXXIII
PARKING
SECTION 33.1. PARKING. Landlord agrees that the parking area adjacent
to the Building shall contain five (5) parking spaces which may be utilized by
Tenant, its employees, agents and invitees, and Landlord agrees, upon prior
request of Tenant, to designate the five (5) spaces immediately adjacent to the
Premises as "Reserved" for Tenant's exclusive use provided, however, Landlord
shall have no obligation to enforce the exclusive nature of such parking spaces
with respect to third parties.
ARTICLE XXXIV
RENEWAL OPTIONS
SECTION 34.1. RENEWAL OPTION. Tenant shall have the option ("Renewal
Option") to renew the Initial Term for all of the Premises as of the expiration
date of the Initial Term, for one (1) additional period of two (2) years (each
of said renewals is a "Renewal Term") upon the following terms and conditions:
A. Tenant gives Landlord written notice of its exercise of the
Renewal Option at least nine (9) months prior to the expiration of the
Term.
<PAGE> 41
B. Tenant is not in default under this Lease either on the date
Tenant delivers the notice required under subparagraph A. above or at
any time thereafter prior to the commencement of the Renewal Term so
exercised.
C. Landlord shall be provided with evidence satisfactory to it
of Tenant's compliance with the terms and conditions of Article XXX
hereof.
D. All of the terms and provisions of this Lease (except this
Article XXXIV) shall be applicable to the Renewal Term, except that Rent
for the Renewal Term shall be determined as follows: Base Rent for each
Renewal Term shall be determined upon expiration of the Initial Term and
shall be equal to the greater of: (i) one hundred two percent (102%) of
the Base Rent for the last year of the the Initial Term and First
Renewal Term, as applicable, or (ii) Landlord's determination of the
Fair Value (as hereinafter defined). For purposes of this Lease, "Fair
Value" shall mean Landlord's determination, utilizing its reasonable
judgment, of an annual amount per rentable square foot for each year of
the applicable Renewal Term for which Fair Value is being determined
beginning with the first (1st) day of the subject period that a willing,
creditworthy, new non-equity tenant leasing comparable space to Tenant's
would pay and a willing, comparable landlord of an industrial building
comparable to the Building in the Chicago metropolitan area ("Market")
would accept at arm's length, giving appropriate consideration to annual
rental rate per rentable square foot, rental escalations, length of
lease term, size and location of the premises being leased, and other
generally applicable terms and conditions prevailing for comparable
space in comparable buildings located in the Market. In the event Tenant
notifies Landlord within ten (10) days after receipt of notice of
Landlord's determination of Fair Value that Tenant disagrees with
Landlord's determination, then, at the option of Landlord or Tenant,
Landlord and Tenant shall institute an appraisal procedure to determine
the Fair Value by jointly nominating and appointing, within ten (10)
days after receipt of notice from the other party, one appraiser who
shall make a determination of the Fair Value of the Premises. If
Landlord and Tenant fail to jointly agree on the nomination and
appointment of one appraiser within said ten (10) day period, each party
shall then each nominate and appoint one appraiser within fifteen (15)
days after the end of the initial ten (10) day period and give notice of
such appointment to the other party. Upon the appointment of the two
appraisers as aforesaid, the two appraisers so appointed shall jointly
make a determination of the Fair Value of the Premises. If either party
fails to appoint an appraiser within said fifteen (15) day period, the
appraiser appointed by the other party shall make the determination of
the Fair Value. If the two appraisers are unable to agree upon a
determination of the Fair Value of the Premises within fifteen (15) days
after the appointment of the second appraiser, the two appraisers shall
jointly nominate and appoint a third appraiser within fifteen (15) days
after the expiration of said fifteen (15) day period and give written
notice of such appointment to both parties. In the event the two
appraisers fail to appoint such third appraiser within said fifteen (15)
day period, either party may thereafter apply to the United States
District Court for the Northern District of Illinois for the appointment
of such third appraiser. The third appraiser shall make a determination
of the Fair Value. In the event the three appraisers are unable to agree
upon a determination of the Fair Value of the Premises within fifteen
(15) days after the appointment of the third appraiser, then the Fair
Value shall be an amount equal to the average of the three values
contained in the respective written appraisals submitted by the
appraisers. The appraisers shall make their determination in writing and
give notice thereof to both parties. Each appraiser shall afford both
parties a hearing and the right to submit evidence, with the privilege
of cross-examination in connection with its determination of the Fair
Value. In the event any appraiser appointed as aforesaid shall die or
become unable or unwilling to act before completion of the appraisal,
such appraiser's successor shall be appointed in the same manner as
provided above. Any appraiser appointed hereunder shall (x) be
independent of both parties (and of all persons and entities with
interest in either party); (y) have not less than five (5) years'
experience in the appraisal of real property; and (z) hold the
professional designation M.A.I., or if the M.A.I. ceases to exist, a
comparable designation from an equivalent professional appraiser
organization. All appraisal fees and expenses shall be borne equally by
the parties.
<PAGE> 42
SECTION 34.2. "AS IS" CONDITION. Tenant agrees to accept the
Premises to be covered by this Lease during the Renewal Term in an "as is"
physical condition and Tenant shall not be entitled to receive any allowance,
credit, concession or payment from Landlord for the improvement thereof.
SECTION 34.3. AMENDMENT. In the event that Tenant exercises the
Renewal Option, then Landlord and Tenant shall mutually execute and deliver an
amendment to this Lease reflecting the renewal of the Term on the terms herein
provided, which amendment shall be executed and delivered promptly after the
determination of Rent to be applicable to the Renewal Term as hereinabove
provided.
SECTION 34.4. TERMINATION. The Renewal Option herein granted shall
automatically terminate upon the earliest to occur of (i) the expiration or
termination of this Lease, (ii) the termination of Tenant's right to possession
of the Premises, (iii) any assignment or subletting by Tenant other than a
subletting expressly permitted hereunder, or (iv) the failure of Tenant to
timely or properly exercise the Renewal Option.
SECTION 34.5. NO COMMISSIONS. Landlord and Tenant acknowledge and
agree that no real estate brokerage commission or finder's fee shall be payable
by Landlord in connection with any exercise by Tenant of the Renewal Option
herein contained.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
set forth above.
LANDLORD: CENTERPOINT PROPERTIES TRUST, a Maryland real estate
investment trust
By: /s/ PAUL T. AHERN
-------------------------------------------------
Its: Chief Investment Officer
By: /s/ BRIAN M. SHEEHAN
-------------------------------------------------
Its: Assistant Vice President and Controller
TENANT: NEOFORMA.COM, INC., a Delaware corporation
By:
-------------------------------------------------
Its: Vice President
<PAGE> 43
EXHIBIT "A"
PREMISES
<PAGE> 44
EXHIBIT "B"
LEGAL DESCRIPTION
PARCEL 1:
LOTS 1 AND 2 IN TACO BELL RESUBDIVISION, BEING A RESUBDIVISION OF SECTION 34,
TOWNSHIP 41 NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK
COUNTY, ILLINOIS
PARCEL 2:
EASEMENT FOR THE BENEFIT OF PARCEL 1 FOR INGRESS AND EGRESS AS CREATED BY
EASEMENT AND LICENSE AGREEMENT DATED APRIL 30, 1987 AND RECORDED MAY 8, 1987 AS
DOCUMENT 87250925 AND AMENDED BY FIRST AMENDMENT RECORDED NOVEMBER 15, 1988 AS
DOCUMENT 88526155 MADE BY BOULEVARD BANK NATIONAL ASSOCIATION, AS TRUSTEE UNDER
TRUST AGREEMENT DATED OCTOBER 10, 1986 AND KNOWN AS TRUST NUMBER 8365 AND
BETWEEN MCDONALD'S CORPORATION OVER THE FOLLOWING DESCRIBED PROPERTY:
THE EAST 193.53 FEET (AS MEASURED ALONG THE EAST LINE) OF LOT 285 IN CENTEX
INDUSTRIAL PARK UNIT 165, BEING A SUBDIVISION OF THE EAST 1/2 OF THE NORTHEAST
1/4 OF SECTION 34, TOWNSHIP 41 NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL
MERIDIAN, IN COOK COUNTY, ILLINOIS
<PAGE> 45
EXHIBIT "C"
TENANT ESTOPPEL CERTIFICATE
Property Name: ___________________________________________________
("Property")
Tenant: ___________________________________________________
To: ___________________________________________________
DEFINITIONS:
Lease Date: ___________________________________________________
Landlord: ___________________________________________________
Tenant: ___________________________________________________
Security Deposit: ___________________________________________________
Date of Possession: ___________________________________________________
Rent Commencement Date: ___________________________________________________
Monthly Base Rent: ___________________________________________________
<PAGE> 46
Annual Base Rental Amount: ___________________________________________________
Monthly Deposits: ___________________________________________________
Term: ___________________________________________________
Termination Date: ___________________________________________________
Renewal Option(s): ___________________________________________________
Square Footage: ___________________________________________________
Use: ___________________________________________________
Tenants Address For Notices:
___________________________________________________
["Purchaser"] ["Lender"] proposes to [purchase the Property] [finance
the Property] and this Tenant Estoppel Certificate is to be made and delivered
in connection with that [purchase] [financing].
The undersigned Tenant under the above-referenced lease dated as of the
Lease Date between Landlord and Tenant ("Lease"), certifies, represents,
confirms and agrees in favor of [Purchaser] [Lender] the following:
1. The above-described Lease has not been cancelled, modified, assigned,
extended or amended and contains the entire agreement between Landlord and
Tenant except as follows:
2. Rent has been paid to _______________________________________. There is
no Prepaid Rent. The amount of the Security Deposit is as set forth above, which
is currently being held by Landlord.
3. Tenant took possession of the leased premises on the Date of Possession,
and commenced to pay rent on the Rent Commencement Date, in the amount of the
Monthly Base Rent, each payable in advance. Our current Annual Base Rental
Amount is as set forth above, payable in equal monthly installments, subject to
percentage rental, common area maintenance charges, escalation charges and other
charges in accordance with the terms and provisions of the Lease, which as of
the date hereof total the Monthly Deposit Amount, each payable in equal
<PAGE> 47
monthly installments in advance. We are currently in occupancy of the leased
premises. No "discounts", "free rent", "discounted rent" or "abatements of rent"
have been agreed to or are in effect.
4. The Lease is for the Term set forth above and ending on the Termination
Date, and we have the Renewal Option(s) set forth above.
5. All space and improvements covered by the Lease have been completed and
furnished to the satisfaction of Tenant, all conditions required under the Lease
have been met, and Tenant has accepted and taken possession of the leased
premises on the Date of Possession as set forth above and presently occupies the
leased premises, presently consisting of the Square Footage as set forth above.
6. The Lease is (a) in full force and effect, and (b) free from default by
both Landlord and Tenant; and we have no claims, liens, charges or credits
against Landlord or offsets against rent.
7. The undersigned has not assigned or sublet the Lease, nor does the
undersigned hold the Property under assignment or sublease.
8. There are no other agreements written or oral, between the undersigned
and Landlord with respect to the Lease and/or the leased premises and building.
Landlord has satisfied all commitments, arrangements or understandings made to
induce Tenant to enter into the Lease, and Landlord is not in any respect in
default in the performance of the terms and provisions of the Lease, nor is
there now any fact or condition which, with notice or lapse of time or both,
would become such a default.
9. The leased premises are currently being used for the Use set forth
above.
10. Tenant is maintaining (free of default) all insurance policies that the
Lease requires Tenant to maintain.
11. Neither Landlord nor [Purchaser] [Lender] nor any of their respective
successor or assigns, has or will have any personal liability of any kind or
nature under or in connection with the Lease; and, in the event of a default by
Landlord or [Purchaser] [Lender] under the Lease, Tenant shall look solely to
Landlord's or [Purchaser's] [Lender's] interest in the building in which the
leased premises are located.
12. Tenant is not in any respect in default under the terms and provisions
of the Lease (nor is there now any fact or condition which, with notice or lapse
of time or both, would become such a default), and Tenant has not assigned,
transferred or hypothecated its interest under the Lease.
13. Tenant (i) does not have any option or preferential right to purchase
all or any part of the leased premises or all or any part of the building of
which the leased premises are a part; and (ii) does not have any right, title or
interest with respect to the leased premises other than as lessee under the
Lease.
14. We understand that [Purchaser] [Lender] is planning to [purchase]
[finance] the Property on which the leased premises is located to Purchaser, and
we agree to make all payments required under the Lease to [Purchaser] [Lender]
upon our receipt of notice from Landlord and/or [Purchaser] [Lender]. Further,
upon receipt of such notice, we will thereafter look to [Purchaser] [Lender] and
not Landlord as the landlord under the Lease. We agree to give all notices
required to be given by us to Landlord under the Lease to [Purchaser] [Lender]
upon our receipt of said notice.
15. The statements contained herein may be relied upon by [Purchaser]
[Lender] and by any prospective purchaser or lender of the Property.
<PAGE> 48
16. If Tenant is a Corporation, the undersigned is a duly appointed officer
of the corporation signing this Agreement, and is the incumbent in the office
indicated under his or her name. If Tenant is a partnership or joint venture,
the undersigned is a duly appointed partner or officer of the partnership or
joint venture signing this certificate. In any event, the undersigned individual
is duly authorized to execute this Agreement on behalf of Tenant.
17. Tenant (a) executes this certificate with the understanding that
[Purchaser] [Lender] is contemplating [purchasing] [financing] the Property, and
that if [Purchaser] [Lender] [purchases] [finances] the Property, [Purchaser]
[Lender] will do so in material reliance on this certificate; and (b) agrees
that the certifications and representations made herein shall survive such
acquisition.
18. The current address to which all notices to Tenant as required under the
Lease should be sent is the Tenant's Address for Notices.
19. [Purchaser's] [Lender's] rights hereunder shall inure to its successors
and assigns.
20. Tenant is obligated under the Lease to pay the real estate taxes which
are assessed against the Property in a calendar year. Tenant is obligated to pay
to Tenant the real estate taxes assessed against the Property during the last
year of the term upon Landlord's receipt of a real estate tax bill with respect
thereto, even though the Lease term may have expired and Tenant has vacated the
Property prior to the issuance of said real estate tax bill.
IN WITNESS WHEREOF, Tenant has executed this estoppel certificate as of
this ______ day of ________________, 199__.
___________________________, a ______________
By: _________________________________________
Its:
<PAGE> 1
Exhibit 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
- ------------------------------
San Jose, California
December 21, 1999
