<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NO. 000-28715
------------------------
NEOFORMA.COM, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0424252
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
3255-7 SCOTT BOULEVARD
SANTA CLARA, CA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(408) 654-5700
(THE REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At May 12, 2000, the latest practicable date, there were 69,091,476
outstanding shares of common stock, $.001 par value per share.
- --------------------------------------------------------------------------------
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<PAGE> 2
NEOFORMA.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item Financial Statements
1.
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999........................................... 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999............................... 4
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 2000 and 1999............................... 5
Notes to Unaudited Consolidated Financial Statements........ 6
Item Management's Discussion and Analysis of Financial Condition
2. and Results of Operations................................... 12
Item Quantitative and Qualitative Disclosures About Market
3. Risk........................................................ 31
PART II. OTHER INFORMATION
Item Legal Proceedings...........................................
1. 32
Item Changes in Securities.......................................
2. 32
Item Defaults Upon Senior Securities.............................
3. 33
Item Submission of Matters to a Vote of Security Holders.........
4. 33
Item Other Information...........................................
5. 33
Item Exhibits....................................................
6. 33
SIGNATURES............................................................. 34
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOFORMA.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 25,292 $102,192
Short-term investments.................................... 21,483 11,574
Accounts receivable, net of allowance for doubtful
accounts of $4 and $27, respectively.................... 151 884
Prepaid expenses and other current assets................. 2,226 3,681
Deferred debt costs, current portion...................... 413 413
-------- --------
Total current assets................................ 49,565 118,744
-------- --------
LONG-TERM INVESTMENTS....................................... 2,027 2,198
PROPERTY AND EQUIPMENT, net................................. 8,771 20,513
INTANGIBLES................................................. 12,319 36,923
NON-MARKETABLE INVESTMENT................................... 2,500 5,500
OTHER ASSETS................................................ 1,585 483
DEFERRED DEBT COSTS, less current portion................... 602 497
-------- --------
Total assets........................................ $ 77,369 $184,858
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable, current portion............................ $ 3,360 $ 3,383
Accounts payable.......................................... 7,123 17,343
Accrued payroll........................................... 1,410 1,694
Other accrued liabilities................................. 685 619
Deferred revenue.......................................... 99 871
-------- --------
Total current liabilities........................... 12,677 23,910
-------- --------
NOTES PAYABLE, less current portion......................... 7,743 7,124
-------- --------
COMMITMENTS
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series C --
Authorized -- 5,110 shares
Issued and outstanding: 5,065 shares at December 31,
1999 and none at March 31, 2000; par value -- $0.001;
liquidation preference -- $3,900 at December 31,
1999................................................... 3,884 --
-------- --------
Series D --
Authorized -- 10,573 shares
Issued and outstanding: 10,196 shares at December 31,
1999 and none at March 31, 2000; par value $0.001;
liquidation preference -- $12,032 at December 31,
1999................................................... 11,986 --
-------- --------
Series E and E-1 --
Authorized -- 13,204 shares
Issued and outstanding: 12,870 shares at December 31,
1999 and none at March 31, 2000; par value -- $0.001;
liquidation preference -- $73,102 at December 31,
1999................................................... 72,942 --
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A -- convertible preferred stock
Authorized -- 9,000 shares
Issued and outstanding: 9,000 shares at December 31,
1999 and none at March 31, 2000; par value -- $0.001;
liquidation preference -- $2,250 at December 31,
1999................................................... 9 --
Series B -- convertible preferred stock
Authorized -- 2,860 shares
Issued and outstanding: 2,860 shares at December 31,
1999 and none at March 31, 2000; par value -- $0.001;
liquidation preference -- $1,430 at December 31,
1999................................................... 3 --
Common Stock $0.001 par value:
Authorized -- 200,000 shares at March 31, 2000
Issued and outstanding: 14,407 shares at December 31,
1999 and 64,733 at March 31, 2000...................... 14 65
Warrants.................................................. 3,621 3,678
Additional paid-in capital................................ 76,216 291,730
Notes receivable from stockholders........................ (8,245) (9,995)
Deferred compensation..................................... (47,388) (43,578)
Unrealized loss on available-for-sale securities.......... (40) (46)
Accumulated deficit....................................... (56,053) (88,030)
-------- --------
Total stockholders' equity (deficit)................ (31,863) 153,824
-------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $ 77,369 $184,858
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
NEOFORMA.COM, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
MARCH 31,
-----------------------
1999 2000
--------- ----------
<S> <C> <C>
REVENUE:
Transaction fees.......................................... $ -- $ 855
Website sponsorship fees and other........................ -- 351
------- --------
Total revenue..................................... -- 1,206
OPERATING EXPENSES:
Operations(1)............................................. 578 3,005
Product development(2).................................... 1,284 4,983
Selling and marketing(3).................................. 880 9,903
General and administrative(4)............................. 611 3,802
Amortization of intangibles............................... -- 1,311
Amortization of deferred compensation..................... -- 8,466
Write off of acquired in-process research and
development............................................ -- 3,000
------- --------
Total operating expenses.......................... 3,353 34,470
------- --------
Loss from operations.............................. (3,353) (33,264)
OTHER INCOME (EXPENSE):
Interest income........................................... 48 1,508
Interest expense.......................................... (16) (221)
------- --------
Net loss.......................................... $(3,321) $(31,977)
======= ========
NET LOSS PER SHARE:
Basic and diluted......................................... $ (4.11) $ (0.77)
======= ========
Weighted average shares -- basic and diluted.............. 808 41,520
======= ========
PRO FORMA NET LOSS PER SHARE:
Basic and diluted......................................... $ (0.15) $ (0.61)
======= ========
Weighted-average shares -- basic and diluted.............. 22,829 52,067
======= ========
</TABLE>
- ---------------
(1) Excludes amortization of stock-based compensation of $709 for the quarter
ended March 31, 2000.
(2) Excludes amortization of stock-based compensation of $1,148 for the quarter
ended March 31, 2000.
(3) Excludes amortization of stock-based compensation of $2,250 for the quarter
ended March 31, 2000.
(4) Excludes amortization of stock-based compensation of $4,359 for the quarter
ended March 31, 2000.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
NEOFORMA.COM, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE QUARTERS
ENDED MARCH 31,
-------------------
1999 2000
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $(3,321) $(31,977)
Adjustment to reconcile net loss to net cash used in
operating activities:
Amortization resulting from issuance of Series E preferred
stock in connection with prepaid consulting services.... -- 335
Valuation of common stock options issued in connection
with consulting services................................ -- 212
Valuation of warrants to purchase common stock in exchange
for consulting services................................. -- 67
Write off of in process research and development.......... -- 3,000
Depreciation and amortization of property and equipment... 76 1,727
Amortization of intangibles............................... -- 1,311
Amortization of deferred compensation..................... -- 8,466
Amortization of deferred debt costs....................... -- 105
Change in assets and liabilities, net of acquisitions:
Accounts receivable, net................................ -- (491)
Prepaid expenses and other assets....................... (145) (321)
Accounts payable........................................ 1,517 10,220
Accrued liabilities and accrued payroll................. 197 (217)
Deferred revenue........................................ -- (29)
------- --------
Net cash used in operating activities................. (1,676) (7,592)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investments....................... -- (862)
Sale of marketable investments............................ -- 10,800
Cash paid for the acquisition of Pharos Technologies,
Inc., net of cash acquired.............................. -- (500)
Cash paid for the acquisition of US Lifeline, Inc., net of
cash acquired........................................... -- (3,219)
Purchase of non-marketable investment..................... -- (3,000)
Cash paid on note issued in connection with the
acquisition of General Asset Recovery, Inc.............. -- (367)
Purchases of property and equipment....................... (588) (13,469)
------- --------
Net cash used in investing activities................. (588) (10,617)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes payable............... 269 --
Repayments of notes payable............................... -- (229)
Proceeds from the issuance of Series D mandatorily
redeemable convertible preferred stock, net of issuance
costs................................................... 11,989 --
Repayments of notes receivable from stockholders.......... 10 10
Proceeds from the issuance of common stock, net of notes
receivable issued to common stockholders................ -- 95,328
------- --------
Net cash provided by financing activities............. 12,268 95,109
------- --------
Net increase in cash and cash equivalents............. 10,004 76,900
Cash and Cash Equivalents, beginning of period.............. 812 25,292
------- --------
Cash and Cash Equivalents, end of period.................... $10,816 $102,192
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for interest.................. $ 16 $ 116
======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Conversion of preferred stock to common stock............. $ $ 88,824
======= ========
Issuance of warrants to purchase common stock............. $ 10 $ --
======= ========
Issuance of note payable to related party in connection
with acquisition of Pharos Technologies, Inc............ $ -- $ 22,000
======= ========
Issuance of common stock in connection with the
acquisition of US Lifeline, Inc......................... $ -- $ 2,769
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
NEOFORMA.COM, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
Neoforma.com, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements and
notes should be read in conjunction with the audited financial statements and
notes thereto, included in the Company's Annual Report filed on Form 10-K with
the Securities and Exchange Commission. In the opinion of management, the
unaudited condensed financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
indicated. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results that may be expected for future
quarters or the year ending December 31, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Neoforma.com,
Inc. and its wholly owned subsidiaries General Asset Recovery, LLC, FDI
Information Resources, LLC, Pharos Technologies, Inc., and U.S. Lifeline, Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
INVESTMENTS
The Company had investments of $45,986,000 and $107,609,000 as of December
31, 1999 and March 31, 2000, respectively. Investments classified as cash
equivalents amounted to approximately $22,476,000 and $93,837,000 at December
31, 1999 and March 31, 2000, respectively. The investments were classified as
"available-for-sale," and the difference between the cost and fair value of
these investments was immaterial and is included in other comprehensive income.
The amortized costs, aggregate fair value, and gross unrealized holding
gains and losses by major security type were as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------
UNREALIZED
AMORTIZED AGGREGATE HOLDING
COST FAIR VALUE GAIN (LOSS)
--------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities issued by states of the United
States and political subdivisions of the
states.......................................... $ 30,900 $ 30,900 $ --
Corporate debt securities......................... 76,755 76,709 (46)
-------- -------- ----
$107,655 $107,609 $(46)
======== ======== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 2000
--------------------------------------
UNREALIZED
AMORTIZED AGGREGATE HOLDING
COST FAIR VALUE GAIN (LOSS)
--------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities issued by states of the United
States and political subdivisions of the
states.......................................... $ 3,500 $ 3,500 $ --
Corporate debt securities......................... 42,526 42,486 (40)
-------- -------- ----
$ 46,026 $ 45,986 $(40)
======== ======== ====
</TABLE>
6
<PAGE> 7
NEOFORMA.COM, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTANGIBLES
Intangibles consists of acquired assembled work force, customer lists,
acquired software, developed technology, and goodwill, which represents the
amount of purchase price in excess of the fair value of the tangible net assets,
in the acquisitions of General Asset Recovery LLC, FDI Information Resources
LLC, Pharos Technologies, Inc., and U.S. Lifeline, Inc.(See Note 3). The
intangibles are amortized on a straight-line basis over a period of 3 to 7
years. Intangibles are evaluated quarterly for impairment and written down to
net-realizable value, if necessary. No impairment has been recorded to date.
Intangible assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Assembled work force and customer list...................... $ 240 $ 240
Software.................................................... 600 600
Developed technology........................................ -- 3,000
Goodwill.................................................... 12,194 35,150
13,034 38,990
------- -------
Less: Accumulated amortization.............................. (715) (2,067)
------- -------
$12,319 $36,923
======= =======
</TABLE>
NON-MARKETABLE INVESTMENT
In December 1999, the Company purchased 526,250 shares of IntraMedix, LLC,
("IntraMedix") a privately held corporation in exchange for $2,500,000.
IntraMedix is a company that provides procurement services related to the
distribution of geriatric care products to the nursing home community. At March
31, 2000, the Company's ownership represented approximately 5% of the IntraMedix
common shares outstanding. The Company accounts for this investment using the
cost method. IntraMedix, Inc. is a related party to GeriMedix, a supplier with
which the Company has an agreement to perform Shop services.
In March 2000, the Company purchased 600,000 shares of Series D preferred
stock of Pointshare, Inc. ("Pointshare"), a privately held corporation in
exchange for $3,000,000. Pointshare is a company that provides on-line business
to business administrative services to healthcare communities. The Company's
ownership represents approximately 2% of the Pointshare common shares
outstanding, assuming a 1:1 conversion ratio of preferred stock to common stock.
The Company accounts for this investment using the cost method.
NOTE RECEIVABLE
In November 1999, the Company issued a note receivable to Pharos
Technologies, Inc. ("Pharos") in the amount of $500,000. Subsequent to December
31, 1999, the Company acquired Pharos (see Note 3.) As part of its consideration
for the acquisition, in accordance with the terms of the note, the Company
forgave the entire principal amount together with any accrued interest. As of
December 31, 1999, the note receivable is included in other assets in the
accompanying financial statements.
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. There were no components of
comprehensive income for the
7
<PAGE> 8
NEOFORMA.COM, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
quarter ended March 31, 1999. The components of comprehensive income for the
quarter ended March 31, 2000 were as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31, 1999
---------------------
<S> <C>
Net loss.................................................. $(31,977)
Net gain (loss) on available-for-sale securities.......... (6)
--------
Comprehensive loss........................................ $(31,983)
========
</TABLE>
SEGMENT INFORMATION
Effective January 1, 1998 the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the quarters ended
March 31, 1999 and 2000 the Company operated in a single business segment
providing e-commerce content to healthcare professionals in the medical product,
supplies, and equipment industry. For the quarter ended March 31, 2000, the
Company generated 60%, 11% and 29% of its revenues from transaction fees and
website sponsorship fees associated with Auction, Shop and Plan services,
respectively. Through March 31, 2000, 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 48,041,000 and none for the quarters ended March
31, 1999 and 2000, respectively.
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 occurred upon the
closing of the initial public offering in January 2000.
8
<PAGE> 9
NEOFORMA.COM, INC.
NOTES TO UNAUDITED 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>
QUARTER ENDED MARCH 31,
-----------------------
1999 2000
--------- ----------
<S> <C> <C>
Net loss.................................................... $(3,321) $(31,977)
======= ========
Basic and diluted:
Weighted average shares of common stock outstanding....... 1,234 51,637
Less: Weighted average shares of common stock subject to
repurchase............................................. (426) (10,117)
------- --------
Weighted average shares used in computing basic and
diluted net loss per share............................. 808 41,520
======= ========
Basic and diluted net loss per common share............... $ (4.11) $ (0.77)
======= ========
Pro forma:
Net loss............................................... $(3,321) $(31,977)
======= ========
Shares used above........................................... 808 41,520
Pro forma adjustment to reflect weighted average effect of
assumed conversion of convertible preferred stock......... 22,023 10,547
------- --------
Weighted average shares used in computing pro forma basic
and diluted net loss per share............................ 22,831 52,067
------- --------
Pro forma basic and diluted net loss per share.............. $ (0.15) $ (0.61)
======= ========
</TABLE>
3. ACQUISITIONS
In January 2000, the Company acquired Pharos Technologies, Inc., ("Pharos")
a developer of content management software that facilitates the locating,
organizing and updating of product information in an online marketplace. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was 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 $22.8 million, consisted of
approximately 2.0 million shares of common stock valued at $22 million,
forgiveness of a loan outstanding to Pharos of $500,000, estimated assumed
liabilities of approximately $94,000, and estimated acquisition-related expenses
of approximately $230,000. Of the shares issued to the previous owners of
Pharos, approximately 700,000 shares were subject to repurchase rights which
lapse over a period of the original terms of the shares, which specify a vesting
period of 4 years. As of March 31, 2000, approximately 616,000 of these shares
were subject to repurchase. In the initial allocation of the purchase price,
$367,000, $3,000,000, $3,000,000, and $16,457,000 was allocated to tangible
assets, acquired in-process research and development, developed technology, and
goodwill, respectively. The acquired in-process research and development was
expensed upon consummation of the acquisition. The developed technology will be
amortized when such technology has been put into productive use over an
estimated useful life of 3 years. The goodwill will be amortized over an
estimated useful life of 5 years.
In March 2000, the Company acquired U.S. Lifeline, Inc. ("USL") a
healthcare content company. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the purchase price was 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 $7.2 million, consisted of
approximately 61,000 shares of common stock valued at $2.8 million, $3.5 million
in cash and estimated assumed liabilities of approximately $912,000. In the
initial allocation of the purchase price, $682,000 and $6.5 million was
allocated to tangible assets and goodwill, respectively. The goodwill will be
amortized over an estimated useful life of 5 years.
9
<PAGE> 10
NEOFORMA.COM, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The unaudited pro forma results of operations of the Company, GAR, FDI,
Pharos, and USL for the quarters ended March 31, 1999 and 2000, assuming the
acquisitions took place at the beginning of the period, are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
MARCH 31,
-----------------------
1999 2000
--------- ----------
<S> <C> <C>
Revenue..................................................... $ 861 $ 1,449
======= ========
Net loss.................................................... $(5,522) $(32,761)
======= ========
Basic and diluted net loss per share........................ $ (1.73) $ (0.75)
======= ========
</TABLE>
4. LOANS AND NOTES PAYABLE
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 July 2000, which bears interest at the lender's prime rate (9% as
of March 31, 1999). In December 1999, the Company repaid the term loan, in-full.
At March 31, 2000, there were borrowings of approximately $404,000 under the
equipment loan. 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.
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 March
31, 2000 there were borrowings of approximately $1.5 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.
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 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. At March 31, 2000, the
principal balance was $2.1 million.
As part of the purchase price of GAR, 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 March 31, 2000 the remaining
principal balance was approximately $6.5 million.
5. LITIGATION
On January 14, 2000, Forma Scientific, Inc. notified us that it believes
our use of "Neoforma" and "Neoforma.com" violates its trademark rights in
"Forma" and "Forma Scientific" and that it had filed
10
<PAGE> 11
NEOFORMA.COM, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
complaint in federal court. On May 11, 2000, we were formally served with the
complaint entitled Forma Scientific, Inc. v. Neoforma.com, Inc., Docket No.
C200-0045, U.S. District Court, Southern District of Ohio, Eastern Division of
Columbus, alleging trademark infringement. Based on our investigation, we
believe that we have meritorious defenses to Forma Scientific's claims and
intend to vigorously defend ourselves in this litigation.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In January 2000, the Company completed its initial public offering of
8,050,000 shares of its common stock, which raised $104.7 million. Proceeds, net
of underwriters discount of $7.3 million and offering costs of $2.0 million,
amounted to $95.4 million.
PREFERRED STOCK AND MANDATORILY REDEEMABLE PREFERRED STOCK
Upon the Company's initial public offering in January 2000, all outstanding
shares of convertible preferred stock were converted into common stock.
7. WARRANTS
In January 2000, the Company issued to consultants warrants to purchase
40,000 shares of the Company's common stock. One warrant for the purchase of
20,000 shares was issued with an exercise price of $7.00 per share and another
was issued for the purchase of 20,000 shares with an exercise price of $20.00
per share. The warrants are exercisable immediately and expires in January 2010.
The fair value of the warrants was determined to be approximately $65,000 and
was estimated using the Black-Scholes valuation model with the following
assumptions: risk-free interest rate of 6%; expected life of six months; and
expected volatility of 70%.
8. DEFERRED COMPENSATION
In connection with the grant of certain stock options to employees during
fiscal 1998, 1999, and 2000 the Company recorded deferred compensation of
approximately $65.2 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 have been
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, $3.81, and $9.15 for the year ended
December 31, 1998 and 1999 and for the period from January 1, 2000 to January
24, 2000 (the date of the Company's initial public offering), respectively. The
Company recorded amortization of deferred compensation of $8.5 million during
the year ended March 31, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 a number of
factors, including those discussed in "-- Factors That May Affect Operating
Results" and elsewhere in this report.
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 the 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 from our online services. 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 auction services, we recognize seller transaction fees, as well as a
buyer's premium, when the product is sold. We also 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;
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- 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. As a result of our
expansion, we have grown from six employees as of December 31, 1997, to 59
full-time employees as of December 31, 1998, to 269 full-time employees as of
December 31, 1999, to 326 full-time employees as of March 31, 2000.
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 is being amortized on a straight-line basis
over a seven-year period.
In November 1999, we acquired certain assets of FDI Information Resources,
LLC, a company in the business of developing and licensing equipment planning
software. Under the terms of the agreement, we acquired the rights to software
and certain customer contracts. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the purchase price was 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 $3.4 million consisted of 350,000 shares of common stock valued at
approximately $3.2 million, estimated assumed liabilities of approximately
$97,000 and estimated acquisition-related expenses of approximately $112,000. In
the initial allocation of the purchase price, $240,000, $600,000 and $2.5
million were allocated to acquired software, assembled workforce and trade names
and goodwill, respectively. The acquired software, assembled workforce and trade
names and goodwill is being amortized over an estimate useful life of three
years.
In order to acquire certain software and technology for use in our Shop,
Auction and Plan services, on January 18, 2000 we acquired Pharos Technologies,
Inc., a developer of content management software that facilitates the locating,
organizing and updating of product information in an online marketplace. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was 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 $22.8 million
consisted of approximately 2.0 million shares of common stock valued at
approximately $22.0 million, forgiveness of a loan outstanding to Pharos of
$500,000, estimated assumed liabilities of approximately $94,000 and estimated
acquisition-related expenses of approximately $230,000. Of the shares issued to
the previous owners of Pharos, approximately 700,000 shares were subject to
repurchase rights which lapse over a period of the original terms of the shares,
which specify a vesting period of four years. In the initial allocation of the
purchase price, $367,000, $3.0 million, $3.0 million and $16.5 million were
allocated to tangible assets, acquired in-process research and development,
developed technology and goodwill, respectively. The acquired in-process
research and development was charged to expense during the first quarter of
fiscal 2000. The developed technology will be
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amortized when such technology has been put into productive use over an
estimated useful life of three years. The goodwill is being amortized over an
estimated useful life of five years.
In connection with the acquisition of Pharos, we have preliminarily
allocated approximately $3.0 million of the purchase price to in-process
research and development ("IPR&D") projects. These allocations represent the
estimated fair value based on risk-adjusted cash flows related to the incomplete
research and development projects. At the date of acquisition, the development
of these projects had not yet reached technological feasibility and the research
and development in progress had no alternative future uses. Accordingly, these
costs were expensed as of the acquisition date.
We allocated values to the IPR&D based on an assessment of the R&D
projects. The value assigned to these assets were limited to significant
research projects for which technological feasibility had not been established,
including development, engineering and testing activities associated with the
introduction of the Pharos' next-generation technologies.
The value assigned to IPR&D was determined by estimating the costs to
develop the purchased in-process technology into commercially viable products,
estimating the resulting net cash flows from the projects and discounting the
net cash flows to their present value. The revenue projection used to value the
IPR&D was based on estimates of relevant market sizes and growth factors,
expected trends in technology, and the nature and expected timing of new product
introductions by Pharos and its competitors.
The nature of the efforts to develop the acquired in-process technology
into commercially viable products and services principally related to the
completion of certain planning, designing, coding, prototyping, and testing
activities that were necessary to establish that the developmental Pharos
technologies met their design specification including functional, technical, and
economic performance requirements. Anticipated completion dates ranged from 6 to
9 months, at which times Pharos expected to begin selling the developed
products. Development costs to complete the research and development were
estimated at approximately $2.0 million.
Pharos' primary IPR&D projects involved designing new technologies and an
application platform for a next generation content syndication solution,
including enterprise application integration. The estimated revenues for the
in-process projects were expected to peak within three years of acquisition and
then decline as other new products and technologies are expected to enter the
market.
Operating expenses were estimated based on historical results and
management's estimates regarding anticipated profit margin improvements. Due to
purchasing power increases and general economies of scale, estimated operating
expense as a percentage of revenues were expected to decrease after the
acquisition.
The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the nature of the
forecast and the risks associated with the projected growth, profitability and
developmental projects, discount rates of 35 to 40 percent were appropriate for
the IPR&D, and discount rates of 25 percent were appropriate for the existing
products and technology. These discount rates were commensurate with the Pharos'
stage of development and the uncertainties in the economic estimates described
above.
The estimates used by us in valuing IPR&D were based upon assumptions we
believes to be reasonable, but which are inherently uncertain and unpredictable.
Our assumptions may be incomplete or inaccurate, and no assurance can be given
that unanticipated events and circumstances will not occur. Accordingly, actual
results may vary from the projected results. Any such variance may result in a
material adverse effect on our the financial condition and results of
operations.
On March 17, 2000, we acquired U.S. Lifeline, Inc., or USL, a healthcare
content company. USL provides supply chain information to senior-level
executives in the manufacturing, distribution, provider and GPO communities
through web-based subscription products, industry newsletters and research. The
total purchase price of $7.2 million consisted of 61,283 shares of our common
stock valued at approximately $2.8 million and $3.5 million in cash. This
acquisition was accounted for using the purchase method of accounting.
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On April 28, 2000, we acquired all of the outstanding capital stock of
EquipMD, Inc., a privately held business-to-business procurement company serving
the physician market for approximately 5.45 million shares of our common stock.
The acquisition, will be accounted for as a purchase transaction.
On March 30, 2000, Neoforma entered into agreements to acquire Eclipsys
Corporation and HEALTHvision, Inc., entered into an outsourcing and operating
agreement with Novation LLC and entered into agreements to issue Neoforma common
stock and warrants to the owners of Novation. The consummation of each of these
transactions are conditioned upon completion of each of the others. In addition,
the consummation of each of the Eclipsys merger, the HEALTHvision merger and the
issuance of Neoforma common stock and warrants to the owners of Novation
requires the approval of Neoforma's stockholders, and the Eclipsys merger and
HEALTHvision merger require the approval of the stockholders of those companies.
The parties are having discussions regarding the potential termination of the
Eclipsys and HEALTHvision merger agreements, together with potential
modifications to the structure and terms of the stock and warrant transactions
with the owners of Novation. Any such termination of the merger agreements and
modification of the stock and warrant transactions would require the consent of
each party to each of the agreements. There can be no assurances as to the
outcome of these discussions, as to whether, any of these transactions will be
completed, as to whether the merger agreements will be terminated and the stock
and warrant transactions will be modified, or as to the terms of any such
modification.
Under our outsourcing agreement with Novation, we have agreed to provide
specific functionality to our online marketplace, and to develop exchanges that
are only available to the patrons and members of the owners of Novation, VHA,
Inc. and University Healthsystem Consortium, or UHC, and an affiliated entity,
Healthcare Purchasing Partners International, LLC, or HPPI. Novation has agreed
to act as our exclusive agent to negotiate agreements with suppliers to offer
their equipment, products, supplies and services through our online marketplace,
subject to some exceptions. VHA, UHC, HPPI and Novation have each agreed not to
develop or promote any other Internet-based exchange for the acquisition or
disposal of products, supplies, equipment or services by healthcare
organizations.
The outsourcing agreement provides that, subject to certain conditions, we
will share transaction fees we receive from suppliers for products and services
sold through our Shop service with Novation in varying proportions depending on
the type of transaction and the purchaser. For sales of products and services
under Novation contracts we will share transaction fees with Novation to the
extent they exceed a specified minimum percentage. For an initial period of the
agreement, Novation has agreed to pay us this specified minimum percentage if
the fees generated from suppliers are less than the specified minimum
percentage. We will also share a percentage of transaction fees generated from
sales of non-contracted products and services to the patrons and members of VHA,
UHC and HPPI and will share a smaller percentage of transaction fees generated
from sales of non-contracted products and services to other parties, subject to
limited exceptions. We will not share with Novation any transaction fees
generated from the sale of products or services under contracts with another
group purchasing organization. Through a specified date, we will not be required
to share any fees with Novation in any quarter until minimum aggregate
transaction fee levels for that quarter have been met. We have also agreed to
share a portion of specified revenues from our Plan and Auction services
generated as a result of the Novation relationship.
Since inception, we have incurred significant losses and, as of March 31,
2000, had an accumulated deficit of $88.0 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
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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.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenue. Since inception, we have been in the development stage and have
had only limited revenue. We had total revenue of $1.2 million for the quarter
ended March 31, 2000 primarily from transaction fees paid by the sellers of
medical products that use our Shop and live and online Auction services as well
as sponsorship and license fees for the use of our Plan software and services.
We did not have any revenue for the quarter ended March 31, 1999. For the
quarter ended March 31, 2000, the gross value of transactions was approximately
$4.6 million, which resulted in net revenue for Neoforma.com's Shop, Auction and
Plan services of $136,000, $725,000 and $345,000, respectively.
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 $578,000 for the
quarter ended March 31, 1999 to $3.0 million for the quarter ended March 31,
2000. The increase was primarily due to an increase in operations personnel
costs, and an increase in payments to third party consultants. These increases
were primarily due to a larger personnel base and increased expenditures for
digitizing and inputting content and for the enhancement of the infrastructure
of our website. We expect our operations expenses to continue to increase as we
expand our operating infrastructure, add content and functionality to our
website and integrate the systems of healthcare organizations and suppliers with
our services.
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 $1.3 million for the quarter ended March 31, 1999 to $5.0 million for the
quarter ended March 31, 2000. The increase was primarily due to an increase in
personnel cost and an increase in fees paid to third parties. These increases
were primarily due to a larger personnel base and increased expenses incurred in
the continued development of our Shop, Auction and Plan services including
adding additional functionality in anticipation of the needs of large healthcare
organizations. 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 as we add
functionality to our services, including functionality required to be provided
under our outsourcing and operating agreement with Novation. 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 $880,000 for the
quarter ended March 31, 1999 to $9.9 million for the quarter ended March 31,
2000. The increase was primarily due to an increase in sales and marketing
personnel costs, an increase in expenses related to travel, an increase in
expenses related to advertising and attendance at trade shows and expenses
incurred in connection with our strategic alliances. Selling and marketing
expenses may continue to increase as we continue our efforts to bring buyers and
sellers to our marketplace. In addition, we expect to continue to make
significant payments in connection with our strategic alliances, which will
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, professional services and
other general corporate activities. General and administrative expenses
increased from approximately $611,000 for the quarter ended March 31, 1999 to
$3.8 million for the quarter ended March 31, 2000. The increase was primarily
due to an increase in executive and administrative
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personnel costs related to the hiring of our chief executive officer, our chief
financial officer and additional finance, accounting and administrative
personnel, an increase in recruiting, legal and accounting expenses, an increase
in expenses related to other consultants, and the cost of being a public
company, in each case associated with our growth. We expect general and
administrative expenses to increase as we continue to incur additional costs to
support the growth of our business. We further expect our general and
administrative expenses to increase due to the integration of our various
acquisitions and strategic relationships 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 $1.3 million for the quarter ended March 31, 2000. The increase was
a result of the acquisition of GAR in August 1999, FDI in November 1999, Pharos
in January 2000 and USL in March 2000. We expect that the amortization of
intangibles will increase significantly in future periods due to our acquisition
of EquipMD.
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 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, 1999 and for the quarter ended March 31, 2000, we recorded deferred
compensation of $4.7 million. For the quarter ended March 31, 2000, we
recognized amortization of deferred compensation of $8.5 million.
At March 31, 2000, the remaining deferred compensation of approximately
$43.6 million will be amortized as follows: $19.2 million during fiscal 2000,
$14.5 million during fiscal 2001, $7.4 million during fiscal 2002 and $2.5
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.
Write Off of Acquired In-process Research and Development. For the quarter
ended March 31, 2000, we expensed $3.0 million related to the write off of
acquired in-process research and development in connection with the Pharos
acquisition in January 2000.
Other Income (Expense). Other income (expense) consists of interest and
other income and expense. Interest income for the quarter ended March 31, 2000
was $1.5 million compared to $48,000 for the quarter ended March 31, 1999. 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
October 1999 and the completion of our public offering in January 2000. Interest
expense increased from $16,000 for the quarter ended March 31, 1999 to $221,000
for the quarter ended March 31, 2000, primarily as a result of the amortization
of the fair value of warrants issued in connection with debt.
Income Taxes. As of December 31, 1999, we had federal and state net
operating loss carryforwards of approximately $31.5 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 carryforwards that we may utilize in a given year.
LIQUIDITY AND CAPITAL RESOURCES
In January 2000, we completed our initial public offering and issued
8,050,000 shares of our common stock at an initial public offering price of
$13.00 per share. Net cash proceeds to us from the initial public offering were
approximately $95.4 million. From our inception until our initial public
offering, we financed our operations primarily through private sales of
preferred stock through which we raised net proceeds of $89.0 million. We have
also financed our operations through an equipment loan and lease financing and
bank and other borrowings. As of March 31, 2000, we had outstanding bank, other
borrowings and notes payable
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related to the GAR acquisition of $6.5 million. As of March 31, 2000, we had
approximately $113.8 million of cash and cash equivalents and short-term
investments.
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 $433,000 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 (9% as of March 31, 2000). At March 31,
2000, there were no borrowings 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
common 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 common 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 common stock at $1.18
per share. As of March 31, 2000, the outstanding balance on the note was
approximately $1.5 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 9% per annum and are payable in 48 monthly
installments consisting of interest only payments for the first year 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 March 31, 2000, we
had outstanding approximately $1.5 million in hardware loans due September 2003
and approximately $259,000 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 common
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 March 31, 2000, the
outstanding balance on the note was approximately $6.5 million.
In March 2000, we entered into a Hosting Alliance Agreement with Ariba,
Inc. under which we will offer Ariba's ORMX procurement solution to users of our
marketplace. Under this agreement, we will pay Ariba a substantial up-front fee
for use of the ORMX procurement solution and we will pay Ariba specified fees
for transactions occurring through Ariba's network, subject to minimum monthly
amounts. The agreement also provides for joint marketing activities and sales
planning.
In March 2000, we purchased 600,000 shares of the Series D preferred stock
of Pointshare, Inc., a privately held corporation in exchange for $3.0 million.
Pointshare is a company that provides online business to business administrative
services to healthcare communities. Our ownership represents approximately 2% of
the Pointshare common shares outstanding, assuming a 1:1 conversion ratio of
preferred stock to common stock. We will account for this investment using the
cost method.
Net cash used in operating activities was $1.7 million for the quarter
ended March 31, 1999 and $7.6 million for the quarter ended March 31, 2000. Net
cash used in operating activities for the quarter ended March 31, 2000 related
primarily to funding net operating losses, increases in prepaid expenses and in
accounts receivable, which were partially offset by increases in the write off
of in process R & D, amortization of deferred compensation and accounts payable.
Net cash used in investing activities was $588,000 for the quarter ended
March 31, 1999 and $10.6 million for the quarter ended March 31, 2000. Net cash
used in investing activities for the quarter ended
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March 31, 2000 related primarily to the purchase of equipment to operate our
website and cash paid for the acquisition of US Lifeline, Inc. and the purchase
of non-marketable investments.
Net cash provided by financing activities was $12.3 million for the quarter
ended March 31, 1999 and $95.1 million for the quarter ended March 31, 2000. Net
cash provided from financing activities for the quarter ended March 31, 2000
related primarily to common stock issuances of approximately $95.4 million.
We currently anticipate that our available funds, will be sufficient to
meet our anticipated needs for working capital and capital expenditures through
at least the next 12 months. Our future long-term capital needs will 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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 will be effective for us on
January 1, 2001. SFAS No. 133 requires certain accounting and reporting
standards for derivative financial instruments and hedging activities. Because
we do not currently hold any derivative instruments and do not engage in hedging
activities, management does not believe that the adoption of SFAS No. 133 will
have a material impact on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We will adopt
SAB 101 as required in the second quarter of 2000. Management does not expect
the adoption of SAB 101 to have a material impact on our consolidated results of
operations and financial position.
FACTORS THAT MAY AFFECT OPERATING RESULTS
The risks described below are not the only ones facing our company.
Additional risks not presently known to us or that we currently deem immaterial
may also impair our business operations. Our business, financial condition or
results of operations may be seriously harmed by any of these risks.
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 $1.0 million for the 1999 fiscal year and $1.2 million for the
quarter ended March 31, 2000. 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.
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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 $32.0 million for the quarter ended March 31,
2000. In addition, as of March 31, 2000, we had an accumulated deficit of
approximately $88.0 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.
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 and
technology 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
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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. For example, four large suppliers of medical products,
Johnson & Johnson, General Electric Medical Systems, Abbott Laboratories and
Medtronic recently announced that they are creating a healthcare exchange for
the purchase and sale of medical products. Five large distributors of medical
products, AmeriSource Health Corp., Cardinal Health Inc., Fischer Scientific
International Inc., McKesson HBOC Inc. and Owens & Minor Inc., have also
recently announced that they will form a business-to-business exchange
marketplace for the sales of drugs, medical-surgical products, devices and other
laboratory products and services. Reluctance of suppliers and purchasers to use
our services would seriously harm our business.
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.
We expect to rely on our relationship with Novation to bring buyers and
suppliers to our marketplace. Under our outsourcing agreement with Novation, we
have agreed to make Novation our exclusive agent for signing up suppliers to
participate in our online marketplace, subject to limited exceptions.
Accordingly, we will rely on Novation to attract suppliers to our marketplace
and, if Novation is unable to attract a sufficient number of suppliers, the
value of our online marketplace to purchasers will be substantially decreased
and our business will suffer. In addition, although our outsourcing agreement
with Novation provides that Novation will not exclusively offer our online
marketplace to the healthcare organization participating in its purchasing
programs, these healthcare organizations will not be obligated to use our
services. Accordingly, these purchasers might not choose to use our online
marketplace for their purchasing needs. If this were to occur, the value of our
online marketplace to suppliers would be substantially decreased and our
business will suffer. If the outsourcing agreement were terminated by Novation,
our business and financial results could be seriously harmed. The outsourcing
agreement may be terminated by Novation in the event of a material breach of our
obligations under the agreement or if the Eclipsys and Healthvision mergers or
the VHA and UHC stock and warrant transactions are terminated or, if prior to
the consummation of the transactions, there is a change of control of Neoforma.
IT IS IMPORTANT TO OUR SUCCESS THAT OUR SERVICES BE 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. 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
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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.
In addition, we believe that we must establish relationships with group
purchasing organizations in order to increase our access to these organizations.
Group purchasing organizations represent groups of buyers in the negotiation of
purchasing contracts with sellers and consequently have the ability to
significantly influence the purchasing decisions of their members. Our
relationship with Novation could make it more difficult to attract other group
purchasing organizations to our online marketplace. The inability to enter into
and maintain favorable relationships with other group purchasing organizations
and the hospitals they represent could impact the breadth of our customer base
and could harm our growth and revenues. One of the largest group purchasing
organizations, Premier Purchasing Partners, has a long-term, exclusive agreement
for e-commerce services with Premier Health Exchange. One of our competitors,
medibuy.com, Inc., recently announced an agreement to acquire Premier Health
Exchange. Ventro, a business-to-business e-commerce company providing supply
chain solutions, has formed a joint venture, Broadlane, with Tenet Healthcare, a
large owner and operator of hospitals and other healthcare facilities. Broadlane
also recently announced a strategic alliance with AmeriNet, a large group
purchasing organization. In addition, Columbia/HCA Healthcare, a large owner and
operator of hospitals and other healthcare facilities, has formed
empactHealth.com to provide an online marketplace for medical products.
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.
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;
- potential inability of Novation to attract suppliers to our online
marketplace;
- 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
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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.
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 have acquired technologies and other companies in order to expand our
business and the services we offer, and we intend to make similar acquisitions
in the future. See "Management's Discussion and Analysis of Financial Condition
and Future Operating Results -- Overview" for a summary of our recent
acquisitions. 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 acquisitions of General Asset Recovery, FDI,
Pharos, and USL, we recorded approximately $9.7, $3.3, $19.5, and $6.5 million,
respectively, which will be amortized over a period of three to seven years. In
addition, we will record goodwill and other intangible assets in connection with
our recent acquisition of EquipMD.
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 AND COMPLY WITH GOVERNMENT REGULATIONS, 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. We also rely on suppliers using our services to
comply with all applicable governmental regulations, including packaging,
labeling, hazardous materials, health and environmental regulations and
licensing and record keeping requirements. Any failure of our suppliers to
comply with applicable regulations could expose us to civil or criminal
liability or could damage our reputation.
BECAUSE SOME OF THE PARTICIPANTS IN OUR ONLINE MARKETPLACE ARE STOCKHOLDERS OR
AFFILIATED WITH OUR 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 participants in our online marketplace are our stockholders or
affiliated with 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
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Electric Medical Systems owns shares of our common stock. These relationships
may deter other suppliers, group purchasing organizations or users, 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.
To realize the benefits of our outsourcing and operating agreement with
Novation, we will be required to attract, and integrate the systems of, the
healthcare organizations purchasing through Novation's programs. If the costs
required to integrate these systems are substantially higher than anticipated,
we may not realize the full benefit of the outsourcing and operating agreement.
If we are delayed or unable to integrate the systems of these organizations, our
revenues would be adversely affected. In addition, under the Novation
outsourcing and operating agreement, we will be required to meet detailed
functionality and service level requirements. If we are unable to achieve these
required levels of functionality within the required time period, we may be
required to pay significant liquidated damages or the agreement could be
terminated, which would seriously harm our business and financial results. To
the extent we are unable to or delayed in providing this functionality, we may
be unable to attract buyers and sellers to our marketplace and our revenues may
be adversely affected. We will be required to incur significant costs in
providing functionality to our online marketplace and in integrating healthcare
organizations and suppliers to our online marketplace prior to receiving any
transaction fee revenues, and we may never generate sufficient revenues to
offset these costs.
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.
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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.
For example, one of our competitors, medibuy.com, Inc., recently announced
its agreement to acquire Premier Health Exchange, including a long-term,
exclusive agreement to provide e-commerce services for Premier Purchasing
Partners, one of the largest group purchasing organizations in the United
States. Ventro, a business-to-business e-commerce company providing supply chain
solutions, has formed a joint venture, Broadlane, with Tenet Healthcare, a large
owner and operator of hospitals and other healthcare facilities. Broadlane also
recently announced a strategic alliance with AmeriNet, a large group purchasing
organization. In addition, Columbia/HCA Healthcare, a large owner and operator
of hospitals and other healthcare facilities, has formed empactHealth.com to
provide an online marketplace for medical products. In addition, Johnson &
Johnson, General Electric Medical Systems, Baxter International, Abbott
Laboratories and Medtronic recently announced that they are creating a
healthcare exchange for the purchase and sale of medical products. Five large
distributors of medical products, AmeriSource Health Corp., Cardinal Health
Inc., Fischer Scientific International Inc., McKesson HBOC Inc. and Owens &
Minor Inc., have also recently announced that they will form a
business-to-business exchange marketplace for the sales of drugs,
medical-surgical products, devices and other laboratory products and services.
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, OR LOSE THE RIGHT TO USE, 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.
Furthermore, in a letter dated January 14, 2000, Forma Scientific, Inc.
notified us that it believes our use of "Neoforma" and "Neoforma.com" violates
its trademark rights in "Forma" and "Forma Scientific" and that it had filed a
complaint in Federal court. On May 11, 2000 we were formally served with the
complaint. Based on our investigation, we believe that we have meritorious
defenses to Forma Scientific's claims and intend to vigorously defend ourselves
in this litigation. However, if any litigation were to be decided adversely to
us, we could be enjoined from future use of the names Neoforma and Neoforma.com.
The loss of the use of the Neoforma.com brand would seriously harm our business.
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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.
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 and President of Neoforma Shop, Daniel A. Eckert,
accepted employment with us in July 1999 and joined us in November 1999 and our
Executive Vice President of Strategy and Chief Marketing Officer, 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
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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, 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. In addition, under our
outsourcing agreement with Novation, we and Novation have each agreed that if we
want to undertake a new Internet venture in a country other than the United
States or in a market not then served by our online marketplace, that each of us
will provide the other with advance notice and first offer the other the right
to participate in that venture or market in a similar role to that party's role
under the outsourcing agreement. Accordingly, we may be unable to quickly enter
new countries or markets and we may be limited in our ability to choose a
partner other than Novation to serve as a supplier contracting agent in new
countries or markets.
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.
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 six as of December
31, 1997, to 59 as of December 31, 1998, 269 as of December 31, 1999, and 326 as
of March 31, 2000. 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. In addition, we are in the process of substantially
upgrading our information systems including our accounting system. We also 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.
27
<PAGE> 28
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 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
28
<PAGE> 29
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 HAVE RECEIVED NOTICE OF A TRADEMARK INFRINGEMENT CLAIM BROUGHT BY A THIRD
PARTY AND WE MAY BE SUBJECT TO FURTHER INTELLECTUAL PROPERTY CLAIMS AND IF WE
WERE TO SUBSEQUENTLY LOSE OUR INTELLECTUAL PROPERTY RIGHTS, WE COULD BE UNABLE
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. In a letter dated January 14, 2000,
Forma Scientific, Inc. notified us that it believes our use of the "Neoforma"
and "Neoforma.com" trademarks violates its trademark rights in "Forma" and
"Forma Scientific", and that it had filed a complaint in federal court. On May
11, 2000 we were formally served with this complaint. Based on our
investigation, we believe that we have meritorious defenses to Forma
Scientific's claims and intend to vigorously defend ourselves in this
litigation. If any litigation were to be decided adversely to us, we could be
enjoined from future use of the names Neoforma and Neoforma.com and we might be
required to pay damages to Forma Scientific.
Any claims regarding our intellectual property, with or without merit,
could be time consuming and costly to defend, 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, including use of the Neoforma.com brand
name, could result in our inability to operate our current business. See "-- If
we are not able to increase recognition of, or lose the right to use, the
Neoforma.com brand name, our ability to attract users to our online marketplace
will be limited."
IF WE LOSE ACCESS TO 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, we use
software that we license from Moai, Inc. to provide a substantial part of the
functionality of our AuctionOnline service, we use software that we license from
SAP to further automate the order management and transaction routing process
within our marketplace, we will use software that we license from Ariba to
further enable us to offer our purchasing customers a mechanism to automate and
streamline the procurement process and we use software that we license from
CrossWorlds, TIBCO and STC to integrate our marketplace applications and
services with purchasers' and suppliers' systems. 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 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.
29
<PAGE> 30
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
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 HE
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 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 OR 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. Regulation of the healthcare
organizations with which we do business could impact the way in which we are
able to do business with these organizations. In addition, 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
30
<PAGE> 31
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk:
The Company's exposure to market risk for change in interest rates relates
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
invests in high-credit quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company ensures
the safety and preservation of its invested principal funds by limiting default
risk, market risk and reinvestment risk. The Company mitigates default risk by
investing in safe and high-credit quality securities and by constantly
positioning its portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer, guarantor or depository. The portfolio
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity.
The table below presents principal amounts and related weighted average
interest rates by date of maturity for the Company's investment portfolio (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------------------------------
2000 2001 2002 2003 2004
------- ----- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash equivalents and short-term
investments:
Fixed rate short-term investments..... 105,411 2,198
Average interest rate................. 6.05% 6.47%
</TABLE>
31
<PAGE> 32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 14, 2000, Forma Scientific, Inc. notified the Company that it
believes the Company's use of "Neoforma" and "Neoforma.com" violates its
trademark rights in "Forma" and "Forma Scientific" and that it had filed
complaint in federal court. On May 11, 2000, the Company was formally served
with the complaint entitled Forma Scientific, Inc. v. Neoforma.com, Inc., Docket
No. C200-0045, U.S. District Court, Southern District of Ohio, Eastern Division
of Columbus, alleging trademark infringement. Based on the Company's
investigation, the Company believes that it has meritorious defenses to Forma
Scientific's claims and intend to vigorously defend this litigation.
ITEM 2. CHANGES IN SECURITIES
Public Offering
The Company is furnishing the following information with respect to the use
of proceeds from its initial public offering of common stock, $.001 par value
per share, which closed in January 2000.
1. The effective date of the Registration Statement on Form S-1 for the
offering was January 24, 2000, and the commission file number of the
Registration Statement is 333-89077.
2. The offering commenced on January 24, 2000.
3. Not applicable
4. (i.) The offering terminated on January 27, 2000. All of the shares of
common stock registered for the account of the Company were sold prior
to the termination of the offering.
(ii.) The managing underwriters for the offering were Merrill Lynch &
Co., Bear, Stearns & Co. Inc., Robertson Stephens and William Blair &
Company.
(iii.) The Company registered shares of its common stock, $.001 par value
per share, in the offering.
(iv.) The Company registered 8,050,000 shares. The aggregate offering
price of the shares registered and sold by the Company was $104.7
million.
(v.) The actual expenses incurred for the account of the Company in
connection with the offering were as follows:
<TABLE>
<S> <C>
Underwriting discount....................................... $7.3 million
Other offering expenses..................................... 2.0 million
------------
$9.3 million
</TABLE>
Payment of expenses were to persons other than directors, officers, general
partners of the Company or their associates, persons owning 10% or more of
the equity securities of the Company or affiliates of the Company.
(vi.) The net offering proceeds to the Company after expenses were
approximately $95.4 million.
(vii.) The Company used the proceeds to purchase short-term investments.
(viii.) Not applicable
Unregistered Issuances of Securities
The Company issued 2,034,861 shares of common stock of Neoforma.com, as
follows: (i) on January 18, 2000 in connection with the acquisition of the
outstanding capital stock of Pharos Technologies, and (ii) on March 17, 2000 in
connection with the acquisition of the outstanding capital stock of USL. No
underwriters were used and the recipients of the Company's common stock were the
shareholders of the acquired companies. The shares of common stock issued in the
Pharos and USL acquisitions were issued in reliance upon an exemption from the
registration requirements of the Securities Act provided, in each case, by
reason
32
<PAGE> 33
of section 4(2) thereof. The shareholders of the acquired companies made certain
representations to the Company as to investment intent, that they possessed a
sufficient level of financial sophistication and that they received information
about the Company. The shares issued in the transactions were subject to
restrictions on transfer absent registration under the Securities Act, and no
offers to sell the securities were made by any form of general solicitation or
general advertisement.
In January 2000, the Company issued a warrant to purchase 20,000 shares of
its common stock at an exercise price of $7.00 per share to an executive search
firm in connection with recruitment services. In January 2000, the Company also
issued a warrant to purchase 20,000 shares of its common stock at an exercise
price of $20.00 per share to an advertising firm in connection with public
relations and marketing services. The warrants were issued in reliance upon an
exemption from the registration requirements of the Securities Act provided, in
each case, by reason of Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<S> <C> <C>
10.1 -- Sublease Agreement dated March 7, 2000 between the
Registrant and Seagate Technology, Inc.
10.2 -- Sublease Agreement dated March 14, 2000 between the
Registrant and Nelson & Associates.
10.3 -- Outsourcing Agreement dated March 30, 2000 between the
Registrant and Novation, LLC, VHA, Inc., University
HealthSystem Consortium, Healthcare Purchasing Partners
International, LLC.*
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------
* Certain portions of this document have been omitted pursuant to a request for
confidential treatment and, where applicable, marked with an asterisk to
denote omissions. The confidential material has been filed separately with the
Commission.
B. REPORTS ON FORM 8-K
None
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEOFORMA.COM, INC.
By /s/ FREDERICK J. RUEGSEGGER
------------------------------------
Frederick J. Ruegsegger
Chief Financial Officer and
Secretary
Date: May 15, 2000
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
10.1 -- Sublease Agreement dated March 7, 2000 between the
Registrant and Seagate Technology, Inc.
10.2 -- Sublease Agreement dated March 14, 2000 between the
Registrant and Nelson & Associates.
10.3 -- Outsourcing Agreement dated March 30, 2000 between the
Registrant and Novation, LLC, VHA, Inc., University
HealthSystem Consortium, Healthcare Purchasing Partners
International, LLC.*
27.1 -- Financial Data Schedule
</TABLE>
- ------------------------
* Certain portions of this document have been omitted pursuant to a request for
confidential treatment and, where applicable, marked with an asterisk to
denote omissions. The confidential material has been filed separately with the
Commission.
<PAGE> 1
EXHIBIT 10.1
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made effective as of the 7 day
of March, 2000, (the "Effective Date") by and between Seagate Technology, Inc.,
a Delaware corporation ("Sublessor"), and Neoforma.com, a Delaware corporation
("Sublessee"). Sublessor agrees to sublease to Sublessee, and Sublessee agrees
to sublease from Sublessor, those certain premises situated in the City of San
Jose, County of Santa Clara, State of California, consisting of that free
standing two-story building consisting of approximately 116,000 square feet of
space located at 3061 Zanker Road, San Jose, California, more particularly set
forth on Exhibit "A" hereto (the "Subleased Premises").
ARTICLE 1
MASTER LEASE AND OTHER AGREEMENTS
1.1 MASTER LEASE. Except as specifically set forth herein, this Sublease
is subject and subordinate to all of the terms and conditions of the lease
executed on August 19, 1988, between Corporate Plaza, Phase 1, a California
General Partnership ("Master Lessor") and Conner Peripherals, a California
Corporation ("Lessee" and now "Sublessor" under this Sublease), amended by that
certain First Amendment to lease made and entered into on December 2, 1988 and
that certain Second Amendment dated June 8, 1990, and that certain Third
Amendment dated May 18, 1994, and a Fourth Amendment dated August 19, 1999. The
Lease, First Amendment, Second Amendment, Third Amendment, and Fourth Amendment
are collectively referred to herein as the "Master Lease". Sublessee hereby
assumes and agrees to perform the obligations of Lessee under the Master Lease
applicable to the Subleased Premises and as more particularly limited by
Paragraph 1.2 set forth hereafter. Unless otherwise defined, all capitalized
terms used herein shall have the same meanings as given them in the Master
Lease. A copy of the Master Lease is attached hereto as Exhibit "B" and
incorporated herein by this reference and to Sublessor's reasonable knowledge is
a true and correct copy of the Master Lease. Sublessee shall not commit or
permit to be committed any act or omission which would violate any term or
condition of the Master Lease. Sublessee shall neither do nor permit anything to
be done which would cause the Master Lease to be terminated or forfeited by
reason of any right of termination or forfeiture reserved or vested in Master
Lessor under the Master Lease, and Sublessee shall indemnify and hold Sublessor
harmless from and against all liability, judgments, costs, demands, claims, and
damages of any kind whatsoever (including, without limitation, attorneys' fees
and court costs) by reason of any failure on the part of Sublessee to perform
any of the obligations of Lessee under the Master Lease which Sublessee has
become obligated hereunder to perform. In the event of the termination of
Sublessor's interest as Lessee under the Master Lease for any reason other than
for Sublessor's breach, then this Sublease shall terminate automatically upon
such termination without any liability of Master Lessor or Sublessor to
Sublessee. Sublessor shall not exercise any discretionary right to terminate the
Master Lease without the prior consent of Sublessee, which consent shall not be
unreasonably withheld. Sublessee represents and warrants to Sublessor that it
has read and is familiar with the Master Lease.
<PAGE> 2
Sublessor reserves the right to negotiate an "Amended and Restated"
Master Lease to which Sublessee agrees will be deemed the Master Lease under
this Sublease except to the extent any of Sublessee's obligations under this
Sublease are materially adversely affected, and Sublessee will reasonably
cooperate with an amendment to this Sublease incorporating the Amended and
Restated Master Lease and amending all references to Sections or Articles or
amendment to the Master Lease herein accordingly.
1.2 APPLICABLE PROVISIONS. All of the terms and conditions contained in
the Master Lease as they may apply to the Subleased Premises, except those
directly contradicted or superseded by the terms and conditions contained in
this document are specifically incorporated herein and shall be terms and
conditions of this Sublease (with each reference therein to "Landlord" or
"Lessor", "Tenant" or "Lessee" and "Lease" to be deemed to refer to Sublessor,
Sublessee, and Sublease, respectively, as appropriate except the following
provisions that are incorporated herein, the reference to Landlord or Lessor
shall mean Master Lessor only in Section 16.25, Third Amendment paragraph 14 and
all references to Tenant's duties regarding the Property shall mean the
Subleased Premises) and along with all of the following terms and conditions set
forth in this document, shall constitute the complete terms and conditions of
this Sublease. Notwithstanding anything herein contained, the following
provisions of the Master Lease shall not apply: Article I, Article II, Article
III, Section 4.1 first sentence, Section 9.2, Section 11.1 except for the third
sentence, Section 15.1(vii) and (viii), Section 15.2, Sections 16.21, 16.22,
16.24, 16.27, Exhibit A, Exhibit C and C1-4, Exhibits D and E, First Amendment
to Lease, Second Amendment to Lease, Third Amendment paragraphs 1-6, 8 second
paragraph, 9, 10, 12, 13, 15, Fourth Amendment. Furthermore, Sublessee's
maintenance and repair responsibilities under Section 6.1 of the Master Lease
and Reimbursable Expenses allocation and responsibility under Section 16.26 of
the Master Lease are limited to the extent the Sublessee/Sublessor
responsibilities are allocated differently in Paragraph 3.4 hereafter; and
Section 6.3 of the Master Lease does not apply to any damage or destruction
covered under Paragraph 12.8 hereafter.
1.3 OBLIGATIONS OF SUBLESSOR. Notwithstanding anything herein contained,
for those services or rights to which Sublessor is entitled to receive from
Master Lessor under the Master Lease, Sublessor's obligations to Sublessee
hereunder shall be limited to using its reasonable good faith efforts to obtain
the performance by Master Lessor of its obligations. Sublessor shall have no
liability to Sublessee or any other person for damage of any nature whatsoever
as a result of the failure of Master Lessor to perform said obligations except
for (a) Master Lessor's termination of Sublessor's interest as Lessee under the
Master Lease in the event of, or Master Lessor's refusal to perform said
obligations because of, Sublessor's breach of the Master Lease, or (b)
Sublessor's failure to use reasonable good faith efforts to obtain Master
Lessor's performance, and Sublessee shall hold Sublessor harmless from any and
all claims and liability whatsoever for any such damage including, without
limitation, all costs and attorneys' fees incurred in defending against same.
Unless Sublessee is in default under this Sublease, Sublessor shall timely
perform its obligations under the Master Lease unless these obligations are to
be performed by Sublessee under the terms of this Sublease.
-2-
<PAGE> 3
ARTICLE 2
TERM
2.1 TERM. The term of this Sublease shall commence on February 1, 2000.
This shall be referred to as the "Commencement Date." The term of this Sublease
shall end on March 31, 2007, unless sooner terminated pursuant to any provision
of the Master Lease applicable to the Subleased Premises (the "Expiration
Date"). Sublessor shall have no obligation to Sublessee to exercise any of its
options to extend under the Master Lease.
2.2 OPTION TO EXTEND. Sublessee shall have no option to extend this
Sublease.
2.3 SUBLESSOR'S INABILITY TO DELIVER SUBLEASED PREMISES. In the event
Sublessor is unable to deliver possession of the Subleased Premises on or before
February 1, 2000, Sublessor shall not be liable for any damage caused thereby,
nor shall this Sublease be void or voidable, but Sublessee shall not be liable
for Rent until such time as Sublessor offers to deliver possession of the
Subleased Premises to Sublessee, but the term hereof shall not be extended by
such delay. If Sublessee, with Sublessor's consent, takes possession prior to
commencement of the term, Sublessee shall do so subject to all the covenants and
conditions hereof and shall pay pro rated Rent for each day at the same rate as
that prescribed for the first month of the term. In the event either party has
been unable to secure Master Lessor's consent to this Sublease within twenty
(20) days after execution by both parties, either Sublessor or Sublessee may
terminate this Sublease.
2.4 EARLY ACCESS. Subject to Master Landlord's approval, and after
execution of the Sublease by both parties, Sublessee may be permitted early
access to the Subleased Premises ("Early Access") prior to the Commencement Date
for the purpose of installing fixtures, furniture placement, tenant improvement
construction and communication cabling. Such Early Access shall be subject to
all of the provisions of this Sublease, except that Sublessee shall not be
required to pay Rent.
ARTICLE 3
RENT
3.1 RENT. Sublessee shall pay to Sublessor each month during the term of
this Sublease, rent as set forth in Exhibit C, attached hereto. First month's
rent is payable on execution hereof and monthly rent is payable in advance on or
before the first of each month thereafter ("Base Rent"). Rent for partial months
at the commencement or termination of this Sublease shall be prorated. Rent
shall be paid to the Sublessor at its business address noted herein, or at any
other place Sublessor may from time to time designate by written notice mailed
or delivered to Sublessee.
3.2 ADDITIONAL RENT. Subject to Paragraph 3.4 hereof, if Sublessor shall
be charged for additional rent or other sums pursuant to any of the provisions
of the Master Lease, Sublessee shall be liable for its pro rata share (defined
herein) of such additional rent or sums. If Sublessee shall procure any
additional services from Master Lessor, Sublessee shall make such payment to
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Sublessor or Master Lessor, as Sublessor shall direct. In addition to Operating
Expenses as hereinafter defined, Sublessee shall also pay as additional rent its
prorata share of the property taxes, insurance or other sums payable by
Sublessor under the Master Lease including Reimbursable Expenses, except as
otherwise provided in Paragraph 3.4 hereof. Base Rent and additional rent shall
herein be referred to as "Rent" and shall be paid without right of offset.
3.3 PRO RATA SHARE. Sublessee's pro rata share under this Sublease shall
be calculated by multiplying the total additional rent or other charge due by a
fraction, the numerator of which shall be the approximate square footage of the
Subleased Premises and the denominator of which shall be the approximate square
footage of the entire premises under the Master Lease (116,000/180,000 = 64%).
All measurements noted in this Section are included in the Master Lease.
Sublessee acknowledges all square footage measurements noted and relied on in
this Sublease and the Master Lease are estimates, and no adjustments shall be
made based upon any actual measurements which may be made.
3.4 OPERATING EXPENSES. In addition to Paragraph 3.2 above, Sublessor
and/or Sublessee shall be responsible for the common area and building cost as
set forth in Exhibit D, attached hereto. The allocations set forth in Exhibit D
shall supercede the terms of the Master Lease to the extent they are
inconsistent with the Master Lease. All of the items contained in Exhibit D that
require the Master Lessor's approval under the terms of the Master Lease shall
be done only after such approval is received by Sublessor.
ARTICLE 4
SECURITY DEPOSIT
4.1 SECURITY DEPOSIT. Upon execution hereof, Sublessee shall deposit
with Sublessor the sum of Two Hundred Eighty Thousand Four Hundred Ten and
34/100 Dollars ($280,410.34) as and for a Security Deposit to secure Sublessee's
full and timely performance of all of its obligations hereunder. If Sublessee
fails to pay Rent or any other sums as and when due hereunder, or otherwise
defaults with respect to any provision of this Sublease, Sublessor may (but
shall not be obligated to) use, apply, or retain all or any portion of said
deposit for payment of any sum for which Sublessee is obligated or which will
compensate Sublessor for any loss or damage which Sublessor may suffer thereby.
Any such use, application, or retention shall not constitute a waiver by
Sublessor of its right to enforce its other remedies hereunder, at law, or in
equity. If any portion of said deposit is so used, applied, or retained,
Sublessee shall, within 10 (ten) days after delivery of written demand from
Sublessor, restore said deposit to its original amount. Sublessee's failure to
do so shall constitute a material breach of this Sublease, and in such event
Sublessor may elect, among or in addition to other remedies, to terminate this
Sublease. Sublessor shall not be a trustee of such deposit, and shall not be
required to keep this deposit separate from its accounts. Sublessor alone shall
be entitled to any interest or earnings thereon and Sublessor shall have the
free use of same. If Sublessee fully and faithfully performs all of its
obligations hereunder, then so much of the deposit as remains shall be returned
to Sublessee (without payment of interest or earnings thereon) within 30 days
after the later of (i) expiration or sooner termination of the term hereof, (ii)
Sublessee's surrender of possession of the Subleased Premises to Sublessor, or
(iii) completion of restoration obligations, if any, by Sublessee.
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4.2 LETTER OF CREDIT. Two (2) business days after Sublessee's receipt of
a copy of the Consent by Master Lessor to this Sublease, Sublessee shall provide
to Sublessor an unconditional, irrevocable standby Letter of Credit in the
amount of Two Million and no/100 Dollars ($2,000,000.00) in favor of Sublessor
and issued by a bank located in the Bay Area and reasonably acceptable to
Sublessor and for the term of one year and automatically renewed each year as
set forth below for the term of the Sublease ("Letter of Credit"). The Letter of
Credit shall secure all Sublessee's performance of the terms and conditions of
the Sublease and is an additional security deposit subject to Paragraph 4.1
above. The Letter of Credit will automatically renew each year during the
Sublease term unless the beneficiary under the Letter of Credit is given at
least thirty (30) days prior notice of a non-renewal by the issuing bank, and
Sublessor shall be able to draw on the Letter of Credit in the event of such
notice.
Provided Sublessee is not in default under the terms of the Sublease,
Sublessee shall have the right to reduce the Letter of Credit to One Million
Five Hundred Thousand and no/100 Dollars ($1,500,000.00) after the first twelve
(12) months of the Sublease Term and to One Million and no/100 Dollars
($1,000,000.00) after the second twelve (12) months of the Sublease Term, which
Sublessee shall maintain for the remaining Sublease Term. However, in the event
during the term of the Sublease Sublessee achieves either eight (8) consecutive
quarters of net profitability or a Market Capitalization of $500,000,000.00 for
at least four (4) consecutive quarters, Sublessee's obligation to provide
Sublessor with a Letter of Credit shall be terminated and said Letter of Credit
shall be returned to Sublessee.
ARTICLE 5
CONDITION OF PREMISES
5.1 CONDITION OF THE SUBLEASED PREMISES. Sublessee acknowledges that as
of the Commencement Date, and subject to the provisions of this Sublease,
Sublessee accepts the Subleased Premises "as is", Sublessee having made all
investigations and tests it has deemed necessary or desirable in order to
establish to its own complete satisfaction the condition of the Subleased
Premises. Sublessee accepts the Subleased Premises in their condition existing
as of the Commencement Date, subject to all applicable zoning, municipal, county
and state laws, ordinances, and regulations governing and regulating the use of
the Subleased Premises and any covenants or restrictions of record. Sublessee
acknowledges that neither Sublessor nor Master Lessor have made any
representations or warranties as to the condition of the Subleased Premises or
its present or future suitability for Sublessee's purposes, except that: (A) as
of the Commencement Date, excluding that portion of the Subleased Premises
delivered in shell condition, Sublessor shall deliver the Subleased Premises to
Sublessee with all existing building systems including plumbing, HVAC, fire
sprinklers, electrical (including panels and outlets), doors (both personnel and
shipping), lighting, and window coverings in good working order (floors and
walls excluded). If during the initial one hundred twenty (120) days of the
Sublease term, Sublessee should uncover a problem with the building systems not
caused by Sublessee's occupancy, Sublessee shall furnish Sublessor with written
notice of said problem and Sublessor, at Sublessor's sole cost and expense,
shall repair said problem in a timely manner; (B) the Subleased Premises shall
be clear of all debris and clutter with exterior windows washed inside and out,
and the parking lot and landscaping shall be in good condition and free of
debris, clutter
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and all construction equipment; and (C) Sublessor shall use reasonable efforts
to complete the replacement of the roof membrane at Sublessor's and Master
Lessor's expense.
Sublessor represents that it has not received any code or non-compliance
notification (including seismic and ADA) from any local, state, or federal
authority that has not been corrected, and has no knowledge of any code
violations. Sublessor will transfer to Sublessee, to the extent possible and in
Sublessor's possession, any warrantees or service contracts on systems in the
Subleased Premises that the Sublessee is responsible to maintain during the term
of the Sublease to the Sublessee.
5.2 SUBLESSOR'S IMPROVEMENTS. Sublessor, at Sublessor's sole cost and
expense, shall coordinate completion of that work described in Dennis Kobza &
Associates, Inc.'s set of plans (labeled as sheets T, A-0.1, A-0.2, D-1, D-2 and
A-1 through A-9) described as Seagate-Building #5-Restoration and dated
September 6, 1999 anticipated to be completed by January 10, 2000.
5.3 SUBLESSEE IMPROVEMENT ALLOWANCE. Sublessor shall provide to
Sublessee a Sublessee improvement allowance of One Million One Hundred Sixty
Thousand and no/100 Dollars ($1,160,000.00) (the "Allowance"), which can be
utilized for building typical generic office improvements to the Subleased
Premises, substantially consistent with that work described in Dennis Kobza &
Associates, Inc.'s plans (labeled sheets A-1 and A-2) dated December 9, 1999
("Sublessee Improvements"). It is acknowledged that the second floor plan is
indicative of what is projected for the first floor to be built as part of the
Sublessee Improvements. The Allowance shall only be available for Sublessee
Improvements which have been approved pursuant to the terms of Paragraph 7.2
herein, and construction has commenced, within the initial twelve (12) month
period that Sublessee is obligated to pay full rent on the Subleased Premises.
Sublessor shall pay the Allowance to Sublessee no more often than monthly and
within ten (10) business days after invoice from Sublessee to Sublessor with
evidence that Sublessee has obtained a building permit for the Sublessee
Improvements and that the work covered in the invoice is complete and Sublessee
has received conditional lien releases for progress payments from the general
contractor and any subcontractors, materialmen, architects, or engineers
providing work or materials covered in the invoice. Sublessee shall withhold a
ten (10%) retainage on all progress payments except architects, consultants and
engineers, which retainage will be withheld from the Allowance payment as well,
and paid by Sublessor to Sublessee as a final payment on the Allowance once
Sublessee provides to Sublessor unconditional lien releases for all progress
payments and conditional lien releases for final payment from the contractor,
subcontractors and materialmen as identified above.
5.4 ADDITIONAL SUBLESSEE IMPROVEMENT ALLOWANCE. Sublessor agrees to
provide Sublessee with an additional Sublessee improvement allowance of five and
no/100ths ($5.00) Dollars per square foot ("Additional Allowance") as set forth
herein. The Additional Allowance shall only be available for improvements which
have been approved pursuant to the terms of this Sublease and construction has
commenced, within the initial twelve (12) month period that Sublessee is
obligated to pay full rent on the Subleased Premises. In the event Sublessee
elects to use this Additional Allowance or portion thereof, the amount drawn
down shall be amortized into the rent over a sixty-month (60) period at a rate
of twelve percent (12%) per annum, commencing on the first month after the
initial twelve (12) month period of this Sublease.
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ARTICLE 6
INSURANCE
6.1 SUBLESSEE'S INSURANCE. With respect to the Sublessee's insurance
under the Master Lease, the same is to be provided by Sublessee as described in
the Master Lease, and such policies of insurance shall include as named insureds
Master Lessor, Sublessor and any lender as required by Master Lessor.
6.2 WAIVER OF SUBROGATION. With respect to the waiver of subrogation
contained in the Master Lease, such waiver shall be deemed to be modified to
constitute an agreement by and among Master Lessor, Sublessor and Sublessee (and
Master Lessor's consent to this Sublease shall be deemed to constitute its
approval of this modification).
ARTICLE 7
USE OF PREMISES; PARKING; IMPROVEMENTS
7.1 USE OF PREMISES. Sublessee shall be permitted use and occupancy of
the Subleased Premises only for the purpose of general office, systems
development, research, marketing, sales and administration in conformity with
the municipal zoning requirements of the City of San Jose and the Master Lease.
7.2 ALTERATIONS; IMPROVEMENTS. Sublessee shall not make any alterations,
improvements, or modifications including Sublessee Improvements as defined in
Paragraph 5.3, to the Subleased Premises without the express prior written
consent of Sublessor and of Master Lessor, which consent by Sublessor shall not
be unreasonably withheld or delayed and Sublessor will use its reasonable
efforts to get Master Lessor's consent. Notwithstanding the foregoing, Sublessee
shall not install any equipment or antennas and/or make any roof penetrations to
the Subleased Premises without the express prior written consent of Sublessor
and Master Lessor, which consent by Sublessor shall be in its sole discretion.
Concurrently, with the granting of such consent, Sublessor shall notify
Sublessee in writing whether or not the Master Lessor will require the requested
alterations, modifications or improvements to be removed on termination of this
Sublease. Sublessee Improvements as defined in Paragraph 5.3, will be completed:
(i) to Sublessee's specifications, consistent with the specifications of
Sublessor's Improvements in Paragraph 5.2 herein and the consents set forth
above; (ii) in accordance with all applicable codes; and (iii) by a general
contractor chosen by Sublessee licensed in the State of California and approved
by the Sublessor and Master Lessor. Sublessee Improvements may commence upon the
completion and execution of all documentation and receipt of all approvals
and/or permits required for the new construction. Sublessor and Sublessee shall
mutually agree upon the selection of the architect. Sublessee acknowledges that
Sublessor prefers that Sublessee employ Vince Vincent of Dennis Kobza &
Associates, a Mountain View architectural firm, at least in the preliminary
design phase because of Mr. Vincent's familiarity with the Subleased Premises.
Notwithstanding the foregoing, Sublessee shall engage Vince Vincent to review
its plans and specifications for conformance to interior work described in
Paragraph 5.2 herein, with the cost of said review not to exceed Two Thousand
and no/100 Dollars ($2,000.00). On the earlier of the early termination of this
Sublease or prior to the Sublease Expiration Date,
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Sublessee shall remove any or all improvements covered under this Article 7 and
restore the Subleased Premises (or any part thereof) to the same condition as of
the Commencement Date of this Sublease, reasonable wear and tear excepted or as
otherwise instructed in writing by either Sublessor or Master Lessor
("Restoration Work"). This Restoration Work shall include, but not be limited
to, the restoration of the second floor to the configuration and condition
existing as of the Commencement Date, but the first floor may be left in the
final configuration existing as of the Sublease expiration or termination except
to the extent of any improvements not consented to by Sublessor and/or Master
Lessor. Should Sublessee fail to timely completed any or all of the Restoration
Work, unless instructed otherwise in writing as set forth above, Sublessor shall
have the right to do so, and charge Sublessee therefor, including holdover Rent
for any extended period for the Restoration Work to be completed.
Sublessee shall submit to Sublessor all "as built plans" (including an
update of the work performed on the then present "as built plans" to insure that
any work performed is always currently reflected on such plans) for all work
(regardless as to whether consent is required) performed by Sublessee within
ninety (90) days of completion.
7.3 MINOR ALTERATIONS. "Minor Alterations" shall consist of
non-structural alterations, additions and improvements to the Subleased Premises
not affecting the exterior of the Subleased Premises and not exceeding Twenty
Thousand and no/100 Dollars ($20,000.00). Notwithstanding paragraph 7.2 herein,
Sublessor's prior written consent shall not be required for Minor Alterations,
provided Sublessee shall give Sublessor at least twenty (20) days prior written
notice describing the proposed Minor Alteration, including a sketch thereof and
the construction schedule therefor.
7.4 SURRENDER. On termination of the Sublease, the Subleased Premises
shall be surrendered in the same condition as received, reasonable wear and tear
excepted, and with a new coat of paint on all interior walls, unless otherwise
instructed in writing by Sublessor. Alternatively, not later than one hundred
eighty (180) days prior to Sublease expiration, the Sublessee may request that
the Sublessor competitively bid the restoration required to be performed by
Sublessee to at least three (3) general contractors, in which event Sublessee
shall pay to Sublessor an amount equal to the average of the three (3) bids
received, plus design costs without mark-up with thirty (30) days of invoice
from Sublessor.
Notwithstanding Section 15.1 of the Master Lease, Sublessee will have no
obligation to remove any improvements not made or installed by Sublessee or
those so made or installed by Sublessee which Master Lessor agrees may remain on
the Subleased Premises at the end of the Master Lease Term.
ARTICLE 8
COMMON AREAS
8.1 USE OF COMMON AREAS. As used herein, "Common Areas" shall mean all
areas within the Property (as defined in the Master Lease) that are available
for the common use of lessees of the Property and are not leased or held for the
exclusive use of Sublessee, Sublessor or other lessees, and include parking
areas, driveways, sidewalks, access roads,
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landscaping and planted areas. Sublessee shall have the nonexclusive right to
use the Common Areas for the purposes intended, subject to such reasonable rules
and regulations as Sublessor may uniformly establish from time to time.
Sublessee shall not interfere with the rights of any or all of Sublessor, other
lessees, or any other person entitled to use the Common Areas. Sublessor agrees
to keep the Common Areas in good condition and repair during the term of this
Sublease.
ARTICLE 9
ASSIGNMENT, SUBLETTING & ENCUMBRANCE
9.1 CONSENT REQUIRED. Sublessee shall not assign this Sublease or any
interest therein nor shall Sublessee sublet, license, encumber or permit the
Subleased Premises or any part thereof to be used or occupied by persons other
than Sublessee's employees, agents, contractors and invitees, without
Sublessor's and Master Lessor's prior written consent, which shall not be
unreasonably withheld. The consent by Sublessor and Master Lessor to any
assignment or subletting shall not waive the need for Sublessee (and Sublessee's
assignee or subtenant) to obtain the consent of Sublessor and Master Lessor to
any different or further assignment or subletting. All Conditions and Standards
set forth in the Master Lease regarding assignments and subletting shall apply,
and to the extent there is any Bonus Rents, (Rent paid by such Assignee or
SubSublessee in excess of Rent paid by Sublessee hereunder) the Bonus Rent shall
first be split per the Master Lease and any Bonus Rent to go to Sublessee shall
be split 50/50 with Sublessor to be paid to Sublessor within five (5) days of
receipt by Sublessee. Sublessor hereby consents, subject only to notice from
Sublessee to Sublessor and Master Lessor's consent and no change in use, to any
assignment of the Sublease to an affiliate (owned by or owner of) Sublessee or
successor of Sublessee caused by merger, consolidation, stock acquisition or
other non-bankruptcy reorganization.
9.2 FORM OF DOCUMENT. Every assignment, agreement, or sublease shall (i)
recite that it is and shall be subject and subordinate to the provisions of this
Sublease, that the assignee or sublessee assumes Sublessee's obligation
hereunder, that the termination of this Sublease shall at Sublessor's sole
election, constitute a termination of every such assignment or sublease, and
(ii) contain such other terms and conditions as shall be reasonably requested or
provided by Sublessor's attorneys.
9.3 NO RELEASE OF SUBLESSEE. Regardless of Sublessor's consent, no
subletting or assignment shall release Sublessee of Sublessee's obligation or
alter the primary liability of Sublessee to pay the Rent and to perform all
other obligations to be performed by Sublessee hereunder. The acceptance of Rent
by Sublessor from any other person shall not be deemed to be a waiver by
Sublessor of any provision hereof. In the event of default by any assignee,
subtenant or any other successor of Sublessee, in the performance of any of the
terms hereof, Sublessor may proceed directly against Sublessee without the
necessity of exhausting remedies against such assignee, subtenant or successor.
9.4 RECAPTURE. Sublessor shall have the right to recapture the Subleased
Premises and terminate this Sublease in the event Sublessee elects to
sub-sublease substantially all of the Subleased Premises for substantially all
of the remaining term.
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9.5 DEFAULT. An involuntary assignment shall constitute a default and
Sublessor shall have the right to elect to terminate this Sublease, in which
case this Sublease shall not be treated as an asset of Sublessee.
ARTICLE 10
DEFAULT
10.1 DEFAULT DESCRIBED. The occurrence of any of the following shall
constitute a material breach of this Sublease and a default by Sublessee: (i)
failure to pay Rent or any other amount due under this Sublease within three (3)
business days after due; (ii) all those items of default set forth in the Master
Lease which remain uncured after the cure period provided in the Master Lease;
or (iii) Sublessee's failure to perform timely and subject to any cure periods
any other material provision of this Sublease or the Master Lease as
incorporated herein.
10.2 SUBLESSOR'S REMEDIES. Sublessor shall have the rights and remedies
set forth in the Master Lease default provisions as though Sublessor is Master
Lessor. These rights and remedies are not exclusive; they are cumulative and in
addition to any remedies now or later allowed by law.
10.3 ALL SUMS DUE AND PAYABLE AS RENT. Sublessee shall also pay without
notice, or where notice is required under this Sublease, immediately upon demand
without any abatement, deduction, or setoff Rent and as additional rent all
sums, impositions, costs, expenses, and other payments which Sublessee in any of
the provisions of this Sublease assumes or agrees to pay, and, in case of any
nonpayment thereof, Sublessor shall have, in addition to all other rights and
remedies, all the rights and remedies provided for in this Sublease or by law in
the case of nonpayment of rent.
10.4 SUBLESSOR DEFAULT. For purposes of this Sublease, Sublessor shall
not be deemed in default hereunder unless and until Sublessee shall first
deliver to Sublessor thirty (30) days' prior written notice, and Sublessor shall
fail to cure said default within said thirty (30) day period, or in the event
Sublessor shall reasonably require in excess of thirty (30) days to cure said
default, shall fail to commence said cure with said thirty (30) day period, and
thereafter diligently to prosecute the same to completion.
10.5 NOTICE OF EVENT OF DEFAULT UNDER MASTER LEASE. Sublessor shall
notify Sublessee of any Event of Default under the Master Lease, or of any other
event of which Sublessor has actual knowledge which will impair Sublessee's
ability to conduct its normal business at the Subleased Premises, as soon as
reasonably practicable following Sublessor's receipt of notice from Master
Lessor of an Event of Default or Sublessor's actual knowledge of such
impairment.
10.6 LATE FEES. A late fee of five per cent (5%) will be charged on any
payment more than five (5) days overdue, and payment more than thirty (30) days
overdue will accrue interest at the maximum rate allowed by law.
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ARTICLE 11
CONSENT OF MASTER LESSOR
11.1 PRECONDITION. The Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor. This Sublease shall not
be effective unless Master Lessor signs a consent to this subletting
satisfactory to Sublessor and Sublessee.
ARTICLE 12
MISCELLANEOUS
12.1 CONFLICT WITH MASTER LEASE; INTERPRETATION. In the event of any
conflict between the provisions of the Master Lease and this Sublease, the
Master Lease shall govern and control except to the extent directly contradicted
by the terms of this Sublease. No presumption shall apply in the interpretation
or construction of this Sublease as a result of Sublessor having drafted the
whole or any part hereof.
12.2 REMEDIES CUMULATIVE. The rights, privileges, elections, and
remedies of Sublessor in this Sublease, at law, and in equity are cumulative and
not alternative.
12.3 WAIVER OF REDEMPTION. Sublessee hereby expressly waives any and all
rights of redemption to which it may be entitled by or under any present or
future laws in the event Sublessor shall obtain a judgment for possession of the
Subleased Premises.
12.4 HOLDING OVER. Any holding over by Sublessee after expiration of
this Sublease with the consent of Sublessor and Master Lessor shall be deemed a
tenancy from month-to-month at a monthly rate of one hundred and fifty percent
(150%) of the Base Rent and other amounts due for the last month of the Sublease
term and shall otherwise be on the same terms and conditions set forth herein.
Any holding over by Sublessee after the expiration of this Sublease without the
consent of Sublessor and Master Lessor shall be deemed a tenancy from
month-to-month, at the monthly rate of three hundred percent (300%) of Base
Rent, and other amounts due for the last month of the Sublease Term, and shall
otherwise be on the same terms and conditions as set forth herein. Said monthly
rent shall be due and payable monthly in advance on the first day of the month
and otherwise as provided for in Article 3 hereof until such tenancy is
terminated by Sublessor or upon thirty (30) days notice by Sublessee. Sublessor
and Master Lessor expressly do not waive any rights to further claims for
damages should Sublessee holdover without consent.
12.5 ENVIRONMENTAL. Sublessor represents that it has no knowledge of
existing contamination of the Subleased Premises. Sublessee covenants and agrees
that its operations shall be in full compliance with all federal, state and
local laws, rules or regulations relating to pollution or to the protection of
the environment or human health. Sublessee shall not bring or permit to remain
on the Subleased Premises any asbestos, petroleum or petroleum products,
explosives, toxic materials, or substances defined as hazardous wastes,
hazardous materials, or hazardous substances under any federal, state, or local
law or regulation ("Hazardous Materials"), except ordinary office products used
on the Subleased Premises
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and stored in the usual and customary manner and quantities. Sublessee shall not
install or operate any underground storage tanks on or under the Subleased
Premises. Sublessee's violation of the foregoing covenant or prohibitions shall
constitute a material breach and default hereunder, and Sublessee shall
indemnify, hold harmless and defend (by counsel acceptable to Sublessor)
Sublessor, and its partners, directors, officers, employees, shareholders,
lenders, agents, contractors and each of their respective successors and
assigns, from and against any claims, damages, penalties, liabilities, and costs
(including reasonable attorney fees and court costs) caused by or arising out of
(i) a violation of the foregoing covenant or prohibitions or (ii) the presence
of any Hazardous Materials on, under, or about the Subleased Premises or other
properties as the direct or indirect result of Sublessee's occupancy of the
Subleased Premises. Sublessee, at its sole cost and expense, shall clean up,
remove, remediate and repair any soil or groundwater contamination and damage
caused by the presence or any release of any Hazardous Materials in, on, under,
or about the Subleased Premises, not in existence at Commencement Date and
arising during the term of the Sublease, in conformance with the requirements of
applicable law. Neither the written consent of Sublessor to the presence of the
Hazardous Materials nor Sublessee's compliance with all laws applicable to such
Hazardous Materials shall relieve Sublessee of its indemnification obligation
under this Sublease. Sublessee shall immediately give Sublessor written notice
(i) of any suspected breach of this paragraph, (ii) upon learning of the
presence or any release of any Hazardous Materials, or (iii) upon receiving any
notices from governmental agencies pertaining to Hazardous Materials which may
affect the Subleased Premises. Sublessor shall have the right from time to time,
but not the obligation, to enter upon the Subleased Premises, at Sublessee's
sole expense, to conduct such inspections and undertake such sampling and
testing activities as Sublessor deems necessary or desirable to determine
whether Sublessee is in compliance with this provision. Any costs or expenses
incurred by Sublessor for which Sublessee is responsible under this provision
shall be deemed Additional Rent that is due and payable on notice from Sublessor
to Sublessee. The obligations of Sublessee hereunder shall survive the
expiration or earlier termination, for any reason, of this Sublease.
12.6 SIGNAGE. Sublessee may install signage at 3061 Zanker Road, and as
approved by Sublessor and Master Lessor, subject to any municipal restrictions
by the City of San Jose, the C.C. & R.'s for the project and the Master Lease.
The monument sign on the corner of Montague and Zanker will continue to identify
the project in its entirety as "Corporate Plaza". Subject to City of San Jose
approval, Master Landlord and Sublessor may consent to Sublessee's installation
of a backlit triangular shaped sign on the south side of the main entrance on
Zanker, identical to the existing triangular sign situated north of the main
entrance. Subject to City of San Jose approval and Master Lessor, Sublessor
shall be responsible for placing, at its cost, a generic monument to Sublessor's
specifications on the south side of the Zanker Road entrance so that Sublessee
may place its signage on such monument.
12.7 PARKING. Sublessee is entitled to four hundred and six (406)
undesignated parking spaces at 3061 Zanker Road within the area as set forth on
Exhibit E hereto, . Nine (9) of these parking spaces are handicapped parking
spaces. Subject to Master Lessor's consent and Sublessor's reasonable consent,
Sublessee may designate certain spaces for Sublessee's exclusive use not to
exceed 60 spaces. Sublessor agrees to cooperate with Sublessee, in the
-12-
<PAGE> 13
event Sublessee, at Sublessee's sole cost and expense, and with Master Lessor's
approval, elects to restripe the parking lot in order to increase the number of
parking stalls. Sublessee agrees to reinstate the parking lot to original layout
if required by Master Lessor under the terms of the Master Lease.
12.8 EXPANSION OPTION. In the event, during the term of the Sublease,
3081 Zanker Road ("Expansion Space") becomes available for sublease through
Sublessor, Sublessee shall have a first right to negotiate on the Expansion
Space for a period of ten (10) business days after notice from Sublessor that
the Expansion Space is available. During said ten (10) business days, Sublessor
and Sublessee shall negotiate exclusively with each other, in good faith, to
affect a sublease of the Expansion Space. If during the ten (10) business days
the parties cannot reach an agreement as to the terms of the Sublease for the
Expansion Space, Sublessor, without liability to Sublessee, shall be free to
negotiate with any other party on any terms relating to the Expansion Space.
12.9 NON DISTURBANCE. Sublessor is presently the beneficiary under a
Deed of Trust on the Property, and agrees that if Sublessor as such beneficiary
forecloses on the Property under the Deed of Trust, that Sublessor will honor
the Sublease and it shall remain in full force and effect so long as Sublessee
is not in default under the Sublease. This Paragraph is null and void if and
when Sublessor is no longer the beneficiary under a Deed of Trust on the
Property.
12.10 DAMAGE AND DESTRUCTION. In the Master Lease, in the event of
damage or destruction, there is no abatement of Rent. Therefore, Sublessee shall
purchase business interruption insurance that includes coverage for payment of
Sublessee's obligations to pay Rent hereunder for a period of not less than
twelve (12) months. Sublessee shall furnish a certificate of insurance for such
coverage to Sublessor before the Commencement Date and at least thirty (30) days
before the expiration dates thereof. Said policy shall also provide that said
insurance shall not be canceled or coverage reduced without thirty (30) days
prior written notice having been given to Sublessor. In the event Sublessee
shall fail to procure such insurance, or to deliver such certificate, Sublessor
may, at its option, procure lost rents insurance and the cost thereof shall be
paid by Sublessee to Sublessor within ten (10) days after delivery of a bill
from Sublessor to Sublessee for such cost.
Subject to the provisions hereof, Sublessor shall retain the duty to
restore the Subleased Premises in the event of a casualty loss in accordance
with Section 11.1 of the Master Lease. Upon the occurrence of any casualty
damage to the Subleased Premises and Sublessor's obligation or election to
restore the Subleased Premises as hereinafter set forth, Sublessee shall assign
to Sublessor (or any party designated by Sublessor) the portion of the insurance
proceeds payable to Sublessee under any insurance required to be carried by
Sublessee under this Sublease and the portion of the deductible amounts, that
pertain to Leasehold Improvements. Sublessor shall then repair any damage to the
Tenant Improvements covered by such Sublessee insurance and the Subleased
Premises, and shall return such Tenant Improvements to the extent of Sublessee's
insurance coverage and deductible and the Subleased Premises to their original
condition. Sublessor shall make all repairs for damage to the Subleased Premises
if in Sublessor's reasonable judgment the repairs can be completed (without over
time or other premiums) within three hundred and sixty-five
-13-
<PAGE> 14
(365) days after Sublessor's discovery of the damage. If in Sublessor's opinion
the repair will take more than three hundred and sixty-five (365) days to
complete from date of Sublessor's discovery of the damage ("Sublessor's Opinion
of Repair Time") then either Sublessor or Sublessee may elect to terminate this
Sublease within thirty (30) days after written notice from Sublessor to
Sublessee of Sublessor's Opinion of Repair Time, and such termination shall be
effective thirty (30) days after such notice. In event of such Sublease
termination, the proceeds of insurance shall be the property of the party paying
for that insurance, except for Section 11.1, third sentence of the Master Lease.
Notwithstanding the foregoing, Sublessee shall not have the right to terminate
this Sublease unless Sublessor has the right to terminate the Lease as to the
Subleased Premises.
ARTICLE 13
BROKER'S COMMISSIONS
13.1 COMMISSION. Sublessor and Sublessee represent and warrant to each
other that each has dealt with the following brokers Don Reimann and Rob Shannon
of Colliers International (Sublessor's Broker) and Steve Gibson and Edward Hofer
of Colliers International (Sublessee's Broker) and with no other agent, finder,
or other such person with respect to this Sublease and each agrees to indemnify
and hold the other harmless from any claim asserted against the other by any
broker, agent, finder, or other such person not identified above as Sublessor's
Broker or Sublessee's Broker. The Commission to the Brokers is pursuant to
separate agreement.
ARTICLE 14
NOTICES AND PAYMENTS
14.1 CERTIFIED MAIL. Any notice, demand, request, consent, approval,
submittal or communication that either party desires or is required to give to
the other party or any other person shall be in writing and either served
personally or sent by prepaid, first-class certified mail or commercial
overnight delivery service. Such Notice shall be effective on the date of actual
receipt (in the case of personal service or commercial overnight delivery
service) or two days after deposit in the United States mail, to the following
addresses:
Sublessor at: Seagate Technology, Inc.
Attn: Corporate Real Estate Manager
920 Disc Drive, SV03-M8
Scotts Valley, CA 95067-0360
Sublessee at the Premises, whether or not Sublessee has
abandoned or vacated the Premises or notified the Sublessor of
any other address, with a copy to:___________________________.
ARTICLE 15
ATTORNEYS' FEES
15.1 SUBLESSOR MADE PARTY TO LITIGATION. If Sublessor becomes a party to
any litigation brought by someone other than Sublessee and concerning this
Sublease, the Subleased
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<PAGE> 15
Premises, or Sublessee's use of occupancy of the Subleased Premises, based upon
any real or alleged act or omission of Sublessee or its authorized
representatives, Sublessee shall be liable to Sublessor for reasonable
attorneys' fees and court costs incurred by Sublessor in the litigation.
15.2 CERTAIN LITIGATION BETWEEN THE PARTIES. In the event any action or
proceeding at law or in equity or any arbitration proceeding be instituted by
either party, for an alleged breach of any obligation of Sublessee of Sublessor
under this Sublease, to recover rent, to terminate the tenancy of Sublessee at
the Subleased Premises, or to enforce, protect, or establish any right or remedy
of either party to this Sublease Agreement, the prevailing party (by judgment or
settlement) in such action or proceeding shall be entitled to recover as part of
such action or proceeding such reasonable attorneys' fees, expert witness fees,
and court costs as may be fixed by the court or jury, but this provision shall
not apply to any cross-complaint filed by anyone other than Sublessor in such
action or proceeding.
ARTICLE 16
EXHIBITS
16.1 EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this
Sublease are a part hereof.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed and delivered
this Sublease on the date first set forth above.
SUBLESSOR: SUBLESSEE:
Segate Technology, Inc.
a Delaware corporation a Delaware corporation
By: /s/ Jeffrey B. Nelson By: /s/ Robert J. Zollars
--------------------------------
Its: Vice President Worldwide Facilities Its: CEO
By: By: /s/ Frederick J. Ruegsegger
--------------------------------
Its: Its: CFO
-------------------------------
<PAGE> 16
EXHIBIT C
BASE RENT SCHEDULE
Sublessor shall provide the Sublessee a Triple Net (NNN) Sublease. The
net monthly Base Rate shall be set as follows:
<TABLE>
<CAPTION>
RENTAL PERIOD MONTHLY RENT
------------- --------------
<S> <C>
February 1, 2000 through January 31, 2001 *$220,400.00
February 1, 2001 through January 31, 2002 $228,114.00
February 1, 2002 through January 31, 2003 $236,097.99
February 1, 2003 through January 31, 2004 $244,361.41
February 1, 2004 through January 31, 2005 $252,914.06
February 1, 2005 through January 31, 2006 $261,766.06
February 1, 2006 through January 31, 2007 $270,927.87
February 1, 2007 through March 31, 2007 $280,410.34
</TABLE>
- ---------------------
* Base Rent shall be payable at fifty percent (50%) of the scheduled rate for
the period commencing on the Commencement Date until the earlier of (1)
substantial completion of Sublessor's Improvements as set forth in
Paragraph 5.2 of the Sublease, or (2) April 1, 2000, at which time full
scheduled Base Rent shall be payable.
<PAGE> 17
EXHIBIT D
OPERATING EXPENSE OBLIGATIONS
<TABLE>
<CAPTION>
COST MANAGEMENT
RESPONSIBILITY RESPONSIBILITY
-------------- --------------
<S> <C> <C> <C>
A. 1. Maintenance of the building foundation, Sublessor Sublessor
structural exterior walls (excluding exterior
painting and window cleaning):
2. Maintenance and repair of structural roof Sublessor Sublessor
elements:
3. Maintenance and minor repair (minor Sublessee Sublessee
patching) of roof membrane:
4. Service contract for the roof: Sublessee Sublessee (Copy to
be provided to
Sublessor and
Master Lessor)
5. Roof repairs and replacement in excess of Sublessor Sublessor
minor patching (unless due to Sublessee or
its agent's actions) and the duty to pursue
any warranty work on the roof.
B. 6. All other building interior and exterior Sublessee Sublessee
maintenance, and repair including normal
heating, ventilation, air conditioning
maintenance and repair, painting (interior
and exterior), window cleaning, entry ways,
and all other building operating and
maintenance and repair expenses as defined
in the Master Lease and Sublease:
7. Service contracts for HVAC and window Sublessee Sublessee (Copy to
washing per Master Lease: be provided to
Sublessor and
Master Lessor)
8. Insect and rodent spraying: Sublessee Sublessee
9. Structural Repairs Sublessor Sublessor
10. All capital repairs shall be governed Sublessee, as Sublessor
pursuant to Section 16.25 of the Master tenant, pursuant
Lease and Sublessor will use reasonable to Section 16.25
efforts to enforce Section 16.25 with the of the Master
Master Lessor. Lease.
</TABLE>
B-1
<PAGE> 18
<TABLE>
<CAPTION>
COST MANAGEMENT
RESPONSIBILITY RESPONSIBILITY
-------------- --------------
<S> <C> <C> <C>
Cost Management
Responsibility Responsibility
C. 11. Outside area maintenance and repair, Sublessee (pro- Sublessor
including landscaping, parking lot seal, rata and monthly
stripping, and patch repairs of less than accrual as an
1,000 sq. ft. of repairing per patch repair Operating
and parking lot light fixtures, and utilities Expense)
for such areas and property management:
D. 12. Real Estate Taxes: Sublessee (pro- Sublessor
rata payable
within 10 days of
invoice)
Sublessor
E. 13. All risk insurance including earthquake and Sublessee (pro-
flood coverage and deductibles as incurred. rata and monthly
accrual) Sublessor
F. 14. Public liability and property damage Sublessee (pro-
insurance: rata and monthly Sublessee
accrual)
G. 15. Telephone service, water, gas and Sublessee
electricity, garbage, and janitorial charges:
</TABLE>
B-2
<PAGE> 1
EXHIBIT 10.2
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD SUBLEASE
(Short-form to be used with post 1995 AIR leases)
1. PARTIES. This Sublease, dated, for reference purposes only, March 14,
2000, is made by and between Nelson & Associates, a California Corporation
("Sublessor") and Neoforma.com, a Delaware Corporation ("Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor for the term, at the rental, and upon all
of the conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 13514
Imperial Highway, Santa Fe Springs, located in the County of Los Angeles,
State of California and generally described as (describe briefly the nature of
the property) an approximate 20,952 sq. ft. portion of a 96,111 sq. ft.
warehouse ("Premises").
3. TERM.
3.1 TERM. The term of this Sublease shall be for fifteen (15) months
commencing on May 1, 2000 and ending on July 31, 2001 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use its best
commercially reasonable efforts to deliver possesion of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by
Paragraph 7.3 of this Sublease).
4. RENT.
4.1 BASE RENT. Sublessee shall pay to Sublessor as Base Rent for
the Premises equal monthly payments of $10,476 in advance, on the 1st day of
each month of the term hereof. Sublessee shall pay Sublessor upon the execution
hereof 10,476 as Base Rent for May, 2000. Base Rent for any period during the
term hereof which is for less than one month shall be a pro rata portion of the
monthly installment.
4.2 RENT DEFINED. All monetary obligations of Sublessee to
Sublessor under the terms of this Sublease (except for the Security Deposit)
are deemed to be rent ("Rent"). Rent shall be payable in lawful money of the
United States to Sublessor at the address stated herein or to such other
persons or at such other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon
execution hereof $10,476 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. The rights and obligations of Sublessor and
Sublessee as to said Security Deposit shall be as set forth in paragraph 5 of
the Master Lease (as modified by Paragraph 7.3 of this Sublease).
6. USE.
6.1 AGREED USE. The Premises shall be used and occupied only for
warehousing and related legal activities, and for no other purpose.
6.2 COMPLIANCE. Sublessor warrants that the improvements on the
Premises comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances ("APPLICABLE
REQUIREMENTS") in effect on the commencement date. Said warranty does not apply
to the use to which Sublessee will put the Premises or to any alterations or
utility installations made or to be made by Sublessee. NOTE: Sublessee is
responsible for determining whether or not the zoning is appropriate for its
intended use, and acknowledges that past uses of the Premises may no longer be
allowed. If the Premises do not comply with said warranty, or in the event that
the Applicable Requirements are hereafter changed, the rights and obligations
of Sublessor and Sublessee shall be as provided in Paragraph 2.3 of the Master
Lease (as modified by paragraph 7.3 of this Sublease).
6.3 ACCEPTANCE OF PREMISES AND LESSEE. Sublessee acknowledges that:
(a) it has been advised by Brokers to satisfy itself with
respect to the condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security, environmental aspects,
and compliance with Applicable Requirements), and their suitability for
Sublessee's intended use.
(b) Sublessee has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to its occupancy of the Premises, and
(c) neither Sublessor, Sublessor's agents, nor any Broker has
made any oral or written representations or warranties with respect to said
matters other than as set forth in this Sublease.
In addition, Sublessor acknowledges that:
(a) Broker has made to representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or suitability to occupy
the Premises, and
(b) It is Sublessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "MASTER LEASE", a copy of which is attached hereto marked
Exhibit 1, wherein PAFCO LP, a California Limited Partnership is the Lessor,
hereinafter the "MASTER LESSOR".
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor
and Sublessee to each other under this Sublease shall be the terms and
conditions of the Master Lease except for those provisions of the Master Lease
which are directly contradicted by this Sublease in which event the terms of
this Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the Master
Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: see paragraphs 13, 14 of this document.
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "SUBLESSEE'S ASSUMED OBLIGATIONS".
The obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "SUBLESSOR'S REMAINING OBLIGATIONS".
7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorney's fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
REVISED
Page 1 of 3
<PAGE> 2
Master Lease without the fault of its sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless from
all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any Party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfer to Master Lease the Sublessor's
interest in this Sublease, subject however to the provisions of Paragraph 8.2
hereof.
8.2 Master Lessor, by executing this document, agrees that until a Default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the Rent accruing under
this Sublease. However, if Sublessor shall Default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the Rent from the Sublessee, be deemed liable
to the Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon
receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease,
to pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
Rent to Master Lessor without any obligation or right to inquire as to whether
such Default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee
for any such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then neither this Sublease, nor the
Master Lessor's consent, shall be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving their consent to this
Sublease.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent shall not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the Rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or anyone
else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent of this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or anyone
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall Default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid Rent nor any
Security Deposit paid by Sublessee, nor shall Master lessor be liable for any
other Defaults of the Sublessor under this Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and
effect.
9.6 In the event that Sublessor Defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any Default of Sublessor described in any notice of default
within ten days after service of such notice of default on Sublessee. If such
Default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to the
Seeley Company a licensed real estate broker, ("Broker"), a fee as set forth
in a separate agreement between Sublessor and Broker, or in the event there is
no such separate agreement, the sum of $_____________________________ for
brokerage services rendered by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, then
Sublessor shall pay to Broker a fee in accordance with the schedule of Broker
in effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a
transaction in which Sublessor is acting as a Sublessor, lessor or seller.
10.3 Master Lessor agrees that if Sublessee shall exercise any option or
right of first refusal granted to Sublessee by Master Lessor in connection with
this Sublease, or any option or right substantially similar thereto, either to
extend or renew the Master Lease, to purchase the Premises or any part thereof,
or to lease or purchase adjacent property which Master Lessor may own or in
which Master Lessor has an interest, or if Broker is the procuring cause of any
other lease or sale entered into between Sublessee and Master Lessor pertaining
to the Premises, any part thereof, or any adjacent property which Master Lessor
owns or in which it has an interest, then as to any of said transactions,
Master Lessor shall pay to Broker a fee, in cash, in accordance with the
schedule of Broker in effect at the time of the execution of this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, upon the
execution of any new lease, or, in the event of a purchase, at the close of
escrow.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof,
shall be deemed to have assumed the respective obligations of Sublessor or
Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw
a line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]
13. Sublessee shall take the premises in an "as-is" condition. Sublessee
shall not be responsible for the existing condition of the premise should any
restoration be required by the Master Lessor at the expiration of the sublease.
Except as in 6.2 above.
14. Sublessee shall pay no common area operating expenses as referenced in the
Master Lease or real property taxes, as mentioned in Master Lease.
REVISED
Page 2 of 3
<PAGE> 3
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THIS SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
- --------------------------------------------------------------------------------
Executed at: Nelson & Associates
--------------------- -----------------------------------------
on: By
------------------------------ --------------------------------------
Address: By
------------------------- --------------------------------------
"Sublessor" (Corporate Seal)
Executed at: Neoforma.com
--------------------- -----------------------------------------
on: By /s/ [Signature Illegible]
------------------------------ --------------------------------------
Address: By
------------------------- --------------------------------------
"Sublessee" (Corporate Seal)
Executed at: PAPCO, LP
--------------------- -----------------------------------------
on: By
------------------------------ --------------------------------------
Address: By
------------------------- --------------------------------------
"Master Lessor" (Corporate Seal)
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND
NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING THE
MOST CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 SOUTH FLOWER
ST., SUITE 800, LOS ANGELES, CA 90017, (213) 687-5777.
REVISED
PAGE 3 OF 3
<PAGE> 1
EXHIBIT 10.3
NOTE: Certain portions of this document have been omitted pursuant to a request
for confidential treatment and, where applicable, has been marked with an
asterisk to denote where omissions have been made. The confidential material has
been filed separately with the Commission.
================================================================================
OUTSOURCING AND OPERATING AGREEMENT
dated as of March 30, 2000
among
NOVATION, LLC,
VHA, INC.,
UNIVERSITY HEALTHSYSTEM CONSORTIUM,
HEALTHCARE PURCHASING PARTNERS INTERNATIONAL, LLC,
and
NEOFORMA.COM, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS.....................................................................................2
2. NOVATION OBLIGATIONS............................................................................5
2.1 Agency Relationship...............................................................5
2.2 Novation Duties...................................................................5
2.3 Certain Contracts.................................................................7
3. NEOFORMA OBLIGATIONS............................................................................7
3.1 Service...........................................................................7
3.2 Service Levels....................................................................8
3.3 Cooperation with Novation.........................................................8
3.4 The First * Locations.............................................................8
3.5 Quality Assurance Program.........................................................8
3.6 Notice of Materially Adverse Facts................................................8
3.7 Case Studies......................................................................8
4. THE EXCHANGE....................................................................................8
4.1 Maintenance of Exchange...........................................................8
4.2 Consultation......................................................................8
4.3 Provision of Non-Contract Product Information.....................................8
4.4 Provision of Contract Product Information.........................................9
4.5 Independent Users.................................................................9
4.6 Multiple Memberships..............................................................9
4.7 User Registration.................................................................9
4.8 Delivery and Order Fulfillment...................................................10
4.9 Removal of Products from the Exchange............................................10
4.10 Customized Exchanges.............................................................10
4.11 Links............................................................................10
4.12 Reasonable Assistance............................................................10
5. NOVATION EXCHANGE AND HPPI EXCHANGE............................................................10
5.1 Development......................................................................10
5.2 Hosting..........................................................................11
5.3 Delivery and Order Fulfillment...................................................11
5.4 Display of Material..............................................................11
5.5 Reports..........................................................................11
5.6 Retained Contracts...............................................................11
5.7 Marketing........................................................................11
5.8 Neoforma Auction.................................................................12
5.9 Neoforma Plan....................................................................12
6. EXCLUSIVITY AND RIGHT OF FIRST OFFER...........................................................12
6.1 Novation, VHA, UHC and HPPI Exclusivity..........................................12
</TABLE>
* Material has been omitted and filed separately with the Commission.
<PAGE> 3
<TABLE>
<S> <C> <C>
6.2 Neoforma Exclusivity.............................................................13
6.3 Right of First Offer for Novation and Neoforma...................................13
6.4 First Offer for Non-Exclusive Services...........................................14
7. LICENSES AND OWNERSHIP.........................................................................15
7.1 Ownership of Marks...............................................................15
7.2 Novation Marks...................................................................15
7.3 Neoforma Marks...................................................................15
7.4 VHA, UHC and HPPI Marks..........................................................15
7.5 Ownership of Neoforma Materials and Novation Materials...........................16
7.6 Neoforma Materials...............................................................16
7.7 Novation Materials...............................................................16
7.8 Development of Tools.............................................................16
7.9 Access License...................................................................17
8. FEES AND TAXES.................................................................................17
8.1 Contract Product Transaction Fees................................................17
8.2 Non-Contract Product Transaction Fees............................................17
8.3 Target Transaction Fees..........................................................18
8.4. Adjustment of Transaction Fees...................................................18
8.5 Reporting and Payment of Transaction Fees........................................19
8.6 No Fees Prior to Mergers.........................................................19
8.7 Taxes............................................................................19
8.8 New Markets......................................................................20
8.9 Product Returns..................................................................20
8.10 Neoforma * and Neoforma *........................................................20
8.11 Other Expenses...................................................................20
8.12 VHA/UHC Allocation...............................................................20
9. TERM AND TERMINATION...........................................................................21
9.1 Initial Term.....................................................................21
9.2 Renewal and Extension of Term....................................................21
9.3 Termination for Cause............................................................21
9.4 Termination for Insolvency Events................................................21
9.5 Termination of Merger Agreements.................................................22
9.6 Termination Upon Neoforma Change of Control......................................22
9.7 Return of Materials..............................................................22
9.8 Survival.........................................................................22
9.9 Termination Assistance Services..................................................22
10. USER DATA......................................................................................24
10.1 Registration.....................................................................24
10.2 Transaction Database.............................................................24
10.3 Member Data......................................................................24
10.4. Aggregated Member Data...........................................................24
10.5 Transaction Database.............................................................24
10.6 License Grant of Information to Novation.........................................25
</TABLE>
* Material has been omitted and filed separately with the Commission.
<PAGE> 4
<TABLE>
<S> <C> <C>
10.7 No Other Licenses or Use.........................................................25
10.8 Other Data.......................................................................25
10.9 Neoforma Information.............................................................25
11. SAFEGUARDING OF DATA; CONFIDENTIALITY..........................................................26
11.1 Novation Data....................................................................26
11.2 Confidentiality..................................................................26
12. REPRESENTATIONS AND WARRANTIES.................................................................28
12.1 Representations by Neoforma......................................................28
12.2 Representations by Novation, VHA, UHC and HPPI...................................29
12.3 Warranty Disclaimer..............................................................30
13. USE OF SUBCONTRACTORS..........................................................................30
13.1 Generally........................................................................30
13.2 Novation's Right to Revoke Approval..............................................31
13.3 Continuing Responsibility........................................................31
13.4 Confidential Information.........................................................31
14. INSURANCE......................................................................................31
14.1 Insurance........................................................................31
14.2 Proof of Insurance...............................................................31
15. INDEMNITY......................................................................................31
15.1 Neoforma Indemnity...............................................................31
15.2 Novation Indemnity...............................................................32
15.3 Infringement Claims..............................................................32
15.4 Indemnity Procedures.............................................................33
16. LIMITATION OF LIABILITY........................................................................33
16.1 Limitations......................................................................33
16.2 Exceptions.......................................................................33
16.3 Liquidated Damages...............................................................33
17. AUDIT RIGHTS...................................................................................34
17.1 General..........................................................................34
17.2 Frequency of Audits..............................................................35
17.3 Auditors.........................................................................35
17.4 Record Retention.................................................................35
17.5 Cooperation......................................................................35
17.6 Overcharges......................................................................35
18. DISPUTE RESOLUTION.............................................................................36
18.1 Resolution of Disputes...........................................................36
18.2 Negotiations and Escalation......................................................36
18.3 Appointment of Arbitral Body.....................................................36
18.4 Qualifications of Arbitrator.....................................................36
18.5 Initiation of Arbitration and Procedures.........................................37
</TABLE>
* Material has been omitted and filed separately with the Commission.
<PAGE> 5
<TABLE>
<S> <C> <C>
18.6 Procedures.......................................................................37
18.7 Governing Law; Jurisdiction......................................................37
18.8 Arbitration Award................................................................38
18.9 Cooperation of the Parties.......................................................38
18.10 Costs............................................................................38
18.11 Judgment on the Award; Enforcement...............................................38
18.12 Preservation of Equitable Relief; Third-Party Litigation.........................38
18.13 Continued Performance............................................................39
19. GUARANTY OF PERFORMANCE........................................................................39
19.1 VHA and UHC Guarantees...........................................................39
19.3 VHA and UHC Waivers..............................................................39
19.3 Scope of Liability...............................................................40
20. GENERAL PROVISIONS.............................................................................40
20.1 No Waiver........................................................................40
20.2 Entire Agreement.................................................................40
20.3 Publicity........................................................................40
20.4 Covenant of Good Faith...........................................................40
20.5 Compliance with Laws and Regulations.............................................40
20.6 Assignment; Successors and Assigns...............................................41
20.7 Governing Law....................................................................41
20.8 Notices..........................................................................41
20.10 No Agency........................................................................42
20.11 Force Majeure....................................................................42
20.12 Interest.........................................................................43
20.13 Program Management...............................................................43
20.14 Severability.....................................................................43
20.15 Counterparts.....................................................................43
20.16 Headings.........................................................................43
</TABLE>
* Material has been omitted and filed separately with the Commission.
<PAGE> 6
EXHIBITS:
Exhibit A Marks
Exhibit B Current Marks Usage Guidelines for Novation
Exhibit C Current Marks Usage Guidelines for Neoforma
Exhibit D Current Marks Usage Guidelines for VHA, UHC and HPPI
Exhibit E Reports and Other Information Requirements
Exhibit F Program Management
* Material has been omitted and filed separately with the Commission.
<PAGE> 7
OUTSOURCING AND OPERATING AGREEMENT
This Outsourcing and Operating Agreement ("AGREEMENT") is entered into
as of March 30, 2000 (the "EFFECTIVE DATE") by and among Neoforma.com, Inc., a
Delaware corporation with offices at 3255-7 Scott Boulevard, Santa Clara,
California 95054 ("NEOFORMA"), Novation, LLC, a Delaware limited liability
company with offices at 125 East John Carpenter Freeway, Irving, Texas 75062
("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware
limited liability company with offices at 125 East John Carpenter Freeway,
Irving, Texas 75062 ("HPPI"), VHA, Inc., a Delaware corporation with offices at
220 East Las Colinas Boulevard, Irving, Texas 75039-5500 ("VHA") and University
HealthSystem Consortium, an Illinois corporation with offices at 2001 Spring
Road, Suite 700, Oak Brook, Illinois 60523 ("UHC").
RECITALS
WHEREAS, Neoforma is a provider of Internet (as defined in Section 1)
e-commerce services to the healthcare industry facilitating the sale, rental or
lease of new and used equipment, products, supplies, services information and
other content, and provides information regarding various healthcare facilities
and equipment through its online offerings and programs;
WHEREAS, VHA and UHC are organizations whose patrons are hospitals and
healthcare providers, who view e-commerce as an essential part of their
cooperative purchasing programs on behalf of their patrons for the future and
who desire to more fully develop the services they render to their patrons
through this Agreement;
WHEREAS, VHA and UHC together own all the ownership interests in
Novation and HPPI;
WHEREAS, Novation is a contracting agent that develops and delivers
supply chain management agreements, programs and services on behalf of VHA and
UHC and their patrons;
WHEREAS, HPPI is a GPO that serves healthcare organizations that are not
members of VHA and UHC and other GPOs and which develops and delivers
supply-chain management programs and services to such healthcare organizations;
WHEREAS, the parties wish to establish a long-term, global relationship
to enable the parties to achieve increased efficiency and cost savings through
Internet-based technology and pursuant to which (i) Neoforma will develop and
manage the Exchange (as defined in Section 1), an e-commerce web site for the
benefit of the members of VHA and UHC, the associated healthcare organizations
of HPPI and for the benefit of other users unaffiliated with VHA, UHC or HPPI,
(ii) Novation will serve as the contracting agent for Neoforma by recruiting,
contracting with and managing relationships with healthcare equipment
manufacturers and service suppliers on Neoforma's behalf and (iii) VHA and UHC
will provide marketing support for the Exchange, guarantee Novation's
obligations to the extent provided under this Agreement and enter into the
exclusivity provisions hereunder; and
WHEREAS, in consideration for the services to be provided by VHA and UHC
pursuant to this Agreement, Neoforma will issue to VHA and UHC warrants (the
"Warrants") to purchase up to 14,191,777 shares and 1,524,477 shares,
respectively, of the common stock, par value
* Material has been omitted and filed separately with the Commission.
1
<PAGE> 8
$0.001, of Neoforma (the "Common Stock"), and Neoforma will issue to VHA and to
UHC 38,316,111 shares and 9,222,488 shares, respectively, of Common Stock, in
each case, in accordance with and subject to the limitations set forth in those
certain Common Stock and Warrant Purchase Agreements entered into by Neoforma
and VHA and by Neoforma and UHC on the date hereof (collectively, the "Purchase
Agreements").
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below. Other capitalized terms shall have the meanings set
forth elsewhere in this Agreement.
"ADJUSTED GROSS TRANSACTION VALUE(S)" means, with regard to a confirmed
purchase, rental or lease on the Exchange, the gross purchase, rental or lease
price * which are related to the Product purchased, rented or leased.
"AFFILIATE(S)" means, with respect to a specified person, any other
person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such specified
person. Neoforma, on the one hand, and Novation, VHA and/or UHC, on the other
hand, shall not be Affiliates.
"AGGREGATED MEMBER DATA" means all or any of an aggregate of the
Information relating to any two or more Members.
"API(S)" means language and messaging formats, in human and computer
readable form, that define how programs interact with an operating system, a
database, with functions in other programs, with communication systems, or with
hardware drivers.
"CONTRACT PRODUCT(S)" means any Product that is part of the Novation
Contract Portfolio and available on the Novation Exchange or the HPPI Exchange.
"CONTRACT TRANSACTION FEE(S)" has the meaning specified in Section 8.1.1
of this Agreement.
"CUSTOMIZED EXCHANGE(S)" means that portion of the Exchange created
specifically for and accessible only to members of a particular purchasing
organization.
"EXCHANGE" means the Novation Exchange, HPPI Exchange, all Customized
Exchanges and all other portions of the Neoforma web sites.
"GPO(S)" means any entity in the United States that meets the definition
of a "Group Purchasing Organization" as set forth in 42 CFR Section 1001.952(j),
and any entity outside the United States performing a similar function.
* Material has been omitted and filed separately with the Commission.
2
<PAGE> 9
"HPPI EXCHANGE" means that portion of the Exchange accessible only HPPI
Members.
"HPPI MEMBER(S)" means, at any date, those organizations acting as
purchasers, renters or lessees in their respective markets that are associates
of HPPI and to which HPPI provides procurement related services, cost management
programs and other services.
"INFORMATION" means the information and data maintained by Neoforma in
the Transaction Database, which shall include, at minimum, (i) any and all
information and data collected, developed and/or stored by Neoforma relating to
Users and (ii) any and all information and data relating to use of or
transactions on the Exchange by Users.
"INTELLECTUAL PROPERTY RIGHTS" means all copyrights, patents, trade
names and trademarks (in each of the preceding cases, whether registered or not)
and trade secrets and other intellectual property rights of a person.
"INTERNET" means the public, global network of computer networks and
individual computers constantly connected using standardized communications
protocols, specifically TCP/IP or any successor protocol thereof.
"MATERIAL(S)" means information on equipment, products, supplies or
services, including, without limitation, product availability and pricing
information, provided to Neoforma for display to Users of the Exchange.
"MEMBER(S)" means, at any date, those organizations that are (i) patrons
or members of VHA or UHC, or are associated therewith, or (ii) HPPI Members, and
in each case, that are listed in an electronic file supplied to Neoforma and
updated periodically by Novation.
"MEMBER DATA" means any and all Transaction Database information
relating to a specific Member.
"MERGERS" means (i) the merger of a subsidiary of Neoforma into Eclipsys
Corporation ("ECLIPSYS") and (ii) the merger of HEALTHvision, Inc.
("HEALTHVISION") into Eclipsys.
"MERGER AGREEMENTS" means (i) the Agreement and Plan of Merger by and
among Neoforma, Neo III Acquisition Corp. and Eclipsys dated the date hereof and
(ii) the Agreement and Plan of Merger between Neoforma and Healthvision dated
the date hereof.
"NEOFORMA AUCTION" means Neoforma's auction services offered on the
Exchange.
"NEOFORMA CHANGE OF CONTROL" means any (i) transaction or series of
related transactions in which more than 50% of the voting securities of Neoforma
immediately after such transaction or transactions is not owned by persons who,
immediately prior to such transaction or transactions, owned more than 50% of
the voting securities of Neoforma, (ii) merger or consolidation in which
Neoforma is not the surviving entity or (iii) the sale of all or substantially
all of the assets of Neoforma; provided, however, none of the Mergers or the
transactions contemplated by the Merger Agreements shall be deemed a Neoforma
Change of Control.
3
* Material has been omitted and filed separately with the Commission.
<PAGE> 10
"NEOFORMA INFORMATION" means Information received from non-Members.
"NEOFORMA MATERIALS" means Materials provided by Neoforma and displayed
on and available to Users of the Exchange but shall not include the Novation
Materials.
"NEOFORMA PLAN" means Neoforma's medical facility planning services
offered on the Exchange.
"NON-CONTRACT PRODUCT" means any Product available through the Exchange
that is not part of the Novation Contract Portfolio or any other GPO-specific
contract portfolio.
"NON-CONTRACT TRANSACTION FEES" has the meaning specified in Section
8.2.1 of this Agreement.
"NOVATION CONTRACT PORTFOLIO" means a catalog of all Products and
Novation Materials that will appear on the Novation Exchange or the HPPI
Exchange, for which Novation has contracted, for the benefit of the Members.
"NOVATION COMPETITOR" means any person that, at the time of
determination, would reasonably be considered to be (i) a competitor of Novation
or (ii) a competitor of any Member.
"NOVATION EXCHANGE" means that portion of the Exchange dedicated to the
Novation Contract Portfolio and accessible only to members of VHA or UHC.
"NOVATION MATERIALS" means Materials provided by Novation or by Novation
Suppliers to Neoforma for display to Users of the Exchange, including to Members
on the Novation Exchange.
"NOVATION SUPPLIERS" means suppliers, manufacturers or distributors that
provide equipment, products, supplies, services, information and other content
for sale, rental or lease through the Novation Exchange and HPPI Exchange under
the Novation Contract Portfolio.
"PARTY" means each of Neoforma, Novation, HPPI, VHA and UHC and any
other person who becomes a signatory to this Agreement, unless the context
requires otherwise.
"PATRON(S)" means a person who is entitled to receive a patronage refund
from VHA or UHC.
"PERSON" means a natural person, corporation, partnership (limited or
general), limited liability company, business trust or other entity.
"PRODUCT(S)" means equipment, products, supplies, services, information
and other content provided by Suppliers and available for purchase, rental or
lease by Users through the Exchange.
* Material has been omitted and filed separately with the Commission.
4
<PAGE> 11
"RETAINED CONTRACT(S)" means those product or service contracts of VHA
or UHC that have not been transferred to Novation and which the Members may have
access to because they are Members in VHA or UHC.
"SERVICE(S)" means the services to be provided hereunder by Neoforma.
"SERVICE LEVEL(S)" means the objective criteria establishing the level
of Neoforma's required performance of the Services under this Agreement.
"SIGN-UP" (also "SIGNS-UP" and "SIGNED-UP") means for a party to enter
into a contractual relationship with a Supplier to enable all or any portion of
that Supplier's equipment, products, supplies, services, information and other
content to be displayed on the Exchange.
"SUPPLIER(S)" means suppliers, manufacturers or distributors that
provide Products and Materials for display, sale, rental or lease through the
Exchange.
"SUPPLY CHAIN MANAGEMENT SERVICES" means (i) with respect to Novation,
VHA and HPPI, operations and activities related to evaluation, bidding,
negotiation, contracting, administering, marketing, distribution, sale,
acquisition or disposal of equipment, products, supplies, services, information
and other content by healthcare organizations from third parties and (ii) with
respect to UHC only, operations and activities related to evaluation, bidding,
negotiation, contracting, administering, marketing, distribution, sale,
acquisition or disposal of equipment, products, supplies and services by
healthcare organizations from third parties, and in the case of each of clause
(i) and (ii), including operations and activities directly related to Neoforma
Plan and Neoforma Auction. Notwithstanding the generality of the foregoing, and
with respect to UHC only, Supply Chain Management Services do not include
outsourcing, consulting, information technology products and services (unless
related to equipment or supplies), financial products and services, insurance
products and services, education and networking and communication products and
services.
"TOOL(S)" means a program, utility or user interface that helps the user
of the program, utility or user interface analyze or search for data.
"TRANSACTION DATA" means the data maintained by Neoforma on the
Transaction Database.
"TRANSACTION DATABASE" means any and all means used to store
Information.
"TRANSACTION FEE(S)" means fees to be paid by Suppliers with whom
Novation has contracted on Neoforma's behalf in respect of transactions
occurring on the Exchange but excluding fees associated with Neoforma Auction
and Neoforma Plan.
"USER(S)" means all Members and other users of the Exchange, including,
without limitation, participating healthcare organizations, GPOs or other
registered users that do not act as Suppliers.
2. NOVATION OBLIGATIONS
2.1 Agency Relationship. Neoforma hereby appoints Novation to act as
Neoforma's agent to Sign-up Suppliers, and Novation accepts such
appointment, for the principal purpose of facilitating
e-commerce purchases by the patrons of VHA and UHC and by
others.
2.2 Novation Duties. In connection with Novation's appointment as
agent under Section 2.1, Novation will perform the following
obligations:
* Material has been omitted and filed separately with the Commission.
5
<PAGE> 12
2.2.1 As promptly as practicable after the Effective Date,
Neoforma and Novation shall meet to discuss and mutually
agree upon (i) the form of agreement to be used by
Novation to Sign-up Suppliers on Neoforma's behalf and
(ii) certain reasonable negotiating parameters within
which Novation may negotiate with Suppliers without
seeking Neoforma's approval. The parties will use
commercially reasonable efforts to agree on the form
supplier agreement and the negotiating parameters within
90 days after the Effective Date. While within such
parameters, Novation may negotiate with any Supplier and
obtain any terms and conditions that in Novation's
reasonable discretion are consistent with its
obligations under this Agreement. Novation agrees that
if it concludes any agreement upon terms or conditions
outside of the agreed upon negotiating parameters, it
will seek Neoforma's prior consent, which consent shall
not be unreasonably withheld or delayed. Novation shall
use its diligent efforts to obtain favorable terms from
each Supplier with whom it negotiates on behalf of
Neoforma. Neoforma agrees, however, that Novation shall
have no obligation to obtain the best terms and
conditions available from any Supplier.
2.2.2 Neoforma and Novation shall meet no less frequently than
on a quarterly basis (or at any time that either
Neoforma or Novation reasonably requests such a meeting)
to review the then current form of Supplier agreement
and the negotiating parameters. At such meetings,
Neoforma and Novation shall in good faith review whether
the form of Supplier agreement and the negotiating
parameters then in effect are market competitive and, if
not, shall adjust either or both so that they are market
competitive. For the avoidance of doubt, the parties
agree that "market competitive" shall mean that (i)
Suppliers are reasonably likely to sign such agreement
(after negotiation) or (ii) the negotiating parameters
are commercially reasonable.
2.2.3 Novation will provide to Neoforma promptly after the
Sign-up of each Supplier agreement that Novation enters
into on Neoforma's behalf, all information concerning
such agreement that is necessary for Neoforma to fulfill
its obligations thereunder.
2.2.4 Novation will manage the Supplier relationships in
respect of each Supplier that Novation Signs-up on
Neoforma's behalf, and will use diligent efforts to
facilitate favorable commercial relationships between
Neoforma and such Suppliers.
2.2.5 As promptly as practicable after the Effective Date,
Novation will identify certain key Novation employees
responsible for performing Novation's agency services
hereunder. Novation shall make available a number of
employees as will be necessary to perform Novation's
agency obligations hereunder. No such employees will be
required to devote their full time to providing such
services hereunder.
* Material has been omitted and filed separately with the Commission.
6
<PAGE> 13
2.2.6 Novation and Neoforma shall cooperate to increase the
number of Suppliers on the Exchange. Novation and
Neoforma will meet on at least a quarterly basis to
agree upon targets regarding Supplier recruitment.
Subject to Neoforma's obligations set forth in Sections
3.4 and 3.7, *, Novation as agent shall Sign-up
Suppliers representing * of * as measured by * during *.
2.2.7 Novation will reasonably cooperate with Neoforma to
resolve performance problems with respect to any
Supplier that it has Signed-up on Neoforma's behalf and
who has become the subject of numerous User complaints.
In the resolution of such issues, Novation will act
solely as Neoforma's agent with respect to Suppliers,
and Novation shall not be required to contact any Users.
2.2.8 Subject to its obligations under Section 11.2, Novation
will bring to Neoforma's attention, reasonably promptly
after learning thereof, any fact that would reasonably
be likely to materially adversely affect the Exchange,
Neoforma or Users, including, without limitation, the
institution of litigation against Novation or any
Supplier.
2.2.9 In connection with the negotiation of Supplier
agreements, Novation will provide Suppliers with
technical information and specifications provided by
Neoforma to enable such Suppliers to effectively connect
to and interface with the Exchange. Novation shall not
independently negotiate or modify any aspects of
Neoforma's technical specifications regarding the
Exchange without Neoforma's prior written consent.
2.2.10 In performing its duties under this Section 2, Novation
shall not be required to initiate or carry on
litigation.
2.3 Certain Contracts. For the avoidance of doubt, the parties agree
that the contracts constituting the Novation Contract Portfolio
or the Retained Contracts, as now or hereafter constituted,
shall remain obligations of Novation, UHC or VHA, as the case
may be, and shall not be transferred to, or assumed by, Neoforma
in connection with this Agreement.
3. NEOFORMA OBLIGATIONS
3.1 Service. Neoforma shall provide the Services described in the
Functionality Specification. Neoforma and Novation anticipate
that the Services will evolve and be modified or be enhanced
over time to keep pace with technological advancements and
improvements in e-commerce and shall include at least the
functionality described in the Functionality Specifications. All
modifications to the Functionality Specifications must be in
writing and agreed to by the parties in writing.
* Material has been omitted and filed separately with the Commission.
7
<PAGE> 14
3.2 Service Levels. Neoforma shall provide such professional and
technical personnel and other resources (including, without
limitation, hardware, software, facilities, equipment and other
assets) as shall be required to perform the Services in
accordance with the Service Levels as set forth in the Service
Level Specifications. All modifications to the Service Level
Specifications must be in writing and agreed to by the parties
in writing.
3.3 Cooperation with Novation. Neoforma shall cooperate with
Novation in the performance of Novation's agency obligations
under Section 2.
3.4 The First * Locations. No later than *, Neoforma shall have
completed the integration of, and shall have made operational
for remote order entry, * locations jointly identified by
Neoforma and Novation. Of the * locations, (i) * shall be *,
(ii) * shall be * and (iii) each of * of such * shall have * of
products of *, based on each location's purchasing, renting and
leasing * during the *.
3.5 Quality Assurance Program. Neoforma will administer a quality
assurance program, among other things, to monitor Supplier
performance and order confirmation for Products ordered by
Users.
3.6 Notice of Materially Adverse Facts. Subject to its obligations
under Section 11.2, Neoforma will bring to Novation's attention,
reasonably promptly after learning thereof, any fact that would
reasonably be likely to materially adversely affect the
Exchange, the Novation Exchange, the HPPI Exchange or the
Members, VHA, UHC or HPPI, including, without limitation, the
institution of litigation against Neoforma or any Supplier.
3.7 Case Studies. As promptly as practicable after the applicable
data is available (but in no event later than January 1, 2001),
Neoforma shall undertake to prepare two or more market-leader
case studies documenting the economic value that the Exchange
has for each of Suppliers and Members. Such case study will be
available to Novation, VHA and UHC for the purpose of marketing
the Exchange to other Suppliers and Members.
4. THE EXCHANGE
4.1 Maintenance of Exchange. Neoforma shall use its best efforts to
maintain the Exchange as a leading provider of e-commerce
services to the healthcare industry.
4.2 Consultation. Neoforma, Novation, VHA and UHC will consult
regularly (but no less frequently than on a quarterly basis) to
discuss the strategic direction of the Exchange, including the
features and functions that would provide additional value to
patrons and others.
4.3 Provision of Non-Contract Product Information. The Suppliers
will be responsible for providing Neoforma with Materials to be
located on the Exchange in respect of all Non-Contract Products.
Novation will review such Materials
* Material has been omitted and filed separately with the Commission.
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<PAGE> 15
relating to the Non-Contract Products, subject to Neoforma
providing Novation a methodology for previewing such Materials.
4.4 Provision of Contract Product Information. Novation shall be
responsible for providing Neoforma with pricing for Contract
Products and any unique facts and summary sheets relating to
such Contract Products that are prepared by Novation. The
Suppliers will be responsible for providing Neoforma with all
other information regarding such Contract Products. Subject to
Neoforma providing to Novation a methodology for allowing
Novation to preview Materials relating to Contract Products,
Novation will review such information and determine that such
information is reasonably accurate, prior to being loaded on the
Exchange (e.g., correct pricing, product numbers, description,
etc.).
4.5 Independent Users. Prior to the date on which Neoforma concludes
an agreement with a GPO (other than HPPI) having its own
Supplier contracts (an "INDEPENDENT GPO") who, as a condition to
using the Exchange, contractually requires Neoforma to act in a
neutral manner, Neoforma shall refer any User who requests
access to a Customized Exchange (other than a Member entitled to
use the Novation Exchange) to the HPPI Exchange. After the date
on which an Independent GPO is on the Exchange, if a User (other
than a Member entitled to use the Novation Exchange) approaches
Neoforma requesting access to a Customized Exchange, Neoforma
shall act in a neutral manner with regard to such User and shall
not be required to recommend or otherwise refer such User to any
specific part of the Exchange, including the HPPI Exchange or
the Novation Exchange. Notwithstanding the preceding sentence,
Neoforma will at all times feature the HPPI Exchange at least as
prominently on the Exchange as any other Customized Exchange.
4.6 Multiple Memberships. If a Member is also a member of any other
GPO that has a Customized Exchange on the Exchange, that Member
will have access to all of the Exchange, including the Novation
Exchange or HPPI Exchange, as the case may be, and the
applicable Customized Exchange. Members who are also Users of
Customized Exchanges will have access rights to the Novation
Exchange or the HPPI Exchange equal to those of Members that do
not belong to Customized Exchanges. Notwithstanding the
foregoing, Neoforma shall provide favorable view and framing in
respect of the Novation Contract Portfolio to any Member
accessing the Exchange.
4.7 User Registration. Upon implementation of the Novation Exchange,
Neoforma, with Novation's assistance, will develop a Tool to
register Members on the Exchange. Neoforma will require Members
to create and use passwords as a necessary condition to
accessing the Novation Exchange. Neoforma shall be responsible
for keeping the Novation Exchange registry and the HPPI Exchange
registry current and for not allowing access to such Exchanges
by unauthorized Users.
* Material has been omitted and filed separately with the Commission.
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<PAGE> 16
4.8 Delivery and Order Fulfillment. Neoforma will notify Suppliers
and provide Suppliers access to the Transaction Database for
sales, rentals and leases of Products by such Suppliers, in a
form and format mutually agreed upon by Neoforma and Suppliers
and to the extent set forth in the Functionality Specifications.
4.9 Removal of Products from the Exchange. With regard to
Non-Contract Products, Neoforma shall remove Product listings
from the Exchange promptly after determining that the appearance
of such Products will, or is reasonably likely to, result in
liability to Neoforma, Novation, HPPI, VHA, UHC or any Users.
Upon such removal, Neoforma will promptly notify Novation of
such action and the reasons therefore. With regard to Contract
Products, Neoforma shall notify Novation promptly after becoming
aware of any problems with a Contract Product or that any such
Contract Product will, or is reasonably likely to, result in
liability to Neoforma, Novation, HPPI, VHA, UHC or any Users. In
addition and at the same time, Neoforma shall provide to
Novation all information of which it is aware regarding the
problems with such Contract Product. Neoforma will obtain
Novation's prior written consent, prior to taking any action to
remove such Contract Product listing from the Exchange.
4.10 Customized Exchanges. In accordance with the Functionality
Specifications, Neoforma may create Customized Exchanges and
other customized sites for the use and benefit of Users on the
Exchange. Neoforma will not intentionally create Customized
Exchanges for the purpose of evading fees owed to Novation under
Section 8 of this Agreement.
4.11 Links. The parties will establish and maintain hypertext links
from the Novation web site, HPPI web site, VHA web site and UHC
web site to the Exchange. Each of Novation, HPPI and Neoforma
will use reasonable efforts to ensure that the respective links
that each party maintains linking Novation, HPPI and Members to
the Exchange function correctly.
4.12 Reasonable Assistance. Each party will provide the other parties
with on-going reasonable assistance with regard to technical,
administrative and service-oriented issues relating to the
Exchange.
5. NOVATION EXCHANGE AND HPPI EXCHANGE
5.1 Development. As promptly as practicable after the Effective
Date, the parties shall agree on the "look and feel" and
organization of the Novation Exchange and the HPPI Exchange. In
addition, they will jointly develop and agree upon an
implementation plan and schedule for development of the Novation
Exchange and the HPPI Exchange; provided, however, that,
notwithstanding anything herein to the contrary, the Novation
Exchange and the HPPI Exchange will have at least the minimum
functionality in the applicable time periods all as described in
the Functionality Specifications.
* Material has been omitted and filed separately with the Commission.
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<PAGE> 17
5.2 Hosting. Neoforma will create, host and implement the Novation
Exchange and the HPPI Exchange according to the agreed plan and
display the Novation Contract Portfolio in a manner similar to
the way in which products currently appear on the Exchange.
5.3 Delivery and Order Fulfillment. Neoforma will notify the
Suppliers of purchases, rentals and leases made by Members in a
form and format according to the terms of Neoforma's agreements
with Suppliers.
5.4 Display of Material. In order to facilitate efficient
presentation of Product information, Neoforma will categorize,
organize and display all Products on the Novation Exchange and
the HPPI Exchange in a manner consistent with that in which it
organizes similar information on the Exchange.
5.5 Reports. Subject to obtaining the consent of the Members in
accordance with Section 10, Neoforma will provide Novation, VHA,
UHC and HPPI with real-time, on-line reports of Members usage
statistics and reports on other reasonable matters. Such reports
shall be made available in the form of Excel(TM) files
transferred via electronic transmission to Novation, VHA, UHC or
HPPI, or in such other format as the parties agree. The parties
will mutually agree as to the scope, format and substance of the
standardized reporting system that Neoforma will develop (at no
extra charge) and that will be available to Novation, VHA, UHC
and HPPI via the Internet.
5.6 Retained Contracts. Either VHA or UHC may at any time elect to
put their respective Retained Contracts on the Novation
Exchange. If the posting on the Novation Exchange is merely
informational and Members are not able to purchase, rent or
lease Products covered by such Retained Contracts through the
Exchange, no fees shall be paid for such posting. If during the
Term, Novation Signs-up the Suppliers under such Retained
Contracts, Neoforma and Novation will negotiate in good faith to
allocate the transaction fees paid by such Supplier.
5.7 Marketing.
5.7.1 Novation, VHA, UHC and HPPI will use commercially
reasonable efforts to drive traffic to the Novation
Exchange and the HPPI Exchange, including, without
limitation, making appropriate introductions for
Neoforma, allowing Neoforma preferred space and
visibility at Member forums, and presenting satellite
broadcasts or web casting targeted at the Members.
Novation, VHA and UHC will work with Neoforma to develop
new initiatives targeted toward increasing Members'
participation on the Exchange, including the Novation
Exchange and the HPPI Exchange.
5.7.2 Within 45 days after the Effective Date, Novation and
Neoforma will complete an execution plan for targeting
patrons and others, a general marketing agreement
specifying what each of the parties thereto will do with
regard to marketing the Exchange to patrons and others,
and a plan
* Material has been omitted and filed separately with the Commission.
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<PAGE> 18
for recruitment and for Novation's Sign-up of Suppliers
to the Exchange as well as to the Novation Exchange and
the HPPI Exchange.
5.7.3 Within 30 days after the Effective Date, VHA, UHC and
HPPI will send an announcement of this Agreement to all
Members directed at least to the chief executive
officers and purchasing managers of the Members. Within
30 days after the Effective Date, Novation will send
announcements of this Agreement to Suppliers of Products
to the healthcare industry with which Novation has a
relationship directed in each case to at least to (i)
the Supplier's chief executive officer and (ii)
Novation's account representative at such Supplier.
5.8 Neoforma Auction.
5.8.1 On the Effective Date, the Exchange will include
Neoforma Auction.
5.8.2 Novation, VHA, UHC and HPPI will promote the use of
Neoforma's asset management and recovery services and
related activities of Neoforma Auction to patrons and
others. Such promotion shall include specific mention of
Neoforma Auction in communications to Members and in
other promotion, and such other forms of promotion as
Novation, VHA and UHC deem is appropriate.
5.8.3 Any Member wishing to utilize the Neoforma Auction and
Neoforma's asset management and recovery services shall
enter into an Asset Recovery Services Agreement with
Neoforma.
5.9 Neoforma Plan.
5.9.1 On the Effective Date, the Exchange will include
Neoforma Plan.
5.9.2 Novation, VHA, UHC and HPPI will promote use of the
services included in Neoforma Plan to patrons and others
in connection with their capital equipment programs.
Such promotion shall include, without limitation,
specific mention of Neoforma Plan in communications to
Members and in other promotions.
5.9.3 Novation will inform Suppliers that they have the option
to sponsor specific "Centers of Excellence" within
Neoforma Plan. Any Supplier wishing to participate in
Neoforma Plan shall enter into a Plan Sponsorship
Agreement with Neoforma.
6. EXCLUSIVITY AND RIGHT OF FIRST OFFER
6.1 Novation, VHA, UHC and HPPI Exclusivity. Except as provided in
Section 6.3, each of Novation, HPPI, VHA and UHC agrees that it
will not directly or indirectly develop, promote, contract for
the development of, assist others to
* Material has been omitted and filed separately with the Commission.
12
<PAGE> 19
develop, or enter into any agreement with any other person to
provide to any of them, or promote to their Members, any
Internet-based exchange related to Supply Chain Management
Services by acute or non-acute healthcare providers anywhere in
the world other than the Exchange.
6.2 Neoforma Exclusivity.
6.2.1 Except as otherwise provided in Section 6.3, neither
Neoforma nor its Affiliates will develop, promote,
contract for the development of, assist others to
develop, or enter into any agreement with any other
person to provide, any Internet-based system related to
the acquisition or disposal of equipment, products,
supplies, services, information and other content by
acute or non-acute healthcare providers anywhere in the
world other than the Exchange.
6.2.2 Except as provided in Section 6.3, Novation will be
Neoforma's and Neoforma's Affiliates' exclusive agent to
Sign-up Suppliers. Neoforma will not, and will cause any
Affiliate of Neoforma not to, (i) Sign-up any Supplier
directly or (ii) contract with, or pay any financial
incentives to, any person to act as a contracting agent
of Neoforma or Neoforma's Affiliates to Sign-up any
Supplier on Neoforma's or Neoforma's Affiliates' behalf;
provided, however, that nothing herein shall be
construed to impose upon Neoforma any obligation to seek
to terminate agreements with Suppliers previously
entered into by Neoforma and existing as of the
Effective Date.
6.2.3 Notwithstanding the provisions of Subsection 6.2.2,
Neoforma may Sign-up any Supplier, if:
(i) Neoforma refers a Supplier to Novation for
contracting, and notwithstanding such referral,
the Supplier specifically requests to Sign-up
with Neoforma or Novation informs Neoforma that
Novation will not Sign-up that Supplier; or
(ii) a Supplier is under contract to an Independent
GPO and the Independent GPO, as a condition to
using the Exchange, contractually requires
Neoforma to Sign-up its Suppliers directly.
6.3 Right of First Offer for Novation and Neoforma.
6.3.1 If either Novation or Neoforma elects to commence an
Internet-venture in any country other than the United
States or in any market that is not then served by the
Exchange (whether in the United States or otherwise),
such party (the "OFFEROR") shall offer to the other (the
"OFFEREE") the opportunity to participate in such
venture in a manner commensurate with the Offeree's role
under this Agreement (including the right of Novation to
create other contract portfolios similar to the Novation
Contract Portfolio or to recruit suppliers for such
venture). The Offeror shall provide full
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<PAGE> 20
information to the Offeree regarding the venture, and
shall make its senior executives available to meet with
the Offeree to discuss the venture. The Offeror shall
also notify the Offeree of such venture a reasonable
time prior to commencement of the venture (but in no
event less than 60 days prior to the date on which the
Offeree must decide to participate). If after
consideration the Offeree declines to participate in
such venture, then, notwithstanding Section 6.1 or 6.2,
as the case may be, the Offeror may proceed with such
venture, but solely in that market or country, and on no
less favorable terms and conditions in the aggregate as
had been offered to the Offeree. In addition, the
Offeree shall be released from its obligations under
Section 6.1 or 6.2, as the case may be, but solely in
respect of the market or country that was the subject of
such Offer. If the Offeror subsequently does not
consummate the venture, and the Offeror wishes to
commence another venture in the same market or country,
the Offeror must once again offer such opportunity to
the Offeree. The Offeror shall have no obligation to
share any fees earned in a venture in which the Offeree
has not elected to participate.
6.3.2 Within 30 days after the Effective Date and on a
quarterly basis thereafter, business development
representatives of Neoforma and Novation shall meet to
review existing opportunities in foreign markets and
countries and to review existing opportunities in
markets not then served by the Exchange. Such
representatives shall prepare a joint plan to identify
and exploit such other opportunities in foreign markets
and in other healthcare markets. Any right of an Offeror
to proceed with a venture under Subsection 6.3.1 without
the Offeree shall be conditioned on such Offeror's
compliance with this Subsection 6.3.2.
6.4 First Offer for Non-Exclusive Services.
6.4.1 The term "NON-EXCLUSIVE SERVICE(S)" means
Internet-related services that are outside the scope of
Section 6.1. UHC shall give favorable consideration to
Neoforma as a third-party provider to UHC of
Non-Exclusive Services as follows: if (i) UHC elects to
provide for itself or for the benefit of all or
substantially all of UHC's Members any new Non-Exclusive
Service or (ii) UHC intends to replace any agreement for
the provision of a Non-Exclusive Service then being
provided to UHC by a third party, then UHC shall first
offer to Neoforma the opportunity to provide such
Non-Exclusive Service (the "OPPORTUNITY"). Promptly upon
becoming aware of an Opportunity, UHC shall send notice
of the Opportunity in electronic or paper writing to the
Chief Executive Officer of Neoforma, or his or her
designate. Promptly after receiving such notification,
but in no less than 15 days, Neoforma shall meet with
UHC to discuss the Opportunity and Neoforma's proposed
role therein. Neoforma and UHC shall continue to meet
and discuss the Opportunity for the 30-day period
commencing upon UHC's notification to Neoforma. Neither
UHC nor Neoforma will have any obligation to meet and to
discuss the Opportunity (i) if Neoforma does not meet
with UHC within the time required, or (ii) after the
expiration of the 30-day discussion period. The
communication by UHC to Neoforma of any Opportunity,
including the ideas, concepts or other intellectual
property contained therein, will be Confidential
Information subject to Section 11.
* Material has been omitted and filed separately with the Commission.
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6.4.2 For the avoidance of doubt and notwithstanding anything
to the contrary in this Agreement, in no event, will UHC
be required to obtain any Non-Exclusive Service from
Neoforma.
7. LICENSES AND OWNERSHIP
7.1 Ownership of Marks. Each party will own and retain all right,
title and interest in and to its intellectual property,
including its trademarks, trade names, service marks and logos
("MARKS") worldwide, as specified in Exhibit A.
7.2 Novation Marks. Subject to the terms of this Agreement, Novation
grants to Neoforma, VHA, UHC and HPPI a worldwide,
nontransferable, royalty-free license to use, transmit and
display Novation's Marks in connection with the Exchange during
the Term of this Agreement, provided that such use is in
accordance with Novation's then-current trademark usage
guidelines. A copy of Novation's current trademark usage
guidelines is attached as Exhibit B. Upon any change in such
guidelines, Novation will promptly provide to Neoforma a copy of
such revised usage guidelines. Neoforma will not modify the
Novation Marks or combine any of the Novation Marks with any
other mark or term. Subject to the provisions of Section 9.8,
upon termination or expiration of this Agreement, Neoforma will
cease all use of the Novation Marks.
7.3 Neoforma Marks. Subject to the terms of this Agreement, Neoforma
grants to Novation, VHA, UHC and HPPI a worldwide,
nontransferable, royalty-free license to use, transmit and
display Neoforma's Marks during the Term only in promotional
materials used to encourage participation on the Exchange,
provided that such use is in accordance with Neoforma's
then-current trademark usage guidelines. A copy of Neoforma's
current trademark usage guidelines is attached as Exhibit C.
Upon any change in such guidelines, Neoforma will promptly
provide to Novation a copy of such revised usage guidelines.
Except as authorized under this Agreement, Novation will not
modify any of the Neoforma Marks or combine the Neoforma Marks
with any other mark or term. Subject to the provisions of
Section 9.8, upon the termination or expiration of this
Agreement, Novation will cease all use of the Neoforma Marks.
7.4 VHA, UHC and HPPI Marks. Subject to the terms of this Agreement,
each of VHA, UHC and HPPI grants to Novation and Neoforma a
worldwide, nontransferable, royalty-free license to use,
transmit and display its Marks solely to promote the Exchange to
the Members during the Term, provided that such use is in
accordance with the then-current trademark usage guidelines of
VHA, UHC and HPPI, as the case may be. A copy of each of VHA's,
UHC's and HPPI's current trademark usage guidelines are attached
as Exhibit D. Except as authorized under this Agreement,
Neoforma and Novation will not modify any of the Marks of VHA,
UHC and HPPI or combine any of them with any other mark or term.
Subject to the provisions of Section 9.8, upon the termination
or
* Material has been omitted and filed separately with the Commission.
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<PAGE> 22
expiration of this Agreement, Neoforma and Novation will cease
all use of VHA's, UHC's and HPPI's Marks.
7.5 Ownership of Neoforma Materials and Novation Materials. Neoforma
and Novation will own and retain all worldwide right, title and
interest in and to the Neoforma Materials and Novation
Materials, respectively. Neither Neoforma nor Novation will
alter or delete any copyright or other proprietary notice that
may appear in the other party's Materials without prior written
consent of such party.
7.6 Neoforma Materials. Neoforma grants to Novation a worldwide,
nontransferable, royalty-free license to use the Neoforma
Materials only in promotional materials used to encourage
participation on the Exchange.
7.7 Novation Materials. Novation grants to Neoforma a worldwide,
nontransferable, royalty-free license to use the Novation
Materials on the Exchange during the Term solely to enable
Neoforma to provide the Services contemplated under this
Agreement.
7.8 Development of Tools. From time to time during the Term,
Novation may request Neoforma to design Tools for Members or
Suppliers in addition to the Tools, functions and APIs contained
in the Functionality Specifications. Within a reasonable time
after such request, appropriate personnel from Novation and
Neoforma will meet to discuss and draft technical specifications
for the desired customized Tools, functions and APIs.
7.8.1 If the Tool, function or API requested by Novation will
be used by all Users of the Exchange, Neoforma will
develop such Tool, function or API promptly and at its
own expense. Neoforma will own and retain all right,
title and interest to all the intellectual property,
including the source code, object code and other
Confidential Information, in and to the Neoforma
developed Tools, functions and APIs.
7.8.2 If Neoforma does not otherwise agree to develop such
Tool, function or API for use by all Users of the
Exchange, Novation may, in its sole discretion, agree to
pay for the development of such Tool, function or API.
If Novation agrees to pay Neoforma for the development
of such Tool, function or API, Neoforma will promptly
endeavor to develop such requested Tool, function or
API, and Novation will own all right, title and interest
to all the intellectual property, including all source
code, object code and other Confidential Information, in
and to such Tools, functions and APIs. Any fees charged
to Novation for development of any Tool, function or API
shall be provided by Neoforma at the most favorable fee
Neoforma charges to any other person for such
development or integration services.
7.8.3 Nothing in this Section 7.8 shall limit Neoforma's
obligation to provide the Services set forth in the
Functionality Specifications.
* Material has been omitted and filed separately with the Commission.
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7.9 Access License. Neoforma grants to Novation a non-exclusive,
worldwide, non-assignable license to members of Novation and
HPPI in order to access the Exchange. Novation and HPPI grant to
Neoforma a non-exclusive, worldwide, non-assignable license to
access the Novation and HPPI web sites and computer systems
solely to enable Neoforma to provide the services contemplated
under this Agreement.
8. FEES AND TAXES
8.1 Contract Product Transaction Fees.
8.1.1 Neoforma shall collect all Transaction Fees paid by
Suppliers pursuant to this Agreement with respect to
sales, rentals and leases of Contract Products to
Members on the Exchange (the "CONTRACT TRANSACTION
FEE(S)"). On the *, the * to be used in * is *. The
Contract Transaction Fee shall be adjusted from time to
time in accordance with Section 8.4.
8.1.2 Until the * of the Effective Date, and subject to
Novation's election in Subsection 8.1.4, Novation * to
Neoforma a Contract Transaction Fee of * of the Adjusted
Gross Transaction Value in such period. If the Contract
Transaction Fee payable by Suppliers during such period
is * of the Adjusted Gross Transaction Value at any
time, Novation shall pay to Neoforma the *; provided,
however, that the * Novation in this Subsection 8.1.2 is
solely in respect of the applicable * and not a *. After
the * of the Effective Date, no Contract Transaction Fee
* by Novation shall be applicable, and Neoforma shall
collect from Suppliers any Contract Transaction Fee then
in effect.
8.1.3 Subject to Subsection 8.3.2, Neoforma shall pay to
Novation * of any Contract Transaction Fees * of the *.
8.1.4 Novation may, *, elect to pay to Neoforma * of the * for
*.
8.1.5 If during the Term, Neoforma enters into any agreement
with a * pursuant to which Neoforma will receive a fee
for Products sold, rented and leased on the Exchange,
and such fee to be paid to Neoforma is * to Neoforma *
or Novation to Neoforma * by Novation to Neoforma * then
such fee to be paid to Neoforma * or *, as the case may
be, *.
8.2 Non-Contract Product Transaction Fees.
8.2.1 Neoforma shall collect all fees paid by Suppliers
pursuant to this Agreement with respect to sales,
rentals and leases of Non-Contract Products on the
Exchange (the "NON-CONTRACT TRANSACTION FEES"). On
* Material has been omitted and filed separately with the Commission.
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<PAGE> 24
* , the * of *
* to be used in * is *.
The Non-Contract Transaction Fees will be adjusted from
time to time in accordance with Section 8.4.
8.2.2 Subject to Subsection 8.3.2, Novation and Neoforma
shall share Non-Contract Transaction
Fees as follows:
(i) Non-Contract Transaction Fees received by
Neoforma from Suppliers for Non-Contract
Products purchased, rented and leased by *.
(ii) Non-Contract Transaction Fees received by
Neoforma from Suppliers for Non-Contract
Products purchased, rented and leased by *.
(iii) Neoforma will not share with Novation any fees
earned on purchases, rentals and leases through
the Exchange by *.
8.3 Target Transaction Fees.
8.3.1 The parties have determined target minimum aggregate
Transaction Fees to be earned by Neoforma (the "TARGET
TRANSACTION FEE(S)"). The Target Transaction Fees are as
follows:
*
8.3.2 In any * in which there is a Target Transaction
Fee, Neoforma shall not share any Non-Contract
Transaction Fees with Novation pursuant to Section 8.2
and will not * Novation any Contract Transaction Fees
pursuant to Section 8.1, until Neoforma has received
aggregate Transaction Fees (which shall include the
Contract Transaction Fees * Neoforma and the
Non-Contract Transaction Fees * Novation) in an amount
equal to the Target Transaction Fees for such *
*.
8.3.3 If in any * , the Transaction Fees (which shall
include the Contract Transaction Fees * Neoforma and the
Non-Contract Transaction Fees * Novation) are lower than
the Target Transaction Fees for such *, the amount of
such deficiency (the "DEFICIENCY AMOUNT") shall be added
to the Target Transaction Fees for the following *. For
each successive * until the * ending *(the "TERMINAL
DATE"), any Deficiency Amount existing at the end of
such * shall be added to the Target Transaction
Fees for the following *. *.
8.4 Adjustment of Transaction Fees. Within 30 days after the
Effective Date and on a monthly basis prior to the * of the
Effective Date, Neoforma and Novation shall meet to review the
target Contract Transaction Fees and Non-Contract Transaction
Fees then in effect. Thereafter, Neoforma and Novation shall
meet no less frequently than on a quarterly basis (or at any
time that either Neoforma or Novation reasonably requests such a
meeting) to review such fees. At such
* Material has been omitted and filed separately with the Commission.
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<PAGE> 25
meetings, Neoforma and Novation shall in good faith review
whether the Contract Transaction Fees and Non-Contract
Transaction Fees then in effect are market competitive and, if
not, shall adjust either or both of such Contract Transaction
Fees and Non-Contract Transaction Fees so that they are market
competitive. For the avoidance of doubt, the parties agree that
"market competitive" shall mean that (i) Suppliers are
reasonably likely to agree to pay such fees at such time or (ii)
such fees are competitive with similar transaction fees paid by
suppliers in similar e-commerce or related industries. Until
Neoforma and Novation have agreed upon a change to the Contract
Transaction Fee or the Non-Contract Transaction Fees, as the
case may be, the then-existing fees shall remain in effect.
8.5 Reporting and Payment of Transaction Fees. Within 15 days after
the end of each month, Neoforma will provide Novation with a
written report consisting of (i) aggregate Adjusted Gross
Transaction Values for all purchases, rentals and leases of
Contract Products and Non-Contract Products, (ii) the
calculation of any Contract Transaction Fees or Non-Contract
Transaction Fees owing to Novation and (iii) the calculation of
any other fees to be paid by Neoforma hereunder. Subject to
Subsection 8.3.2, Neoforma shall pay all such Transaction Fees
and other fees within 45 days after receipt of its report. If
Novation has * to pay *, Novation will pay such Contract
Transaction Fees within 45 days after receipt of Neoforma's
report. Any report submitted by Neoforma to Novation shall
include the information set forth in Exhibit E and such other
information as Novation may reasonably request.
8.6 No Fees Prior to Mergers. Notwithstanding anything to the
contrary in this Agreement, neither Novation nor Neoforma shall
be obligated to pay any Transaction Fees to the other under this
Section 8 or otherwise until and unless the Mergers are
consummated. Any Transaction Fees owing to Neoforma or to
Novation, as the case may be, under this Section 8 that are not
paid as a result of this paragraph shall accrue without interest
and shall be paid by Neoforma or Novation, as the case may be,
within 30 days after the consummation of the Mergers. Any fees
not paid within the time period specified in the preceding
sentence shall be subject to interest in accordance with Section
20.11.
8.7 Taxes. Neoforma and Novation shall cooperate to minimize any
local, state, national and foreign taxes (including, without
limitation, sales, use and VAT taxes which may apply), licenses,
export/import fees and any other fees or similar obligations
relating to any sale, rental or lease of a Contract Product
through the Exchange. If in the future any such taxes or similar
obligations are required to be paid by Neoforma or Novation in
respect of Contract Products, such fees shall be shared by
Neoforma and Novation proportionately based on revenues each
derives from the Exchange. In no event shall Novation be
required to share any taxes under this Section 8.7 for Products
other than Products for which Novation receives Transaction
Fees.
* Material has been omitted and filed separately with the Commission.
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8.8 New Markets. If Neoforma and Novation agree pursuant to Section
6.3 to enter any other healthcare market (other than the United
States acute care market) that is not then served by the
Exchange or that is in countries outside of the United States,
Neoforma and Novation shall negotiate in good faith to set the
Transaction Fees to be paid in respect of such products to be
purchased, rented and leased on such Exchange.
8.9 Product Returns. Neoforma and Novation will cooperate in good
faith to make any adjustments to the fees to be paid hereunder
to reflect Products that have been returned by Users.
8.10 Neoforma * and Neoforma *. Both Neoforma and Novation may
Sign-up Suppliers for Neoforma * and Neoforma *. Neoforma shall
pay to Novation * from Suppliers that have contracted to use
Neoforma * through Novation. Neoforma shall pay to Novation *
from Suppliers that have contracted to use Neoforma * through
Novation. In addition, Neoforma shall pay to Novation * from any
Member usage of Neoforma *.
8.11 Other Expenses. Neither Neoforma nor Novation shall be required
to pay to the other party any amounts for the performance of
their respective obligations hereunder other than those
expressly set forth in this Agreement.
8.12 VHA/UHC Allocation. VHA and UHC agree as between themselves to
account for Contract and Non-Contract Transaction Fees and for
fees related to Neoforma Plan and Neoforma Auction as follows:
(i) if the fee relates to business done with or for a VHA
patron or other VHA Member or UHC patron or other UHC
Member, to allocate the fee to VHA or UHC respectively;
(ii) if the fee relates to business done with or for
customers of HPPI, to allocate the fee to VHA and UHC
according to their ownership interests in HPPI; and
(iii) if the fee relates to business done with or for other
persons, to allocate the fee *% to VHA and *% to UHC.
In the event that during * of this Agreement fees otherwise
earned by Novation are not paid by Neoforma by reason of Section
8.3.2 of the Agreement, VHA and UHC agree to make an adjusting
payment as between themselves to the extent that fees earned
attributable to one are used to offset any deficiencies in
meeting Target Transaction Fees attributable to the other. In
making this determination, (i) Target Transaction Fees shall be
allocated between VHA and UHC *% and *% respectively and (ii)
actual Transaction Fees paid to Neoforma (A) shall be credited
to VHA or UHC as the case may be in the case of fees
attributable to VHA patrons and other VHA Members or UHC patrons
and other UHC Members, (B) shall be credited to VHA and UHC
according to their ownership in HPPI in the case of fees related
to business done with customers of HPPI or (C)
* Material has been omitted and filed separately with the Commission.
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<PAGE> 27
shall be credited *% to VHA and *% to UHC if the fee relates to
business done with or for other persons. The allocations and
credits agreed to in this Section 8.12 may be modified at any
time upon mutual written agreement of VHA and UHC.
9. TERM AND TERMINATION
9.1 Initial Term. This Agreement commences on the Effective Date and
will remain in effect for an initial term of 10 years (the
"INITIAL TERM"), unless terminated earlier in accordance with
the terms of this Agreement.
9.2 Renewal and Extension of Term. This Agreement will automatically
renew for successive one-year terms after the completion of the
Initial Term (each a "RENEWAL TERM") unless Neoforma or Novation
provides written notice of its intention to terminate this
Agreement to the other at least 90 days prior to the end of the
Initial Term or any then-current Renewal Term. The Initial Term
and any and all renewals or extensions thereof and any
Termination Assistance Period are referred to herein as the
"TERM".
9.3 Termination for Cause. Each of Neoforma and Novation, after
complying with Section 18.2 hereunder, will have the right to
terminate this Agreement if the other party materially breaches
(i) its service obligations under this Agreement or (ii) its
exclusivity obligations under Section 6 of this Agreement,
unless the breaching party (x) cures such breach within 30 days
after receiving written notice or (y) if such breach is not
curable within 30 days, makes substantial progress in curing
such breach within 30 days and cures such breach within 90 days.
Any repeated or sustained failure of Neoforma to meet its
Service Level obligations hereunder shall constitute a material
breach of Neoforma's service obligations under Subsection (i)
hereunder.
9.4 Termination for Insolvency Events. If either Neoforma or
Novation is unable to obtain credit from any creditors, becomes
insolvent, makes an assignment for the benefit of its creditors,
or becomes the subject of a proceeding under Title 11 of the
United States Code, as amended, or becomes the subject of
similar state court proceedings, then in any such case, the
other party, or in the case of Neoforma, VHA, UHC or HPPI, may,
without prejudice to any other rights, immediately terminate
this Agreement or, if such termination is subject to any
statutory provision or judicial order staying such action, seek
leave to modify such stay so as to terminate this Agreement.
Each of Neoforma and Novation acknowledges and agrees that its
insolvency, the making of an assignment for the benefit of its
creditors, or its becoming the subject of a proceeding under
Title 11 of the United States Code, is "cause" for the
termination of any statutory or judicial stay of the rights of
the other party hereunder to terminate this Agreement. Each of
Neoforma and Novation acknowledges and agrees that, in such
event, it could not provide "adequate protection" to the other
party, or in the case of Neoforma, to VHA, UHC or HPPI, that the
continued imposition of a stay would likely cause irreparable
harm to the other party, and the continued imposition of a stay
would
* Material has been omitted and filed separately with the Commission.
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adversely affect the health, safety and welfare of communities
served by the parties hereto.
9.5 Termination of Merger Agreements. If any or all of the Merger
Agreements or the Purchase Agreements terminate in accordance
with their respective terms, Novation may terminate this
Agreement within 30 days after such termination. Upon a
termination under this Section 9.5, Novation shall not be
responsible for any fee or payment to Neoforma under Section 8
hereunder or otherwise. Notwithstanding the foregoing, the right
of termination in this Section 9.5 will expire upon the issuance
of any securities of Neoforma under, and in accordance with the
terms of, the Purchase Agreements.
9.6 Termination Upon Neoforma Change of Control. Prior to the
effective date of the Mergers, Novation may terminate this
Agreement upon any Neoforma Change of Control.
9.7 Return of Materials. Subject to Section 9.8, upon termination or
expiration of this Agreement for any reason, each of Neoforma
and Novation shall promptly return to the other party, and shall
not take, use or disclose, all Products of any nature that
belong to the other party and all records (in any form, format
or medium) containing or relating to Neoforma Materials or
Novation Materials or the Confidential Information of the other
party.
9.8 Survival. The provisions of Sections 7.1, 7.5, 8.5, 8.6, 9.7,
9.8, 9.9, 10, 11, 15, 16, 17, 18, 19 and 20 will survive
termination or expiration of this Agreement for any reason.
9.9 Termination Assistance Services.
9.9.1 General. Upon any termination or expiration of this
Agreement, Neoforma shall provide termination assistance
and shall comply with Novation's reasonable directions
to allow the Services to continue without interruption
or adverse effect and to facilitate the orderly
transition and migration of all Services then being
performed by Neoforma from Neoforma to Novation (or a
third-party provider undertaking, on behalf of Novation,
to provide the Services) (the "TERMINATION ASSISTANCE
SERVICES"), all in accordance with this Section 9.
Novation shall cooperate in good faith with Neoforma in
connection with Neoforma's obligations under this
Section 9.
9.9.2 Termination Assistance Period. Neoforma shall commence
providing Termination Assistance Services (i) with
respect to the scheduled expiration of this Agreement,
90 days prior to such scheduled expiration or such
earlier date as Novation may reasonably request and (ii)
with respect to any termination of this Agreement, upon
the delivery of the notice of termination. Neoforma
shall continue providing Termination Assistance Services
through the effective date of the expiration or
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termination of this Agreement and for a period of not
less than * thereafter (the "TERMINATION ASSISTANCE
PERIOD"). Upon at least 30 days prior written notice to
Neoforma, Novation may extend, from time to time, the
Termination Assistance Period for an additional *.
During any Termination Assistance Period, Neoforma shall
provide, at Novation's request, and, as part of the
Termination Assistance Services, any or all of the
Services being provided by Neoforma prior to the date of
the expiration or termination of this Agreement.
9.9.3 Termination Plan. Neoforma and Novation shall cooperate
in good faith to develop a termination plan setting
forth the respective tasks to be accomplished by each
party in connection with the termination and a schedule
pursuant to which such tasks are to be completed in
accordance with the Termination Assistance Services
(collectively, the "TERMINATION PLAN").
9.9.4 Certain Licenses. In the event that Novation terminates
this Agreement pursuant to Section 9.3, Neoforma shall
provide the following:
(i) a * license to all third-party software that is
required to provide the Services, to the extent
Neoforma is entitled to sublicense such
software, and to the extent Neoforma is not
entitled to sublicense such software, Neoforma
shall provide a list of all third-party software
licenses that are required to provide the
Services and shall assist Novation in licensing
a substantially similar software at a
commercially reasonable price; and
(ii) a * license to all Neoforma-owned software
required to provide the Services solely for
Novation's internal use. In addition, Neoforma
shall provide to Novation consulting services,
at no charge to Novation, as may be reasonably
required in order to recreate the Exchange
environment for Novation.
9.9.5 Equitable Remedies. Neoforma acknowledges that, if it
breaches (or attempts or threatens to breach) its
obligation to provide Novation Termination Assistance
Services in accordance with Section 9.9, Novation will
be irreparably harmed. In such circumstance, and
notwithstanding the provisions of Section 18, Novation
may proceed directly to court. If a court of competent
jurisdiction should find that Neoforma has breached (or
attempted or threatened to breach) any such obligations,
Neoforma agrees that even without any additional
findings of irreparable injury or other conditions to
injunctive relief, it shall not oppose the entry of an
appropriate order compelling performance by Neoforma
restraining it from further breaches (or attempted or
threatened breaches).
* Material has been omitted and filed separately with the Commission.
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10. USER DATA
10.1 Registration. Users who are representatives of Members will be
required to register as a representative of a Member prior to
using the Exchange. To effect such registration, Neoforma will
require that each Member or other User complete a registration
form in form and substance reasonably acceptable to Novation,
which form shall request, among other things, submission of
contact information regarding the User, including, without
limitation, the User's name, name of the Member organization,
mailing address, and email address. Neoforma will verify such
information against the on-line data base information made
available by Novation and ensure that such registration is
authorized in accordance with registration and password issuance
and protection procedures acceptable to Neoforma and in
accordance with the Functionality Specifications. Neoforma will
store data collected during registration as part of the
Information in the Transaction Database.
10.2 Transaction Database. Neoforma will create and maintain the
Transaction Database relating to all activity occurring on the
Exchange in accordance with the Functionality Specifications.
Novation and Neoforma shall only use Information in accordance
with the provisions of this Section 10. Neoforma shall at all
times make all Information available to Novation in any manner
that it is, or can reasonably be, made available.
10.3 Member Data. Members shall own their respective Member Data.
Novation will use commercially reasonable efforts to acquire a
nonexclusive, non-transferable license from Members (or
sublicense from VHA, UHC or HPPI) to permit:
(i) Novation to access and use such Member Data for, among
other things, (A) legal compliance purposes, (B) to
track the performance of Suppliers, (C) to be able to
track payments to VHA, UHC and HPPI and cooperative
payments to the Members, (D) to consult with each of the
Members and (E) to promote utilization and
standardization among Members; and
(ii) Neoforma to use such Member Data provided that such use
is (A) solely related to the performance of Neoforma's
obligations pursuant to this Agreement and (B) in
accordance with the confidentiality provisions of
Section 11.
10.4. Aggregated Member Data. Subject to the receipt of a license or
sublicense for use of the Member Data, Novation shall own the
Aggregated Member Data.
10.5 Transaction Database. Subject to the ownership rights of the
Members in Member Data and of Novation in Aggregated Member
Data, Neoforma shall own the derivative works created by using
the Member Data and the Aggregated Member Data, provided that no
such information may be used by Neoforma other than subject to
the following conditions:
* Material has been omitted and filed separately with the Commission.
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(i) in accordance with the license or sublicense to be
obtained from Members in accordance with the provisions
of Subsection 10.3.2; or
(ii) Member-related Information is (a) combined with
non-Member related User Information that * and (b) the
Information is provided in such a manner that the
identity of the Member, Member Data and Aggregated
Member Data can not be discerned or identified by using
such Information in connection with any other
information.
10.6 License Grant of Information to Novation.
10.6.1 Subject to the terms and conditions of this Agreement,
Neoforma hereby grants to Novation a nonexclusive,
non-transferable license during the Term to access and
use the Information; provided, however, that such use is
(i) solely for Novation's internal use and for the
sublicensing of the use of such data to VHA, UHC and
HPPI for their use in serving the needs of their Members
(provided that a party may not license, sell or
otherwise make available the Information), (ii) complies
with the privacy policy in existence on the Exchange at
the time of such use and (iii) Novation, VHA, UHC and
HPPI each treat such Information as Confidential
Information subject to Section 11 of this Agreement.
10.6.2 Subject to the terms and conditions of this Agreement,
Neoforma hereby grants to Novation a nonexclusive,
non-transferable license, as agent, to sublicense the
Information described in Section 10.5 to Suppliers.
10.6.3 With respect to the Information sublicensed by Novation
under this Subsection 10.6.2, Novation will keep * of
the gross license fees and the remaining * of such
license fees shall be paid to Neoforma.
10.7 No Other Licenses or Use. Except as expressly set forth in this
Section 10, none of the Members, Novation or Neoforma grants any
license, express or implied, in the Member Data, Aggregated
Member Data or Information. The failure to abide by the terms
and conditions of this Section 10 shall constitute a material
default of this Agreement.
10.8 Other Data. Neoforma and Novation acknowledge that all other
data that a party gathers or develops independent of this
Agreement shall not be covered by this Agreement, provided that
Neoforma shall not solicit any information from a Member without
fully disclosing to the Member all intended uses for which such
information is being collected and will be used.
10.9 Neoforma Information. Notwithstanding anything herein to the
contrary, Neoforma may use the Neoforma Information in any
manner that it chooses, provided that such information does not
include Member Data or Aggregated Member Data.
* Material has been omitted and filed separately with the Commission.
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11. SAFEGUARDING OF DATA; CONFIDENTIALITY
11.1 Novation Data.
11.1.1 Generally. As between Neoforma and its Affiliates, on
the one hand, and Novation and its Affiliates, on the
other hand, information relating to Novation, VHA or UHC
or their respective Affiliates, Members or customers,
whether or not marked "confidential" and whether
disclosed in tangible or in intangible (e.g., oral or
visual) form, including, without limitation, (i)
information regarding the operations, affairs and
business of Novation, VHA or UHC, or their respective
Affiliates, Members or customers, (ii) Novation
Materials and (iii) all Transaction Data, except as
provided in Section 10, (collectively, the "NOVATION
DATA") is confidential and will be subject to Section
11.2. Novation Data is the property of Novation, VHA or
UHC, or their respective Affiliates, Members or
customers. Neoforma shall have access to and may make
use of Novation Data to the extent reasonably necessary
to perform its obligations under this Agreement.
Neoforma shall not, however, use Novation Data for any
purpose other than providing Services, except as
provided in Section 10. Upon termination or expiration
of this Agreement for any reason, or upon Novation's
request, Neoforma shall promptly return to Novation all
of the Novation Data in Neoforma's possession (including
backup or archival copies).
11.1.2 Safeguarding of Data. Neoforma shall maintain
appropriate safeguards, consistent with prevailing
industry standards, against the destruction,
inappropriate disclosure, wrongful access or use, loss
or alteration of the Novation Data in the possession of
Neoforma. In any event, Neoforma shall maintain
safeguards that are no less rigorous than those
maintained by Neoforma for its own information of a
similar nature and, in no event, less than a reasonable
level of safeguards.
11.2 Confidentiality.
11.2.1 Confidential Information. "CONFIDENTIAL INFORMATION"
means (i) business or technical information of any
party, including, without limitation, information
relating to a party's product plans, designs, costs,
product prices, finances, marketing plans, business
opportunities, personnel, research, development,
know-how or the pricing information available to
Members, (ii) any information communicated with respect
to an Opportunity, including the ideas, concepts or
other intellectual property contained therein, (iii) any
information designated "confidential" or "proprietary"
or which, under the circumstances, should reasonably
have been understood to be confidential, (iv) Novation
Data and (v) the terms and conditions of this Agreement.
* Material has been omitted and filed separately with the Commission.
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11.2.2 Confidentiality Obligations. Each party agrees that (i)
it will not use or disclose to any third person
including its Affiliates any Confidential Information
disclosed to it by any other party except as expressly
permitted in this Agreement and (ii) it will take all
reasonable measures to maintain the confidentiality of
all Confidential Information of each other party in its
possession or control, which will in no event be less
than the measures it uses to maintain the
confidentiality of its own information of similar
importance.
11.2.3 Exclusions. Subsection 11.2.2 will not prevent a party from
disclosing Information that (i) is owned by such party or its
Affiliates or is already known by the recipient party or its
Affiliates without an obligation of confidentiality other than
under this Agreement, (ii) is publicly known or becomes publicly
known through no unauthorized act of the recipient party, (iii)
is rightfully received from a third party, provided that the
source is not known to be bound by a confidentiality agreement
or (iv) is independently developed by employees of a party or an
Affiliate of a party without use of the other party's
Confidential Information. If Confidential Information is
required to be disclosed pursuant to a requirement of a
governmental authority, such Confidential Information may be
disclosed pursuant to such requirement so long as the party
required to disclose the Confidential Information, to the extent
possible, (i) provides the party that owns the Confidential
Information with timely prior notice of such requirement and
coordinates with such other party in an effort to limit the
nature and scope of such required disclosure and (ii) uses
commercially reasonable efforts to ensure that, within
applicable law, such Confidential Information will not be
further disclosed. If Confidential Information is required to be
disclosed in connection with the conduct of any arbitration
proceeding conducted pursuant to Section 18, such Confidential
Information may be disclosed pursuant to and in accordance with
the approval and at the direction of the arbitrator conducting
such proceeding. Upon written request at the termination or
expiration of this Agreement for any reason, all such
Confidential Information in tangible form (and all copies
thereof) owned by the requesting party or its Affiliates will be
returned to the requesting party or at the requesting party's
option will be destroyed, with written certification thereof
being given to the requesting party, and subject to any rights
expressly granted to the other party under this Agreement, the
other party shall cease all further use of any Confidential
Information, whether tangible or intangible.
11.2.4 No License. Nothing contained in this Section 11.2 will be
construed as obligating a party to disclose its Confidential
Information to another party, or as granting to or conferring on
a party, expressly or implied, any patent, copyright, trademark,
trade name, trade secret or other Intellectual Property Rights
or any license to the Confidential Information of the other
party.
* Material has been omitted and filed separately with the Commission.
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11.2.5 Loss of Confidential Information. In the event of any breach by
the recipient party of this Section 11.2 that results in a
disclosure or loss of, or inability to account for, any
Confidential Information of the furnishing party, the receiving
party shall promptly, at its own expense, (i) notify the
furnishing party in writing, (ii) take such commercially
reasonable actions as may be necessary or reasonably requested
by the furnishing party to minimize the breach, and (iii)
cooperate in all reasonable respects with the furnishing party
to minimize the breach and any damage resulting therefrom.
12. REPRESENTATIONS AND WARRANTIES
12.1 Representations by Neoforma. Neoforma represents and warrants to
Novation, VHA, UHC and HPPI that each of the following
statements in this Section 12.1 are true and correct as of the
Effective Date of this Agreement.
12.1.1 Due Organization. Neoforma is a corporation duly
organized, validly existing and in good standing under
the laws of the State of Delaware.
12.1.2 Authority; Non-Contravention.
(a) Neoforma has all requisite corporate power and
authority to enter into this Agreement and to
perform its obligations hereunder. The execution
and delivery of this Agreement and the
consummation of the transactions contemplated
hereby have been duly authorized by all
necessary corporate action on the part of
Neoforma. This Agreement has been duly executed
and delivered by Neoforma, and it constitutes
the valid and binding obligation of Neoforma,
enforceable against Neoforma in accordance with
its terms, except as enforceability may be
limited by bankruptcy and other similar laws
affecting the rights of creditors generally and
general principles of equity.
(b) The execution and delivery of this Agreement by
Neoforma does not, and the performance of this
Agreement by Neoforma will not, (i) conflict
with or violate the Certificate of Incorporation
or Bylaws of Neoforma, (ii) conflict with or
violate any law, rule, regulation, order,
judgment or decree applicable to Neoforma or by
which Neoforma or any of its properties is bound
or affected or (iii) result in any breach of or
constitute a default (or an event that with
notice or lapse of time or both would become a
default) under, or impair Neoforma's rights or
alter the rights or obligations of any third
party under, or give to others any rights of
termination, amendment, acceleration or
cancellation of, or result in the creation of an
encumbrance on any of the properties or assets
of Neoforma pursuant to, any note, bond,
mortgage, indenture,
* Material has been omitted and filed separately with the Commission.
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agreement, lease, license, permit, franchise or
other instrument or obligation to which Neoforma
is a party or by which Neoforma or its assets is
bound or affected, except, in the case of
clauses (ii) and (iii), for such conflicts,
violations, breaches, defaults, impairments, or
rights which, individually or in the aggregate,
would not have a material adverse effect on
Neoforma.
(c) No consent, approval, order or authorization of,
or registration, declaration or filing with any
governmental entity is required to be obtained
or made by Neoforma in connection with the
execution, delivery and performance of this
Agreement.
12.1.3 Performance. All Services will be performed in a
professional and workmanlike manner, consistent with the
high professional standards and practices prevailing in
the Internet e-commerce services industry.
12.2 Representations by Novation, VHA, UHC and HPPI. Each of
Novation, VHA, UHC and HPPI, severally and not jointly,
represents and warrants to Neoforma that the following
statements made by it in this Section 12.2 are true and correct
as of the Effective Date of this Agreement.
12.2.1 Due Organization. Novation is a limited liability
company duly organized, validly existing and in good
standing under the laws of the State of Delaware; UHC is
a corporation duly organized, validly existing and in
good standing under the laws of the State of Illinois;
VHA is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware; HPPI is a limited liability company duly
organized, validly existing and in good standing under
the laws of the State of Delaware.
12.2.2 Authority; Non-Contravention.
(a) Each of Novation and HPPI has all requisite
limited liability company power and authority,
and each of VHA and UHC has all requisite
corporate power and authority, to enter into
this Agreement and to perform its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the
transactions contemplated hereby have been duly
authorized by all necessary limited liability
company action on the parts of Novation and HPPI
and all necessary corporate action on the parts
of VHA and UHC. This Agreement has been duly
executed and delivered by Novation, VHA, UHC and
HPPI, and it constitutes the valid and binding
obligation of each of Novation, VHA, UHC and
HPPI, enforceable against each of Novation, VHA,
UHC and HPPI in accordance with its terms,
except as enforceability may be limited by
bankruptcy and other similar laws affecting the
rights of creditors generally and general
principles of equity.
* Material has been omitted and filed separately with the Commission.
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(b) The execution and delivery of this Agreement by
Novation, VHA, UHC and HPPI does not, and the
performance of this Agreement by each of
Novation, VHA, UHC and HPPI will not, (i)
conflict with or violate the limited liability
company and corporate organizational documents,
respectively, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree
applicable to Novation, VHA, UHC or HPPI or by
which Novation, VHA, UHC or HPPI, or any of
their respective properties are bound or
affected, or (iii) result in any breach of or
constitute a default (or an event that with
notice or lapse of time or both would become a
default) under, or impair Novation's, VHA's,
UHC's or HPPI's rights or alter the rights or
obligations of any third party under, or give to
others any rights of termination, amendment,
acceleration or cancellation of, or result in
the creation of an encumbrance on any of the
properties or assets of Novation, VHA, UHC or
HPPI pursuant to, any note, bond, mortgage,
indenture, agreement, lease, license, permit,
franchise or other instrument or obligation to
which Novation, VHA, UHC or HPPI is a party or
by which Novation, VHA, UHC or HPPI, or any of
their assets, is bound or affected, except, in
the case of clauses (ii) and (iii), for such
conflicts, violations, breaches, defaults,
impairments, or rights which, individually or in
the aggregate, would not have a material adverse
effect on Novation, VHA, UHC and HPPI,
respectively.
(c) No consent, approval, order or authorization of,
or registration, declaration or filing with any
governmental entity is required to be obtained
or made by Novation, VHA, UHC or HPPI in
connection with the execution, delivery and
performance of this Agreement.
12.3 Warranty Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, EACH PARTY DISCLAIMS ALL EXPRESS AND IMPLIED
WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE.
13. USE OF SUBCONTRACTORS
13.1 Generally. Neoforma may subcontract its obligations under this
Agreement subject to the limitations imposed by this Section
13.1. Neoforma shall not subcontract any of the following
without the prior written consent of Novation, such consent not
to be unreasonably withheld:
(i) any Services involving any contact or interface with
Members, including, without limitation, sales efforts,
implementation and integration and call center services;
or
* Material has been omitted and filed separately with the Commission.
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(ii) any Services to a Novation Competitor.
13.2 Novation's Right to Revoke Approval. Novation shall have the
right during the Term to revoke its prior approval of a
subcontractor and direct Neoforma to replace such subcontractor
as soon as possible if the subcontractor's performance is
materially deficient, good faith doubts exist concerning the
subcontractor's ability to render future performance because of
changes in the subcontractor's ownership, management, financial
condition, or otherwise, or there have been material
misrepresentations by or concerning the subcontractor.
13.3 Continuing Responsibility. Neoforma shall remain responsible for
obligations performed by subcontractors to the same extent as if
such obligations were performed by Neoforma's employees.
Neoforma shall be Novation's sole point of contact regarding the
Services, including with respect to payment.
13.4 Confidential Information. Neoforma shall not disclose
Confidential Information of any of Novation, VHA, UHC or HPPI to
a subcontractor unless and until such subcontractor has agreed
in writing to protect the confidentiality of such Confidential
Information as required of Neoforma under this Agreement.
14. INSURANCE
14.1 Insurance. Each of Neoforma and Novation shall determine the
types and amounts of insurance coverage it requires in
connection with this Agreement, including, without limitation,
general public liability, property damage and workers
compensation insurance. Neither Neoforma nor Novation is
required to obtain insurance for the benefit of the other,
including, without limitation, business interruption insurance.
Each of Neoforma and Novation will pay all costs and receive all
benefits under policies arranged by it, and each waives rights
of subrogation it may otherwise have regarding the other's
insurance policies.
14.2 Proof of Insurance. When requested by Neoforma or Novation, an
insurance certificate indicating the coverage described in
Section 14.1, issued by an insurance company licensed to do
business in the relevant state or states and signed by an
authorized agent, shall be furnished by the insured party to the
requesting party. Each of Neoforma and Novation shall provide
the other with at least 30 days prior written notice of any
cancellation or material modification of such insurance.
15. INDEMNITY
15.1 Neoforma Indemnity. Subject to Section 15.4, Neoforma shall
indemnify, defend and hold harmless each of Novation, VHA, UHC
and HPPI and each of their Affiliates, officers, directors,
employees, consultants and agents from and against any and all
damages, liabilities, claims, actions, suits, proceedings,
costs, charges and expenses, including reasonable attorneys'
fees (collectively, "LOSSES"), incurred or sustained by any of
such persons as a result of or from any third-party
* Material has been omitted and filed separately with the Commission.
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claim relating to (i) any claims based on Neoforma's
confidentiality obligations contained in Section 11 or its
warranties contained in Section 12, (ii) the failure of Neoforma
to perform any of its obligations under any agreement between
Neoforma and a third party (including, without limitation, any
agreements between Neoforma and a Supplier) or (iii) any claims
arising out of Neoforma's breach of this Agreement.
15.2 Novation Indemnity. Subject to Section 15.4, Novation shall
indemnify, defend and hold harmless each of Neoforma and its
Affiliates, officers, directors, employees, consultants and
agents from and against any and all Losses awarded against or
paid in settlement by Neoforma, incurred or sustained by any of
such persons as a result of or from any third-party claim
relating to (i) any claims based on Novation's confidentiality
obligations contained in Section 11 or its warranties contained
in Section 12, (ii) the failure of Novation to perform any of
its obligations under any agreement between Novation and a third
party or (iii) any claims arising out of Novation's breach of
this Agreement.
15.3 Infringement Claims.
15.3.1 Each of Neoforma and Novation, at their respective
expense, shall indemnify, defend and hold harmless the
other party and its Affiliates, and their respective
officers, directors, employees, consultants, agents,
successors and assigns, from and against any and all
Losses arising from any Services, software, hardware or
the indemnitor's Materials ("ITEM(S)") provided or
delivered by the indemnitor to the indemnitee under this
Agreement, when used in conformity with all applicable
written instructions and documentation, (i) infringes
any patent in any country that is a signatory to the
Patent Cooperation Treaty, (ii) infringes any copyright
in any country that is a signatory to the Berne
Convention for the Protection of Literary and Artistic
Works, or (iii) constitutes misappropriation of any
trade secret in any country in which a trade secret
right exists such that it would be enforceable in the
United States (each such third-party claim, action, suit
or proceeding, an "INFRINGEMENT CLAIM").
15.3.2 Notwithstanding anything to the contrary herein, the
indemnitor shall have no obligation to defend or
indemnify the indemnitee for any Infringement Claim to
the extent arising out of or relating to modifications
to any Item made by or on behalf of the indemnitee where
but for such modifications there would have been no
Infringement Claim.
15.3.3 If the indemnitee's use of any Item is enjoined or
otherwise prohibited, or if the indemnitor reasonably
believes that there exists a threat of the same, the
indemnitor shall have the right, in its sole discretion
and at its expense, in addition to its indemnification
obligations above, to (i) obtain for the indemnitee the
right to continue to use the affected Item, (ii) replace
the affected Item with a non-infringing product or
service that will not
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degrade the performance quality of the affected
component of the Services or (iii) modify the affected
Item so that it becomes non-infringing. If the
alternatives in (i), (ii) and (iii) are not feasible,
the indemnitor shall remove the Item from the Services
and equitably adjust the charges to reflect such
removal.
15.3.4 THIS SECTION SETS FORTH THE SOLE AND EXCLUSIVE REMEDY OF
THE INDEMNITEES, AND THE ENTIRE OBLIGATION AND LIABILITY
OF THE INDEMNITOR, AS TO ANY INFRINGEMENT CLAIMS IN
CONNECTION WITH ANY ACTIVITY UNDER THIS AGREEMENT.
15.4 Indemnity Procedures. The party seeking indemnification under
Section 15.1 through 15.3, as the case may be (the "INDEMNIFIED
PARTY"), shall give prompt written notice to the other party
(the "INDEMNIFYING PARTY"). In addition, the Indemnified Party
shall allow the Indemnifying Party to direct the defense and
settlement of any such claim, with counsel of the Indemnifying
Party's choosing that is reasonably acceptable to the
Indemnified Party, and will provide the Indemnifying Party, at
the Indemnifying Party's expense, with information and
assistance that is reasonably necessary for the defense and
settlement of the claim. The Indemnified Party reserves the
right to retain counsel, at the Indemnified Party's sole
expense, to participate in the defense of any such claim. The
Indemnifying Party shall not settle any such claim or alleged
claim without first obtaining the Indemnified Party's prior
written consent, which consent shall not be unreasonably
withheld, if the terms of such settlement would not adversely
affect the Indemnified Party's rights under this Agreement.
16. LIMITATION OF LIABILITY
16.1 Limitations. IN NO EVENT WILL ANY PARTY BE LIABLE TO ANY OTHER
PARTY FOR ANY LOST PROFITS, SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
16.2 Exceptions. The limitation set forth in Section 16.1 above will
not apply to (i) Neoforma's obligations under Section 11,
Section 15.1, Section 15.3 or Section 16.3, (ii) Novation's
obligations under Section 11, Section 15.2 or Section 15.3,
(iii) Neoforma's willful misconduct or gross negligence in the
provision of Services or (iv) Neoforma's wrongful termination or
abandonment of this Agreement.
16.3 Liquidated Damages.
16.3.1 Neoforma acknowledges that proper achievement of each of
the functions and responsibilities set forth in the
Functionality Specifications and the completion of each
Phase (as defined in the Functionality Specifications)
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within the timetable specified therein (or as otherwise
agreed to by Neoforma and Novation) are critical to the
business operations of Novation. In connection
therewith, Neoforma agrees that if any of the functions
and responsibilities of a particular Phase described in
the Functionality Specifications are not properly
achieved by that Phase's respective target date, such
failure shall be deemed to constitute a material breach
of Neoforma's service obligations under this Agreement.
Upon such failure, Neoforma shall pay liquidated damages
to Novation for each day past the target date in which
the objective is still not achieved in the amount of (i)
*; provided, however, that any failure by Neoforma to
complete any such Phase within the timeframe described
in the Functionality Specifications shall be excused if
and to the extent (i) such failure by Neoforma resulted
principally from a material failure by Novation to
perform its obligations in respect of such Phase (as
such obligations are set forth in the Implementation
Plan to be agreed upon for each Phase, as described in
the Functionality Specifications) and (ii) Neoforma used
commercially reasonable efforts to perform
notwithstanding Novation's failure to perform; provided,
further, that any failure by Neoforma to complete any
Phase in a timely manner pursuant to the preceding
proviso shall only be excused for a number of days equal
to the number of days Novation failed to perform its
obligations in respect of such Phase (as such
obligations are set forth in the applicable
Implementation Plan).
16.3.2 Neoforma acknowledges that proper achievement of the
Service Levels set forth in the Service Level
Specifications (including those Service Levels which
will be determined after the Effective Date) are
critical to the business operations of Novation.
Accordingly, in connection with any failure to meet
Service Levels, Neoforma and Novation shall agree on a
methodology whereby Neoforma shall pay to Novation
liquidated damages up to *. Such methodology shall be
determined in accordance with Section 1.4 of the Service
Level Specifications.
16.3.3 The parties agree that the damages provided in this
Section 16 are a reasonable estimate of the damages that
would be suffered by Novation as a consequence of the
failures described in Subsections 16.3.1 and 16.3.2 and
do not constitute a penalty (the parties hereby
acknowledging the inconvenience and difficulty of
otherwise obtaining an adequate remedy). Notwithstanding
anything to the contrary in this Agreement, the
aggregate amount of liquidated damages paid by Neoforma
to Novation pursuant to this Section 16.3 (including all
payments under the Functionality Specifications and the
Service Level Specifications) shall not exceed *.
17. AUDIT RIGHTS
17.1 General. Upon 10 days prior notice from Novation, Neoforma shall
provide to such auditors as Novation may designate in writing,
subject to the limitation
* Material has been omitted and filed separately with the Commission.
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imposed by Section 17.3, access during normal business hours to
Neoforma's applicable facilities and to appropriate Neoforma
management personnel and subcontractors, and to the data and
records maintained by Neoforma with respect to the Services for
the purpose of (i) performing audits and inspections of Neoforma
and its businesses, (ii) to verify the integrity of Novation
Materials and Neoforma Materials, (iii) to examine the systems
that process, store, support and transmit such Novation
Materials, (iv) to verify user volume reports, (v) to verify the
accuracy of Transaction Fees and (vi) to confirm Neoforma's
compliance with this Agreement. To the extent applicable to the
Services performed by Neoforma, the scope of such audits may
include, without limitation, (i) Neoforma's practices and
procedures, (ii) the adequacy of general controls and security
practices and procedures and (iii) the adequacy of disaster
recovery and back-up procedures. Subject to Section 17.6, such
audits shall be conducted at Novation's expense.
17.2 Frequency of Audits. Operational audits, to examine the
technological aspects of Neoforma's provision of Services, may
not be conducted more than once in any 12-month period.
Financial audits, which examine Neoforma's financial records,
and other supporting records, may not be conducted more than
once in any 12-month period. Novation may, at its election,
conduct operational and financial audits concurrently.
17.3 Auditors. For the purposes of conducting financial audits,
Novation may designate any internal auditor who customarily
audits contract compliance issues for Novation or any nationally
recognized accounting firm. For the purposes of conducting
operational audits, Novation may designate any party to act as
its auditor, subject to Neoforma's consent, which shall not be
unreasonably delayed or withheld.
17.4 Record Retention. In order to document the Services and the
Transaction Fees paid or payable by Novation under this
Agreement, Neoforma shall retain its standard records and
supporting documentation for at least seven years.
17.5 Cooperation. Neoforma shall use commercially reasonable efforts
to assist such auditors, inspectors, regulators and
representatives in connection with such audits and inspections.
17.6 Overcharges. If, as a result of any such audit, Novation
determines that Neoforma has overcharged Novation, Novation
shall notify Neoforma of the amount of such overcharge and
Neoforma shall promptly pay to Novation the amount of the
overcharge, plus interest at a rate of 1.5% per month or the
maximum rate permitted by law, whichever is less, calculated
from the date of receipt by Neoforma of the overcharged amount
until the date of payment to Novation. If any such audit reveals
an overcharge to Novation during any 12-month period exceeding
5% of all Transaction Fees in the aggregate paid by Novation
during such period, Neoforma shall reimburse Novation for the
out-of-pocket costs and expenses incurred for such audit.
* Material has been omitted and filed separately with the Commission.
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18. DISPUTE RESOLUTION
18.1 Resolution of Disputes. Except as otherwise provided in this
Section 18, any and all disputes arising out of or in connection
with the execution, interpretation, performance or
nonperformance of this Agreement (each such dispute, a "DISPUTED
MATTER") will be resolved by the procedures established in this
Section 18.
18.2 Negotiations and Escalation. Each party shall use commercially
reasonable efforts expeditiously to resolve any Disputed Matter
which arises from time to time between it and any of the other
parties on a mutually acceptable negotiated basis. In connection
therewith, any party involved in a Disputed Matter may deliver a
notice to each of the other parties (an "ESCALATION NOTICE")
demanding an in-person meeting of the senior level management
representatives of the parties involved (and providing, as a
courtesy, notice to the parties not involved). Any agenda,
location or procedures for such discussions or negotiations may
be established by the parties to the Disputed Matter, but such
parties shall, in any event, meet within 10 days after the
delivery of the Escalation Notice. The parties to a Disputed
Matter may, if they mutually so desire, retain a mutually agreed
upon mediator to assist in resolution of the Disputed Matter,
but (i) all statements and opinions of such mediator shall be
only advisory and shall be inadmissible in any subsequent
proceedings between the parties concerning the Disputed Matter,
(ii) the parties thereto shall bear the costs of any such
mediation equally (but each party to the mediation shall be
responsible for its own expenses) and (iii) mediation is not a
prerequisite to arbitration. If the parties to the Disputed
Matter are unable to resolve it by the earlier of (i) 30 days
after the delivery of the Escalation Notice or (ii) the
conclusion of the meeting held pursuant to the applicable
Escalation Notice, then any party thereto may institute
arbitration, as provided below, concerning the Disputed Matter.
18.3 Appointment of Arbitral Body. Except as provided in Section
18.11, any Disputed Matters not resolved pursuant to Section
18.2 or otherwise settled between the parties will be finally
resolved solely by arbitration, by a single arbitrator appointed
in accordance with the rules and procedures (the "RULES") of the
American Arbitration Association, or if the American Arbitration
Association is no longer conducting such arbitrations, a
successor organization thereto or such other private arbitration
service as the parties shall mutually agree (the actual
authority involved, the "ARBITRAL BODY"). Except as set forth
below in Sections 18.10 and 18.11, the parties renounce all
recourse to litigation to resolve Disputed Matters and agree
that the Award of the arbitrator will be final and subject to no
judicial review.
18.4 Qualifications of Arbitrator. The arbitrator shall be selected
pursuant to the rules and procedures of the Arbitral Body, but
shall be (i) impartial and will not have been employed by or
affiliated with any of the parties to this Agreement or any of
their respective Affiliates, (ii) experienced in commercial
dispute resolution and (iii) familiar with commercial business
practices in the medical supplies
* Material has been omitted and filed separately with the Commission.
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procurement business or the business involved in the Disputed
Matter. If the Arbitral Body is unable to provide an arbitrator
with the qualifications set forth in this Section 18.4, the
Arbitral Body will consult with the parties and consider their
recommendations for the arbitrator.
18.5 Initiation of Arbitration and Procedures. After the expiration
of the 30-day period referred to in Section 18.2, arbitration
procedures may be initiated concerning a Disputed Matter by any
of the parties thereto by giving written notice to the other
parties thereto and in compliance with any of the applicable
Rules. If not specified by the Rules, such notice shall be given
to the parties to the Disputed Matter in the manner provided
generally for notices in this Agreement. Any notice will specify
in reasonable detail the dispute being submitted to arbitration
and comply with all other Rules concerning commencement of
arbitration.
18.6 Procedures. The arbitrator will conduct the proceedings,
including arguments and briefs, in accordance with the Rules;
provided that the provisions of this Section 18 will prevail in
the event of any conflict between the Rules and its provisions.
Within five days after his or her appointment, the arbitrator
shall contact the parties to the Disputed Matter and arrange an
initial conference with them, to be conducted within 30 days
after his or her appointment, at which conference (the "HEARING
CONFERENCE") the arbitrator and the parties will establish
procedures (based on a brief written plan submitted in letter
form by each party to the Disputed Matter in advance of such
Hearing Conference concerning expected measures to prepare for
hearing on the merits) and a schedule for the resolution of the
Disputed Matter by hearing on the merits in a timely and
efficient manner, giving due consideration to the nature and
extent of the Disputed Matter, the apparent complexity of
preparations for, and complexity of, hearing on its merits and
other factors (such as third-party litigation pending against
one of the parties on the same subject-matter as raised in the
Disputed Matter). In the event of a dispute concerning such
procedures at the Hearing Conference, the arbitrator shall have
the power to impose the schedule upon the parties to the
Disputed Matter, giving due consideration to resolution of the
Disputed Matter by a full and fair hearing on the merits. The
arbitrator shall include in procedures established at the
Hearing Conference provisions which permit the parties to engage
in reasonable, limited discovery in preparation for hearing on
the merits and which protect and preserve privileges and shield
confidential proprietary information from disclosure. The
hearing on the merits will be held within 60 days after the
Hearing Conference, and evidentiary matters at such hearing will
be determined in accordance with the Federal Rules of Evidence
as applied at the place of arbitration.
18.7 Governing Law; Jurisdiction. The arbitrator will decide the
issues submitted in accordance with the provisions and
commercial purposes of this Agreement, provided that all
substantive questions of law will be determined under the laws
of the State of New York. The parties consent to venue in the
State in which the
* Material has been omitted and filed separately with the Commission.
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principal place of business of the party initiating arbitration
regarding a Disputed Matter is located.
18.8 Arbitration Award. All decisions of the arbitrator will be in
writing and submitted to the parties, and the decision after
hearing on the merits which announces resolution of the Disputed
Matter (the "AWARD") shall, in addition, set forth findings of
fact and conclusions of law to support the arbitrator's
resolution of the merits of the Disputed Matter. The arbitrator
will issue the Award within 30 days after completion of the
hearing on the merits.
18.9 Cooperation of the Parties. The parties to the Disputed Matter
will facilitate the arbitration by (i) making available to one
another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under
their control if determined by the arbitrator to be relevant to
the dispute, (ii) conducting arbitration hearings to the
greatest extent possible on successive days and (iii) observing
strictly the time periods and procedures established by the
Rules or by the arbitrator for submission of evidence or briefs,
conduct of the hearing on the merits and preparations therefor.
18.10 Costs. All costs of the arbitration shall initially be borne
equally by the parties thereto as incurred, but upon completion
of the arbitration, the arbitrator shall award to the prevailing
party, as determined by the arbitrator in accordance with
principles of New York law for determining prevailing parties in
litigation, all reasonable costs, fees and expenses related to
the arbitration, including reasonable fees and expenses of
attorneys, accountants and other professionals or experts
incurred by the prevailing party.
18.11 Judgment on the Award; Enforcement. Judgment on the Award may be
entered in any court having jurisdiction and procedures
therefor. Each party agrees that any Award of an arbitrator
against it and on which judgment is entered may be executed
against the assets of any party which is a judgment debtor or
otherwise enforced in any jurisdiction pursuant to the
procedures in and protections of such jurisdiction which are
generally applicable to enforcement of judgments, including
provision in such jurisdiction for the enforcement of equitable
remedies provided in the Award.
18.12 Preservation of Equitable Relief; Third-Party Litigation.
Notwithstanding any provision of this Section 18 to the
contrary, any party will be entitled (i) to seek a temporary
restraining order or injunctive or other equitable relief in any
court of competent jurisdiction with respect to a breach (or
attempted or threatened breach) of this Agreement by any party
(including, without limitation, the matters referred to in
Subsection 9.9.4) or (ii) to institute litigation or other
formal proceedings to the extent necessary (A) to enforce the
award of the arbitrator, (B) to avoid the expiration of any
applicable limitations period or (C) to preserve a superior
position with respect to other creditors. Nothing in this
Section 18 shall prevent parties to this Agreement who become
involved in a Disputed Matter and who have become parties to
litigation instituted by a third party concerning facts
* Material has been omitted and filed separately with the Commission.
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involved in such Disputed Matter from resolving disputes between
them arising in connection with such Disputed Matter through
such litigation in lieu of arbitration under this Section 18.
18.13 Continued Performance. Each party agrees to continue performing
its obligations under this Agreement during the pendency of any
dispute resolution process conducted in accordance with this
Section 18.
19. GUARANTY OF PERFORMANCE
19.1 VHA and UHC Guarantees. VHA and UHC agree, severally but not
jointly, that they will be responsible for the obligations and
liabilities of Novation under this Agreement, as follows:
(i) to the extent that any such obligation or liability
relates primarily to any action or omission by UHC or an
UHC Member, UHC shall be responsible;
(ii) to the extent that any such obligation or liability
relates primarily to any action or omission by VHA or a
VHA Member, VHA shall be responsible; and
(iii) to the extent that the allocations set forth in (i) and
(ii) are not applicable, VHA and UHC shall be
responsible in proportion to their respective ownership
interests in Novation at the time such obligation or
liability is incurred.
19.2 VHA and UHC Waivers. Each of VHA and UHC hereby waives the
following with regard to its obligations guaranty obligations
under this Section 19:
(i) any right to require Neoforma to (A) proceed first
against Novation, VHA or UHC or (B) pursue any other
remedy in Neoforma's power whatsoever;
(ii) any defense resulting from the absence, impairment or
loss of any right of reimbursement, subrogation or
contribution of VHA or UHC against Neoforma, or against
one another;
(iii) any defense of discharge, relief or stay of the
principal's obligations hereunder based upon a filing of
or against Novation under the U.S. Bankruptcy Code or
Novation's request for any relief of its obligations
under this Agreement based on laws for the relief of
debtors generally;
(iv) any right to be informed by Neoforma of the financial or
other condition of Novation or of VHA or UHC or any
change therein or any other circumstances bearing upon
the risk of nonperformance by Novation; and
* Material has been omitted and filed separately with the Commission.
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(v) any defense of exoneration or release based on amendment
of this Agreement.
Each of VHA and UHC agrees that its guarantee, as set forth in
Section 19.1, constitutes a guarantee of payment when due and
not of collection.
19.3 Scope of Liability. Neither VHA's nor UHC's obligations and
liabilities under this Agreement shall be subject to any
set-off, reduction, limitation, impairment or termination for
any reason, including, without limitation, compromise, and shall
not be subject to any defense or termination whatsoever by
reason of the invalidity, illegality or unenforceability of any
of its obligations and liabilities under this Agreement;
excluding, however, any defenses based upon Neoforma's failure
to perform any of its obligations under this Agreement.
20. GENERAL PROVISIONS
20.1 No Waiver. The delay or omission by any party to exercise or
enforce any right or power of any provision of this Agreement
shall not be construed as a waiver or relinquishment to any
extent of such party's right to assert or rely upon any such
provision or right in that or any other instance. A waiver by
any party hereto of any of the covenants to be performed by any
other or any breach thereof shall not be construed to be a
waiver of any succeeding breach thereof or of any other covenant
herein contained.
20.2 Entire Agreement. This Agreement and the Exhibits and Technical
Specifications hereto, together constitute the complete and
exclusive agreement between the parties hereto, and supersede
any and all prior agreements of the parties with respect to the
subject matter hereof. Except in the case of Section 8.12 (which
may be amended with the approval of VHA and UHC only), this
Agreement and the Exhibits and Technical Specifications hereto
may be amended or modified, or any rights under it waived, only
by a written document executed by all parties.
20.3 Publicity. Except as required by law or provided in this
Agreement, no party will make any public statement, press
release or other announcement relating to the terms of or
existence of this Agreement without the prior written approval
of all other parties. The parties will cooperate prior to the
filing of any public document which may require the filing of
this Agreement as an exhibit or the filing of a description
thereof in order to preserve the confidentiality and proprietary
information contained herein.
20.4 Covenant of Good Faith. Each party agrees that, in its
respective dealings with all other parties under or in
connection with this Agreement, it shall act in good faith.
20.5 Compliance with Laws and Regulations. Each of Neoforma and
Novation shall perform its respective obligations under this
Agreement in a manner that complies with applicable law,
including, without limitation, identifying and procuring
required permits and approvals.
* Material has been omitted and filed separately with the Commission.
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20.6 Assignment; Successors and Assigns. This Agreement will be
binding on the parties hereto and their respective successors
and permitted assigns. No party may, or will have the power to,
assign this Agreement without the prior written consent of all
other parties. For the purposes of this Section 20.6, any
assignment by operation of law, under an order of any court or
pursuant to any plan of merger, consolidation or will be deemed
an assignment for which prior consent is required, and any
assignment made without such consent will be void and of no
effect as between the parties. Notwithstanding the forgoing, no
assignment made in respect of or as a result of any dissolution
of Novation will be deemed an assignment for which prior consent
is required, and such assignment will be valid.
20.7 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York, without
regard to or application of conflicts of law rules or
principles.
20.8 Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed given if sent by prepaid
registered or certified United States mail, return receipt
requested, overnight mail with a nationally recognized overnight
mail courier, or sent by facsimile or similar communication, and
confirmed by such mail, postage prepaid, addressed to another
party at the address shown below or at such other address for
which such party gives notice hereunder. Notices will be deemed
given five business days after deposit in the U.S. Mail, two
business days after deposit with an overnight mail courier, or
when confirmation of receipt is obtained if sent by facsimile or
similar communication, or if by personal delivery, when
received, as applicable:
* Material has been omitted and filed separately with the Commission.
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IF TO NOVATION: WITH A COPY TO:
Novation, LLC Baker Botts L.L.P.
125 East John Carpenter Freeway 2001 Ross Avenue
Irving, Texas 75062 Dallas, Texas 75201-2980
Facsimile: (972) 581-5778 Facsimile: (214) 953-6503
Attn: General Counsel Attn: Sarah M. Rechter, Esq.
IF TO VHA: WITH A COPY TO:
VHA, Inc. Skadden, Arps, Slate,
220 East Las Colinas Boulevard Meagher & Flom LLP
Irving, Texas 75039-5500 1440 New York Avenue, N.W.
Facsimile: (972) 830-0391 Washington, DC 20005
Attn: Chief Financial Officer Facsimile: (202) 393-3760
Attn: C. Kevin Barnette, Esq.
IF TO UHC: WITH A COPY TO:
University HealthSystem Consortium McDermott, Will & Emery
2001 Spring Road, Suite 700 227 West Monroe Street
Oak Brook, Illinois 60523 Chicago, Illinois 60606
Facsimile: (630) 954-4730 Facsimile: (312) 984-7700
Attn: Executive Vice President Attn: Virginia H. Holden, Esq.
General Counsel
IF TO NEOFORMA: WITH A COPY TO:
Neoforma.com, Inc. Fenwick & West LLP
3255-7 Scott Boulevard Two Palo Alto Square
Santa Clara, California 95054 Palo Alto, California 94306
Facsimile: (408) 549-6399 Facsimile: (650) 494-1417
Attn: General Counsel Attn: Gordon K. Davidson, Esq.
Douglas N. Cogen, Esq.
20.9 No Agency. The parties are independent contractors and will have
no power or authority to assume or create any obligation or
responsibility on behalf of each other, except as expressly
provided herein. This Agreement will not be construed to create
or imply any partnership, agency or joint venture.
20.10 Force Majeure.
20.10.1 Subject to 20.10.2, no party shall be liable for any
default or delay in the performance of its obligations
under this Agreement if and to the extent such default
or delay is caused, directly or indirectly, by: flood,
earthquake, elements of nature or acts of God, riots,
civil disorders, rebellions or revolutions in any
country, or any other cause beyond the reasonable
control of such party, provided that (i) the
non-performing party is without fault in failing to
prevent or causing such default or delay and (ii) such
default or delay cannot reasonably be circumvented by
the
* Material has been omitted and filed separately with the Commission.
42
<PAGE> 49
non-performing party through the use of alternate
sources, workaround plans or other means (including with
respect to Neoforma, by Neoforma executing its disaster
recovery plans).
20.10.2 In such event, the non-performing party shall be excused
from further performance or observance of the
obligation(s) so affected for as long as such
circumstances prevail and such party continues to use
commercially reasonable efforts to recommence
performance or observance whenever and to whatever
extent possible without delay. With respect to
Neoforma's performance, such efforts shall be no less
than the efforts used for any other customer of
Neoforma. Any party so delayed in its performance shall
immediately notify the party to whom performance is due
by telephone (to be confirmed in writing within two days
after the inception of such delay) and describe at a
reasonable level of detail the circumstances causing
such delay.
20.11 Interest. Any payment under this Agreement which is not paid
when due, shall accrue interest at the lower of a monthly rate
of 1.5% or the highest amount allowed by law.
20.12 Program Management. As promptly as practicable after the
Effective Date, Neoforma and Novation shall meet to develop a
program management plan to manage the delivery of Services
hereunder. Such plan shall have features similar to those
illustrated in Exhibit F.
20.13 Severability. If for any reason a court of competent
jurisdiction finds any provision or portion of this Agreement to
be unenforceable, that provision of the Agreement will be
enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will
continue in full force and effect.
20.14 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which,
together, will constitute one and the same instrument.
20.15 Headings. Section headings are included for only convenient
reference and do not describe the sections to which they relate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
* Material has been omitted and filed separately with the Commission.
43
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NEOFORMA.COM, INC. NOVATION, LLC
By: /s/ Fred Ruegsegger By: /s/ Mark McKenna
-------------------------------- --------------------------------
Name: Fred Ruegsegger Name: Mark McKenna
---------------------------- ---------------------------
Title: Chief Financial Officer Title: President
---------------------------- ---------------------------
Date: March 30, 2000 Date: March 30, 2000
---------------------------- ---------------------------
VHA, INC. UNIVERSITY HEALTHSYSTEM CONSORTIUM
By: /s/ Curt Nonomaque By: /s/ Robert J. Baker
-------------------------------- --------------------------------
Name: Curt Nonomaque Name: Robert J. Baker
---------------------------- ---------------------------
Title: Chief Financial Officer Title: President and
---------------------------- Chief Executive Officer
---------------------------
Date: March 30, 2000 Date: March 30, 2000
---------------------------- ---------------------------
HEALTHCARE PURCHASING PARTNERS INTERNATIONAL, LLC
By: /s/ Mark McKenna
----------------------------
Name: Mark McKenna
----------------------------
Title: Chief Executive Officer
----------------------------
Date: March 30, 2000
----------------------------
[SIGNATURE PAGE TO OUTSOURCING AND OPERATING AGREEMENT]
* Material has been omitted and filed separately with the Commission.
44
<PAGE> 51
EXHIBIT A
MARKS
1. NOVATION MARKS:
1.1 Registered Marks.
OPPORTUNITY (Stylized) (Registration No. 2009924) is registered
to Novation.
1.2 Pending Marks.
NOVATION (Serial No. 75-421230); N and Design (Serial No.
75-602099); NOVAPLUS (Serial No. 75-525857); NOVAPLUS (Serial
No. 152867 (Czech Republic)); and NOVAPLUS and Design (Serial
No. 75-603422) are pending.
1.3 Unregistered Marks.
None.
2. NEOFORMA MARKS:
2.1 Registered Marks.
None.
2.2 Pending Marks.
NEOFORMA (Serial No. 75-555506); NEOFORMA and Design (Serial No.
75-662962); and NEOFORMA.COM and Design (Serial No. 75-662961)
are pending.
2.3 Unregistered Marks.
TOOLKIT (Serial No. 75-104592); STATCITY (Serial No. 75-562041);
STATWORLD (Serial No. 75-555393); THE HEALTHCARE BUSINESS
COMMUNITY (Stylized) (Serial No. 75-555729); AUCTIONONLINE;
AUCTIONLIVE; and ADSONLINE are unregistered.
3. VHA MARKS:
* Material has been omitted and filed separately with the Commission.
A-1
<PAGE> 52
3.1 Registered Marks.
CFIS (Registration No. 1912695); COUNTDOWN USA (Registration No.
1533720); EDGEWARE (Registration No. 2294530); LAURUS
(Registration No. 2254329); Miscellaneous Design (Registration
No. 2198615); PNEUMONIA PNOCKOUT (Registration No. 1820282);
STAY CURRENT. STAY HEALTHY (Registration No. 2251550); STAY
HEALTHY (Registration No. 1814163, 1835895); UNITED TO IMPROVE
AMERICA'S HEALTH (Registration No. 1892202); VHA (Registration
No. 1227889 (U.S.A.), 500495 (Benelux), 284986 (Canada), 1676194
(France), 2904740 (Germany), 613531 (Italy), 414861 (Mexico),
104986 (Russian Federation)); VHA (Stylized) (Registration No.
1300891 (U.S.A.), 316977 (Canada)); VHA and Design (swirl logo)
(Registration No. 1893301); VHA PLUS (Registration No. 1423203
and 1442669 (U.S.A.), 550496 (Benelux), 1676193 (France),
2904741 (Germany), 613530 (Italy), 413431 and 413432 (Mexico),
105521 (Russian Federation)); VHA SATELLITE NETWORK
(Registration No. 1419470); VHASECURE.NET (Registration No.
2182462); VHA: THE HEART OF AMERICA'S HEALTH (Registration No.
1423204); VHA+PLUS (Registration No. 1757926); VHA+PLUS and
Design (Registration No. 1425903 and 1457123 (U.S.A.), 405620
(Mexico), 60097 (Sri Lanka), 159275 (Thailand)); VOLUNTEER
HOSPITALS OF AMERICA (Registration No. 1273226 and 1310365
(U.S.A.), 298707 (Canada)) are registered to VHA.
3.2 Pending Marks.
SUPERRIEN (Serial No. 75-639339) is pending.
3.3 Unregistered Marks.
None.
4. UHC MARKS:
4.1 Registered Marks.
UHC (Registration No. 1809491); UHC and Design (Registration No.
1813976); UHC NEWSLINE (Registration No. 1867798); and ABC
(Registration No. 2327568) are registered to UHC.
4.2 Pending Marks.
None.
4.3 Unregistered Marks.
* Material has been omitted and filed separately with the Commission.
A-2
<PAGE> 53
CLINICAL DATA PRODUCTS; CDP; OPERATIONAL DATA BASE; VALUE
ANALYSIS PROGRAM; CLINICAL PROCESS IMPROVEMENT; CLINICAL
BENCHMARKING; OPERATIONAL BENCHMARKING; CAPITAL ASSET
MANAGEMENT; MANAGEMENT AND SUPPLY SERVICES; CLINICAL PRACTICE
ALERT; TECHNOLOGY ASSESSMENT; and UHC NEWS are unregistered.
5. HPPI MARKS:
5.1 Registered Marks.
HPPI (Registration No. 2003695) and HEALTHCARE PURCHASING
PARTNERS (Registration No. 1248000) are registered to HPPI.
5.2 Pending Marks.
None.
5.3 Unregistered Marks.
None.
* Material has been omitted and filed separately with the Commission.
A-3
<PAGE> 54
EXHIBIT B
CURRENT MARKS USAGE GUIDELINES FOR NOVATION
* Material has been omitted and filed separately with the Commission.
B-1
<PAGE> 55
EXHIBIT B
Novation Logo
Novation TM Editorial Standards Brief
Revised July 1999
Many Novation staff members communicate regularly in writing with VHA and UHC
members, supply partners, each other and outside audiences. Below are a few
guidelines that address questions and issues that come up every day in the
course of doing business. These guidelines are designed to create consistency in
the way we all refer to our company, its employees, and its products, programs
and services.
- --------------------------------------------------------------------------------
ACRONYMS - Avoid the use of acronyms on the first reference. It is better to
spell out a title or phrase on first reference and use acronyms on second
reference. It is unnecessary to put the acronym in parentheses after the full
name, like this: HealthCare Purchasing Partners International (HPPI). The reason
is that if the meaning of an acronym must be explained to readers, it probably
should not be used. There are some exceptions to this rule. For example, some
highly specialized acronyms have become so common in usage that the original
wording has been superseded. Examples: DNA, ISDN, RAM, CD-ROM.
AREA CODES, PHONE NUMBERS - Phone numbers should appear as follows: (972)
581-5000. It is not necessary to include a "1" in front of a long-distance
number. It is assumed that people know dialing 1 is necessary. One exception to
this rule is the number for Novation Member Support Services, which should
appear like this: 888/7-NOVATE (766-8283). If it is necessary to refer callers
to a particular extension, this is the correct style: (972) 581-5000, ext. 5555.
"X" is not an acceptable abbreviation for extension in external communications.
AUTHORIZED DISTRIBUTORS - These are distribution partners that have been
approved as official distributors of products offered through Novation
agreements. Use Novation Authorized Distributor on first reference, Authorized
Distributor on subsequent references.
CLINICAL MARKETS PROGRAMS - This is Novation's marketing strategy that focuses
on the needs of physicians and caregivers in a variety of specialties. Novation
Clinical Markets Programs aggregate best-in-class products and services
according to clinical disease states or specialties, helping VHA and UHC members
streamline their purchasing processes through one-stop shopping. Novation
currently offers these Clinical Markets Program:
o Novation Anesthesia Program
o Novation Cardiology Program
o Novation Dialysis Program
o Novation Oncology Program
o Novation Orthopedic Program
o Novation Respiratory Program
o Novation Women's Health Program
<PAGE> 56
Some Clinical Markets Programs include agreement subgroups referred to as
portfolios. These include:
o Novation Anesthesia Pharmaceutical Portfolio (formerly the Anesthesia
Pharmaceutical Standardization Program)
o Novation Oncology Pharmaceutical Portfolio (formerly the Oncology
Products Program)
o Novation Oncology Breast Care Portfolio (launching in the second
quarter of 1999)
o Novation Oncology Prostate Care Portfolio (launching in 1999)
o Novation Respiratory Pharmaceutical Portfolio (launching Oct. 1, 1999)
Novation may be omitted from the program or portfolio name on second and
subsequent references.
In addition to these offerings, several portfolios of OPPORTUNITY (R),
Novation's Committed Program, are based on Clinical Markets Programs. These
portfolios are discussed in the OPPORTUNITY section.
Please note that Clinical Markets is not a separate department of Novation. When
writing about the people who work on a particular Clinical Markets segment,
refer to them as the Novation anesthesia team, group, or unit. More casual
references as the cardiology team are acceptable on subsequent references if it
is clear that you are referring to the Novation Clinical Markets group.
COMPANY NAME, JOB TITLES - include your company name and job title, as well as
the company names and correct titles of any other people mentioned in a
document. Titles are not capitalized unless they preceded the person's name, and
then only if the title is of significant rank. Some examples:
o Gov. George W. Bush
o George W. Bush, governor of Texas
o U.S. Sen. Patrick Moynihan
o Kay Bailey Hutchison, U.S. senator from Texas
o C. Thomas Smith, VHA president and chief executive officer
o UHC President and Chief Executive Officer Robert J. Baker
o Novation product manager John Doe
o Jane Doe, Novation marketing analyst
Also include the titles and company names of people who are "cc-ed" at the
bottom of a business letter or memo. This is very important because
correspondence is often sent to VHA and UHC members, supply partners and people
at our parent organizations who may not know who you or others mentioned are.
Please don't guess at anyone's name or title; call and ask if you are uncertain.
Getting someone's name or title wrong implies a lack of courtesy and attention
to detail.
E-MAIL ADDRESSES - In communications pieces where you list a Novation contact
person, you should include that person's phone number and e-mail address. The
correct style for e-mail addresses is [email protected] (in italics).
HEALTHCARE PURCHASING PARTNERS INTERNATIONAL LLC - This is the full name of
HPPI, Novation's sister company. Like Novation, HPPI is jointly owned by VHA and
UHC. HealthCare Purchasing Partners International should be used on first
reference. HPPI is acceptable in subsequent references. HPPI has no members, it
has clients.
HOSPITAL, HEALTH CARE ORGANIZATION - All hospitals are health care
organizations, but not all health care organizations are hospitals. Therefore,
unless referring specifically to hospitals, health care organization is the
preferred term. For variety's sake, words such as facility and institution are
acceptable on subsequent references. Don't use the acronym HCO in any outside
communication.
<PAGE> 57
INTERNET SITES - Novation's World Wide Web site is www. novationco.com. This and
all other Web sites should appear in all-lower-case, italic letters.
LAUNCH - The date that an agreement or program becomes effective is the launch
date. Please don't use the term launch when you mean introduce, unveil,
announce, etc. For example, a program can be introduced March 1, but may not
launch until May 1, when the program agreements become effective.
LETTERS AND MEMOS - Memorandums are acceptable in some external business
communications, but interoffice memos are not. Appropriate business letters
should be used for more formal communications. In both documents, include the
correct names, organization names, company names (if applicable) and titles of
the recipients, sender and those who receive copies.
MEMBERS, CLIENTS AND CUSTOMERS - Novation has no members or customers. It serves
VHA and UHC members and HealthCare Purchasing Partners International clients.
When addressing or mentioning VHA and UHV organizations, use VHA and UHC members
the first time and members thereafter. Never use Novation members or Novation
customers. The term health care organizations is also acceptable.
NOVAPLUS TM - The name of Novation's private-label program. When writing about
NOVAPLUS, it should be described as the private label of VHA and UHC early in
the document. This description helps reinforce the link between NOVAPLUS and
Novation's parent alliances. Companies that supply products in the private label
are called NOVAPLUS manufacturing partners.
Here are some guidelines for using the NOVAPLUS name and logo in marketing
materials and correspondence.
o Capitalize all letters and include a trademark symbol (TM) immediately
after the name on first reference in every document. The trademark
symbol should be omitted on second and subsequent references.
o In overheads, slides, charts or other presentation materials, use the
trademark symbol after NOVAPLUS on first reference in every slide or
chart.
o Do no use the NOVAPLUS logo within text as a substitute for the name.
o All marketing materials developed by NOVAPLUS manufacturing partners
must be reviewed by the appropriate Novation product managers, and by
Novation marketing communications.
NOVAPLUS marketing materials include the NOVAPLUS logo and the tagline Your
Brand and More SM. However, it is not necessary to include this tagline in the
text of correspondence or marketing materials.
NOVATION FOOD SERVICE PROGRAM - The full name of the program. Novation may be
omitted on second reference.
NOVATION LABORATORY PROGRAM - The full name of the program. Novation may be
omitted on second reference.
NOVATION LLC - This is the full legal name of our company. It is not necessary
to include the "LLC" except in legal documents such as contracts, program
enrollment forms, etc.
NOVATION MEMBER SUPPORT SERVICES - This is the correct name of our outbound
telephone service delivery group. TeleServices should no longer by used.
Novation Customer Service is part of Member Support Services and is the group
that handles incoming calls from the 888/7-NOVATE line.
NOVATION PHARMACY PROGRAM - The full name of the program. Novation may be
omitted on second reference.
NOVATION TM, the supply company of VHA and UHC - Our company name should appear
this way on first reference in any document going to an outside audience,
complete with the trademark symbol (TM). Simply the name Novation is acceptable
on subsequent references.
<PAGE> 58
OPPORTUNITY (R) - This is Novation's committed-purchasing program. The name
should appear in the form shown here, with the registered trademark symbol, on
first reference in any document. The (R) should be omitted on subsequent
references.
The program should be referred to on first or second reference in every document
as OPPORTUNITY, Novation's Committed Program. If using the tagline on first
reference would create an awkward sentence, it is acceptable to use it on second
reference. Program is not part of the name, but the phrase OPPORUTUNITY program
is acceptable.
Offerings under the OPPORTUNITY umbrella are called portfolios. Nine portfolios
are currently available, with more in development. The nine existing portfolios
are:
o OPPORTUNITY Phase I Portfolio
o OPPORTUNITY Phase II Portfolio
o OPPORTUNITY Anesthesia Portfolio
o OPPORTUNITY International Cardiology Portfolio
o OPPORTUNITY Food Service Portfolio
o OPPORTUNITY Laboratory Portfolio
o OPPORTUNITY Orthopedic Portfolio
o OPPORTUNITY Respiratory Portfolio
o OPPORTUNITY Unified Portfolio
Please note that OPPORTUNITY is not a separate department of Novation. the
program and its portfolios are jointly operated by Novation's cost reduction
services team and the various contracting teams that develop and maintain
agreements included in the portfolios.
SERVICE DELIVERY - Novation field account managers should be referred to as the
Service Delivery team or Service Delivery account managers. Do not refer to them
as sales representatives or managers.
SUPPLY COST MANAGEMENT - Novation is a supply cost management company. The term
supply chain management is limiting and should be avoided when referring to
Novation. However, supply chain is acceptable when quoting someone or referring
to the system by which products move from suppliers to health care
organizations. (Please note that VHA still refers to Novation as its provider of
supply chain management services.)
SUPPLY PARTNERS - The companies with which Novation enters into supply
agreements are referred to as supply partners. (One exception is NOVAPLUS
manufacturers, see the NOVAPLUS entry.) We should not refer to them as vendors
or business partners and should avoid referring to them as manufacturers.
However, suppliers is acceptable for variety's sake if supply partners begins to
appear too often in a particular document.
TRADEMARKS - When mentioning a trademarked product offered by a Novation supply
partner, include the appropriate TM or (R) symbol with the trademarked name on
first reference. Please note that the two symbols are not interchangeable. TM
identifies trade names or logos that are being used by a company, pending final
approval by the U.S. Patent and Trademark Office. (R) designates names that have
been fully approved and registered with the office.
<PAGE> 59
UHC SUPPLY CO. - With the creation of Novation, UHC Supply Co. ceased to exist,
as did all UHCSC agreements. Those are now Novation agreements. To avoid
confusion for members, please do not refer to UHCSC unless describing it as a
predecessor to Novation.
UNIVERSITY HEALTHSYSTEM CONSORTIUM - The name of our parent UHC should appear
this way on first reference in any document. One exception to this rule: When
Novation, the supply company of VHA and UHC appears first in a document, spell
out University HealthSystem Consortium on the next reference to UHC. Simply the
acronym UHC is acceptable on subsequent references.
VHA - Acceptable in nearly all references to VHA Inc., the majority owner of
Novation and HPPI. The Inc. is usually necessary only in legal documents.
If you have a question regarding proper editorial standard, please contact your
Novation marketing communications manager or Rich Reecer, Novation editorial and
publications manager at ext. 5076.
<PAGE> 60
EXHIBIT C
CURRENT MARKS USAGE GUIDELINES FOR NEOFORMA
* Material has been omitted and filed separately with the Commission.
C-1
<PAGE> 61
NEOFORMA.COM, INC.'S TRADEMARK GUIDELINES
INTRODUCTION
NeoForma.com, Inc. values its intellectual property. Its trademarks and brands
are an important asset. Neoforma.com requires that its trademarks be used
properly in all contexts. Please take a moment to read our Trademark Guidelines.
If you have any questions about specific trademark or logo usage, or would like
further information regarding these Guidelines, please contact our General
Counsel.
WHO MUST FOLLOW THESE GUIDELINES
These Guidelines apply to Neoforma.com, Inc.'s employees, customers, licensees,
affiliates, consultants, and third parties. If you are a licensee or affiliate,
your license or other agreement with Neoforma.com, Inc. may set forth different
requirements regarding trademark and logo usage. If so, you are required to
follow those specific guidelines. Otherwise, if you are a licensee or affiliate
who does not have a license or agreement with Neoforma.com, Inc. that addresses
trademark and logo usage, you must follow these Guidelines.
USE OF NEOFORMA.COM, INC.'S COMPANY NAME
Neoforma.com, Inc. is our company or trade name, and NEOFORMA(TM), NEOFORMA and
Design(TM) and NEOFORMA.COM(TM) are our trademarks. When you refer to us as a
company, please use the incorporated designation (i.e., "Inc.") with the first
prominent reference and the first reference, and do not use a trademark symbol.
Our company name may be abbreviated to Neoforma.com in subsequent references.
Examples of references to Neoforma.com, Inc. as a company include identifying us
as the owner of the Neoforma.com(TM) website, and providing our contact
information, including our address, at the end of a communication.
USE OF NEOFORMA.COM, INC.'S TRADEMARKS
You may use Neoforma.com, Inc.'s trademarks when you are referring to our goods
or services provided that you follow these Guidelines, and ensure that such
references are truthful and not misleading. You may not use Neoforma.com's name
or trademarks as part of the name of your company or your company's services or
products. Such uses infringe Neoforma.com's intellectual property rights and are
unlawful. Last, you may not license Neoforma.com's name, trademarks or logos to
other parties.
* Material has been omitted and filed separately with the Commission.
C-2
<PAGE> 62
PROPER TRADEMARK USAGE
PROPER USE OF A TRADEMARK MEANS THE TRADEMARK IS FOLLOWED BY A TRADEMARK SYMBOL
AND THEN A NOUN.
The Trademark Symbol
A trademark should always be followed by the trademark symbol (TM) for
unregistered trademarks (or with a trademark that will be used on materials
distributed internationally), or (R) for federally registered trademarks. If the
superscript, (TM), or the registered trademark symbol, (R), is not available,
please use (TM) or (R) instead.
If there are multiple references to the same trademark in a given document, it
is sufficient to use the trademark symbol with the first prominent use of the
mark, and with the next use of the mark (for example, in the title or subtitle
of the document and then the first time the mark appears in text) to provide
adequate notice. You do not need to use a trademark symbol with each and every
use of the trademark. If there is doubt about whether to use a trademark symbol,
however, please use one.
Also, please note that if the document or communication has a table of contents
or index in which the trademark appears, the symbol should accompany the
trademark. In the case of presentation graphics, the trademark symbol should
appear on each page or slide where the trademark appears. Again, if there is
doubt about whether to use a trademark symbol, please use one.
A Trademark is an Adjective
A trademark is an adjective, designating the source or origin of the good or
service it modifies. Accordingly, proper trademark usage requires that the
trademark always be followed by a noun. An example of proper trademark usage is:
"Healthcare's most important e-commerce tool is the NEOFORMA.COM(TM) website."
These Guidelines require that you only use Neoforma.com's trademarks with the
service for which they were originally intended.
Note that a trademark cannot be used as a noun. It cannot be pluralized. It
cannot be used in the possessive form. Thus, for example, it is improper to say
"NEOFORMA.COM is healthcare's most important e-commerce tool."
Note also that a trademark cannot be used as verb. For example, it is improper
to say, "We will compile a list of syringe manufacturers by STATWORLDing."
The Appearance of the Trademark
You may not alter Neoforma.com's trademarks in any way unless you have a
specific agreement with Neoforma.com authorizing such alteration. You may not
use corruptions, abbreviations or variations of Neoforma.com's name or
trademarks. You may not alter any logo or design that is
* Material has been omitted and filed separately with the Commission.
C-3
<PAGE> 63
a Neoforma.com trademark. For example, you may not change the color of the
Neoforma.com design, and you may not change the font style of the NEOFORMA word
mark as it appears in the design trademark.
ATTRIBUTION OF TRADEMARK RIGHTS
Provide the following notice when using Neoforma.com's trademarks: "___________
and ___________ are trademarks or registered trademarks of Neoforma.com, Inc. in
the United States and other countries." Please use this exact language.
NEOFORMA.COM, INC.'S TRADEMARKS
Neoforma.com, Inc.'s trademarks include those on the following list, which may
not be exhaustive of our marks:
ADSONLINE(TM)
AUCTIONLIVE(TM)
AUCTIONONLINE(TM)
DEPARTMENT TOOLKIT(TM)
NEOFORMA(TM)
NEOFORMA (and Design)(TM)
NEOFORMA.COM (and Design)(TM)
PHAROS TECHNOLOGIES(TM)
PIMS(TM)
PRODUCT INFORMATION MANAGEMENT DESIGN(TM)
PRODUCT INFORMATION MANAGEMENT SOLUTION(TM)
STATCITY(TM)
STATWORLD(TM)
THE HEALTHCARE BUSINESS COMMUNITY(TM)
U.S. LIFELINE(TM)
* Material has been omitted and filed separately with the Commission.
C-4
<PAGE> 64
EXHIBIT D
CURRENT MARKS USAGE GUIDELINES FOR VHA, UHC AND HPPI
* Material has been omitted and filed separately with the Commission.
D-1
<PAGE> 65
EXHIBIT D
VHA Logo
THE VHA IDENTITY
"Corporate Identity' is a term that describes the particular visual elements
that communicate a company's image. It is the graphic uniform that reinforces,
with every application, the company's presence in the marketplace.
Building strong customer recognition and understanding of our VHA identity - in
its national and regional forms - depends on how effectively and consistently we
use it.
Our customers will see variety in VHA's national and regional products and
services, but they should also see consistency in the VHA identity. Our identity
is a representation of the values and qualities we share, and it should be
reflected in every contact we make.
Managing VHA's corporate identity is critical to our long-term growth and
success in serving VHA organizations. Adhering to the standards in this manual
is an important first step. We've included guidelines for a broad range of
materials. If you need more information or assistance with special design needs,
please call VHA's Communications Department at (214) 830-0272.
<PAGE> 66
VHA Logo
TRADEMARK AND COPYRIGHT PROTECTION
Any appearance of VHA corporate or regional names and logos must always be
accompanies by the appropriate symbols that declare and protect their exclusive
use by VHA.
Any printed materials must also be marked with a copyright notice to protect the
entire contents of the piece as the sole property of VHA.
USE OF (R)
The letters VHA and the VHA logo function as a trade name for our company and as
a trademark identifying our products and services. The regional versions of the
name and logo function in the same way for VHA Regional Health Care Systems.
The letters VHA are registered with the U.S. Patent and Trademark Office. The
new VHA logo and the positioning phrase "united to Improve America's Health" are
currently in the process of registration.
The symbol (R) constitutes notice that our name and logo are exclusive for goods
and services we offer. IT provides legal protection from those who might use
part of our corporate signature without permission or use symbols that too
closely resemble our mark.
The standard and modified versions of the corporate logo and the standard
version of each regional VHA logo are currently marketed with the symbol SM
after the position phrase, indicating that we intend to claim the logos as our
property.
On the reduced version of the corporate and regional logos where the positioning
phrase is omitted, the SM symbol appears at the lower right corner of the logo
rectangle itself.
<PAGE> 67
When registration with the U.S. Patent and Trademark Office is complete, we will
replace the SM symbol on all version with (R).
In VHA materials, the symbol (R) should be used after the letters VHA in text
when they are used as part of a product name. For example, "VHA (R) Clinical
Financial Information System" or "VHA (R) New Jersey Quality Institute."
It is not appropriate to use (R) after the letters VHA in text when using them
as our company's name. For example, "VHA announced a new product last week," or
"VHA Iowa has purchased new office space."
In VHA materials, use the registration symbol only for VHA registered
trademarks. The registered trademark of other companies should be designated by
the use of an asterisk and a footnote:
Example:
Advil* analgesic
* Registered trademark of Whitehall Laboratories
Other companies, when mentioning our products or services in their materials,
should use the registration symbol only for their own registered trademarks and
an asterisk and footnote for VHA marks.
VHA registers other product and service trademarks from time to time. For more
information about product naming, use of the VHA trademark and other trademark
issues, please refer to the "Guide of Product Naming" available from the
Communications Department.
COPYRIGHT (C)
All printed materials must be marked with the symbol (c), signifying that the
entire content is protect by copyright laws. Copyright also gives the creator of
brochures, books, etc., the exclusive right to reproduce and distribute such
materials, unless the creator grants limited rights to another party.
All corporate VHA materials must bear the following copyright notice.
(c) 1994 VHA Inc. All rights reserved.
The notice may also include one of the following statements, chosen based on the
degree of control VHA departments wish to maintain over the content.
Duplication or distribution of this document without express permission
from VHA is prohibited.
Duplication or distribution of this document without express permission
from VHA is prohibited, except for use of VHA health care organizations and
their personnel.
<PAGE> 68
UHC Logo
UHC Corporate Identity Standards
THE CORPORATE SIGNATURE
UHC Logo
The UHC acronym and the geodesic dome, along with the UHC name and the service
mark (SM) symbol, make up UHC's corporate signature. The UHC logo is the UHC
acronym and geodesic dome. Because UHC's corporate signature is the single most
important graphic element used on UHC's communications pieces, it should not be
altered or modified in any way. The size of the UHC name should always be
proportionate to the size of the logo (see signature reproduction at left).
SIGNATURE COLOR TREATMENTS
It is preferred that the UHC logo be reproduced in one color only - PMS 541 or
black. Other one-color reproductions are acceptable, as are reversed or embossed
images of the logo. All logo reproductions should be reviewed by UHC. Because of
the intricate lines that make up the geodesic dome, screens or tints of either
color should not be sued.
LOGO REPRODUCTION
The UHC logotype should be sized proportionally. For most reproductions, the
acceptable size range (width b height) is between 1" x 0.5" and 3" x 1.75". (For
certain applications, such as signage, a larger logo may be appropriate.)
Because the intricate lines that make up the geodesic dome are often difficult
to reproduce, it is important that all logo reproductions fall within the
acceptable range and that special attention be paid to the reproduction quality
of the geodesic dome.
Agaramond is the only acceptable typeface for reproduction of the corporate
signature on printed pieces.
If you have any questions or concerns regarding the correct usage of the UHC
logo and name, please check with Melissa Cutting of the UHC Marketing Department
(630/954-1769 or cutting @uhc.edu).
<PAGE> 69
HealthCare Purchasing Partners International Logo
HealthCare Purchasing Partners International TM Editorial Standards Brief.
Revised March 2000
Many HPPI staff members communicate regularly in writing with clients, supply
partners, each other and outside audiences. Below are a few guidelines that
address questions and issues that come up every day in the course of doing
business. These guidelines are designed to create consistency in the way we all
refer to our company, its employees, and its products, programs and services.
- --------------------------------------------------------------------------------
ACRONYMS - Avoid the use of acronyms on the first reference. It is better to
spell out a title or phrase on first reference and use acronyms on second
reference. It is unnecessary to put the acronym in parentheses after the full
name, like this: HealthCare Purchasing Partners International (HPPI). The reason
is that if the meaning of an acronym must be explained to readers, it probably
should not be used. There are some exceptions to this rule. For example, some
highly specialized acronyms have become so common in usage that the original
wording has been superseded. Examples: DNA, ISDN, RAM, CD-ROM.
AREA CODES, PHONE NUMBERS - Phone numbers should appear as follows: (972)
581-5000. It is not necessary to include a "1" in front of a long-distance
number. It is assumed that people know dialing 1 is necessary. One exception to
this rule is the number for Novation Member Support Services, which should
appear like this: 888/7-NOVATE (766-8283). If it is necessary to refer callers
to a particular extension, this is the correct style: (972) 581-5000, ext. 5555.
"X" is not an acceptable abbreviation for extension in external communications.
AUTHORIZED DISTRIBUTORS - These are distribution partners that have been
approved as official distributors of products offered through Novation
agreements. Use Novation Authorized Distributor on first reference, Authorized
Distributor on subsequent references.
CLINICAL MARKETS PROGRAMS - This is Novation's marketing strategy that focuses
on the needs of physicians and caregivers in a variety of specialties. Novation
Clinical Markets Programs aggregate best-in-class products and services
according to clinical disease states or specialties, helping VHA and UHC members
streamline their purchasing processes through one-stop shopping. Novation
currently offers these Clinical Markets Program:
o Novation Anesthesia Program
o Novation Cardiology Program
o Novation Dialysis Program
o Novation Oncology Program
o Novation Orthopedic Program
o Novation Respiratory Program
o Novation Women's Health Program
<PAGE> 70
Some Clinical Markets Programs include agreement subgroups referred to as
portfolios. These include:
o Novation Anesthesia Pharmaceutical Portfolio (formerly the Anesthesia
Pharmaceutical Standardization Program)
o Novation Oncology Pharmaceutical Portfolio (formerly the Oncology
Products Program)
o Novation Oncology Breast Care Portfolio (launching in the second
quarter of 1999)
o Novation Oncology Prostate Care Portfolio (launching in 1999)
o Novation Respiratory Pharmaceutical Portfolio (launching Oct. 1, 1999)
Novation may be omitted from the program or portfolio name on second and
subsequent references.
In addition to these offerings, several portfolios of OPPORTUNITY (R),
Novation's Committed Program, are based on Clinical Markets Programs. These
portfolios are discussed in the OPPORTUNITY section.
Please note that Clinical Markets is not a separate department of Novation. When
writing about the people who work on a particular Clinical Markets segment,
refer to them as the Novation anesthesia team, group, or unit. More casual
references as the cardiology team are acceptable on subsequent references if it
is clear that you are referring to the Novation Clinical Markets group.
COMPANY NAME, JOB TITLES - include your company name and job title, as well as
the company names and correct titles of any other people mentioned in a
document. Titles are not capitalized unless they preceded the person's name, and
then only if the title is of significant rank. Some examples:
o Gov. George W. Bush
o George W. Bush, governor of Texas
o U.S. Sen. Patrick Moynihan
o Kay Bailey Hutchison, U.S. senator from Texas
o C. Thomas Smith, VHA president and chief executive officer
o UHC President and Chief Executive Officer Robert J. Baker
o Novation product manager John Doe
o Jane Doe, Novation marketing analyst
Also include the titles and company names of people who are "cc-ed" at the
bottom of a business letter or memo. This is very important because
correspondence is often sent to VHA and UHC members, supply partners and people
at our parent organizations who may not know who you or others mentioned are.
Please don't guess at anyone's name or title; call and ask if you are uncertain.
Getting someone's name or title wrong implies a lack of courtesy and attention
to detail.
E-MAIL ADDRESSES - In communications pieces where you list a Novation contact
person, you should include that person's phone number and e-mail address. The
correct style for e-mail addresses is [email protected] (in italics).
HEALTHCARE PURCHASING PARTNERS INTERNATIONAL LLC - This is the full name of
HPPI. Like Novation, VHA and UHC jointly own HPPI. HealthCare Purchasing
Partners International should be used on first reference and HPPI on subsequent
references. A trademark symbol (TM) will need to appear immediately after the
name and an (R) after the acronym on first reference in every document. The
trademark and registered symbol should be omitted on second and subsequent
references. IN overheads, slides, charts or other presentation materials, use
the trademark symbol after HealthCare Purchasing Partners International and the
registered symbol after HPPI on first reference in every slide or chart.
HPPI has no members; it has clients. It is not necessary to include the "LLC"
except in legal documents such as contracts, program enrollment forms, etc.
HOSPITAL, HEALTH CARE ORGANIZATION - All hospitals are health care
organizations, but not all health care organizations are hospitals. Therefore,
unless referring specifically to hospitals, health care organization is
<PAGE> 71
the preferred term. For variety's sake, words such as facility and institution
are acceptable on subsequent references. Don't use the acronym HCO in any
outside communication.
INTERNET SITES - Novation's World Wide Web site is www. hppipo.com. This and all
other Web sites should appear in all-lower-case, italic letters.
LAUNCH - The date that an agreement or program becomes effective is the launch
date. Please don't use the term launch when you mean introduce, unveil,
announce, etc. For example, a program can be introduced March 1, but may not
launch until May 1, when the program agreements become effective.
LETTERS AND MEMOS - Memorandums are acceptable in some external business
communications, but interoffice memos are not. Appropriate business letters
should be used for more formal communications. In both documents, include the
correct names, organization names, company names (if applicable) and titles of
the recipients, sender and those who receive copies.
MEMBERS, CLIENTS AND CUSTOMERS - Novation has no members or customers. It serves
VHA and UHC members and HealthCare Purchasing Partners International clients.
When addressing or mentioning VHA and UHV organizations, use VHA and UHC members
the first time and members thereafter. Never use Novation members or Novation
customers. The term health care organizations is also acceptable.
NOVAPLUS TM - The name of Novation's private-label program. When writing about
NOVAPLUS, it should be described as the private label of VHA and UHC early in
the document. This description helps reinforce the link between NOVAPLUS and
Novation's parent alliances. Companies that supply products in the private label
are called NOVAPLUS manufacturing partners.
Here are some guidelines for using the NOVAPLUS name and logo in marketing
materials and correspondence.
o Capitalize all letters and include a trademark symbol (TM) immediately
after the name on first reference in every document. The trademark
symbol should be omitted on second and subsequent references.
o In overheads, slides, charts or other presentation materials, use the
trademark symbol after NOVAPLUS on first reference in every slide or
chart.
o Do no use the NOVAPLUS logo within text as a substitute for the name.
o All marketing materials developed by NOVAPLUS manufacturing partners
must be reviewed by the appropriate Novation product managers, and by
Novation marketing communications.
NOVAPLUS marketing materials include the NOVAPLUS logo and the tagline Your
Brand and More SM. However, it is not necessary to include this tagline in the
text of correspondence or marketing materials.
NOVATION FOOD SERVICE PROGRAM - The full name of the program. Novation may be
omitted on second reference.
NOVATION LABORATORY PROGRAM - The full name of the program. Novation may be
omitted on second reference.
NOVATION LLC - This is the full legal name of our company. It is not necessary
to include the "LLC" except in legal documents such as contracts, program
enrollment forms, etc.
NOVATION MEMBER SUPPORT SERVICES - This is the correct name of our outbound
telephone service delivery group. TeleServices should no longer by used.
Novation Customer Service is part of Member Support Services and is the group
that handles incoming calls from the 888/7-NOVATE line.
<PAGE> 72
NOVATION PHARMACY PROGRAM - The full name of the program. Novation may be
omitted on second reference.
NOVATION TM, THE SUPPLY COMPANY OF VHA AND UHC - Our company name should appear
this way on first reference in any document going to an outside audience,
complete with the trademark symbol (TM). Simply the name Novation is acceptable
on subsequent references.
OPPORTUNITY (R) - This is Novation's committed-purchasing program. The name
should appear in the form shown here, with the registered trademark symbol, on
first reference in any document. The (R) should be omitted on subsequent
references.
The program should be referred to on first or second reference in every document
as OPPORTUNITY, Novation's Committed Program. If using the tagline on first
reference would create an awkward sentence, it is acceptable to use it on second
reference. Program is not part of the name, but the phrase OPPORUTUNITY program
is acceptable.
Offerings under the OPPORTUNITY umbrella are called portfolios. Nine portfolios
are currently available, with more in development. The nine existing portfolios
are:
o OPPORTUNITY Phase I Portfolio
o OPPORTUNITY Phase II Portfolio
o OPPORTUNITY Anesthesia Portfolio
o OPPORTUNITY International Cardiology Portfolio
o OPPORTUNITY Food Service Portfolio
o OPPORTUNITY Laboratory Portfolio
o OPPORTUNITY Orthopedic Portfolio
o OPPORTUNITY Respiratory Portfolio
o OPPORTUNITY Unified Portfolio
Please note that OPPORTUNITY is not a separate department of Novation. the
program and its portfolios are jointly operated by Novation's cost reduction
services team and the various contracting teams that develop and maintain
agreements included in the portfolios.
SERVICE DELIVERY - Novation field account managers should be referred to as the
Service Delivery team or Service Delivery account managers. Do not refer to them
as sales representatives or managers.
SUPPLY COST MANAGEMENT - Novation is a supply cost management company. The term
supply chain management is limiting and should be avoided when referring to
Novation. However, supply chain is acceptable when quoting someone or referring
to the system by which products move from suppliers to health care
organizations. (Please note that VHA still refers to Novation as its provider of
supply chain management services.)
SUPPLY PARTNERS - The companies with which Novation enters into supply
agreements are referred to as supply partners. (One exception is NOVAPLUS
manufacturers, see the NOVAPLUS entry.) We should not refer to them as vendors
or business partners and should avoid referring to them as manufacturers.
However, suppliers is acceptable for variety's sake if supply partners begins to
appear too often in a particular document.
TRADEMARKS - When mentioning a trademarked product offered by a Novation supply
partner, include the appropriate TM or (R) symbol with the trademarked name on
first reference. Please note that the two symbols are not interchangeable. TM
identifies trade names or logos that are being used by a company, pending final
approval by the U.S. Patent and Trademark Office. (R) designates names that have
been fully approved and registered with the office.
<PAGE> 73
UHC SUPPLY CO. - With the creation of Novation, UHC Supply Co. ceased to exist,
as did all UHCSC agreements. Those are now Novation agreements. To avoid
confusion for members, please do not refer to UHCSC unless describing it as a
predecessor to Novation.
UNIVERSITY HEALTHSYSTEM CONSORTIUM - The name of our parent UHC should appear
this way on first reference in any document. One exception to this rule: When
Novation, the supply company of VHA and UHC appears first in a document, spell
out University HealthSystem Consortium on the next reference to UHC. Simply the
acronym UHC is acceptable on subsequent references.
VHA - Acceptable in nearly all references to VHA Inc., the majority owner of
Novation and HPPI. The Inc. is usually necessary only in legal documents.
If you have a question regarding proper editorial standard, please contact your
Novation marketing communications manager or Rich Reecer, Novation editorial and
publications manager at ext. 5076.
<PAGE> 74
EXHIBIT E
REPORTS AND OTHER INFORMATION REQUIREMENTS
1. REPORT CONTENT.
Within 20 days after the end of each full and partial month during the
Term (a "Reporting Month"), each Supplier will submit to Novation a
report on a diskette containing the following information in the form
specified in Section 2 of this Exhibit E:
(i) the name of Supplier, the Reporting Month and year and the
agreement number (as provided by Novation to Supplier);
(ii) with respect to each Member (described by a LIC number (as
provided by Novation to Supplier), health industry number (if
applicable), full name, street address, city, state, zip code
and, if applicable, tier and committed status, the number of
units sold and the amount of net sales for each Product on a
line item basis, and the sum of net sales and the associated
Marketing Fees for all Products purchased by such Member
directly or indirectly from Supplier during the Reporting Month,
whether under the pricing and other terms of this Agreement or
under the terms of any other purchasing or pricing arrangements
that may exist between the Member and Supplier;
(iii) the sum of the net sales and the associated Marketing Fees for
all Products sold to all Members during the Reporting Month; and
(iv) such additional information as Novation may reasonably request
from time to time.
2. REPORT FORMAT AND DELIVERY.
The reports required by this Exhibit E will be submitted electronically
in Excel Version 7 or Access Version 7 and in accordance with other
specifications established by Novation from time to time and will be
delivered to:
Novation
220 East Las Colinas Boulevard
Irving, TX 75039
Attn: SRIS Operations
3. OTHER INFORMATION REQUIREMENTS.
* Material has been omitted and filed separately with the Commission.
E-1
<PAGE> 75
In addition to the reporting requirements set forth above, the parties
agree to facilitate the administration of the Agreement by transmitting
and receiving information electronically and by complying with the
information requirements set forth in Appendix 1. Supplier further
agrees that, except to the extent of any inconsistency with the
provisions of this Agreement, it will comply with all information
requirements set forth in the Novation Information Requirements
Guidebook ("Guidebook"), attached as Appendix 2. On or about the
Effective Date, Novation will provide Supplier with a current copy of
the Guidebook and will thereafter provide Supplier with updates and/or
revisions to the Guidebook from time to time.
* Material has been omitted and filed separately with the Commission.
E-2
<PAGE> 76
APPENDIX 1
OTHER INFORMATION REQUIREMENTS
Novation and Supplier desire to facilitate contract administration
transactions ("Transactions") by electronically transmitting and receiving data
in agreed formats in substitution for conventional paper-based documents and to
assure that such Transactions are not legally invalid or unenforceable as a
result of the use of available electronic technologies for the mutual benefit of
the parties.
The parties agree as follows:
1. PREREQUISITES.
a. DOCUMENTS; STANDARDS. Each party will electronically
communicate to or receive from the other party all of the required
documents listed in the Novation Electronic Communication Requirements
Schedule attached hereto (collectively "Documents"). All Documents will
be communicated in accordance with the standards set forth in the
applicable sections of the Novation Information Requirements Guidebook
("Guidebook"). Supplier agrees that the Guidebook is the Confidential
Information of Novation and will not disclose information contained
therein to any other party.
b. THIRD PARTY SERVICE PROVIDERS. Documents will be communicated
electronically to each party, as specified in the Guidebook, through any
third party service provider ("Provider") with which either party may
contract or VHAseCure.net(TM). Either party may modify its election to
use, not use or change a Provider upon thirty (30) days' prior written
notice. Each party will be responsible for the costs of any Provider
with which it contracts, unless the parties otherwise mutually agree in
writing.
c. SIGNATURES. Each party will adopt as its signature an
electronic identification consisting of symbol(s) or code(s) which are
to be affixed to or contained in each Document transmitted by such party
("Signatures"). Each party agrees that any Signature of such party
affixed to or contained in any transmitted Document will be sufficient
to verify such party originated and intends to be bound by such
Document. Neither party will disclose to any unauthorized person the
Signatures of the other party.
2. TRANSMISSIONS.
a. VERIFICATION. Upon proper receipt of any Document, the
receiving party will promptly and properly transmit a functional
acknowledgment in return, unless otherwise specified in the Guidebook.
b. ACCEPTANCE. If acceptance of a Document is required by the
Guidebook, any such Document which has been properly received will not
give rise to any obligation unless
* Material has been omitted and filed separately with the Commission.
E-3
<PAGE> 77
and until the party initially transmitting such Document has properly
received in return an Acceptance Document (as specified in the
Guidebook).
c. GARBLED TRANSMISSION. If any properly transmitted Document is
received in an unintelligible or garbled form, the receiving party will
promptly notify the originating party (if identifiable from the received
Document) in a reasonable manner. In the absence of such a notice, the
originating party's records of the contents of such Document will
control.
3. TRANSACTION TERMS.
a. CONFIDENTIALITY. No information contained in any Document or
otherwise exchanged between the parties will be considered confidential,
except to the extent provided by written agreement between the parties,
or by applicable law.
b. VALIDITY; ENFORCEABILITY. Any Document properly transmitted
pursuant to this Agreement will be considered, in connection with any
Transaction, to be a "writing" or "in writing"; and any such Document
when containing, or to which there is affixed, a Signature ("Signed
Documents") will be deemed for all purposes to have been "signed" and to
constitute an "original" when printed from electronic files or records
established and maintained in the normal course of business.
4. STANDARDS.
ASC x 12 - Novation Information Requirements Guidebook
5. THIRD PARTY SERVICE PROVIDERS.
(If the parties will be transmitting Documents directly, insert "NONE")
<TABLE>
<CAPTION>
COMPANY VAN NAME ADDRESS TELEPHONE NUMBER
- ------- -------- ------- ----------------
<S> <C> <C> <C>
Novation AT&T 12976 Hollander Drive 800/624-5672
Bridgeton, MO 63044
</TABLE>
6. CONTRACT PRICING (PHARMACY). Supplier will transmit contract pricing
information electronically, to include new contracts, contract renewals
and any changes to a current contract. This will be sent in a timely
manner and in compliance with ANSI ASC X12-845 (Price Authorization) and
Novation Contract Pricing Guidelines. Contract pricing information will
include the following:
Supplier Identification Number
HIN (Health Industry Number if Supplier is a HIN subscriber)
DEA Number (if HIN is not available)
Supplier Assigned Number (if HIN and DEA are not available)
* Material has been omitted and filed separately with the Commission.
E-4
<PAGE> 78
Supplier Name
Supplier Contract Number
MFG Contract Number
Contract Effective Date
Contract Expiration Date
Member(s) (Member name, HIN or DEA number, Member start/stop dates)
Product Identifier
NDC
UPC (if NDC is not available)
Trade Name
Package Count
Package UOM
Selling Unit Price
Item Contract Effective Date
Item Contract Expiration Date
7. CONTRACT PRICING (MEDICAL/SURGICAL). Supplier will communicate contract
pricing information electronically, to include new contracts, contract
renewals and any changes to the current contract. This will be sent in a
timely manner and in compliance with the Guidebook.
* Material has been omitted and filed separately with the Commission.
E-5
<PAGE> 79
APPENDIX 2
NOVATION INFORMATION REQUIREMENTS GUIDEBOOK
* Material has been omitted and filed separately with the Commission.
E-6
<PAGE> 80
EXECUTIVE SUMMARY
WELCOME TO THE NOVATION INFORMATION REQUIREMENTS GUIDEBOOK
Thousands of times each year, VHA, UHC and HPPI members ask us to help
them improve the overall quality of their health care services by
finding the best products, at the best price, from the best source. We
meet this need by managing hundreds of product and service agreements
with the best manufacturers and distributors in the health care
industry.
Once these agreements are created, our members ask their local Novation account
manager and/or the corporate Supply Cost Management teams to provide information
and service around the following:
1. What products are on each agreement?
2. What are the equivalent products under agreement for [product
name that is being bought today]?
3. What is the price for [product on agreement]?
4. What can I save if I buy [product on agreement] rather than a
competing product?
5. What are the product specifications for the [equivalent Novation
product]?
6. Who is my local sales representative with [company name]?
7. Can you help us convert to the [agreement product]?
Additionally, you and other supply partners ask Novation:
1. Who are the VHA, UHC and HPPI members?
2. Please confirm what items are currently on my Novation
agreement?
3. What pricing does Novation have loaded for each of my products?
4. What competitive cross-reference products do you use for each of
my products when you recommend that a member change over to my
Novation contracted product?
5. Can you be of any assistance in supplying advance notice of
price changes to our members?
6. Who is my Novation service delivery team person for [member
name]?
This Guidebook is designed to better help us answer these and other questions.
It addresses:
- our overall information strategy with supply partners
- Novation's information requirements
- where Novation is going with respect to supply partner Internet
solutions
- how Novation will help your company gain access to the
information that you need in managing your business relationship
with Novation
* Material has been omitted and filed separately with the Commission.
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<PAGE> 81
In summary, our information needs are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NOVATION
REQUIREMENT DESCRIPTION WHAT THIS MEANS FOR YOUR COMPANY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REQUIREMENT 1: This is the exact catalog number and other Novation has a large team that works with
product information that is needed when ordering hospitals in converting them to Novation
NEW CONTRACT LAUNCH your product(s) under the Novation agreement contracted products. Novation needs product
Agreement Item (e.g., all product identifiers, description, details to successfully help our members
Product Details units of measure, packaging, etc.). This convert business to your contracted items.
information is provided at the time of signing
your Novation agreement and it is then kept
current as changes occur.
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 2: Novation needs the current price that the health Novation provides price change notification,
care organizations will pay as they order each price comparison and economic impact services
ONGOING CONTRACT MAINTENANCE product. Specific item prices for each price in helping the health care organizations
Pricing for Each tier (if any) must to be provided. Price updates understand all savings opportunities. These
Product on Agreement are needed as the pricing changes. services motivate members to convert to your
products as they save money.
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 3: Electronic summary sales reports are needed This information is loaded into Novation's
SUMMARY SALES REPORTING every month. Current paper reports must be sales information system for use by our
Monthly Summary Sales converted to electronic reporting IMMEDIATELY. service delivery teams.
Report by Member
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 4: Electronic line item sales reports are needed This information is loaded into Novation's
DETAILED LINE every month. There are several formats to send sales information system for use by our
ITEM SALES REPORTING these reports in, please consult Requirement 4 service delivery teams. They work with each
Monthly Line Item for specification. Plan for a 90-day testing Novation member to identify items that are
Sales Report by Member period. and, more importantly, are not being bought
on contract.
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 5: This details all current, new and deleted This will keep your company current. Having
MEMBERSHIP VHA or UHC membership information. Names, this information reduces pricing and other
Membership addresses, contacts, membership numbers, errors, and overall, reduces the time
Information provided to you. etc. are all provided. You must be able to needed to administer your Novation
receive and process monthly membership agreement(s).
updates.
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 6: Novation needs to be up-to-date on which This information tells our service delivery
COMMITMENT FORMS member has signed your commitment form (if team which of their members have been
Signed Participation Forms required by your agreement). This approved by your company to buy off your
information is made available our service agreement. If there is no form, they know
delivery team. to sell your agreement.
</TABLE>
* Material has been omitted and filed separately with the Commission.
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<PAGE> 82
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 7: Novation and our members need to know This information is available for our
SALES REPRESENTATIVE who your current sales representatives service delivery team in promoting your
INFORMATION are for each agreement, by territory. agreement. Also, members know whom to
Sales Rep Contacts This information includes all specialty contact as they decide to buy
sales personnel. products/services under your agreement.
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 8: For each product under agreement, Novation recommends your product(s) to
PRODUCT CROSS REFERENCES Novation needs a listing of the our members whenever we learn that they
Competitor Cross References competitor's name and their respective are buying a competitor's product. But
competitive part/catalog number and any our information is very incomplete. We
product details that you may have need your help in knowing what products
available compete directly and indirectly with
each of your products that are on a
Novation agreement.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NOVATION
REQUIREMENT DESCRIPTION WHAT THIS MEANS FOR YOUR COMPANY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS PARTNER This information repository contains This is your link to Novation. This BPRS
REPOSITORY SYSTEM specific information that is completely system is designed to eliminate the time
(BPRS) Access customized for your Novation, VHA, UHC, and delay that is inherent in the
and HPPI relationships. Examples of communication of important business
information include access to information.
membership, items, sales
representatives, as well as
cross-reference information.
- ----------------------------------------------------------------------------------------------------------------------------------
UNIVERSAL Novation endorses the use of the UPN for Begin now working on setting up a UPN
PRODUCT NUMBER (UPN) all product identification throughout number for each product on a Novation
the supply chain. All communications agreement.
must include the UPN number immediately.
- ----------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC SALES REPORTING During 2000, Novation will be testing a
new method for the submission of all
summary sales reports. This Web
reporting system will be fully
implemented with all supply partners in
2000.
</TABLE>
HOW YOUR COMPANY SHOULD COMMUNICATE THIS INFORMATION
Novation will be flexible in how we receive or send this information. Our
preference is always to communicate this information through EDI, but if your
company can only use EDI for some transactions, this Guidebook outlines other
acceptable short-term alternatives. EDI REMAINS THE LONG-TERM SOLUTION.
Also, and this is very important: IT IS CRITICAL THAT YOUR COMPANY SEND NOVATION
THE INFORMATION REQUESTED IN THIS GUIDEBOOK. We are willing to discuss timing of
EDI formats but not whether the needed information is to be provided.
All of this information is important.
* Material has been omitted and filed separately with the Commission.
E-9
<PAGE> 83
WHAT'S REQUIRED AND WHEN
The following chart summarizes the Novation supply partner reporting
requirements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MANDATORY DUE
REQUIREMENT # WHO SUPPLIES DATES FORMAT REQUIRED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REQUIREMENT 1: Your Company Sends 60 Days prior to the - Spreadsheet File
NEW CONTRACT LAUNCH To Novation Contract Effective
Date
- ------------------------------------------------------------------------------------------------------------------
Due 60 days prior
REQUIREMENT 2: Your Company Sends to the effective date - EDI 832 or
ONGOING CONTRACT To Novation of the line item - Spreadsheet File
MAINTENANCE add/delete/change
- ------------------------------------------------------------------------------------------------------------------
REQUIREMENT 3: Your Company Sends Due at the first - Spreadsheet File
SUMMARY SALES To Novation contract reporting
REPORTING period
- ------------------------------------------------------------------------------------------------------------------
REQUIREMENT 4: Your Company Sends Begin testing - EDI 867 or
DETAILED LINE ITEM To Novation within 120 days of - Flat File Format or
SALES REPORTING Contract Effective - Spreadsheet
Date - File(small files only)
- ------------------------------------------------------------------------------------------------------------------
REQUIREMENT 5: Your Company Due immediately - Spreadsheet File or
MEMBERSHIP Receives From - EDI 816
Novation Through
BPRS
- ------------------------------------------------------------------------------------------------------------------
REQUIREMENT 6: Your Company Sends Due immediately, if - Spreadsheet File
COMMITMENT FORMS To Novation applicable
- ------------------------------------------------------------------------------------------------------------------
REQUIREMENT 7: Your Company Sends Due within 30 days - Spreadsheet File
SALES REPRESENTATIVE To Novation of the Contract
INFORMATION Effective Date
- ------------------------------------------------------------------------------------------------------------------
REQUIREMENT 8: Your Company Sends Due within 90 days - Spreadsheet File
PRODUCT CROSS To Novation of the Contract
REFERENCES Effective Date
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
FIGURE 1-NOVATION REPORTING OVERVIEW
* Material has been omitted and filed separately with the Commission.
E-10
<PAGE> 84
These requirements are detailed in the section titled NOVATION INFORMATION
REQUIREMENTS, see page 17 for details.
NOVATION'S INFORMATION INFRASTRUCTURE FOR SUPPLY PARTNERS
Novation supports both a private extranet and an EDI infrastructure. Many of the
required information components are available through either mode, but others
may only be available on one system.
Thank you for working with your staff in completing these requirements. All of
us at Novation look forward to working together with your staff in support of
your Novation agreement(s).
* Material has been omitted and filed separately with the Commission.
E-11
<PAGE> 85
NOVATION ELECTRONIC COMMUNICATION
REQUIREMENTS SCHEDULE
- ----------------------------------------- --------------------------
Company Name Date
- ----------------------------------------- --------------------------
Your Name Your title
- -------------------- ------------------- --------------------------
Phone Fax E-mail
- ----------------------------------------- --------------------------
Technical Contact Title
- -------------------- ------------------- --------------------------
Phone Fax E-mail
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MANDATORY DUE DATES & FORMATS
NOVATION REQUIREMENT NOVATION EXPECTATION TO BE USED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REQUIREMENT 1: New Contract This only applies to new contracts, DUE 60 DAYS PRIOR TO THE CONTRACT
Launch unless your company never provided this EFFECTIVE DATE
information. If needed, your Novation
Section 4.1, page 21 of the product manager will contact you. UPN
2000 Guidebook must be included with all line item
files.
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 2: Ongoing Novation must receive contract item and DUE 60 DAYS PRIOR TO THE EFFECTIVE DATE
Contract pricing updates as prices change, and OF THE LINE ITEM ADD/DELETE/CHANGE
Maintenance when items are added or deleted from
contract. Information will be sent via (check one):
Section 4.2, page 27 of the ( ) EDI 832
2000 Guidebook ( ) Interim File Format
(Excel Spreadsheet)
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 3: Summary Sales Current paper reports must be DUE AT THE FIRST CONTRACT REPORTING
Reporting converted to electronic reporting PERIOD
IMMEDIATELY.
Section 4.3, page 43 of the
2000 Guidebook
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 4: Detailed Plan for a 90-day testing for this BEGIN TESTING WITHIN 120 DAYS OF
Line Item Sales requirement. CONTRACT EFFECTIVE DATE
Reporting Information will be sent via (check one):
( ) EDI 867
( ) Other
Section 4.4, page 51
of the 2000
Guidebook
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 5: Membership You must be able to receive and process DUE IMMEDIATELY
monthly membership updates.
Section 4.5, page 63 of
the 2000 Guidebook
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 6: Commitment Details which members have and have not DUE IMMEDIATELY, IF APPLICABLE
Forms signed your contract enrollment forms,
if needed.
Section 4.6, page 73 of the
2000 Guidebook
</TABLE>
* Material has been omitted and filed separately with the Commission.
E-12
<PAGE> 86
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 7: Sales Able to update Sales Representative DUE WITHIN 30 DAYS OF THE CONTRACT
Representative information from a Business Partner EFFECTIVE DATE
Contact Repository System download.
Information
Section 4.7, page 77
of the 2000 Guidebook
- ---------------------------------------------------------------------------------------------------------------------------------
REQUIREMENT 8: Product Cross- Must to update the items on contract DUE WITHIN 90 DAYS OF THE CONTRACT
referencing with competitive cross-reference EFFECTIVE DATE
Section 4.8, page 81 of the information
2000 Guidebook
- ---------------------------------------------------------------------------------------------------------------------------------
Business Partner Repository Able to connect to Novation BPRS via the DUE WITHIN 60 DAYS OF THE CONTRACT
System (BPRS) Access VHAseCURE.net(TM). EFFECTIVE DATE
Section 3, page 13 of the
2000 Guidebook
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Material has been omitted and filed separately with the Commission.
E-13
<PAGE> 87
EXHIBIT F
PROGRAM MANAGEMENT
1. PURPOSE.
Neoforma and Novation will establish a joint Program Management Office
(the "PMO"). This organization will organize, define, track and manage
the development progress and delivery status of the Internet e-commerce
Service for healthcare organizations.
2. RESPONSIBILITIES.
The PMO will be responsible for managing and maintaining the ongoing
operating relationship between Neoforma and Novation. This will include
establishing operating procedures, gathering all necessary resources,
driving decision-making within each organization, and communicating back
to Neoforma and Novation. Specific responsibilities include:
2.1. PROGRAM DEFINITION AND ORGANIZATION
- Maintenance of program goals and objectives
documentation
- Establishing program organization, selection of team
members, under guidance of the Novation and Neoforma
executive sponsors
- Establishing administrative procedures
- Establishing administrative procedures
- Definition of program parameters, objectives,
constraints, and scope of work, including program
deliverables, completion criteria, and acceptance
criteria
- Definition of program management procedures:
(i) issue resolution process
(ii) methodology for program tracking
(iii) process for status reporting
(iv) tools for program and configuration management
(v) procedures for program files and correspondence
* Material has been omitted and filed separately with the Commission.
F-1
<PAGE> 88
2.2. PROGRAM PLANNING
- Development of program work breakdown structure ("WBS")
including tasks, task owners, and task completion
criteria for tasks which cross companies.
- Development of program schedule, including
interdependencies and critical path
- Refining estimates, assessing required skills and
available resources, assigning resources, reviewing
program estimates, and finalizing program schedule
- Creating a final baseline program plan, and distributing
the approved plan to PMO and program team.
- Development of the Neoforma product roadmap as it
relates to Novation phases and requirements
2.3. PROGRAM TRACKING AND MANAGEMENT
- Collection of status information, including program
tasks and performance data, identifying issues of
concern, Development of the Neoforma product roadmap as
it relates to Novation phases and requirements
- Summarizing status, analysis of variance from plan,
determination of critical path impact, identification
and analysis of trends, and maintenance of issues and
error log
- Determination and management of necessary corrective
action (e.g., plan adjustment, critical path
re-configuration, issue log update, etc.)
- Reporting program status to program team, and PMO
3. ORGANIZATION AND ROLES.
The PMO will be composed of two Executive Sponsors, a Steering
Committee, two Program Manager, and PMO Team members. Novation and
Neoforma will each assign an Executive Sponsor and a Program Manager.
Together this group will name members of the Steering Committee and PMO
team.
3.1. EXECUTIVE SPONSORS. Novation and Neoforma will each provide an
executive-level champion to preside over the Internet e-commerce
program. The Executive Sponsors will be actively responsible for
the overall execution and performance
* Material has been omitted and filed separately with the Commission.
F-2
<PAGE> 89
of the program. Appointed by the representative company CEO, he
or she will serve as the representative of that CEO, and will
report program progress and performance as required. The
Executive Sponsors will also provide executive-level decisions
related to performance of resources committed to the Internet
e-commerce program, and will be the primary arbiters in
resolving major issues arising during the execution of the
program. Together, they will also actively co-chair the
Executive Committee, and be responsible for the actions and
performance of that group.
3.2. STEERING COMMITTEE MEMBERS. The two parties will jointly
establish a steering committee. The Steering Committee,
reporting to the Executive Sponsors, will be responsible for
executive-level oversight management of the activities of
specific Novation and Neoforma staff engaged on the e-commerce
program. These individuals are also responsible for assigning --
and ensuring the active participation of -- resources to the
Program Management Team (discussed below). The Executive
Committee will also make decisions on strategies, development
priorities, assess business risk, and resolve other significant
issues.
3.3. PROGRAM MANAGEMENT TEAM. Neoforma and Novation will establish a
joint program management office to perform daily tasks. The
Program Management Team will be responsible for the day-to-day
coordination of the activities of the program. The Program
Manager will be responsible for the overall management of the
day-to-day activities of the Program Management Team, and will
report to the Executive Sponsor. Resources will be assigned to
this team on an as requested basis.
* Material has been omitted and filed separately with the Commission.
F-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
NEOFORMA.COM, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH
31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 102,192
<SECURITIES> 11,574
<RECEIVABLES> 911
<ALLOWANCES> (27)
<INVENTORY> 0
<CURRENT-ASSETS> 118,744
<PP&E> 22,240
<DEPRECIATION> (1,727)
<TOTAL-ASSETS> 184,858
<CURRENT-LIABILITIES> 23,910
<BONDS> 7,124
0
0
<COMMON> 65
<OTHER-SE> 153,824
<TOTAL-LIABILITY-AND-EQUITY> 184,858
<SALES> 1,206
<TOTAL-REVENUES> 1,206
<CGS> 0
<TOTAL-COSTS> 34,470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> (31,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,977)
<EPS-BASIC> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
