-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lb49o1G4vG4NIZsRrAF4LTPAVQUarN8/anmkRmyPaGF8OKi56CsMO/+Cdmw+Ize2 3pmSi8Yn7STZebgBqQ7/yA== 0000891618-01-000281.txt : 20010418 0000891618-01-000281.hdr.sgml : 20010418 ACCESSION NUMBER: 0000891618-01-000281 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOFORMA COM INC CENTRAL INDEX KEY: 0001096219 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 770424252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-28715 FILM NUMBER: 1604721 BUSINESS ADDRESS: STREET 1: 3061 ZANKER ROAD CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4086545700 MAIL ADDRESS: STREET 1: 3061 ZANKER ROAD CITY: SAN JOSE STATE: CA ZIP: 95134 10-K405 1 f70406e10-k405.txt FORM 10-K405 FISCAL YEAR ENDED DECEMBER 31, 2000 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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) DELAWARE 77-0424252 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 3061 ZANKER RD. SAN JOSE, CA 95134 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 468-4000 (THE REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.001 PAR VALUE PER SHARE 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 31, 2001, the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant, based on the closing price for the Registrant's common stock on The Nasdaq Stock Market on such date, was $91,807,846. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purposes. The number of shares of common stock outstanding on March 31, 2001 was 182,781,670. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS.................................................... 3 ITEM 2. PROPERTIES.................................................. 20 ITEM 3. LEGAL PROCEEDINGS........................................... 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................... 22 ITEM 6. SELECTED FINANCIAL DATA..................................... 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 25 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................................ 54 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................... 54 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 55 ITEM 11. EXECUTIVE COMPENSATION...................................... 58 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 64 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 66 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................................................... 69 SIGNATURES ............................................................ 73
Neoforma, Neoforma.com, EquipMD, US Lifeline, USL, Pharos Technologies, NeoMD, NeoMD Marketplace, AdsOnline, AuctionLive, AuctionOnline and the Neoforma logo are our trademarks or service marks. All other trademarks or trade names appearing in this annual report are the property of their respective owners. 2 3 PART I We make many statements in this annual report, such as statements regarding our plans, objectives, expectations and intentions that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may identify these statements by the use of words such as "will," "may," "might," "could," "should," "believe," "expect," "anticipate," "intend," "plan," "predict," "project," "estimate," "potential," "continue" and similar expressions. These forward-looking statements involve several risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we discuss in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Operating Results" and elsewhere in this annual report. You should carefully review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q that we will file in 2001. These forward-looking statements speak only as of the date of this annual report, and we caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this annual report. We undertake no obligation to publicly release any revisions to the forward-looking statements to reflect circumstances or events after the date of this report. This annual report also contains estimates of market growth of the Internet and the healthcare market as well as estimates of inefficiencies in the healthcare supply chain. These estimates have been included in studies published by Gartner, Inc., Efficient Healthcare Consumer Response, the Health Industry Manufacturers' Association, the Health Care Financing Administration and the Health Industry Group Purchasing Association. These estimates assume that certain events, trends and activities will occur. Although we believe that these estimates are generally indicative of the matters reflected in those studies, these estimates are inherently imprecise, and we caution you to read these estimates in conjunction with the rest of the disclosure in this annual report, particularly "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Operating Results." ITEM 1. BUSINESS OUR COMPANY Neoforma is a leading healthcare supply chain solutions company. We build and operate Internet marketplaces that empower healthcare trading partners to optimize supply chain performance. The healthcare market has a number of characteristics that make it suited for an Internet-based marketplace solution, including its large size, high degree of fragmentation, significant inefficiencies, industry cost pressures and highly complex supply chain. Our solutions enable the participants in the healthcare supply chain market, principally healthcare providers, manufacturers, distributors, group purchasing organizations, or GPOs, and integrated delivery networks, or IDNs, to significantly improve business processes within their organizations and among their trading partners. Using our products and services, these organizations can improve efficiencies, increase revenue, reduce costs and improve capital allocation. Our solutions consist of web-based products and services for our customers, or trading partners, as well as other services offered that are designed to accelerate and optimize their use of the marketplaces that we build for them. Our trading partners include both acute care and alternate site healthcare providers, manufacturers and distributors to these healthcare providers, GPOs and IDNs. Our primary business objectives are aligned with those of our trading partner customers. We seek to enable our trading partners to reallocate and redirect to their strategic priorities the excess costs that adversely affect their supply chain, reduce the time their employees spend on non-productive activities and offset a significant portion of the capital investment they currently make in redundant and isolated supply chain-related technologies. Our strategies to achieve these objectives are to increase the number of custom marketplaces we build and operate on a common software platform, increase the number of trading partners that utilize our marketplaces, enhance the functionality of our product and service offerings and continue to form key strategic relationships that extend the value and functionality of our products and services. 3 4 Our executive offices are located at 3061 Zanker Road, San Jose, California 95134, and our telephone number is (408) 468-4000. RECENT DEVELOPMENTS 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. On March 16, 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. On March 24, 2000, we entered into an agreement to acquire all of the outstanding capital stock of EquipMD, Inc., a business-to-business procurement company serving the physician market. On March 30, 2000, we entered into agreements to acquire Eclipsys Corporation and HEALTHvision, Inc., entered into an outsourcing and operating agreement with Novation LLC, Healthcare Purchasing Partners International LLC, or HPPI, and VHA Inc. and University HealthSystem Consortium, or UHC, the owners of Novation, and entered into agreements to issue our common stock and warrants to purchase our common stock to VHA and UHC. On May 25, 2000, we agreed by mutual consent to terminate the proposed mergers announced on March 30, 2000. Instead, we entered into a strategic commercial relationship with Eclipsys and HEALTHvision that includes a co-marketing and distribution arrangement between HEALTHvision and us. The arrangement includes the use of Eclipsys' eWebIT(TM) enterprise application integration technology and professional services to enhance the integration of legacy applications with our e-commerce platform. In addition, we modified the structure and terms of our outsourcing and operating agreement with Novation, HPPI, VHA and UHC and our stock and warrant agreements with VHA and UHC. Under the terms of the amended outsourcing and operating agreement, we agreed to develop and manage an e-commerce marketplace, which we refer to as Marketplace@Novation, to be used by VHA, UHC and HPPI member healthcare organizations as their primary purchasing tool for products and services, including medical supplies and equipment. Novation agreed to contract and manage relationships with manufacturers, distributors and service suppliers on our behalf. VHA and UHC agreed to provide marketing support for Marketplace@Novation, guarantee Novation's obligations under the outsourcing and operating agreement and enter into specified exclusivity provisions. Also on May 25, 2000, as a result of our transaction with Novation and acquisition of EquipMD, we streamlined our operations to focus on two key global markets, IDNs and hospitals, and physician practices. The restructuring involved both changes in our executive management and organizational structure, as well as a reduction in force of approximately 80 individuals in functions largely duplicated or unnecessary as a result of both the amended outsourcing and operating agreement and the reorganization. On July 14, 2000, we acquired some of the assets of National Content Liquidators, Inc., or NCL, an asset management company focused on healthcare facility liquidations and the resale of used medical products. On November 5, 2000, we entered into a definitive agreement with Medbuy Corporation, Canada's largest national medical GPO, to jointly develop an Internet solution for the Canadian healthcare market known as Canadian Health Marketplace. The ten-year agreement names us as Medbuy's exclusive provider of an Internet e-commerce solution for the procurement of products and services. In December 2000, we entered into a three-year software license agreement and a series of related agreements with i2 Technologies, Inc., a leading provider of marketplace solutions, to develop, deploy and market Internet supply chain solutions for healthcare. As part of this strategic relationship, we will collaborate with i2 on product development, marketing, sales and service activities and we have agreed to share specified revenue with i2. We also entered into a stock purchase agreement with i2 under which it agreed to invest in our next round of equity financing. 4 5 On January 25, 2001, we sold approximately 18 million shares of our common stock to i2, VHA and UHC for $30.5 million in cash. We also amended our outsourcing and operating agreement that we originally had entered into with Novation, VHA, UHC and HPPI on March 30, 2000 and subsequently had amended on May 25, 2000. Under the terms of the amended outsourcing and operating agreement, effective January 1, 2001, we revised some of the terms of our relationship with Novation, VHA, UHC and HPPI, including those related to the payment of fees to us by Novation, sharing of revenue by us with Novation and obligations of each of the parties. The amended outsourcing and operating agreement provides that, subject to specified conditions, Novation guarantees to us a fee based on the gross volume of purchases made by Novation members through Marketplace@Novation. Also on January 25, 2001, we announced our intent to divest certain operations that are not aligned with our core strategy of building and operating Internet marketplaces that empower healthcare trading partners to optimize supply chain performance. The operations that we intend to divest are two wholly owned subsidiaries, General Asset Recovery, or GAR, a live auction house, and USL. GAR includes the assets acquired in the NCL transaction. On February 1, 2001, we entered into an agreement with Lawson Software, a leading provider of integrated e-business solutions, to form a strategic relationship to integrate our Internet supply chain solutions for the healthcare industry. On February 13, 2001, we entered into an agreement with McKesson HBOC, Inc., a leading supplier of medical, surgical and pharmaceutical products, under which McKesson HBOC has agreed to accept orders placed through Marketplace@Novation. On February 16, 20001, we entered into an agreement with Allegiance Healthcare Corporation, a subsidiary of Cardinal Health, Inc. and a leading supplier of medical, surgical and laboratory products, under which Allegiance has agreed to accept orders that are placed through Marketplace@Novation. On March 27, 2001, we announced that we have signed agreements with a total of 356 hospitals to use Marketplace@Novation, of which 120 were purchasing products as of that date through the marketplace. We also announced that we have agreements with a total of 69 suppliers, including Owens & Minor, Allegiance Healthcare Corporation and McKesson HBOC. On April 2, 2001, we sold USL to Medical Distribution Solution, Inc., or MDSI. MDSI provides information services and products to the healthcare business community. INDUSTRY BACKGROUND GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS E-COMMERCE The Internet is rapidly changing the competitive landscape of many industries, creating significant opportunities for companies to expand and improve their businesses. Companies have increasingly begun to use the Internet to create business-to-business networks to streamline complex processes, purchase and sell goods and exchange information among fragmented groups of customers, manufacturers and distributors. Gartner, Inc. has estimated that business-to-business e-commerce is expected to grow from $433 billion in 2000 to $8.5 trillion in 2005. Business-to-business e-commerce enables buyers and sellers in fragmented markets to reduce supply chain inefficiencies. Sellers are able to cost-effectively access global markets, streamline their sales, marketing and distribution operations, reduce their time to market and efficiently distribute updated product information. Buyers can improve their purchasing processes and easily access current product information and a broad range of products and services. 5 6 HEALTHCARE SUPPLY CHAIN MARKET The U.S. healthcare supply chain consists of products and services sold to acute care and alternate site healthcare providers, including: - medical supplies; - surgical supplies; - pharmaceuticals; - diagnostic imaging products; - business products; - laboratory products; - dietary and food products and services; and - capital equipment and related services. The U.S. healthcare supply chain exhibits the following characteristics: Large and Growing Based on information published by the Health Industry Manufacturers' Association and the Health Care Financing Administration, we believe annual purchasing in the U.S. healthcare supply chain is approximately $200 billion. According to information published by the Health Industry Manufacturers' Association, medical technology manufacturing is growing at a rate of approximately 7% per year. According to information published by the Health Industry Group Purchasing Association, hospital expenditures for pharmaceuticals are growing at a rate of nearly 9% per year. Highly Fragmented In the U.S., healthcare products are supplied by over 20,000 manufacturers and distributors, ranging from small companies offering single products to Fortune 500 corporations with comprehensive offerings. These suppliers serve a diverse group of buyers, including hospitals, physician practices and clinics. The U.S. market includes approximately 6,000 hospitals, 185,000 physicians' offices and thousands of non-hospital healthcare delivery sites such as outpatient care facilities, nursing homes and ambulatory surgery centers. These organizations may purchase products and services directly or through centralized buying organizations such as GPOs and IDNs. Highly Inefficient Buyers within healthcare organizations typically purchase products and services from thousands of suppliers. This high degree of buyer and supplier fragmentation and the current means of conducting business result in significant inefficiencies at each step of the procurement process. According to Efficient Healthcare Consumer Response, a 1996 independent study commissioned by a number of industry participants, the supply chain costs of distributing medical products alone totaled approximately $23 billion per year, of which an estimated $11 billion could have been eliminated by more efficient sharing of information, management of orders and movement of products. We believe that these significant inefficiencies still exist in the healthcare supply chain. Industry Cost Pressures Healthcare providers in the U.S. are under increasing pressure to reduce costs because of increased competition, as well as the ongoing tightening of reimbursement policies by private payers and the government. Healthcare suppliers also are facing increased competition and are continuously seeking ways to 6 7 increase revenue and reduce costs. As a result, we believe that both healthcare providers and suppliers are increasingly seeking new ways to make their supply chains more efficient. Highly Complex The U.S. healthcare supply chain is highly complex. There are multiple contracted supply relationships between providers and their manufacturers and distributors, as well as between GPOs or IDNs and distributors and manufacturers. Pricing is complicated, as it depends on a number of factors, including the negotiated contracts between the providers, GPOs or IDNs and the suppliers, tiered structures based on quantity and type of purchase, class-of-trade distinctions within and among healthcare organizations and a complex rebate system that involves providers, manufacturers, distributors, GPOs and IDNs. LIMITATIONS OF TRADITIONAL APPROACHES TO BUYING AND SELLING PRODUCTS Healthcare Providers Large healthcare organizations, particularly hospitals, typically manage their buying activity through a centralized purchasing group as well as at the departmental level. Pricing is either negotiated at the time of purchase, based on long-term contracts negotiated between the organization and its suppliers or, depending on the institution's buying power, based on contracts negotiated on their behalf by an IDN or a GPO. The purchasing process involves evaluating products, negotiating price and delivery, ensuring compliance with purchasing contracts and placing and tracking orders through a variety of paper and electronic means. Outdated or unavailable product and price information, price variability, invoice errors, lack of compliance with negotiated contracts, high inventory levels, poor fill rates and the significant effort required to manage numerous supplier relationships and orders can result in errors and inefficiencies. Purchasing decisions in physicians' offices and other small healthcare facilities are generally made by nurses, office managers or administrative staff. Purchasing activities include searching through paper catalogs, placing and tracking orders via telephone or fax machines and receiving frequent, time-consuming visits from numerous medical supply representatives. This approach makes it difficult and time-consuming for buyers to identify, compare and purchase specific items. Manufacturers and Distributors Manufacturers and distributors have limited resources to support the growing challenge of marketing and selling to the increasingly complex healthcare market. Many organizations lack the necessary infrastructure to establish a worldwide sales and marketing presence. In addition, the high cost of printing and distributing paper catalogs limits the ability of suppliers to cost-effectively provide timely updates of important catalog product and pricing information. Although many suppliers offer online versions of their catalogs, this does not address the primary cause of inefficiency for buyers -- the inability to quickly and easily find products and consolidate orders from different suppliers through a single source. Both manufacturers and distributors face additional challenges. Many manufacturers have limited visibility into customer sales and consumption data, experience high inventory levels and have difficult-to-manage service levels. Many distributors experience high inventory and days sales outstanding levels, and may incur significant costs managing invoice inaccuracies. Group Purchasing Organizations and Integrated Delivery Networks GPOs and IDNs, which negotiate and manage purchasing on behalf of healthcare organizations, experience lengthy and costly contracting processes with both manufacturers and distributors and have limited information regarding how and when their contracts are being used by the healthcare providers they represent. These problems often result in lower than desirable compliance on the contracts with these healthcare providers and loss of revenue as a result of the lack of information. 7 8 MARKET OPPORTUNITY We believe that a significant opportunity exists for business-to-business e-commerce marketplaces that empower healthcare providers, manufacturers, distributors, GPOs and IDNs to optimize their supply chain performance. Private Internet marketplaces can offer several important benefits, including: - Buyers and sellers can have improved access to each other, communicate effectively in real time and create new levels of efficiency through the sharing of data and information; - Industry, product and pricing information can be centralized, updated and organized for accuracy and simplified access; and - The time and costs involved with traditional paper, telephone and fax, as well as electronic data interchange, or EDI, purchasing methods, can be significantly reduced. OUR SOLUTIONS Our solutions enable our customers, principally healthcare providers, manufacturers, distributors, GPOs and IDNs, to significantly improve business processes within their organizations and among their trading partners. We connect these customers to each other via the Internet and other electronic means, aggregate data based on their business transactions and convert this raw data into usable information. This information enables our customers to make better business decisions, and we provide them with the tools to act based on these decisions. Using our products and services, these organizations can improve efficiencies, increase revenue, reduce costs and improve capital allocation. We believe that our solutions can provide our customers the following additional benefits: BENEFITS TO ACUTE CARE AND ALTERNATE SITE HEALTHCARE PROVIDERS: - reduced price variability; - lower pricing; - improved invoice accuracy; - lower inventory levels; - higher fill rates; - lower labor costs; and - enhanced information capture and access. BENEFITS TO MANUFACTURERS: - improved sales and consumption data; - higher contract compliance; - better production efficiencies; - lower inventory levels; - extension of existing sales and distribution channels into new markets; and - enhanced ability to manage service levels. BENEFITS TO DISTRIBUTORS: - improved invoice accuracy; - lower inventory levels; - lower accounts receivable levels; - higher fill rates; 8 9 - lower labor costs; and - enhanced information capture and access. BENEFITS TO GROUP PURCHASING ORGANIZATIONS AND INTEGRATED DELIVERY NETWORKS: - improved compliance; - reduced contracting periods; and - enhanced information capture and access. OUR STRATEGY Our primary business objectives are aligned with those of our trading partners. We seek to enable our trading partners to reallocate and redirect to their strategic priorities the excess costs that adversely affect their supply chain, reduce the time their employees spend on non-productive activities and offset a significant portion of the capital investment they currently make in redundant and isolated supply chain-related technologies. Our strategy to achieve these objectives includes the following elements: INCREASE THE NUMBER OF MARKETPLACES WE BUILD AND OPERATE We intend to increase the number of Internet marketplaces we build and operate for our healthcare trading partners. Our three current marketplaces are Marketplace@Novation, which is sponsored by Novation, the largest GPO in the U.S. representing approximately one-third of the acute care market; Canadian Health Marketplace, which is sponsored by Medbuy, the largest national medical GPO in Canada; and NeoMD Marketplace, which is our marketplace for alternate site healthcare providers, primarily physicians. We expect that each of the marketplaces that we intend to establish will be sponsored by an established industry participant, such as a healthcare provider, manufacturer, distributor, GPO, IDN or an organization that represents a collection of providers, manufacturers or distributors. By increasing the number of custom marketplaces we build and operate using a common technology platform, we believe we can leverage our platform and technology investments over an increasing number of marketplaces, thereby achieving economies of scale and increasing our return on investment and operating margins. INCREASE THE NUMBER OF TRADING PARTNERS THAT UTILIZE OUR MARKETPLACES We intend to continue to increase the number of providers, manufacturers and distributors that use our marketplaces. We believe that the value of our products and services to our trading partners will increase as the number of trading partners that use our marketplaces increases. By adding suppliers and broadening the range of products available in our marketplaces, we create additional value for buyers. By attracting more buyers to our marketplaces, we create additional value for suppliers. Our current healthcare trading partners include some of the largest and most widely recognized healthcare providers, manufacturers and distributors in the world. ENHANCE THE FUNCTIONALITY OF OUR PRODUCT AND SERVICE OFFERINGS We plan to continue to enhance the functionality of our products and services, increasing their value to both current and future trading partners. Our recently announced strategic relationship with i2 will extend our product and service offerings to healthcare trading partners. In addition to augmenting our provider solutions with greater contracting, requisitioning and ordering functionality, our customization of i2's TradeMatrix(TM) platform will provide the healthcare buyer with more product searching, content management and supply chain collaboration capabilities. We intend to considerably enhance our product and service offerings to suppliers. We plan to offer demand planning, inventory optimization, cataloging, content management and collaboration tools to healthcare manufacturers and distributors. 9 10 CONTINUE TO FORM KEY STRATEGIC RELATIONSHIPS We intend to continue to enter into key alliances with leading technology and healthcare-related organizations to increase the number of marketplaces that we operate, expand the number of our trading partners and usage of our products and services and enhance the functionality of our product and service offerings. Our current strategic partners include Novation, VHA, UHC, Medbuy, i2, Lawson Software, Dell Marketing and Superior Consultant. In addition, we have strategic relationships with a number of healthcare providers and suppliers. We plan to strengthen and broaden these relationships and enter into new strategic relationships. OUR PRODUCTS AND SERVICES Optimized supply chain performance is possible only when each step in the supply chain process is streamlined, accelerated and tightly connected to the processes which precede and follow it. For example, traditionally, when a hospital runs low on a product, such as a syringe, a manual and paper-based process has been required to replace or replenish that product. A nurse, a supplier sales representative or an inventory clerk must complete a paper request for a replacement product and deliver that requisition to the purchasing department. The requisition then is passed to the hospital buyer who will first check, if possible, whether the product is in stock elsewhere in the hospital. If that is not the case, he or she will check the paper contracts on file to ensure that the product is priced properly, then consult a paper catalog to obtain product number and ordering information. When these steps are completed, the buyer will complete a purchase order and fax that order to the supplier of that product. This order would be received by a manufacturer or distributor that will return a paper-based confirmation of the order, aggregate that paper order with all of the other paper orders from that hospital, secure the product from the warehouse and ship that product to the hospital. At that time, the manufacturer or distributor will fax an advance shipping notice to the hospital. The hospital will receive the product at its loading dock, document the number of products actually received, forward that information to accounts payable and deliver the product to the department that ordered it. Accounts payable will manually compare the purchase order, the packing slip and the invoice sent by the manufacturer or distributor to ensure that the quantities and prices match. If they do, accounts payable will write a check to the manufacturer or distributor. If they do not, then the accounts payable clerk must review the order with the purchasing department and the manufacturer or distributor to resolve the discrepancy before payment can be made. While hospitals, manufacturers, distributors, GPOs and IDNs have made considerable efforts and progress to improve how products, information and money are managed within their organizations, they have not achieved significant levels of progress among their organizations. The average large hospital uses as many as 50,000 stock keeping units, or SKUs, or unique products, from over 2,000 suppliers to deliver patient care and support ancillary operations. The average large GPO manages as many as 300 to 400 contracts with several hundred suppliers for over 200,000 products. The average large manufacturer or distributor services hundreds of hospitals, several thousand locations to which they ship products and over 250,000 SKUs. As difficult as the institutional challenge these organizations have faced in streamlining their internal operations is, it is even more challenging to organize and manage the combined product, information and money that flow among them. We offer two broad groups of Internet-based products and services to address the significant challenges of the healthcare supply chain: Marketplace Applications and Trading Partner Services. We believe these products and services will enable our healthcare customers to optimize their individual and collective supply chain performance, extend the investments they have made individually to improve supply chain operations and enable a much greater degree of collaborative commerce among them. MARKETPLACE APPLICATIONS Marketplace Applications are the Internet-based software products that we provide to our healthcare trading partners. These applications, consisting of Access Manager, Requisition Manager, Order Manager, 10 11 Report Manager, Catalog Manager and NeoConnect, provide a comprehensive supply chain solution for a broad range of activities, from product use to replenishment and from ordering to payment. Access Manager Access Manager controls which services and functions each user can perform within a Neoforma-powered marketplace. This application is similar to, though much more complicated than, the password-based process an individual would use to access a consumer website. Each potential user in the healthcare provider organization, manufacturer organization, distributor organization and/or GPO must be profiled to determine his or her appropriate and specific level of access to, and use of, our marketplaces. This profile contains information such as level of spending authority, product selection, work-flow and information access. Access Manager enables us to customize our marketplace solutions, providing customer-specific access within a shared and scaleable application. Requisition Manager Requisition Manager allows users to access product information, create requisitions and electronically submit them as purchase orders through a marketplace. Additionally, Requisition Manager will provide custom templates to enable the end-user to design, in advance, quick order sheets to aggregate the products they order most frequently. Currently, Requisition Manager can be used as a stand-alone requisitioning system or as a supplement to a healthcare organization's existing requisitioning system. Order Manager Order Manager allows buyers to view the status of an order that has been transmitted through a marketplace. All transaction documents related to an order are dated, time stamped and viewable online. These transaction documents include the purchase order, purchase order confirmation, advance shipping notice, pricing update and other key communications between buyer and supplier. Report Manager Access to accurate and timely reports for purchasing expenditures is an important element of maintaining an efficient e-commerce system. Report Manager provides a variety of user-definable reports for each of our marketplace services. The reports deliver: information to manage purchasing, drive compliance, reduce costs and increase savings; consolidated and detailed views of usage, purchasing, compliance and pricing, ensuring that purchasing systems are working as efficiently as possible; and information to manage standardization, off contract buying, pricing and purchasing activity at all levels of the organization. Catalog Manager Catalog Manager allows suppliers to add, edit and upload their product catalog directly. By providing suppliers the ability to manage their catalog information, such as product identification and units of measure, via the Internet, Catalog Manager enables suppliers to provide catalog information directly to customers using our marketplaces, as well as to manage this information in a single database. In future releases, we expect that Catalog Manager will provide a vehicle for suppliers to distribute content to customers. NeoConnect NeoConnect is a core component of our marketplace solutions. It provides the tools, interfaces and methodologies to integrate our marketplaces with the legacy systems of both buyers and sellers. NeoConnect facilitates business transactions by supporting industry standard business document formats, including EDI and XML. 11 12 TRADING PARTNER SERVICES Through our Trading Partner Services, we offer comprehensive e-commerce solutions for hospitals by delivering robust and economical technology and a variety of advisory and specialty services to help healthcare organizations accelerate their readiness to adopt e-commerce and increase the effectiveness and results of e-commerce initiatives. Trading Partner Services include Item Data Readiness, Custom Connectivity and Staff Augmentation. We plan to offer similar services to manufacturers and distributors. Item Data Readiness We provide data management services to healthcare organizations for data scrubbing, rationalization, categorization and analysis. The ability for hospitals and their materials managers to maintain accurate and clean information for medical and surgical products in an item master is a significant challenge. A typical item master includes products that a hospital no longer purchases, multiple listings for the same product, inaccurate manufacturer catalog numbers, unclear product descriptions, duplicate entries and multiple units of measure. These issues can cause pricing errors and result in excess inventory, and the correction or reconciliation of these errors by a materials manager or hospital typically requires significant attention and resources, resulting in further inefficiencies. Our experts work with hospital staff to understand their business processes and rules. We then apply our customers' unique rules in combination with our expertise to deliver an up-to-date, cleansed item master with information that can be used in the materials management, operating room and other systems within the healthcare organization. A clean item master results in more accurate purchase orders, improved inventory tracking and reduced time required to correct mistakes. We also provide training to hospital staff to maintain a clean item master on an ongoing basis. Custom Connectivity We assist healthcare provider organizations in utilizing their current system infrastructure and maximizing the value of previous investments. Our connectivity solutions address the limitations of their current infrastructure by providing applications and services that provide data and information in a more timely, accurate and efficient manner. By incorporating our technology into existing systems, we help healthcare organizations improve the management of their business operations and reduce the time and resources required to complete their tasks. In addition, we provide system connectivity and e-commerce capabilities that allow healthcare organization to perform many functions such as data warehousing and online communications to remote sites. Our connectivity team has experience with many healthcare organizations nationwide, and works with each hospital's staff to address the specific needs of the organization. We assist with all levels of connectivity, including customized applications and sophisticated interface requirements. Some of the specific services include: - Accelerated implementation of an e-commerce interface for uncommon materials management information systems; - Custom programming to incorporate specific requirements unique to the organization; - Custom interfaces between the e-commerce platform and specific applications, such as data warehousing, cost accounting, operating room scheduling and warehouse management systems; and - Connectivity to all satellite locations affiliated with an organization. Staff Augmentation We offer staffing assistance to healthcare organizations that are implementing our marketplace solutions. We provide staff that understands the information systems, logistics, service level requirements, standardization and utilization benefits, and overall workflow requirements for the organization undergoing the transition 12 13 to our marketplace solutions. Our team has experience with many healthcare organizations nationwide. We work with hospital staff to utilize existing investments in technology, coupled with the Internet, so that an organization can save time and money and dedicate increased resources to patient care. OUR TRADING PARTNERS Our marketplaces empower our healthcare trading partners, including acute care and alternate site healthcare providers, suppliers and GPOs, to optimize their supply chains. PROVIDERS Provider organizations using our marketplaces include independent hospitals, hospital alliances, IDNs, physician offices, multi-specialty groups, clinics and other alternate site healthcare organizations. Our key hospital alliance trading partners are VHA, the largest association of not-for-profit hospitals in the U.S., and UHC, the largest group of university-based academic medical centers in the U.S. Collectively, VHA and UHC represent approximately 2,200 hospitals that account for $35 billion in annual supply consumption, both through online and traditional purchasing methods. As of March 27, 2001, we had agreements with 292 VHA, 63 UHC and one HPPI member hospitals, which collectively represent approximately $8.8 billion in annual supply purchasing, both through online and traditional purchasing methods. These agreements name us as the exclusive e-commerce provider and require each hospital to conduct 50% of its available purchasing through Marketplace@Novation within a specified time period. Our customers include some of the leading hospitals in the U.S., such as: - Allina Health System; - Crozer Keystone Health System; - Evanston Northwestern Healthcare; - Memorial Hermann Hospital System; - Novant Health; - Ohio State University Medical Center; - Shands University of Florida; - University Hospitals of Cleveland; - University of California, Los Angeles Healthcare; - The University of California, San Diego Medical Center; - The Medical Center at the University of California, San Francisco; - University of Utah Hospitals and Clinics; and - Yale New Haven Health System. As of March 27, 2001, we also had agreements with approximately 18,000 physicians and 250 long-term care facilities. SUPPLIERS As of March 27, 2001, we had agreements with 69 manufacturers and distributors to offer their products for sale in our marketplaces. These suppliers represent approximately $6 billion in annual sales to healthcare providers in our marketplaces. Our current suppliers include leading companies such as: - Allegiance Healthcare; - Boise Cascade Office Products; - Buffalo Hospital Supply; - The Burrows Company; 13 14 - Caligor Medical Division HSIC; - Dade Behring; - Eastman Kodak; - Kimberly-Clark; - Marconi Medical Systems' Health Care Products Division; - McKesson HBOC; - Medical Action Industries; - Nycomed Amersham Imaging; - Owens & Minor; - Professional Hospital Supply; - Standard Textile; and - Sunrise Medical Home Healthcare Group. Our agreements with these suppliers provide for the payment to us of a fee equal to a negotiated percentage of the purchase price of products that are sold through our marketplaces. Our agreements with distributors enable buyers to purchase products from a significantly greater number of additional manufacturers, including Beckman Coulter, Becton Dickinson, C.R. Bard, DeRoyal, Fuji, Johnson & Johnson, Maxxim Medical, Minnesota Mining & Manufacturing, or 3M, Smith & Nephew, Steris and Tyco International. GROUP PURCHASING ORGANIZATIONS Our key GPO trading partners are Novation, the supply management organization owned by VHA and UHC, and Medbuy, the largest national medical GPO in Canada. Collectively, these GPOs have agreements with more than 400 manufacturers and distributors. Novation hospital members purchase approximately $15 billion annually under Novation contracts, and Medbuy hospital members purchase approximately $115 million annually under Medbuy contracts. These figures include both online and traditional purchasing. STRATEGIC ALLIANCES We enter into alliances with leading technology and healthcare-related service organizations to enhance the portfolio of products and services that we offer to our trading partners, collaborate on research and development, increase usage of our marketplaces and extend our sales and marketing resources. We have entered into strategic alliances in the following areas: MARKETPLACE SPONSORS We have entered into strategic relationships with the sponsors of our two acute care focused marketplaces, Marketplace@Novation and Canadian Health Marketplace. Both marketplace sponsors are established healthcare industry participants. We believe that strategic alliances with established industry participants accelerate adoption of our marketplaces. Marketplace@Novation is sponsored by Novation, the U.S.'s largest healthcare GPO, and its owners, VHA and UHC. The approximately 2,200 member hospitals of Novation, VHA and UHC collectively purchase approximately $35 billion in products and services annually, which represents approximately one- third of the U.S. acute care market. We entered into a ten-year relationship with Novation, VHA and UHC, in which these organizations named us as the exclusive e-commerce solution that they promote to their members. 14 15 Canadian Health Marketplace is sponsored by Medbuy, Canada's largest national medical GPO that represents more than 20% of the Canadian healthcare market, measured in active beds for acute, pediatric and long-term care. We entered into a ten-year strategic relationship with Medbuy to jointly develop a comprehensive Internet solution for the Canadian healthcare market. The agreement names us as Medbuy's exclusive provider of an Internet e-commerce solution for the procurement of products and services. TECHNOLOGY PARTNERS We believe that by entering into strategic relationships with leading technology companies, we can effectively expand our portfolio of services and solutions and leverage the sales, marketing and services reach of our technology partners. We have entered into a series of agreements with i2, a leading provider of marketplace solutions, to develop, deploy and market Internet supply chain solutions for healthcare. Using i2's TradeMatrix Solutions, we expect our Internet marketplaces to deliver greater value-added services and supply chain applications to the healthcare community, including healthcare manufacturers, distributors and providers, to improve trading relationships and reduce costs. We are collaborating on product development, marketing, sales and service activities, and will share revenue. Our initial focus will be to use i2's technology to enhance our existing marketplace infrastructure via i2's TradeMatrix solutions, and to accelerate the delivery of value to our manufacturer and distributor trading partners by providing them with access to i2's supply chain applications via our marketplaces. We have formed a strategic alliance with Lawson Software to integrate their Internet supply chain solutions for the healthcare industry into our marketplaces. We will integrate the lawson.insight(TM) e-Procurement Service with our healthcare marketplace solutions to provide an end-to-end e-procurement solution for Lawson healthcare customers. Under the terms of the agreement, we will jointly develop application programming interfaces that will enable Lawson users to integrate their internal systems with our healthcare supply chain marketplaces. In developing these interfaces, we and Lawson plan to enable higher levels of supply chain collaboration and information sharing, which should result in lower costs and improved efficiencies for healthcare supply chain participants. We also have licensing and operating agreements with a number of other leading technology companies, including BEA Systems, CrossWorlds, iPlanet, Moai Technologies, Oracle, Resonate, Sterling Commerce, Sun Microsystems, TIBCO and webMethods. SALES, MARKETING AND SERVICE We sell our products and services through a direct field sales force in our sales and services organization and through our targeted sales forces within our marketplace management teams, such as our NeoMD Marketplace organization. The direct field sales force in our sales and services organization primarily targets the acute care healthcare provider market and focuses on signing hospitals to participate in our marketplaces. This sales force works closely with our implementation specialists to speed our response to customers' needs and to ensure that each customer has a single point of contact within our organization. Marketplace management teams support specific marketplace customers and integrate those customers into the ongoing selling effort required to enroll new buyers and sellers into those marketplaces. Our field sales forces have significant experience in the sale of medical products, equipment and information technology systems. Our relationships with a number of our strategic partners include joint and cross selling and marketing of our marketplaces, services and solutions. For example, under our strategic relationship with Novation, VHA and UHC, the sales forces of these organizations are exclusively promoting our e-commerce solution to providers and suppliers. Novation has a greater than 100 person field organization focused on bringing supply chain solutions to VHA and UHC members, including Marketplace@Novation, and a greater than 50 person sales force that focuses on suppliers. In addition, under our agreements with i2, the i2 sales force is promoting the use of our products and services to existing and potential customers. 15 16 Our marketing organization supports the marketing needs of our marketplace management teams, our co-marketing activities with our strategic partners and our overall corporate marketing initiatives. Our marketing programs include traditional and Internet-based marketing initiatives to increase awareness of our brand and to attract new buyers and suppliers to our products and services. These programs include a variety of public relations initiatives, such as participation in industry conferences and trade shows and ongoing relationships with healthcare, Internet and technology media and industry analysts. We believe these relationships significantly extend our internal sales resources and will accelerate adoption of our marketplaces. We believe that the collective resources represented by our alliance partners, combined with our internal resources, represent one of the largest sales and marketing organizations in the healthcare industry. We believe that we can strengthen our relationships with our trading partners by providing good account management, customer support and service. Our customer service organization provides support to our customers twenty-four hours a day, seven days a week on topics such as communications, marketplace functionality and access, training in marketplace use and management and document tracking. Additionally, we expect that customer service will provide premium services for a fee to customers who require more personal attention, greater staff support and/or extended training services. Our worldwide sales, marketing and customer service group consisted of 148 full-time employees as of December 31, 2000. TECHNOLOGY We have invested, and will continue to invest, in both systems and software to provide the platform for building and operating Internet marketplaces that optimize supply chain performance. We have developed technology infrastructure to address the three primary elements of a hosted supply chain marketplace: connectivity, content and hosted solutions. These services are deployed on a marketplace platform that we plan to continue to enhance on a periodic release basis. FUNCTIONALITY Connectivity The first step in delivering value to our customers is connecting their people and business information systems to our marketplaces. Our connectivity infrastructure, NeoConnect, includes both dial-up and Internet-based access for healthcare providers, manufacturers and distributors, deployed to operate as a high-availability, redundant system. We leverage commercial technologies from leading vendors to support transaction routing and reporting, and have developed custom software to connect these various solutions. Our connectivity infrastructure is designed to support increasing transaction volumes from acute care and alternate site healthcare buyers, manufacturers and distributors consistent with our forecast growth. NeoConnect supports extensive bi-directional transaction sets, including ordering, confirmation, shipping notices, invoicing and catalog updates, and is adaptable to trading partners who use existing EDI systems, XML-based communications and/or web-based interfaces to our marketplaces. Content We have invested in extensive catalog and transaction content indexing and normalization efforts. We plan to continue to provide content rationalization services, both directly and through our partners, to enable healthcare providers, manufacturers and distributors to make buying and selling decisions, evaluate performance against committed contracts and understand standardization opportunities. Our content solutions leverage internally developed applications for moving, indexing and cross-referencing data which can be leveraged across multiple marketplaces. Additionally, we use commercial applications to store, search and display this data for use by both provider and supplier customers. We intend to continue to develop and extend our content business to include additional products, cross-references between suppliers and contracts and other value added services that facilitate supplier and provider communication. 16 17 Hosted Solutions Our marketplaces consist of a number of web-based services, including user administration, requisitioning and approvals, contract management and optimization, reporting and analysis, order management and catalog maintenance. We have developed these and other services in close consultation with hospital, physician office, manufacturer, distributor and GPO user groups. Our currently deployed marketplaces reflect the prioritized services necessary to enhance the performance of our customers' supply chains. We believe that additional application development, both in-house and with our technology partners, will further extend the breadth of solutions available to support high-value collaborations between current and potential trading partners. As a part of our relationship with i2, we plan to deploy some of the applications from i2's portfolio as hosted solutions for use within our marketplaces. INFRASTRUCTURE Open Architecture Our open architecture supports integration with our users' existing legacy systems. The ability to integrate with these diverse systems is important for us to aggregate a wide range of providers and suppliers in our marketplace with minimal disruption to their existing processes. Our architecture is based on industry standards, enabling us to rapidly introduce new features and functionality. Scalability, Performance and Availability Our highly modular, distributed architecture is designed to enable us to readily add capacity as the number of users and transactions increase on our system. We have fully-redundant hardware systems which, when combined with our distributed architecture, enable us to provide our services on an uninterrupted basis, even in the event of partial system failure. By locating our data center at an Exodus Communications hosted facility, we are able to easily and rapidly expand our network bandwidth and maintain the physical security of our systems. We have invested in, and plan to continue to support, a co-located backup system in the event of geographic catastrophe. Security Our platform for building and operating Internet marketplaces contains a variety of features to ensure the secure transmission of business information among multiple trading partners and to protect against communication failures. We use SSL, or secure sockets layer, an Internet security protocol, at appropriate points in the transaction flow to protect user information during transactions. User information is encrypted to provide a high degree of security. Our employees do not have access to user information, except as necessary to perform customer service functions. The system authenticates users through standard secure login and password technologies. PRODUCT DEVELOPMENT AND OPERATIONS We intend to continue to expand and enhance the functionality of our products and services. We are currently focusing our product development resources on enhancing our infrastructure to support increasing transaction volumes, delivering supply chain solutions that support ordering and pricing visibility for our trading partners, extending our sourcing catalog services, and improving our extensive reporting and analytics functionality. We intend to continue to enhance our existing solutions within our marketplaces on a periodic basis and launch new solutions that provide increased utility and value for healthcare manufacturers, distributors and providers. Our future product development efforts will focus on extending the enterprise and supply chain analytics capabilities made possible by the transaction volume and data flow through our marketplaces, providing demand and procurement collaboration services for our trading partners and developing contracting and performance solutions to support committed purchasing and supply relationships. 17 18 For both our current and future product development activities, we plan to continue to leverage our technology partners to accelerate delivery and hedge development risk. Our strategic relationship with i2 includes provisions for conducting joint development products aimed at extending the i2 solution suite to specifically address the needs of the healthcare supply chain. These joint development projects include the definition of a specific statement of work, commitment of resources by both us and i2 and the assignment of intellectual property on a project-by-project basis. Our product development and operations group is responsible for translating customer needs into detailed functional and technical specifications, configuring and developing software applications and web services to meet these specifications, testing and verifying performance and operating in a high-availability production environment. As of December 31, 2000, we had 75 full-time employees in this organization. Depending on the number and complexity of current development projects underway, our staff is augmented using both independent contractors and consulting firms. PROPRIETARY RIGHTS AND LICENSING Our success and ability to compete depend on our ability to develop and maintain the proprietary aspects of our technology. We rely on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect the proprietary aspects of our technology. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. Finally, we seek to avoid disclosure of our intellectual property by restricting access to our source code and by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us. We rely on technology that we license from third parties, including software that is integrated with internally developed software and used in our software products to perform key functions. For example, we license TradeMatrix software from i2 to offer procurement and order management functions. We also license Gentran software from Sterling Commerce for the processing of order transactions from our customers. Such product licenses may expose us to increased risks, including risks associated with the assimilation of new products, the diversion of resources from the development of our products, the inability to generate revenues from new products sufficient to offset associated acquisition costs and the maintenance of uniform, effective products. If we are unable to continue to license any of this software on commercially reasonable terms, we will face delays in releases of our services until equivalent technology can be identified, licensed or developed and integrated into our current technology. These delays, if they occur, could seriously harm our business. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, and to determine the validity and scope of the proprietary rights of others. Any resulting litigation could result in substantial costs and diversion of resources, and could seriously harm our business. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our success and ability to compete also depend on our ability to operate without infringing upon the proprietary rights of others. For example, on January 14, 2000, Forma Scientific informed us that it believed our use of "Neoforma" and "Neoforma.com" violated its trademark rights in "Forma" and "Forma Scientific." On September 12, 2000, we entered into a settlement agreement with Forma Scientific under which we agreed to modify our logo so that the mark "Neoforma" is presented to viewers as one word without any form of distinction separating the "Neo" portion of the mark from the "Forma" portion of the mark. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business would be seriously harmed. 18 19 COMPETITION The healthcare supply chain market is new, rapidly evolving and highly competitive. Our competitors are diverse and offer a variety of solutions directed at various segments of the healthcare supply chain. Competitors include: - e-commerce providers that currently have or have announced plans for online marketplaces targeted at the healthcare supply chain, including medibuy, Broadlane, MedAssets, MedChannel and Medpool; - healthcare exchanges that have been formed by suppliers, namely Global Health Exchange, which was founded by five healthcare manufacturers, Abbott Laboratories, Baxter International, General Electric Medical Systems, Johnson & Johnson and Medtronic, and HealthNexis, which was formed by four healthcare distributors, Amerisource, Cardinal Health, Fisher Scientific and McKesson HBOC; - suppliers that have created their own websites that offer e-commerce functions to their customers for the sale of their products and services; - enterprise resource application software vendors that offer solutions in the healthcare market, such as SAP, Oracle, PeopleSoft, Lawson and McKesson HBOC; - vendors establishing electronic marketplaces and procurement capabilities, including Ariba and Commerce One; and - supply chain software vendors, including Manugistics and Logility. We believe that companies in our market compete to provide services to suppliers based on: - brand recognition; - number of buyers using their services and the volume of their purchases; - level of bias, or perceived bias, towards particular suppliers; - existing relationships; - compatibility with suppliers' existing distribution methods; - the amount of the fees charged to suppliers; - functionality, ease of use and convenience; - ability to integrate their services with suppliers' existing systems and software; and - quality and reliability of their services. In addition, we believe that companies in our market compete to provide services to buyers based on: - brand recognition; - breadth, depth and quality of product offerings; - ease of use and convenience; - number of suppliers available through their marketplace; - ability to integrate their services with buyers' existing systems and software; - quality and reliability of their services; and - customer service. 19 20 Competition is likely to intensify as our market matures. As competitive conditions intensify, competitors may: - enter into strategic or commercial relationships with larger, more established healthcare, medical products and Internet companies; - secure services and products from suppliers on more favorable terms; - devote greater resources to marketing and promotional campaigns; - secure exclusive arrangements with buyers that impede our sales; and - devote substantially more resources to website and systems development. Our current and potential competitors' services may achieve greater market acceptance than ours. Our existing and potential competitors may have longer operating histories in the healthcare supply chain market, greater name recognition, larger customer bases or greater financial, technical and marketing resources than we do. As a result of these factors, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns for their brands and services and make more attractive offers to buyers and suppliers, potential employees and strategic partners. In addition, new technologies may increase competitive pressures. We cannot be certain that we will be able to expand our buyer and supplier base or retain our current buyers and suppliers. We may not be able to compete successfully against our competitors, and competition could seriously harm our revenue, gross margins and market share. EMPLOYEES As of December 31, 2000, we had 251 full-time employees, including 148 in sales, marketing and customer service, 43 in product development, 32 in operations and 28 in general and administrative functions. Our future success will depend, in part, on our ability to attract, train, retain, integrate and motivate highly qualified sales, technical and management personnel, for whom competition is intense. Our employees are not represented by any collective bargaining unit, and we have never experienced a work stoppage. We believe our relations with our employees are good. We also use independent contractors to support our services. We use a firm based in India to digitize and format product information for our Shop service. We plan to use a third party specializing in Internet support to respond to our most common customer service requests. ITEM 2. PROPERTIES FACILITIES As of December 31, 2000, our executive, administrative and operating offices were located in approximately 116,000 square feet of office space located in San Jose, California under a lease scheduled to expire in March 2007. We occupy approximately 84,300 square feet of this facility, and sublease approximately 31,700 square feet to another corporation under a sublease that expires in October 2003. We have been in this facility since April 2000, at which time we moved from our previous headquarters located in Santa Clara, California. At the time of our move, we entered into agreements to terminate our leases in Santa Clara. We also lease offices in San Francisco, California, Atlanta, Georgia and Carlisle, Pennsylvania. Our San Francisco office is located in the previous headquarters of Pharos. The facility is approximately 2,400 square feet, and the lease expires in December 2004. Our Atlanta office is approximately 3,900 square feet and the lease expires in October 2002. Our Carlisle office is located in the previous headquarters of USL. The facility is approximately 6,700 square feet and the lease expires in March 2002. As part of the sale of USL to MDSI in April 2001, MDSI assumed the operating lease on this facility as of the closing date. We also maintain two facilities in the metropolitan area of Chicago, Illinois for our Auction operations. We entered into a lease that expires in February 2004 for our facility located in Arlington Heights, Illinois, which is 19,765 square feet of office and warehouse space which serves as the headquarters for our Auction operations. Additionally, we entered into a lease which expires in November 2002 for a second location in the 20 21 Chicago area in Elk Grove Village, Illinois. The facility is approximately 124,000 square feet of primarily warehouse space and serves as storage for consigned or purchased items until they are sold in an auction. We also maintain a lease which expires in July 2001 on a facility in Santa Fe Springs, California, which is approximately 21,000 square feet of warehouse space for consigned items and the primary location of our auction activities on the West Coast. As the result of our planned divestiture of our Auction operations, we anticipate transferring these leases to the purchaser of our Auction operations. ITEM 3. LEGAL PROCEEDINGS On October 30, 2000, we were formally served with a complaint entitled Healthworks, Inc. against Neoforma.com, Inc., and Jeffrey H. Kleck, Index No. 604682-00, Supreme Court of the State of New York, County of New York. The complaint indicated that Healthworks had filed suit against us seeking relief of its obligations under two contracts between itself and us. Healthworks alleges that we failed to fulfill our obligations under a basic commerce agreement and letter of intent (the "Basic Agreement"), and we have thus breached the Basic Agreement. Further, Healthworks is claiming that a consulting services and capital equipment purchasing agreement (the "Consulting Agreement") was obtained via fraudulent means, and, as a result, should be rescinded. We believe that Healthworks' case is without merit, and plan to vigorously defend this action. We do not believe this litigation will have a material impact on our financial statements. On October 30, 2000, we filed a complaint for breach of contract entitled Neoforma.com, Inc. v. Continuum Health Partners, Inc. and Healthworks, Inc., in the Superior Court of the State of California, County of Santa Clara. The complaint indicates that Healthworks and Continuum Health Partners, Inc. are in breach of both the Basic Agreement and the Consulting Agreement, both of which were entered into by Healthworks acting as an agent for Continuum. The complaint indicates that the breach was created by Healthworks' and Continuum's refusal to pay amounts due to us under the agreements, despite the fact that we had performed on our obligations under those agreements. We are seeking compensatory damages in excess of $1.0 million. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 21 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK Our common stock has been traded on the Nasdaq National Market under the symbol "NEOF" since January 24, 2000, the date of our initial public offering. Prior to that time, there was no public market for our common stock. The following table sets forth the high and low closing prices for our common stock as reported on the Nasdaq National Market for the periods indicated.
HIGH LOW ------ ------ FISCAL YEAR ENDED DECEMBER 31, 2000 First quarter (from January 24, 2000)...... $73.53 $16.38 Second quarter............................. $16.19 $ 6.06 Third quarter.............................. $ 8.19 $ 2.69 Fourth quarter............................. $ 3.31 $ 0.63
The market price of our common stock has fluctuated significantly in the past and is likely to fluctuate in the future. In addition, the market prices of securities of other technology companies, particularly Internet-related companies, have been highly volatile. See "Managements' Discussions and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Operating Results." RECENT SALES OF UNREGISTERED SECURITIES On October 18, 2000, we canceled VHA's warrant to purchase up to 30,845,020 shares of our common stock and issued to VHA 30,845,020 shares of our restricted common stock in substitution for such warrant. The restricted common stock that we issued to VHA is subject to the identical performance-based vesting criteria to which the warrant was subject. The securities issuances set forth above were not registered under the Securities Act of 1933 in reliance upon the exemption provided by Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder for transactions by an issuer not involving a public offering. HOLDERS OF RECORD As of March 31, 2001, there were approximately 729 holders of record of our common stock. This number does not include a significant number of stockholders for whom shares were held in a "nominee" or "street name." DIVIDENDS We have never declared or paid any cash dividends on our capital stock and do not anticipate paying cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to fund the expansion and growth of our business. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. In addition, the terms of some of our credit facilities prohibit us from paying cash dividends on our capital stock without the prior consent of the lender. 22 23 USE OF PROCEEDS We sold 8,050,000 shares of our common stock on January 24, 2000, pursuant to a registration statement on Form S-1, Registration No. 333-89077, which was declared effective by the Securities and Exchange Commission on January 24, 2000. From January 24, 2000 through December 31, 2000, we used substantially all of the net proceeds from our initial public offering primarily to fund operating losses and working capital requirements. 23 24 ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data for the period from inception (March 6, 1996) to December 31, 1996, and the years ended December 31, 1997, 1998, 1999 and 2000 are derived from our historical consolidated financial statements. When you read this selected consolidated financial data, it is important that you also read the historical financial statements and related notes included in this report, as well as the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results. See Note 2 of notes to consolidated financial statements for an explanation of the determination of the number of shares used in computing per share amounts.
YEAR ENDED PERIOD FROM INCEPTION DECEMBER 31, (MARCH 6, 1996) TO ---------------------------------------- DECEMBER 31, 1996 1997 1998 1999 2000 --------------------- ------ -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenue: Sales of equipment....................... $ -- $ -- $ -- $ -- $ 4,629 Transaction fees......................... -- -- -- 929 2,273 Services................................. -- -- -- -- 959 Website sponsorship fees and other....... -- -- -- 75 2,585 ------ ------ -------- -------- --------- Total revenue.......................... -- -- -- 1,004 10,446 Operating Expenses: Cost of equipment sold................... -- -- -- -- 3,544 Cost of services......................... -- -- -- -- 8,247 Operations............................... -- -- 627 5,941 13,517 Product development...................... 31 179 1,494 8,161 24,599 Selling and marketing.................... 111 153 1,411 16,860 53,216 General and administrative............... 54 76 1,075 17,937 25,922 Amortization of intangibles.............. -- -- -- 715 25,700 Amortization of partnership costs........ -- -- -- -- 30,491 Cost of warrant issued to recruiter...... -- -- -- 2,364 -- Write-off of acquired in-process research and development........................ -- -- -- -- 18,000 Abandoned acquisition costs.............. -- -- -- 2,742 Restructuring............................ -- -- -- -- 2,100 Costs of anticipated divestitures........ -- -- -- -- 14,446 ------ ------ -------- -------- --------- Loss from operations................... (196) (408) (4,607) (50,974) (212,078) Other Income (Expense): Interest income.......................... -- -- 66 659 4,464 Interest expense......................... -- (15) (22) (676) (1,289) Other income (expense)................... 142 7 -- (29) 88 ------ ------ -------- -------- --------- Net loss $ (54) $ (416) $ (4,563) $(51,020) $(208,815) ====== ====== ======== ======== ========= Basic and diluted net loss per share $(0.01) $(0.05) $ (1.65) $ (19.15) $ (2.49) ====== ====== ======== ======== ========= Weighted-average shares -- basic and diluted 8,000 8,083 2,762 2,664 83,948 ====== ====== ======== ======== ========= Pro forma basic and diluted net loss per share (unaudited) $ (0.36) $ (1.63) $ (2.41) ======== ======== ========= Weighted average shares -- pro forma basic and diluted (unaudited) 12,848 31,282 86,585 ======== ======== =========
24 25
DECEMBER 31, ----------------------------------------------- 1996 1997 1998 1999 2000 ------ ------ ------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments....... $ 7 $ 32 $ 812 $ 46,775 $ 29,760 Working capital......................................... 38 (23) 214 36,888 (3,447) Total assets............................................ 51 55 1,672 77,369 513,938 Notes payable, less current portion..................... 75 385 279 7,743 5,458 Mandatorily redeemable convertible preferred stock...... -- -- 3,884 88,812 -- Total stockholders' equity (deficit).................... (34) (390) (3,155) (31,863) 468,791
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should always be read in conjunction with our consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors including those discussed in "-- Factors That May Affect Future Operating Results" and elsewhere in this report. OVERVIEW Neoforma is a leading healthcare supply chain solutions company. We build and operate Internet marketplaces that empower healthcare trading partners to optimize supply chain performance. The healthcare market has a number of characteristics that make it suited for an Internet-based marketplace solution, including its large size, high degree of fragmentation, significant inefficiencies, industry cost pressures and highly complex supply chain. Our solutions enable the participants in the healthcare supply chain market, principally healthcare providers, manufacturers, distributors, GPOs and IDNs, to significantly improve business processes within their organizations and among their trading partners. Using our products and services, these organizations can improve efficiencies, increase revenue, reduce costs and improve capital allocation. Our solutions consist of web-based products and services for our customers, or trading partners, as well as other services offered that are designed to accelerate and optimize their use of the marketplaces that we build for them. Our trading partners include both acute care and alternate site healthcare providers, manufacturers and distributors to these healthcare providers, GPOs and IDNs. Our primary business objectives are aligned with those of our trading partner customers. We seek to enable our customers to reallocate and redirect to their strategic priorities the excess cost that adversely affect their supply chain, reduce the time our trading partners' employees spend on non-productive activities and offset a significant portion of the capital investment our trading partners currently make in redundant and isolated supply chain-related technologies. Our strategies to achieve these objectives are to increase the number of custom marketplaces we build and operate, increase the number of trading partners that utilize our marketplaces, enhance the functionality of our product and service offerings and continue to form key strategic relationships. Historically, we have offered four primary services -- Shop, Auction, Plan and Services Delivery. Our Shop service provides private marketplaces where buyers can easily identify, locate and purchase new products and suppliers can access new customers and markets. Healthcare providers can use our Shop service 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. Our Services Delivery service provides scaleable and cost-effective implementation solutions for both healthcare providers and suppliers. 25 26 The Neoforma website was first launched in 1997 and following its introduction, we have added a number of enhancements and additional functionality to the site. Initially, our website only provided information for healthcare professionals, but in 1999 we began offering e-commerce services with the introduction of our initial Auction service, AdsOnline, and subsequently expanded our services with the introduction of our second and third Auction services, AuctionLive and AuctionOnline, in the second half of 1999. We introduced our first true marketplace offering in August 1999 with the launch of Shop functionality on the Neoforma website. Since we introduced our Auction and Shop services, we have focused on expanding and enhancing our services, establishing relationships with suppliers of products to healthcare providers, expanding our purchaser base, developing strategic alliances, promoting our brand name and building our operating infrastructure. In late fiscal 2000, we decided to refocus our development efforts and internal resources to our core business of building and operating Internet marketplaces to optimize supply chain performance for our trading partners. As part of this effort, we developed a plan to eliminate any operations that are not aligned with this core strategy. As such, we intend to divest our Auction operations, as well as portions of our Plan operations. On April 2, 2001, we implemented part of this strategy by selling USL, part of our Plan operations, to MDSI. To date, our principal source of revenue has been transaction fees paid by the sellers of products that use our Shop and Auction services. These transaction fees represent a negotiated percentage of the sale price of the products sold through Shop or Auction. During 2000, we also received revenue from the following sources: - setup fees from participating sellers to digitize their product information for display on our website as part of our Shop service; - subscription fees paid by healthcare providers and manufactures and distributors of products for participation in private marketplaces for products and supplies; - 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; - product revenue related to the sale of medical equipment that we purchase for resale through our live and online auction services; - 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; - license fees from the sale of software tools and related technical information for the equipping and planning of healthcare facilities; and - service delivery fees for implementation and consulting services paid by users of our marketplaces. We recognize transaction fees as revenue when the seller confirms a buyer's order. Setup fees are recognized upon completion of the related services. For live and online auction services, we recognize seller transaction fees, as well as a buyer's premium, when the product is sold. As a result of our planned divestiture of our Auction operation, we expect to recognize significantly less revenue from our live and online auction services in 2001 and no such revenue subsequent to the completion of this divestiture. 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. Sponsorship and subscription fees are recognized ratably over the period of the agreement. With respect to software licenses, license fees are recognized when the software has been delivered and there are no other contingencies related to our performance. If license fees are contingent upon our performance subsequent to delivery, we defer recognition of such fees or the fair market value of the undelivered element requiring performance until we have completed performance. Subscription and maintenance fee revenue is recognized ratably over the period of the service agreement. Services delivery revenue for implementation and other services, including training and consulting, is recognized as services are performed for time and material arrangements and using the percentage of completion method based on labor input measures for fixed fee arrangements. 26 27 Both our operating expenses and our revenue increased significantly over the course of fiscal 2000. The revenue increases resulted from growth primarily in Shop and Plan, as well as the addition of the Services Delivery revenue stream in mid-2000. The increases in the operating expenses were due to a number of factors including increases in staffing in our development and sales organizations and elsewhere in our organization, including contractors and consultants, costs of strategic partnerships entered into during the year, costs associated with the restructuring of our organization and costs associated with being a publicly traded company such as increased reporting and regulatory oversight requirements. During the course of fiscal 2000, our headcount increased from 269 full-time employees as of December 31, 1999 to as many as 326 during the year, and decreased to 251 full-time employees as of December 31, 2000 as a result of the reduction in force we announced on May 25, 2000 and normal attrition. 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 2,000,000 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 the original four-year vesting period of the shares. 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 is being amortized 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 allocated $3.0 million of the purchase price to in-process research and development 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 in-process research and development based on an assessment of the research and development projects. The value assigned to these assets was 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 in-process research and development 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 in-process research and development 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 planning, designing, coding, prototyping and testing activities that were necessary to establish that the developmental Pharos technologies met their design specifications including functional, technical and economic performance requirements. Anticipated completion dates ranged from six to nine 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 in-process research and development projects involved designing new technologies and an application platform for a next generation content syndication solution, including enterprise application 27 28 integration. The estimated revenue for the in-process projects was expected to peak within three years of acquisition and then decline as other new products and technologies were 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 the 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% were appropriate for the in-process research and development, and discount rates of 25% were appropriate for the existing products and technology. These discount rates were commensurate with Pharos' stage of development and the uncertainties in the economic estimates described above. In March 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 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 were allocated to tangible assets and goodwill, respectively. This acquisition was accounted for using the purchase method of accounting. The goodwill is being amortized over an estimated useful life of five years. In April 2000, we acquired EquipMD, Inc., a business-to-business procurement company serving the physician market. The total purchase price of approximately $141.7 million consisted of approximately 4.4 million shares of our common stock valued at approximately $126.4 million, 269,000 vested options valued at approximately $7.2 million and estimated assumed liabilities and acquisition costs of $8.1 million. In addition, we assumed approximately 807,000 unvested options. In the initial allocation of the purchase price, $1.5 million, $100,000, $19.0 million, $106.1 million and $15.0 million were allocated to tangible assets, assembled workforce, customer lists, goodwill and acquired in-process research and development, respectively. This acquisition was accounted for using the purchase method of accounting. The intangible assets, including goodwill, are being amortized over an estimated useful life of five years. In connection with the acquisition of EquipMD, we allocated approximately $15.0 million of the purchase price to in-process research and development projects. This allocation represented 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. At the acquisition date, EquipMD was conducting design, development, engineering and testing activities associated with the completion of a real-time commerce engine. The projects under development at the valuation date represented next-generation technologies that were expected to address emerging market demands for healthcare related business-to-business e-commerce. At the acquisition date, the technologies under development were approximately 60% complete based on engineering man-month data and technological progress. EquipMD had spent approximately $1.2 million on the in-process projects, and expected to spend approximately $1.0 million to complete all phases of the research and development. Anticipated completion dates ranged from three to nine months, at which time we expected to begin benefiting from the developed technologies. In making its purchase price allocation, management considered present value calculations of income, an analysis of project accomplishments and remaining outstanding items, an assessment of overall contributions, as well as project risks. The value assigned to purchased in-process technology was determined by estimating the costs to develop the acquired 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 in-process research and development was based on estimates of relevant market sizes and 28 29 growth factors, expected trends in technology and the nature and expected timing of new product introductions by us and our competitors. The resulting net cash flows from such projects were based on management's estimates of cost of sales, operating expenses and income taxes from such projects. Aggregate revenue for the developmental EquipMD products was estimated to grow at a compounded annual growth rate of approximately 100% for the five years following introduction, assuming the successful completion and market acceptance of the major research and development programs. The estimated revenue for the in-process projects was expected to peak within three years of acquisition and then decline sharply as other new projects and technologies were expected to enter the market. 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 and profitability of the developmental projects, a discount rate of 35% was considered appropriate for the in-process research and development. These discount rates were commensurate with EquipMD's stage of development and the uncertainties in the economic estimates described above. If these projects are not successfully developed, our sales and ability to achieve profitability may be adversely affected in future periods. Additionally, the value of other acquired intangible assets may become impaired. The estimates used by us in valuing in-process research and development relating to the Pharos and EquipMD acquisitions were based upon assumptions we believe 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 financial condition and results of operations. In July 2000, we acquired some of the assets of National Content Liquidators, Inc., or NCL, an asset management company focused on healthcare facility liquidations and the resale of used medical products. 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 $3.2 million consisted of approximately 300,000 shares of common stock valued at $2.2 million, $500,000 in cash and $500,000 in notes payable to the principals of NCL. In the initial allocation of the purchase price, the full $3.2 million was allocated to goodwill as there were no material tangible assets acquired. The goodwill is being amortized over an estimate useful life of seven years. On March 30, 2000, we entered into agreements to acquire Eclipsys Corporation and HEALTHvision, Inc., entered into an outsourcing and operating agreement with Novation and entered into agreements to issue our common stock and warrants to the owners of Novation. On May 25, 2000, we mutually agreed to terminate the proposed mergers announced on March 30, 2000. Instead, we entered into a strategic commercial relationship with Eclipsys and HEALTHvision that includes a co-marketing and distribution arrangement between us and HEALTHvision. The arrangement includes the use of Eclipsys' eWebIT(TM) enterprise application integration technology and professional services to enhance the integration of legacy applications with our e-commerce platform. In addition, we modified the structure and terms of our stock and warrant transactions with VHA and UHC. As a result of the termination of the mergers, a number of costs which we had capitalized as incurred during the due diligence and acquisition process, including investment banker fees, legal advisory fees and financial and accounting fees, no longer had any realizable future value. As a result, we wrote off approximately $2.7 million of these costs in the third quarter of 2000. These costs are reflected in our consolidated statement of operations as Abandoned Acquisition Costs. Under the terms of the modified Novation agreements, which were approved by our stockholders on July 26, 2000, VHA received approximately 46.3 million shares of our common stock, representing approximately 36% of our then outstanding common stock, and UHC received approximately 11.3 million 29 30 shares, representing approximately 9% of our then outstanding common stock. We also issued warrants to VHA and UHC, allowing VHA and UHC the opportunity to earn up to approximately 30.8 million and approximately 7.5 million additional shares of our common stock, respectively, over a four-year period by meeting specified performance targets. These targets are based upon the historical purchasing volume of VHA and UHC member healthcare organizations that sign up to use Marketplace@Novation. The targets increase annually to a level equivalent to total healthcare organizations representing approximately $22 billion of combined purchasing volume at the end of the fourth year. Under our outsourcing and operating agreement with Novation, we have agreed to provide specific functionality to Marketplace@Novation, the online marketplace only available to the patrons and members of VHA, UHC and 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 marketplaces, 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. On October 18, 2000, we and VHA agreed to amend our common stock and warrant agreement to provide for the cancellation of the performance warrant to purchase approximately 30.8 million shares of our common stock. In substitution for the warrant, we issued to VHA approximately 30.8 million shares of our restricted common stock. On January 25, 2001, we and UHC agreed to amend our common stock and warrant agreement to provide for the cancellation of the remaining unexercised portion of the performance warrant to purchase approximately 5.6 million shares of our common stock. In substitution for the warrant, we issued to UHC approximately 5.6 million shares of our restricted common stock. Both VHA's and UHC's restricted shares are subject to forfeiture if the same performance targets that were contained in their original warrants are not met. On January 25, 2001, we entered into an amendment to the outsourcing and operating agreement which we had originally entered into with Novation, VHA, UHC and HPPI on May 25, 2000. Under the terms of the amended outsourcing and operating agreement, which was effective January 1, 2001, Novation agreed to guarantee a minimum fee level to us, which is directly derived from the gross transaction volume processed through Marketplace@Novation. The amended outsourcing and operating agreement also includes modifications to revenue sharing provisions under which we will share specified fees we receive for products and services sold through or related to our marketplaces. We will share with Novation revenue related to transactions through Marketplace@Novation and from our other marketplaces, revenue related to our Shop and Auction services and revenue related to the distribution or licensing of software and other technology solutions. We will not share revenue related to marketplaces sponsored by other GPOs, except for specified types of purchases. For the term of the agreement, we will not share with Novation revenue related to any of the above transactions in any quarter until we have achieved specified minimum transaction fees related to Marketplace@Novation transactions. The amended outsourcing and operating agreement also includes modifications to certain supplier recruitment and supplier implementation provisions of the original agreement. On January 25, 2001, we entered into stock purchase agreements with i2, VHA and UHC under which they purchased a total of approximately 18.0 million shares of our common stock at a purchase price of $1.69 per share. We raised a total of approximately $30.5 million prior to costs associated with the sale of the shares, which are estimated at approximately $1.5 million, including an advisory fee to our investment bankers. After the closing of the financing, VHA and UHC owned approximately 48.8% and 12.1%, respectively, of our total shares of outstanding common stock, assuming exercise of all outstanding stock options and warrants to purchase our common stock. As a result of our transaction with Novation and acquisition of EquipMD, in May 2000 we streamlined our operations to focus on our key global markets, IDNs and hospitals, and physician practices. The restructuring involved both changes in executive management and our organizational structure, as well as a reduction in force of approximately 80 individuals in functions largely duplicated or unnecessary as a result of both the outsourcing and operating agreement and the restructuring. The resulting restructuring charge of 30 31 approximately $2.1 million consisted almost entirely of accrued severance and other employee related costs. As of December 31, 2000, the accrual had been fully utilized and there was no remaining balance. In the fourth quarter of 2000, management, working with our board of directors, finalized a plan to refocus our operations on building and operating private Internet marketplaces that empower our healthcare trading partners to optimize supply chain performance. As part of this process, we announced our intent to divest some of our operations that are no longer aligned with our core strategy. The operations to be divested were USL, GAR and the assets acquired from NCL. On April 2, 2001, we sold USL, part of our Plan operations, to MDSI. As a result of these planned divestitures, at December 31, 2000, we have written down the assets of these operations to our estimate of the net realizable disposal value of the operations based on their activity through December 31, 2000. Additionally, we have recorded an accrual for the anticipated costs to sell these operations. The total impact of these planned divestitures on our statement of operations for the year ended December 31, 2000 was $14.4 million, which consisted of an approximately $13.3 million reduction in the net realizable value of the assets relating to the operations to be sold, and $1.1 million of accruals for anticipated deal costs including any severance for the employees of those operations, accrued rent relating to potentially idle facilities, as well as financial and legal advisory fees. As of December 31, 2000, the full $1.1 million accrual was still unpaid. Since inception, we have incurred significant losses and, as of December 31, 2000, had an accumulated deficit of $264.9 million. We expect operating losses and negative cash flow to continue for the coming fiscal year. We anticipate our losses will increase significantly over the course of the coming year despite a projected reduction in cash operating losses, due primarily to amortization of non-cash costs associated with strategic partnerships. 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 products and services used by healthcare providers, including medical supplies and equipment. To address these risks, we must, among other things, increase the number of custom marketplaces we build and operate, expand the number of trading partners that use our marketplaces, enter into new strategic alliances, increase the functionality of our services, implement and successfully execute our business and marketing strategy, respond to competitive developments and attract, retain and motivate qualified personnel. We may not be successful in addressing these risks, and our failure to do so could seriously harm our business. Further, our inability to address these risks could necessitate a reduction in our operations relating to any of our acquired businesses. Such a reduction could potentially result in an impairment of the intangible assets associated with those businesses, and any such impairment could result in our being required to write down, or even write-off the related intangible assets. Given the volume of intangible assets the company has associated with its acquired businesses, it is possible that such a write off could be significant. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 2000 Revenue Sales of Equipment. Sales of equipment consists of the gross revenue generated from the sales of used and refurbished medical equipment owned by us in connection with our Auction service. We had total revenue from sales of equipment of $4.6 million for the year ended December 31, 2000, as compared to none in the year ended December 31, 1999. The increase from 1999 is a result of the fact that Auction activity for periods prior to fiscal 2000 consisted solely of sales of consigned medical equipment, which we did not own. As a result, revenue related to consigned equipment is recognized, net of settlement costs, as transaction fees. In fiscal 2000, as part of our acquisition of some of the assets of NCL, the Auction service expanded the scope of its operations to include hospital liquidations in which we purchased and took title to the used equipment of a hospital being liquidated in order to sell that equipment through the Auction channel. The sales of equipment 31 32 in fiscal 2000 related to these used equipment and supplies. As we take title and risk of loss on the equipment, the revenue is reported at the gross sales value, with the related costs being reflected in the cost of equipment sold line in our income statement. If we succeed in selling our Auction operations, we will no longer recognize any future revenue from sales of equipment. Transaction Fees. Transaction fees consist of transaction fees paid by sellers for purchases through our marketplaces in Shop as well as buyer and seller fees paid on consigned used equipment and supplies as part of our live and online Auction services. We had total transaction fee revenue of $2.3 million for the year ended December 31, 2000, an increase of 145% from $929,000 for the year ended December 31, 1999. The increase is due primarily to an increase in Shop transaction fees to $1.3 million in 2000 from $75,000 in 1999, in addition to a 58% increase in Auction transaction fees to $1.3 million in 2000. If we succeed in selling our Auction operations, we will no longer recognize revenues from Auction transaction fees. Services. Services revenue consists primarily of e-commerce readiness services and implementation and integration services performed by our Services Delivery organization for trading partners to allow them to maximize the benefit of their utilization of our marketplaces. The Services Delivery group commenced activities during fiscal 2000, and, as a result, there was no activity or costs associated with this group in fiscal 1999. During the year ended December 31, 2000, services revenue was $1.0 million, and related solely to e-commerce readiness and implementation services performed for one customer. Website Sponsorship Fees and Other. Website sponsorship fees and other revenue consists of sponsorship setup and maintenance revenue, as well as software license and support revenue, both relating to our Plan service. Also included in website sponsorship fees and other are subscription revenue relating to the USL operations and setup fees relating to the digitization and categorization of data relating to the Shop service. Website sponsorship fees and other revenue increased to $2.6 million in fiscal 2000 from $75,000 in fiscal 1999. The increase in fiscal 2000 was due primarily to subscription revenue relating to the USL operations of $1.1 million, as well as sponsorship revenue of $467,000. No revenue was generated from either source in fiscal 1999, as USL was not acquired until March 2000, and sponsorship sales did not commence until early 2000. In addition, Shop setup fees increased to $264,000 for the year ended December 31, 2000 from $15,000 for the year ended December 31, 1999. Software license and maintenance revenue also increased to $650,000 in 2000 from $5,000 in 1999. We expect website sponsorship fees and other revenue to decline in 2001 as a result of our sale of USL to MDSI on April 2, 2001. Operations. Operations expenses consist primarily of expenditures for the operation and maintenance of our website and our marketplace technology infrastructure and for digitizing and inputting content. These expenditures consist primarily of fees for independent contractors, technology costs and software licenses and personnel expenses for our site operations personnel. Operations expenses increased from approximately $5.9 million for the year ended December 31, 1999 to $13.5 million for the year ended December 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 hiring personnel and increased expenditures for digitizing and inputting content and for additional technology costs such as software licenses and hardware costs associated with the enhancement of the infrastructure of our marketplaces. We expect our operations expenses to continue to increase as we expand our operating infrastructure and add content and functionality to our marketplaces. Product Development. Product development expenses consist primarily of personnel expenses and consulting fees associated with the development and enhancement of our marketplace services and functionality and technology costs for software and hardware for development. Product development expenses increased from $8.2 million for the year ended December 31, 1999 to $24.6 million for the year ended December 31, 2000. The increase was primarily due to increased technology costs relating to software and hardware for development, as well as from an increase in personnel costs, and an increase in fees paid to contractors and consultants. These increases primarily relate to fees paid to contractors and consultants as well as costs of additional personnel being hired as part of the development of our Shop and Auction platforms and subsequent development of our broader marketplace platforms. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, expect product development 32 33 expenses to continue to increase, although at much slower rates, in future periods. We expense product development costs as they are incurred. Selling and Marketing. Selling and marketing expenses consist primarily of salaries, commissions, advertising, promotions and related marketing costs. Selling and marketing expenses increased from approximately $16.9 million for the year ended December 31, 1999 to $53.2 million for the year ended December 31, 2000. The increase was primarily due to an increase in salaries and commissions, 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 alliance with Novation, VHA and UHC. These increases were primarily due to significant expansion of our sales and marketing efforts and the hiring of additional sales and marketing personnel. As part of our plan to realign our resources to focus on our core business model, we will be focusing the majority of our resources on product development and marketplace implementation and integration efforts. As such, while we intend to continue to invest in marketing activities and sell our marketplace services into the channels we have established, we do not expect selling and marketing expenses to continue to increase in the coming year. General and Administrative. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services and other general corporate activities. General and administrative expenses increased from approximately $17.9 million for the year ended December 31, 1999 to $25.9 million for the year ended December 31, 2000. The increase was primarily due to an increase in executive and administrative personnel costs related to our chief executive officer, who was hired in mid-year 1999, and four of our executive officers who were hired in 2000. These officers, as well as additional finance, accounting and administrative personnel, were on hand for all or most of 2000, but not for any or all of 1999. Additionally, we experienced an increase in recruiting, legal and accounting expenses, primarily related to our initial public offering and subsequent mergers and acquisitions activity, and an increase in expenses related to other consultants, all of which resulted from our growth in fiscal 2000. As a result of the streamlining we are undertaking in focusing on our core strategy around our marketplaces, we expect general and administrative expenses to decrease during the coming year as we divest ourselves of operations that are not in line with our core strategy, and the general and administrative costs associated with those operations. Amortization of Intangibles. Intangibles include goodwill and the value of software and other intangibles purchased in acquisitions. Intangibles are amortized on a straight-line basis over a period of three to seven years. Amortization of intangibles increased to $25.7 million for the year ended December 31, 2000 from $715,000 for the year ended December 31, 1999. The increase was a result of a full year of amortization being taken for the acquisition of GAR in August 1999 and FDI in November 1999, as well as the additions of intangibles relating to our acquisitions of Pharos in January 2000, USL in March 2000, EquipMD in March 2000 and some of the assets of NCL in July 2000. We expect that the amortization of intangibles will decrease in the coming year as a significant portion of the intangibles relating to the operations we intend to divest, specifically GAR and the assets acquired from NCL, as well as the USL operations we have divested, will be eliminated as part of the divestiture of those operations. Amortization of Partnership Costs. Amortization of partnership costs represent the amortization of the capitalized valuation of consideration given to strategic partners as part of entering into any operating relationship with that partner. As of December 31, 2000, capitalized partnership costs represent common stock, performance warrants and restricted common stock given to VHA and UHC as part of our entering into an outsourcing and operating agreement with those entities and with their purchasing organization, Novation, as well as legal and accounting fees relating to the transaction. The value of the common stock issued to VHA and UHC is being amortized over a five year estimated useful life. The performance warrants and the restricted common stock are being valued, and the related valuation is being capitalized, as they are earned. The partnership costs relating to the performance warrants and the restricted common stock are being amortized over the term of the agreement with the healthcare organization which resulted in the shares being earned, which is generally two to three years. For the year ended December 31, 2000, total amortization of partnership costs was $30.5 million. As the outsourcing and operating agreement did not close until July 2000, there was no amortization of partnership costs in the year ended December 31, 1999. See Liquidity and 33 34 Capital Resources for a further discussion of the outsourcing and operating agreement and the related cash and accounting implications. 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 certain stock options to employees during fiscal 1998, 1999 and 2000, we recorded deferred compensation of approximately $65.2 million in total. In May 2000, we decreased deferred compensation by approximately $5.1 million as a result of a reduction in workforce related to restructuring activities. Additionally, during the remainder of the year ended December 31, 2000, we recorded $3.4 million in additional reductions of deferred compensation as a result of normal employee attrition. We recorded amortization of deferred compensation of $25.3 million during the year ended December 31, 2000. In connection with the assumption of certain stock options granted to employees of EquipMD prior to the acquisition of EquipMD, we recorded deferred compensation of approximately $23.1 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 announcement of the acquisition. This 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. We recorded amortization of deferred compensation related to these options of $9.0 million during the year ended December 31, 2000. The remaining deferred compensation of approximately $32.3 million at December 31, 2000 will be amortized as follows: $18.6 million during fiscal 2001, $9.7 million during fiscal 2002, $3.6 million during fiscal 2003 and $0.4 million during fiscal 2004. The amortization expense relates to options awarded to employees in all operating expense categories. The amount of deferred compensation has been separately allocated to these categories in the consolidated statement of operations. The amount of deferred compensation expense to be recorded in future periods could continue to decrease if options for which accrued but unvested compensation has been recorded are forfeited. Cost of Warrant Issued to Recruiter. For the year ended December 31, 1999, we recorded $2.4 million related to the valuation of a warrant issued to an executive search firm in connection with services rendered in the search for our chief executive officer. No such costs were incurred in the year ended December 31, 2000. Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income for the year ended December 31, 2000 was $4.5 million compared to $659,000 for the year ended December 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 as a result of the proceeds from our initial public offering in January 2000. Interest expense increased from $676,000 for the year ended December 31, 1999 to $1.3 million for the year ended December 31, 2000, primarily as a result of the interest associated with significantly higher levels of leases and notes payable outstanding throughout the year ended December 31, 2000. Other income for the year ended December 31, 2000 was $88,000. Income Taxes. As of December 31, 2000, we had federal and state net operating loss carryforwards of approximately $153.1 million and $105.7 million, respectively, which will be available to reduce future taxable income. These net operating loss carryforwards expire on various dates through 2020. 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. See Note 15 of notes to consolidated financial statements. Year Ended December 31, 1998 as Compared to Year Ended December 31, 1999 Revenue. For a significant portion of 1999, we were still in the development stage and thus we had only limited revenue in that year. We had total revenue of $1.0 million for the year ended December 31, 1999 primarily from transaction fees paid by sellers of medical products using our live auction service. We did not 34 35 have any revenue for the year ended December 31, 1998. For the year ended December 31, 1999, the gross value of transactions was approximately $3.6 million, which resulted in net revenue for our Shop, Auction and Plan services of $83,000, $916,000 and $5,000, 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 $627,000 for the year ended December 31, 1998 to $5.9 million for the year ended December 31, 1999. The increase was primarily due to an increase in operations personnel costs, including deferred compensation charges relating to stock options grants to operations personnel, and an increase in payments to third party consultants. These increases were primarily due to hiring personnel and increased expenditures for digitizing and inputting content and for the enhancement of the infrastructure of our website. Product Development. Product development expenses consist primarily of personnel expenses and consulting fees associated with the development and enhancement of our services and website. Product development expenses increased from $1.5 million for the year ended December 31, 1998 to $8.2 million for the year ended December 31, 1999. The increase was primarily due to an increase in personnel costs, including amortization of deferred compensation relating to stock option grants to product development personnel, and an increase in fees paid to third parties. These increases were primarily due to hiring personnel and increased expenses incurred during development of our Auction and Shop services. 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 $1.4 million for the year ended December 31, 1998 to $16.9 million for the year ended December 31, 1999. The increase was primarily due to an increase in sales and marketing personnel costs, including amortization of deferred compensation relating to stock option grants to sales and marketing personnel, 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 with Superior Consultant and VerticalNet. These increases were primarily due to significant expansion of our sales and marketing efforts and the hiring of additional sales and marketing personnel. General and Administrative. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services and other general corporate activities. General and administrative expenses increased from approximately $1.1 million for the year ended December 31, 1998 to $17.9 million for the year ended December 31, 1999. The increase was primarily due to an increase in executive and administrative personnel costs related to the hiring of our chief executive officer, our former chief financial officer and additional finance, accounting and administrative personnel, amortization of deferred compensation relating to stock option grants to general and administrative personnel, an increase in recruiting, legal and accounting and litigation settlement expenses, primarily as a result of the litigation expenses with respect to the hiring of one of our executive officers, and an increase in expenses related to other consultants, in each case associated with our growth. 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 $715,000 for the year ended December 31, 1999. The increase was a result of the acquisition of GAR in August 1999 and FDI in November 1999. Cost of Warrant Issued to Recruiter. For the year ended December 31, 1999, we recorded $2.4 million related to the valuation of a warrant issued to an executive search firm in connection with services rendered in the search for our chief executive officer. Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income for the year ended December 31, 1999 was $659,000 compared to $66,000 for the year ended December 31, 1998. The increase in interest income was due to an increase in our average net cash and cash equivalents balance as a result of our issuance of preferred stock in February and October 1999. Interest 35 36 expense increased from $22,000 for the year ended December 31, 1998 to $676,000 for the year ended December 31, 1999, primarily as a result of the amortization of the fair value of a warrants issued in connection with debt. Other expense for the year ended December 31, 1999 was $29,000. 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. See Note 15 of notes to consolidated financial statements. 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 $95.3 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 $88.5 million through December 31, 1999. We have also financed our operations through an equipment loan and lease financing and bank and other borrowings. As of December 31, 2000, we had approximately $29.8 million of cash, cash equivalents and investments. In January 2001, we completed a $30.5 million private round of financing in which we sold 18,047,388 shares of our common stock at $1.69 per share to three strategic investors, i2, VHA and UHC. In April 2001, we entered into a $25 million revolving credit agreement with VHA. Under the credit agreement, until May 31, 2002, we are able to borrow funds up to an amount based on a specified formula dependent on the gross volume of transactions through Marketplace@Novation. Any funds that we borrow under this credit agreement will bear interest at a rate of 10% per annum and will be secured by substantially all of our assets. In the event that we (1) sell any of our stock as part of an equity financing, (2) obtain funding in connection with a debt financing or other lending transaction that is either unsecured or subordinate to the lien of VHA under the credit agreement or (3) enter into a debt financing or other lending transaction secured by assets we owned as of the date we entered into the credit agreement, then the maximum of $25 million we could potentially borrow under the credit agreement will be reduced by an amount equal to the cash proceeds we receive from any of these transactions. In September 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. At December 31, 2000, there were no borrowings outstanding under either the term loan or the equipment loan. 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 December 31, 2000, the outstanding balance on the note was approximately $1.1 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 a rate of 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 36 months, with a balloon payment of the remaining principal payable at maturity. Amounts borrowed to purchase software bear interest at a rate of 8% per annum 36 37 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 December 31, 2000, we had outstanding approximately $1.7 million in loans under this facility payable through September 2003. 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 December 31, 2000, the outstanding balance on the note was approximately $5.1 million. In May 1999, we entered into an agreement with ECRI, a non-profit health services research agency focusing on healthcare technology. The agreement provides us with content from ECRI's database of information about medical products and manufacturers and a license to use elements of its classification system. In addition, the agreement provides for joint marketing activities and collaboration in the development of Plan's database of product and vendor information. This agreement requires us to make revenue sharing payments to ECRI during the three-year term of the agreement and for two years following expiration or termination of the agreement based on a percentage of revenue derived from our Plan service. During the second and third years of the term of the agreement, we are required to pay to ECRI a minimum nonrefundable fee equal to $600,000 per year, which shall be credited against any revenue sharing payments payable to ECRI. As of December 31, 2000, we had paid ECRI $350,000 under the terms of this agreement. We are currently in discussions with ECRI to modify this agreement as a result of our reduced focus on our Plan service. In October 1999, we entered into an agreement with Superior Consultant Company, Inc., a wholly owned subsidiary of Superior Consultant Holdings Corporation, providing for collaboration between us and Superior. Superior is a supplier of Digital Business Transformation(TM) services to large healthcare organizations, including Internet-related services, systems integration, outsourcing and consulting, which enable Superior clients to utilize digital technologies and process innovations to improve their businesses. Under the agreement, we have agreed to market Superior's services to our users, and Superior has agreed to introduce our services to appropriate clients, based on their interests, and to incorporate our services into its Digital Business Transformation(TM) offerings. The agreement also provides for joint marketing activities. In consideration, we agreed to make payments to Superior in an aggregate amount of up to approximately $2.0 million, as well as a percentage of specified Neoforma e-commerce transaction revenue and potential fixed payments based on the success of our joint marketing activities. We also agreed to utilize Superior's services on a preferred basis for systems integration, development, infrastructure, process improvement and consulting assistance, totaling at least $1.5 million of services from Superior, at a discount from Superior's standard fees. Our agreement with Superior expires in October 2002. As of December 31, 2000, we had paid Superior $1.7 million under the terms of this agreement. In October 1999, we entered into an agreement with Dell Marketing, L.P. under which we agreed to develop complementary marketing programs with Dell and establish hyperlinks between our respective websites. We agreed to use Dell as our exclusive supplier of desktops, portables, workstations, servers and storage devices unless such products did not meet our reasonable technical requirements. We also agreed to purchase at least $5.0 million of Dell products under a schedule to be mutually agreed upon by both parties and $100,000 of data center consulting services. This agreement can be terminated by either party for any reason with 30 days' prior written notice. As of December 31, 2000, we had purchased $1.3 million in equipment from Dell. In November 1999, we entered into a co-branding agreement with VerticalNet, Inc. Under the agreement, VerticalNet agreed to transfer to our website all listings of new and used medical products offered for sale through its website on an exclusive basis to the extent it has the right to do so, and we agreed to transfer to VerticalNet all listings of used and excess laboratory products offered for sale on our website on an exclusive basis to the extent we have the right to do so. We also agreed to establish links between our respective websites. In addition, VerticalNet agreed to develop and maintain a co-branded career center and a 37 38 co-branded training and education center, and provide us with specified content created for its medical online communities. VerticalNet also was granted the non-exclusive right to sell sponsorships on our Plan service and the exclusive right to sell advertising on the co-branded sites. We agreed to pay VerticalNet $2,000,000 of development and promotional fees over the first two years of this agreement. In February 2001, we entered into an amendment to this agreement under which we were relieved of substantially all of our remaining obligations to pay any development or promotional fees, and under which VerticalNet was relieved of some obligations it had under the agreement, including the exclusivity of their relationship with us in the healthcare vertical market. In December 1999, we purchased 526,250 shares of common stock of CarePortal.com, LLC, formerly known as IntraMedix, LLC in exchange for $2.5 million. CarePortal is a company that provides procurement services related to the distribution of geriatric care products to the nursing home community. We accounted for this investment using the cost method. CarePortal is a related party to GeriMedix, a supplier with which we had an agreement to perform e-commerce services. On May 26, 2000, we issued a 30-day note receivable to CarePortal in the amount of $1.0 million. Additionally, we invested an additional $1.5 million in CarePortal in exchange for common stock. On August 8, 2000, we exercised our option to convert the promissory note into shares of CarePortal common stock. In November 2000, we issued a 30-day note receivable to CarePortal in the amount of $400,000. On December 31, 2000, we exercised our option to convert the promissory note into shares of CarePortal common stock. As of December 31, 2000, we owned approximately 9.6% of the total outstanding common stock of CarePortal. In March 2000, we entered into a Hosting Alliance Agreement with Ariba, Inc. under which we have the right to offer Ariba's ORMX procurement solution to users of our marketplace. Under this agreement, we paid Ariba a substantial up-front fee for use of the ORMX procurement solution and we agreed to 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. in exchange for $3.0 million. Pointshare is a company that provides online business to business administrative services to healthcare communities. Our ownership represented approximately 2% of the Pointshare common shares outstanding, assuming a 1:1 conversion ratio of preferred stock to common stock. We have accounted for this investment using the cost method. As part of the acquisition of EquipMD, we assumed the balance on an unsecured line of credit. The maximum borrowings allowed under the agreement are $300,000, of which none was available at December 31, 2000. Additionally, as part of the purchase of EquipMD, we assumed a note payable in the amount of $1.8 million which is related to EquipMD's purchase of Central Point Services, LLC. The note bears interest at a rate of 7.5% per annum and is payable in eight quarterly installments, after which the unpaid principal balance and accrued interest become due and payable through January 2002. At December 31, 2000, the remaining principal balance was $1.5 million. According to the provisions of the note, a payment of $250,000 was due upon a change of control of EquipMD. As a result of our purchase of EquipMD, we made a $250,000 payment as a result of this provision. In July 2000, in recognition of advisory services rendered in connection with the terminated Eclipsys and Healthvision mergers, our outsourcing and operating agreement and our acquisition of EquipMD, we entered into a promissory note with Merrill Lynch, Pierce, Fenner & Smith Incorporated, our investment bankers, in the amount of $6.0 million. The note was payable in quarterly payments of $1.5 million, commencing on January 1, 2001. At December 31, 2000, we had not made any payments under the note. In April 2001, we amended the terms of the note such that of the remaining balance of $4.5 million, $2.0 million is payable in April 2001, and the remaining $2.5 million is payable in May 2002. In July 2000, as part of the acquisition of some of the assets of NCL, we issued a promissory note to each of the four principals of NCL in the amount of $62,500 each. These notes are payable in 24 equal monthly installments with the first payment due on August 15, 2000. As of December 31, 2000, the balance of all four notes in total was $183,000. In addition, as part of the acquisition, we also agreed to pay $250,000 on July 14, 2002, two years from the closing date of the acquisition. This payment is to be distributed in equal amounts of 38 39 $62,500 to each of the four principals of NCL. As of December 31, 2000, no payments have been made against this commitment. In December 2000, we entered into a three-year software license agreement and a series of related agreements regarding maintenance, consulting and services with i2 under which we will collaborate with i2 on product development, marketing, sales and service activities. In connection with the license agreement, we paid i2 a substantial upfront fee to license certain software for use in our marketplaces. Pursuant to these agreements, we will share specified revenues with i2 related to specified services and applications commencing immediately, and on other marketplace related revenues commencing in fiscal 2002. Additionally, we will receive a revenue share from i2 under the agreements for specified products and services sold in the healthcare vertical market. Net cash used in operating activities for the year ended December 31, 2000 was $62.5 million as compared to $25.8 million for the year ended December 31, 1999. Net cash used in operating activities related primarily to funding net operating losses and increases in prepaid expenses and accounts receivable, which were partially offset by increases in accrued expenses and accounts payable. Net cash used in investing activities was $40.3 million for the year ended December 31, 2000 as compared to $37.8 million for the year ended December 31, 1999. Net cash used in investing activities related primarily to the purchase of equipment to operate our website and cash paid for the acquisitions of Pharos, EquipMD, USL and the assets acquired from NCL, as well as our investments in CarePortal and Pointshare. Net cash provided by financing activities was $100.1 million for the year ended December 31, 2000 as compared to $88.0 million for the year ended December 31, 1999. Net cash provided from financing activities for the year ended December 31, 1999 and 2000 related primarily to preferred stock issuances of approximately $83.4 million in 1999, and the proceeds of $95.3 million generated from our initial public offering of our common stock in January 2000. We currently anticipate that our available funds, consisting of cash, cash equivalents and investments, combined with those funds available to us through our lines of credit and other sources 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, the success of these services once they are launched and our ability to adjust our operating expenses to an appropriate level if the growth rate of our business is slower than expected. 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 additional lines of credit, curtail expansion of our services including reductions in our staffing levels and related expenses or potentially liquidate selected assets. 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 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal years beginning after June 15, 2000. In June 2000, SFAS No. 133 was amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which amended or modified certain issues discussed in SFAS No. 133. SFAS No. 138 is also effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 and SFAS No. 138 establish accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The statements also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The adoption of SFAS No. 133 and SFAS No. 138 did not have a material impact on our financial statements. 39 40 In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. We adopted SAB 101 as required in the fourth quarter of 2000, and as expected, adoption did not have a material impact on our consolidated results of operations and financial position. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
FOR THE QUARTERS ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1999 1999 --------- -------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Consolidated Statements of Operations Data: Revenue: Sales of equipment....... $ -- $ -- $ -- $ -- Transaction fees......... -- -- 451 478 Services................. -- -- -- -- Website sponsorship fees and other.............. -- 7 6 62 ------- ------- -------- -------- Total revenue...... -- 7 457 540 Operating Expenses: Cost of equipment sold... -- -- -- -- Cost of services......... -- -- -- -- Operations............... 578 748 1,236 3,379 Product development...... 1,284 1,357 2,096 3,424 Selling and marketing.... 880 1,655 3,457 10,868 General and administrative......... 611 1,054 8,334 7,938 Amortization of intangibles............ -- -- 230 485 Amortization of partnership costs...... -- -- -- -- Cost of warrant issued to recruiter.............. -- -- 2,364 -- Write off of acquired in- process research and development............ -- -- -- -- Abandoned acquisition costs.................. -- -- -- -- Restructuring............ -- -- -- -- Costs of anticipated divestitures........... -- -- -- -- ------- ------- -------- -------- Loss from operations....... (3,353) (4,807) (17,260) (25,554) Other Income (Expense): Interest income.......... 48 80 45 486 Interest expense......... (16) (79) (242) (339) Other income (expense)... -- -- (30) 1 ------- ------- -------- -------- Net loss........... $(3,321) $(4,806) $(17,487) $(25,406) ======= ======= ======== ======== NET LOSS PER SHARE Basic and diluted........ $ (4.11) $ (3.84) $ (5.22) $ (4.84) ======= ======= ======== ======== Weighted average shares-- basic and diluted...... 808 1,251 3,353 5,244 ======= ======= ======== ======== PRO FORMA NET LOSS PER SHARE Basic and diluted........ $ (0.15) $ (0.17) $ (0.57) $ (0.58) ======= ======= ======== ======== Weighted average shares-- basic and diluted...... 22,829 28,372 30,474 43,453 ======= ======= ======== ======== FOR THE QUARTERS ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 --------- -------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Consolidated Statements of Operations Data: Revenue: Sales of equipment....... $ 76 $ 491 $ 2,738 $ 1,324 Transaction fees......... 801 440 633 399 Services................. -- 458 485 16 Website sponsorship fees and other.............. 351 829 870 535 -------- -------- -------- -------- Total revenue...... 1,228 2,218 4,726 2,274 Operating Expenses: Cost of equipment sold... 22 142 2,398 982 Cost of services......... -- 898 2,759 4,590 Operations............... 3,714 3,377 3,169 3,257 Product development...... 6,131 6,127 6,403 5,938 Selling and marketing.... 12,153 17,041 12,750 11,272 General and administrative......... 8,161 7,393 5,276 5,092 Amortization of intangibles............ 1,311 8,086 8,149 8,154 Amortization of partnership costs...... -- -- 11,958 18,533 Cost of warrant issued to recruiter.............. -- -- -- -- Write off of acquired in- process research and development............ 3,000 15,000 -- -- Abandoned acquisition costs.................. -- 2,742 -- -- Restructuring............ -- 2,100 -- -- Costs of anticipated divestitures........... -- -- -- 14,446 -------- -------- -------- -------- Loss from operations....... (33,264) (60,688) (48,136) (69,990) Other Income (Expense): Interest income.......... 1,508 1,458 938 560 Interest expense......... (221) (330) (345) (393) Other income (expense)... -- -- 21 67 -------- -------- -------- -------- Net loss........... $(31,977) $(59,560) $(47,522) $(69,756) ======== ======== ======== ======== NET LOSS PER SHARE Basic and diluted........ $ (0.77) $ (1.02) $ (0.46) $ (0.53) ======== ======== ======== ======== Weighted average shares-- basic and diluted...... 41,520 58,219 103,919 132,134 ======== ======== ======== ======== PRO FORMA NET LOSS PER SHARE Basic and diluted........ $ (0.61) $ (1.02) $ (0.46) $ (0.53) ======== ======== ======== ======== Weighted average shares-- basic and diluted...... 52,067 58,219 103,919 132,134 ======== ======== ======== ========
40 41 FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS The risks described below are not the only ones we face. 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 RECENTLY DECIDED TO REFOCUS OUR DEVELOPMENT EFFORTS AND INTERNAL RESOURCES TO BUILDING AND OPERATING INTERNET MARKETPLACES 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 public marketplace and the building of our operating infrastructure. We introduced our Shop and Auction services in mid-1999, and as a result, we have generated revenues of only $11.5 million from our inception through December 31, 2000. In late 2000, we decided to refocus our development efforts and internal resources to our core business of building and operating Internet marketplaces for our trading partners. Because we have refocused our business efforts in this manner, it is difficult to evaluate our business and our future prospects. For example, it is difficult to predict whether we will succeed in increasing the number of marketplaces that we operate, the number of trading partners that utilize our marketplaces or the revenue we will derive from our marketplaces. Our business will be seriously harmed, and may fail entirely, if we do not successfully execute our business strategy or if we do not successfully address the risks we face. In addition, due to our limited operating history, we believe that period-to-period comparisons of our revenue and results of operations are not meaningful. WE HAVE A HISTORY OF LOSSES, NO SIGNIFICANT REVENUE AND 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 a net loss of $208.8 million for the year ended December 31, 2000. In addition, as of December 31, 2000, we had an accumulated deficit of approximately $264.9 million. We have not achieved profitability, and we expect to continue to incur substantial operating losses through at least 2001, primarily as a result of increases in costs and expenses relating to executing on our strategy of building and operating Internet marketplaces for our trading partners. To achieve positive cash flow from operations by the first quarter of 2002, we must reduce our operating expenses and generate significantly increased revenue from our marketplaces. We have taken measures to reduce our operating expenses by reducing headcount through our restructuring in May 2000 and divestiture of USL in April 2001, and intend to further reduce operating expenses by divesting our Auction operations, including GAR and the assets acquired from NCL. If our revenue does not increase substantially or if we do not succeed in reducing expenses to the degree we expect, we will not achieve positive cash flow from operations by the first quarter of 2002, and we may never become profitable. 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 CONTINUE TO DECLINE 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; - the timing and size of future acquisitions; - the timing of and expenses incurred in building and operating new marketplaces; - the number of new trading partners that sign up to use our marketplaces and our ability to connect them to our marketplaces; - 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. 41 42 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 continue to decline. 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 have been 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 operating results. IF OUR TRADING PARTNERS DO NOT ACCEPT OUR BUSINESS MODEL OF PROVIDING ONLINE MARKETPLACES FOR THE PURCHASE AND SALE OF PRODUCTS AND SERVICES USED BY HEALTHCARE PROVIDERS, DEMAND FOR OUR SERVICES MAY NOT DEVELOP AND THE PRICE OF OUR COMMON STOCK MAY CONTINUE TO DECLINE We have recently refocused our efforts on building and operating Internet marketplaces that aggregate buyers and suppliers of products and services used by healthcare providers, including medical supplies and equipment. This business model is new and unproven and depends upon buyers and sellers in this market adopting a new way to purchase and sell products and services. If buyers and sellers of products and services used by healthcare providers do not accept our business model, demand for our services may not develop and the price of our common stock would decline. Buyers and suppliers could be reluctant to accept our relatively new and unproven approach, which involves new technologies and may not be consistent with their existing internal organization and procurement processes. Buyers and suppliers may prefer to use traditional methods of buying and selling products and services, 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 products and services do not have ready access to the Internet and may be unwilling to use the Internet to purchase products and services. Even if buyers and suppliers accept the Internet as a means of buying and selling products, they may not accept our online marketplaces for conducting this type of business. Instead, they may choose to establish and operate their own websites to buy or sell products and services. For example, a group of large suppliers of medical products, including Johnson & Johnson, General Electric Medical Systems, Abbott Laboratories and Medtronic, have created a healthcare exchange for the purchase and sale of medical products. In addition, four large distributors of medical products, AmeriSource Health Corp., Cardinal Health Inc., Fischer Scientific International Inc. and McKesson HBOC, Inc., have formed a business-to-business exchange for the sales of drugs and medical-surgical products, devices and other laboratory products and services. Reluctance of buyers and suppliers to use our marketplaces would seriously harm our business. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS, WE MAY BE UNABLE TO DEVELOP NEW ONLINE MARKETPLACES OR ENHANCE THE FUNCTIONALITY OF OUR EXISTING MARKETPLACES, EXPAND OUR OPERATIONS, RESPOND TO COMPETITIVE PRESSURES OR CONTINUE OUR OPERATIONS We currently anticipate that the $29.8 million of cash, cash equivalents and investments we had as of December 31, 2000, together with the proceeds from the sale of our common stock to VHA, UHC and i2 in January 2001 and our lines of credit, will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months. We may need to raise additional funds prior to the expiration of this period if, for example, we do not generate significantly increased revenue from our online marketplaces, experience operating losses that exceed our current expectations or pursue additional acquisitions. We believe that it would be difficult to obtain additional financing on favorable terms, if at all. We may try to obtain additional financing by issuing shares of our common stock, which could dilute our existing stockholders. If we cannot raise needed funds on acceptable terms, or at all, we may not be able to develop new marketplaces or enhance our existing online marketplaces, expand our operations, respond appropriately to competitive pressures or continue our operations. 42 43 IF WE CANNOT QUICKLY BUILD A CRITICAL MASS OF BUYERS AND SUPPLIERS OF PRODUCTS AND SERVICES USED BY HEALTHCARE PROVIDERS, WE MAY NOT ACHIEVE A NETWORK EFFECT AND OUR BUSINESS MAY NOT SUCCEED To encourage suppliers to list their products and services on our online marketplaces, we need to increase the number of buyers who use our marketplaces. However, to encourage buyers to use our marketplaces, we must offer a broad range of products from a large number of suppliers. If we are unable to quickly build a critical mass of buyers and suppliers, we will not be able to benefit from a network effect, where the value of our marketplaces to each participant significantly increases with the addition of each new participant. We expect to rely in part on our relationships with Novation and Medbuy, along with future strategic partners, to bring buyers and suppliers to our marketplaces. Under our outsourcing and operating agreement with Novation, Novation is our exclusive agent for signing up suppliers to participate in Marketplace@Novation, subject to limited exceptions. Under our agreement with Medbuy, Medbuy is our exclusive agent for signing up suppliers to participate in Canadian Health Marketplace, subject to limited exceptions. Accordingly, we rely in part on Novation and Medbuy to attract suppliers to our marketplaces and, if they are unable to attract a sufficient number of suppliers, the value of our online marketplaces to buyers will be substantially decreased and our business will suffer. In addition, although our agreements with Novation and Medbuy, respectively, provide that Novation and Medbuy will exclusively offer Marketplace@Novation and Canadian Health Marketplace, respectively, to the healthcare organizations participating in their purchasing programs, these healthcare organizations are not obligated to use our marketplaces and may use competing marketplaces or traditional procurement methods. Accordingly, these buyers might not choose to use our marketplaces for their purchasing needs. If this were to occur, the value of our marketplaces to suppliers would be substantially decreased and our business will suffer. If the outsourcing and operating agreement were terminated by Novation, our business and financial results could be seriously harmed. The outsourcing and operating agreement may be terminated by Novation in the event of a material breach of our obligations under the agreement or if the VHA and UHC stock agreements are terminated. In addition, we will continue to incur significant costs in providing functionality to our online marketplaces and in integrating healthcare organizations and suppliers to our online marketplaces prior to receiving related transaction fee revenue, and we may not generate sufficient revenue to offset these costs. IT IS IMPORTANT TO OUR SUCCESS THAT OUR MARKETPLACES BE USED BY LARGE HEALTHCARE ORGANIZATIONS AND WE MAY NOT ACHIEVE MARKET ACCEPTANCE WITH THESE ORGANIZATIONS It is important to our success that our marketplaces be used by large healthcare organizations, such as hospitals, IDNs and members of large GPOs. For these large organizations to accept our marketplaces, we must integrate our marketplaces with their information systems. For example, although 356 healthcare organizations have signed up to use Marketplace@Novation as of March 27, 2001, we had only completed implementations for 120 of these healthcare organizations to connect them to Marketplace@Novation. We have not completed any implementations of Medbuy healthcare organizations. 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 marketplaces to address the needs of these large organizations, which typically require a wide range of products. 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 GPOs to increase our access to these organizations. GPOs 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 relationships with Novation and Medbuy could make it more difficult to attract other GPOs to our online marketplaces. The inability to enter into and maintain favorable relationships with other GPOs and the hospitals they represent could impact the breadth of our customer base and could harm our growth and revenue. One of the largest GPOs, Premier Inc., has a long-term, exclusive agreement for e-commerce 43 44 services with one of our competitors, medibuy.com, Inc. Medibuy also recently acquired empactHealth.com, an online marketplace for medical products formed by HCA-Healthcare Corp., a large owner and operator of hospitals and other healthcare facilities. 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. IF WE DO NOT SUCCEED IN EXPANDING THE BREADTH OF THE PRODUCTS AND SERVICES OFFERED THROUGH OUR ONLINE MARKETPLACES, SOME BUYERS OF PRODUCTS AND SERVICES MAY CHOOSE NOT TO UTILIZE OUR MARKETPLACES WHICH WOULD LIMIT OUR POTENTIAL MARKET SHARE The future success of our marketplaces depends upon our ability to offer buyers a wide range of products and services. Large healthcare organizations generally require a much broader range of products and services. To increase the breadth of the products and services listed on our marketplaces, we have recently established relationships with a number of suppliers, including Owens & Minor, McKesson HBOC, Allegiance Healthcare, Kimberly Clark and Kodak, and we must continue to 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 products and services listed on our marketplaces, the attractiveness of our marketplaces to buyers 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 marketplaces, including: - reluctance of suppliers to offer products in an online marketplace that potentially includes their competitors; - the fees charged to suppliers; - the ability to easily compare suppliers' products to those of other suppliers; - exclusive or preferential arrangements signed by suppliers with our competitors; - potential inability of Novation and Medbuy to attract suppliers to our online marketplaces; - perceptions by suppliers that we give other suppliers preferred treatment on our online marketplaces; and - consolidation among suppliers, which we believe is currently occurring. THE SUCCESS OF OUR BUSINESS DEPENDS ON THE PARTICIPANTS IN THE HEALTHCARE MARKET FOR PRODUCTS AND SERVICES ACCEPTING THE INTERNET FOR DISTRIBUTION AND PROCUREMENT Business-to-business e-commerce is currently not a significant sector of the healthcare market for products and services. The Internet may not be adopted by buyers and suppliers in the healthcare market for products and services for many reasons, including: - reluctance by the healthcare industry to adopt the technology necessary to engage in the online purchase and sale of products and services; - 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 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. 44 45 Should healthcare providers and suppliers of products and services to healthcare organizations choose not to utilize or accept the Internet as a means of buying and selling products and services, our business model would not be viable. IF WE FAIL TO DEVELOP THE CAPABILITY TO INTEGRATE OUR MARKETPLACES WITH ENTERPRISE SOFTWARE SYSTEMS OF BUYERS AND SUPPLIERS OF PRODUCTS AND SERVICES USED BY HEALTHCARE ORGANIZATIONS AND TO ENABLE OUR MARKETPLACES TO SUPPORT CUSTOMER-SPECIFIC PRICING, THESE ENTITIES MAY CHOOSE NOT TO UTILIZE OUR MARKETPLACES, WHICH WOULD HARM OUR BUSINESS If we do not maintain and expand the functionality and reliability of our marketplaces, buyers and suppliers of products may not use our marketplaces. We believe that we must develop the capability to integrate our marketplaces with enterprise software systems used by many suppliers of products and by many large healthcare organizations, and to enable our marketplaces 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 marketplaces with suppliers' and buyers' enterprise software systems will require the cooperation of and collaboration with the companies that develop and market these systems. Suppliers and buyers 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 buyers. Failure to provide these capabilities would limit the efficiencies that our marketplaces provide, and may deter many buyers and suppliers from using our marketplaces, particularly large healthcare organizations. To realize the benefits of our agreements with Novation and Medbuy, we will be required to integrate the systems of the healthcare organizations purchasing through Novation's and Medbuy's programs. For example, although 356 healthcare organizations had signed up to use Marketplace@Novation as of March 27, 2001, we had only completed implementations for 120 of these healthcare organizations to connect them to Marketplace@Novation. We have not completed any implementations of Medbuy healthcare organizations. If the costs required to integrate these systems are substantially higher than anticipated, we may not realize the full benefit of these agreements. If we are delayed or unable to integrate the systems of these organizations, our revenue would be adversely affected. In addition, under the Novation and Medbuy agreements, we must meet detailed functionality and service level requirements. In our agreement with Novation, 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 marketplaces and our revenue may be adversely affected. We will be required to incur significant costs in providing functionality to our online marketplaces and in integrating buyers and suppliers to our online marketplaces prior to receiving any transaction fee revenue, and we may never generate sufficient revenue to offset these costs. IF OUR SYSTEMS ARE UNABLE TO PROVIDE ACCEPTABLE PERFORMANCE AS THE USE OF OUR MARKETPLACES INCREASES, WE COULD LOSE TRADING PARTNERS THAT USE OUR MARKETPLACES, 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 have processed a limited number and variety of transactions on our marketplaces compared to the number and variety we expect to process in the future. 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 trading partners 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 marketplaces increases, our reputation may be damaged and we may lose trading partners that use our marketplaces. 45 46 WE EXPECT THAT A SIGNIFICANT PORTION OF THE PRODUCTS AND SERVICES USED BY HEALTHCARE PROVIDERS THAT ARE SOLD THROUGH OUR MARKETPLACES 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 limited revenue from our marketplaces, we expect that a significant portion of the products to be sold through and revenue to be generated from our marketplaces will come from a limited number of key manufacturers and distributors or as a result of purchases made from these manufacturers and distributors. These parties are generally not obligated to list any products on our marketplaces. If any of these key manufacturers or distributors cease doing business with us or reduce the number of products they list on our marketplaces, the revenue we generate through this service could be significantly reduced. Our supplier agreements are nonexclusive and, accordingly, these suppliers can sell their products, supplies and equipment to buyers 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 to expand our business and the services we offer, and we may 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 marketplaces 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 GAR, FDI, Pharos, USL, EquipMD and some assets of NCL, we recorded approximately $9.7 million, $3.3 million, $19.5 million, $6.5 million, $125.2 million and $3.2 million of intangibles, respectively, which will be amortized over a period of three to seven years. In addition, in connection with our recent agreement with Novation, we recorded approximately $339 million of capitalized partnership costs relating to stock and warrants issued to VHA and UHC as part of the outsourcing and operating agreement. IF WE DO NOT TIMELY ADD PRODUCT INFORMATION TO OUR ONLINE MARKETPLACES OR IF THAT INFORMATION IS NOT ACCURATE, OUR REPUTATION MAY BE HARMED AND WE MAY LOSE USERS OF OUR MARKETPLACES 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 marketplaces. 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 marketplaces. Additionally, we must cross-reference our product information with appropriate vendor and contract identifiers to ensure that we can properly track the transactions we process. Failure to adequately develop this cross-reference over time could impede our ability to grow our transaction volume and collect fees from suppliers. 46 47 WE FACE SIGNIFICANT COMPETITION, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, WE MAY BE UNABLE TO MAINTAIN OR EXPAND THE BASE OF BUYERS AND SELLERS OF PRODUCTS USING OUR MARKETPLACES AND WE MAY LOSE MARKET SHARE OR BE REQUIRED TO REDUCE PRICES The healthcare supply chain market is new, rapidly evolving and highly competitive. Our competitors are diverse and offer a variety of solutions directed at various segments of the healthcare supply chain. Competitors include: - e-commerce providers that currently have or have announced plans for online marketplaces targeted at the healthcare supply chain, including medibuy, Broadlane, MedAssets, MedChannel and Medpool; - healthcare exchanges that have been formed by suppliers, namely Global Health Exchange, which was founded by five healthcare manufacturers, Abbott Laboratories, Baxter International, General Electric Medical Systems, Johnson & Johnson and Medtronic, and HealthNexis, which was formed by four healthcare distributors, Amerisource, Cardinal Health, Fisher Scientific and McKesson HBOC; - suppliers that have created their own websites that offer e-commerce functions to their customers for the sale of their products and services; - enterprise resource application software vendors that offer solutions in the healthcare market, such as SAP, Oracle, PeopleSoft, Lawson and McKesson HBOC; - vendors establishing electronic marketplaces and procurement capabilities, including Ariba and Commerce One; and - supply chain software vendors, including Manugistics and Logility. We believe that companies in our market compete to provide services to suppliers based on: - brand recognition; - number of buyers using their services and the volume of their purchases; - level of bias, or perceived bias, towards particular suppliers; - existing relationships; - compatibility with suppliers' existing distribution methods; - the amount of the fees charged to suppliers; - functionality, ease of use and convenience; - ability to integrate their services with suppliers' existing systems and software; and - quality and reliability of their services. In addition, we believe that companies in our market compete to provide services to buyers based on: - brand recognition; - breadth, depth and quality of product offerings; - ease of use and convenience; - number of suppliers available through their marketplace; - ability to integrate their services with buyers' existing systems and software; - quality and reliability of their services; and - customer service. 47 48 Competition is likely to intensify as our market matures. As competitive conditions intensify, competitors may: - enter into strategic or commercial relationships with larger, more established healthcare, medical products and Internet companies; - secure services and products from suppliers on more favorable terms; - devote greater resources to marketing and promotional campaigns; - secure exclusive arrangements with buyers that impede our sales; and - devote substantially more resources to website and systems development. Our current and potential competitors' services may achieve greater market acceptance than ours. Our existing and potential competitors may have longer operating histories in the healthcare supply chain market, greater name recognition, larger customer bases or greater financial, technical and marketing resources than we do. As a result of these factors, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns for their brands and services and make more attractive offers to buyers and suppliers, potential employees and strategic partners. In addition, new technologies may increase competitive pressures. We cannot be certain that we will be able to expand our buyer and supplier base or retain our current buyers and suppliers. We may not be able to compete successfully against our competitors, and competition could seriously harm our revenue, gross margins and market share. IF WE ARE UNABLE TO MAINTAIN OUR STRATEGIC ALLIANCES OR ENTER INTO NEW ALLIANCES, WE MAY BE UNABLE TO INCREASE THE ATTRACTIVENESS OF OUR MARKETPLACES OR PROVIDE SATISFACTORY SERVICES TO USERS OF OUR MARKETPLACES Our business strategy includes entering into strategic alliances with leading technology and healthcare-related companies to increase the number of marketplaces we build and operate, increase the number of trading partners that utilize our marketplaces, increase the number and variety of products and services that we offer and provide additional functionality, services and content to our trading partners. We may not succeed in entering into new strategic alliances, and even if we do succeed, 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 marketplaces or provide satisfactory services to buyers and suppliers of products and services. IF WE ARE NOT ABLE TO INCREASE RECOGNITION OF THE NEOFORMA BRAND NAME, OUR ABILITY TO ATTRACT USERS TO OUR MARKETPLACES WILL BE LIMITED We believe that recognition and positive perception of the Neoforma brand name in the healthcare industry are important to our success. We intend to continue to invest in advertising and publicity efforts in the future. However, we may not achieve our desired goal of increasing the awareness of the Neoforma brand name. Even if recognition of our name increases, it may not lead to an increase in the number of users of our marketplaces or an increase the number of our trading partners. IF PARTICIPATING SELLERS ON OUR MARKETPLACES DO NOT PROVIDE TIMELY AND PROFESSIONAL DELIVERY OF PRODUCTS AND SERVICES, BUYERS MAY NOT CONTINUE USING OUR MARKETPLACES Suppliers deliver the products and services sold through our marketplaces to buyers. If these sellers fail to make delivery in a professional, safe and timely manner, then our marketplaces will not meet the expectations 48 49 of buyers, 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 marketplaces. IF SUPPLIERS DO NOT PROVIDE US WITH TIMELY, 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 MARKETPLACES 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 buyers. We cannot guarantee that the product information available from our marketplaces 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 marketplaces. We also rely on suppliers using our marketplaces 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 MARKETPLACES ARE STOCKHOLDERS OR ARE 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 MARKETPLACES Some participants in our marketplaces are our stockholders or are affiliated with our stockholders or have strategic relationships with us. For example, General Electric Medical Systems has agreed to conduct certain activities with us, and an affiliate of General Electric Medical Systems owns shares of our common stock. In addition, VHA and UHC, the owners of Novation, own approximately 58.1 million and 16.5 million shares of our common stock, respectively. In addition, VHA owns approximately 30.8 million shares of restricted common stock and UHC owns approximately 5.6 million shares of restricted common stock. These relationships may deter other suppliers, GPOs or users, particularly those that compete directly with these participants, from participating in our marketplaces due to perceptions of bias in favor of one party over another. This could limit the array of products offered on our marketplaces, damage our reputation and limit our ability to maintain or increase the number of our trading partners. WE MAY BE SUBJECT TO LITIGATION FOR DEFECTS IN PRODUCTS SUPPLIED BY SELLERS USING OUR MARKETPLACES, AND THIS TYPE OF LITIGATION MAY BE COSTLY AND TIME-CONSUMING TO DEFEND Because we facilitate the sale products by sellers using our marketplaces, we may become subject to legal proceedings regarding defects in these 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, especially in light of the decline in our stock price in the last year which has decreased the value of the stock options held by our employees. As a result, our employees may seek employment with larger, more established companies or companies they perceive to have better prospects. 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. 49 50 We believe that our ability to successfully execute our business strategy will depend on the continued services of executive officers and other key employees. Our executive employment 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. OUR GROWTH AND ORGANIZATIONAL CHANGES HAVE PLACED A STRAIN ON OUR SYSTEMS AND RESOURCES, AND IF WE FAIL TO SUCCESSFULLY MANAGE FUTURE GROWTH AND ORGANIZATIONAL CHANGES, 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 our business to execute our strategy. Our total number of employees grew from six as of December 31, 1997, to 59 as of December 31, 1998 and 269 as of December 31, 1999. In May 2000, we reduced the number of our employees from approximately 330 to approximately 250. As of December 31, 2000, we had 251 employees. With the divestiture of USL and the intended divestitures of our Auction operations, including GAR and the assets acquired from NCL, we expect to reduce our headcount by approximately 40 employees. These changes, and the growth in the number of our trading partners and transaction volume through our marketplaces, have placed significant demands on management as well as on our administrative, operational and financial resources and controls. Any future growth would likely cause similar, and perhaps increased, strain on our systems and controls. 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 and currently experiencing an energy shortage. We depend on our single-site infrastructure and any disruption to this infrastructure resulting from a natural disaster, power outages 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 marketplaces or prevent us from providing our services entirely. IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF THE CONFIDENTIAL INFORMATION OF THE TRADING PARTNERS THAT USE OUR MARKETPLACES, THESE USERS MAY DISCONTINUE USING OUR MARKETPLACES 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. 50 51 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 Neoforma, Neoforma.com and associated logos. Our trademark registration applications may not be approved or granted, or, if granted, may be successfully challenged by others or invalidated through administrative process or litigation. WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY CLAIMS AND 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. For example, in a letter dated January 14, 2000, Forma Scientific, Inc. notified us that it believed our use of the "Neoforma" and "Neoforma.com" trademarks violated its trademark rights in "Forma" and "Forma Scientific. On September 12, 2000, we entered into a settlement agreement under which we agreed to modify our logo so that the mark "Neoforma" is presented to viewers as one word without any form of distinction separating the "Neo" portion of the mark from the "Forma" portion of the mark. 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 pay significant damages. License agreements may not be available on commercially reasonable terms, if at all. In addition, there has been an 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 brand name, could result in our inability to operate our current business. IF WE LOSE ACCESS TO THIRD-PARTY SOFTWARE INCORPORATED IN OUR MARKETPLACES, WE MAY NOT BE ABLE TO OPERATE OUR MARKETPLACES We currently rely on software that we have licensed from a number of suppliers. For example, we use software that we license from iPlanet, 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 Oracle to further automate the order management and transaction routing process within our marketplaces, we will use software that we license from i2 to further enable us to offer our trading partners the ability to automate and streamline the procurement process and we use software that we license from CrossWorlds and TIBCO to integrate our marketplace applications and services with buyers' and suppliers' systems. We license TradeMatrix software from i2 to offer procurement, order management and supply chain management functions. We also license Gentran software from Sterling Commerce for the processing of order transactions from our customers. 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 marketplaces 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 or to adapt licensed technology to support our specific needs which could similarly harm development and market acceptance of our services. 51 52 REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT THE GROWTH OF E-COMMERCE AND LIMIT THE MARKET FOR OUR SERVICES A number of legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, such as user privacy, taxation of goods and services provided over the Internet and the pricing, content and quality of services. The federal government has instituted a moratorium on Internet taxation that applies to sales and access charges. Recently, Congress proposed to extend the moratorium until 2006; however, it is possible that Congress or state legislators will instead seek to impose taxes on Internet transactions that would apply to us. 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. FEDERAL AND STATE LEGISLATION AND REGULATION AFFECTING THE HEALTHCARE INDUSTRY COULD SEVERELY RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS We are subject to federal and state legislation and regulation affecting the healthcare industry. Existing and new laws and regulations applicable to the healthcare industry could have a material adverse effect on our ability to operate our business. Legislation governing the distribution of health information has been proposed at both the federal and state level. Some of the transactions at our marketplaces may involve surgical case kits or purchases of products for patient home delivery; these products may contain patient names and other health information subject laws governing the distribution of health information. It may be expensive to implement security or other measures designed to comply with any new legislation. Moreover, we may be restricted or prevented from delivering health information electronically. Other legislation currently being considered at the federal level could also negatively affect our business. For example, the Health Insurance Portability and Accountability Act of 1996 mandates the use of standard transactions and identifiers, prescribed security measures and other provisions within two years after the adoption of final regulations by the Department of Health and Human Services. Because we represent that our marketplaces meet these regulatory requirements, our success will also depend on other healthcare participants complying with these regulations. A federal law commonly known as the Medicare/Medicaid antikickback law, and several similar state laws, prohibit payments that are intended to induce the acquisition, arrangement for or recommendation of the acquisition of healthcare products or services. The application and interpretation of these laws are complex and difficult to predict and could constrain our financial and marketing relationships, including but not limited to our fee arrangements with suppliers or our ability to obtain supplier company sponsorship for our products. 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 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. 52 53 Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with greater market power. As the healthcare industry consolidates, competition to provide services to industry participants will become more intense and the importance of establishing a relationship with each industry participant will become greater. These industry participants may try to use their market power to negotiate fee reductions of our services. If we were forced to reduce our fees, our operating results could suffer if we cannot achieve corresponding reductions in our expenses. OUR STOCK PRICE AND THOSE OF OTHER TECHNOLOGY COMPANIES HAVE EXPERIENCED EXTREME PRICE AND VOLUME FLUCTUATIONS, AND, ACCORDINGLY, OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT The trading price of our common stock has fluctuated significantly since our initial public offering in January 2000 and is significantly below the original offering price of $13 per share. An active public market for our common stock may not be sustained in the future. Many factors could cause the market price of our common stock to fluctuate, including: - variations in our quarterly operating results; - announcements of technological innovations by us or by our competitors; - introductions of new services by us or by our competitors; - departure of key personnel; - the gain or loss of significant strategic relationships or trading partners; - changes in the estimates of our operating performance or changes in recommendations by securities analysts; and - market conditions in our industry and the economy as a whole. In addition, stocks of technology companies have experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to these companies' operating performance. Public announcements by companies in our industry concerning, among other things, their performance, accounting practices or legal problems could cause fluctuations in the market for stocks of these companies. These fluctuations could lower the market price of our common stock regardless of our actual operating performance. In the past, securities class action litigation has often been brought against a company following a period of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, which could harm our operating results and our business. IF OUR COMMON STOCK PRICE FALLS BELOW AND REMAINS UNDER $1.00, OR IF WE OTHERWISE FAIL TO COMPLY WITH NASDAQ RULES, OUR COMMON STOCK IS LIKELY TO BE DELISTED FROM THE NASDAQ NATIONAL MARKET, WHICH COULD ELIMINATE THE TRADING MARKET FOR OUR COMMON STOCK If the market price for our common stock falls and remains below $1.00 per share or we otherwise fail to meet the criteria for continued listing on the Nasdaq National Market, our common stock may be deemed to be penny stock. During 2000 and 2001, our common stock traded, at times, below $1.00 per share, and on March 30, 2001 the closing price was $1.19. If our common stock is considered penny stock, it would be subject to rules that impose additional sales practices on broker-dealers who sell our securities. For example, broker-dealers must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Also, a disclosure schedule must be prepared prior to any transaction involving a penny stock and disclosure is required about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Monthly statements are also required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock. Because of these additional obligations, some brokers may be unwilling to effect transactions in penny stocks. This could have an adverse effect on the liquidity of our common stock and your ability to sell the common stock. 53 54 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk: Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We invest in high-credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our investment policy, we ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by constantly positioning our 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 our investment portfolio (in thousands):
2001 2002 2003 2004 2005 ------- ----- ----- ----- ----- FISCAL YEARS Cash equivalents and short-term investments: Fixed rate short-term investments.............. $23,874 -- -- -- -- Average interest rate.......................... 6.71% -- -- -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required pursuant to this item are included in Item 14 of this Annual Report on Form 10-K and are presented beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 54 55 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The following table sets forth information regarding our executive officers and directors as of March 31, 2001:
NAME AGE POSITION ---- --- -------- Robert J. Zollars......................... 43 Chairman and Chief Executive Officer Daniel A. Eckert.......................... 36 President and Chief Operating Officer Andrew L. Guggenhime...................... 32 Chief Financial Officer Steven E. Kane............................ 51 Chief Administrative Officer and Corporate Secretary Charles D. Brennan........................ 46 Executive Vice President of Sales and Services Steven J. Wigginton....................... 35 Executive Vice President of Marketing, Operations and Development Richard D. Helppie........................ 44 Director Andrew J. Filipowski...................... 50 Director Mark McKenna.............................. 52 Director Curt Nonomaque............................ 44 Director Jeffrey H. Hillebrand..................... 47 Director Michael J. Murray......................... 56 Director Robert J. Baker........................... 57 Director C. Thomas Smith........................... 63 Director
Robert J. Zollars has served as our Chairman and Chief Executive Officer since July 1999, and as our President from July 1999 to January 2001. From January 1997 to July 1999, he served as Executive Vice President and Group President of Cardinal Health, Inc., a healthcare products and services company, where he was responsible for five of its wholly-owned subsidiaries: Pyxis Corporation, Owen Healthcare, Inc., Medicine Shoppe International, Cardinal Information Corporation and International. From January 1992 to December 1996, he served as President of Hospital Supply, Scientific Products and U.S. Distribution of Baxter Healthcare Corporation, which in October 1996 was spun off as Allegiance Corporation, a healthcare products and service company. Mr. Zollars holds an M.B.A. in finance from John F. Kennedy University and a B.S. in marketing from Arizona State University. Daniel A. Eckert has served as our President and Chief Operating Officer since January 2001. Mr. Eckert had previously served in several executive capacities since joining us in August 1999, including Executive Vice President of Sales, President of Neoforma Shop and Executive Vice President of Marketplaces. From April 1998 to August 1999, Mr. Eckert was President and Chief Operating Officer of Fisher Healthcare, a division of Fisher Scientific International, which is a distributor of medical products. From September 1992 to April 1998, Mr. Eckert held several positions at McKesson Corporation, a supplier of medical products, including Senior Vice President of Corporate Sales for the Health Systems Group, Senior Vice President of Sales and Marketing for McKesson/General Medical Corporation and Vice President of Acute Care. Mr. Eckert holds an A.B. in English and political science from Occidental College, and completed the Fuqua School of Business' Healthcare Distributor Executive Program at Duke University. Andrew L. Guggenhime has served as our Chief Financial Officer since October 2000. From January 2000 until October 2000, he was our Vice President of Corporate Development. From August 1996 until January 2000, Mr. Guggenhime was in the Healthcare Investment Banking group of Merrill Lynch & Co., most recently as a Vice President. From July 1990 to August 1994, he served in a number of capacities at Wells Fargo & Company, most recently as Assistant Vice President in Wells Fargo's Debt Capital Markets group. Mr. Guggenhime holds a Master of Management from the J.L. Kellogg Graduate School of Management at Northwestern University and a B.A. in international politics and economics from Middlebury College. 55 56 Steven E. Kane has served as our Chief Administrative Officer and Corporate Secretary since January 2001. Prior to that, he had served as our Senior Vice President of Human Resources and Legal since joining us in May 2000. From January 1999 to May 2000, Mr. Kane was a self-employed human resources consultant. From 1985 to December 1998, Mr. Kane served in several senior human resources and legal positions at Baxter Healthcare Corporation, including Group Vice President of Human Resources, Associate General Counsel and Vice President of Corporate Affairs. He also served on Baxter's North American Board. Mr. Kane holds an M.B.A. from Cornell University, a B.S. from Cornell's School of Industrial and Labor Relations and a J.D. from the University of Akron. Charles D. Brennan has served as our Executive Vice President of Sales and Services since January 2001, our Senior Vice President of Services Delivery from May 2000 to January 2001 and our Vice President of Professional Services from January 2000 until May 2000. Previously, he was a Vice President in the healthcare group of Computer Sciences Corporation, a consulting and information technology services firm, and National Director of its supply chain practice from June 1997 to December 1999. From September 1990 to June 1997, Mr. Brennan was a consultant and managing partner with APM, a healthcare consulting firm acquired by Computer Sciences Corporation in 1997. He holds a Master of Education from Harvard University, an M.B.A. from Yale University and a B.A. in psychology from Antioch University. Steven J. Wigginton has served as our Executive Vice President of Marketing, Operations and Development since January 2001. Prior to that, he was our Senior Vice President of Product Development from May 2000 to January 2001. Mr. Wigginton joined Neoforma in January 2000 with the acquisition of Pharos Technologies, Inc., of which he was co-founder. He also held executive positions at Thomas Publishing Company from December 1997 to July 1999, and at Autodesk's Data Publishing Group from December 1996 until November 1997. From August 1993 to November 1996, Mr. Wigginton worked at Industry.net, an e-commerce services company. Mr. Wigginton holds a B.S. in finance from Indiana University. Richard D. Helppie has served as one of our directors since October 1999. Since August 1996, he has served as Chairman of the Board and Chief Executive Officer of Superior Consultant Holdings Corporation, a consulting firm comprised of two subsidiaries founded by Mr. Helppie, Superior Consultant Company, Inc. and UNITIVE Corporation. He has served as Chairman of the Board and Chief Executive Officer of Superior Consultant Company, a healthcare management and information systems consulting firm, since 1984 and as Chief Executive Officer of UNITIVE Corporation, an information technology consulting firm, since 1993. He has also served as President of Clearwater Aviation Company, Inc. since 1993. In addition, Mr. Helppie is a director of drkoop.com, Inc. Andrew J. Filipowski has served as one of our directors since October 1999. He is Chief Executive Officer and Chairman of the Board of divine inc., an enterprise web solutions company that he co-founded in May 1999. He is also Chairman of the Board of PLATINUM Venture Partners, Inc., a venture investment firm that he founded in February 1992. Mr. Filipowski founded PLATINUM technology, inc. in April 1987 and served as its President, Chief Executive Officer and Chairman of the Board until it was acquired by Computer Associates in June 1999. PLATINUM technology, inc. was a software company that produced, acquired and distributed system software tools. Mr. Filipowski serves on the board of directors of Blue Rhino Corporation and Bluestone Software, Inc. Mark McKenna has served as one of our directors since July 2000. He has served as the President of Novation since February 1999. From January 1998 to February 1999, Mr. McKenna was the Senior Vice President of Operations for Novation. From 1987 to January 1998, he held several positions with VHA, including interim Vice President for Supply Chain Management from May 1997 to January 1998 and Vice President of Marketing from January 1996 to May 1997. Prior to joining VHA, Mr. McKenna was Director of Marketing for IMED Corp., a manufacturer of drug delivery systems. His previous experience includes sales and marketing assignments with Johnson & Johnson and American Hospital Supply Corp. Mr. McKenna serves as a director on the boards of Novation and HPPI and is a member of the American Society for Hospital Materials Management, the Medical Marketing Association and the American Management Association. He holds an M.B.A. from Suffolk University in Boston and a B.S. in business from Boston College. 56 57 Curt Nonomaque has served as one of our directors since July 2000. He has served as Chief Financial Officer of VHA since 1992 and as Executive Vice President of VHA since 1996. Since 1989, he has served as Treasurer for both VHA and VHA Enterprises. Prior to joining VHA in 1986, Mr. Nonomaque was a banking officer for First City Bank in Dallas. From 1983 to 1985, he was a management consultant with Arthur Andersen & Co. Mr. Nonomaque also serves as a director on the boards of Novation and HPPI. He is Co-Chairman of the Board of Healthvision, Chairman of the board of AIDS arms, Inc., and is a past President of the board of the Society for the Prevention of Cruelty to Animals of Texas and a past board member of Faith Properties, LLC. Mr. Nonomaque holds an M.B.A. from Baylor University's Hankamer School of Business and a B.A. from Baylor University. Jeffrey H. Hillebrand has served as one of our directors since December 2000. Since 1998, he has served as Chief Operating Officer of Evanston Northwestern Healthcare, where he has worked since 1979. Mr. Hillebrand is a Fellow of the American College of Healthcare Executives and has served as one of its regents. He is a member of the Young Presidents Organization and a non-resident lecturer for the School of Public Health at the University of Michigan. He has also served as a trustee of the village of Kennilworth, Illinois. He is President of the Northeast Illinois Council of Boy Scouts of America, and has served as Vice Chairman of the American Heart Association of Metropolitan Chicago. Mr. Hillebrand holds a M.H.S.A. from the University of Michigan and a B.A. from Dartmouth College. Michael J. Murray has served as one of our directors since December 2000. Until August 2000, Mr. Murray served as President of Global Corporate and Investment Banking at Bank of America Corporation and was a member of its Policy Committee. From March 1997 until September 1998, Mr. Murray headed BankAmerica Corporation's Global Wholesale Bank. From September 1995 to March 1997, he served as BankAmerica Vice Chairman and head of the U.S. and International Groups. Mr. Murray was responsible for BankAmerica's U.S. Corporate Group from September 1994, after BankAmerica's merger with Continental Bank Corporation, until September 1995. Prior to the merger, he was Vice Chairman and Head of Corporate Banking for Continental Bank, which he joined in 1969. Mr. Murray serves as a director on the boards of CNF, Inc., a global supply chain services firm, and eLoyalty Corporation, an information technology services firm. He is also Chairman of the Bay Area United Way, serves on the board of the California Academy of Sciences and is a member of the Advisory Council for the School of Business at the University of Notre Dame. Mr. Murray holds an M.B.A. from the University of Wisconsin and a B.B.A. from the University of Notre Dame. Robert J. Baker has served as one of our directors since January 2001. Since 1986, he has served as the first President and Chief Executive Officer of UHC. Prior to that, he held several administrative positions at University of Minnesota Hospital and was Chief Executive Officer of Nebraska Hospital. Mr. Baker was awarded the John R. Hogness Award Lectureship from the Association of Academic Health Centers and holds an M.B.A. from the University of Chicago and a B.A. in economics from Kalamazoo College. C. Thomas Smith has served as one of our directors since January 2001. He has served as President and Chief Executive Officer of VHA since 1991. From 1977 to 1991, Mr. Smith was President of Yale-New Haven Hospital and President of Yale-New Haven Health Services Corp. From 1971 to 1976, he was Vice President and Executive Director of Hospitals and Clinics and a member of the board of trustees for Henry Ford Hospital in Detroit. From 1967 to 1971, Mr. Smith was Associate Director of Hospitals and Director of Medical Center Planning for the University of Minnesota Health Sciences Center. Prior to that, he held administrative positions at Baptist Memorial Hospital from 1961 to 1967, following an administrative residency. In 1991, Mr. Smith was the Chairman of the American Hospital Board of Trustees. Since 1987, he has been a member of the VHA board of directors. He also serves on the boards of Novation and the Healthcare Leadership Council. Mr. Smith is a past Chairman of the Council of Teaching Hospitals and a former member of the boards of the Association of American Medical Colleges, the International Hospital Federation, the Hospital Research and Educational Trust, the National Committee on Quality Healthcare, the Jackson Hole Group and Genentech. He holds an M.B.A. from the University of Chicago, two honorary degrees from Connecticut colleges, and a B.A. from Baylor University. 57 58 BOARD COMMITTEES Our board of directors has an audit committee, a compensation committee and a public policy committee. Audit Committee. The audit committee was created during the fourth quarter of fiscal 1999 and currently consists of Messrs. Filipowski, Murray and Nonomaque. The audit committee: - reviews our financial statements and accounting practices; - makes recommendations to our board of directors regarding the selection of independent public accountants; and - reviews the results and scope of the audit and other services provided by our independent public accountants. Compensation Committee. The compensation committee was created during the fourth quarter of fiscal 1999 and currently consists of Messrs. Filipowski, Helppie and Hillebrand. The compensation committee: - reviews and recommends to our board of directors the compensation and benefits of all of our officers, directors and consultants; and - reviews general policy relating to compensation and benefits. Public Policy Committee. The public policy committee was created during fiscal 2000 and currently consists of Messrs. Baker, McKenna, Smith and Zollars. The public policy committee reviews our policies and practices to ensure they are consistent with our social responsibility to employees, customers, stockholders and society in general. ITEM 11. EXECUTIVE COMPENSATION The following table shows all compensation awarded to, earned by or paid for services rendered to us in all capacities during 1998, 1999 and 2000 by our Chief Executive Officer and the four other most highly compensated executive officers who were serving as executive officers at the end of 2000. 58 59 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS --------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS --------------------------- ---- -------- ---------- ------------- ------------ Robert J. Zollars(1).............. 2000 $500,540 $ 500,000 $ -- 2,007,000 Chairman and 1999 250,000 250,000 338,000(2) 5,239,475 Chief Executive Officer 1998 -- -- -- -- Daniel A. Eckert(3)............... 2000 255,438 122,917 97,996(4) 790,000 President and 1999 102,200 -- 39,662(4) 450,000 Chief Operating Officer 1998 -- -- -- -- Andrew L. Guggenhime(5)........... 2000 198,368 66,666 -- 800,000 Chief Financial Officer 1999 -- -- -- -- 1998 -- -- -- -- Charles D. Brennan(6)............. 2000 204,455 114,167 -- 790,000 Executive Vice President of 1999 -- -- -- -- Sales and Services 1998 -- -- -- -- Steven J. Wigginton(7)............ 2000 175,750 64,167 3,424(8) 590,000 Executive Vice President of 1999 -- -- -- -- Marketing, Operations and 1998 -- -- -- -- Development
- --------------- (1) Mr. Zollars joined us in July 1999. (2) Represents a reimbursement related to bonuses earned but unpaid by Mr. Zollars' prior employer. (3) Mr. Eckert joined us in July 1999. (4) Represents reimbursements for relocation expenses paid to Mr. Eckert. (5) Mr. Guggenhime joined us in January 2000. (6) Mr. Brennan joined us in January 2000. (7) Mr. Wigginton joined us in January 2000. (8) Represents a reimbursement for relocation expenses paid to Mr. Wigginton. OPTION GRANTS IN FISCAL 2000 During 2000, we granted options to purchase a total of 14,422,250 shares of common stock to employees. 3,828,850 of those options were granted under the 1997 Stock Plan, 10,558,400 were granted under the 1999 Equity Incentive Plan and 35,000 were granted outside the stock plans. All options granted under the 1997 Stock Plan and outside the stock plans are immediately exercisable and consisted of both incentive stock options and nonqualified stock options. Options granted under the 1999 Equity Incentive Plan were both incentive stock options and nonqualified stock options, and such options were exercisable only to the extent of any vested shares. For options that have been exercised prior to being vested, we have the right to repurchase the unvested shares upon termination of the optionee's employment with us. We granted the options listed below at an exercise price equal to the fair market value of our common stock, as determined by the board of directors on the date of grant for options granted prior to our initial public offering on January 24, 2000, or for options granted subsequent to our initial public offering, as determined by the closing price of our commons stock on the Nasdaq National Market on the date of grant. With regard to the options granted to Messrs. Eckert, Guggenhime, Brennan and Wigginton, 100,000, 250,000, 300,000 and 100,000 of the shares underlying options, respectively, vest as to 25% of the underlying shares upon the first anniversary of the date 59 60 of grant and as to an additional 2.083% each month thereafter. With regard to the options granted to Messrs. Zollars, and to all other options granted to Messrs. Eckert, Guggenhime, Brennan and Wigginton, the options vest as to 2.083% per month over a 48 month period. The options have a term of 10 years from the date of grant or three months after termination of employment. In the table below, potential realizable values were computed by (a) multiplying the number of shares of common stock subject to a given option by either (1) $0.81, which was the closing price of our common stock on the Nasdaq National Market at December 31, 2000, for options with an exercise price less than or equal to $0.81 or (2) the exercise price of the option for options with an exercise price greater than $0.81, (b) compounding the aggregate stock value derived from the foregoing calculation at an annual rate of 5% or 10% over the 10 year term of the option and (c) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rate of compounded stock price appreciation are based on Securities and Exchange Commission requirements and do not represent our estimates or projections of future common stock prices.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------- VALUE AT ASSUMED NUMBER OF PERCENT OF ANNUAL RATES OF STOCK SECURITIES TOTAL OPTIONS PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME GRANTED FISCAL YEAR(%) PER SHARE DATE 5% 10% ---- ---------- -------------- --------- ---------- ---------- ---------- Robert J. Zollars.......... 507,000 3.52% $3.94 8/1/2010 $1,255,470 $3,181,608 1,500,000 10.40 0.78 12/28/2010 813,415 1,867,547 Daniel A. Eckert........... 100,000 0.69 9.00 1/16/2010 566,005 1,434,368 190,000 1.32 3.94 6/1/2010 470,492 1,192,319 300,000 2.08 1.81 11/21/2010 341,961 866,597 200,000 1.39 0.81 12/29/2010 102,195 258,983 Andrew L. Guggenhime....... 250,000 1.73 7.00 1/14/2010 1,100,566 2,789,049 40,000 0.28 3.00 8/11/2010 75,467 191,249 510,000 3.54 0.78 12/26/2010 276,561 634,966 Charles D. Brennan......... 200,000 1.39 7.00 1/14/2010 880,452 2,231,239 100,000 0.69 8.13 6/13/2010 510,977 1,294,916 190,000 1.32 3.94 8/1/2010 470,492 1,192,319 300,000 2.08 1.81 11/21/2010 341,961 866,597 Steven J. Wigginton........ 100,000 0.69 8.13 6/13/2010 510,977 1,294,916 190,000 1.32 3.94 8/1/2010 470,492 1,192,319 300,000 2.08 1.81 11/21/2010 341,961 866,597
60 61 AGGREGATE OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES The following table sets forth for each of our Chief Executive Officer and the four other most highly compensated executive officers who were serving as executive officers at the end of 2000, the number of shares of common stock acquired and the value realized upon exercise of stock options during 2000 and the number and value of shares of common stock subject to "vested" and "unvested" options held as of December 31, 2000. Value at fiscal year end of unexercised in the money options is the difference between the exercise price and $0.81, which represents the closing price of our common stock on the Nasdaq National Market as of December 31, 2000. None of the named executives below exercised any of their stock options in 2000. In the table below, for those shares that relate to options issued under our 1997 Stock Plan which were exercised prior to being vested, the heading "vested" refers to shares as to which our right of repurchase has lapsed. The heading "unvested" refers to shares that we have the right to repurchase upon termination of the optionee's employment.
NUMBER OF SECURITIES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNDERLYING UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END AT FISCAL YEAR END --------------------------- -------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE VESTED UNVESTED EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ------- ---------- ----------- ------------- Robert J. Zollars.............. 42,250 1,964,750 42,250 1,964,750 $ -- $ 46,950 Daniel A. Eckert............... 122,082 667,918 22,082 767,918 -- -- Andrew L. Guggenhime........... 253,333 546,667 3,333 796,667 -- 15,963 Charles D. Brennan............. 222,082 567,918 22,082 767,918 -- -- Steven J. Wigginton............ 22,082 567,918 22,082 567,918 -- --
COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS Mr. Zollars. In July 1999, we entered into an at-will employment agreement with Robert J. Zollars for him to serve as our Chairman, President and Chief Executive Officer. Under this agreement, Mr. Zollars receives a salary equal to $500,000 for the first year of the agreement, which can be increased by us in subsequent years. Mr. Zollars received a $250,000 bonus in December 1999. Beginning in 2000 and for each following year while he is employed by us, Mr. Zollars is eligible to receive a bonus payment of at least $500,000 for that fiscal year, based upon whether we achieve revenue and profitability targets and/or other organizational milestones to be specified by our board of directors. Upon entering into this employment agreement, Mr. Zollars received an option to purchase 1,637,160 shares of our common stock and an option to purchase 3,602,315 shares of our common stock, each at an exercise price of $0.10 per share. Both options were immediately exercisable and Mr. Zollars exercised these options in full in July 1999. As of December 31, 2000, 2,326,495 of the shares purchased under the option for 3,602,315 shares were subject to a repurchase right that lapses at a rate of 75,048 shares per month. If we are acquired or if certain changes in control of Neoforma occur, the then unvested portion of his option will become vested. Mr. Zollars is eligible to receive from us a moving assistance loan of $2.5 million, which will be forgiven in equal monthly installments on the last day of each month from the date of closing on his new home through June 30, 2003. We are currently in discussions with Mr. Zollars to restructure the payment terms of this loan. Mr. Zollars also has the right to be reimbursed by us up to $300,000 for any loss on the sale of his previous home. We are obligated to reimburse Mr. Zollars for an additional $338,000 plus additional moving expenses incurred in connection with his joining us. If Mr. Zollars' employment is terminated other than for disability or cause, or if Mr. Zollars resigns for good reason, he will be entitled to receive an amount equal to his annual salary, bonus and benefits. In addition, our right to repurchase all outstanding stock held by Mr. Zollars will lapse and the forgiveness of the home loan will be treated as if he had been employed by us for 12 additional months after the termination of employment. Good reason includes a reduction in his duties or responsibilities or a reduction in his salary, bonus or other benefits. 61 62 In October 2000, Mr. Zollars' Employment Agreement was clarified such that if any severance and other benefits provided to him under his Employment Agreement would constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986 and would be subject to the excise tax imposed by Section 4999 of the Code, then Mr. Zollars' severance and other benefits will be payable, at his election, either in full or in such lesser amount as would result, after taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, in his receipt on an after-tax basis of the greatest amount of severance and other benefits. Mr. Eckert. In July 1999, we entered into an offer letter with Daniel A. Eckert for him to serve as our Executive Vice President of Sales. Under this offer letter, Mr. Eckert receives a salary equal to $250,000 per year. Mr. Eckert received $39,662 related to relocation costs and is entitled to receive a bonus of $50,000 per year, based upon performance milestones to be specified by our president and assessed by our board of directors. Upon entering into employment with us, Mr. Eckert received an option to purchase 450,000 shares of our common stock at $0.50 per share. This option is immediately exercisable and Mr. Eckert has exercised the option in full. As of December 31, 2000, 300,001 of the shares underlying the option were subject to a right of repurchase. The shares underlying the option vest in equal monthly installments over four years, for so long as he is employed by us. If Mr. Eckert's employment is terminated other than for cause, he will be entitled to receive an amount equal to six months of his salary. In the event of certain changes of control of Neoforma, 50% of the then unvested portion of Mr. Eckert's option shall immediately vest. In December 2000, the board of directors approved the promotion of Daniel A. Eckert to President and Chief Operating Officer. Commensurate with this promotion, his salary was increased to $300,000 annually, and his bonus potential was increased to $165,000 per year based on performance milestones to be specified by our Chief Executive Officer and assessed by our board of directors. Upon this promotion, Mr. Eckert received an option to purchase 200,000 shares of our common stock at $0.8125 per share. The option vests in equal monthly installments over four years. Mr. Brennan. In November 1999, we entered into an offer letter with Charles D. Brennan for him to serve as our Vice President of Professional Services. Under this offer letter, we agreed to pay Mr. Brennan a salary of $200,000 per year, a bonus of up to $50,000 per year, based upon achievement of performance milestones, and a signing bonus of $50,000. Mr. Brennan received an option to purchase 200,000 shares of our common stock at $7.00 per share. The option vests over four years, with 25% of the shares underlying the option vesting one year from the date of grant, and an additional one-forty-eighth of the shares vesting each succeeding month. Mr. Wigginton. In December 1999, we entered into an offer letter with Steven J. Wigginton for him to serve as our Vice President of Sales and Business Development. Under this offer letter, we agreed to pay Mr. Wigginton a salary of $140,000 per year. Mr. Wigginton received an option to purchase 100,000 shares of our common stock at $8.13 per share. The option vests over four years, with 25% of the shares underlying the option vesting one year from the date of grant, and an additional one-forty-eighth of the shares vesting each succeeding month. Mr. Guggenhime. In January 2000, we entered into an offer letter with Andrew L. Guggenhime for him to serve as our Vice President of Corporate Development. Under this offer letter, we agreed to pay Mr. Guggenhime a salary of $200,000 per year and a bonus of up to $50,000 per year, based upon achievement of performance milestones, of which we guaranteed $12,500 in bonus to Mr. Guggenhime for each of the first two quarters of his employment with us. Mr. Guggenhime received an option to purchase 250,000 shares of our common stock at $7.00 per share. The option vests over four years, with 25% of the shares underlying the option vesting one year from the date of grant, and an additional one-forty-eighth of the shares vesting each succeeding month. If Mr. Guggenhime's employment is terminated or his responsibilities are reduced without cause within one year after a change of control of Neoforma, then half of the balance of the unvested portion of this option will vest at that time. Mr. Kane. In May 2000, we entered into an offer letter with Steven E. Kane for him to serve as our Vice President of Human Resources. Under this offer letter, we agreed to pay Mr. Guggenhime a salary of $165,000 per year and a bonus of up to $41,250 per year, based upon achievement of performance milestones. 62 63 Mr. Kane received an option to purchase 150,000 shares of our common stock at $8.13 per share. The option vests over four years, with 25% of the shares underlying the option vesting one year from the date of grant, and an additional one-forty-eighth of the shares vesting each succeeding month. If Mr. Kane's employment is terminated or his responsibilities are reduced without cause within one year after a change of control of Neoforma, then half of the balance of the unvested portion of this option will vest at that time. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The compensation committee of our board of directors is currently comprised of Messrs. Filipowski, Helppie and Hillebrand. None of these individuals has at any time been one of our officers or employees. For a description of the transactions between us and members of the compensation committee and entities affiliated with the compensation committee members, see "Item 13. -- Certain Relationships and Related Transactions." DIRECTOR COMPENSATION Our directors do not receive cash compensation for their services as directors but are reimbursed for their reasonable and necessary expenses for attending board and board committee meetings. Each eligible director who is not our employee and who is or becomes a member of our board will be automatically granted an option to purchase 100,000 shares of common stock under our 1999 Equity Incentive Plan, unless that director has previously received an option grant. In December 2000, we granted an option to purchase 100,000 shares of our common stock to each of Messrs. Hillebrand and Murray, and in January 2001, we granted an option to purchase 100,000 shares of our common stock to each of Messrs. Smith and Baker upon their becoming members of our board of directors. Immediately following each annual meeting of stockholders, each eligible director will automatically be granted an option to purchase 25,000 shares of common stock under our 1999 Equity Incentive Plan, provided that the director is a member of the board on that date and has served continuously as a member of the board for a period of at least one year since the date of the director's initial grant. All options will have an exercise price equal to the fair market value of our common stock on the date of grant. The options will have 10-year terms and will terminate three months following the date the director ceases to be one of our directors or consultants or 12 months after any termination due to death or disability. Options granted under the plan will generally vest over four years. Any unvested shares subject to these options will become immediately vested and exercisable upon a transaction which results in a change in our control. 63 64 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table presents information with respect to the beneficial ownership of our common stock as of March 31, 2000 by: - each person who is known by us to own beneficially more than 5% of our common stock; - each of our directors; - our Chief Executive Officer and our four other most highly compensated executive officers who were serving as executive officers at the end of 2000; and - all of our directors and executive officers as a group. The number and percentage of Neoforma common stock beneficially owned are based on 182,781,670 shares of common stock outstanding at March 31, 2000. Shares of common stock that are subject to options currently exercisable or exercisable within 60 days of March 31, 2000, are deemed outstanding for the purpose of computing the percentage ownership of the person holding those options but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated in the footnotes following the table, the address for each listed stockholder is c/o Neoforma.com, Inc., 3061 Zanker Road, San Jose, California 95134. To our knowledge, except as indicated in the footnotes to this table and under applicable community property laws, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
SHARES BENEFICIALLY OWNED -------------------------- NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE ------------------------ ----------- ----------- EXECUTIVE OFFICERS AND DIRECTORS: Robert J. Zollars(1)........................................ 5,490,786 3.0% Daniel A. Eckert(2)......................................... 643,956 * Andrew L. Guggenhime(3)..................................... 310,623 * Charles D. Brennan(4)....................................... 298,122 * Steven J. Wigginton(5)...................................... 291,734 * Richard D. Helppie(6)....................................... 966,782 * Andrew J. Filipowski(7)..................................... 1,206,338 * Mark McKenna................................................ -- * Curt Nonomaque.............................................. 124,100 * Jeffrey H. Hillebrand....................................... 12,500 * Michael J. Murray........................................... 100,000 * Robert J. Baker............................................. 600 * C. Thomas Smith............................................. 10,000 * All 14 directors and executive officers as a group(8)....... 9,558,664 5.2 5% STOCKHOLDERS: VHA Inc.(9)................................................. 77,112,550 42.2 University HealthSystem Consortium(10)...................... 18,798,586 10.3
- --------------- * Represents less than 1%. (1) Includes 3,602,315 shares of common stock subject to a repurchase right that lapses at a rate of 75,048 shares per month. Also includes 251,311 shares subject to options that are exercisable within 60 days of March 31, 2001. (2) Represents 450,000 shares of common stock that are subject to a repurchase right that lapses at a rate of 4,167 shares per month and 193,956 shares of common stock issuable under options that are exercisable within 60 days of March 31, 2001. (3) Includes 310,623 shares subject to options that are exercisable within 60 days of March 31, 2001. 64 65 (4) Represents 298,122 shares subject to options that are exercisable within 60 days of March 31, 2001. (5) Represents 239,027 shares received as part of our acquisition of Pharos in January 2000, of which 95,611 shares were subject to a right of repurchase which lapses at a rate of 3,984 shares per month. Also includes 52,707 shares subject to options that are exercisable within 60 days of March 31, 2001. (6) Includes 816,782 shares of common stock held by Superior Consultant Holdings Corporation. Mr. Helppie, one of our directors, is the Chairman, Chief Executive Officer and President of Superior. Also includes 150,000 shares of common stock issuable under an option held by Mr. Helppie that was granted after September 30, 1999. Mr. Helppie disclaims beneficial ownership of the shares held by Superior. (7) Includes 1,056,338 shares of common stock held by divine interVentures, Inc. Mr. Filipowski, one of our directors, is President, Chief Executive Officer and Chairman of the board of divine interVentures, Inc. Includes 150,000 shares of common stock issuable under an option held by Mr. Filipowski which was granted after September 30, 1999. Mr. Filipowski disclaims beneficial ownership of the shares held by divine interVentures, Inc. (8) Includes 1,509,842 shares of common stock issuable under options held by directors and executive officers that are presently exercisable within 60 days of March 31, 2000. Also includes 4,147,926 outstanding shares that are subject to repurchase rights that lapse over time. (9) Includes 30,845,020 shares of common stock subject to restrictions which lapse when specified performance criteria have been met. VHA's corporate headquarters are located at 220 E. Las Colinas Blvd., Irving, TX 75039. (10) Includes 5,639,577 shares of common stock subject to restrictions which lapse when specified performance criteria have been met. UHC's corporate headquarters are located at 2001 Spring Rd., Suite 700, Oak Brook, Illinois 60523. 65 66 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than compensation agreements and other arrangements, which are described in "Item 11. -- Executive Compensation" and the transactions described below, since January 1, 2000 there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: - in which the amount involved exceeded or will exceed $60,000, and - in which any director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. LOANS On July 10, 1999, we made a loan to Robert J. Zollars, our Chairman, President and Chief Executive Officer, in connection with his exercise of a stock option granted to him under the terms of his employment agreement. The loan is evidenced by a promissory note in the principal amount of $162,078.84, with interest compounded quarterly on the unpaid balance at a rate of 5.70% per year. On July 10, 1999, we made a loan to Robert J. Zollars in connection with his exercise of a stock option granted to him under the terms of his employment agreement. The loan is evidenced by a promissory note in the principal amount of $356,629.19, with interest compounded quarterly on the unpaid balance at a rate of 5.70% per year. On September 7, 1999, we made a loan to Daniel A. Eckert, our Executive Vice President of Sales and President of Neoforma Shop, in connection with his exercise of a stock option granted to him under the terms of his offer letter. The loan is evidenced by a promissory note in the principal amount of $224,550, with interest compounded quarterly on the unpaid balance of the note at a rate of 5.85% per year. On January 14, 2000, we made a loan to Andrew L. Guggenhime, our Chief Financial Officer, in connection with his exercise of a stock option granted to him under the terms of his offer letter. The loan was evidenced by a promissory note in the principal amount of $1,750,000, with interest compounded quarterly on the unpaid balance at a rate of approximately 6% per year. On December 26, 2000, we agreed to rescind Mr. Guggenhime's stock option exercise and cancel the note. On September 18, 2000, we made a loan to Steven J. Wigginton, our executive Vice President of Marketing, Operations and Development. The loan has a one-year term, and was extended for the purpose of allowing him to sell his home in Illinois and purchase a residence in California. The loan was evidenced by a promissory note in the principal amount of $175,000, with interest compounded quarterly on the unpaid balance at a rate of 6.33% per year. COMMERCIAL TRANSACTIONS In October 1999, Richard D. Helppie, the Chairman and Chief Executive Officer of Superior Consultant Holdings Corporation, joined our board of directors as the representative of the holders of our Series E preferred stock. In addition, in October 1999, we entered into an agreement with Superior Consultant Company, Inc., a wholly owned subsidiary of Superior Consultant Holdings Corporation, providing for collaboration between us and Superior. Superior is a supplier of Digital Business Transformation(TM) services to large healthcare organizations, including Internet-related services, systems integration, outsourcing and consulting, which enable Superior clients to utilize digital technologies and process innovations to improve their businesses. Under the agreement, we have agreed to market Superior's services to our users, and Superior has agreed to introduce our services to appropriate clients, based on their interests, and to incorporate our services into its Digital Business Transformation(TM) offerings. The agreement also provides for joint marketing activities. In consideration, we have agreed to make payments to Superior in an aggregate amount of up to approximately $2.0 million, as well as a percentage of specified Neoforma e-commerce transaction revenue and other potential fixed payments based on the success of the joint marketing activities. We have also agreed to utilize Superior's services on a preferred basis for systems integration, development, infrastruc- 66 67 ture, process improvement and consulting assistance, totaling at least $1.5 million of services from Superior, at a discount from Superior's standard fees. Our agreement with Superior expires in October 2002. On March 30, 2000, we entered an outsourcing and operating agreement with Novation, VHA, UHC and HPPI and entered into agreements to issue our common stock and warrants to purchase our common stock to VHA and UHC. On May 25, 2000, we modified the structure and terms of our outsourcing and operating agreement with Novation, HPPI, VHA and UHC and our stock and warrant agreements with VHA and UHC. Under the terms of the modified stock and warrant agreements, which were approved by our stockholders on July 26, 2000, VHA received approximately 46.3 million shares of our common stock, representing approximately 37% of our then outstanding common stock, and UHC received approximately 11.3 million shares of our common stock, representing approximately 9% of our then outstanding common stock. We also issued warrants to VHA and UHC, allowing VHA and UHC the opportunity to earn up to 30.8 million and 7.5 million additional shares of our common stock, respectively, over a four-year period by meeting specified performance targets. These targets are based upon the historical purchasing volume of VHA- and UHC-member healthcare organizations that sign up to use Marketplace@Novation. The targets increase annually to a level equivalent to total healthcare organizations representing approximately $22 billion of combined purchasing volume at the end of the fourth year. Under our outsourcing and operating agreement with Novation, we have agreed to provide specific functionality to Marketplace@Novation, the online marketplace only available to the patrons and members of the owners of Novation, VHA, UHC and 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. On October 18, 2000, we canceled VHA's warrant to purchase up to 30,845,020 shares of our common stock and issued to VHA 30,845,020 shares of our restricted common stock in substitution for such warrant. The restricted common stock that we issued to VHA is subject to the identical performance-based vesting criteria to which VHA's warrant was subject. On January 25, 2001, we also canceled UHC's warrant to purchase up to 5,639,577 shares of our common stock and issued to UHC 5,639,577 shares of our restricted common stock in substitution for such warrant. The restricted common stock that we issued to UHC is subject to the identical performance-based vesting criteria to which UHC's warrant was subject. On January 25, 2001, we also amended the outsourcing and operating agreement to revise terms relating to the payment of fees to us by Novation, sharing of revenues by us with Novation and obligations of each of the parties to the agreement. The amended outsourcing and operating agreement guarantees to us a fee based on the gross volumes of purchases made by Novation members through Marketplace@Novation. The amended outsourcing and operating agreement also includes modifications to revenue sharing provisions under which we will share certain fees we receive for products and services sold through or related to our marketplaces. We will share with Novation revenue related to transactions through Marketplace@Novation and from our other marketplaces, revenue related to our Shop and Auction services and revenue related to the distribution or licensing of software and other technology solutions. We will not share revenue related to marketplaces sponsored by other GPOs except for certain types of purchases. For the term of the agreement, we will not share with Novation revenue related to any of the above transactions in any quarter until we have achieved specified minimum transaction fees related to Marketplace@Novation transactions. The amended outsourcing and operating agreement also includes modifications to certain supplier recruitment and supplier implementation provisions of the original agreement. In April 2001, we entered into a $25 million revolving credit agreement with VHA. Under the credit agreement, until May 31, 2002, we are able to borrow funds up to an amount based on a specified formula dependent on the gross volume of transactions through the Marketplace@Novation. Any funds that we borrow under this credit agreement will bear interest at a rate of 10% per annum and will be secured by substantially all of our assets. In the event that we (1) sell any of our stock as part of an equity financing, 67 68 (2) obtain funding in connection with a debt financing or other lending transaction that is either unsecured or subordinate to the lien of VHA under the credit agreement or (3) enter into a debt financing or other lending transaction secured by assets we owned as of the date we entered into the credit agreement, then the maximum of $25 million we could potentially borrow under the credit agreement will be reduced by an amount equal to the cash proceeds we receive from any of these transactions. We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. All future transactions between us and our officers, directors and principal stockholders and their affiliates will be approved by a majority of the board, including a majority of the independent and disinterested directors of the board, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 68 69 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Index To Consolidated Financial Statements The following Consolidated Financial Statements of the Registrant are filed as part of this report: Report of Independent Public Accountants. Consolidated Balance Sheets as of December 31, 2000 and 1999. Consolidated Statements of Operations for the Years ended December 31, 2000, 1999, and 1998. Consolidated Statements of Changes in Stockholders' Equity from December 31, 1997 to December 31, 2000. Consolidated Statements of Cash Flows for the Years ended December 31, 2000, 1999, and 1998. Notes to Consolidated Financial Statements. (a)(2) Index to Consolidated Financial Statement Schedules The following Consolidated Financial Statement Schedule of the Registrant is filed as part of this report: Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the accompanying consolidated financial statements or Notes thereto. (a)(3) Index to Exhibits
EXHIBIT INCORPORATED BY REFERENCE NO. EXHIBIT FILED NO. AS HEREWITH EXHIBIT FORM FILE NO. FILING DATE FILED - -------- ------- ------ --------- ---------------- ------- 2.01 Securities Purchase Agreement by and among Neoforma GAR, S-1 333-89077 January 21, 2000 2.01 Inc. and Neoforma, Inc. and General Asset Recovery, LLC, Eric Tivin and Fred Tivin dated as of July 16, 1999. Certain schedules have been omitted and will be provided to the Commission upon request. 2.02 Agreement for Purchase of Assets, dated November 18, S-1 333-89077 January 21, 2000 2.02 1999, by and among the Registrant, FDI Information Resources, Inc. and FDI Information LLC. Certain schedules have been omitted and will be provided to the Commission upon request. 2.03 Agreement and Plan of Merger, dated as of December 23, S-1 333-89077 January 21, 2000 2.03 1999, by and among the Registrant, Pharos Technologies, Inc. and Mimimee, Inc. 2.04 Agreement and Plan of Merger, dated March 24, 2000, 8-K April 3, 2000 2.01 between the Registrant and EquipMD. 2.05 Agreement and Plan of Merger, dated March 30, 2000, among 8-K April 4, 2000 2.1 the Registrant, Neo III Acquisition Corp. and Eclipsys Corporation (including Voting Agreement Exhibits). 2.06 Agreement and Plan of Merger, dated March 30, 2000, 8-K April 4, 2000 2.2 between the Registrant and HEALTHvision, Inc. (including Exhibits A and B). 3.01 Form of Fourth Amended and Restated Certificate of DEF14A June 29, 2000 Annex D Incorporation. 3.02 Restated Bylaws of the Registrant, as adopted on November S-1 333-89077 January 21, 2000 3.03 12, 1999. 4.01 Form of Specimen Certificate for Registrant's common S-1 333-89077 January 21, 2000 4.01 stock. 4.02 Amended and Restated Registration Rights Agreement dated X June 30, 2000. 4.03 Amendment No. 1 to Registration Rights Agreement dated X January 25, 2001.
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EXHIBIT INCORPORATED BY REFERENCE NO. EXHIBIT FILED NO. AS HEREWITH EXHIBIT FORM FILE NO. FILING DATE FILED - -------- ------- ------ --------- ---------------- ------- 4.04 Warrant to purchase common stock of the Registrant issued S-1 333-89077 January 21, 2000 4.03 to Heidrick & Struggles. 4.05 QuickStart Warrant to purchase Series C preferred stock S-1 333-89077 January 21, 2000 4.04 of the Registrant dated June 25, 1998 issued to Silicon Valley Bank, as amended on March 5, 1999. 4.06 Warrant to purchase Series D preferred stock of the S-1 333-89077 January 21, 2000 4.05 Registrant dated May 12, 1999 issued to Comdisco, Inc. 4.07 QuickStart Warrant to purchase Series D preferred stock S-1 333-89077 January 21, 2000 4.06 of the Registrant dated July 20, 1999 issued to Silicon Valley Bank. 4.08 Warrant to purchase Series D preferred stock of the S-1 333-89077 January 21, 2000 4.07 Registrant dated as of July 7, 1999 issued to Comdisco, Inc. 10.01* Form of Indemnity Agreement between the Registrant and S-1 333-89077 January 21, 2000 10.01 its directors and officers. 10.02* Neoforma.com, Inc. 1997 Stock Plan, as amended. S-1 333-89077 January 21, 2000 10.02 10.03* Neoforma.com, Inc. 1999 Equity Incentive Plan. S-1 333-89077 January 21, 2000 10.03 10.04* Neoforma.com, Inc. 1999 Employee Stock Purchase Plan. S-1 333-89077 January 21, 2000 10.04 10.05+ Development and License Agreement dated May 14, 1999 S-1 333-89077 January 21, 2000 10.05 between ECRI and the Registrant. 10.06+ Distribution and Services Agreement dated October 1, 1999 S-1 333-89077 January 21, 2000 10.06 between Superior Consultant and the Registrant. 10.07+ Strategic Alliance Agreement dated October 11, 1999 S-1 333-89077 January 21, 2000 10.07 between Dell Marketing L.P. and the Registrant. 10.08* Employment Agreement dated July 1, 1999 between Robert J. S-1 333-89077 January 21, 10.09 Zollars and the Registrant. 2000. 10.09* Promissory Note for $7,800,000 dated August 1999 payable S-1 333-89077 January 21, 2000 10.15 to Erik Tivin. 10.10 QuickStart Loan and Security Agreement dated June 25, S-1 333-89077 January 21, 2000 10.16 1998 between Silicon Valley Bank and the Registrant, as amended on July 20, 1999. 10.11 Subordinated Loan and Security Agreement dated May 12, S-1 333-89077 January 21, 2000 10.17 1999 between Comdisco, Inc. and the Registrant. 10.12 Subordinated Promissory Note for $2,000,000 dated May 27, S-1 333-89077 January 21, 2000 10.18 1999 payable to Comdisco, Inc. 10.13 Loan and Security Agreement dated July 7, 1999 between S-1 333-89077 January 21, 2000 10.19 Comdisco, Inc. and the Registrant. 10.14 Hardware Security Promissory Note for $1,032,001.98 dated S-1 333-89077 January 21, 2000 10.20 September 3, 1999 payable to Camdisco, Inc. 10.15 Softcost Promissory Note for $240,363.61 dated September S-1 333-89077 January 21, 2000 10.21 3, 1999 payable to Comdisco, Inc. 10.16+ Co-Branding Agreement, dated as of November 19, 1999, by S-1 333-89077 January 21, 2000 10.26 and between the Registrant and VerticalNet, Inc. 10.17 Amendment to Co-Branding Agreement, dated as of February X 6, 2001, by and between the Registrant and VerticalNet, Inc. 10.18* Offer Letter dated July 28, 1999 with Daniel A. Eckert. S-1 333-89077 January 21, 2000 10.27 10.19 Industrial Building Lease, dated as of October 1999, by S-1 333-89077 January 21, 2000 10.28 and between the Registrant and Centerpoint Properties Trust. 10.20 Amended and Restated Common Stock and Warrant Agreement, 8-K April 4, 2000 99.1 dated as of May 24, 2000, between the Registrant and VHA Inc. (including exhibits). 10.21 Amended and Restated Common Stock and Warrant Agreement, 8-K April 4, 2000 99.2 dated as of May 24, 2000, between the Registrant and University Healthsystem Consortium (including exhibits).
70 71
EXHIBIT INCORPORATED BY REFERENCE NO. EXHIBIT FILED NO. AS HEREWITH EXHIBIT FORM FILE NO. FILING DATE FILED - -------- ------- ------ --------- ---------------- ------- 10.22 Termination Agreement, dated as of May 24, 2000, among 8-K May 31, 2000 10.22 the Registrant, Neo III Acquisition Corp., Eclipsys Corporation, HEALTHvision, Inc., Novation, LLC, VHA Inc., University HealthSystem Consortium and Healthcare Purchasing Partners International, LLC. 10.23 Amended and Restated Common Stock and Warrant Agreement, 8-K May 31, 2000 99.1 dated as of May 24, 2000, between the Registrant and VHA Inc. (including exhibits). 10.24 Amended and Restated Common Stock and Warrant Agreement, 8-K May 31, 2000 99.2 dated as of May 24, 2000, between the Registrant and University Healthsystem Consortium (including exhibits). 10.25 Amendment to Amended and Restated Common Stock and 8-K October 19, 2000 99.3 Warrant Agreement, dated as of October 18, 2000, between the Registrant and VHA Inc. 10.26 Sublease Agreement dated March 7, 2000 between the 10-Q May 15, 2000 10.1 Registrant and Seagate Technology, Inc. 10.27 Sublease Agreement dated March 14, 2000 between the 10-Q May 15, 2000 10.2 Registrant and Nelson & Associates. 10.28+ Outsourcing Agreement dated March 30, 2000 between the 10-Q May 15, 2000 10.2 Registrant and Novation, LLC, VHA Inc., University HealthSystem Consortium and Healthcare Purchasing Partners International, LLC. 10.29* Amendment to Employment Agreement between Robert J. X Zollars and the Registrant 10.30* Offer letter for Andrew L. Guggenhime dated January 14, X 2000. 10.31* Offer letter for Steven E. Kane dated May 30, 2000. X 10.32* Offer letter for Steven J. Wigginton dated December 2, X 1999. 10.33* Offer letter for Charles D. Brennan dated November 22, X 1999. 10.34** Public Marketplace License Agreement dated December 29, X 2000 by and between i2 Technologies, Inc. and the Registrant. 10.35** Application Service Provider Agreement dated December 29, X 2000 by and between i2 Technologies, Inc. and the Registrant. 10.36** Services Agreement dated December 29, 2000 by and between X i2 Technologies, Inc. and the Registrant. 10.37 Common Stock Purchase Agreement dated December 29, 2000 X by and between i2 Technologies, Inc. and the Registrant. 21.1 Subsidiaries. X 23.1 Consent of Arthur Andersen LLP, independent public X accountants. 24.1 Power of Attorney (see signature page). X
- --------------- + Indicates that portions of this agreement were granted confidential treatment by the Commission * Indicates a management contract or compensatory plan or arrangement ** Confidential treatment has been requested for portions of this agreement. Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. (b) Reports on Form 8-K None. 71 72 (c) Exhibits The Registrant hereby files as part of this Annual Report on Form 10-K the exhibits listed in Item 14(a)(3) above. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the Commission, 450 Fifth Street, NW, Room 1024, Washington, D.C. and at the Commission's regional offices at 219 South Dearborn Street, Room 1204, Chicago, Illinois; 26 Federal Plaza, Room 1102, New York, New York and 5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. (d) Financial Statement Schedules The Company hereby files as part of this Annual Report on Form 10-K the consolidated financial statement schedules listed in Item 14(a)(2) above. 72 73 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. DATE: April 16, 2001 NEOFORMA.COM, INC By: /s/ ANDREW GUGGENHIME ------------------------------------ Andrew Guggenhime Chief Financial Officer
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT J. ZOLLARS Chief Executive Officer April 16, 2001 - -------------------------------------------------------- (Principal Executive Officer) Robert J. Zollars /s/ ANDREW GUGGENHIME Chief Financial Officer April 16, 2001 - -------------------------------------------------------- (Principal Financial and Andrew Guggenhime Accounting Officer) /s/ CURT NONOMAQUE Director April 16, 2001 - -------------------------------------------------------- Curt Nonomaque /s/ MARK MCKENNA Director April 16, 2001 - -------------------------------------------------------- Mark McKenna Director April , 2001 - -------------------------------------------------------- Richard D. Helppie /s/ JEFFREY HILLEBRAND Director April 16, 2001 - -------------------------------------------------------- Jeffrey Hillebrand /s/ ANDREW J. FILIPOWSKI Director April 16, 2001 - -------------------------------------------------------- Andrew J. Filipowski /s/ MICHAEL MURRAY Director April 16, 2001 - -------------------------------------------------------- Michael Murray /s/ ROBERT J. BAKER Director April 16, 2001 - -------------------------------------------------------- Robert J. Baker /s/ C. THOMAS SMITH Director April 16, 2001 - -------------------------------------------------------- C. Thomas Smith
73 74 NEOFORMA.COM, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants.................. F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Operations..................... F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficit).............................................. F-5 Consolidated Statements of Cash Flows..................... F-8 Notes to Consolidated Financial Statements................ F-10
F-1 75 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Neoforma.com, Inc.: We have audited the accompanying consolidated balance sheets of Neoforma.com, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neoforma.com, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP San Jose, California April 16, 2001 F-2 76 NEOFORMA.COM, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, -------------------- 1999 2000 -------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 25,292 $ 22,597 Short-term investments.................................... 21,483 7,163 Accounts receivable, net of allowance for doubtful accounts of $4 and $384 in 1999 and 2000, respectively............................................ 151 1,353 Unbilled revenue.......................................... -- 946 Prepaid expenses and other current assets................. 2,226 3,770 Deferred debt costs, current portion...................... 413 413 -------- --------- Total current assets................................ 49,565 36,242 -------- --------- LONG-TERM INVESTMENTS....................................... 2,027 -- PROPERTY AND EQUIPMENT, net................................. 8,771 32,529 INTANGIBLES, net of amortization............................ 12,319 127,799 CAPITALIZED PARTNERSHIP COSTS, net of amortization.......... -- 308,330 NON-MARKETABLE INVESTMENTS.................................. 2,500 8,400 OTHER ASSETS................................................ 1,585 456 DEFERRED DEBT COSTS, less current portion................... 602 182 -------- --------- Total assets........................................ $ 77,369 $ 513,938 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Notes payable, current portion............................ $ 3,360 $ 8,089 Accounts payable.......................................... 7,123 22,744 Accrued payroll........................................... 1,410 3,106 Other accrued liabilities................................. 685 2,303 Deferred revenue.......................................... 99 947 -------- --------- Total current liabilities........................... 12,677 37,189 -------- --------- NOTES PAYABLE, less current portion......................... 7,743 7,958 -------- --------- COMMITMENTS AND CONTINGENCIES (Notes 5 and 6) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: Series C -- Authorized -- 5,110 shares at December 31, 2000 Issued and outstanding: 5,065 shares and none at December 31, 1999 and 2000, respectively; par value -- $0.001; liquidation preference -- $3,900...... 3,884 -- -------- --------- Series D -- Authorized -- 10,573 shares at December 31, 2000 Issued and outstanding: 10,196 shares and none at December 31, 1999 and 2000, respectively; par value $0.001; liquidation preference -- $12,032.............. 11,986 -- -------- --------- Series E and E-1 -- Authorized -- 13,204 shares at December 31, 2000 Issued and outstanding: 12,870 shares and none at December 31, 1999 and 2000, respectively; par value $0.001; liquidation preference -- $73,102.............. 72,942 -- -------- --------- STOCKHOLDERS' EQUITY (DEFICIT): Series A --convertible preferred stock Authorized -- 9,000 shares at December 31, 2000 Issued and outstanding: 9,000 and none at December 31, 1999 and 2000, respectively; par value $0.001; liquidation preference -- $2,250....................... 9 -- Series B --convertible preferred stock Authorized -- 2,860 shares at December 31, 2000 Issued and outstanding: 2,860 and none at December 31, 1999 and 2000, respectively; par value $0.001; liquidation preference -- $1,430....................... 3 -- Common Stock $0.001 par value: Authorized -- 300,000 shares at December 31, 2000 Issued and outstanding: 14,406 and 134,935 shares at December 31, 1999 and 2000, respectively............... 14 135 Warrants.................................................... 3,621 11,733 Additional paid-in capital.................................. 76,216 761,252 Notes receivable from stockholders.......................... (8,245) (7,112) Deferred compensation....................................... (47,388) (32,346) Unrealized loss on available-for-sale securities............ (40) (3) Accumulated deficit......................................... (56,053) (264,868) -------- --------- Total stockholders' equity (deficit)................ (31,863) 468,791 -------- --------- Total liabilities and stockholders' equity (deficit)........................................... $ 77,369 $ 513,938 ======== =========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 77 NEOFORMA.COM, INC CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ------------------------------ 1998 1999 2000 ------- -------- --------- REVENUE Sales of equipment........................................ $ -- $ -- $ 4,629 Transaction fees.......................................... -- 929 2,273 Services.................................................. -- -- 959 Website sponsorship fees and other........................ -- 75 2,585 ------- -------- --------- Total revenue..................................... -- 1,004 10,446 OPERATING EXPENSES: Cost of equipment sold.................................... -- -- 3,544 Cost of services.......................................... -- -- 8,247 Operations................................................ 627 5,941 13,517 Product development....................................... 1,494 8,161 24,599 Selling and marketing..................................... 1,411 16,860 53,216 General and administrative................................ 1,075 17,937 25,922 Amortization of intangibles............................... -- 715 25,700 Amortization of partnership costs......................... -- -- 30,491 Cost of warrant issued to recruiter....................... -- 2,364 -- Write off of acquired in-process research and development............................................ -- -- 18,000 Abandoned acquisition costs............................... -- -- 2,742 Restructuring............................................. -- -- 2,100 Cost of anticipated divestitures.......................... -- -- 14,446 ------- -------- --------- Total operating expenses.......................... 4,607 51,978 222,524 ------- -------- --------- Loss from operations.............................. (4,607) (50,974) (212,078) OTHER INCOME (EXPENSE): Interest income........................................... 66 659 4,464 Interest expense.......................................... (22) (676) (1,289) Other income (expense).................................... -- (29) 88 ------- -------- --------- Net loss.......................................... $(4,563) $(51,020) $(208,815) ======= ======== ========= NET LOSS PER SHARE: Basic and diluted......................................... $ (1.65) $ (19.15) $ (2.49) ======= ======== ========= Weighted average shares -- basic and diluted.............. 2,762 2,664 83,948 ======= ======== ========= PRO FORMA NET LOSS PER SHARE (unaudited): Basic and diluted......................................... $ (0.36) $ (1.63) $ (2.41) ======= ======== ========= Weighted average shares -- basic and diluted.............. 12,848 31,282 86,585 ======= ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 78 NEOFORMA.COM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREFERRED STOCK --------------------------------- SERIES A SERIES B COMMON STOCK ADDITIONAL --------------- --------------- --------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ------ ------ ------ ------ ------ ------ -------- ---------- BALANCE, DECEMBER 31, 1997.............. -- $-- -- $-- 8,188 $ 8 $ -- $ 72 ----- --- ----- --- ------ --- ------ ------- Common stock issued for cash at $0.25 per share in February 1998.......... -- -- -- -- 800 1 -- 199 Common stock issued in exchange for consulting services valued at $0.25 per share in March 1998............. -- -- -- -- 500 -- -- 125 Conversion of founders stock to Series A preferred stock at $0.00375 per share in April 1998................. 8,000 8 -- -- (8,000) (8) -- -- Conversion of common stock to Series A preferred stock at $0.25 per share in April 1998....................... 1,000 1 -- -- (1,000) (1) -- -- Preferred stock issued for cash at $0.50 per share in April and May 1998, net of issuance costs......... -- -- 2,520 3 -- -- -- 1,252 Conversion of notes payable to Series B preferred stock at $0.50 per share in May 1998......................... -- -- 340 -- -- -- -- 170 Common stock issued for cash as a result of options exercised at $0.05 per share in May 1998............... -- -- -- -- 516 1 -- 25 Issuance of warrants to purchase common stock in November 1998....... -- -- -- -- -- -- 7 -- Common stock issued for cash as a result of options exercised at $0.10 per share in November 1998.......... -- -- -- -- 200 -- -- 20 Deferred compensation................. -- -- -- -- -- -- -- 52 Amortization of deferred compensation........................ -- -- -- -- -- -- -- -- Net loss.............................. -- -- -- -- -- -- -- -- ----- --- ----- --- ------ --- ------ ------- BALANCE, DECEMBER 31, 1998.............. 9,000 9 2,860 3 1,204 1 7 1,915 NOTES UNREALIZED TOTAL RECEIVABLE GAIN (LOSS) ON STOCKHOLDERS' FROM DEFERRED AVAILABLE FOR SALE ACCUMULATED EQUITY STOCKHOLDERS COMPENSATION SECURITIES DEFICIT (DEFICIT) ------------ ------------ ------------------ ----------- ------------- BALANCE, DECEMBER 31, 1997.............. $ -- $ -- $ -- $ (470) $ (390) ------- -------- ---- -------- -------- Common stock issued for cash at $0.25 per share in February 1998.......... -- -- -- -- 200 Common stock issued in exchange for consulting services valued at $0.25 per share in March 1998............. -- -- -- -- 125 Conversion of founders stock to Series A preferred stock at $0.00375 per share in April 1998................. -- -- -- -- -- Conversion of common stock to Series A preferred stock at $0.25 per share in April 1998....................... -- -- -- -- -- Preferred stock issued for cash at $0.50 per share in April and May 1998, net of issuance costs......... -- -- -- -- 1,255 Conversion of notes payable to Series B preferred stock at $0.50 per share in May 1998......................... -- -- -- -- 170 Common stock issued for cash as a result of options exercised at $0.05 per share in May 1998............... -- -- -- -- 26 Issuance of warrants to purchase common stock in November 1998....... -- -- -- -- 7 Common stock issued for cash as a result of options exercised at $0.10 per share in November 1998.......... (10) -- -- -- 10 Deferred compensation................. -- (52) -- -- -- Amortization of deferred compensation........................ -- 5 -- -- 5 Net loss.............................. -- -- -- (4,563) (4,563) ------- -------- ---- -------- -------- BALANCE, DECEMBER 31, 1998.............. (10) (47) -- (5,033) (3,155) COMPREHENSIVE (LOSS) ------------- BALANCE, DECEMBER 31, 1997.............. $ (416) -------- Common stock issued for cash at $0.25 per share in February 1998.......... -- Common stock issued in exchange for consulting services valued at $0.25 per share in March 1998............. -- Conversion of founders stock to Series A preferred stock at $0.00375 per share in April 1998................. -- Conversion of common stock to Series A preferred stock at $0.25 per share in April 1998....................... -- Preferred stock issued for cash at $0.50 per share in April and May 1998, net of issuance costs......... -- Conversion of notes payable to Series B preferred stock at $0.50 per share in May 1998......................... -- Common stock issued for cash as a result of options exercised at $0.05 per share in May 1998............... -- Issuance of warrants to purchase common stock in November 1998....... -- Common stock issued for cash as a result of options exercised at $0.10 per share in November 1998.......... -- Deferred compensation................. -- Amortization of deferred compensation........................ -- Net loss.............................. $ (4,563) -------- BALANCE, DECEMBER 31, 1998.............. (4,563)
The accompanying notes are an integral part of these consolidated financial statements. F-5 79 NEOFORMA.COM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREFERRED STOCK --------------------------------- SERIES A SERIES B COMMON STOCK ADDITIONAL --------------- --------------- --------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ------ ------ ------ ------ ------ ------ -------- ---------- BALANCE, December 31, 1998....................... 9,000 $ 9 2,860 $ 3 1,204 $ 1 $ 7 $ 1,915 ------ --- ------ --- ------ ---- -------- -------- Repayment of note receivable from shareholder.... -- -- -- -- -- -- -- -- Common stock issued as a result of options exercised at $0.10 to $7.00 per share........... -- -- -- -- 12,855 13 -- 9,102 Common stock repurchased at $0.10 per share...... -- -- -- -- (14) -- -- (1) Valuation of options issued to consultants....... -- -- -- -- -- -- -- 850 Valuation of shares reserved for issuance to consultants..................................... -- -- -- -- -- -- -- 8 Issuance of warrants to purchase common stock.... -- -- -- -- -- -- 10 -- Valuation of preferred stock warrants issued to lender in conjunction with debt................. -- -- -- -- -- -- 1,240 -- Valuation of common stock issued to consultants..................................... -- -- -- -- 11 -- -- 641 Valuation of warrants to purchase common stock issued to consultants at $0.10 per share........ -- -- -- -- -- -- 2,364 -- Common stock issued in connection with the acquisition of the assets of FDI Information Resources, LLC.................................. -- -- -- -- 350 -- -- 3,149 Deferred compensation............................ -- -- -- -- -- -- -- 60,552 Unrealized losses on available for sale securities...................................... -- -- -- -- -- -- -- -- Amortization of deferred compensation............ -- -- -- -- -- -- -- -- Net loss......................................... -- -- -- -- -- -- -- -- ------ --- ------ --- ------ ---- -------- -------- BALANCE, December 31, 1999....................... 9,000 $ 9 2,860 $ 3 14,406 $ 14 $ 3,621 $ 76,216 NOTES UNREALIZED TOTAL RECEIVABLE GAIN (LOSS) ON STOCKHOLDERS' FROM DEFERRED AVAILABLE FOR SALE ACCUMULATED EQUITY STOCKHOLDERS COMPENSATION SECURITIES DEFICIT (DEFICIT) ------------ ------------ ------------------ ----------- ------------- BALANCE, December 31, 1998....................... $ (10) $ (47) $ -- $ (5,033) $ (3,155) ------- -------- ---- --------- --------- Repayment of note receivable from shareholder.... 60 -- -- -- 60 Common stock issued as a result of options exercised at $0.10 to $7.00 per share........... (8,295) -- -- -- 820 Common stock repurchased at $0.10 per share...... -- -- -- -- (1) Valuation of options issued to consultants....... -- -- -- -- 850 Valuation of shares reserved for issuance to consultants..................................... -- -- -- -- 8 Issuance of warrants to purchase common stock.... -- -- -- -- 10 Valuation of preferred stock warrants issued to lender in conjunction with debt................. -- -- -- -- 1,240 Valuation of common stock issued to consultants..................................... -- -- -- -- 641 Valuation of warrants to purchase common stock issued to consultants at $0.10 per share........ -- -- -- -- 2,364 Common stock issued in connection with the acquisition of the assets of FDI Information Resources, LLC.................................. -- -- -- -- 3,149 Deferred compensation............................ -- (60,552) -- -- -- Unrealized losses on available for sale securities...................................... -- -- (40) -- (40) Amortization of deferred compensation............ -- 13,211 -- -- 13,211 Net loss......................................... -- -- -- (51,020) (51,020) ------- -------- ---- --------- --------- BALANCE, December 31, 1999....................... $(8,245) $(47,388) $(40) $ (56,053) $ (31,863) COMPREHENSIVE (LOSS) ------------- BALANCE, December 31, 1998....................... $ (4,563) --------- Repayment of note receivable from shareholder.... Common stock issued as a result of options exercised at $0.10 to $7.00 per share........... Common stock repurchased at $0.10 per share...... Valuation of options issued to consultants....... Valuation of shares reserved for issuance to consultants..................................... Issuance of warrants to purchase common stock.... Valuation of preferred stock warrants issued to lender in conjunction with debt................. Valuation of common stock issued to consultants..................................... Valuation of warrants to purchase common stock issued to consultants at $0.10 per share........ Common stock issued in connection with the acquisition of the assets of FDI Information Resources, LLC.................................. Deferred compensation............................ Unrealized losses on available for sale securities...................................... $ (40) Amortization of deferred compensation............ Net loss......................................... (51,020) --------- BALANCE, December 31, 1999....................... $ (51,060)
The accompanying notes are an integral part of these consolidated financial statements. F-6 80 NEOFORMA.COM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREFERRED STOCK --------------------------------- SERIES A SERIES B COMMON STOCK ADDITIONAL --------------- --------------- --------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ------ ------ ------ ------ ------ ------ -------- ---------- BALANCE, December 31, 1999..................... 9,000 $ 9 2,860 $ 3 14,406 $ 14 $ 3,621 $ 76,216 ------ --- ------ --- ------ ---- -------- -------- Repayment of notes receivable from stockholders.................................. -- -- -- -- -- -- -- -- Common stock issued as a result of options exercised at $0.10 to $7.00................... -- -- -- -- 141 -- -- 178 Common stock repurchased at $0.10 to $7.00..... -- -- -- -- (1,774) (2) -- (2,179) Valuation of options issued to consultants..... -- -- -- -- -- -- -- 212 Valuation of warrants issued to consultants.... -- -- -- -- -- -- 67 -- Conversion of Preferred Stock to common stock......................................... (9,000) (9) (2,860) (3) 39,991 40 -- 88,743 Issuance of common stock for Initial Public Offering net of issuance costs of $9.3 million....................................... -- -- -- -- 8,050 8 -- 95,329 Common stock issued in connection with exercise of warrant, net of shares repurchased......... -- -- -- -- 706 1 -- -- Common stock issued and Notes receivable from stockholders assumed in connection with the acquisition of Pharos Technologies, Inc....... -- -- -- -- 1,975 2 -- 22,980 Common stock issued in connection with the acquisition of U.S. Lifeline.................. -- -- -- -- 61 -- -- 2,769 Common stock issued in connection with the acquisition of EquipMD........................ -- -- -- -- 4,374 5 -- 133,610 Common stock issued in connection with the acquisition of certain assets of NCL.......... -- -- -- -- 300 -- -- 2,162 Common stock issued to VHA and UHC in connection with the Outsourcing Agreement..... -- -- -- -- 57,547 58 -- 291,273 Valuation of warrants earned by VHA and UHC.... -- -- -- -- -- -- 38,105 -- Common stock issued to UHC in connection with exercise of warrant........................... -- -- -- -- 1,880 2 (8,224) 8,241 Conversion of VHA warrants to Restricted Common Stock......................................... -- -- -- -- 7,101 7 (21,836) 21,829 Deferred compensation on Employee Stock Options....................................... -- -- -- -- -- -- -- 4,656 Deferred compensation on options to purchase common stock assumed as part of the acquisition of EquipMD........................ -- -- -- -- -- -- -- 23,053 Reduction in deferred compensation as a result of restructuring activities and employee attrition..................................... -- -- -- -- -- -- -- (8,461) Amortization of deferred compensation.......... -- -- -- -- -- -- -- -- Common stock issued under the employees stock purchase plan................................. -- -- -- -- 177 -- -- 641 Unrealized gain on available for sale securities.................................... -- -- -- -- -- -- -- -- Net loss....................................... -- -- -- -- -- -- -- -- ------ --- ------ --- ------ ---- -------- -------- BALANCE, December 31, 2000..................... -- $-- -- $-- 134,935 $135 $ 11,733 $761,252 ====== === ====== === ====== ==== ======== ======== NOTES UNREALIZED TOTAL RECEIVABLE GAIN (LOSS) STOCKHOLDERS' FROM DEFERRED ON AVAILABLE ACCUMULATED EQUITY STOCKHOLDERS COMPENSATION FOR SALE SECURITIES DEFICIT (DEFICIT) ------------ ------------ --------------------- ----------- ------------- BALANCE, December 31, 1999..................... $(8,245) $(47,388) $(40) $ (56,053) $ (31,863) ------- -------- ---- --------- --------- Repayment of notes receivable from stockholders.................................. 212 -- -- 212 Common stock issued as a result of options exercised at $0.10 to $7.00................... -- -- -- -- 178 Common stock repurchased at $0.10 to $7.00..... 1,903 -- -- -- (278) Valuation of options issued to consultants..... -- -- -- -- 212 Valuation of warrants issued to consultants.... -- -- -- -- 67 Conversion of Preferred Stock to common stock......................................... -- -- -- -- 88,771 Issuance of common stock for Initial Public Offering net of issuance costs of $9.3 million....................................... -- -- -- -- 95,337 Common stock issued in connection with exercise of warrant, net of shares repurchased......... -- -- -- -- 1 Common stock issued and Notes receivable from stockholders assumed in connection with the acquisition of Pharos Technologies, Inc....... (982) -- -- -- 22,000 Common stock issued in connection with the acquisition of U.S. Lifeline.................. -- -- -- -- 2,769 Common stock issued in connection with the acquisition of EquipMD........................ -- -- -- -- 133,615 Common stock issued in connection with the acquisition of certain assets of NCL.......... -- -- -- -- 2,162 Common stock issued to VHA and UHC in connection with the Outsourcing Agreement..... -- -- -- -- 291,331 Valuation of warrants earned by VHA and UHC.... -- -- -- -- 38,105 Common stock issued to UHC in connection with exercise of warrant........................... -- -- -- -- 19 Conversion of VHA warrants to Restricted Common Stock......................................... -- -- -- -- -- Deferred compensation on Employee Stock Options....................................... -- (4,656) -- -- -- Deferred compensation on options to purchase common stock assumed as part of the acquisition of EquipMD........................ -- (23,053) -- -- -- Reduction in deferred compensation as a result of restructuring activities and employee attrition..................................... -- 8,461 -- -- -- Amortization of deferred compensation.......... -- 34,290 -- -- 34,290 Common stock issued under the employees stock purchase plan................................. -- -- -- -- 641 Unrealized gain on available for sale securities.................................... -- -- 37 37 Net loss....................................... -- -- -- (208,815) (208,815) ------- -------- ---- --------- --------- BALANCE, December 31, 2000..................... $(7,112) $(32,346) $ (3) $(264,868) $ 468,791 ======= ======== ==== ========= ========= COMPREHENSIVE INCOME (LOSS) --------------- BALANCE, December 31, 1999..................... $ (51,060) --------- Repayment of notes receivable from stockholders.................................. Common stock issued as a result of options exercised at $0.10 to $7.00................... Common stock repurchased at $0.10 to $7.00..... Valuation of options issued to consultants..... Valuation of warrants issued to consultants.... Conversion of Preferred Stock to common stock......................................... Issuance of common stock for Initial Public Offering net of issuance costs of $9.3 million....................................... Common stock issued in connection with exercise of warrant, net of shares repurchased......... Common stock issued and Notes receivable from stockholders assumed in connection with the acquisition of Pharos Technologies, Inc....... Common stock issued in connection with the acquisition of U.S. Lifeline.................. Common stock issued in connection with the acquisition of EquipMD........................ Common stock issued in connection with the acquisition of certain assets of NCL.......... Common stock issued to VHA and UHC in connection with the Outsourcing Agreement..... Valuation of warrants earned by VHA and UHC.... Common stock issued to UHC in connection with exercise of warrant........................... Conversion of VHA warrants to Restricted Common Stock......................................... Deferred compensation on Employee Stock Options....................................... Deferred compensation on options to purchase common stock assumed as part of the acquisition of EquipMD........................ Reduction in deferred compensation as a result of restructuring activities and employee attrition..................................... Amortization of deferred compensation.......... Common stock issued under the employees stock purchase plan................................. Unrealized gain on available for sale securities.................................... 37 Net loss....................................... (208,815) --------- BALANCE, December 31, 2000..................... $(208,778)
The accompanying notes are an integral part of these consolidated financial statements. F-7 81 NEOFORMA.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------- 1998 1999 2000 ------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss.................................................. $(4,563) $(51,020) $(208,815) 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.... -- 269 958 Common stock issued in connection with consulting services................................................ 125 7 -- Valuation of common stock options issued in connection with consulting services................................ -- 1,484 212 Valuation of common stock reserved for future issuance in connection with consulting services..................... 8 8 -- Valuation of warrants to purchase common stock in exchange for consulting services................................. -- 2,364 67 Provision for doubtful accounts........................... -- -- 440 Depreciation and amortization of property and equipment... 96 980 8,277 Amortization of intangibles............................... -- 715 25,715 Amortization of partnership costs......................... -- -- 30,491 Amortization of deferred compensation..................... 5 13,211 34,290 Amortization of deferred debt costs....................... 6 236 420 Write off of acquired in-process research and development............................................. -- -- 18,000 Write down of intangible assets related to anticipated divestitures............................................ -- -- 13,250 Change in assets and liabilities, net of acquisitions: Accounts receivable..................................... -- (151) (1,380) Unbilled revenue........................................ -- -- (946) Prepaid expenses and other assets....................... (97) (2,385) (1,071) Inventory............................................... -- -- (300) Accounts payable........................................ 263 6,738 15,152 Accrued liabilities and accrued payroll................. 192 1,678 2,663 Deferred revenue........................................ -- 77 47 ------- -------- --------- Net cash used in operating activities................. (3,973) (25,789) (62,530) ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable investments....................... -- (23,550) (6,592) Proceeds from the sale of marketable investments.......... -- -- 23,182 Cash paid for the acquisition of General Asset Recovery Inc., net of cash acquired.............................. -- (1,800) -- Cash paid for the acquisition of Pharos Technologies, Inc., net of cash acquired.............................. -- -- (669) Cash paid for the acquisition of US Lifeline, Inc., net of cash acquired........................................... -- -- (3,772) Cash paid for the acquisition of EquipMD, Inc., net of cash acquired........................................... -- -- (3,908) Cash paid for costs related to establishing partnerships............................................ -- -- (9,000) Purchase of non-marketable investments.................... -- (2,500) (5,900) Cash paid on note issued in connection with the acquisition of General Asset Recovery Inc. ............................ -- (917) (1,651) Purchases of property and equipment....................... (825) (9,009) (32,003) ------- -------- --------- Net cash used in investing activities................. (825) (37,776) (40,313) ------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of notes payable............... 418 4,434 6,000 Repayments of notes payable............................... (215) (633) (1,933) Proceeds from the issuance of Series B preferred stock, net of issuance costs................................... 1,255 -- -- Proceeds from the issuance of Series C mandatorily redeemable convertible preferred stock, net of issuance costs................................................... 3,884 -- -- Proceeds from the issuance of Series D mandatorily redeemable convertible preferred stock, net of issuance costs................................................... -- 11,986 -- Proceeds from the issuance of Series E and E-1 mandatorily redeemable convertible preferred stock, net of issuance costs................................................... 71,380 -- Repayments of notes receivable from stockholders.......... -- 60 212 Cash received related to options exercised, net of repurchases............................................. -- -- 178 Proceeds from the issuance of common stock under the employee stock purchase plan............................ -- -- 641 Common stock repurchased net of notes receivable issued to common stockholders..................................... -- -- (278) Proceeds from the issuance of common stock, net of notes receivable issued to common stockholders................ 236 818 95,328 ------- -------- --------- Net cash provided by financing activities............... 5,578 88,045 100,148 ------- -------- --------- Net increase (decrease) in cash and cash equivalents.... 780 24,480 (2,695) CASH AND CASH EQUIVALENTS, beginning of period.............. 32 812 25,292 ------- -------- --------- CASH AND CASH EQUIVALENTS, end of period.................... $ 812 $ 25,292 $ 22,597 ======= ======== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest.................. $ 14 $ 439 $ 869 ======= ======== =========
F-8 82 NEOFORMA.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------- 1998 1999 2000 ------- -------- --------- SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Conversion of common stock into Series A preferred stock................................................... $ 280 $ -- $ -- ======= ======== ========= Conversion of notes payable into Series B preferred stock................................................... $ 170 $ -- $ -- ======= ======== ========= Issuance of warrants to purchase common stock............. $ 7 $ 2,364 $ 38,172 ======= ======== ========= Issuance of warrants to purchase mandatorily redeemable convertible preferred stock......................................... $ -- $ 1,240 $ -- ======= ======== ========= Issuance of note payable to related party in connection with acquisition of General Asset Recovery LLC.............................. $ -- $ 7,800 $ -- ======= ======== ========= Issuance of common stock in connection with the acquisition of FDI...................................... $ -- $ 3,150 $ -- ======= ======== ========= Conversion of preferred stock to common stock............. $ -- $ -- $ 88,771 ======= ======== ========= Issuance of common stock 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 ======= ======== ========= Issuance of common stock in connection with the acquisition of EquipMD, Inc. .......................................... $ -- $ -- $ 133,615 ======= ======== ========= Notes receivable from common stockholders cancelled in repurchase of common shares............................. $ -- $ -- $ (1,903) ======= ======== ========= Issuance of common stock in connection with partnership agreements.............................................. $ -- $ -- $ 291,331 ======= ======== ========= Issuance of common stock in connection with the acquisition of certain assets of National Content Liquidators, Inc........................................ $ -- $ -- $ 2,200 ======= ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-9 83 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS: Neoforma.com, Inc. (the "Company") builds and maintains private Internet marketplaces for trading partners in the healthcare industry on both the provider side (hospitals and physicians' offices) and on the supplier side (distributors and manufacturers). The Company's supply chain technology solutions enable the participants in the healthcare supply chain market, principally providers, manufacturers, distributors, group purchasing organizations and integrated delivery networks, to significantly improve business processes within their organizations and among their trading partners. The Company was incorporated as Neoforma, Inc. on March 4, 1996 in the state of California for the purpose of providing business-to-business e-commerce services for the medical products, supplies and equipment marketplace. On November 4, 1998, the Company re-incorporated in the state of Delaware. On September 14, 1999, the Company changed its name to Neoforma.com, Inc. In January 2000, the Company completed its initial public offering of its common stock on the Nasdaq National Market. Since inception, the Company has incurred significant losses, and, as of December 31, 2000, had an accumulated deficit of $264.9 million. Operating losses and negative cash flow are expected to continue through fiscal 2001. The Company currently anticipates that currently available funds, consisting of cash, cash equivalents and investments, combined with those funds available through lines of credit (see Note 17) and other sources will be sufficient to meet anticipated needs for working capital and capital expenditures through at least the next 12 months. The Company's future long-term capital needs will depend significantly on the rate of growth of the business, the timing of expanded service offerings, the success of these services once they are launched and the Company's ability to adjust its operating expenses to an appropriate level if the growth rate of our business is slower than expected. Any projections of future long-term cash needs and cash flows are subject to substantial uncertainty. If available funds and cash generated from operations are insufficient to satisfy its long-term liquidity requirements, the Company may seek to sell additional equity or debt securities, obtain additional lines of credit, curtail expansion of its services, including reductions in its staffing levels and related expenses, or potentially liquidate selected assets. The Company cannot be certain that additional financing will be available on favorable terms when required, or at all. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries General Asset Recovery, LLC ("GAR"), Pharos Technologies, Inc. ("Pharos"), U.S. Lifeline, Inc. ("USL") and EquipMD, Inc. ("EquipMD"). All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the historical consolidated financial statements to conform to the 2000 presentation. F-10 84 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION The Company categorizes its services into four primary service lines. These service lines are Shop, Auction, Plan and Services Delivery. Shop revenue is derived from transaction fees paid or payable by suppliers of medical products on the Company's website and development fees from participating suppliers to digitize the supplier product information for display on the Company's website. Auction revenue is derived from transaction fees paid or payable by suppliers of medical products on the Company's website and from consigned inventory sold at live auctions and online auctions. In addition, Auction revenue includes gross sales of purchased inventory, with the direct costs of such purchased inventory being shown in cost of equipment sold in the consolidated statement of operations. Plan revenue is derived from licensing software and its related maintenance, website sponsorship fees and subscription fees for asset management and facilities planning services. Service Delivery revenue is generated from implementation and setup related fees related to work primarily for the Company's acute care customers. In general, the Company recognizes revenues when there is persuasive evidence of an arrangement, the fee is fixed and determinable, the product has been delivered to the customer or the service has been rendered and collection is probable. If an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Deferred revenue primarily consists of revenue deferred under annual maintenance contracts on which amounts have been received from customers and for which the earnings process has not been completed. Transaction fee revenue, except in the case where the Company purchases inventory for sale in auctions, represents the Company's negotiated percentage of the purchase price or gross transaction fee at the time an order which was originated by a purchaser of medical equipment or supplies ("purchaser") is confirmed or accepted by the supplier. Thus, the Company reports transaction fee revenue net of amounts retained by the supplier. The gross transaction fee on a transaction is the price of a product listed on the website. The Company reports transaction fees on a net basis, as the Company does not believe that it acts as a principal in connection with orders to be shipped or delivered by a supplier to a purchaser because, among other things: the Company does not establish the prices of products listed on the website; the Company does not take title to products to be shipped from the supplier to the purchaser, nor does it take title to or assume the risk of loss of products prior to or during shipment; the Company does not bear the credit and collections risk of the purchaser to the supplier; and the Company does not bear the risk that the product will be returned. In the case of sales associated with purchased inventory, the revenue represents the fee from the purchaser while the direct costs of purchased inventory are reflected in the cost of equipment sold line in the consolidated statement of operations. Revenue associated with purchased inventory is recognized at the time of shipment or delivery, depending on the shipping terms associated with each transaction. The Company defers a portion of the transaction fee at the time of acceptance for potential transaction fee returns, which are related primarily to orders placed by non-bona fide purchasers or orders for which a supplier's content on the website is not posted according to the specifications of the supplier. Website sponsorship fees and other revenue includes sponsorship fees, development fees, asset management consulting fees, license fees, maintenance fees and subscription fees. Sponsorship, development and asset management consulting fee revenue is recognized as services are performed and billable according to the terms of the service arrangement. License fees are recognized when the software has been delivered and there are no other contingencies related to the Company's performance. If license fees are contingent upon the Company's performance subsequent to delivery, the Company defers recognition of such fees or the fair market value of the undelivered element requiring performance until performance is complete. Subscription and maintenance fee revenue is recognized ratably over the period of the service agreement. Services revenue, as it generally relates to the implementation of our e-commerce solution, is generally recognized ratably over the term of the underlying e-commerce agreement. F-11 85 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONCENTRATION OF CREDIT RISK Financial instruments that may subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash is on deposit with one financial institution. Cash investments include high quality, short-term money market instruments through a high credit quality financial institution. The Company does not require collateral on trade accounts receivable, as the Company's customer base primarily consists of healthcare providers, and suppliers of medical products, equipment and supplies. The Company provides reserves for credit losses. MAJOR CUSTOMERS No customers made up more than 10% of total revenues for any of the periods presented. The following customers accounted for 10% or more of total outstanding receivables.
DECEMBER 31, ------------ 1999 2000 ---- ---- Customer A.................................................. 23% 16% Customer B.................................................. 17% 12%
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash in banks, investments in money market accounts, treasury bills and marketable securities with remaining maturities of three months or less and are stated at fair market value. INVESTMENTS The Company accounts for short-term and long-term investments in accordance with Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Instruments." Accordingly, all of the Company's short-term and long-term investments are classified as "available-for-sale" and stated at fair market value. Investments with maturities greater than ninety days and less than one year are classified as short-term investments. Investments with maturities greater than one year are classified as long-term investments. The difference between amortized cost (cost adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments to interest income) and fair value, representing unrealized holding gains and losses on short-term and long-term investments, are recorded as a separate component of stockholders' equity until realized. The Company's policy is to record debt securities as available-for-sale because the sale of such securities may be required before maturity. Any gains or losses on the sale of debt securities are determined on a specific identification basis. Realized gains and losses are netted and included in interest income in the accompanying consolidated statements of operations. At December 31, 2000, the Company's available-for-sale securities mature on various dates through May 2001. F-12 86 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The amortized cost, aggregate fair value and gross unrealized holding gains and losses by major security type were as follows:
DECEMBER 31, 1999 ------------------------------------- UNREALIZED AMORTIZED AGGREGATE HOLDING COST FAIR VALUE LOSS --------- ---------- ---------- (IN THOUSANDS) 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) ======= ======= ====
DECEMBER 31, 2000 ------------------------------------- UNREALIZED AMORTIZED AGGREGATE HOLDING COST FAIR VALUE LOSS --------- ---------- ---------- (IN THOUSANDS) Debt securities issued by states of the United States and political subdivisions of the states... $ 8,350 $ 8,350 $-- Corporate debt securities........................... 15,527 15,524 (3) ------- ------- --- $23,877 $23,874 $(3) ======= ======= ===
Investments classified as cash equivalents amounted to approximately $22.5 million and $16.7 million at December 31, 1999 and 2000, respectively. ACCOUNTS RECEIVABLE Accounts receivable consists primarily of net amounts to be collected from purchasers of services rendered, or in the case of the Company's live auction services, amounts due from purchasers for services rendered or for product purchased. Accounts receivable is recorded net of allowance for doubtful accounts. PREPAID CONSULTING FEES In October 1999, the Company issued 275,000 shares of its Series E-1 preferred stock, valued at $1.6 million, in exchange for marketing consulting services to be rendered by General Electric Medical Systems ("GEMS") through December 31, 2000. As a result, the Company recorded prepaid consulting fees which were amortized into sales and marketing expenses on a straight-line basis through December 31, 2000. The net unamortized portion of the prepaid consulting fees at December 31, 1999 are included in prepaids and other current assets in the accompanying consolidated financial statements. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, and are depreciated on a straight-line basis over two to four years. Leasehold improvements are amortized, using the straight-line method, over the shorter of the lease term or the useful lives of the improvements. Purchased software is capitalized at cost when purchased and amortized over the license period commencing once the software is placed in service. Direct costs to place purchased software into service are capitalized and depreciated over the same period as the software. Internal costs incurred to develop software for use in operations are expensed as incurred and are included in product development costs in the accompanying statement of operations. Repairs and maintenance costs are expensed as incurred. F-13 87 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of December 31, 1999 and 2000, property and equipment consisted of the following (in thousands):
1999 2000 ------- ------- Computers and test equipment................................ $ 5,751 $12,130 Software.................................................... 3,172 25,109 Furniture and fixtures...................................... 756 2,275 Leasehold improvements...................................... 179 2,374 ------- ------- 9,858 41,888 ------- ------- Less: Accumulated depreciation and amortization............. (1,087) (9,359) ------- ------- Property and equipment, net................................. $ 8,771 $32,529 ======= =======
INTANGIBLES Intangibles consist of acquired assembled work force, customer lists, software, developed technology and goodwill which represent the amount of the purchase price in excess of the fair value of the tangible net assets in the acquisitions of GAR, FDI Information Resources, LLC ("FDI"), Pharos, USL, EquipMD and NCL. The intangibles are amortized on a straight-line basis over a period of 3 to 7 years. Intangible assets include the following:
DECEMBER 31, ------------------- 1999 2000 ------- -------- (IN THOUSANDS) Assembled work force........................................ $ 240 $ 340 Software.................................................... 600 600 Developed technology........................................ -- 3,000 Customer lists.............................................. -- 19,000 Goodwill.................................................... 12,194 144,575 ------- -------- 13,034 167,515 ------- -------- Less: Accumulated amortization.............................. (715) (39,716) ------- -------- $12,319 $127,799 ======= ========
As of December 31, 2000, the Company had formally adopted a plan to divest itself of its GAR, NCL and USL subsidiaries, as none of these subsidiaries were aligned with the core business of the Company going forward. As a result of the pending divestitures, the Company reassessed the value of all three subsidiaries based primarily on the expected sales price of the respective businesses. The resulting write downs of the intangible balances relating to each subsidiary was a direct result of the revised valuation of each of the businesses in light of the pending divestitures. See Note 10 for further discussion. CAPITALIZED PARTNERSHIP COSTS Capitalized Partnership Costs consists primarily of capitalized charges related to the issuances of common stock and warrants in connection with an outsourcing and operating agreement entered into by the Company during the year ended December 31, 2000 and is shown net of accumulated amortization. Certain direct costs associated with the completion of that agreement have also been capitalized in this account. See Note 16 for discussion of both the outsourcing and operating agreement and the related costs that have been capitalized. F-14 88 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NON-MARKETABLE INVESTMENTS In December 1999, the Company purchased 526,250 shares of common stock of CarePortal.com, LLC ("CarePortal"), formerly known as IntraMedix, LLC ("IntraMedix"), a privately held corporation, in exchange for $2.5 million. CarePortal is a company that provides procurement services related to the distribution of geriatric care products to the nursing home community. CarePortal is a related party to GeriMedix, a supplier with which the Company has an agreement to perform e-commerce services. On May 26, 2000, the Company issued a 30-day note receivable to CarePortal in the amount of $1.0 million, evidenced by a promissory note bearing interest at a rate of 8% per annum. On August 8, 2000 the Company exercised its option to convert the promissory note into shares of CarePortal common stock. Additionally, the Company invested $1.5 million in CarePortal in exchange for common stock. In November 2000, the Company issued a 30-day note receivable to CarePortal in the amount of $400,000, evidenced by a promissory note bearing interest at a rate of 11% per annum. On December 31, 2000 the Company exercised its option to convert the promissory note into shares of CarePortal common stock. As of December 31, 2000, the Company owned CarePortal common stock representing an ownership percentage of approximately 9.6% of the total outstanding common stock of CarePortal. The Company accounts for its investments in CarePortal using the cost method. In March 2000, the Company purchased 600,000 shares of the Series D preferred stock of Pointshare, Inc. ("Pointshare"), a privately held corporation, in exchange for $3.0 million. Pointshare is a company that provides on-line business-to-business administrative services to healthcare communities. The Company's ownership represented approximately 2% of the Pointshare common shares outstanding at the time of the investment and as of December 31, 2000, assuming a 1:1 conversion ratio of preferred stock to common stock. The Company accounts for this investment using the cost method. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically evaluates the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. To date the only such impairment the Company has identified is the impairment of the net asset values of the GAR, NCL and USL subsidiaries as a result of the planned divestitures of these operations (see Note 10 for further discussion). PRODUCT DEVELOPMENT COSTS Product development costs include expenses incurred by the Company to develop and enhance the Company's website and related website services. Product development costs are expensed as incurred. COST OF WARRANT ISSUED TO RECRUITER For the year ended December 31, 1999, the Company expensed $2.4 million related to the valuation of a warrant issued to an executive search firm in connection with services rendered in the search for the Company's Chief Executive Officer (see Note 13). STOCK BASED COMPENSATION The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes a fair value method of accounting for stock-based compensation plans. As allowed under the provisions of SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its F-15 89 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) employee stock option plans. The Company follows the provisions of SFAS No. 123 for options granted to consultants and non-employees. In March 2000, the FASB issued Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No. 44 addresses the application of APB No. 25 to clarify, among other issues: (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 became effective as of July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. To the extent FIN No. 44 covers events occurring during the period after December 15, 1998 or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying the interpretation should be recognized on a prospective basis from July 1, 2000. The adoption of FIN No. 44 did not have a material effect on the Company's financial position or results of operations. COMPREHENSIVE INCOME (LOSS) 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 (loss), as defined, includes all changes in equity (net assets) during a period from non-owner sources. For the years ended December 31, 2000 and 1999, the Company recorded approximately $37,000 of unrealized holding gains and $40,000 of unrealized holding losses, respectively. Other than net loss, the Company had no components of comprehensive income (loss) for the year ended December 31, 1998. The Company has integrated the presentation of comprehensive income (loss) with the Consolidated Statements of Changes in Stockholders' Equity (Deficit). 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 years ended December 31, 1998, 1999 and 2000 the Company operated in a single business segment building and operating e-commerce marketplaces for healthcare providers and suppliers in the medical product, supplies and equipment industry in the U.S. 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 securities are 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 18 million, 44 million and 50 million shares for the years ended December 31, 1998, 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 appropriate 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 Company's initial public offering. F-16 90 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, -------------------------------- 1998 1999 2000 ------- -------- --------- Net loss................................................... $(4,563) $(51,020) $(208,815) ======= ======== ========= Basic and diluted: Weighted average shares of common stock outstanding...... 2,977 5,854 90,227 Less: Weighted average shares of common stock subject to repurchase............................................ (215) (3,190) (6,279) ------- -------- --------- Weighted average shares used in computing basic and diluted net loss per share............................ 2,762 2,664 83,948 ======= ======== ========= Basic and diluted net loss per common share.............. $ (1.65) $ (19.15) $ (2.49) ======= ======== ========= Pro forma: Net loss.............................................. $(4,563) $(51,020) $(208,815) ======= ======== ========= Shares used above.......................................... 2,762 2,664 83,948 Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock (unaudited).............................................. 10,086 28,618 2,637 ------- -------- --------- Weighted average shares used in computing pro forma basic and diluted net loss per share (unaudited)............... 12,848 31,282 86,585 ======= ======== ========= Pro forma basic and diluted net loss per share (unaudited).............................................. $ (0.36) $ (1.63) $ (2.41) ======= ======== =========
RECENT ACCOUNTING PRONOUNCEMENTS In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal years beginning after June 15, 2000. In June 2000, SFAS No. 133 was amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which amended or modified certain issues discussed in SFAS No. 133. SFAS No. 138 is also effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 and SFAS No. 138 establish accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The statements also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The adoption of SFAS No. 133 and SFAS No. 138 on January 1, 2001 did not have a material impact on the Company's financial statements. 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. The Company adopted SAB 101 as required in the fourth quarter of 2000. As expected, the adoption did not have a material impact on its consolidated results of operations and financial position. F-17 91 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. ACQUISITIONS: In August 1999, the Company acquired substantially all of the assets of General Asset Recovery LLC ("GAR"), a live auction house and asset management company focused on medical products. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. According to the terms of the agreement, a segment of GAR's operations related to the auction of non-medical industrial products ("Industrial") was sold back to one of the original owners of GAR for nominal consideration. Accordingly, the revenue and direct costs associated with the Industrial operations have been eliminated in the pro forma tables presented below. The total purchase price of approximately $9.7 million consisted of $1.7 million in cash, a note payable of $7.8 million, the assumption of $100,000 of liabilities and acquisition-related expenses of $100,000. In the initial allocation of the purchase price, $25,000 was allocated to tangible assets and $9,675,000 was allocated to intangible assets. The intangible assets are being amortized over an estimated life of seven years. The note payable is due over a five-year period and bears interest at a rate of 7% per annum. In November 1999, the Company acquired certain assets of FDI Information Resources, LLC ("FDI"), a company in the business of developing and licensing equipment planning software. Under the terms of the agreement, the Company 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 $3,150,000, estimated assumed liabilities of approximately $97,000 and estimated acquisition-related expenses of approximately $112,000. In the allocation of the purchase price, $600,000, $240,000 and $2,519,000 were allocated to acquired software, assembled workforce and trade names, and goodwill, respectively. The acquired software, assembled workforce and trade names and goodwill are being amortized over an estimated useful life of three years. The unaudited pro forma results of operations of the Company, GAR and FDI for the years ended December 31, 1998 and 1999, assuming the acquisitions took place at the beginning of each period, are as follows (in thousands, except per share amounts):
FOR THE YEAR ENDED DECEMBER 31, ------------------- 1998 1999 ------- -------- Revenue..................................................... $ 1,561 $ 2,764 ======= ======== Net loss.................................................... $(8,254) $(53,193) ======= ======== Basic and diluted net loss per share........................ $ (1.61) $ (19.97) ======= ========
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 $22.0 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 were subject to repurchase rights which lapse over the vesting period of the original terms of the shares, which specify a F-18 92 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) vesting period of four years. As of December 31, 2000, approximately 105,000 of these shares were subject to repurchase. 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 expensed upon consummation of the acquisition. The developed technology is being amortized over the period that the technology is being put to 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, the Company allocated $3.0 million of the purchase price to in-process research and development projects. This allocation represented 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. The Company allocated values to the in-process research and development based on an assessment of the research and development projects. The value assigned to these assets was 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 in-process research and development 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 in-process research and development 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 planning, designing, coding, prototyping and testing activities that were necessary to establish that the developmental Pharos technologies met their design specifications including functional, technical and economic performance requirements. Anticipated completion dates ranged from six to nine 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 in-process research and development projects involved designing new technologies and an application platform for a next generation content syndication solution, including enterprise application integration. The estimated revenue for the in-process projects was expected to peak within three years of acquisition and then decline as other new products and technologies were 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 economics 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 the 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% were appropriate for the in-process research and development, and discount rates of 25% were appropriate for the existing products and technology. These discount rates were commensurate with Pharos' stage of development and the uncertainties in the economic estimates described below. In March 2000, the Company acquired USL, a healthcare content company. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the F-19 93 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 were allocated to tangible assets and goodwill, respectively. The goodwill is being amortized over an estimated useful life of five years. In April 2000, the Company acquired EquipMD, a business-to-business procurement company serving the physician market. The acquisition was accounted for as a purchase. Accordingly, the purchase price was allocated to the intangible assets acquired and liabilities assumed on the basis of their respective fair values on the date of the acquisition. The total purchase price of approximately $141.7 million consisted of approximately 4.4 million shares of the Company's common stock valued at approximately $126.4 million, 269,000 vested options valued at approximately $7.2 million and estimated assumed liabilities and acquisition costs of $8.1 million. In addition, the Company assumed approximately 807,000 unvested options. In the initial allocation of the purchase price, $1.5 million, $100,000, $19.0 million, $106.1 million and $15.0 million were allocated to tangible assets, assembled workforce, customer lists, goodwill and acquired in process research and development, respectively. The intangible assets are being amortized over an estimated useful life of five years. In connection with the acquisition of EquipMD, the Company allocated approximately $15.0 million of the purchase price to in-process research and development projects. This allocation represented 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. At the acquisition date, EquipMD was conducting design, development, engineering and testing activities associated with the completion of a real-time commerce engine. The projects under development at the valuation date represented next-generation technologies that were expected to address emerging market demands for healthcare related business-to-business e-commerce. At the acquisition date, the technologies under development were approximately 60% complete based on engineering man-month data and technological progress. EquipMD had spent approximately $1.2 million on the in-process projects, and expected to spend approximately $1.0 million to complete all phases of the research and development. Anticipated completion dates ranged from three to nine months, at which time the Company expected to begin benefiting from the developed technologies. In developing the purchase price allocation, the Company considered present value calculations of income, an analysis of project accomplishments and remaining outstanding items, an assessment of overall contributions, as well as project risks. The value assigned to purchased in-process technology was determined by estimating the costs to develop the acquired 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 in-process research and development 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 us and our competitors. The resulting net cash flows from such projects were based on the Company's estimates of cost of sales, operating expenses and income taxes from such projects. Aggregate revenue for the developmental EquipMD products was estimated to grow at a compounded annual growth rate of approximately 100% for the five years following introduction, assuming the successful completion and market acceptance of the major research and development programs. The estimated revenue F-20 94 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for the in-process projects was expected to peak within three years of acquisition and then decline sharply as other new projects and technologies were expected to enter the market. 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 and profitability of the developmental projects, a discount rate of 35% was considered appropriate for the in-process research and development. These discount rates were commensurate with EquipMD's stage of development and the uncertainties in the economic estimates described above. If these projects are not successfully developed, the Company's sales and ability to achieve profitability may be adversely affected in future periods. Additionally, the value of other acquired intangible assets may become impaired. The estimates used by the Company in valuing in-process research and development for the Pharos and EquipMD acquisitions were based upon assumptions the Company believed to be reasonable, but which are inherently uncertain and unpredictable. These 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. In July 2000, the Company acquired certain assets of National Content Liquidators, Inc. ("NCL"), an asset management company focused on healthcare facility liquidations and the resale of used medical products. 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 $3.2 million consisted of approximately 300,000 shares of common stock valued at $2.2 million, $500,000 in cash and $500,000 in notes payable to the principals of NCL. In the initial allocation of the purchase price, the full $3.2 million was allocated to goodwill, as there were no material tangible assets acquired. The goodwill is being amortized over an estimate useful life of 7 years. The unaudited pro forma results of operations of the Company, GAR, FDI, Pharos, USL, EquipMD and NCL for the twelve months ended December 31, 1999 and 2000, assuming the acquisitions took place at the beginning of the respective periods, are as follows (in thousands, except per share amounts):
TWELVE MONTHS ENDED DECEMBER 31, --------------------- 1999 2000 -------- --------- Revenue..................................................... $ 4,707 $ 12,274 ======== ========= Net loss.................................................... $(81,879) $(218,795) ======== ========= Basic and diluted net loss per share........................ $ (8.71) $ (2.55) ======== =========
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 June 2000. At December 31, 2000, there were no borrowings outstanding under either the term loan or the equipment loan. In consideration for this credit facility, the Company granted the bank a warrant to purchase 45,000 shares of Series C preferred stock at an exercise price of $0.77 per share. In July 1999, in consideration for the conversion of the equipment loan to a term loan and the release of the security interest in equipment, the Company granted the bank a warrant to purchase 10,000 shares of Series D preferred stock at an exercise price of $1.18 per share (see Note 13). F-21 95 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 December 31, 2000 there were borrowings of approximately $1.1 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 preferred Series D stock at an exercise price of $1.18 per share was issued in conjunction with the loan agreement (see Note 13). 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 (see Note 13). At December 31, 2000, the principal balance was $1.7 million. As part of the purchase price of GAR (see Note 3), the Company issued in August 1999 a promissory note payable to an owner of GAR in the amount of $7.8 million. The note bears interest at 7% per annum and is payable in 60 monthly installments of scheduled principal amounts plus interest through August 2004. At December 31, 2000, the remaining principal balance was approximately $5.1 million. As part of the purchase of EquipMD, the Company assumed the balance on an unsecured line of credit. The maximum borrowings allowed under the agreement are $300,000, of which none was available at December 31, 2000. As part of the purchase of EquipMD, the Company assumed a note payable in the amount of $1.8 million which is related to EquipMD's purchase of Central Point Services, LLC. The note bears interest at 7.5% per annum and is payable in eight quarterly installments after which the unpaid principal balance and accrued interest become due and payable through January 2002. At December 31, 2000, the remaining principal balance was $1.5 million. According to the provisions of the note, a payment amounting to $250,000 on the note was due upon change of control. As a result of the purchase of EquipMD by the Company (see Note 3), under the change of control provisions, the Company made a $250,000 payment in July 2000. In July 2000, the Company entered into an unsecured promissory note with its investment bankers in the amount of $6.0 million. The note bears no interest and is payable in 4 quarterly payments of $1.5 million, commencing on January 1, 2001. At December 31, 2000 the remaining balance on the note was $6.0 million. In April 2001, the Company and its bankers entered into an agreement to modify the payment terms of the remaining balance on the note whereby $3.5 million was payable in 2001, and the remaining $2.5 million was payable in May 2002. In July 2000, as part of the acquisition of NCL, the Company issued a non-interest bearing promissory note to each of the four principals of NCL in the amount of $62,500 each. The notes are payable in 24 equal monthly installments, commencing on August 15, 2000. As of December 31, 2000, the balance of these notes on the Company's books was $183,000. In addition, the Company also agreed to pay $250,000 on July 14, 2002, two years from the closing date of the acquisition. This payment is to be distributed in equal amounts of $62,500 to each of the four principals of NCL. As of December 31, 2000, no payments have been made against this commitment. F-22 96 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future maturities of principal on the loans and notes payable as of December 31, 2000 are as follows (in thousands): 2001....................................................... $ 8,089 2002....................................................... 5,696 2003....................................................... 1,829 2004 and thereafter........................................ 433 ------- $16,047 =======
5. COMMITMENTS: The Company leases its various office facilities under operating leases. Rent expense for the years ended December 31, 1998, 1999 and 2000 was approximately $304,000, $793,000 and $4.4 million, respectively. Future minimum obligations under non-cancelable operating leases are as follows (in thousands): 2001....................................................... $ 3,468 2002....................................................... 3,430 2003....................................................... 3,071 2004....................................................... 3,042 2005....................................................... 3,132 ------- $16,143 =======
In October 2000, the Company entered into a sublease agreement whereby the Company is subleasing approximately 27% of the space in the building which serves as the Company's headquarters to a third party tenant corporation. The sublease commits this third party to sublease payments to the Company totaling $2.1 million, $2.2 million and $1.7 million in 2001, 2002 and 2003. These payments are reflected as reductions in the Company's rent expense in each period. In May 1999, the Company entered into an agreement with a non-profit health services research organization (the "organization"), which allows the Company to use content from the organization's database of information about medical products and manufacturers and obtain a license to use elements of its classification system. Additionally, the agreement provides for joint marketing activities and collaboration in the creation of a database of product and vendor information. This agreement requires the Company to make revenue sharing payments to the organization during the three-year term of the agreement and for two years following expiration or termination of the agreement with respect to revenue derived from the Company's Plan service. During the second and third years, the Company is required to pay a nonrefundable fee of $600,000 per year, in equal monthly installments, which shall be credited against any revenue sharing profits payable. As of December 31, 2000, the Company had paid $350,000 under the terms of this agreement. In October 1999, the Company entered into a three-year agreement with a consulting firm (the "Consultant"), which is a stockholder as a result of the Series E financing, in which the Consultant agreed to introduce the Company's services to appropriate clients, based on their interests, and to incorporate the Company's services into certain of its service offerings. The agreement also provides for joint marketing activities. In consideration, the Company has agreed to make payments to the Consultant in an aggregate amount of up to approximately $2.0 million, as well as a percentage of specified Neoforma.com e-commerce transaction revenue and other payments. The Company has also agreed to utilize the Consultant's services on a preferred basis for systems integration, development, infrastructure, process improvement and consulting assistance, totaling at least $1.5 million of services from the Consultant, at a discount from the Consultant's standard fees. For the year ended December 31, 2000, the Company recorded expenses amounting to $1.7 million related to this agreement which are included in sales and marketing expenses in the accompanying consolidated financial statements. F-23 97 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In October 1999, the Company entered into an agreement with a hardware vendor, which is a stockholder as a result of the Series E financing, pursuant to which the Company agreed to develop complementary marketing programs with the vendor and establish hyperlinks between their respective Internet websites. The Company agreed to use the vendor as its exclusive supplier of certain hardware products and agreed to purchase at least $5,000,000 of the vendor's products under a schedule to be mutually agreed upon by the Company and the vendor and $100,000 of consulting services on a mutually agreed upon schedule. This agreement can be terminated by either party for any reason with 30 days' prior written notice. For the year ended December 31, 2000, the Company recorded expenditures amounting to $1.3 million related to this agreement which are included primarily in property and equipment in the accompanying consolidated financial statements. In November 1999, the Company entered into a co-branding agreement with a corporation. Under the agreement, the corporation will transfer to the Company's website all listings of new and used medical products offered for sale through the corporation's website (on an exclusive basis to the extent the corporation has the right to do so), and the Company will transfer to the corporation all listings of used and excess laboratory products offered for sale on the Company's website (on an exclusive basis to the extent the Company has the right to do so). The parties also agreed to establish links between their respective websites. In addition, the corporation will develop and maintain a co-branded career center and a co-branded training and education center, and will provide the Company with specified content created for its medical online communities. This corporation also has the non-exclusive right to sell sponsorships on the Company's Plan service and the exclusive right to sell advertising on the co-branded sites. Under this agreement, the Company agreed to pay this corporation $2,000,000 of development and promotional fees over the first two years of this agreement. In February 2001, the Company entered into an amendment to this agreement whereby the Company was relieved of substantially all of its remaining obligations to pay any development or promotional fees, and under which the corporation was relieved of certain obligations, including the exclusivity of its relationship with the Company. In July 1999, as part of the employment agreement entered by and between the Company's Chief Executive Officer ("CEO") and the Company, the CEO is eligible to receive a moving assistance loan up to $2.5 million. The loan is to be forgiven in equal monthly installments from the date of closing on his new home through June 30, 2003. As of December 31, 2000, no amounts were outstanding under such a loan, and the Company was in discussions with the CEO to restructure the timing of the cash payments under the loan. 6. LITIGATION: On January 14, 2000, Forma Scientific, Inc, notified the Company that it believed the Company's use of "Neoforma" and "Neoforma.com" violated 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. On September 12, 2000, the Company entered into a settlement agreement under which the Company agreed to modify its logo so that the mark NEOFORMA is presented to viewers as one word without any form of distinction separating the NEO portion of the mark from the FORMA portion of the mark. On October 30, 2000, the Company was formally served with a complaint entitled Healthworks, Inc. against Neoforma.com, Inc. and Jeffrey H. Kleck, Index No. 604682-00, Supreme Court of the State of New York, County of New York. The complaint indicated that Healthworks, Inc. ("Healthworks") had filed suit against the Company seeking relief of its obligations under two contracts between itself and the Company. Healthworks alleges that the Company failed to fulfill its obligations under the Basic Commerce Agreement and Letter of Intent (the "Basic Agreement"), and is thus in breach of the agreement. Further, Healthworks is claiming that the Consulting Services and Capital Equipment Purchasing Agreement (the "Consulting F-24 98 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Agreement") was obtained via fraudulent means, and, as a result, should be rescinded. The Company believes that Healthworks' case is without merit, and plans to vigorously defend this action. The Company does not believe this litigation will have a material impact on its financial statements. On October 30, 2000 the Company filed a complaint for breach of contract entitled Neoforma.com, Inc. v. Continuum Health Partners, Inc. and Healthworks, Inc., in the Superior Court of the State of California, County of Santa Clara. The complaint indicates that Healthworks and Continuum Health Partners, Inc. ("Continuum") are in breach of both the Basic Agreement and the Consulting Agreement, both of which were entered into by Healthworks acting as an agent for Continuum. The Complaint indicates that the breach was created by Healthworks' and Continuum's refusal to pay amounts due to the Company under the agreements, despite the fact that the Company had performed on its obligations under those agreements. The Company is seeking amounts owed and compensatory damages totaling in excess of $1.0 million. 7. 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. This 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 years 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. In May 2000, the Company decreased deferred compensation by approximately $5.1 million as a result of a reduction in workforce related to restructuring activities (see Note 9 for further discussion). Additionally, during the remainder of the year ended December 31, 2000, the Company recorded $3.4 million in additional reductions of deferred compensation as a result of normal employee attrition. The Company recorded amortization of deferred compensation of $25.3 million during the year ended December 31, 2000 which is allocated to the various operating expense categories consistent with the salary expense for the employees who received the options. In connection with the assumption of certain stock options granted to employees of EquipMD prior to the acquisition of EquipMD, the Company recorded deferred compensation of approximately $23.1 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 announcement of the acquisition. This 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. Based on the above assumptions, the weighted-average fair values per share of options assumed was $31.50. The Company recorded amortization of deferred compensation related to these options of $9.0 million during the year ended December 31, 2000 which is allocated to the various operating expense categories consistent with the employee salary expenses for the employees the charge relates to. 8. ABANDONED ACQUISITION COSTS On March 30, 2000, the Company entered into agreements to acquire Eclipsys Corporation ("Eclipsys") and HEALTHvision, Inc., ("HEALTHvision") as part of entering into the Outsourcing and Operating Agreement with Novation. On May 25, 2000, all three parties agreed by mutual consent to terminate the proposed mergers, and instead the Company entered into a strategic commercial relationship with Eclipsys and HEALTHvision that F-25 99 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) includes a co-marketing and distribution arrangement between the Company and HEALTHvision. The arrangement includes the use of Eclipsys' eWebIT enterprise application integration technology and professional services to enhance the integration of legacy applications with the Company's e-commerce platform. In addition, the Company modified the structure and terms of its stock and warrant transactions with VHA and UHC (see Note 16 for further discussion of the resulting Outsourcing and Operating Agreement). As a result of the termination of the mergers, a number of costs the Company incurred during the due diligence and acquisition process, including investment banker fees, legal advisory fees and financial and accounting fees, no longer have any realizable future value. As such the Company expensed all such costs in the third quarter of the year ended December 31, 2000. As of December 31, 2000, there was no remaining accrual on the books relating to these abandoned acquisition costs. 9. RESTRUCTURING As a result of the acquisition of EquipMD, as well as entering into the Outsourcing and Operating Agreement with Novation (see Note 16 for further discussion) in May 2000, management identified a need to refocus the Company's operations around the two markets represented by those activities, Integrated Delivery Networks and Hospitals, and Physician Practices. As a result, the Company underwent a restructuring involving both changes in executive management and the overall organizational structure. The resulting reduction in force of approximately 80 employees was across functions and eliminated positions which were largely duplicative or unnecessary. The resulting $2.1 million restructuring charge consisted entirely of accrued severance and other employee related costs. As of December 31, 2000, the accrual had been fully utilized and there were no remaining expenses related to this restructuring. 10. COSTS OF ANTICIPATED DIVESTITURES In the fourth quarter of 2000, the Company's management, working with the Board of Directors, finalized a plan to refocus the Company's operations on the building and managing private Internet marketplaces for trading partners. As part of this process, the Company announced its intention to divest itself of two of its operations that were not aligned with that strategy. The operations to be divested are Auction which consists primarily of GAR and the assets acquired from NCL, as well as the USL subsidiary. As of December 31, 2000, the Company's management had received approval from the Board of Directors for its plan to divest the Company of these two operations. As a result of this plan, as of December 31, 2000, the Company has written down the assets of both operations to the estimated net realizable disposal value based on the activity through December 31, 2000. Additionally, the Company has recorded an accrual for the anticipated costs to sell these two operations. As of December 31, 2000, the operations to be divested had total tangible assets of $1.7 million and total liabilities of $843,000. Additionally, prior to any write down, the Company had recorded approximately $16.1 million of unamortized intangible assets relating to the operations held for sale. The Costs of Anticipated Divestitures of $14.4 million for the year ended December 31, 2000 was made up of approximately $13.3 million of reduction in the net realizable value of the assets relating to the operations to be sold to reflect the estimated disposal value, and $1.1 million of accruals for anticipated deal costs including severance, accrued rent relating to idle facilities, as well as financial and legal advisory fees. As of December 31, 2000, the remaining accrual relating to the Costs of Anticipated Divestitures was $1.1 million. 11. STOCKHOLDERS' EQUITY: On July 26, 2000, the Company amended and restated its certificate of incorporation to increase the number of authorized shares of its common stock to 300,000,000. F-26 100 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMMON STOCK As of December 31, 2000, the Company has reserved the following shares of common stock for future issuance as follows (in thousands): Stock Option Plans.......................................... 16,243 Conversion of warrants outstanding.......................... 5,735 Employee Stock Purchase Plan................................ 573 ------ 22,551 ======
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 Preferred stock consisted of 9,000,000 shares designated as Series A preferred stock ("Series A") and 2,860,000 shares designated as Series B preferred stock ("Series B"). The Series A preferred stock was issued in exchange for 9,000,000 shares of previously issued common stock. The Series B preferred stock was issued for cash at $0.50 per share. The rights and preferences of the Series A and B preferred stock were as follows: DIVIDENDS The holders of Series A and B preferred stock were entitled to receive non-cumulative dividends at $.02 and $.04 per share, respectively, or, if greater, an amount equal to that paid on any other outstanding shares of the Company, except that the shares of a given series of preferred stock would not receive any greater dividend as a result of the Company's payment of a dividend on any such series of preferred stock. Such dividends were to be payable only when, as, and if declared by the Board of Directors. No dividends were to be payable on any common stock until dividends to Series A and Series B preferred stock were paid or declared by the Board of Directors. No such dividends were ever paid or declared. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding up of the Company, holders of Series A and B were entitled to receive (along with the liquidation preference available to Series C and Series D stockholders -- see Note 12), in preference to holders of common stock, the amount of $0.25 and $0.50 per share, respectively, plus all declared but unpaid dividends. Such amounts were to be adjusted for any stock split, stock dividends and recapitalizations. If such assets of the Company were not available to sufficiently satisfy the full preferential amount of all series of preferred stock then the entire assets and funds of the Company were to be distributed among the holders of all series of the preferred stock in accordance with the aggregate preference payment to which they were entitled. After the payment or the setting aside of the payment set forth above, the remaining assets of the corporation were to be distributed on a pro-rata basis to the holders of the preferred stock, on an as-converted basis, and the holders of common stock until the holders of the Series A, B, C and D had received an additional $0.25, $0.50, $0.77 and $1.18 per share, respectively. After the distributions to the holders of preferred stock and redeemable preferred stock had been made, the remaining assets of the corporation available for distribution to stockholders were to be distributed pro-rata among the holders of common stock. F-27 101 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) VOTING RIGHTS The holders of the Series A and Series B were entitled to a number of votes equal to a number of shares of common stock into which such preferred stock was convertible. CONVERSION Each share of Series A and Series B was convertible into one share of common stock at the option of the holder at any time after the date of issuance of such shares, and automatically converted at the consummation of the Company's sale of common stock in an underwritten public offering (the "IPO") which resulted in net cash proceeds to the Company of at least $60,000,000 and an offering price to the public of a least $7.00 per share. The conversion rate was subject to adjustment for dilution, including but not limited to, stock splits, stocks dividends and stock combinations. Upon the Company's initial public offering in January 2000, all outstanding shares of convertible preferred stock were converted into common stock. 12. MANDATORILY REDEEMABLE PREFERRED STOCK: In August 1998, the Company completed an offering of 5,064,937 shares of Series C mandatorily redeemable preferred stock ("Series C") at $0.77 per share. Total proceeds of the offering amounted to approximately $3.9 million. On February 19, 1999, the Company completed an offering of 10,196,361 shares of Series D mandatorily redeemable preferred stock ("Series D") at $1.18 per share. Total proceeds of the offering amounted to approximately $12.0 million. On October 12, 1999, the Company completed an offering of 10,658,070 shares of Series E mandatorily redeemable preferred stock ("Series E") and 2,035,563 shares of Series E-1 mandatorily redeemable preferred stock ("Series E-1") at $5.68 per share. Included in the issuance of the Series E-1 is 275,000 shares issued in connection with a strategic alliance the Company entered into in October 1999. Thus, the net cash proceeds amounted to approximately $70.5 million. In addition, the Company agreed to issue 176,057 shares of the Company's Series E at $5.68 per share in settlement of a lawsuit in exchange for cash and reimbursement of legal fees. Upon the Company's initial public offering in January 2000, all outstanding shares of mandatorily redeemable preferred stock were converted into common stock. The rights and preferences of the Series C, D, E and E-1 redeemable preferred stock were as follows: DIVIDENDS The holders of Series C, Series D, Series E and Series E-1 redeemable preferred stock were entitled to receive non-cumulative dividends at $0.062, $0.0944, $0.4544, and $0.4544 per share annum, respectively, or, if greater, an amount equal to that paid on any other outstanding shares of the Company, except that the shares of a given series of preferred stock would not receive any greater dividend as a result of the Company's payment of a dividend on any such series of preferred stock. Such dividends were to be payable only when, as, and if declared by the Board of Directors. No such dividends were ever paid or declared. If the offering price to the public of the Company's common stock in the IPO was at least $7.00 per share but less than $10.00 per share, the Company would have recorded a preferred stock dividend of up to approximately $22 million relating to the Series E and E-1 beneficial conversion rights that would have been triggered on the effective date of the Company's IPO. Because the public offering price was $10.00 per share, there was no preferred stock dividend charge. F-28 102 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding up of the Company, holders of preferred stock of Series C, Series D, Series E and Series E-1 were entitled to receive (along with the liquidation preference available to Series A and Series B stockholders -- See Note 11) in preference to the amount of $0.77, $1.18, $5.68 and $5.68 per share, respectively, plus all declared but unpaid dividends. Such amounts were to be adjusted for any stock split, stock dividends and recapitalizations. In the occurrence, or in the event the Company assets and funds were unable to sufficiently satisfy the full preferential amounts of all series of preferred stock, the Company would have distributed its entire assets and funds that were legally available among the holders of all series of preferred stock in accordance with the aggregate preference payment to which they were entitled. After the payment or the setting aside of the payment set forth above, the remaining assets and funds of the Company that were legally available were to be distributed, on a pro-rata basis, to the holders of the preferred stock, on an as-converted basis, and the holders of common stock until the holders of the series A, B, C, D, E and E-1, received an additional $0.25, $0.50, $0.77, $1.18, $5.68 and $5.68 per share, respectively. After the distributions to the holders of preferred stock and redeemable preferred stock had been made, the remaining assets of the Company available for distribution to stockholders were to be distributed pro rata solely among the holders of common stock. VOTING RIGHTS The holders of the Series C, D, E and E-1 were entitled to the number of votes equal to a number of shares of common stock into which such redeemable preferred stock was convertible. CONVERSION Each share of Series C, D, E and E-1 was convertible into one share of common stock at the option of the holder at any time after the date of issuance of such shares, and automatically converted at the consummation of the Company's sale of common stock in an underwritten public offering which resulted in net cash proceeds to the Company of at least $60,000,000 and an offering price to the public of at least $7.00 per share. The conversion rate was subject to adjustment for dilution, including, but not limited to, stock splits, stock dividends and stock combinations. MANDATORY REDEMPTION Upon the affirmative vote of the holders of the majority of the Series C, Series D, Series E and Series E-1, the Company could have been required to redeem all shares of Series C, Series D, Series E and Series E-1 outstanding as of the date of such demand, which date shall hereinafter be referred to as the "Redemption Date." The Redemption Price of the Series C, Series D, Series E and Series E-1 would have been $0.77, $1.18, $5.68 and $5.68 per share, respectively, subject to adjustment for dilution. The stockholders could not have required redemption prior to seven years after the issuance of the Series C, Series D, Series E and Series E-1. Beginning with the first year anniversary of the Redemption Date, the Company could have been required to redeem annually no more than that number of shares of Series C, Series D, Series E and Series E-1 equal to 25% of the Series C, Series D, Series E and Series E-1 outstanding as of the Redemption Date. From and after the Redemption Date, all rights of the shares designated for redemption would have ceased with respect to such shares. If the funds of the Company legally available for redemption of Series C, Series D, Series E and Series E-1 on any Redemption Date were insufficient to redeem the total number of shares of the Series C, Series D, Series E and Series E-1 to be redeemed on such date, those funds which were legally available would have been used to redeem the maximum number of such shares on a pro rata basis among the F-29 103 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) holders of Series C, Series D, Series E and Series E-1 based on each holder's share of the total redemption price. At any time thereafter when additional funds of the Company were legally available for the redemption of the shares of the Series C, Series D, Series E and Series E-1, such funds would have been immediately set aside for the Redemption Date. 13. WARRANTS: In June 1998, the Company issued a warrant to purchase 45,000 shares of Series C preferred stock at an exercise price of $0.77 per share in conjunction with a loan agreement. The fair value of the warrant at the date of issuance was determined to be approximately $7,000 and was estimated using the Black-Scholes valuation model with the following assumptions: risk-free rate of 5.6%; expected life of one year; and expected volatility of 70%. This amount is being recognized as additional interest expense over the expected life of the loan agreement. In May 1999, the Company issued a warrant to purchase 228,813 shares of Series D preferred stock at an exercise price of $1.18 per share in conjunction with a loan agreement. The warrant is exercisable immediately and expires May 12, 2006. The fair value of the warrant at the date of issuance was determined to be approximately $640,000 and was estimated using the Black-Scholes valuation model with the following assumptions: risk-free interest rate of 5.0%; expected life of one year; and expected volatility of 70%. This amount is being recognized as additional interest expense over the expected life of the loan agreement. In July 1999, the Company issued a warrant to purchase 10,000 shares of Series D at an exercise price of $1.18 per share in conjunction with a loan agreement. The fair value of the warrant at the date of issuance was determined to be approximately $40,000 and was estimated using the Black-Scholes valuation model with the following assumptions: risk-free rate of 5.3%; expected life of one year; and expected volatility of 70%. This amount is being recognized as additional interest expense over the expected life of the loan agreement. In July 1999, the Company issued a warrant to purchase 137,711 shares of Series D at $1.18 per share in connection with an equipment lease line. The warrant is exercisable immediately and expires July 7, 2006. The fair value of the warrant at the date of issuance was determined to be approximately $559,000 and was estimated using the Black-Scholes valuation model with the following assumptions: risk-free interest rate of 5.3%; expected life of one year; and expected volatility of 70%. This amount is being recognized as additional interest expense over the expected life of the lease line. In September 1999, the Company issued to a retained executive search firm a warrant to purchase 436,623 shares of the Company's common stock at an exercise price of $0.10 per share. The warrant is exercisable immediately and expires on September 9, 2009. The fair value of the warrant was determined to be approximately $2.4 million and was estimated using the Black-Scholes valuation model with the following assumptions: risk-free interest rate of 5.5%; expected life of four months; and expected volatility of 70%. This expense is included in cost of warrant issued to recruiter for the year ended December 31, 1999. 14. STOCK OPTIONS: 1997 STOCK PLAN The Company, under the 1997 Stock Plan (the "1997 Plan"), reserved approximately 14.7 million shares of common stock. The stock is reserved for the Company's employees, directors and consultants. The term of each option will be stated in the option agreement and is not to exceed 10 years after the grant date. If the optionee owns stock representing more than 10% of the Company's voting power, the term of the option will not exceed 5 years after the grant date. Option pricing shall be no less than 85% of the fair market value per share on the date of the grant. If the optionee owns stock representing more than 10% of the Company's voting power the option price shall not be F-30 104 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) less than 110% of the fair market value per share on the date of the grant. If the stock option is an incentive stock option, then the price for the stock cannot be less than 100% of the fair market value per share on the date of the grant. Any option granted shall be exercisable at such times and under such conditions as determined by the Board of Directors. However, for most options, 25% of the shares subject to the option shall vest 12 months after the vesting commencement date, and 1/48 of the shares shall vest each month thereafter. Options under the 1997 Plan are exercisable immediately, subject to repurchase rights held by the Company, which lapse over the vesting period as determined. The Company's right of repurchase will lapse at a rate determined by the Board of Directors. However, for most options the Company's right to repurchase will lapse at a rate of 25% of the shares after the first 12 months and 1/48 of the shares, per month, after the vesting commencement date. 1999 EQUITY INCENTIVE PLAN In November 1999, the board of directors approved the 1999 Equity Incentive Plan ("the 1999 Plan") to replace the 1997 Stock Plan. The Company has reserved approximately 5,000,000 shares of common stock for issuance under the 1999 Plan, and the number of shares reserved for issuance under this plan was increased to include shares of the Company's common stock reserved under the 1997 Plan that were not issued or subject to outstanding grants on the date the IPO was completed. The 1999 Plan stipulates that the amount authorized will automatically be increased each year by the number of shares required to increase the total shares available for future grants under the plan to an amount equal to 5% of the Company's total outstanding shares as of December 31 of the preceding year. Incentive stock options may only be granted to employees under the 1999 Plan, and they must be granted at an option price no less than 100% of the fair market value of the common stock on the date of grant. If the optionee owns stock representing more than 10% of the Company's outstanding voting stock, incentive stock options must be granted at an option price no less than 110% of the fair market value of the common stock on the date of grant. Nonqualified stock options may be granted to employees, officers, directors, consultants, independent contractors or advisors to the Company, and must be granted at an option price no less than 85% of the fair market value of the common stock on the date of grant. All options granted under the 1999 Plan carry a maximum term of 10 years from the date of grant, and shall be exercisable at such times and under such conditions as determined by the board of directors at the date of grant. However, for most options 1/4 of the shares subject to the option shall vest 12 months after the vesting commencement date, and 1/48 of the shares subject to the option shall vest each month thereafter. F-31 105 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Activity under the 1997 and 1999 Plans was as follows (in thousands, except per share amounts):
OUTSTANDING OPTIONS ------------------------- SHARES WEIGHTED- AVAILABLE AVERAGE FOR GRANT NUMBER EXERCISE PRICE --------- ------- -------------- BALANCE, DECEMBER 31, 1997................................ 700 300 $ 0.05 Authorized for issuance under the 1997 Plan............. 1,000 -- Granted................................................. (1,458) 1,458 $ 0.08 Exercised............................................... -- (716) $ 0.06 Canceled................................................ 30 (30) $ 0.10 ------- ------- ------ BALANCE, DECEMBER 31, 1998................................ 272 1,012 $ 0.09 Authorized for issuance under the 1997 Plan............. 12,656 -- Authorized for issuance under the 1999 Plan............. 5,000 -- Granted................................................. (8,116) 8,116 $ 1.88 Granted outside of the Plans (a)........................ -- 8,402 $ 0.93 Exercised............................................... -- (12,855) $ 0.71 Repurchased............................................. 14 (14) $ 0.20 Canceled................................................ 809 (809) $ 0.10 ------- ------- ------ BALANCE, DECEMBER 31, 1999................................ 10,635 3,852 $ 3.57 Granted................................................. (14,661) 14,661 $ 4.59 Granted outside the Plans (a)........................... -- 35 $13.00 Exercised............................................... -- (140) $ 0.80 Repurchased............................................. 820 -- $ 1.21 Canceled................................................ 3,586 (3,621) $ 6.32 ------- ------- ------ BALANCE, DECEMBER 31, 2000................................ 380 14,787 $ 4.02 ======= ======= ======
- --------------- (a) During the years ended December 31, 1999 and 2000, the Company granted options to purchase approximately 8,402,000 and 35,000 shares of common stock, respectively, to certain Company executives, directors, and consultants. Such options were issued outside of the 1997 and 1999 Plans. In April 2000, as part of the acquisition of EquipMD, the Company assumed outstanding options to purchase 1,075,501 shares of common stock at exercise prices ranging from $2.86 to $4.14. As of December 31, 2000, approximately 403,000 of the shares underlying these options were vested but none of the options had been exercised. The Company accounts for the Plans under the provisions of APB No. 25 and related interpretations. Had compensation expense for the stock option plans been determined consistent with SFAS No. 123, net losses would have amounted to the following pro forma amounts (in thousands, except per share data):
YEAR ENDED DECEMBER 31, -------------------------------- 1998 1999 2000 ------- -------- --------- Net loss as reported............................... $(4,563) $(51,020) $(208,815) Net loss pro forma................................. $(4,597) $(60,311) $(208,403) Net loss per share as reported..................... $ (1.65) $ (19.15) $ (2.49) Net loss per share pro forma....................... $ (1.66) $ (22.64) $ (2.48)
The weighted-average fair value of options granted during the years ended December 31, 1998, 1999 and 2000 was $0.07, $4.60 and $3.50, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions: risk-free interest rates F-32 106 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ranging from 4.07 to 6.81 percent; expected dividend yields of zero percent for all three periods; an average expected life of 3.5 years; and expected volatility of 0%, 0% and 70% for the years ended December 31, 1998, 1999 and 2000. The following table summarizes all stock options outstanding and exercisable as of December 31, 2000 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE REMAINING EXERCISE EXERCISE PRICE NUMBER YEARS PRICE NUMBER PRICE - --------------- ------ --------- --------- ------ --------- $0.10 to $ 0.78 2,928 9.51 $ 0.62 918 $0.26 $0.80 to $ 2.94 2,924 9.75 $ 1.96 326 $2.69 $3.00 to $ 3.00 3,465 9.53 $ 3.00 616 $3.00 $3.03 to $ 4.00 2,053 9.42 $ 3.88 554 $3.89 $4.14 to $ 7.00 3,168 9.10 $ 6.52 2,382 $6.70 $7.69 to $63.88 1,325 9.19 $12.16 725 $9.97 ------ ---- ------ ----- ----- 15,863 9.44 $ 3.96 5,521 $5.13 ====== ==== ====== ===== =====
During October 1999, the Board of Directors approved a change in the 1997 Plan providing for the exercise of options prior to an employee's vesting date. In January 2000, as part of the acquisition of Pharos, the Company assumed certain options that had been exercised in advance of their vesting. At December 31, 1999 and 2000, 9,908,501 and 956,074 shares previously issued were subject to repurchase at a weighted-average price of $0.88 and $1.20 per share, respectively. 1999 EMPLOYEE STOCK PURCHASE PLAN In November 1999, the Board of Directors approved the 1999 Employee Stock Purchase Plan (the "ESPP") which became effective on January 24, 2000. The Company has reserved 750,000 shares of common stock for issuance under the ESPP, and the terms of the ESPP stipulate that amount will automatically be increased each year by shares equal to the amount necessary such that the total shares available for issuance under the plan is equal to 1% of the total outstanding shares of common stock as of December 31 of the preceding year. Subject to certain eligibility requirements, employees may elect to withhold up to a maximum of 15% of their cash compensation for participation in the ESPP. Each offering period under the ESPP will be two years in duration and will consist of four six-month purchase periods. The first offering period commenced on January 24, 2000 at which time price quotations were available for the Company's common stock on the Nasdaq National Market with subsequent purchasing periods commencing on February 1 and August 1 of each year. The purchase price for common stock purchased under this plan will be 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or the last day of the purchase period. 15. INCOME TAXES: Effective January 1, 1998, the Company accounts for income taxes pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined using the current applicable enacted tax rate and provisions of the enacted tax law. Due to the Company's loss position, there was no provision for income taxes for the years ended December 31, 1998, 1999 and 2000. F-33 107 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At inception, the Company elected S-Corporation status. As of January 1, 1998, the Company elected C-Corporation status for Federal and state purposes. As a result, the Company is not entitled to any tax benefits associated with the period prior to C-Corporation election. At December 31, 2000, the Company had cumulative net operating loss carryforwards of approximately $153.1 and $105.7 million for Federal and state income tax purposes, respectively, expiring in various years ending through 2020, respectively. At December 31, 2000, the Company had cumulative credit carry forwards of approximately $654,000 and $1,369,000 for Federal and state income tax purposes, respectively. These credits are subject to expiration through various periods through 2020. The Tax Reform Act of 1986 contains provisions which may limit the net operating loss and credit carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership. The estimated tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets are as follows (in thousands):
DECEMBER 31, -------------------- 1999 2000 -------- -------- Temporary differences....................................... $ 3,900 $ 9,634 Net operating loss carryforwards............................ 12,926 59,943 Tax credits................................................. 558 1,544 -------- -------- 17,384 71,121 Valuation allowance......................................... (17,384) (71,121) -------- -------- $ -- $ -- ======== ========
Due to uncertainty surrounding the realization of the deferred tax attributes in future years, the Company has recorded a valuation allowance against its net deferred tax assets. The deferred tax assets at December 31, 2000 also include approximately $0.7 million related to the acquisition of Pharos (including Federal net operating losses of $1.7 million) and if realized, will be used to reduce the amount of goodwill recorded at the date of the acquisition. The provision for income taxes at the Company's effective tax rate differed from the benefit from income taxes at the statutory rate due mainly to the increase in valuation allowance and no benefit of the operating losses was recognized. The provision for income taxes differs from the expected tax benefit amount computed by applying the statutory federal income tax rate of 35% to loss before taxes is as follows: F-34 108 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, --------------------------- 1998 1999 2000 ----- ----- ----- Federal statutory rate...................................... (35.0)% (35.0)% (35.0)% State taxes, net of Federal benefit......................... (5.8) (4.4) (5.9) Change in valuation allowance............................... 43.1 28.4 25.7 Deferred compensation....................................... -- 10.2 6.7 Tax credits................................................. (2.3) 1.4 (0.3) Goodwill amortization....................................... -- -- 4.5 In process R&D.............................................. -- -- 3.5 Discontinued operations..................................... -- -- 2.8 Other....................................................... -- (0.6) (2.0) ----- ----- ----- 0.0% 0.0% 0.0% ===== ===== =====
16. RELATED PARTY TRANSACTIONS: On July 26, 2000, the Company's stockholders voted to approve the amended "Outsourcing and Operating Agreement" (the "Agreement") entered into among the Company and Novation, LLC ("Novation"), VHA Inc. ("VHA"), University HealthSystem Consortium ("UHC"), and Healthcare Purchasing Partners International LLC ("HPPI") on May 24, 2000. Under the terms of the Agreement, the Company agreed to develop and manage an e-commerce marketplace (the "Marketplace") to be used by VHA, UHC and HPPI member healthcare organizations as their primary purchasing tool for medical equipment and supplies. Novation agreed to serve as a contracting agent for the Company by recruiting, contracting and managing relationships with healthcare equipment manufacturers and service suppliers on the Company's behalf. VHA and UHC agreed to provide marketing support for the Marketplace, guarantee Novation's obligations under the Agreement and agreed to enter into certain exclusivity provisions contained in the Agreement. In consideration for the services agreed to be rendered, the Company issued warrants to VHA and UHC to purchase up to 30,845,020 shares and 7,519,436 shares, respectively, of the Company's common stock, at an exercise price of $0.01 per share. Vesting on the warrants is performance based, and is driven by historical gross purchasing levels of VHA and UHC member healthcare organizations, that enter into commerce agreements with the Company to use the Marketplace. Additionally, Neoforma issued to VHA and UHC 46,267,530 shares and 11,279,150 shares, respectively, of the Company's common stock, which are subject to certain voting restrictions. On July 26, 2000, once stockholder approval was obtained for the Agreement and the related issuance of shares, the common stock discussed above was issued to VHA and UHC. The common stock was issued in consideration for their entering into the Agreement, and the total valuation of those shares of $291.3 million was capitalized. This amount has been recorded in Capitalized Partnership Costs in the accompanying consolidated balance sheets, and will be amortized over the estimated beneficial life of five years. Due to the performance criteria on the warrants, the valuation of the warrants is not calculated until earned. During the year ended December 31, 2000, VHA and UHC earned a total of 9.6 million shares of the warrants resulting in a valuation of $38.1 million of additional consideration being capitalized on the Company's books. The valuation of warrants earned was calculated using the Black-Scholes pricing model using a risk free interest rate of 5.8%, expected dividend yield of zero, an average life equal to the remaining term of the outsourcing agreement and volatility of 70%. This amount has also been recorded in the Capitalized Partnership Costs account in the accompanying consolidated balance sheets. The portion of the charge that relates to the warrant shares earned for each healthcare organization will be amortized over the life of the commerce agreement signed between the Company and that healthcare organization (between 2 - 3 years). As of December 31, 2000, the Company has recorded amortization against these Capitalized Partnership Costs of $30.5 million. F-35 109 NEOFORMA.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On October 18, 2000, the Company entered into an agreement with VHA to replace the warrant issued to VHA to purchase up to 30,845,020 shares of its common stock with 30,845,020 shares of restricted common stock. On January 25, 2001, the Company entered into an agreement with UHC to replace the warrant issued to UHC to purchase up to 5,639,577 shares of its common stock with 5,639,577 shares of restricted common stock. In each case, the restrictions on the stock are identical to the vesting performance criteria that were in place on the warrant, and thus there will be no change in the accounting treatment relating to the restricted common stock versus the warrant. On December 31, 2000, the Company entered into a three-year software license agreement and a series of related agreements regarding maintenance, consulting and services with i2 Technologies, Inc. ("i2"). Under these agreements, the Company and i2 will collaborate on product development, marketing, sales and service activities. These agreements also provide for revenue sharing from the Company to i2 commencing immediately on services and applications sales, and commencing in 2002 on other marketplace related revenue. Additionally, the agreements contain revenue sharing provisions under which i2 will share revenue with the Company for products and services it sells in the healthcare vertical market. On January 25, 2001, the Company entered into stock purchase agreements with VHA and UHC to purchase shares of the Company's common stock. VHA and UHC acquired 11,834,320 and 3,254,438 shares, respectively, at a purchase price of $1.69 per share. Including i2, which participated in the strategic financing, acquiring 2,958,580 shares, the Company raised a total of approximately $30.5 million prior to costs associated with the sale of the shares, which are currently estimated to be approximately $1.1 million. After the closing of the financing, VHA and UHC owned approximately 48.8% and 12.1%, respectively, of the total shares of outstanding common stock assuming conversion of all outstanding common stock equivalents. Concurrent with the financing, the Company also further amended the Outsourcing and Operating Agreement (the "Amendment"), which we had originally entered into with Novation, VHA, UHC and HPPI on May 24, 2000. Under the terms of the Amendment, which was effective January 1, 2001, Novation agreed to guarantee a minimum fee level to the Company, which is directly derived from the gross transaction volume processed through the private marketplace which the Company maintains for Novation member health care organizations. The Amendment also included modifications to certain revenue sharing, supplier recruitment and supplier implementation provisions of the original agreement. 17. SUBSEQUENT EVENTS SALE OF US LIFELINE In April 2001, the Company entered into an agreement with Medical Distribution Solutions, Inc. ("MDSI") to sell substantially all the assets of USL, the Company's healthcare content subsidiary, for $1.25 million. The purchase price was made up of $500,000 of cash delivered to the Company upon the closing, and a $750,000 promissory note payable to the Company over five years. LINE OF CREDIT In April 2001, the Company entered into a $25 million revolving credit agreement with VHA. Under the credit agreement, until May 21, 2001, the Company can borrow funds up to an amount based on a specified formula dependent on the gross volume of transactions through Marketplace@Novation. Any funds borrowed under this credit agreement will bear interest at a rate of 10% per annum and will be secured by substantially all of the Company's asset. In the event that the Company (1) sells any stock as part of an equity financing, (2) obtains funding in connection with a debt financing or other lending transaction that is either unsecured or subordinate to the lien of VHA under the credit agreement or (3) enters into a debt financing or other lending transaction secured by owned assets as of the effective date of the credit agreement, then the maximum of $25 million potentially available under the credit agreement will be reduced by an amount equal to the cash proceeds received from any of these transactions. F-36 110 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR BALANCE AT BALANCE AT DOUBTFUL ACCOUNTS BEGINNING OF THE ADDITIONS CHARGED END OF DECEMBER 31, PERIOD TO EXPENSE WRITE-OFFS OTHER PERIOD - ------------------------ ---------------- ----------------- ---------- ------- ---------- 1998.................... $ -- $ -- $ -- $ -- $ -- 1999.................... $ -- $ 4,000 $ -- $ -- $ 4,000 2000.................... $ 4,000 $440,000 $(129,000) $69,000 $384,000
RESTRUCTURING AND DIVESTITURE RELATED BALANCE AT ADDITIONS BALANCE AT ACCRUALS BEGINNING OF THE CHARGED TO END OF DECEMBER 31, PERIOD EXPENSES USE OF ACCRUALS PERIOD - ------------------------ ---------------- ---------- --------------- ---------- 1998.................... $-- $ -- $ -- $ -- 1999.................... $-- $ -- $ -- $ -- 2000.................... $-- $16,546 $(15,405) $1,141
111 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 4.02 Amended and Restated Registration Rights Agreement dated June 30, 2000 4.03 Amendment No. 1 to Registration Rights Agreement dated January 25, 2001 10.17 Amendment to Co-Branding Agreement, dated as of February 6, 2001, by and between the Registrant and VerticalNet, Inc. 10.29 Amendment to Employment Agreement between Robert J. Zollars and the Registrant 10.30 Offer letter for Andrew L. Guggenhime dated January 2000 10.31 Offer letter for Steven E. Kane dated May 2000 10.32 Offer letter for Steven J. Wigginton dated December 1999 10.33 Offer letter for Charles D. Brennan dated November 1999 10.34 * Public Marketplace License Agreement dated December 31, 2000 by and between i2 Technologies, Inc. and the Registrant 10.35 * Application Service Provider Agreement dated December 31, 2000 by and between i2 Technologies, Inc. and the Registrant 10.36 * Services Agreement dated December 31, 2000 by and between i2 Technologies, Inc. and the Registrant 10.37 Common Stock Purchase Agreement dated December 31, 2000 by and between i2 Technologies, Inc. and the Registrant 21.1 Subsidiaries 23.1 Consent of Arthur Andersen LLP, independent public accountants.
- ------------------------ * Confidential treatment has been requested for portions of this agreement. EX-4.02 2 f70406ex4-02.txt EXHIBIT 4.02 1 Exhibit 4.02 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This Amended and Restated Registration Rights Agreement ("THIS AGREEMENT") is entered into as of June 30, 2000 by and between Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), the investors listed on Exhibit A (the "ORIGINAL INVESTORS"), the purchasers of shares of the Company's Series E Preferred Stock and Series E-1 Preferred Stock listed on Exhibit A as the "SERIES E INVESTORS" (the "SERIES E INVESTORS") and the recipients of shares of the Company's Common Stock listed on Exhibit B (the "NEW INVESTORS") (the Original Investors, the Series E Investors and the New Investors are referred to herein collectively as the "INVESTORS") and all shares of Common Stock held by the Investors are referred to herein as the "SHARES." A. Pursuant to the Amended and Restated Investors' Rights Agreement, dated as of February 19, 1999, by and between the Company and the Original Investors, the Original Investors were granted certain information, registration and first refusal rights (the "FIRST RIGHTS AGREEMENT"). B. The Series E Investors and the Company entered into a Preferred Stock Purchase Agreement dated October 14, 1999, pursuant to which the Series E Investors agreed to purchase the Series E and E-1 Preferred Stock, and a Second Amended and Restated Registration Rights Agreement dated October 14, 1999 providing the Original Investors and the Series E Investors certain information, registration and first refusal rights (the "SECOND RIGHTS AGREEMENT"), which amended and superseded the First Rights Agreement. C. The Company, the Original Investors, the Series E Investors and the New Investors desire to enter into this Agreement in order to amend, restate and replace their rights and obligations under the Second Rights Agreement with the rights and obligations set forth in this Agreement. Section 7.1 of the Second Rights Agreement provides that the Second Rights Agreement may be amended by the written consent of the Company, the holders of a majority of the "Registrable Securities" (as defined in Section 1.6 of the Second Rights Agreement) and the holders of a majority of the "Series E Registrable Securities" (as defined in Section 1.12 of the Second Rights Agreement), and the undersigned parties to this Agreement hold a majority of such Registrable Securities and a majority of such Series E Registrable Securities. 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" means with regard to a particular person or entity, another person or entity which controls, is controlled by or is under common control with such person or entity, including in the case of an Investor, persons and entities under common management with such Investor. 2 1.2 "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.3 "HOLDER" shall mean each Investor holding Registrable Securities or securities convertible into Registrable Securities and any person holding such securities to whom the rights under this Agreement have been transferred in accordance with Section 4.9 hereof. 1.4 "INITIATING HOLDERS" shall mean (a) any Holder or Holders who in the aggregate hold at least 75% of the Registrable Securities, (b) any Holder or Holders who in the aggregate hold at least 60% of the Series E Registrable Securities, or (c) any Holder or Holders who in the aggregate hold Novation Registrable Securities having a current market value of at least $30 million. 1.5 "PREFERRED STOCK" shall mean all previously issued and outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series E-1 Preferred Stock that were converted to Common Stock upon the Company's initial public offering. 1.6 The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. 1.7 "REGISTRABLE SECURITIES" means shares of Common Stock of the Company (i) issued or issuable upon conversion of the Preferred Stock (the "CONVERSION STOCK") and (ii) issued or issuable with respect to, or in exchange for or in replacement of the Conversion Stock or other Registrable Securities, (iii) issued or issuable with respect to, or in exchange for or in replacement of other securities convertible into or exercisable for Preferred Stock upon any stock split, stock dividend, recapitalization, or similar event, (iv) issued to the former stockholders of Pharos Technologies, Inc., (the "PHAROS INVESTORS") in connection with its acquisition by the Company, (v) issued to the former stockholders of U.S. LifeLine, Inc. (the "USL INVESTORS") in connection with its acquisition by the Company, (vi) issued to the former stockholders of EquipMD, Inc., (the "EMI INVESTORS") in connection with its acquisition by the Company, and (vii) issued to, or issuable upon exercise of warrants issued to, VHA, Inc., a Delaware corporation ("VHA") or University Healthsystem Consortium, an Illinois corporation ("UHC") in connection with the commercial agreement among Neoforma, Novation, LLC, a Delaware limited liability company ("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company, VHA and UHC (the "NOVATION REGISTRABLE SECURITIES"), excluding: (A) any shares of Common Stock that have been sold to or through a broker, dealer, market maker or underwriter in a public distribution or a public securities transaction or redeemed by the Company in accordance with its Certificate of Incorporation, (B) any shares of Common Stock of the Company (or Preferred Stock or other securities -2- 3 convertible or exercisable therefor) that have been sold in violation of this Agreement, and (C) all shares of Common Stock of the Company (or Preferred Stock or other securities convertible or exchangeable therefor) described in clause (i), (ii), (iii), (iv), (v), (vi) or (vii) of this Section 1.6 held by a Holder that can, in the opinion of counsel to the Company, be sold by such Holder in a three-month period without registration under the Securities Act pursuant to Rule 144. 1.8 "REGISTRATION EXPENSES" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 4.1, 4.2 and 4.3 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees and disbursement of one counsel to the Holders, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). 1.9 "RESTRICTED SECURITIES" shall mean Registrable Securities held by the Original Investors, the Series E Investors, the Pharos Investors and the USL Investors. For the avoidance of doubt, "Restricted Securities" does not include the Novation Registrable Securities. 1.10 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.11 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.12 "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes, if any, applicable to the securities registered by the Holders. 1.13 "SERIES E REGISTRABLE SECURITIES" means the shares of Common Stock (i) issued or issuable upon conversion of the Series E Preferred Stock or Series E-1 Preferred Stock (ii) issued or issuable with respect to, or in exchange for or in replacement of such Common Stock or (iii) issued or issuable with respect to, or in exchange for or in replacement of other securities convertible into or exercisable for such Preferred Stock upon any stock split, stock dividend, recapitalization, or similar event. 2. Transferability. 2.1 Restrictions on Transferability. The Restricted Securities shall not be sold, assigned, transferred or pledged (except those existing or proposed pledges disclosed to the Company prior to the date of this Agreement) except upon the conditions specified in this Section 2, which conditions are intended to ensure compliance with the provisions of the Securities Act. Investors proposing to transfer Restricted Securities will cause any proposed -3- 4 purchaser, assignee, transferee, or pledgee of Restricted Securities held by such Investors to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2. 2.2 Restrictive Legend. Each certificate representing (i) the Restricted Securities and (ii) any other securities issued in respect of the Restricted Securities upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 2.3 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING TRANSFERABILITY AND VOTING, AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. The Investors and Holders of Restricted Securities consent to the Company making a notation on its records and giving instructions to any transfer agent regarding the Restricted Securities in order to implement the restrictions on transfer established in this Section 2. 2.3 Notice of Proposed Transfers. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.3. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, or (ii) in transactions involving the distribution without consideration of Restricted Securities by an Investor which is a partnership to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) a transfer to an Affiliate, an affiliated fund, partnership or Company, which is not a competitor of the Company, subject to compliance with applicable securities laws, or (iv) transfers in compliance with Rule 144, so long as the Company is furnished with satisfactory evidence of compliance with such Rule), unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and shall be accompanied by either of the following, at such holder's expense: (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected -4- 5 without registration under the Securities Act, or (ii) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 2.2 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and in the reasonable opinion of the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 2.4 Removal of Restrictions on Transfer of Restricted Securities. Any legend referred to in Section 2.2 hereof stamped on a certificate evidencing (i) the Restricted Securities or (ii) any other securities issued in respect of the Restricted Securities upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event and the stock transfer instructions and record notations with respect to such security shall be removed and the Company shall issue a certificate without such legend to the holder of such security if such security is registered under the Securities Act, or if such holder provides the Company with an opinion of counsel (which may be counsel for the Company) reasonably acceptable to the Company to the effect that a public sale or transfer of such security may be made without registration under the Securities Act or (iii) such holder provides the Company with reasonable assurances, which may, at the option of the Company, include an opinion of counsel satisfactory to the Company, that such security can be sold pursuant to Section (k) of Rule 144 under the Securities Act. 3. [Intentionally Omitted]. 4. Registration Rights. 4.1 Requested Registration. (a) Requested Registration. If the Company shall receive from the Initiating Holders a written request that the Company file a registration statement for (i) at least 75% of the Registrable Securities, (ii) at least 60% of the Series E Registrable Securities, or (iii) Novation Registrable Securities having a current market value of at least $30 million, and in the case of clause (i) or (ii) the aggregate gross proceeds of which registration would equal or exceed $20,000,000 (any such notice, an "INITIATION NOTICE"), then the Company will: (A) within ten days of the receipt by the Company of the Initiation Notice, give written notice of the proposed registration, qualification or compliance to all other Holders (the notice in this Section 4.1(a)(i) and in Section 4.2(a)(i), each called the "REGISTRATION NOTICE"); and (B) use its best efforts to effect, as soon as practicable and in any event within ninety (90) days after receipt of the Initiation Notice, such registration, -5- 6 qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 20 days after receipt of the Registration Notice from the Company; Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 4.1: (1) Prior to January 24, 2001. (2) In any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; (3) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of any registration statement for the securities of the Company, and ending (except as provided below) on the date six (6) months immediately following the effective date of any registration statement pertaining to securities of the Company, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective, and, provided, further, that the standstill period in this clause (3) shall not apply to a registration regarding a transaction described in subsection (a) of Rule 145 as promulgated under the Securities Act ("RULE 145") or with respect to securities issued or issuable under an employee benefit plan or other similar plan or agreement; (4) After the Company has effected two (2) such registrations requested by holders of at least 60% of the Series E Initiating Holders, three (3) such registrations requested by holders of the Novation Registrable Securities, and two (2) additional registrations pursuant to this Section 4.1(a), and such registrations have been declared or ordered effective. The Company shall not be obligated to effect more than one such registration requested by the holders of the Novation Registrable Securities in any twelve month period. (5) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 4.1 shall be deferred for a period not to exceed ninety (90) days from the date of receipt of written request from the Initiating Holders; provided, however, that the Company shall not exercise such right more than once in any twelve (12) month period. -6- 7 (b) Underwriting. The Company shall have the right to select one or more underwriters to manage a registration under Section 4.1, subject to the approval of the holders of a majority of the Registrable Securities requesting registration, which will not be unreasonably withheld, conditioned or delayed. If the registration described in the Registration Notice is a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the Registration Notice. In such event, the right of any Holder to registration pursuant to Section 4.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. The Company will not include in any registration under Section 4.1 any securities other than Registrable Securities and securities to be registered for offering and sale on behalf of the Company without the prior written consent of the holders of a majority of the Registrable Securities requesting registration. If the managing underwriter(s) advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities in such offering, exceeds the number of Registrable Securities and other securities, if any, that can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable Securities initially requesting registration, the Company will include in such registration, prior to the inclusion of any securities that are not Registrable Securities, the number of Registrable Securities requested to be included that in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the respective holders thereof on the basis of the number of Registrable Securities that each such holder has requested the Company to include in such registration. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of such registration, or such other shorter period of time as the underwriters may require. 4.2 Company Registration. (a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration with respect to securities issued or to be issued in an employee benefit plan or other similar plan or agreement, (ii) a registration relating solely to a transaction described in Rule 145, (iii) a registration on any form which does not permit registration of securities of the Company for secondary sales or (iv) a registration pursuant to Section 4.1 hereof, the Company will: (i) promptly give to each Holder the Registration Notice; and -7- 8 (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within ten (10) days after receipt of the Registration Notice from the Company, by any Holder. (b) Underwriting. If the registration described in the Registration Notice is a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the Registration Notice. In such event, the right of any Holder to registration pursuant to Section 4.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 4.2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten and all shares of any other selling stockholders (other than Holders of Registrable Securities) have first been excluded from such registration, the managing underwriter may limit the Registrable Securities and other securities to be distributed through such underwriting; provided, however, that (i) no such reduction shall reduce the number of Registrable Securities (other than Series E Registrable Securities and Novation Registrable Securities) included in the registration below fifteen percent (15%) of the total amount of securities included in such registration ("AVAILABLE 15% SHARES"); (ii) no such reduction shall reduce the number of shares of Series E Registrable Securities included in the registration below twelve percent (12%) of the total amount of securities included in such registration ("AVAILABLE SERIES E SHARES"); and (iii) no such reduction shall reduce the number of shares of Novation Registrable Securities held by VHA and UHC, respectively, included in such registration below fifteen percent (15%) (in the case of VHA) and five percent (5%) (in the case of UHC) of the total amount of securities included in such registration in the case of the first and second such underwritten offerings after the issuance of the Novation Registrable Securities or reduce the number of shares of Novation Registrable Securities below nine and one-half percent (9.5%) (in the case of VHA) and three and one-half percent (3.5%) (in the case of UHC) of the total number of securities included in any subsequent registration ("AVAILABLE NOVATION SHARES"), provided, further that for purposes of allocating the number of Registrable Securities (other than Series E Registrable Securities and Novation Registrable Securities) that may be included in the aggregate number of Registrable Securities (other than Series E Registrable Securities and Novation Registrable Securities) constituting the Available 15% Shares, the registration and underwriting shall be allocated such that each Holder is allowed to include in the registration and underwriting the portion of the Available 15% Shares as is equal to (x) the number of Registrable Securities (other than Series E Registrable Securities and Novation Registrable Securities) which such Holder timely proposed to include in such registration divided by (y) the number of Registrable Securities (other than Series E Registrable Securities and Novation Registrable Securities) which all Holders thereof timely proposed to include in such registration; provided, further that for purposes of allocating the number of shares of Series E Registrable Securities that may be included in the aggregate number of shares of Series E Registrable Securities constituting the Available Series E Shares, the registration and underwriting shall be allocated such that each Holder is allowed to include in the registration and -8- 9 underwriting the portion of the Available Series E Shares that is equal to (x) the number of shares of Series E Registrable Securities which such Holder timely proposed to include in such registration divided by (y) the number of Series E Registrable Securities which all Holders thereof timely proposed to include in such registration; provided, further that for purposes of allocating the number of Novation Registrable Securities that may be included in the aggregate number of shares of Novation Registrable Securities constituting the Available Novation Shares, the registration and the underwriting shall be allocated such that each Holder is allowed to include the portion of Available Novation Shares that is equal to (x) the number of shares of Novation Registrable Securities which such Holder timely proposed to include in such registration divided by (y) the number of Novation Registrable Securities which all Holders thereof timely proposed to include in such registration. The Company shall so advise all Holders distributing their securities through such underwriting of such limitation and the number of Registrable Securities that may be included in the registration and underwriting shall be allocated to individual Holders timely requesting participation in such registration under Section 4.2(a), (i) so that, as nearly as practicable, the participation of each such Holder in the number of shares made available to the Holders by the underwriters is, subject to the preceding sentence, in proportion to (x) the number of Registrable Securities which such Holder timely proposed to include in such registration to (y) the number of Registrable Securities which all Holders timely proposed to include in such registration, or (ii) in such other manner as shall be agreed to by the Company and such Holders of the Registrable Securities proposed to be included in such registration; provided, however, that the number of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities subject to registration rights are first entirely excluded from such underwriting. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any Registrable Securities and/or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to one-hundred (180) days after the effective date of such registration, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 4.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 4.4 hereof. 4.3 Registration on Form S-3. (a) If the holders of at least one percent (1%) of the Registrable Securities then outstanding or any holder of Series E Registrable Securities or any holder of -9- 10 Novation Registrable Securities shall request that the Company file a registration statement on Form S-3 (or any successor form to Form S-3 or any similar short form registration statement), for a public offering of Registrable Securities, the reasonably anticipated aggregate price to the public of which would equal or exceed $1,000,000 and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering (or such successor or similar form), the Company shall use its best efforts to cause such Registrable Securities to be registered on such form for the offering and to cause such Registrable Securities to be qualified in such jurisdictions as the Holder or Holders may reasonably request; provided, however, that the Company shall not be required to effect more than one (1) registration (which has been declared effective) pursuant to this Section 4.3 in any twelve (12) month period for each of the Holders of the Registrable Securities, the Series E Registrable Securities, and the Novation Registrable Securities held by UHC, respectively, and the Company shall not be required to effect more than two (2) registrations (which have been declared effective) pursuant to this Section 4.3 in any twelve (12) month period for the Holders of the Novation Registrable Securities held by VHA. The provisions of Section 4.1(b) shall be applicable to each registration initiated under this Section 4.3. (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 4.3: (i) in any particular jurisdiction in which the Company would be required to qualify to do business or execute a general consent to service of process in effecting such registration, qualification or compliance; (ii) if the Company, within ten (10) days of the receipt of the request of the initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within ninety (90) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, or an offering with respect to securities issue are issuable under an employee benefit plan or other similar plan or agreement); (iii) during the period starting with the date ninety (90) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following, the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to securities issued or issuable with respect to an employee benefit plan or similar plan or arrangement), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iv) if the Company shall furnish to such Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for registration statements to be filed in the near future, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the request to file such registration by such Holder; provided, however, that the Company shall not exercise such right more than once in any twelve (12) month period. 4.4 Expenses of Registration. All Registration Expenses incurred in connection with all registrations pursuant to Section 4.2, in connection with all demand registrations under Section 4.1, and in connection with the first three (3) S-3 registrations under Section 4.3 by each of the Series E Registrable Securities and the Novation Registrable Securities, respectively, shall be borne by the Company. All Selling Expenses relating to -10- 11 securities registered on behalf of the Holders shall be borne by the holders of securities included in such registration pro rata with the Company and among each other on the basis of the number of shares so registered. Notwithstanding the foregoing sentence, if a registration proceeding begun pursuant to Section 4.1 or 4.3 is subsequently withdrawn by the Holders, either (a) if Holders of all of the Registrable Securities to have been registered agree, then the Holders of the Registrable Securities to have been registered shall bear all such Registration Expenses pro rata on the basis of the number of shares to have been registered, or (b) if all such Holders do not agree, then the Initiating Holders will forfeit their right to one registration pursuant to such section, and the Company shall bear such Registration Expenses. Notwithstanding the foregoing, however, if at the time of the withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Initiating Holders at the time of their request, of which the Company had received notice prior to the time of the request, then the Holders shall not be required to pay any of said Registration Expenses or to forfeit the right to one demand registration or S-3 registration, as the case may be, and the Company shall pay the same. 4.5 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 4, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the earlier time that the distribution described in the Registration Statement has been completed, provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel; (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. (d) Furnish, at the request of any Holder requesting registration of Registrable Securities on the date such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 4, (i) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to -11- 12 the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent accountants of the Company, in form and substance as is customarily given by independent accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. (e) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such U.S. jurisdiction as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therein or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (f) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. (g) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (h) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed and to be qualified for trading on each system on which similar securities issued by the Company are from time to time qualified. (i) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (j) make available for inspection by any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such underwriter, attorney, accountant or agent in connection with such registration statement; (k) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; -12- 13 (l) permit any holder of Registrable Securities that might be deemed, in the sole and exclusive judgment of such holder, to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, that in the reasonable judgment of such holder and its counsel and the Company's counsel should be included; and (m) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such registration statement for sale in any jurisdiction, the Company will use its reasonable efforts promptly to obtain the withdrawal of such order. If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company and if, in the sole and exclusive judgment of such holder, such holder is or might be deemed to be a controlling person of the Company, such holder shall have the right to require (a) the inclusion in such registration statement of language, in form and substance reasonably satisfactory to such holder, to the effect that the holding of such securities by such holder is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (b) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such holder. 4.6 Indemnification. (a) The Company will indemnify each Holder, each of its officers, directors, partners and legal counsel, and each person controlling such Holder within the meaning of Section 15 of the Securities Act and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any of the following (each a "VIOLATION"): (i) any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or -13- 14 (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any federal or state law applicable to the Company in connection with any such registration, qualification or compliance; and the Company will reimburse each such Holder, each of its officers, directors, partners, and legal counsel and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such expense claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or action arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein, and provided further, that the indemnity agreement contained in this Section 4.6(a) shall not apply to amounts paid in settlement of any such expense, claim, loss, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers, and legal counsel, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company within the meaning of Section 15 of the Securities Act, and each other Holder, each of its officers, directors, partners and legal counsel and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any Violation that is contained in written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use in such registration, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such expense, claim, loss, damage, liability or action. Notwithstanding the foregoing, the liability of each Holder under this Section 4.6(b) shall be limited in an amount equal to the net proceeds received by such Holder of Registrable Securities sold as contemplated herein, provided, however, that the indemnity agreement contained in this Section 4.6(b) shall not apply to amounts paid in settlement of any such expense loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld. (c) Each party entitled to indemnification under this Section 4.6 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the -14- 15 Indemnified Party may participate in such defense at such party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 4 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action, and provided, further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or as to which such parties assert separate and different defenses but shall bear the expense of such defense nevertheless. (d) If the indemnification provided for in this Section 4.6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any expense, loss, liability, claim, damage, or action referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such expense, loss, liability, claim, damage, or action in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such expense, loss, liability, claim, damage, or action as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge and access to information. Notwithstanding the foregoing, in no event shall the contribution by a Holder under this Section 4.6(d) exceed the net proceeds from the offering received by such Holder, unless such Holder's liability resulted from willful misconduct by such Holder and no person guilty of fraudulent misrepresentation under Section 11(f) of the Securities Act shall be entitled to contribution from a person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company and Holders under this Section 4.6 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 4, and otherwise. 4.7 Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as shall be required in connection with any registration, qualification or compliance referred to in this Section 4. 4.8 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities, and the Novation Registrable Securities, to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act. -15- 16 (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; (c) Furnish to the Investor, so long as such Investor owns any Restricted Securities or Novation Registrable Securities, forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as an Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing an Investor to sell any such securities without registration. (d) Take such actions as are necessary to enable the Holders to utilize Form S-3 pursuant to Section 4.3 for the sale of Registrable Securities. 4.9 Transfer of Registration Rights. The rights to cause the Company to register securities granted Holders under Sections 4.1, 4.2 and 4.3 may be assigned by a Holder to (i) a transferee or assignee who acquires at least (or after such transfer will hold an aggregate of) 250,000 Registrable Securities (or 215,000 shares of Series E Registrable Securities or Novation Registrable Securities), (ii) another Holder of Registrable Securities who already possesses registration rights, (iii) a transferee or assignee of Registrable Securities acquiring 10% or more of the outstanding stock of the Company, (iv) a transferee of Registrable Securities which is a subsidiary, parent, partner, limited partner, retired partner, shareholder or Affiliate of a Holder; (v) to a transferee of Registrable Securities who is a Holder's family member or which is a trust for the benefit of such Holder or (vi) in the case of Novation Registrable Securities, patrons, affiliates, members, shareholders, partners or controlled facilities of a shareholder, partner or member, of VHA or UHC; provided, however, the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. 4.10 [Intentionally Omitted] 4.11 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 4 after the earlier of (i) September 30, 2005; or (ii) the time when all Registrable Securities held by such Holder can, in the opinion of counsel to the Company, be sold by a Holder in a three-month period without registration under the Securities Act pursuant to Rule 144. 4.12 No Inconsistent Agreements. The Company will not hereafter enter into any agreement with respect to its securities that grants registration rights that are inconsistent with or violate the rights granted to the holders of Registrable Securities in this Agreement. Notwithstanding anything to the contrary herein, the Company may grant registration rights in -16- 17 connection with bank financings, lease lines, corporate partnering transactions, business acquisitions of or by the Company or to entities with which the Company has a business relationship, provided (a) such grant is not motivated primarily by equity financing needs and (b) such grant is approved by the Board of Directors (with the director appointed by the Series E Registrable Securities concurring in the case of any change to the rights that are specific to the Series E Registrable Securities, and with the director appointed from either Novation or VHA concurring in the case of any change to the rights that are specific to the Novation Registrable Securities). Persons granted registration rights pursuant to the preceding sentence may become parties to part 4 of this Agreement with the consent of the Company. 4.13 Adjustments Affecting Registrable Securities. The Company will not take ny action, or permit any change to occur, with respect to its securities for the purpose of materially and adversely affecting the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement, provided that this Section 4.13 shall not apply to actions or changes with respect to the Company's business, balance sheet, earnings or revenue or with respect to equity, debt or acquisition transactions involving the Company. 5. [Intentionally Omitted] 6. [Intentionally Omitted] 7. General Provisions. 7.1 Amendment and Waiver. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), but only with the written consent of the Company and the holders of a majority of the shares of the Registrable Securities and (i) in the case of any change to the rights granted specifically to the Holders of Series E Registrable Securities, the Holders of a majority in interest of Series E Registrable Securities; and (ii) in the case of any change to the rights granted specifically to the Holders of Novation Registrable Securities, the Holders of a majority of the Novation Registrable Securities held by VHA and a majority of the Novation Registrable Securities held by UHC; provided, however, that no amendment may adversely affect an individual Holder differently than other similarly situated Holders without the consent of such Holder, and provided, further, that no retroactive amendments may be made without the approval of all parties hereto. Any amendment or waiver effected in accordance with this Section 7.1 shall be binding upon each holder of any Registrable Securities at the time outstanding, each future holder of all such securities and the Company. 7.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware without reference to choice of law provisions thereof. In connection with any litigation under this Agreement, the parties hereto waive any right they may otherwise have to request trial by jury. -17- 18 7.3 Successors and Assigns. Except as otherwise expressly provided, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties. 7.4 Severability. In case any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be unenforceable, this Agreement shall continue in full force and effect without said provision; provided, however, that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.5 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon (a) personal delivery or (b) one business day after transmission by facsimile to the other party to be notified with confirmation of receipt or deposit with a nationally recognized overnight courier, or (c) three business days after deposit with the United States Post Office, by first class mail, postage prepaid, addressed: (i) if to the Investors, at the Investors' address as set forth on Exhibit A or Exhibit B hereto, or at such other address as the Investors shall have furnished to the Company in writing, or (ii) if to the Company, at its current address or at such other address as the Company shall have furnished to the Investors in writing. 7.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which is an original, and all of which together shall constitute one instrument. 7.7 Reorganization. The provisions of this Agreement shall apply to any shares or other securities resulting from any stock split or reverse split, stock dividend, reclassification, subdivision, consolidation or reorganization of any shares or other equity securities of the Company and to any shares or other securities of the Company or of any successor company that may be received by any of the parties hereto by virtue of their respective ownership of any shares of Common Stock of the Company. 7.8 Remedies. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically and to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement. 7.9 Further Assurances. Each party to this Agreement hereby covenants and agrees, without the necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this Agreement and to consummate the transactions contemplated hereby. -18- 19 7.10 Entire Agreement. This Agreement constitutes the entire agreement of the parties concerning the subject matter hereof and supersedes the Second Rights Agreement and the registration rights previously granted by the Company to the Pharos Investors and the USL Investors, each of which is hereby terminated as of the date of this Agreement. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] -19- 20 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. COMPANY: INVESTORS (Entity): NEOFORMA.COM, INC. ---------------------------------- (Printed Entity Name Here) By: ---------------------------------------- Frederick J. Ruegsegger By: Chief Financial Officer and Secretary ------------------------------ Name: ---------------------------- Title: ---------------------------- INVESTORS (Individual): ---------------------------------- Signature Here ---------------------------------- Printed Name Here [SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] EX-4.03 3 f70406ex4-03.txt EXHIBIT 4.03 1 Exhibit 4.03 AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT This AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT dated January 25, 2001 (this "AMENDMENT") amends that certain Registration Rights Agreement, dated as of June 30, 2000, by and among Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), and the Investors (the "PRIOR RIGHTS AGREEMENT"). The capitalized terms not otherwise defined herein have the respective meanings given to them in the Prior Rights Agreement. RECITALS WHEREAS, Section 7.1 of the Prior Rights Agreement states in part that any term or provision of the Prior Rights Agreement may be amended by a writing signed by the Company and the holders of a majority of the shares of the Registrable Securities. WHEREAS, the undersigned parties include the Company and the holders of a majority of the shares of the Registrable Securities. NOW, THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree to amend the Prior Rights Agreement as follows: 1. Amendment of Section 1.7 of the Prior Rights Agreement. Section 1.7 of the Prior Rights Agreement is amended to add (i) the shares of Common Stock issued to VHA pursuant to that certain Common Stock Purchase Agreement, dated as of January 25, 2001, by and between the Company and VHA and (ii) the shares of Common Stock issued to UHC pursuant to that certain Common Stock Purchase Agreement, dated as of January 25, 2001, by and between the Company and UHC to the definition of Registrable Securities. Section 1.7 shall read in its entirety as follows: "1.7 "REGISTRABLE SECURITIES" means shares of Common Stock of the Company (i) issued or issuable upon conversion of the Preferred Stock (the "CONVERSION STOCK") and (ii) issued or issuable with respect to, or in exchange for or in replacement of the Conversion Stock or other Registrable Securities, (iii) issued or issuable with respect to, or in exchange for or in replacement of other securities convertible into or exercisable for Preferred Stock upon any stock split, stock dividend, recapitalization, or similar event, (iv) issued to the former stockholders of Pharos Technologies, Inc., (the "PHAROS INVESTORS") in connection with its acquisition by the Company, (v) issued to the former stockholders of U.S. LifeLine, Inc. (the "USL INVESTORS") in connection with its acquisition by the Company, (vi) issued to the former stockholders of EquipMD, Inc., (the "EMI INVESTORS") in connection with its acquisition by the Company, (vii) issued to, or issuable upon exercise of warrants issued to, VHA, Inc., a Delaware corporation ("VHA") or University Healthsystem Consortium, an Illinois corporation ("UHC") in connection with the commercial agreement among Neoforma, Novation, LLC, a Delaware limited liability company ("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company, VHA and UHC, (viii) issued 2 to VHA pursuant to that certain Common Stock Purchase Agreement, dated as of January 25, 2001, by and between the Company and VHA and (ix) issued to UHC pursuant to that certain Common Stock Purchase Agreement, dated as of January 25, 2001, by and between the Company and UHC (the shares of Common Stock of the Company (or other securities convertible or exchangeable therefor) described in clauses (vii), (viii) and (ix), the "NOVATION REGISTRABLE SECURITIES"), excluding: (A) any shares of Common Stock that have been sold to or through a broker, dealer, market maker or underwriter in a public distribution or a public securities transaction or redeemed by the Company in accordance with its Certificate of Incorporation, (B) any shares of Common Stock of the Company (or Preferred Stock or other securities convertible or exercisable therefor) that have been sold in violation of this Agreement, and (C) all shares of Common Stock of the Company (or Preferred Stock or other securities convertible or exchangeable therefor) described in clause (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) or (ix) of this Section 1.7 held by a Holder that can, in the opinion of counsel to the Company, be sold by such Holder in a three-month period without registration under the Securities Act pursuant to Rule 144." 2. All Other Terms Unchanged. Except as expressly modified by this Amendment, all terms of the Prior Rights Agreement shall remain in full force and effect. 3. Governing Law. This Amendment shall be governed by and construed under the internal laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without reference to principles of conflict of laws or choice of laws. 4. Counterparts. This Amendment may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, this Amendment has been executed as of the date first above written. COMPANY: INVESTORS (Entity): NEOFORMA.COM, INC. --------------------------------- (Printed Entity Name Here) By: -------------------------------------- Andrew L. Guggenhime By: Chief Financial Officer and Secretary ------------------------------ Name: ---------------------------- Title: ---------------------------- INVESTORS (Individual): --------------------------------- Signature Here --------------------------------- Printed Name Here [SIGNATURE PAGE TO AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT] EX-10.17 4 f70406ex10-17.txt EXHIBIT 10.17 1 EXHIBIT 10.17 FIRST AMENDMENT OF CO-BRANDING AGREEMENT THIS FIRST AMENDMENT OF CO-BRANDING AGREEMENT (the "Amendment"), entered into as of February 6, 2001 ("Amendment Effective Date"), is by and between VerticalNet LLC, a Delaware limited liability company having a principal place of business at 700 Dresher Road, Suite 100, Horsham, Pennsylvania 19044 ("VerticalNet") and Neoforma.com, Inc., a Delaware corporation, having a principal place of business at 3061 Zanker Road, San Jose, CA 95134 ("Neoforma"). RECITALS A. WHEREAS, VerticalNet and Neoforma entered into a Co-Branding Agreement on or about November 19, 1999 (the "Agreement"). B. WHEREAS, pursuant to the Agreement, VerticalNet is to, inter alia, promote Neoforma Shop, Neoforma Plan and Neoforma Auction within certain of VerticalNet's vertical trade communities. C. WHEREAS, the Parties desire to amend the Agreement to change the operative commercial terms and the Term of the Agreement. THEREFORE, the Parties, intending to be legally bound, agree as follows: 1. AMENDMENT 1.1. Pursuant to Section 16.6 of the Agreement, Section 1.9 of the Agreement shall be deleted in its entirety and replaced with the following paragraph, which shall become part of the Agreement: 1.9 INITIAL TERM shall mean the Effective Date through December 31, 2000, unless earlier terminated pursuant to Section 11. 1.2 Pursuant to Section 16.6 of the Agreement, Sections 10.2 of the Agreement shall be deleted in its entirety and replaced with the following paragraph, which shall become part of the Agreement: 10.2 PROMOTIONAL FEES. In consideration of the performance by VerticalNet of its obligation to promote the Neoforma Shop, Neoforma Plan and Neoforma Auction under Section 8.2, Neoforma shall pay to VerticalNet a promotional fee equal to $750,000, payable in four equal quarterly and non-refundable installments of $187,500, with the first installment payable on the Effective Date, the second installment payable on the three month anniversary of the Effective Date, the third installment payable on the six month anniversary of the Effective Date, and the fourth and final installment payable on December 1, 2000. 1.3 Pursuant to Section 16.6 of the Agreement, Section 11.1 of the Agreement shall be deleted in its entirety. 2. OTHER OBLIGATIONS, RIGHTS, REPRESENTATIONS AND WARRANTIES 2.1 All other obligations, rights, representations and warranties set forth in the Agreement remain unchanged and in full effect. 2 2.2 Each of VerticalNet and Neoforma agree that nothing set forth herein will relieve either VerticalNet or Neoforma from those provisions of the Agreement that by the provisions of the Agreement are to survive termination of the Agreement and that each will comply with its obligations under Section 11.3 ("Upon Termination") of the Agreement. 2.3 Neither VerticalNet nor Neoforma shall publicly disclose the fact that they have entered into this Amendment, or any of the terms, conditions or provisions of this Amendment, except as may be required by any applicable law, rule or regulation. 3. GENERAL 3.1 Capitalized Terms. All capitalized terms not defined herein shall have the meaning ascribed to them in the Agreement. 3.2 Titles. The headings appearing at the beginning of the sections contained herein have been inserted for identification and reference purposes only and shall not be used to determine the construction or interpretation of this Amendment. The nomenclature of the defined terms used herein shall only be used for the construction of this Amendment, and are not to be used for any other purpose, including, but not limited to, interpretation for accounting purposes. 3.3 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. This Amendment shall become binding when any one or more counterparts hereof, individually or taken together, bear the signatures of both Parties. For the purposes hereof, a facsimile copy of this Amendment, including the signature pages hereto, shall be deemed an original. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representatives as of the dates set forth below. VERTICALNET LLC NEOFORMA.COM, INC. By: /s/ CHRISTOPHER G. KUHN By: /s/ ANDREW GUGGENHIME ----------------------------------- ----------------------------------- Name: Christopher G. Kuhn Name: Andrew Guggenhime --------------------------------- --------------------------------- Title: VP, Legal Affairs Title: Chief Financial Officer -------------------------------- -------------------------------- Date: 2/7/01 Date: 2/6/01 --------------------------------- --------------------------------- EX-10.29 5 f70406ex10-29.txt EXHIBIT 10.29 1 EXHIBIT 10.29 SECOND AMENDMENT TO NEOFORMA.COM, INC. EMPLOYMENT AGREEMENT OF ROBERT J. ZOLLARS This Second Amendment (the "AMENDMENT") to the Neoforma.com, Inc. Employment Agreement by and between Neoforma.com, Inc. and Robert J. Zollars dated July 1, 1999 (the "AGREEMENT") is made and entered into as of May ______, 2000 by and among Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), and Robert J. Zollars (the "EXECUTIVE") (collectively, the Company and the Executive, the "PARTIES"). Each capitalized term herein not otherwise defined shall have the meaning ascribed to it in the Agreement. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Parties have determined that certain provisions of the Agreement should be amended to precisely reflect the original agreement of Parties; WHEREAS, Executive shall receive continued employment with the Company as consideration from the Company to execute this Agreement; and WHEREAS, the Parties have agreed that certain provisions of the Agreement should be amended to reflect certain recent approvals and/or amended policies adopted by the board of directors of the Company: NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Insert the following provision as Section 30 of the Agreement: Parachute Payments. If any severance and other benefits provided to the Executive under this Employment Agreement, including but not limited to any provisions in any stock option or equity incentive plan of the Company or all of the Executive's unvested stock options or restricted stock awards then outstanding, would constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE"), and would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive's severance and other benefits will be payable, at the Executive's election, either in full or in such lesser amount as would result, after taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, in the Executive's receipt on an after-tax basis of the greatest amount of severance and other benefits. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. 2 COMPANY: EXECUTIVE: NEOFORMA.COM, INC. - -------------------------------------- -------------------------------------- Steven E. Kane Robert J. Zollars SVP HR, Legal and Corporate Secretary EX-10.30 6 f70406ex10-30.txt EXHIBIT 10.30 1 EXHIBIT 10.30 [NEOFORMA.COM LETTERHEAD] January 18, 2000 Andrew Gugenhime Sent via email to avoid delay Dear Andrew, On behalf of Neoforma, Inc. (the "Company"), I am pleased to offer you a position with the Company based upon the following terms: 1. Position. Upon acceptance of this offer, you will become Vice President of Corporate Development, reporting to Fred Ruegsegger, our Chief Financial Officer. You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. This offer is contingent upon your background clearing without incident. 2. Effective Date. The effective date of employment shall be: JANUARY 18, 2000 3. AT-WILL EMPLOYMENT. YOU SHOULD BE AWARE THAT YOUR EMPLOYMENT WITH THE COMPANY IS FOR NO SPECIFIED PERIOD AND CONSTITUTES "AT-WILL" EMPLOYMENT. AS A RESULT, YOU ARE FREE TO TERMINATE YOUR EMPLOYMENT AT ANY TIME, FOR ANY REASON OR FOR NO REASON. SIMILARLY, THE COMPANY IS FREE TO TERMINATE YOUR EMPLOYMENT, AT ANY TIME, FOR ANY REASON OR FOR NO REASON AND THAT THE TERMS OF YOUR EMPLOYMENT, INCLUDING BUT NOT LIMITED TO PROMOTION, DEMOTION, TRANSFER, COMPENSATION, BENEFITS, DUTIES AND LOCATION OF WORK MAY BE CHANGED AT ANY TIME, FOR ANY REASON OR FOR NO REASON IN THE EVENT OF TERMINATION OF YOUR EMPLOYMENT, YOU WILL NOT BE ENTITLED TO ANY PAYMENTS, BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY'S ESTABLISHED EMPLOYEE PLANS AND POLICIES AT THE TIME OF TERMINATION. 2 4. Compensation. The Company will pay you a salary of $200,000 per annum, which is equivalent to $8333.33 semi-monthly, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. Also, the Company will make available an annual bonus amount of 25% (a fourth of which may be paid out quarterly) which is tied to and MBOs established with your manager. 5. Vacation and Benefits. Upon the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.25 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 6. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase250,000 shares of the Company's Common Stock pursuant to the Company's 1997 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest over four (4) years with one quarter (1/4) of the shares vesting at the end of one full year following your effective date of employment with the Company and an additional one forty-eighth (1/48) of the shares will vest each full month thereafter until all of the shares are exercisable, subject to all provisions of the Plan and your continued employment with the Company. In the event of a change of control of the Corporation, one half of your unvested stock options will vest and become immediately exercisable if your employment is terminated or your responsibilities are substantially reduced without cause within one year after the change in control. 7. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 8. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 9. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not 3 assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 10. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. Offer is contingent upon securing written release from present employer, acceptable to Neoforma.com 11. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 12. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreements made and to be performed entirely within such State. 13. Severance. Notwithstanding Paragraph 3 above, if the Company terminates your employment other than for justifiable cause (as defined below), the Company shall pay to you a lump-sum amount equal to three (3) months of your annual base salary at the time of termination, less applicable withholdings. "Justifiable Cause" shall include the commission of a felony, acts of moral turpitude, your refusal to obey a lawful order of the board of directors, or the misuse of corporate funds or opportunities. We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA, INC. By: ------------------------------------- Annette Ohl, Director of Human Resources AGREED AND ACCEPTED: ------------------------------------------------------------ EX-10.31 7 f70406ex10-31.txt EXHIBIT 10.31 1 EXHIBIT 10.31 May 30, 2000 Steve Kane 1425 San Raymundo Road Hillsborough, CA 94010 Dear Steve, On behalf of Neoforma, Inc. (the "Company"), I am pleased to offer you a position with the Company based upon the following terms: 1. Position. Upon acceptance of this offer, you will become a Vice President of Human Resources, reporting to Fred Ruegsegger, our Chief Financial Officer. You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. 2. Effective Date. The effective date of employment shall be: _May 30, 2000. 3. AT-WILL EMPLOYMENT. YOU SHOULD BE AWARE THAT YOUR EMPLOYMENT WITH THE COMPANY IS FOR NO SPECIFIED PERIOD AND CONSTITUTES "AT-WILL" EMPLOYMENT. AS A RESULT, YOU ARE FREE TO TERMINATE YOUR EMPLOYMENT AT ANY TIME, FOR ANY REASON OR FOR NO REASON. SIMILARLY, THE COMPANY IS FREE TO TERMINATE YOUR EMPLOYMENT, AT ANY TIME, FOR ANY REASON OR FOR NO REASON AND THAT THE TERMS OF YOUR EMPLOYMENT, INCLUDING BUT NOT LIMITED TO PROMOTION, DEMOTION, TRANSFER, COMPENSATION, BENEFITS, DUTIES AND LOCATION OF WORK MAY BE CHANGED AT ANY TIME, FOR ANY REASON OR FOR NO REASON IN THE EVENT OF TERMINATION OF YOUR EMPLOYMENT, YOU WILL NOT BE ENTITLED TO ANY PAYMENTS, BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY'S ESTABLISHED EMPLOYEE PLANS AND POLICIES AT THE TIME OF TERMINATION. 2 4. Compensation. The Company will pay you a salary of $165,000 per annum, which is equivalent to $6,875.00 semi-monthly, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. Also, the Company will make available an annual bonus amount of 25% (a fourth of which may be paid out quarterly) which is tied to MBOs established with your manager. 5. Vacation and Benefits. Upon the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.25 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 6. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase 150,000 shares of the Company's Common Stock pursuant to the Company's 1999 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest over four (4) years with one quarter (1/4) of the shares vesting at the end of one full year following your effective date of employment with the Company and an additional one forty-eighth (1/48) of the shares will vest each full month thereafter until all of the shares are exercisable, subject to all provisions of the Plan and your continued employment with the Company. In the event of a change of control of the Corporation, one half of your unvested stock options will vest and become immediately exercisable if your employment is terminated or your responsibilities are substantially reduced without cause within one year after the change in control. 7. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 8. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 3 9. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 10. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. Offer is contingent upon securing written release from present employer, acceptable to Neoforma.com 11. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 12. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreements made and to be performed entirely within such State. 13. Severance. Notwithstanding Paragraph 3 above, if the Company terminates your employment other than for justifiable cause (as defined below), the Company shall pay to you a lump-sum amount equal to three (3) months of your annual base salary at the time of termination, less applicable withholdings. "Justifiable Cause" shall include the commission of a felony, acts of moral turpitude, your refusal to obey a lawful order of the board of directors, or the misuse of corporate funds or opportunities. We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA, INC. By: -------------------------------- Fred Ruegsegger, Chief Financial Officer AGREED AND ACCEPTED: ------------------------------------------------------------ EX-10.32 8 f70406ex10-32.txt EXHIBIT 10.32 1 EXHIBIT 10.32 December 2, 1999 Steve Wiggington Re: Offer for Employment and Agreement of Steve Wiggington Dear Steve, On behalf of Neoforma.com, Inc. (the "Company"), I am pleased to offer you a position with the Company or at the Company's option what will become its Pharos Technologies, Inc. subsidiary based upon the following terms: 1. Position. Upon acceptance of this offer, you will become the Vice President of Sales and Business Development, to Bill Cummings . You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. This offer is contingent upon the closing of the proposed transaction between the Company and Pharos Technologies, Inc. (the "Closing"). 2. Effective Date. The effective date of employment shall be the date of the Closing. 3. Compensation. The Company will pay you a salary of $140,000.00 per annum, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. The President and or the Company's board of directors may review your salary and performance at least annually. The Company shall reimburse you for all reasonable expenses which you incur in performing your duties and obligations under this Agreement consistent with Company policies in effect from time to time for its employees at your level, upon presentation of expense statements, vouchers or such other supporting documentation as the Company may reasonably require. 4. Vacation and Benefits. Upon the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.25 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 2 5. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase ________ shares of the Company's Common Stock pursuant to the Company's 1997 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest over four (4) years with one fourth (1/4) of the shares vesting at the end of twelve (12) full months following your effective date of employment with the Company and an additional one forty-eighth (1/48) of the shares will vest each full month thereafter until all of the shares are exercisable, subject to all provisions of the Plan and your continued employment with the Company. 6. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 7. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 8. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 9. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. 10. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 3 11. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreements made and to be performed entirely within such State. 12. Costs and Attorneys fees. If any action, suit, arbitration proceeding or other proceeding is instituted in connection with or arising out of this Agreement, the prevailing party shall recover all of such party's costs, including, without limitation, the court costs and attorneys fees incurred therein, including for any and all appeals or petitions therefrom. As used herein, "attorneys fees" shall mean the full and actual costs of any legal services rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services. 4 We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA.COM, INC. By: -------------------------------- Annette Ohl, Director of Human Resources AGREED AND ACCEPTED: ------------------------------------------------------------ EX-10.33 9 f70406ex10-33.txt EXHIBIT 10.33 1 EXHIBIT 10.33 November 22, 1999 Denny Brennan 59 Fayerweather Street Cambridge, MA 02138 Dear Denny, On behalf of Neoforma, Inc. (the "Company"), I am pleased to offer you a position with the Company based upon the following terms: 1. Position. Upon acceptance of this offer, you will become a VP Professional Services, reporting to BD Goel, EVP of Products and Services. You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. This offer is contingent upon your background clearing without incident. 2. Effective Date. The effective date of employment shall be: _____________. 3. AT-WILL EMPLOYMENT. YOU SHOULD BE AWARE THAT YOUR EMPLOYMENT WITH THE COMPANY IS FOR NO SPECIFIED PERIOD AND CONSTITUTES "AT-WILL" EMPLOYMENT. AS A RESULT, YOU ARE FREE TO TERMINATE YOUR EMPLOYMENT AT ANY TIME, FOR ANY REASON OR FOR NO REASON. SIMILARLY, THE COMPANY IS FREE TO TERMINATE YOUR EMPLOYMENT, AT ANY TIME, FOR ANY REASON OR FOR NO REASON AND THAT THE TERMS OF YOUR EMPLOYMENT, INCLUDING BUT NOT LIMITED TO PROMOTION, DEMOTION, TRANSFER, COMPENSATION, BENEFITS, DUTIES AND LOCATION OF WORK MAY BE CHANGED AT ANY TIME, FOR ANY REASON OR FOR NO REASON IN THE EVENT OF TERMINATION OF YOUR EMPLOYMENT, YOU WILL NOT BE ENTITLED TO ANY PAYMENTS, BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY'S ESTABLISHED EMPLOYEE PLANS AND POLICIES AT THE TIME OF TERMINATION. 2 4. Compensation. The Company will pay you a salary of $200,000 per annum, which is equivalent to $8,333.33 semi-monthly, less applicable withholdings, payable in accordance with the Company's standard payroll policies. You may also receive a annual target bonus of up to $50,000 (paid out quarterly) of your base salary based on completion of your MBO's. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. Your salary and performance may be reviewed at least annually by the President and or the Company's board of directors. Additionally, you will receive a sign-on bonus of $50,000.00 payable in two installments, half on the first pay period following employment and the final half after 90 days of employment. Should your employment with the Company terminate prior to the completion of one year of service, the sign-on bonus will be due and payable in full. 5. Vacation and Benefits. Upon the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.25 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 6. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase 200,000 shares of the Company's Common Stock pursuant to the Company's 1997 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest over four (4) years with one quarter (1/4) of the shares vesting at the end of one full year following your effective date of employment with the Company and an additional one forty-eighth (1/48) of the shares will vest each full month thereafter until all of the shares are exercisable, subject to all provisions of the Plan and your continued employment with the Company. 7. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 8. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 4 9. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 10. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. 11. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 12. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreements made and to be performed entirely within such State. We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA, INC. By: ------------------------------------- Annette Ohl, Director of Human Resources AGREED AND ACCEPTED: ------------------------------------------------------------ EX-10.34 10 f70406ex10-34.txt EXHIBIT 10.34 1 Exhibit 10.34 [i2 LOGO] CONFIDENTIAL TREATMENT REQUESTED PUBLIC MARKETPLACE LICENSE AGREEMENT Agreement # _______________________ (to be completed by i2) This Public Marketplace License Agreement (the "Agreement"), effective as of the later date of execution by the parties hereto (the "Effective Date"), is entered into by and between i2 Technologies, Inc., a Delaware corporation with an office at 11701 Luna Road, Dallas, Texas 75234 ("i2") and Neoforma.com, Inc. ("Company"), a Delaware corporation with a principal place of business at 3061 Zanker Road, San Jose, California 95134, (collectively i2 and Company shall be referred to as the "Parties," and individually as a "Party"). RECITALS WHEREAS Company is a provider of e-commerce solutions directed towards the Healthcare industry; WHEREAS Company desires a license to certain software owned by or licensed to i2; and WHEREAS in consideration for certain license fees described herein, i2 shall license certain software to Company under the terms and conditions set forth herein, The parties hereby agree as follows: 1. DEFINITIONS The following terms when used in this Agreement shall have the following meanings: 1.1. "DERIVATIVE WORK" means a work that is based upon the Licensed Software or related documentation, such as a revision, upgrade, improvement, modification, translation (including compilation or recapitulation by computer), abridgment, condensation, expansion or any other form in which the Licensed Software or the Documentation may be recast, transformed, or adapted, or that, if prepared without authorization by the owner of the Licensed Software or Documentation, would constitute an infringement of intellectual property rights. 1.2. "DOCUMENTATION" means certain user and technical manuals which i2 normally delivers with the Licensed Software. 1.3. "INTELLECTUAL PROPERTY" means any and all intellectual property rights throughout the world including, but not limited to, rights in respect of or in connection with: (1) any Confidential Information; (2) all trademarks, service marks, trade names, designs, logos, slogans and general intangibles of like nature, together with any goodwill, registrations and applications relating to the foregoing; (3) issued patents and pending patent applications; (4) copyrights (including registrations and applications for any of the foregoing); (5) inventions (whether patentable or not); (6) computer programs, including any and all software implementations of algorithms, models and methodologies whether in source code or object code form, all documentation, including user manuals and training materials, related to any of the foregoing; and (7) any other technology, know-how, processes, formulae, algorithms, models and methodologies relating thereto. 1.4. "COMPETITOR" of a Party shall mean: (1) in relation to i2: an entity whose business includes the provision of business-to-business, e-procurement or supply chain software, including, by way of example and not limitation, Oracle, SAP, CommerceOne and Ariba; and (2) 1 2 in relation to Company: an entity whose business includes the provision of business-to-business, e-procurement or supply chain marketplace services for healthcare providers and suppliers, including, by way of example and not limitation, Ventro, Medibuy, and Global Health Exchange. 1.5. "LICENSED SOFTWARE" means one copy of the Object Code version of the software as identified in Addendum A attached hereto (or any subsequent addenda for additional software products), including all new releases and versions thereof, and logical successors thereof, including without limitation such software provided as part of Maintenance. 1.6. "MAINTENANCE" means those "Platinum" level maintenance and support services to be provided to Company by i2, as specified in Addendum A attached hereto (or any subsequent addenda for additional maintenance and support services) and described in Addendum C hereto. 1.7. "MAINTENANCE PERIOD" means a one (1) year period, the first such period commencing upon initial delivery of the Licensed Software to Company, and then if Company elects to renew Maintenance each subsequent one (1) period commencing on each anniversary of that date. 1.8. "MARKETPLACE(S)" means Internet-based exchange and information marketplaces for the healthcare market owned by Company and operated by Company, alone or jointly with another entity. 1.9. "OBJECT CODE" means software in machine-readable, compiled binary form. 1.10 "SYSTEM" means collectively the Licensed Software and Documentation. 1.11 "WARRANTY PERIOD" means the first twelve (12) months following the Effective Date. 2. LICENSES 2.1. LICENSE GRANT. Subject to the terms and conditions of this Agreement, including, but not limited to, the payment provisions of Section 4, i2 hereby grants solely to Company a non-exclusive, non-transferable (subject to Section 12.4), term (subject to Section 11) license to: (i) use and copy the Licensed Software and Documentation for the Marketplaces, subject to the restrictions as set forth in this Agreement. All rights in respect of the System not expressly granted hereby are expressly reserved. Company agrees to allow i2, with reasonable prior notice, to enter Company premises during normal business hours to access the System as installed at Company's location, to verify Company's compliance with this Agreement, provided that such entry and access does not hinder Company's operations and is conducted no more than once per year. 2.2. PERSONAL LICENSE. The license granted by Section 2.1 is personal to Company for the Marketplaces and does not extend to any other entity or entities, including any entity or entities holding any equity position in Company. 2.3 LIMITED RIGHT TO USE SYSTEM. Unless specifically authorized by i2 in a separate agreement, Company shall not (i) use the System for any purpose other than Company's own business purpose for the Marketplaces; (ii) except for Marketplace access by Company's customers, allow anyone other than Company's employees, contractors and agents with a need to know having executed confidentiality agreements protecting the Confidential Information, to have physical access to the System (iii) make any copies of the Licensed Software unless granted written permission by i2, except for a reasonable number of operating copies to permit Company to perform its license rights hereunder plus such copies as may be reasonably necessary for back-up, archival and retrieval purposes only; (iv) make any Derivative Works or any other modifications, enhancements, adaptations, or translations of or to the System; or (v) rent or lease the System to any other party. Company may use and copy the System on any number of servers and CPUs, at any Company location, and for any number of Marketplaces and Marketplace users, as Company may reasonably require for operation of its Marketplaces. 2 3 2.4 REVERSE ENGINEERING AND DERIVATIVE WORKS. Except as expressly permitted in the Services Agreement between the Parties, Company shall not (and shall not allow any third party to), unless it receives written consent to do so from i2 (i) decompile, disassemble, reverse translate, decompose, or in any other manner decode or otherwise reverse engineer the System, in order to derive, or attempt to reconstruct, or discover, or for any other reason, any source code form of the System, underlying ideas, algorithms, file formats or programming or interoperability interfaces of the System by any means whatsoever, (ii) modify or incorporate into or with other software or create a Derivative Work of any part of the System, and (iii) disseminate information or analysis (including, without limitation, benchmarks) regarding the quality or performance of the System. 2.5. IRREPARABLE HARM. Any use or attempted use of the System in violation of the restrictions of this Section 2 is a material breach of this Agreement which will cause irreparable harm to i2, entitling i2 to injunctive relief in addition to all legal remedies. 2.6. THIRD PARTY SOFTWARE. Company acknowledges that the System may include software which has been provided by third parties ("Third Party Software") and the licensor of any Third Party Software embedded in the System has a proprietary interest in such software. Company hereby agrees that any Third Party Software licensed hereunder shall be used with the System and not on a stand alone basis. 2.7. DELIVERY OF SYSTEM. Promptly after the Effective Date, i2 shall deliver to Company one (1) electronic copy of the Licensed Software and Documentation. i2 shall promptly deliver to Company each update and new release and version of the Licensed Software provided to Company as part of Maintenance. 2.8. DOCUMENTATION RIGHTS. Company may reproduce the Documentation as is reasonably necessary for back-up and maintenance purposes for internal use only; provided Company re-produces all copyright and other intellectual property notices contained on or in the Documentation on each copy. 2.9. TRADEMARK LICENSE GRANT. Subject to the terms and conditions contained herein, i2 hereby grants to Company, a non-transferable, non-exclusive license to apply i2 trademarks, service marks, logos and other source identifiers specified by i2 in writing to Company as licensed under this Section 2.9 (collectively, the "Marks") in connection with the System only in a manner approved in writing by i2 prior to such application and in any event always in accordance with any i2 established trademark usage policies and procedures notified to Company. Except as expressly stated herein, Company shall not make any other use of the Marks. Upon i2's request, Company shall provide appropriate attribution of the use of the Marks (e.g., through the use of the (TM) or (R) symbols, and appropriate notice regarding reservation of rights) or immediately cease using the Marks. The license granted in this Section 2.9 shall terminate automatically upon the effective date of expiration or termination of this Agreement. All use of the Marks shall inure to the sole benefit of i2 for all purposes. i2 may terminate the license granted in this Section 2.9 and Company's obligations under Section 5.6 immediately if Company uses any Mark in a disparaging manner. 3. PROPRIETARY RIGHTS 3.1. TITLE. Except for the license rights expressly granted in this Agreement, i2 and, if applicable, its licensor, shall at all times retain full and exclusive right, title, and ownership in and to the System and all Intellectual Property contained therein, including (without limitation and subject to any contrary allocation of intellectual property rights agreed in writing between the parties) any and all Derivative Works of the System (or any part thereof), whether or not for the benefit of, or on behalf of Company. This provision shall govern the ownership rights in and to the System in all instances, including, but not limited to, the discontinuation of the business 3 4 operations of Company, the liquidation or dissolution of Company for whatever reason or the institution of voluntary or involuntary bankruptcy proceedings. 3.2. COPYRIGHT NOTICES. Company shall ensure that the proprietary, copyright, trademark and trade secret notices contained in or placed upon the System are affixed to the permitted copy in such manner and location as to give reasonable notice of the proprietary, copyright, trademark and trade secret rights of i2. 4. PAYMENT 4.1. FEES. Company shall make all payments in US dollars. Company shall pay the Initial Payment and all other fees as specified in Addendum A. All other payments shall be due within thirty (30) days after receipt by Company of an invoice or as otherwise specified within this Agreement. All costs of collection, including reasonable attorney's and expert's fees and costs of court, shall be paid by Company. 4.2. TAXES. License fees and all other amounts mentioned in this Agreement do not include any sales, property, use, value added or ad valorem taxes, or any other taxes, levies, duties or other charges based upon this Agreement, all of which shall be paid by Company. In the event i2 is required to pay such taxes, Company shall reimburse i2. Company shall withhold foreign withholding taxes only as required by relevant local country tax law. Company shall provide i2 with notice of withholding of any such tax payment. Company shall not pay for taxes on i2's net income or for sales and use taxes for which Company has provided a valid tax exemption certificate within sixty (60) days of the Effective Date. 4.3. AUDIT. No more than once during any twelve (12) month period, either Party may, upon fourteen (14) days prior written notification to the other Party, employ an independent Certified Public Accountant who is acceptable to both Parties, to audit the books and records of the other Party during normal business hours to confirm the accuracy of any payments due to a Party pursuant to this Agreement. The Certified Public Accountant shall hold all information obtained in strict confidence and shall not disclose such information to any other person or entity except the Parties without the other Party's prior written consent. The Party requesting the audit shall assume the cost of such audit, unless a discrepancy of five percent (5%) or more is discovered in favor of the Party requesting the audit, in which case the audited Party shall be responsible for the cost of the audit. 5. OTHER OBLIGATIONS OF THE PARTIES 5.1. TRAINING. i2 shall offer training to Company at the facilities of i2 as set forth in Addendum A hereto. Company may attend training at Company's expense. If Company requests i2 to deliver training at another location, Company shall reimburse i2 its out-of-pocket expenses, such as travel, lodging and meals, related to such training. 5.2. MAINTENANCE. Company may, at its option, purchase Maintenance services for the System licensed pursuant to this Agreement. i2 reserves the right to alter its standard Maintenance services policy from time to time using reasonable discretion, provided that i2 shall provide Company with written notice of any material changes to the Maintenance services at least sixty (60) days before the commencement of the Maintenance Period in which such changes will be effective. Following the first Maintenance Period, as long as i2 is offering Maintenance, Company may at Company's option renew Maintenance for successive Maintenance Periods of one (1) year each. In the event Company allows Maintenance to lapse, it may thereafter renew such Maintenance for the affected System by paying the then current annual Maintenance Fee plus an amount equal to the aggregate Maintenance Fee that would have been payable for the affected System during the period of lapse. 4 5 5.3. SOURCE CODE ESCROW. Provided Company has paid for Maintenance and is covered by the Maintenance provisions of this Agreement, i2 will escrow the source code for the Licensed Software (excluding Third Party Products) with Fort Knox Escrow Services, Inc. at i2's cost. Company shall be responsible for verification, release, and other costs, if any. The source code will be released to Company in the event i2 ceases to offer Maintenance to Company or fails in any material respect to perform its Maintenance obligations under this Agreement. Release of the escrowed source code is dependent upon written authorization of such release by both by i2 and Company or the receipt by Fort Knox of a valid court order or arbitration order. In the event Fort Knox Escrow Services Inc. terminates the Escrow Agreement, i2 will make all commercially reasonable efforts to promptly enter into an agreement with an alternative escrow agent of similar nature. The source code will be provided only for the purpose of supporting the Licensed Software. Disclosure of the source code to a third party is prohibited unless approved by i2 in writing. Such third party must be subject to a written confidentiality obligation. The use of the source code shall be subject to the terms and conditions of this Agreement. Company acknowledges that the source code for the Licensed Software is a proprietary, confidential trade secret of i2 and shall not disclose the source code for the Licensed Software for any purpose other than maintenance and support as defined in this Agreement and shall keep the source code in a secured area. Company has identified Corporate Counsel, located at 3061 Zanker Road, San Jose, California 95134, whose phone number is (408) 468 4000, and fax number is (408) 468 4045 to be the individual to be contacted by either i2 or Fort Knox with regard to escrow deposits. 5.4. PUBLICITY. Company shall permit i2 to bring in potential i2 customers to Company's site locations, upon a mutually agreed-to date and time, provided such potential customers are not direct Company competitors and provided i2 maintains confidentiality in accordance with Section 8 of this Agreement. If requested by i2, Company shall use commercially reasonable efforts to cooperate with i2. 5.5. EXPORT OF SYSTEM. Company acknowledges and agrees that the Confidential Information, the System and the other property of i2 and/or i2's suppliers, in whole and/or in part, may be subject to export controls imposed by the United States Export Administration Act of 1979, as amended, the regulations promulgated thereunder, as well as any future U.S. export control legislation (collectively the "Act") and/or other regulation by agencies of the U.S. Government or other applicable country(ies), which prohibit export or diversion of certain products and technology to certain countries (collectively, the "Export Regulations"). Company will not allow the information and other property disclosed to it, in whole or in part, to be exported or re-exported, or otherwise be distributed outside of the United States, in any manner or by any means, without in each instance complying in full with the Act and any other Export Regulations, obtaining the prior approval of i2 and, to the extent required, (a) the prior approval of the appropriate government authorities of the United States, (b) a validated export license from the Office of Export Administration within the U.S. Department of Commerce and (c) the prior approval of and/or license(s) from the appropriate governmental authorities of any and all other applicable countries. Company will comply with all applicable laws and regulations of the United States of America and any other applicable country in performing its duties under this Agreement. Notwithstanding any other provision of this Agreement to the contrary, i2 may, from time to time, in its sole reasonable discretion, by providing written notice to Company, restrict Company from exporting or re-exporting or otherwise distributing any of the information or other property provided by i2 to specific specified countries. Company will defend, hold harmless and indemnify i2, i2's suppliers and its and their officers, directors employees and/or agents, from and against 5 6 any damages resulting to such party from a breach by Company under this section to the extent caused by Company. Refer to www.bxa.doc.gov. 5.6. BRANDING. Company will prominently display the i2 brand designated by i2 on Company's "Partners" page. The logo and branding shall comply with Company's and i2's respective reasonable trademark usage guidelines and will demonstrate that Company's content is powered by i2, and will include, at a minimum, a logo and the hyperlinked tagline "Powered by i2's TradeMatrix" that links to www.i2.com or such other website or websites as i2 shall notify Company. 6. LIMITED SOFTWARE WARRANTY 6.1. LIMITED WARRANTY. i2 warrants to Company that, during the Warranty Period, the System furnished by i2 will function substantially in accordance with the Documentation. If during the Warranty Period, the System does not function substantially in accordance with the Documentation, Company shall promptly notify i2 in writing of any claimed deficiency. Provided that such deficiency exists and can be replicated by or for i2, i2 shall, within thirty (30) days, (a) correct or provide an avoidance procedure for such deficiency; or (b) provide Company with a plan acceptable to Company for correcting or providing an avoidance procedure for the deficiency. However, if i2 is unable to correct the System so that it performs substantially in accordance with the Documentation, i2 shall refund all license fees and a pro rata refund of prepaid annual Maintenance fees, whereupon this Agreement and all licenses granted hereby shall terminate. The preceding shall constitute i2's entire liability and Company's exclusive remedy for breach of the warranty set forth herein. 6.2. DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTIES PROVIDED IN THIS AGREEMENT, THE LICENSED SOFTWARE IS PROVIDED "AS IS" WITHOUT ANY WARRANTY WHATSOEVER. i2 DISCLAIMS ALL WARRANTIES, IMPLIED OR STATUTORY, AS TO ANY MATTER WHATSOEVER, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. i2 DISCLAIMS ANY WARRANTY OR REPRESENTATION TO ANY PERSON OTHER THAN COMPANY WITH RESPECT TO THE LICENSED SOFTWARE. COMPANY SHALL NOT, AND SHALL TAKE ALL MEASURES NECESSARY TO INSURE THAT ITS AGENTS AND EMPLOYEES DO NOT, MAKE OR PASS THROUGH ANY SUCH WARRANTY ON BEHALF OF i2 TO ANY THIRD PARTY. COMPANY HEREBY WAIVES ANY CLAIM THAT THE LIMITED WARRANTY SET FORTH IN THIS SECTION OR THE REMEDY FOR BREACH OF SUCH LIMITED WARRANTY FAILS OF ITS ESSENTIAL PURPOSE. 7. REPRESENTATIONS AND WARRANTIES GENERAL. Each Party hereby represents and warrants to the other that: (i) such Party has the right, corporate power and authority to enter into this Agreement and to fully perform all its obligations, including the right (including, in the case of i2, all necessary rights and licenses with respect to Third Party Software embedded in or provided with the System) to perform this Agreement and grant all licenses to the full extent and scope granted by such Party herein; (ii) the execution, delivery and performance of this Agreement by such Party requires no action by or in respect of, or filing with, any governmental body, agency, official or authority; (iii) the execution, delivery and performance of this Agreement by such Party does not and will not (a) contravene or conflict with the corporate charter or bylaws of such Party or (b) contravene or conflict with any provision of any law, regulation, judgment, injunction, order or decree binding upon such Party or (c) the execution, delivery and performance of this Agreement does not and will not violate any agreement existing between such Party and any third party. 6 7 8. CONFIDENTIALITY 8.1. GENERAL DEFINITION. "Confidential Information" shall be deemed to include all information and materials furnished by either Party which: (a) if in written format is marked as confidential, or (b) if disclosed verbally is noted as confidential at time of disclosure, or (c) in the absence of either (a) or (b) is information which a reasonable person would deem to be non-public information and confidential. i2's Confidential Information shall include, but not be limited to, the System. 8.2. EXCLUSIONS. Notwithstanding paragraph 8.1 hereof, Confidential Information shall exclude information that the receiving Party can demonstrate: (i) was independently developed by the receiving Party without any use of the disclosing Party's Confidential Information or by the receiving Party's employees or other agents (or independent contractors hired by the receiving Party) who have not been exposed to the disclosing Party's Confidential Information; (ii) becomes known to the receiving Party, without restriction, from a source other than the disclosing Party without breach of this Agreement and that had a right to disclose it; (iii) was in the public domain at the time it was disclosed or becomes in the public domain through no act or omission of the receiving Party; or (iv) was rightfully known to the receiving Party, without restriction, at the time of disclosure. 8.3. COMPELLED DISCLOSURE. If the Confidential Information of a disclosing Party must be disclosed by the receiving Party pursuant to the order or requirement of a court, administrative agency, or other governmental body, the receiving Party shall (i) provide prompt notice thereof to the disclosing Party and (ii) use commercially reasonable efforts without the payment of money to obtain a protective order or otherwise prevent public disclosure of such information. 8.4. CONFIDENTIALITY OBLIGATION. The receiving Party shall treat as confidential all of the disclosing Party's Confidential Information and shall not use or disclose or otherwise permit the disclosure of such Confidential Information except as expressly permitted under this Agreement. Without limiting the foregoing, the receiving Party shall use at least the same degree of care which it uses to prevent the disclosure of its own Confidential Information of like importance, but in no event with less than reasonable care, to prevent the disclosure of the disclosing Party's Confidential Information. 8.5. CONFIDENTIALITY OF AGREEMENT. Each Party agrees that the terms and conditions, but not the existence, of this Agreement shall be treated as the other's Confidential Information and that no reference to the terms and conditions of this Agreement or to activities pertaining thereto can be made in any form of public or commercial advertising without the prior written consent of the other Party; provided, however, that each Party may disclose the terms and conditions of this Agreement; (i) as required by any court or other governmental body; (ii) as otherwise required by law; (iii) to legal counsel of the Parties; (iv) in connection with the requirements of an initial public offering or securities filing; (v) in confidence, to accountants, banks, and financing sources and their advisors; (vi) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; or (vii) in confidence, in connection with a merger or acquisition or proposed merger or acquisition, or the like. 8.6. REMEDIES. Unauthorized use by a Party of the other Party's Confidential Information will diminish the value of such information. Therefore, if a Party breaches any of its obligations with respect to confidentiality or use of Confidential Information hereunder, the other Party shall be entitled to equitable relief to protect its interest therein, including but not limited to injunctive relief, as well as money damages. 9. LIMITATION OF LIABILITY 9.1. THE PARTIES HAVE NEGOTIATED THIS AGREEMENT WITH DUE REGARD FOR COMPANY'S BUSINESS RISK ASSOCIATED WITH ITS USE OF LICENSED SOFTWARE. IN ANY EVENT, EXCEPT FOR BREACHES OF SECTION 8 HEREOF AND/OR LIABILITY UNDER SECTION 10, EACH PARTY'S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL NOT 7 8 EXCEED [*] 9.2. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, EXCEPT FOR BREACHES OF SECTION 8 HEREOF AND/OR LIABILITY UNDER SECTION 10, NEITHER PARTY HERETO (NOR ANY LICENSOR OF THIRD PARTY SOFTWARE) SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, MULTIPLE, OR PUNITIVE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS, LOST REVENUES, LOST SAVINGS, LOST DATA OR LOST RECORDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9.3. THE FOREGOING LIMITATIONS OF LIABILITY SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH DAMAGES ARE SOUGHT, INCLUDING WITHOUT LIMITATION BREACH OF CONTRACT, NEGLIGENCE OR OTHER TORT. 10. INDEMNITY 10.1. i2 INDEMNIFICATION. i2 shall indemnify, hold harmless and defend, at its expense, Company from and against any third party claims alleging that the System, or use of the System, infringes any patent, trademark, trade secret, copyright (including moral rights) or other Intellectual Property right of a third party. The indemnity against infringement is solely in connection with the use by Company of the System for the Marketplaces as set forth in this Agreement. The indemnification obligation of this Section 10.1 shall not apply to any claim arising out of (I) the combination of the System with other products or data not claimed to be owned or developed by or on behalf of i2, or approved by i2 in writing, to the extent that the alleged infringement would have been avoided absent such combination, (II) any Derivative Work of the System prepared by anyone other than i2 or a party acting on i2's behalf, or approved by i2 in writing, to the extent that alleged infringement would have been avoided absent such modification, (III) use of the System in breach of the instructions in the Documentation, or (IV) use of other than a current release of the System if such infringement would have been avoided by use of a current release that has been made available to Company. If a third party's claims substantially interfere with Company's use of the System or if i2 believes that a third party claim may substantially interfere with Company's use of the System, i2, at its sole discretion, may (a) replace the System, without additional charge, with a functionally equivalent and non-infringing product; (b) modify the System to be functionally equivalent and avoid the infringement; (c) obtain a license for Company to continue use of the System and pay any additional fee required for such license: or (d) if none of the foregoing alternatives are commercially reasonable, i2 may terminate the license for the infringing software. In such event, Company shall de-install the infringing software and return all copies to i2. Upon return, i2 shall refund to Company a prorated portion of all license fees paid to i2 reduced on a monthly straight line three (3) year basis and a pro rata refund of prepaid Maintenance fees for the then-current annual period. This Section 10 shall constitute i2's entire liability and Company's exclusive remedy for a claim of infringement. 10.2. COMPANY INDEMNIFICATION. Company shall hold harmless and defend, at its expense, i2 from and against any third party claims alleging (i) use of the System by Company in a manner other than as authorized by this Agreement, and (ii) or arising out of or in connection with the business operations and services offered by Company to the extent that the third party claim is not directly related to the failure of the System to operate substantially in accordance with the Documentation or Specifications. 10.3. NOTICE OF INDEMNIFICATION. A Party seeking indemnification pursuant to this Section 10 (an "Indemnified Party") from or against the assertion of any claim by a third person (a "Third Person Assertion") shall give prompt notice to the Party from whom indemnification is sought (the *Confidential treatment requested. 8 9 "Indemnifying Party"); provided, however, that failure to give prompt notice shall not relieve the Indemnifying Party of any liability hereunder (except to the extent the Indemnifying Party has suffered actual material prejudice by such failure). 10.4. ASSUMPTION OF DEFENSE. Within ten (10) business days of receipt of notice from the Indemnified Party pursuant to Section 10.3 hereof, the Indemnifying Party shall have the right exercisable by written notice to the Indemnified Party, to assume the defense of a Third Person Assertion. If the Indemnifying Party assumes such defense, the Indemnifying Party may select counsel, which shall be reasonably acceptable to the Indemnified Party. 10.5. FAILURE TO DEFEND. If the Indemnifying Party (a) does not assume the defense of any Third Person Assertion in accordance with Section 10.4 hereof; or (b) having so assumed such defense, unreasonably fails to defend against such Third Person Assertion, then, upon ten (10) days' written notice to the Indemnifying Party, the Indemnified Party may assume the defense of such Third Person Assertion. In such event, the Indemnified Party shall be entitled under this Section 10 as part of its damages to indemnification for the costs of such defense. 10.6. CONFLICTS OF INTEREST. If the Indemnifying Party has been advised by the written opinion of counsel to the Indemnified Party that the use of the same counsel to represent both the Indemnified Party and the Indemnifying Party would present a conflict of interest, then the Indemnified Party may select its own counsel to represent the Indemnified Party in the defense of the matter and the costs of such defense shall be borne by the Indemnifying Party. The Indemnifying Party shall be entitled to continue to handle its own representation in such matter through its own counsel. 10.7. SETTLEMENT. The Party controlling the defense of a Third Person Assertion shall have the right to consent to the entry of judgment with respect to, or otherwise settle, such Third Person Assertion. 10.8. PARTICIPATION. The Indemnifying Party and the Indemnified Party shall cooperate, in the defense or prosecution of any Third Person Assertion. The Indemnified Party shall have the right to participate, at its own expense, in the defense or settlement of any Third Person Assertion. 10.9. EXCLUSIVE REMEDY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXCEPT FOR A CLAIM UNDER SECTION 8 HEREOF, THE FOREGOING STATES EACH PARTY'S ENTIRE LIABILITY, AND EACH OTHER PARTY'S EXCLUSIVE REMEDY FOR INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT. 11. TERM AND TERMINATION 11.1. TERM. This Agreement shall take effect on the Effective Date and shall continue in full force and effect for a period of three (3) years thereafter ("Initial Term"), unless renewed in accordance with Section 11.2 or terminated earlier in accordance with the terms of this Agreement. 11.2. RENEWAL. Company shall have the option to renew the Agreement for an additional two (2) year renewal term upon (i) written notice to i2 at least sixty (60) days before the expiration of the Initial Term and (ii) payment of an additional license fee of $[*] to be received by i2 prior to commencement of the renewal term. Company shall also have the option to renew maintenance for any such renewal term upon payment of the annual Maintenance Fee of $[*] per year. 11.3. TERMINATION. Should a Party ("Defaulting Party") materially breach its obligations under this Agreement, the other Party may notify the Defaulting Party of such breach and give the Defaulting Party no less than thirty (30) days prior written notice in which to correct the breach. Should the Defaulting Party not correct the breach within that time then the other Party shall, in its sole discretion, have the right (in addition to all other rights at law and in equity) to terminate this * Confidential treatment requested. 9 10 Agreement and the license granted to Company hereunder by sending written notice of such termination to the Defaulting Party and such termination shall be effective upon the receipt of the termination notice. Termination of this Agreement for breach by the Defaulting Party shall not relieve the Defaulting Party of any obligation incurred hereunder prior to the date of termination. This Agreement and the license grant provided herein, may be immediately terminated by a Party if (i) the other Party, through merger, acquisition, consolidation, other reorganization, becomes a controlling entity of, is controlled by, or in common control with, a Competitor of the first Party, (ii) any dissolution or liquidation proceedings of the other Party are initiated, (iii) the other Party ceases its business operations, or (iv) Company uses the System for any other purpose other than the Marketplaces, or (v) any bankruptcy, insolvency, or similar proceedings be instituted by or against the other Party, or if the other Party should make a general assignment for the benefit of creditors. Upon the expiration or termination of this Agreement, or upon the end of the Wind Down Period set forth below, Company agrees to promptly cease using the System and all Confidential Information of the other Party shall be immediately destroyed or returned to such Party. 11.4. [*]. Upon any non-renewal, expiration or termination (other than a termination by i2 in accordance with Section 10 or Section 11.3), Company may [*]. 11.5. SURVIVAL OF CERTAIN TERMS. The following provisions of this Agreement shall survive any expiration or termination hereof: 3, 4, 6, 7, 8, 9, 10 (but only with respect to events occurring prior to such expiration or termination), 11 and 12. 12. MISCELLANEOUS PROVISIONS 12.1. ENTIRE AGREEMENT. This Agreement, including the applicable Addenda attached hereto and made a part hereof, may be modified or amended only by a written instrument signed by duly authorized representatives of both Company and i2. The pre-printed terms and conditions of any purchase order, invoice or other document issued by a Party in connection with this Agreement which are in addition to or inconsistent with the terms and conditions of this Agreement shall not be binding on the other Party and shall not be deemed to modify this Agreement. No term or provision contained herein shall be deemed waived and no breach excused unless such waiver or consent shall be in writing and signed by the waiving Party. 12.2. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES. 12.3. NO LIENS. Company shall not impose or incur, and shall not permit the imposition or placement of, any liens, security interests or other encumbrances on, with respect to, or relating to the System. 12.4. BINDING UPON SUCCESSORS AND ASSIGNS. Neither Party shall assign or delegate this Agreement or any right or obligation hereunder, by operation of law or otherwise, without the prior written consent of the other Party, and any purported assignment or delegation shall be void and without force or effect. Notwithstanding the foregoing: (i) i2 may assign the receivables under this Agreement and (ii) a Party may assign this Agreement in connection with a change of control of that Party to an entity that is not a Competitor of the other Party; provided that (a) any permitted successor to the assigning Party shall be bound by each and every obligation and restriction to which the assigning Party is bound hereunder and (b) the assigning Party shall provide the other Party with prompt notice of the relevant assignment of this Agreement. For purposes of this paragraph, "change of control" shall mean the direct or indirect acquisition of either (I) the majority *Confidential treatment requested. 10 11 of the assigning Party's voting stock or (II) all or substantially all of the assets of the assigning Party to which this Agreement relates in a single transaction or a series of related transactions. 12.5. SEVERABILITY. If any provision of this Agreement is found to be invalid or unenforceable, such provision shall be severed from the Agreement and the remainder of this Agreement shall be interpreted so as best to reasonably effect the intent of the parties. 12.6. AMENDMENT AND WAIVERS. Any terms or provisions of this Agreement may be amended, and the observance of any term of this Agreement may be waived, only by a writing signed by a duly authorized representative of the Party to be bound. The failure of either Party to enforce, at any time, any of the provisions of this Agreement or the failure to require, at any time, performance by the other Party of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor shall it in any way affect the ability of either Party to enforce each and every such provision thereafter. The express waiver by either Party of any provision, condition or requirement of this Agreement shall not constitute a waiver of any future obligation to comply with such provision, condition or requirement. 12.7. NOTICES. Any notice, demand, or request with respect to this Agreement shall be in writing and shall be effective only if it is delivered by hand or overnight courier or mailed, certified or registered mail, postage prepaid, return receipt requested, addressed to the appropriate Party as set forth below. Such communications shall be effective when they are received by the addressee; but if sent by certified or registered mail in the manner set forth above, they shall be effective not later than three (3) days after being deposited in the mail. Any Party may change its address for such communications by giving notice to the other Party in conformity with this paragraph. To i2: i2 Technologies, Inc. Attn: Corporate Counsel 11701 Luna Road Dallas, Texas 75234 To Company: Neoforma.com, Inc. Attn: Corporate Counsel 3061 Zanker Road San Jose, California 95134 12.8 FEDERAL GOVERNMENT LICENSE. Company shall ensure that any contract between Company and the United States government in connection with the System or the Documentation shall include the following: The System and Documentation, shall be considered "commercial computer software," and Company shall place a notice provision, in addition to the applicable copyright notices, on the Documentation and media label, substantially similar to the following: "U.S. GOVERNMENT RESTRICTED RIGHTS. Programs, and Documentation, delivered subject to the FAR 52.227-19. All use, duplication and disclosure of the Programs and Documentation by the U.S. Government shall be subject to the applicable i2 license agreement and the restrictions contained in subsection (c) of FAR 52.227-19, Commercial Computer Software - Restricted Rights (June 1987). Owner and Licensor is i2 Technologies, Inc., 11701 Luna Road, Dallas, Texas 75234. 12.9 REMEDIES NON-EXCLUSIVE. Except as otherwise expressly provided, any remedy provided for in this Agreement is deemed cumulative with, and not exclusive of, any other remedy provided for in this Agreement or otherwise available at law or in equity. The exercise by a Party of any remedy shall not preclude the exercise by such Party of any other remedy. 11 12 12.10 INDEPENDENT CONTRACTORS. The parties are independent contractors. Nothing contained herein or done pursuant to this Agreement shall constitute either Party the agent of the other Party for any purpose or in any sense whatsoever, or constitute the parties as partners or joint ventures. 12.11 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 12.12 COUNTERPARTS. This Agreement may be executed in counterparts or duplicate originals, both of which shall be regarded as one and the same instrument, and which shall be the official and governing version in the interpretation of this Agreement. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT AND UNDERSTANDING WITH RESPECT TO THE SUBJECT MATTER HERETO, BETWEEN COMPANY AND i2 WITH RESPECT TO THE SYSTEM AND MAINTENANCE TO BE FURNISHED HEREIN. THIS AGREEMENT SUPERSEDES ALL PRIOR COMMUNICATIONS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date of the last signature below. NEOFORMA.COM, INC. i2 TECHNOLOGIES, INC. By: _____________________________ By: _____________________________ (Authorized Signature) (Authorized Signature) Printed Name:_____________________ Printed Name: ____________________ Title: ____________________________ Title: ___________________________ Date: ____________________________ Date: ___________________________ 12 13 PUBLIC MARKETPLACE LICENSE AGREEMENT ADDENDUM A LICENSED SOFTWARE Company Name: NEOFORMA.COM, INC. 3061 ZANKER ROAD SAN JOSE, CALIFORNIA 95134 ATTACHED TO AND MADE PART OF THE PUBLIC MARKETPLACE LICENSE AGREEMENT BETWEEN i2 AND COMPANY. LICENSED SOFTWARE: i2 TradeMatrix Platform with Extensions [*] MarketMaker Services [*] Collaboration [*] * Confidential treatment requested. 13 14 PUBLIC MARKETPLACE LICENSE AGREEMENT ADDENDUM A (CONTINUED) LICENSED SOFTWARE PAYMENT SCHEDULE: Licensed Software Fees: $ [*] First Year Maintenance: __ Silver _ _ Gold X Platinum Plan $ [*] ----------- Total Due $ [*] Initial Payment $ [*] Net Agreement Balance $ [*]
Company shall pay to i2 $[*] due on 12/31/2000 (including $[*] for Licensed Software Fees and $[*] for Year 1 Maintenance). Company shall pay to i2 [*] due on [*] (including $[*] for Licensed Software Fees and the remaining $[*] for Year 1 Maintenance) according to the terms set forth in the Common Stock Purchase Agreement between the parties. The total Maintenance is $[*] for the first year (in 2 equal payments as set forth above). If Company elects to renew Maintenance for Year 2 and/or Year 3 and each year of any renewal term, Company shall pay Maintenance fees in the amount of $[*] per year annually in advance. REVENUE SHARE SCHEDULE: Company will offer to its customers [*] and [*]. Company agrees to i2 a revenue share fee as set forth below. [*]. Company agrees to pay i2 a revenue share fee based on a percentage of the [*]. Such revenue share fee will commence upon the [*]. Notwithstanding the foregoing, in no event will revenue share fees be due to i2 prior to [*]. The revenue share fees for [*] are as follows:
[*]
[*]. Company agrees to pay i2 a revenue share fee based on a percentage of [*]. The revenue share fees for [*] offerings are as follows: * Confidential treatment requested. 14 15
[*]
C. [*]. Company agrees to pay i2 a revenue share fee generated by Company due to the offering by Company of [*]. The revenue share fees for [*] shall be equal to the above percentage of the greater of: [*] Company and i2 will mutually agree to the [*], excluding [*]. D. [*]. i2 agrees to pay Company a percentage of [*] revenue generated from any sale of [*] and/or [*] to a [*] in which Company and i2 have [*]. Such [*] are expressed as a percentage of [*] derived from the [*] and i2 agrees to pay Company [*] of such [*] derived from the [*] within [*] of receipt by i2 of amounts due from the customer. i2 agrees to allow Company to audit the books and records of Company as necessary to determine that such fees are being paid properly. Company and i2 will mutually agree upon a process for [*] within thirty (30) days of execution of this Agreement. Company agrees to pay i2 the revenue share fee for [*] within [*] following the end of each [*]. i2 agrees to pay Company the [*] within [*] following the end of each [*]. TRAINING FEES Standard Training Fees represent one student spending one day in an i2 standard training class in an i2 training center. Private Training Fees represent one student spending one day in a private i2 training class offered to a single customer only and do not include instructor's travel, set up or living expenses. Customization Fees are charged for 5 person-days of customization effort. Customization is a required feature of private classes. Tuition for all classes must be remitted to i2 in advance in order for students to have a confirmed seat, and can be paid by Company check or credit card.
Standard Training Fee per Private Fee per Location person per day person per day Customization Fee - -------- -------------------------- ---------------- ----------------- US & Canada [*] [*] [*] Latin America [*] [*] [*] Asia/Pacific [*] [*] [*] Japan [*] [*] [*] Europe [*] [*] [*] South Africa [*] [*] [*]
Company shall pay the above standard training fees subject to [*]. * Confidential treatment requested. 15 16 i2 shall provide training [*]. INSTRUCTIONS FOR PAYMENTS:
FOR WIRE TRANSFERS - US FOR WIRE TRANSFERS - NON-US LOCKBOX ADDRESS: DENOMINATED ONLY: DENOMINATED ONLY: - --------------------------------------------------------------------------------------------------------- i2 Technologies, Inc. i2 Technologies, Inc. i2 Technologies, Inc. P. O. Box 910371 Account # 32407006380 Account # 4311262398 Dallas, Texas 75391-0371 Chase Bank Texas Wells Fargo Bank Dallas, Texas 75201 Dallas, Texas 75202 FOR COURIER OR FED-EX DELIVERY TO ABA# 113000609 ABA # 121000248 LOCKBOX: SWIFT Code TCBKUS44 i2 Technologies, Inc. Lockbox # 910371 c/o Chase Bank Texas 717 N. Harwood Street, 6th Floor Dallas, Texas 75201-6507
Licensed Software is FOB shipping point. NEOFORMA.COM, INC. i2 TECHNOLOGIES, INC. By: _____________________________ By: _____________________________ (Authorized Signature) (Authorized Signature) Printed Name:_____________________ Printed Name: ____________________ Title: ____________________________ Title: ___________________________ Date: ____________________________ Date: ___________________________ * Confidential treatment requested. 16 17 PUBLIC MARKETPLACE LICENSE AGREEMENT ADDENDUM B ADDITIONAL TERMS: SALES & MARKETING Company Name: NEOFORMA.COM, INC. 3061 ZANKER ROAD SAN JOSE, CALIFORNIA 95134 ATTACHED TO AND MADE PART OF THE PUBLIC MARKETPLACE LICENSE AGREEMENT BETWEEN i2 AND COMPANY. A. i2 PROVIDED RESOURCES. i2 agrees to provide the following sales and marketing resources to Company [*]: 1. [*]. i2 will provide a minimum of [*] dedicated to [*]. Additionally, i2 agrees to provide [*] 2. [*]. i2 will provide [*] that will be responsible for [*] 3. [*]. i2 and Company will [*] Company and i2 will agree upon the [*] 4. [*]. i2 will make available to Company [*] B. MARKETING AND BRANDING. 1. Company and i2 will [*] within sixty (60) days of execution of this Agreement. Such [*] will include, but not be limited to, [*] i2 and Company may agree to additional joint promotional activities, such as trade shows, advertising or other public relations efforts. i2 agrees to [*] 2. The Parties shall each establish a main marketing and sales point of contact between the Parties. 3. i2 and Company shall use its commercially reasonable efforts to execute upon its obligations agreed to by the Parties in the [*]. Company and i2 agree to [*]. 4. i2 and Company agree to issue a mutually acceptable press release regarding this Agreement as soon as practicable following the execution of this Agreement. * Confidential treatment requested. 17 18 C. [*]. Within thirty (30) days of execution of this Agreement, Company and i2 will mutually agree upon appropriate [*] their respective salespeople. D. [*]. Within thirty (30) days of execution of this Agreement, Company and i2 will mutually agree upon appropriate [*]. To the degree that there is a dispute on [*] between the parties, i2 and Neoforma will each appoint one individual to resolve the dispute. If the dispute is not resolved it will be escalated to the executive sponsors of both parties for resolution. NEOFORMA.COM, INC. i2 TECHNOLOGIES, INC. By: _____________________________ By: _____________________________ (Authorized Signature) (Authorized Signature) Printed Name:_____________________ Printed Name: ____________________ Title: ____________________________ Title: ___________________________ Date: ____________________________ Date: ___________________________ * Confidential treatment requested. 18 19 PUBLIC MARKETPLACE LICENSE AGREEMENT ADDENDUM C Company Name: NEOFORMA.COM, INC. 3061 ZANKER ROAD SAN JOSE, CALIFORNIA 95134 ATTACHED TO AND MADE PART OF THE PUBLIC MARKETPLACE LICENSE AGREEMENT BETWEEN i2 AND COMPANY. i2 MAINTENANCE i2PLATINUM i2Platinum is our most comprehensive customer support program, providing a proactive approach to problem prevention and resolution to customers that cannot afford downtime in their mission critical business applications. i2Platinum is designed to ensure maximum productivity in the business environment by promoting world class reliability through proven best practices, dedicated ownership and round the clock support. The i2Platinum program offers all of the features within i2Gold and i2Silver, and includes the following additional benefits: Support coverage 24 hours a day, 7 days a week Advanced solution acceptance planning Access to i2's eSupport for unlimited number of Customer Contacts Yearly on-site reviews Dedicated Support Consultant Assigned Customer Success Manager Parallel environment hosting Accelerated response and resolution Guaranteed 15 minute worldwide emergency response PROGRAM DETAILS SUPPORT COVERAGE The coverage that is available to customers varies with the support program. i2Silver customers are covered 8 hours a day 5 days a week whereas i2Gold customers have the added benefit of an On Call service that is available round the clock to address fatal production issues. i2Platinum customers are entitled to 24 hours a day 7 days a week of support coverage. All issues reported to support are tracked and maintained on a central database that is accessible through eSupport. Once an issue is reported a support consultant will be assigned to the issue in accordance with the severity of the problem being encountered. Appendix - 1 is a guide to resolution expectations. SOFTWARE AND DOCUMENTATION UPGRADES i2 provides customers with free ongoing software and documentation upgrades for all the products that a customer has licensed as long as the customer maintains a valid and current maintenance agreement. All supported upgrades will include documentation and i2 will ship one set of hard copy documentation per customer when available. Additional copies of hard copy documentation can be provided at an additional cost that is negotiated when the initial license contract is signed or at the time the request. First time shipments are automatically shipped once the license agreement is approved, consequent shipments must be requested by the Designated Customer contact and are approved by i2s legal department before shipping. 19 20 eSUPPORT i2's eSupport provides customers round the clock access to customer support through real time issue monitoring, on-line case submissions, solution research capabilities, documentation downloads and a host of other features. To request access to eSupport, log on to http://www.support.i2.com. i2 restricts eSupport access to the 2 or 6 Designated Customer contacts for i2Silver and i2Gold respectively. RHYTHM USER GROUP The RHYTHM User Group (RUG) is a nonprofit organization of i2 customers and partners (third party vendors and consulting companies) who share the goal of partnering with i2 to improve the value delivery of RHYTHM solutions. RUG creates forums in the form of meetings, conferences and discussion groups to provide feedback that influences product/solution direction within i2. RUG members enjoy such privileges as online enhancement voting, preview to future enhancements and access to discussion groups. i2 sponsors all customers to a one-year introductory membership to RUG. For more information on RUG log on to http://www.i2-rug.org LIVECHECK AND LIVECHECKPLUS i2's unique LiveCheck service evaluates the operation readiness and conducts a formal transition of customers going live with the RHYTHM solution. i2Gold and i2Platinum programs include LiveCheckPlus, which augments LiveCheck with an on-site readiness. LiveCheckPlus also involves a proactive role by the Assigned Support Consultant in preparing for the go-live phase during which he/she participates in implementation/solution reviews and the evaluation and execution of implementation test plans. On-site audits are conducted on a mutually agreed to, as needed, basis and i2Gold and i2Platinum customers are entitled to a pre-determined number of free consulting hours that is based on the nature of the implementation and the details of the contract between i2 and the customer. PROACTIVE NOTIFICATION SERVICE i2 proactively broadcasts important notifications to customers by e-mail. Notifications are tailored to the customer based on the RHYTHM solutions that have been licensed. To receive these notifications, customers must register their Designated Customer Contacts on eSupport. SOLUTION ACCEPTANCE PLANNING AND ADVANCED SOLUTION ACCEPTANCE PLANNING A successful rollout of the RHYTHM solution involves careful planning for the acceptance process. Through the implementation phase, i2 Customer Support will share its extensive experience and proven i2 best practices including the RHYTHM Implementation Test Plan (RITP) methodology, to put you on course to a successful ownership of your solution. i2Platinum customers receive additional guidance and training through customized on-site workshops and acceptance test development sessions conducted by a dedicated Customer Solution Management team. On-site sessions are conducted on a mutually agreed to, as needed, basis and i2Platinum customers are entitled to a pre-determined number of free consulting hours that is based on the nature of the implementation and the details of the contract between i2 and the customer. MONTHLY STATUS SUMMARY i2Gold and i2Platinum customers will receive a monthly summary of their cases from the Support Consultant assigned to them. The summary will include case statistics, status updates and feedback on how we can continue to work together to further improve the response and resolution times of issues. ASSIGNED VS DEDICATED SUPPORT CONSULTANT i2Gold and i2Platinum customers are entitled to an Assigned Support Consultant for each product/solution. The Assigned Support Consultant will be identified prior to the go-live phaseand will work as a single point of contact to coordinate all issues reported by the customer. A Support 20 21 Consultant may be assigned to more than one customer, and will prioritize the resolution of issues reported by his/her customer based on severity. i2Platinum customers have the privilege of having a Support Consultant dedicated to their needs. The primary responsibility of a Support Consultant dedicated to a customer is to resolve the issues of his/her customer irrespective of other issues in his/her work queue. The Dedicated Support Consultant is the first level of escalation for any customer issues. MISSION CRITICAL ACCESS In a mission critical environment, rapid resolution to fatal or critical issues may depend on the ability of the Support Consultant to have immediate access to the customer environment. In the case of i2Gold and i2Platinum customers, i2, with the cooperation of the customer, will establish remote access to the customer's development, QA or test environment. i2 will bear the cost of software and hardware required for this access at its end, provided the customer bears similar costs at their end in addition to the cost of maintaining the access. PRIORITY CASE HANDLING Throughout the life cycle of a support issue, issues reported by i2Gold and i2Platinum customers are treated with higher priority than issues reported by i2Silver customers, given that the severity of the cases are identical. SOLUTION ENHANCEMENT SUPPORT i2 is committed to the continuous improvement of its RHYTHM solutions to help customers generate even greater value with each software upgrade. i2Gold and i2Platinum customers will benefit from the experience of their Assigned/Dedicated Support Consultant who will provide modeling support to continuously enhance and upgrade their RHYTHM solution to utilize new features and functionality. i2Gold and i2Platinum customers are entitled to a pre-determined amount of free modeling support that is based on the nature of the implementation and the details of the contract between i2 and the customer. EARLY AVAILABILITY PROGRAM ELIGIBILITY i2Gold and i2Platinum customers are eligible to apply for the Early Availability Program. The Early Availability Program provides the customer with the opportunity to test a software release in their own environment prior to the general customer release. The customer can ensure that the software meets their requirements and that it functions correctly in their environment. The Early Availability Program enables customers to identify and report problems with the software during the product development cycle. Acceptance into the Early Availability Program is at i2's discretion. FIRST LEVEL SUPPORT FOR THIRD PARTY PRODUCTS i2Gold and i2Platinum customers that wish to work through i2 for all their application support needs that encompass their solution can now make a choice to do so. i2 will work with customers to investigate the possibility of providing first level support to additional Third Party Products that work with or are related to i2 solutions. YEARLY ON-SITE REVIEWS Every year, an i2Platinum customer is entitled to a comprehensive on-site review. This review includes solution model and process reviews, discussions on the business value of available solution enhancements and requirements gathering for future solution enhancements. On-site reviews are conducted on a mutually agreed to, as needed, basis and i2Platinum customers are entitled to a pre-determined number of free consulting hours that is based on the nature of the implementation and the details of the contract between i2 and the customer. ASSIGNED CUSTOMER SUCCESS MANAGER i2Platinum customers are entitled to an Assigned Customer Success Manager identified prior to the go-live phase who is responsible for providing short, medium, and long-term suggestions for 21 22 the continued effective use of i2 software. The Assigned Customer Success Manager also plays the role of a Program Manager who is dedicated to ensuring complete customer satisfaction and is a single point of contact for all second level escalations from the Dedicated Support Consultant. PARALLEL ENVIRONMENT HOSTING i2 will host the environment of i2Platinum customers to proactively verify the impact of software upgrades and to quickly replicate issues that are particular to the customer environment. i2 will support the upgrade and maintenance but the customer will have to bear all cost associated with hardware, operating systems, third party products, middle-ware and setup of the environment. ACCELERATED RESPONSE AND RESOLUTION i2Platinum customers are entitled to accelerated response and resolution to their issues compared to similar issues reported by i2Silver and i2Gold customers. This combined with priority case handling ensures that i2Platinum customers are placed on the high velocity track to success with their RHYTHM solution. Appendix - 1 is a guide to resolution expectations. GUARANTEED 15 MINUTE WORLDWIDE EMERGENCY RESPONSE i2Platinum customers that encounter a fatal production issue are guaranteed a 15-minute response irrespective of where in the world the emergency occurs. 22 23 APPENDIX 1 : RESPONSE TIMES The response levels in the tables below are defined as follows : FIRST LEVEL Verbal acknowledgement of receipt of problem report and identification of individual assigned to resolve problem SECOND LEVEL Patch, fix or acceptable workaround provided FINAL LEVEL Official correction, update or new release including documentation Note: i2's ability to resolve customer issues will depend, in some cases, on the ability of the Designated Customer Contacts to provide accurate and detailed information, and to conduct diagnostic and test activities that will aid the i2 Support Consultant handling the issue to replicate/reproduce the issue. i2 insists that all Designated Customer Contacts be trained in the use of RHYTHM solutions and are be prepared to devote time and resources to working with i2 support to resolve issues. ACCELERATED RESPONSE AND RESOLUTION - i2PLATINUM
SEVERITY CODE FIRST LEVEL SECOND LEVEL FINAL LEVEL SERVICE LEVEL GOAL ------------- ----------- ------------ ----------- ------------------ NOW < 1 hour 24 hours Within 30 days 99.9% (Severity 1) HIGH < 2 hours 48 hours Within 30 days 99% (Severity 2) MEDIUM < 24 hours 30 days Within 30 days 99% (Severity 3) LOW < 24 hours 60 days To be agreed upon 99% (Severity 4)
NEOFORMA.COM, INC. i2 TECHNOLOGIES, INC. By: _____________________________ By: _____________________________ (Authorized Signature) (Authorized Signature) Printed Name:_____________________ Printed Name: ____________________ Title: ____________________________ Title: ___________________________ Date: ____________________________ Date: ___________________________ EX-10.35 11 f70406ex10-35.txt EXHIBIT 10.35 1 Confidential Exhibit 10.35 [i2 LOGO] CONFIDENTIAL TREATMENT REQUESTED APPLICATION SERVICE PROVIDER AGREEMENT i2 AGREEMENT # ______________ This Agreement ("Agreement") is entered into as of December 29, 2000 ("Effective Date") by and between i2 Technologies, Inc. with a principal place of business at 11701 Luna Road, Dallas, Texas 75234 and Neoforma.com, Inc. with a principal place of business at 3061 Zanker Road, San Jose, California 95134 ("ASP"). SUMMARY ASP owns, and operates a web-based service and is presently considering the possibility of offering certain third party software applications to customers within the Market via the World Wide Web. i2 owns and licenses certain software solutions (as customized, upgraded, modified and enhanced from time to time by i2) described on Schedule A and any successive software product schedule thereafter (the "Covered Application"). This Agreement provides the terms and conditions under which ASP may elect to offer and provide each Covered Application as one of the third party software applications made available to End Users by ASP through the Application Service within the Market. In consideration of the mutual covenants set forth in this Agreement, ASP and i2 agree as follows: 1. DEFINITIONS. In this Agreement, the following terms are deemed to mean: "Application" a software program, content data, or other solution made available as part of the Application Service. "Application Service" the ASP owned and operated web-based services, features, and functionality that ASP makes available to End Users. The Application Service includes all hardware, software, web pages, links, third-party Applications and other content, including User Interfaces, used to maintain and deliver such services, features and functionality. In general, the Application Service allows End Users the opportunity to subscribe to Applications and makes related services and functionality available to End Users by providing a menu of choices from which they can select Applications and services. "Documentation" means certain user and technical manuals for each Covered Application which i2 normally delivers with the Covered Applications. "End User" an online business that subscribes to the Application Service. "Market" means the healthcare market. "Other Material" means certain training, marketing and other materials that i2 may, from time to time, make available to ASP for distribution to potential customers and End Users. "Standard Terms of Use" the terms of use generally applicable to End Users that subscribe to the Application Service, as posted at the User Interface. A copy of the Standard Terms of Use in effect as of the date hereof is attached at Exhibit A. "User Interface" a collection of Web pages and their associated content and functionality through which End Users access the functionality of the Application Service. 2. LICENSE GRANT. 2.1 ASP may elect within one (1) year after the Effective Date to offer each Covered Application as part of any Application Service that it may offer to the Market. Each party's rights and obligations under this Agreement are conditional upon and subject to ASP notifying i2 within one (1) year after the Effective Date that it wishes to exercise this option. Subject to the terms and conditions of this Agreement and for the License Term (as defined in Section 15.1), i2 hereby appoints ASP as a non-exclusive, worldwide distributor of the Covered Application within the Market and grants to ASP the following non-transferable, non-assignable rights (except as otherwise set forth herein). These rights may not be sublicensed except as expressly permitted in this Section 2. 2.2 ASP may reproduce, exactly as provided by i2, object code copies of the Covered Application and or portions thereof solely to exercise the rights granted in this Section 2. ASP may not de-compile, reverse engineer or otherwise attempt to ascertain the source code to the Covered Application. 2.3 ASP may distribute and sublicense to End Users the right to use the Covered Application or portions thereof solely on a limited- term license basis and only in accordance with the terms of the Standard Terms of Use, (as defined further herein) and subject to the restrictions in Section 8. 2.4 ASP may use the Covered Application for the sole purposes of operating the Covered Application on ASP's computer hardware and operating system(s) to (i) test and evaluate the Covered Application, (ii) train ASP's personnel in the marketing and sales of the Covered Application, (iii) demonstrate and promote the Covered Application to potential End Users, and (iv) provide First-Line Support and Second-Line Support to End Users by using the Covered Application in a test environment to (1) diagnose reported problems or performance deficiencies of the Covered Application, and (2) resolve such problems or deficiencies. Notwithstanding the foregoing, ASP may not use the Covered Application (a) internally in a production capacity to 1 2 Confidential run any of its business operations including the sales and customer service activities associated with its End Users, or (b) for general application development purposes. 2.5 ASP may distribute to End Users who are part and party to duly executed Standard Terms of Use, any Documentation or Other Material as follows: (i) copies of such Documentation and Other Material purchased directly from i2, subject to the payment of fees set forth in Section 9.2, and (ii) copies of Documentation and Other Material made by ASP from any masters provided by i2 in its discretion, subject to the payment of fees set forth in Section 9. 2.6 ASP and i2 shall each appoint a channel manager to manage the relationship described in this Agreement and to assist in addressing issues that may arise hereunder. 3. STANDARD TERMS OF USE. ASP shall require any End User to whom it makes available the Covered Application, as a condition to such availability, to either sign or "click to accept" Standard Terms of Use that are substantially the same as the Standard Terms of Use attached at Exhibit A. i2 shall be a third party beneficiary of the Standard Terms of Use as they relate to the Covered Application. Each Standard Terms of Use shall specify the maximum number of Users permitted to use the Covered Application. ASP shall use commercially reasonable efforts, consistent with standard industry practices, to ensure that End Users do not exceed the maximum number of Users set forth in the Standard Terms of Use. 4. INTEGRATION OF THE COVERED APPLICATION INTO THE APPLICATION SERVICE. 4.1 COOPERATION. The parties shall cooperate in integrating the Covered Application into the Application Service and making the Covered Application one of the Applications to which End Users may subscribe through the Application Service. ASP shall make such modifications to the Application Service. 5. ASP OBLIGATIONS 5.1 ASP'S APPLICATION SERVICE. ASP understands and agrees that during the License Term, ASP shall distribute and sublicense the Covered Application to End Users only in conjunction, and concurrently with an Application Service and not on a standalone basis. Further, ASP may offer the Covered Application as one of several third party applications that it makes available to End Users through the Application Service. The Covered Application will receive placement within the User Interface that is comparable to that of other third party applications that are included in the Application Service. 5.2 COVERED APPLICATION HOSTING. The Covered Application will reside on ASP's servers, and ASP shall be solely responsible for hosting the Covered Application and maintaining the Covered Application's connection to the Internet. ASP may lease its servers and obtain hosting services for the Covered Application from an authorized hosting provider of i2 (as defined in Exhibit D). ASP shall maintain sufficient system capacity to support the use of the Covered Application with no persistent and substantially problematic degradation in performance by all End Users that subscribe to the Covered Application through the Application Service. 5.3 FEATURES AND FUNCTIONALITY. ASP shall host the Covered Application so that End Users that subscribe to the Covered Application through the Application Service have access to the same features and functionality as are available to end-users of the Covered Application generally. 5.4 UPGRADES AND ENHANCEMENTS. If i2 provides to ASP, upgrades or enhancements to the Covered Application, ASP shall make such upgrades and enhancements available to End Users that subscribe to the Covered Application through the Application Service within ten (10) days of the time as they are made available to ASP. 5.5 ASP'S PRICING OF THE APPLICATION SERVICE. ASP shall be free to determine all pricing for the Application Service. 5.6 INSTALLATION AND TRAINING SERVICES. ASP shall be responsible for conducting all activities required to install the Covered Application at its End Users locations, training such End Users, and any system integrators involved in such installation. At ASP's request, i2 shall provide to ASP the Documentation and Other Materials at i2's list prices in effect as of the date such Documentation and Other Materials are ordered. 5.7 MAINTENANCE AND SUPPORT SERVICES. In no event shall i2 be responsible to provide maintenance or support to any End User. Subject to ASP's payment of the applicable Maintenance Fees i2 shall provide Maintenance and Support to ASP at the level set forth in Schedule A in accordance with the standards and specifications set out in the Public Marketplace License Agreement between the parties. It shall be the responsibility of ASP to operate and maintain the Covered Application, and provide service and support with respect thereto, in a professional and workmanlike manner, consistent with accepted practices for similar services in the United States e-commerce industry. ASP shall provide such Maintenance and Support Services to all of its End Users of Covered Application. ASP shall take such steps as are necessary to provide for the security of all customer data stored on ASP's servers or otherwise obtained through the operation of the Covered Application in accordance with standard industry practice in the United States e-commerce industry. ASP shall be responsible for all support related to the Application Service. 5.8 i2 CERTIFICATION OF ASP TECHNICAL SUPPORT STAFF. ASP shall hire and maintain sufficient technical support personnel as are needed to support the Covered Application and achieve the End User satisfaction levels required under Section 5.10. ASP shall hire and maintain at all times during the term of this Agreement, sufficient technical support engineers who have successfully completed the requisite i2 training for all Covered Application. ASP will be responsible for all training fees and costs associated with obtaining i2's requisite training. ASP's support staff must be fluent in English. 5.9 ASP MAINTENANCE REPORTING REQUIREMENTS. ASP will maintain proper records of Standard Terms of Uses including Maintenance and Support Services provided to End Users. i2 may audit any such records to verify ASP's performance of its support obligations. On a monthly basis, ASP will provide i2 a report containing the following new customer information: (i) End 2 3 Confidential User legal name, (ii) End User hardware and software configurations, (iii) End User contact information; name, physical address, telephone number, and email address, and (iv) term of End User's Maintenance and Support Services as set forth in the Standard Terms of Use. Within thirty (30) days of the end of each quarter, ASP shall provide i2 a report in a form specified by i2 showing in detail (i) the number of support calls received during such quarterly period with the associated severity level, (ii) the overall average response time by severity level for such support calls, (iii) the overall average resolution time by severity level for such support calls; and (iv) other information reasonably requested by i2. 5.10 END USER SATISFACTION REQUIREMENT. i2 may, at its discretion, survey End Users to determine the level of End User satisfaction with the Maintenance and Support Services and other services provided by ASP. If the results of the survey indicate a level of dissatisfaction with ASP's End Users then (i) i2 will notify ASP and provide copies of the survey responses, and (ii) the parties will work together to determine the cause of the dissatisfaction, and if the parties determine that it is caused by ASP's default, then they shall develop an improvement plan to improve End User satisfaction. Should ASP fail to improve the level of End User satisfaction for the then current calendar quarter and the dissatisfaction is caused by ASP's default i2 shall notify ASP of that failure, and if ASP again fails to improve the level of End User satisfaction for the next calendar quarter and the dissatisfaction is caused by ASP's default, then i2 may elect to immediately terminate ASP's right to continue to provide Maintenance and Support Services to its End Users. In the event of such termination, the parties agree to implement a Maintenance and Support Services transition plan for End Users to whom ASP is contractually obligated to provide Maintenance and Support Services under which plan i2 will receive any fees (prepaid to ASP or to be paid to ASP) for Maintenance and Support Services commencing with i2's provision of Maintenance and Support services. 5.11 ASP WARRANTIES. ASP represents and warrants that: (a) ASP will maintain the facilities, resources and experienced personnel necessary to fulfill its obligations under this Agreement; (b) ASP is not precluded by any existing arrangement, contractual or otherwise, from entering into this Agreement and performing hereunder; (c) ASP will make no representations or warranties related to the Covered Application in excess of i2's representations or warranties contained in Section 13 of this Agreement; (d) ASP has not relied on any promises or representations other than those expressly made in writing herein. (e) If ASP becomes aware of any actual or suspected unauthorized use, copying or disclosure of the Covered Application, ASP will promptly notify i2 and will assist i2, at i2's expense and request, in the investigation and prosecution of such unauthorized use, copying or disclosure; and (f) ASP has the full right, power and authority to enter into this Agreement and to carry out its obligations hereunder, and there are no impediments known to ASP that would prevent ASP compliance with all the terms of this Agreement. (g) ASP shall not use or distribute the Covered Application through the Application Service in order to post, transmit, distribute, store or destroy any information: (i) in violation of any applicable law, statute, ordinance or regulation (including, without limitation, those governing export control, consumer protection, unfair competition, antidiscrimination or false advertising); (ii) in a manner other than as provided for by this Agreement or the documentation accompanying the Covered Application; (iii) that is defamatory, trade libelous, obscene, threatening, abusive or hateful; (iv) that contains any viruses, Trojan horses, worms, time bombs, cancel bots, or other computer programming routines that are intended to damage, detrimentally interfere with, surreptitiously intercept or expropriate any system, data or personal information; or (v) that includes any incomplete, false, inaccurate, or misleading information or information which is not provided by i2. (h) ASP shall not violate or attempt to violate the security of the Covered Application. In furtherance of but not in limitation of the foregoing, ASP shall not (i) access data not intended for the ASP or log into a server or account which ASP is not authorized to access; (ii) send unsolicited e-mail, including promotions and/or advertising of products or services to End-Users of the Covered Application; (iii) delete or revise any included in the Covered Application, as applicable, by any other person or entity except in accordance with this Agreement and the Standard Terms of Use. 5.12 i2 WARRANTIES. i2 represents and warrants that: (a) i2 will maintain the facilities, resources and experienced personnel necessary to fulfill its obligations under this Agreement; (b) i2 is not precluded by any existing arrangement, contractual or otherwise, from entering into this Agreement and performing hereunder; (c) i2 has not relied on any promises or representations other than those expressly made in writing herein. (d) i2 has the full right, power and authority to enter into this Agreement and to carry out its obligations hereunder, and there are no impediments known to i2 that would prevent i2 compliance with all the terms of this Agreement. (e) the Covered Application as delivered by i2 and used in accordance with this Agreement shall not violate any applicable law, statute, ordinance or regulation (including, without limitation, those governing export control, consumer protection, unfair competition, antidiscrimination or false advertising). 5.13 ASP INDEMNITY. ASP will defend i2 against any third party claim, and shall pay any and pay all costs, damages and expenses (including reasonable legal fees) awarded against i2 by a court of competent jurisdiction or agreed to in a written settlement agreement signed by ASP arising out of such claim resulting from (a) the use of the Covered Application by any End User, but only claims which arise directly from or relate directly to breaches of ASP's obligations under this Agreement or its agreement with such End User; or (b) any negligent act or omission or willful misconduct of ASP or its agents in the operation of the Application Service provided that: (i) i2 promptly notifies ASP in writing after i2's receipt of notification of the potential claim; (ii) ASP may assume sole control of the defense 3 4 Confidential of such claim and all related settlement negotiations; and (iii) i2 provides ASP, at ASP's request and expense, with the assistance, information and authority necessary to perform ASP's obligations under this Section. 5.14 MARKETING AND SALES EFFORTS. ASP shall use all reasonable efforts to promote and market the Covered Application to End Users and potential End Users in order to maximize the licensing and distribution of the Covered Application to End Users. 6. i2 RIGHTS AND OBLIGATIONS. 6.1 i2 CONSULTING SERVICES. i2 may provide consulting services to ASP, subject to availability, as agreed to from time to time by the parties, at i2's then current hourly or daily consulting fees. ASP shall also pay i2's reasonable and actual out-of-pocket expenses associated with i2's delivery of consulting services. 6.2 END USER VISITS. i2 may visit ASP's End Users from time to time upon reasonable advance notice to ASP and with End User's approval, to stay abreast of customer requirements and to evaluate features for potential future products. ASP agrees to provide i2 reasonable assistance in arranging such visits with End Users. 7. DELIVERY. 7.1 COVERED APPLICATION AND UPDATES. Within thirty (30) days of notice from ASP under Section 2.1 that it wishes to offer the Covered Application as part of the Application Service, i2 shall deliver to ASP master copies on diskette or CD-ROM of the Covered Application. i2 will promptly provide ASP with master copies on diskette or CD-ROM of any Updates i2 makes available to its general client base, and ASP agrees that it will incorporate such Updates into the Covered Application which it provide to new End Users as promptly as possible, and in no event more than ten (10) days after ASP's receipt of each such Update. 7.2 MARKETING MATERIAL. From time to time during the License Term, i2 will, upon request and subject to availability, provide ASP a reasonable number of copies of any available Other Materials for distribution to potential customers. 8. RESTRICTIONS. 8.1 LICENSE RESTRICTIONS. ASP acknowledges that, except as explicitly stated in this Agreement, the Agreement does not grant ASP any right or license to use the Covered Application or any proprietary rights therein, and no license or other rights shall be created by implication. In particular, but without limiting the generality of the foregoing, no right or license in or to source code for the Covered Application is granted hereunder. ASP covenants that it shall not (i) sublicense or otherwise permit access or use of the Covered Application on a commercial time-sharing or service bureau basis; (ii) allow or otherwise permit access or use of the Covered Application on a commercial time-sharing, lease, rental, or service bureau basis; (iii) relicense, redistribute, transfer or otherwise allow a customer, ASP or any party to use or access the Covered Application after it has been perpetually licensed to a End User, or (iv) allow an End User to reassign or otherwise transfer the Covered Application to a third party; provided, however, that that End User may assign the Covered Application (and the Standard Terms of Use) in connection with a merger, acquisition or sale of all or substantially all of its assets unless the surviving entity is a direct competitor of i2 and provided such End User is in good standing under its License Agreement and maintenance agreement. ASP further warrants that it shall not sell the Covered Application, or nor shall it reproduce, display, publicly perform, distribute, or otherwise use the Covered Application or any content of the Covered Application except as part of the Application Service in accordance with this Agreement. ASP covenants that it shall not prepare, and it shall not permit any others to prepare, any derivative works of the Covered Application, or otherwise modify or alter any materials received from i2. ASP covenants that it shall not use, reproduce, distribute or sell the Covered Application in any manner or for any purpose except as specifically permitted under this Agreement. 8.2 PROHIBITION ON DECOMPILING. ASP acknowledges that the Covered Application contains the valuable information of i2 and its licensors, and ASP agrees not to cause or permit the modification, reverse engineering, translation, disassembly, or decompilation of, or otherwise to attempt to derive the source code of the Covered Application or , whether in whole or in part 8.3 PROPRIETARY NOTICES. In order to protect i2's and its licensors' copyright and other ownership interests in the Covered Application, ASP agrees that as a condition of its rights hereunder, each copy of the Covered Application reproduced by or on behalf of ASP shall contain the same proprietary notices which appear on the media or within the code of the Covered Application, or on or within the Documentation and Other Material delivered by i2 to ASP. ASP will not remove, alter or obscure any proprietary notices from any Documentation or Other Material provided by i2. 9. PAYMENTS. 9.1 UPFRONT LICENSE FEE AND MAINTENANCE FEE. Customer shall pay the Upfront License Fee and Maintenance Fee as set forth in Schedule A. 9.2 [*] REVENUE SHARES. For each [*], ASP shall pay to i2 a [*] fee equal to [*] (net of any applicable taxes) received [*] by ASP [*] as part of the [*] but in no event shall the [*] fee equal less than [*] of the market price agreed between the parties for the [*] ("[*] Revenue Share"). i2 and ASP shall each be free to determine unilaterally [*] (including without limitation the products described in this Agreement. 9.3 DOCUMENTATION AND OTHER APPLICABLE MATERIALS. For each copy of Documentation or Other Material provided to ASP by i2, ASP shall pay i2's list prices in effect as of the date such Documentation or Other Material are ordered. 9.4 PAYMENT TERMS. [*] Revenue Shares are payable within thirty (30) days of the end of each calendar month in which the associated revenues were received by ASP, accompanied by the report set forth in Section 9.7. Except as * Confidential treatment requested. 4 5 Confidential otherwise provided in this Agreement, all fees or other charges shall be payable thirty (30) days from receipt of the applicable invoice. 9.5 REPORTS AND PAYMENTS. Within ten (10) business days of the completion of each End User transaction, ASP shall submit to i2 for each transaction a copy of the Standard Terms of Use, order form or other ordering instrument applicable to the particular transaction. Such documentation shall show in detail (i) the number of copies of Covered Application reproduced, distributed, deployed or otherwise used by such End User during the previous month, (ii) the amount owing i2 including the ASP [*] Revenue Shares and ASP Maintenance Fees, and (iii) the names and locations of the End Users. i2 may request ASP to provide, quarterly, non-binding forecasts for [*] and maintenance fees to be paid to i2 for the ensuing quarter. 9.6 RECORDS AND INSPECTION RIGHTS. ASP will keep and maintain proper records and books of account relating to its distribution and sublicensing of Covered Application to End Users. i2 retains the right to inspect and audit any such records to verify ASP's compliance with its payment obligations hereunder. In the event that i2 wishes to inspect such books and records, ASP will make all relevant records available. Any such inspection will be conducted during regular business hours, upon reasonable advanced notice, at ASP's offices in a manner that does not unreasonably interfere with ASP's business activities. Such inspection shall be at i2's cost and expense, unless the inspection reveals that ASP has underpaid the amounts actually owed to i2 by five percent (5%) or more, in which case ASP shall pay such audit costs and expenses. Audits will be conducted no more than once in any twelve (12) month period. ASP shall use reasonable commercial efforts to compel its End Users to permit ASP and/or i2 to inspect the records of such End User as provided in this Section to assure such End Users compliance with the terms and conditions of the Standard Terms of Use. 9.7 TAXES. The specified amounts listed in this Agreement do not include taxes, duties or fees; if i2 is required by the tax authorities to pay (i) sales, use, property, value-added, or other taxes, (ii) any customs or other duties, or (iii) any import, warehouse or other fees associated with the importation or delivery of the Covered Application, Documentation, or Other Material or based on the rights and licenses granted by i2 to ASP in this Agreement or on ASP's use of Covered Application, Documentation or Other Material or any services provided by i2 to ASP hereunder, then such taxes, duties or fees shall be billed to and paid by ASP. This Section shall not apply to taxes based on i2's net income. 10. TRADEMARK LICENSE. 10.1 GRANT OF LICENSE. i2 hereby grants to ASP under the terms set forth in this Section 10, a non-exclusive license to use its trademarks and trade names as set forth herein solely in connection with the marketing, distribution and support of the Covered Application and only in the manner prescribed in this Agreement. ASP agrees that it will use the appropriate Trademarks to refer to the Covered Application in connection with its marketing, distribution and support of the Covered Application. ASP agrees that the Covered Application and any related services will be marketed under the i2 brand name/Trademarks and Trade names set forth on Schedule A. Any other proposed use of the Trademarks must be approved in writing by i2 in advance of such use. 10.2 FORM OF USE. ASP shall only use the Trademarks or Trade Names in the form(s) approved in writing by i2, including the (TM) symbol (and, upon registration of any registered trademark, the (R) symbol), and an indication that i2 is the owner of the Trademarks. ASP shall submit to i2 samples of advertising or other items bearing the Trademarks or Trade Names prior to the use of such advertising or other items. i2 shall have the right to make reasonable objections to any such sample. In the event of such an objection, ASP shall modify the advertising or other items in accordance with the objection of i2 prior to the use of such advertising or other items. 10.3 NO USE OF IDENTICAL OR SIMILAR NAMES. ASP shall not use as its company name or a component thereof or on other products a mark or name identical with or confusingly similar to the i2 Covered Application names, i2's Trademarks, or i2's Trade Names. 10.4 NOTIFICATION OF ADVERSE USE. ASP shall promptly notify i2 of any adverse use by a third party of any of the Trademarks, Trade Names, or of a mark or name confusingly similar to any of the i2 Trademarks or Trade Names and agrees to take no action of any kind with respect thereto except with the prior written authorization of i2. ASP further agrees to provide full cooperation, at i2's cost and expense, with any legal or equitable action by i2 to protect its rights, title and interest in the Trademarks and Trade Names. 10.5 INFRINGEMENT PROCEEDINGS. In the event of infringement of the Trademarks or Trade Names by a third party, i2 shall have the sole right to bring proceedings (including notifications to the Customs Department objecting to the importation of infringing goods) against the infringing party and to retain any damages recovered in such proceedings. ASP shall cooperate, at i2's cost and expense, with i2 in the prosecution of any such infringement proceedings. ASP shall promptly notify i2 in writing of any such proceeding and shall provide complete authority, information and assistance to i2 in connection with such proceeding. i2 shall have the sole and exclusive authority and obligation to defend and/or settle any proceeding with respect to the Trademarks or Trade Names. 11. OWNERSHIP, PROPRIETARY RIGHTS, AND CONFIDENTIALITY. 11.1 i2 PROPRIETARY RIGHTS. i2 and its suppliers shall retain all ownership, title, copyright, and other proprietary rights in and to the Covered Application and all content, features and functionalities of the Covered Application. i2 shall have sole control of the content, features and functionality of the Covered Application. ASP does not acquire any rights, express or implied, in the Covered Application, other than those specified in this Agreement. 11.2. OWNERSHIP. As between ASP and i2, each party shall be the sole and exclusive owner of its inventions, software, technology, expertise, know-how, works, materials, trademarks, trade names, service marks or other intellectual property *Confidential treatment requested. 5 6 Confidential (whether or not patented, copyrighted, registered or covered by any application for patent, copyright or registration). ASP's intellectual property and Confidential Information shall in any event include the Application Service and all features, functionality and Applications (other than the Covered Application) included in the Application Service, any templates made available by ASP, and any works based on or derived from and of the foregoing. i2's intellectual property and Confidential Information shall include all features and functionality of the Covered Application. Neither party shall assert ownership of or any claim to or any interest in any intellectual property of the other or any goodwill associated therewith, except for any licenses or rights expressly granted in this Agreement while they endure. At no time shall either party attack, challenge or file any application with respect to any intellectual property of the other party. 11.3 CONFIDENTIALITY. 11.3.1 By virtue of this Agreement, each party (the "Disclosing Party") may disclose Confidential Information to the other party (the "Receiving Party"). Except as expressly provided in this Agreement, each party shall hold the other party's Confidential Information in confidence and not disclose or use it except to the extent reasonably necessary to perform its obligations or exercise its rights under this Agreement, and to administer and operate Covered Application as part of the Application Service. Each party agrees to take reasonable steps using at least the same degree of care that it uses to protect its own Confidential Information, but no less than reasonable care, to protect the other party's Confidential Information to ensure that it is not disclosed or used in violation of this Agreement. Each party may disclose Confidential information of the other party to its employees, contractors, attorneys and accountants who need to know such information in order to perform their duties and to potential parties to significant corporate transactions (including financing transactions) with the Receiving Party as part of their customary due diligence; provided that each such person has a legal or contractual obligation to maintain the confidentiality of such information comparable to the Receiving Party's obligations under this Section 11.3. The Receiving Party shall be liable for any such person's failure to comply with such obligation. The foregoing restrictions on disclosure shall not apply to the extent disclosure of Confidential Information by the Receiving Party is required by law or court order, provided that the Receiving Party uses reasonable efforts to give the Disclosing Party prior notice of such requirement in order to give the Disclosing Party an opportunity to lawfully prevent or limit the scope of such disclosure and cooperates with the Disclosing Party to limit the scope of such disclosure. 11.3.2 "Confidential Information" of a Disclosing Party means any and all technical and non-technical information (including patent, copyright, trade secret, and proprietary information, techniques, sketches, drawings, models, inventions, know-how, processes, apparatus, equipment, algorithms, software programs, software source documents, and formulae) related to the current, future and proposed business, products and services of such party, and its suppliers and customers, and includes information concerning development, design details and specifications, engineering, customer lists, business forecasts, sales, and marketing plans and any other similar information or data which is disclosed to the other party. "Confidential Information" also includes proprietary or confidential information of any third party that may disclose such information to the Disclosing Party or the Receiving Party in the course of the Disclosing Party's business. "Confidential Information" does not include information, technical data or know-how which: (i) is in the Receiving Party's possession at the time of disclosure ; (ii) enters the public domain other than as a result of any action or inaction of the Receiving Party; (iii) is approved for release by written authorization of the Disclosing Party; (iv) is disclosed to the Receiving Party by a third party not in violation of any obligation of confidentiality; or (v) is independently developed by the Receiving Party without reference to Confidential Information. The terms of this Agreement shall be considered Confidential Information of each party. 11.3.3 Notwithstanding the foregoing, ASP and i2 may use and disclose information about the usage of the Covered Application and sales and other transaction information generated through the use the Covered Application, as long as such information does not disclose the personal identity of any End User or any End User's customers. 12. INTELLECTUAL PROPERTY INFRINGEMENT. If a third party makes a claim against ASP and/or any End User that the Covered Application, as delivered by i2, directly infringes any patent issued as of the Effective Date or any copyright, trade secret or trademark ("Allegation"); i2 will defend ASP and End User against the Allegation and pay all costs, damages and expenses (including reasonable legal fees) awarded against ASP and/or End User by a court of competent jurisdiction or agreed to in a written settlement agreement signed by i2 arising out of such Allegation; provided that: (i) ASP or End User (as applicable) promptly notifies i2 in writing after ASP's receipt of notification of a potential claim; (ii) i2 may assume sole control of the defense of such claim and all related settlement negotiations; and (iii) ASP or End User (as applicable) provides i2, at i2's request and expense, with the assistance, information and authority necessary to perform i2's obligations under this Section. Notwithstanding the foregoing, i2 shall have no liability for any claim of infringement based on (a) the use of a superseded or altered release of Covered Application if the infringement would have been avoided by the use of a current unaltered release of the Covered Application, which i2 provided to ASP; or (b) the modification of the Covered Application by anyone other than i2 or a party acting on i2's behalf, or approved by i2 in writing, or (c) the use of the Covered Application other than in accordance with the Documentation; or (d) use of the Covered Application other than as granted hereunder. If, due to an Allegation, (i) the Covered Application is held by a court of competent jurisdiction or are believed by i2 to infringe, or (ii) ASP receives a valid court order enjoining ASP from using the Covered Application, i2 shall in its reasonable judgment, and at its expense, (a) replace or modify the Covered Application to be non-infringing, but equivalent in features and functionality; (b) obtain for ASP and/or its End Users a license to continue using the Covered Application; or (c) if i2 cannot, in its sole 6 7 Confidential determination, reasonably obtain the remedies in (a) or (b), terminate the license for the infringing Covered Application and refund a pro-rated portion of the license fees paid to i2 by ASP for such Covered Application upon its return by ASP or End User (as applicable). The pro-rated refund shall be based solely upon the license fee paid to i2 for the terminated Covered Application copy as follows: for every year following the initial Standard Terms of Use effective date, the refundable portion of the Covered Application fee shall be reduced by 25%. The licensor of any Third Party Software is excluded from liability under this Agreement and ASP shall look solely to i2 for liabilities relating to the Covered Application. This Section 12 states i2's entire liability and ASP's and its End Users exclusive remedy for any claim of infringement. 13. LIMITED WARRANTIES AND DISCLAIMERS. 13.1 LIMITED PROGRAM WARRANTY. i2 warrants for a period of six (6) months from the date on which the copy of the Covered Application is first delivered to ASP hereunder, that the unmodified version of the Covered Application will perform in all material respects the functions described in the Documentation when operated on an i2 supported platform. The parties agree and acknowledge that the foregoing warranty only applies to Covered Application first delivered to ASP and not to any Updates subsequently provided hereunder. In the event of a breach of this warranty, ASP's sole and exclusive remedy and i2's sole liability shall be for i2 to use its commercially reasonable efforts to correct or provide a workaround for reproducible errors that cause breach of this warranty or if i2 is unable to make the Covered Application operate as warranted within a reasonable period of time considering the severity of the error, ASP shall be entitled to recover the license fees paid to i2 for the applicable Covered Application. 13.2 LIMITED MEDIA WARRANTY. i2 warrants that the tapes, diskettes or other media upon which the master copy of the Covered Application is delivered by i2 to ASP to be free of defects in materials and workmanship under normal use for ninety (90) days from the date of delivery by i2. In the event of a breach of this warranty, ASP's sole and exclusive remedy and i2's sole liability shall be the replacement of the defective media. 13.3 ANTI-VIRUS WARRANTY. i2 represents that to the best of its knowledge after employing reasonable technical means to detect computer viruses the Covered Application at the time of shipment from i2's facility does not contain any virus or other computer software code, routines or components (other than as set forth in the Documentation) designed to disable, damage, impair, or erase the Covered Application or other software or data. In the event of a breach of this warranty, ASP's sole and exclusive remedy and i2's sole liability shall be to immediately replace all copies of the affected Covered Application. 13.4 DISCLAIMERS. 13.4.1 i2 does not warrant that the Covered Application will meet ASP's or any End User's requirements, that the Covered Application will operate in the combinations which ASP or any End User may select for use, that the operation of the Covered Application will be uninterrupted or defect-free, or that all defects will be corrected. Pre general release programs, limited releases of Covered Application, Other Material, and computer-based training products, if any provided hereunder, are distributed "AS IS." 13.4.2 EXCEPT AS OTHERWISE SET FORTH HEREIN, EACH PARTY DISCLAIMS ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE APPLICATION SERVICE OR THE COVERED APPLICATION. 14. LIMITATION OF LIABILITY. 14.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, DATA OR USE, INCURRED BY THE OTHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES EXCEPT THAT IN THE EVENT ASP MAKES UNAUTHORIZED COPIES OF THE COVERED APPLICATION OR REVERSE ENGINEERS THE COVERED APPLICATION , i2 SHALL BE ENTITLED TO RECOVER THE FULL AMOUNT OF ANY LICENSE FEES THAT WOULD RELATE TO SUCH COPIES. 14.2 Except for i2's liability under Section 12, ASP's liability under Section 5.13, either parties beach of Section 11 or in the event ASP makes unauthorized copies of the Covered Application or reverse engineers the Covered Application, each party's aggregate and cumulative liability for damages hereunder shall in no event exceed [*]. 15. TERM AND TERMINATION. 15.1 TERM. This Agreement shall commence on the Effective Date and shall continue until terminated as provided in this Agreement. This Agreement shall automatically terminate on the termination or expiration of the Public Marketplace License Agreement between the parties. Thereafter, this Agreement shall be automatically extended to run concurrently with each Terms of Use Agreement entered into by an ASP End User as authorized hereunder. For any given twelve (12) consecutive month period, should ASP fail to enter into a Terms of Use Agreement with an End User i2 reserves the right to terminate this Agreement effective upon the expiration of the latest Terms of Use Agreement then in effect. 15.2 TERMINATION FOR CAUSE. Either party may terminate this Agreement, by written notice to the other party: (a) upon the material failure of the other party to observe, keep or perform any of the covenants, terms or conditions herein (including the failure to pay sums owed to the other party when due), if such default continues for thirty (30) days after written notice by the other party, (b) upon the institution by or against either party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of its debts, (c) upon either party's assignment for the benefit of creditors, (d) if all or substantially all of the assets of a party are acquired by a direct *Confidential treatment requested. 7 8 Confidential competitor of the other party, or (e) upon either party's dissolution or ceasing to do business. 15.3 EFFECT OF TERMINATION. Upon expiration or termination of this Agreement: (a) all licenses and rights granted to the parties shall terminate, except as set forth below; (b) each party shall refrain from representing themselves as a party to this Agreement; (c) any End User sublicenses previously granted hereunder be terminated; and (d) any other rights of either party which may have accrued up to the date of termination shall not be affected. The parties agree to discuss and negotiate in good faith a transitional agreement regarding the provision of Updates and Software Maintenance and Support Services to End Users to whom ASP is contractually obligated to provide such Updates and Software Maintenance and Support Services provided that ASP is required to obtain i2's advance written approval before entering into any such obligations that have a term greater than the License Term. 15.4 SUN-SETTING. Should i2 reasonably determines that the market demand or other business factors for any Covered Application, Documentation, or Other Material is no longer advantageous to i2's business direction, i2 may at its reasonable discretion and without liability to ASP, remove such Covered Application, Documentation, or Other Material from general availability ("Sunset") in which case ASP shall discontinue all marketing and distribution of such Covered Application, Documentation, or Other Material within six (6) months of i2's notification to Sunset such Covered Application, Documentation, or Other Material. 15.5 SURVIVAL. Sections 5.12 ("ASP Indemnity"), 8.2 ("Prohibition on Decompiling"), 9 ("Payments"), 10.5 ("Infringement Proceedings"), 11 ("Ownership Proprietary Rights and Confidentiality"), 12("Intellectual Property Infringement"), 14("Limitation of Liability"), the third sentence of Section 15.1 ("Term"), 15.3 ("Effect of Termination"), 15.5 ("Survival") and 16 ("General") shall survive the termination of this Agreement. 16. GENERAL. 16.1 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended or shall be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein 16.2 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of New York. 16.3 NOTICES. All notices required to be sent hereunder shall be in writing and shall be deemed to have been given upon (i) the date sent by confirmed facsimile, (ii) on the date it was delivered by courier, or (iii) if by certified mail return receipt requested, on the date received, to the addresses set forth above and to the attention of the signatory of this Agreement or to such other address or individual as the parties may specify from time to time by written notice to the other party. 16.4 INJUNCTIVE RELIEF. It is expressly agreed that a breach of Sections 2, 8,10, or 11 of this Agreement by ASP may cause irreparable harm to i2 and that a remedy at law would be inadequate. Therefore, in addition to any and all remedies available at law, i2 will be entitled to seek an injunction or other equitable remedies in all legal proceedings in the event of any threatened or actual violation of any or all of the above provisions. 16.5 RELATIONSHIP BETWEEN THE PARTIES. ASP is an independent contractor; nothing in this Agreement shall be construed to create a partnership, joint venture or agency relationship between the parties. 16.6 FORCE MAJEURE. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, material shortages, or any other cause which is beyond the reasonable control of such party. 16.7 WAIVER. The failure of either party to require performance by the other party of any provision hereof shall not affect the full right to require such performance at any time thereafter; nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of the provision itself. 16.8 SEVERABILITY. In the event any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions of this Agreement will remain in full force. 16.9 HEADINGS. The paragraph headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or extent of such paragraph, or in any way affect this Agreement. 16.10 ASSIGNMENT. Neither this Agreement nor any rights or obligations of either party hereunder may be assigned in whole or in part without the prior written approval of the other party, which shall not be unreasonably withheld or delayed, except that no consent shall be required in the event of an assignment of this Agreement to a successor corporation by merger, sale of all or substantially all of the assets or capital stock, provided that the successor corporation (i) is not a direct competitor of the other party, and (ii) agrees in writing to be bound by the terms of this Agreement. 16.11 COMPLIANCE WITH LAW AND REGULATIONS. Each Party shall act in strict compliance with all applicable laws, ordinances, regulations and other requirements of any government authority pertaining to such Party's activities under the Agreement and shall provide, pay for, and keep in good standing all permits, licenses or other consents necessary for such activities. 16.12 EXPORT CONTROL. The parties agree that the export of Covered Application is subject to the export control laws of the United States of America and each party agrees to abide by all such export control laws and regulations. Without limiting the generality of the foregoing, ASP expressly agrees that it shall not, and shall cause its representatives to agree not to, export, directly or indirectly, re-export, divert, or transfer the Covered Application, Documentation or any direct product thereof to any destination, company or person restricted or prohibited by U.S. Export Controls. 16.14 COUNTERPARTS AND EXCHANGES BY FAX. This Agreement may be executed simultaneously in two (2) or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or 8 9 Confidential otherwise) by fax shall be sufficient to bind the parties to the terms and conditions of this Agreement. 16.15 ENTIRE AGREEMENT. This Agreement, together with the attached schedules and exhibits which are incorporated by reference, constitutes the complete agreement between the parties and supersedes all prior or contemporaneous agreements or representations, written or oral, concerning the subject matter of this Agreement and such schedules and exhibits. This Agreement may not be modified or amended except in writing signed by a duly authorized representative of each party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives. ASP i2 Technologies, Inc. By: By: ------------------------------------- ------------------------------- Name: Name: ----------------------------------- ----------------------------- Title: Title: ---------------------------------- ---------------------------- Date: Date: ----------------------------------- ----------------------------- 9 10 Confidential [i2 LOGO] SCHEDULE A TO APPLICATION SERVICE PROVIDERS AGREEMENT NUMBER: ASP: NEOFORMA.COM, INC. In accordance with the terms and conditions of section 1 of the ASP Agreement, ASP is authorized to use the following i2 owned Covered Application(s). COVERED APPLICATION: [*] UPFRONT ANNUAL APPLICATION FEE: INCLUDED IN THE LICENSE FEE SET FORTH IN ADDENDUM A OF THE PUBLIC MARKETPLACE LICENSE AGREEMENT BETWEEN THE PARTIES. ANNUAL MAINTENANCE FEES - PLATINUM MAINTENANCE PLAN: INCLUDED IN THE MAINTENANCE FEE SET FORTH IN ADDENDUM A OF THE PUBLIC MARKETPLACE LICENSE AGREEMENT BETWEEN THE PARTIES. AGREED: ASP i2 TECHNOLOGIES, INC. BY: BY: ----------------------------------------- -------------------------- TITLE: TITLE: ----------------------------------- ----------------------- DATE: DATE: --------------------------------------- ------------------------ * Confidential treatment requested. 10 11 Confidential TO BE COMPLETED FOR EACH END USER [*] GRANTED HEREUNDER. [i2 LOGO] SCHEDULE B TO APPLICATION SERVICE PROVIDERS AGREEMENT NUMBER: ASP: END USER: In accordance with the terms and conditions of section 2 of the ASP Agreement, ASP is authorized to [*], to End Users under the terms of the Standard Terms of Use, the following i2 Covered Application; COVERED APPLICATION: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PLATFORM: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [*] REVENUE SHARES: TOTAL FEES DUE UPON EXECUTION OF THIS ADDENDUM: $ AGREED: ASP i2 TECHNOLOGIES, INC. BY: BY: ------------------------------------- --------------------------------- TITLE: TITLE: -------------------------------- ------------------------------ DATE: DATE: ------------------------------------ -------------------------------- *Confidential treatment requested. 11 12 Confidential EXHIBIT A TO ASP AGREEMENT STANDARD TERMS OF USE [TERMS FOLLOW ON NEXT TWO PAGES] 12 13 Confidential STANDARD TERMS OF USE for Sublicense to End Users. 1. DEFINITIONS. "Content" means the data products listed in an Order Form. "Covered Applications" means the specific Covered Application, Content, and Documentation licensed by End User under an Order Form. "Documentation" means the user and reference manuals for the Covered Application and Content provided by i2 in conjunction with the delivery of the related Covered Application and/or Content. 2. SOFTWARE. The right to use the Covered Application is limited to use in object code form, and the Covered Application and Documentation is limited to the internal needs of End User's business, for a term period of twenty-four (24) months from the effective date of the Covered Application license. 3. CONTENT. The right to use Content is limited to the internal needs of End User's business. End User shall not use the Content as a component of or a basis for a database prepared for commercial sale, lease, access or distribution outside the End User's organization. Portions of the Content limited to individual search results may be copied onto electronic or magnetic media solely for temporary use in conjunction with End User's editing or reformatting of data for purposes of making a limited number of printouts. Additionally, End User may download information contained in the Content, including identity and parameters, to create End User's own machine-readable preferred files, or other files solely for End User's own internal use (the "Parts Files"). Such Parts Files must contain the same copyright notice and proprietary markings as appear on the original copy of the Content. The number of items which may be downloaded shall not exceed 10,000 per Named User licensed. 4. PROTECTION OF SOFTWARE AND CONTENT. End User agrees to take all reasonable steps to protect the Covered Applications from unauthorized copying or use. End User shall implement and use, and shall not in any way disable, the license monitoring software provided by i2 and shall provide the output files created by this software to i2 upon written request. 5. COPIES End User may make a reasonable number of copies of the Documentation solely for its own internal business purposes to support End User's use of the Covered Applications. All proprietary rights and notices must be reproduced and included on such copies. End User may not copy the Content without the prior written consent of i2. 6. OWNERSHIP. Ownership, and title to, the Covered Applications and Content (including any corrections, updates, adaptations, enhancements or copies) shall be owned by i2 and its licensors. Copies are provided to End User only to allow End User to exercise End User's right under the license granted herein to use the Covered Application. 7. RESTRICTIONS. Except as expressly authorized in this Agreement, End User shall not rent, lease, sublicense, distribute, transfer, copy, reproduce, display, modify or timeshare the Covered Applications or any portion thereof, or use the Covered Applications as a component of or a base for products or services prepared for commercial or non commercial sale, sublicense, lease, access, hosting, service bureau, application service providing or distribution outside the End User's organization, or prepare any derivative work based on the Covered Applications. End User shall not allow any third party or unlicensed user or computer system to access or use the Covered Applications. End User agrees not to demonstrate or disclose the Covered Applications or the results of any testing or bench-marking of same to any third parties, without i2's prior written permission. End User shall not reverse engineer, de-compile, modify in any way, or create derivative works from the Covered Applications, or any portion thereof (but this Section 7 is without prejudice to any inalienable rights which End User may have, principally those pursuant to the European Directive on the legal protection of computer programs (91/250/EEC)). If de-compilation is permitted by applicable law to obtain information necessary to achieve interoperability of Covered Application with other software or hardware, End User may only attempt such de-compilation if End User has previously requested the necessary information in writing from i2 and i2 has failed to make such information available to End User within a reasonable period of time. End User agrees that all improvements and modifications to the Covered Application or any part thereof (whether developed by i2, Licensor, End User or any third party acting on behalf of them at any time during the term of this Agreement) shall be and remain the sole and exclusive property of i2. 8. CONFIDENTIALITY. a. By virtue of this Agreement, the parties may be exposed to or provided with certain confidential and proprietary information of the other party ("Confidential Information"). Confidential Information shall be designated as confidential in writing or, if disclosed orally, designated as confidential at the time of disclosure and confirmed as confidential in writing within thirty (30) days of disclosure. Notwithstanding the foregoing, End User agrees that the Covered Applications are Confidential Information of i2. b. Each party will protect the other's Confidential Information from unauthorized dissemination and use with the same degree of care that each such party uses to protect its own like information, but in not event less than a reasonable amount of care. Neither party will use the other's Confidential Information for purposes other than those necessary to directly further the purposes of this Agreement. Neither party will disclose to third parties the other's Confidential Information without prior written consent of the other party. c. Information shall not be considered Confidential Information to the extent, but only to the extent, that the disclosing party can establish that such information (i) is or becomes generally 14 Confidential known or available to the public through no fault of the receiving party; (ii) was in the receiving party's possession before receipt from the disclosing party; (iii) is lawfully obtained from a third party who has the right to make such disclosure; (iv) has been independently developed by one party without reference to any Confidential Information of the other; or (v) is required to be disclosed by law provided the receiving party has promptly notified the disclosing party of such requirement and allowed the disclosing party a reasonable time to oppose such requirement. 9. ASSIGNMENT. This Agreement and the use of the Covered Applications and Content provided hereunder are not assignable without the prior written consent of i2. 10. EXPORT. End User hereby agrees not to knowingly, directly or indirectly, without prior written consent, if required, of the office of Export Administration of the US Department of Commerce, Washington D.C. 20230, export or transmit any of the Covered Applications to any country to which such transmission is restricted by applicable regulations or statutes. 11. NOTICE OF RESTRICTED RIGHTS FOR U.S. GOVERNMENT SUBLICENSES. Should ASP grant a sublicense to any entity of the United States Government, the Covered Application and Documentation shall be considered "commercial computer software," and the ASP shall place a notice provision, in addition to the applicable copyright notices, on the Documentation and media label, substantially similar to the following: "U.S. GOVERNMENT RESTRICTED RIGHTS. Programs, and Documentation, delivered subject to the FAR 52.227-19. All use, duplication and disclosure of the Programs and Documentation by the U.S. Government shall be subject to the applicable i2 license agreement and the restrictions contained in subsection (c) of FAR 52.227-19, Commercial Computer Software - Restricted Rights (June 1987). Owner and Licensor is i2 Technologies, Inc. 11701 Luna Road, Dallas, Texas 75234. 12. USE OF NAME. i2 reserves the right to use the name of End User in marketing activities and press releases. EX-10.36 12 f70406ex10-36.txt EXHIBIT 10.36 1 Exhibit 10.36 [i2 LOGO] CONFIDENTIAL TREATMENT REQUESTED SERVICES AGREEMENT Agreement # _______________________ (to be completed by i2) This Services Agreement (the "Agreement"), effective as of the later date of execution by the parties hereto (the "Effective Date"), is entered into by and between i2 Technologies, Inc., a Delaware corporation with an office at 11701 Luna Road, Dallas, Texas 75234 ("i2") and Neoforma.com, Inc. ("Company"), a Delaware corporation with a principal place of business at 3061 Zanker Road, San Jose, California 95134, (collectively i2 and Company shall be referred to as the "Parties," and individually as a "Party"). 1. DEFINITIONS The following terms when used in this Agreement shall have the following meanings: 1.1. "COMPANY OWNED MATERIAL" means any programs, systems, data, and materials owned or developed by, or licensed to, Company prior to the Effective Date of this Agreement. 1.2. "DELIVERABLES" means any programs, systems, data, and materials set forth in a Statement of Work and developed by i2, alone or jointly with Company, pursuant to the performance of Services, but excluding Company Owned Material and i2 Owned Material. 1.3. "DERIVATIVE WORK" means a work that is based upon the Deliverables or related documentation, such as a revision, upgrade, improvement, modification, translation (including compilation or recapitulation by computer), abridgment, condensation, expansion or any other form in which the Deliverables may be recast, transformed, or adapted, or that, if prepared without authorization by the owner of the Deliverables, would constitute an infringement of intellectual property rights. 1.4. "DEVELOPMENT MATERIAL" means development tools and libraries and other software, documentation and information to be provided by a Party as necessary to permit each Party to perform its obligations and responsibilities set forth in a Statement of Work. 1.5. "i2 OWNED MATERIAL" means any programs, systems, data, or materials owned or developed by, or licensed to, i2 prior to the Effective Date of this Agreement. 1.6. "INTELLECTUAL PROPERTY" means any and all intellectual property rights throughout the world including, but not limited to, rights in respect of or in connection with: (1) any Confidential Information; (2) all trademarks, service marks, trade names, designs, logos, slogans and general intangibles of like nature, together with any goodwill, registrations and applications relating to the foregoing; (3) issued patents and pending patent applications; (4) copyrights (including registrations and applications for any of the foregoing); (5) inventions (whether patentable or not); (6) computer programs, including any and all software implementations of algorithms, models and methodologies whether in source code or object code form, all documentation, including user manuals and training materials, related to any of the foregoing; and (7) any other technology, know-how, processes, formulae, algorithms, models and methodologies relating thereto. 1.7 "LICENSED SOFTWARE" has the meaning given to it in the Public Marketplace License Agreement. CONFIDENTIAL NEOFORMA SERVICES v122900 Page 10) 2 1.8. "MARKETPLACE(S)" means Internet-based exchange and information marketplaces for the healthcare market owned by Company andoperated by Company, alone or jointly with another entity. 1.9. "OBJECT CODE" means software in machine-readable, compiled binary form. 1.10. "PUBLIC MARKETPLACE LICENSE AGREEMENT" means the Public Marketplace License Agreement between the parties dated on or about the Effective Date, as such agreement may be amended or replaced between the parties. 1.11. "SERVICES", in respect of a party, means all services to be provided by such party hereunder, including under any Statement of Work, including Consulting Services and JDP Services,. 1.12. "STATEMENT OF WORK" means any written terms mutually agreed between the Parties and executed by each Party for the performance of Services hereunder, including the following terms and conditions as applicable: (i) the scope of Services to be performed by each party, (ii) the deliverables to be provided ("Deliverable"); (iii) functional, technical, performance and acceptance specifications and criteria for each Deliverable, if any ("Specifications"), (iv) the milestone due dates and delivery schedule for each Deliverable, and (iv) any applicable fee payment structure, and (v) any allocation of Intellectual Property rights in each Deliverable. 2. SERVICES 2.1. Subject to the terms and conditions of this Agreement, i2 and Company may agree on implementation and configuration projects for Licensed Software to be performed by i2 ("Consulting Services") which will be more fully described in one or more Statements of Work mutually agreed to by the parties. 2.2. Subject to the terms and conditions of this Agreement, i2 and Company may enter into joint development project(s) for any new software, or modifications to Licensed Software, specifically targeted for the healthcare market to be deployed into a Marketplace ("Joint Development Project" or "JDP") which will be more fully described in one or more Statements of Work mutually agreed to by the parties. In each JDP, Company shall have primary responsibility for the development of the Specification targeted for the healthcare market. 2.3. Each individual Statement of Work shall be executed by both parties and upon such execution shall be governed by and subject to the terms and conditions of this Agreement and incorporated into this Agreement. Both parties agree to perform their respective responsibilities and obligations described in any Statement of Work according to the schedule set forth therein. Both parties agree to make available the necessary Development Materials, physical facilities, computer systems, and other resources in order to fully comply with the Parties responsibilities and obligations set forth in any Statement of Work. 2.4. Unless otherwise agreed in writing in a Statement of Work, the Parties shall jointly conduct tests on each Deliverable promptly after delivery to test whether the Deliverable substantially conforms with the applicable Specification. If a Deliverable does not substantially conform with the applicable Specification then the Party responsible under the applicable Statement of Work for development of the Deliverable shall use all reasonable efforts to promptly correct such non-conformance at its own cost and expense and redeliver the corrected Deliverable. The Parties shall then jointly re-test the rectified Deliverable. If a Deliverable for which a Party is responsible fails to substantially conform with its applicable Specifications on two (2) or more rounds of testing then the other Party may terminate the applicable Statement of Work by written notice to the Party responsible for the non-conforming Deliverable in which case such Party shall refund any and all fees paid for the non-conforming Deliverable under that Statement of Work. CONFIDENTIAL Neoforma Services v122900 Page 20) 3 2.5. The Parties agree to meet as required, but no less frequently than monthly, to (i) discuss and agree on new projects to be performed, (ii) review progress of on-going projects; and (ii) prioritize the project activities of the Parties. 2.6. The Parties shall negotiate, in good faith, to agree on and execute within twenty-eight (28) days after the Effective Date a plan for implementation and integration of the Licensed Software into the Marketplaces, including the Consulting Services to be performed by each Party and associated due dates for completion of such Consulting Services. When agreed and executed by both Parties, the implementation plan shall be deemed a Statement of Work and incorporated into this Agreement. 3. CHANGES IN THE WORK Company may, at any time, by written notice to i2 request changes in the Services or Deliverables set forth in a particular Statement of Work. Upon receipt of such request, i2 shall notify Company of its acceptance or rejection of the requested change. Company agrees to bear any extra expense and pay for any additional work required by such change. 4. PROPRIETARY RIGHTS 4.1. All right, title and interest and all Intellectual Property in and to any Company Owned Material is and shall remain the property of Company. All right, title and interest and all Intellectual Property in and to any i2 Owned Material is and shall remain the property of i2. 4.2. Unless otherwise agreed in writing in a Statement of Work, i2 shall have all right, title and interest and all Intellectual Property in and to any Consulting Services Deliverable and each Consulting Services Deliverable shall be subject to the license rights granted by i2 to Company under the Public Marketplace License Agreement. 4.3. The allocation of Intellectual Property rights in each JDP Deliverable shall be mutually agreed to by the Parties and set forth in the applicable JDP Statement of Work including whether and to what extent either Party's rights with respect to licensing the JDP Deliverable may be limited in any way. If the Parties fail to designate the Intellectual Property rights in each JDP Deliverable in any Statement of Work, the Parties acknowledge and agree that i2 shall have all right, title and interest and all Intellectual Property in and to any JDP Deliverable and i2 shall grant to Company a non-exclusive, perpetual, irrevocable license to use, copy, display, publish and modify such JDP Deliverable, including the Development Material to the extent such Development Material is incorporated into or required for Company to effectuate its rights in the JDP Deliverable, for the Marketplaces. 4.4. In the event Development Materials are identified in a Statement of Work as necessary to perform JDP Services, each Party hereby grants solely to the other Party a non-exclusive, non-transferable license to use and copy the Development Material but only as may reasonably be required by either Party to perform its obligations under a JDP Statement of Work. 4.5. i2 in its sole discretion shall determine whether Deliverables are incorporated into Licensed Software. 4.6. All rights in respect of the Deliverables and Licensed Software not expressly granted hereby are expressly reserved. The license granted by this Section 4 is personal to Company for the Marketplace and does not extend to any other entity or entities, including any entity or entities holding any equity position in Company. CONFIDENTIAL Neoforma Services v122900 Page 30) 4 5. PAYMENT 5.1. CONSULTING SERVICES FEES. Company shall pay i2 the fees as set forth in the applicable Statement of Work which shall be at the rates set forth in Exhibit 1 for Consulting Services. In addition, Company shall reimburse i2 for all reasonable travel, living and delivery expenses incurred by i2 in rendering Consulting Services. Company shall make all payments in US dollars. All payments shall be due within thirty (30) days after receipt by Company of an invoice or as otherwise specified within this Agreement. All costs of collection, including reasonable attorney's and expert's fees and costs of court, shall be paid by Company. 5.2. JDP RESOURCES. Specific investments and fees by each Party associated with any JDP Statement of Work shall be mutually agreed upon by the Parties prior to the commencement of the Joint Development Project and set forth in the applicable JDP Statement of Work. The fees, if any, to be charged by i2 for a JDP shall be [*] of i2's list price for Consulting Services set forth in Exhibit 1. 5.3. TAXES. Fees and all other amounts mentioned in this Agreement do not include any sales, property, use, value added or ad valorem taxes, or any other taxes, levies, duties or other charges based upon this Agreement, all of which shall be paid by Company. In the event i2 is required to pay such taxes, Company shall reimburse i2. Company shall withhold foreign withholding taxes only as required by relevant local country tax law. Company shall provide i2 with notice of withholding of any such tax payment. Company shall not pay for taxes on i2's net income or for sales and use taxes for which Company has provided a valid tax exemption certificate within sixty (60) days of the Effective Date. 5.4. EXPORT OF SYSTEM. Company acknowledges and agrees that the Confidential Information, the System and the other property of i2 and/or i2's suppliers, in whole and/or in part, may be subject to export controls imposed by the United States Export Administration Act of 1979, as amended, the regulations promulgated thereunder, as well as any future U.S. export control legislation (collectively the "Act") and/or other regulation by agencies of the U.S. Government or other applicable country(ies), which prohibit export or diversion of certain products and technology to certain countries (collectively, the "Export Regulations"). Company will not allow the information and other property disclosed to it, in whole or in part, to be exported or re-exported, or otherwise be distributed outside of the United States, in any manner or by any means, without in each instance complying in full with the Act and any other Export Regulations, obtaining the prior approval of i2 and, to the extent required, (a) the prior approval of the appropriate government authorities of the United States, (b) a validated export license from the Office of Export Administration within the U.S. Department of Commerce and (c) the prior approval of and/or license(s) from the appropriate governmental authorities of any and all other applicable countries. Company will comply with all applicable laws and regulations of the United States of America and any other applicable country in performing its duties under this Agreement. Notwithstanding any other provision of this Agreement to the contrary, i2 may, from time to time, in its sole reasonable discretion, by providing written notice to Company, restrict Company from exporting or re-exporting or otherwise distributing any of the information or other property provided by i2 to specific specified countries. Company will defend, hold harmless and indemnify i2, i2's suppliers and its and their officers, directors employees and/or agents, from and against any damages resulting to such party from a breach by Company under this section to the extent caused by Company. Refer to www.bxa.doc.gov. 6. LIMITED WARRANTY i2 represents and warrants that all Services rendered by i2 in connection with this Agreement shall be provided in accordance with applicable professional standards and practices, and i2's personnel shall have the requisite skills, expertise, training and ability to perform the tasks assigned them. * Confidential treatment requested. CONFIDENTIAL Neoforma Services v122900 Page 40) 5 7. REPRESENTATIONS AND WARRANTIES GENERAL. Each Party hereby represents and warrants to the other that: (i) such Party has the right, corporate power and authority to enter into this Agreement and to fully perform all its obligations, including the right to grant all licenses to the full extent and scope granted by such Party herein; (ii) the execution, delivery and performance of this Agreement by such Party requires no action by or in respect of, or filing with, any governmental body, agency, official or authority; (iii) the execution, delivery and performance of this Agreement by such Party does not and will not (a) contravene or conflict with the corporate charter or bylaws of such Party or (b) contravene or conflict with any provision of any law, regulation, judgment, injunction, order or decree binding upon such Party or (c) violate any agreement existing between such Party and any third party; and (iv) it will perform all services hereunder with due care and skill in a professional manner, using only appropriately skilled and qualified personnel. 8. CONFIDENTIALITY 8.1. GENERAL DEFINITION. "Confidential Information" shall be deemed to include all information and materials furnished by either Party which: (a) if in written format is marked as confidential, or (b) if disclosed verbally is noted as confidential at time of disclosure, or (c) in the absence of either (a) or (b) is information which a reasonable person would deem to be non-public information and confidential. i2's Confidential Information shall include, but not be limited to, the Deliverables. 8.2. EXCLUSIONS. Notwithstanding paragraph 8.1 hereof, Confidential Information shall exclude information that the receiving Party can demonstrate: (i) was independently developed by the receiving Party without any use of the disclosing Party's Confidential Information or by the receiving Party's employees or other agents (or independent contractors hired by the receiving Party) who have not been exposed to the disclosing Party's Confidential Information; (ii) becomes known to the receiving Party, without restriction, from a source other than the disclosing Party without breach of this Agreement and that had a right to disclose it; (iii) was in the public domain at the time it was disclosed or becomes in the public domain through no act or omission of the receiving Party; or (iv) was rightfully known to the receiving Party, without restriction, at the time of disclosure. 8.3. COMPELLED DISCLOSURE. If the Confidential Information of a disclosing Party must be disclosed by the receiving Party pursuant to the order or requirement of a court, administrative agency, or other governmental body, the receiving Party shall (i) provide prompt notice thereof to the disclosing Party and (ii) use commercially reasonable efforts without the payment of money to obtain a protective order or otherwise prevent public disclosure of such information. 8.4. CONFIDENTIALITY OBLIGATION. The receiving Party shall treat as confidential all of the disclosing Party's Confidential Information and shall not use or disclose or otherwise permit the disclosure of such Confidential Information except as expressly permitted under this Agreement. Without limiting the foregoing, the receiving Party shall use at least the same degree of care which it uses to prevent the disclosure of its own Confidential Information of like importance, but in no event with less than reasonable care, to prevent the disclosure of the disclosing Party's Confidential Information. 8.5. CONFIDENTIALITY OF AGREEMENT. Each Party agrees that the terms and conditions, but not the existence, of this Agreement shall be treated as the other's Confidential Information and that no reference to the terms and conditions of this Agreement or to activities pertaining thereto can be made in any form of public or commercial advertising without the prior written consent of the other Party; provided, however, that each Party may disclose the terms and conditions of this Agreement; (i) as required by any court or other governmental body; (ii) as otherwise required by law; (iii) to legal counsel of the Parties; (iv) in connection with the requirements of an initial public offering or securities filing; (v) in confidence, to accountants, banks, and financing sources and their advisors; (vi) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; or (vii) in confidence, in connection with a merger or acquisition or proposed merger or acquisition, or the like. CONFIDENTIAL Neoforma Services v122900 Page 50) 6 8.6. REMEDIES. Unauthorized use by a Party of the other Party's Confidential Information will diminish the value of such information. Therefore, if a Party breaches any of its obligations with respect to confidentiality or use of Confidential Information hereunder, the other Party shall be entitled to equitable relief to protect its interest therein, including but not limited to injunctive relief, as well as money damages. 9. LIMITATION OF LIABILITY 9.1. EXCEPT FOR BREACHES OF SECTION 8 HEREOF AND/OR LIABILITY UNDER SECTION 10, EACH PARTY'S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL NOT EXCEED THE AMOUNT OF THE FEES PAID BY COMPANY TO i2. 9.2. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, EXCEPT FOR BREACHES OF SECTION 8 HEREOF AND/OR LIABILITY UNDER SECTION 10, NEITHER PARTY HERETO (NOR ANY LICENSOR OF THIRD PARTY SOFTWARE) SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, MULTIPLE, OR PUNITIVE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS, LOST REVENUES, LOST SAVINGS, LOST DATA OR LOST RECORDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9.3. THE FOREGOING LIMITATIONS OF LIABILITY SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH DAMAGES ARE SOUGHT, INCLUDING WITHOUT LIMITATION BREACH OF CONTRACT, NEGLIGENCE OR OTHER TORT. 10. INDEMNITY 10.1. i2 INDEMNIFICATION. i2 shall indemnify, hold harmless and defend, at its expense, Company from and against any third party claims alleging that the Deliverables, or use of the Deliverables, infringes any patent, trademark, trade secret, copyright (including moral rights) or other Intellectual Property right of a third party. The indemnity against infringement is solely in connection with the use by Company of the Deliverables for the Marketplaces as set forth in this Agreement. The indemnification obligation of this Section 10.1 shall not apply to any claim arising out of (I) the combination of the Deliverables with other products or data not claimed to be owned or developed by or on behalf of i2, or approved by i2 in writing, to the extent that the alleged infringement would have been avoided absent such combination, (II) any Derivative Work of the Deliverables prepared by anyone other than i2 or a party acting on i2's behalf, or approved by i2 in writing, to the extent that alleged infringement would have been avoided absent such modification, (III) use of the Deliverables in breach of the instructions in the Deliverables documentation, or (V) use of other than a current release of the Deliverables if such infringement would have been avoided by use of a current release that has been made available to Company. If a third party's claims substantially interfere with Company's use of the Deliverables or if i2 believes that a third party claim may substantially interfere with Company's use of the Deliverables, i2, at its sole discretion, may (a) replace the Deliverables, without additional charge, with a functionally equivalent and non-infringing product; (b) modify the Deliverables to be functionally equivalent and avoid the infringement; (c) obtain a license for Company to continue use of the Deliverables and pay any additional fee required for such license: or (d) if none of the foregoing alternatives are commercially reasonable, i2 may terminate the license for the infringing Deliverable and refund the service fees paid for those infringing Deliverables. This Section 10 shall constitute i2's entire liability and Company's exclusive remedy for a claim of infringement. 10.2. COMPANY INDEMNIFICATION. Company shall hold harmless and defend, at its expense, i2 from and against any third party claims alleging (i) that any JDP Deliverable delivered solely by Company to i2 hereunder, or use of such JDP Deliverables, infringes any patent, trademark, trade secret, copyright (including moral rights) or other Intellectual Property right of a third party, (ii) use of the JDP Deliverables CONFIDENTIAL Neoforma Services v122900 Page 60) 7 delivered solely by Company in a manner other than as authorized by this Agreement, or (iii) arising out of or in connection with the business operations and services offered by Company to the extent that the third party claim is not directly related to the failure of the JDP Deliverables delivered solely by Company to operate substantially in accordance with the Specifications. The indemnity against infringement is solely in connection with the use as set forth in this Agreement by i2 of the JDP Deliverables delivered solely by Company to i2 hereunder. The indemnification obligation of this Section 10.2 shall not apply to any claim arising out of (I) the combination of such JDP Deliverables with other products or data not claimed to be owned or developed by or on behalf of Company, or approved by Company in writing, to the extent that the alleged infringement would have been avoided absent such combination, (II) any Derivative Work of such JDP Deliverables prepared by anyone other than Company or a party acting on Company's behalf, or approved by Company in writing, to the extent that alleged infringement would have been avoided absent such modification, (III) use of such JDP Deliverables in breach of the instructions in the JDP Deliverables documentation, or (V) use of other than a current release of such JDP Deliverables if such infringement would have been avoided by use of a current release that has been made available to i2. If a third party's claims substantially interfere with i2's use of the JDP Deliverables delivered solely by Company to i2 hereunder or if Company believes that a third party claim may substantially interfere with i2's use of the JDP Deliverables, Company, at its sole discretion, may (a) replace such JDP Deliverables, without additional charge, with a functionally equivalent and non-infringing product; (b) modify such JDP Deliverables to be functionally equivalent and avoid the infringement; (c) obtain a license for i2 to continue use of such JDP Deliverables and pay any additional fee required for such license: or (d) if none of the foregoing alternatives are commercially reasonable, Company may terminate the license or revoke the assignment of the infringing JDP Deliverable and refund the service fees paid for those infringing JDP Deliverables. This Section 10 shall constitute Company 's entire liability and i2's exclusive remedy for a claim of infringement. 10.3. NOTICE OF INDEMNIFICATION. A Party seeking indemnification pursuant to this Section 10 (an "Indemnified Party") from or against the assertion of any claim by a third person (a "Third Person Assertion") shall give prompt notice to the Party from whom indemnification is sought (the "Indemnifying Party"); provided, however, that failure to give prompt notice shall not relieve the Indemnifying Party of any liability hereunder (except to the extent the Indemnifying Party has suffered actual material prejudice by such failure). 10.4. ASSUMPTION OF DEFENSE. Within ten (10) business days of receipt of notice from the Indemnified Party pursuant to Section 10.3 hereof, the Indemnifying Party shall have the right exercisable by written notice to the Indemnified Party, to assume the defense of a Third Person Assertion. If the Indemnifying Party assumes such defense, the Indemnifying Party may select counsel, which shall be reasonably acceptable to the Indemnified Party. 10.5. FAILURE TO DEFEND. If the Indemnifying Party (a) does not assume the defense of any Third Person Assertion in accordance with Section 10.4 hereof; or (b) having so assumed such defense, unreasonably fails to defend against such Third Person Assertion, then, upon ten (10) days' written notice to the Indemnifying Party, the Indemnified Party may assume the defense of such Third Person Assertion. In such event, the Indemnified Party shall be entitled under this Section 10 as part of its damages to indemnification for the costs of such defense. 10.6. CONFLICTS OF INTEREST. If the Indemnifying Party has been advised by the written opinion of counsel to the Indemnified Party that the use of the same counsel to represent both the Indemnified Party and the Indemnifying Party would present a conflict of interest, then the Indemnified Party may select its own counsel to represent the Indemnified Party in the defense of the matter and the costs of such defense shall be borne by the Indemnifying Party. The Indemnifying Party shall be entitled to continue to handle its own representation in such matter through its own counsel. CONFIDENTIAL Neoforma Services v122900 Page 70) 8 10.7. SETTLEMENT. The Party controlling the defense of a Third Person Assertion shall have the right to consent to the entry of judgment with respect to, or otherwise settle, such Third Person Assertion. 10.8. PARTICIPATION. The Indemnifying Party and the Indemnified Party shall cooperate, in the defense or prosecution of any Third Person Assertion. The Indemnified Party shall have the right to participate, at its own expense, in the defense or settlement of any Third Person Assertion. 10.9. EXCLUSIVE REMEDY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXCEPT FOR A CLAIM UNDER SECTION 8 HEREOF, THE FOREGOING STATES EACH PARTY'S ENTIRE LIABILITY, AND EACH OTHER PARTY'S EXCLUSIVE REMEDY FOR INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT. 11. TERM AND TERMINATION 11.1. TERM. This Agreement shall take effect on the Effective Date and shall continue in full force and effect until terminated earlier in accordance with the terms of this Agreement. Upon the termination or expiration of this Agreement, both Parties agree to promptly cease using all Confidential Information of the other Party and such Confidential Information shall be immediately destroyed or returned to the other Party. 11.2. TERMINATION. This Agreement shall automatically terminate on termination or expiration of the Public Marketplace License Agreement. Should a Party ("Defaulting Party") materially breach its obligations under this Agreement, the other Party may notify the Defaulting Party of such breach and give the Defaulting Party no less than thirty (30) days prior written notice in which to correct the breach. Should the Defaulting Party not correct the breach within that time then the other Party shall, in its sole discretion, have the right (in addition to all other rights at law and in equity) to terminate this Agreement and the license granted to Company hereunder by sending written notice of such termination to the Defaulting Party and such termination shall be effective upon the receipt of the termination notice. Termination of this Agreement for breach by the Defaulting Party shall not relieve the Defaulting Party of any obligation incurred hereunder prior to the date of termination. This Agreement may be immediately terminated by a Party if (i) the other Party, through merger, acquisition, consolidation, other reorganization, becomes a controlling entity of, is controlled by, or in common control with, a Competitor of the first Party, (ii) any dissolution or liquidation proceedings of the other Party are initiated, (iii) the other Party ceases its business operations, or (iv) any bankruptcy, insolvency, or similar proceedings be instituted by or against the other Party, or if the other Party should make a general assignment for the benefit of creditors. 11.3. SURVIVAL OF CERTAIN TERMS. The following provisions of this Agreement shall survive any expiration or termination hereof: 4, 6, 7, 8, 9, 10 (but only with respect to events occurring prior to such expiration or termination), 11 and 12. 12. MISCELLANEOUS PROVISIONS 12.1. ENTIRE AGREEMENT. This Agreement, including Exhibits 1 and any and all Statements of Work attached hereto and made a part hereof, may be modified or amended only by a written instrument signed by duly authorized representatives of both Company and i2. The pre-printed terms and conditions of any purchase order, invoice or other document issued by a Party in connection with this Agreement which are in addition to or inconsistent with the terms and conditions of this Agreement shall not be binding on the other Party and shall not be deemed to modify this Agreement. No term or provision contained herein shall be deemed waived and no breach excused unless such waiver or consent shall be in writing and signed by the waiving Party. CONFIDENTIAL Neoforma Services v122900 Page 80) 9 12.2. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES. 12.3. NO LIENS. Company shall not impose or incur, and shall not permit the imposition or placement of, any liens, security interests or other encumbrances on, with respect to, or relating to the System. 12.4. BINDING UPON SUCCESSORS AND ASSIGNS. Neither Party shall assign or delegate this Agreement or any right or obligation hereunder, by operation of law or otherwise, without the prior written consent of the other Party, and any purported assignment or delegation shall be void and without force or effect. Notwithstanding the foregoing: (i) i2 may assign the receivables under this Agreement and (ii) a Party may assign this Agreement in connection with a change of control of that Party to an entity that is not a Competitor of the other Party; provided that (a) any permitted successor to the assigning Party shall be bound by each and every obligation and restriction to which the assigning Party is bound hereunder and (b) the assigning Party shall provide the other Party with prompt notice of the relevant assignment of this Agreement. For purposes of this paragraph, "change of control" shall mean the direct or indirect acquisition of either (I) the majority of the assigning Party's voting stock or (II) all or substantially all of the assets of the assigning Party to which this Agreement relates in a single transaction or a series of related transactions. 12.5. SEVERABILITY. If any provision of this Agreement is found to be invalid or unenforceable, such provision shall be severed from the Agreement and the remainder of this Agreement shall be interpreted so as best to reasonably effect the intent of the parties. 12.6. AMENDMENT AND WAIVERS. Any terms or provisions of this Agreement may be amended, and the observance of any term of this Agreement may be waived, only by a writing signed by a duly authorized representative of the Party to be bound. The failure of either Party to enforce, at any time, any of the provisions of this Agreement or the failure to require, at any time, performance by the other Party of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor shall it in any way affect the ability of either Party to enforce each and every such provision thereafter. The express waiver by either Party of any provision, condition or requirement of this Agreement shall not constitute a waiver of any future obligation to comply with such provision, condition or requirement. 12.7. NOTICES. Any notice, demand, or request with respect to this Agreement shall be in writing and shall be effective only if it is delivered by hand or overnight courier or mailed, certified or registered mail, postage prepaid, return receipt requested, addressed to the appropriate Party as set forth below. Such communications shall be effective when they are received by the addressee; but if sent by certified or registered mail in the manner set forth above, they shall be effective not later than three (3) days after being deposited in the mail. Any Party may change its address for such communications by giving notice to the other Party in conformity with this paragraph. To i2: i2 Technologies, Inc. Attn: Corporate Counsel 11701 Luna Road Dallas, Texas 75234 To Company: Neoforma.com, Inc. Attn: Corporate Counsel 3061 Zanker Road San Jose, California 95134 12.8. REMEDIES NON-EXCLUSIVE. Except as otherwise expressly provided, any remedy provided for in this Agreement is deemed cumulative with, and not exclusive of, any other remedy provided for in this Agreement or otherwise available at law or in equity. The exercise by a Party of any remedy shall not preclude the exercise by such Party of any other remedy. CONFIDENTIAL Neoforma Services v122900 Page 90) 10 12.9. INDEPENDENT CONTRACTORS. The parties are independent contractors. Nothing contained herein or done pursuant to this Agreement shall constitute either Party the agent of the other Party for any purpose or in any sense whatsoever, or constitute the parties as partners or joint ventures. 12.10. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 12.11. COUNTERPARTS. This Agreement may be executed in counterparts or duplicate originals, both of which shall be regarded as one and the same instrument, and which shall be the official and governing version in the interpretation of this Agreement. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT AND UNDERSTANDING WITH RESPECT TO THE SUBJECT MATTER HERETO, BETWEEN COMPANY AND i2 WITH RESPECT TO THE SERVICES TO BE FURNISHED HEREIN. THIS AGREEMENT SUPERSEDES ALL PRIOR COMMUNICATIONS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date of the last signature below. NEOFORMA.COM, INC. i2 TECHNOLOGIES, INC. By: _____________________________ By: _____________________________ (Authorized Signature) (Authorized Signature) Printed Name:_____________________ Printed Name: ____________________ Title: ____________________________ Title: ___________________________ Date: ____________________________ Date: ___________________________ CONFIDENTIAL Neoforma Services v122900 Page 100) 11 SERVICES AGREEMENT EXHIBIT 1 - CONSULTING SERVICE RATES Company Name: NEOFORMA.COM, INC. 3061 ZANKER ROAD SAN JOSE, CALIFORNIA 95134 ATTACHED TO AND MADE PART OF THE SERVICES AGREEMENT BETWEEN i2 AND COMPANY. Consulting Service rates: SIA Analysts [*] p/wk Director, Engagement Manager, Company Service Unit Manager [*] p/h Program Manager [*] p/h Sr. Solutions Architect, Sr. Modeling Specialist, Sr. Integration Specialist [*] p/h Solutions Architect, Modeling Specialist, Integration Specialist [*] p/h Project Leader [*] p/h Senior Consultant [*] p/h Consultant [*] p/h
These Consulting Service rates are [*] during the [*], but in any renewal term shall be i2's then-current standard rates. All Service rates do not include travel, living, or other incidental expenses. These expenses shall be reimbursed by Company. All Services are provided on a time and material basis and are charged portal to portal. Sales tax and import fees to be borne by Company. i2 will use commercially reasonable efforts to utilize local resources in San Jose, California. During the term of this Agreement and any renewal term, Company shall receive a [*] discount off the above prices for Consulting Services. * Confidential treatment requested. CONFIDENTIAL Neoforma Services v122900 Page 110) EX-10.37 13 f70406ex10-37.txt EXHIBIT 10.37 1 Exhibit 10.37 COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of December 29, 2000 by and between Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), and i2 Technologies, Inc., a Delaware corporation ("i2"). RECITALS WHEREAS, the Company and i2 have entered into a Software License Agreement, dated as of December 29, 2000 (the "LICENSE AGREEMENT"), pursuant to which i2 has granted to the Company a license to use certain software, all as set forth in the License Agreement; WHEREAS, the Company desires to sell to i2, and i2 desires to purchase from the Company, shares of the Company's Common Stock on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, the parties agree as follows: ARTICLE I AGREEMENT TO ISSUE STOCK 1.1 Definitions. The following definitions shall apply for purposes of this Agreement: "ADDITIONAL FINANCING" means the Company's sale of its Common Stock in one transaction or series of related transactions occurring subsequent to the Next Financing but on or before June 30, 2001. At least one of the investors in the Additional Financing must be VHA. "ADDITIONAL FINANCING PROPORTIONAL AMOUNT" is equal to 20% of the total funds invested in the aggregate by VHA and UHC in the Additional Financing. In the event that the sum of the Next Financing Proportional Amount and the Additional Financing Proportional Amount is greater than $5,000,000, then the Additional Financing Proportional Amount shall be reduced such that the sum of the Next Financing Proportional Amount and the Additional Financing Proportional equals $5,000,000. "COMMON STOCK" means the Company's Common Stock, par value $0.001 per share. "NEXT FINANCING" means the Company's next sale of its Common Stock in one transaction or series of related transactions occurring on or before February 15, 2001. At least one of the investors in the Next Financing must be VHA. "NEXT FINANCING PROPORTIONAL AMOUNT" is equal to 20% of the total funds invested in the aggregate by VHA and UHC in the Next Financing. In no event shall the Next Financing Proportional Amount be greater than $5,000,000. 2 "SHARES" means the shares of Common Stock purchased by i2 in the Next Financing and the Additional Financing, and any shares of Common Stock issued to i2 pursuant to Section 1.2(c) in lieu of payments owed by the Company to i2 under the License Agreement. "UHC" means University HealthSystem Consortium, an Illinois corporation. "VHA" means VHA, Inc., a Delaware corporation. 1.2 Agreement to Purchase and Sell. (a) Next Financing. The Company agrees to sell to i2 at the Closing of the Next Financing, and i2 agrees to purchase from the Company at the Closing of the Next Financing, that number of Shares equal to the quotient obtained by dividing the Next Financing Proportional Amount by the price at which the Company sells shares of its Common Stock in the Next Financing, subject to Section 1.2(d). (b) Additional Financing. In the event that the Next Financing occurs and the Next Financing Proportional Amount is less than $5,000,000, then the Company agrees to sell to i2 at the Closing of the Additional Financing, and i2 agrees to purchase from the Company at the Closing of the Additional Financing that number of Shares equal to the quotient obtained by dividing the Additional Financing Proportional Amount by the price at which the Company sells shares of its Common Stock in the Additional Financing, subject to Section 1.2(d). (c) Conversion of License Payments. If the Next Financing has not occurred, then, by written notice furnished by the Company to i2 at any time following February 15, 2001 but prior to July 1, 2001 (the "CONVERSION NOTICE"), the Company may elect to convert all or a portion of the remaining payments it owes to i2 under the License Agreement into Shares as determined by dividing such payments to be converted by the closing price of the Company's Common Stock on the Nasdaq Stock Market on the date the Conversion Notice is sent by the Company to i2. The Company may only make one (1) election to convert all or a portion of the remaining payments it owes to i2 under the License Agreement into Shares pursuant to this Section 1.2(c). Payments to be converted pursuant to this Section 1.2(c) may only be converted in increments of $1,000,000. (d) Terms Substantially the Same. It is the parties intent that i2 invest in the Company's Common Stock on substantially the same terms as the terms to be provided to the investors in the Next Financing and the Additional Financing. If necessary to effect such intention, the parties agree to amend this Agreement to provide i2 with substantially the same terms as the terms that are ultimately provided to the investors in the Next Financing and the Additional Financing. Notwithstanding the foregoing, in no event shall the per share purchase price paid by VHA and UHC in the Next Financing or the Additional Financing be based on a formula that uses the average closing price of the Company's Common Stock on the Nasdaq National Market for a period greater than 45 consecutive trading days. In the event that such a formula is used in the Next Financing or in the Additional Financing to determine the per share purchase price paid by VHA and UHC, the price to be paid by i2 in the Next Financing or Additional Financing will be the average closing price of the Company's Common Stock on the Nasdaq National Market for the 45 consecutive trading days prior to the applicable Closing Date. 2 3 ARTICLE II CLOSINGS 2.1 Closings. The purchase and sale of the Shares in the Next Financing and the Additional Financing and any issuance of Shares to i2 pursuant to Section 1.2(c) of this Agreement in lieu of payments owed by the Company to i2 under the License Agreement will each take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI and Article VII, or at such other date, time and location as the Company and i2 mutually agree upon (each such time and place are referred to in this Agreement as a "CLOSING"). At each Closing, the Company will deliver to i2 a certificate representing the Shares against delivery to the Company by i2 of the purchase price paid by (i) a check payable to the Company's order, (ii) wire transfer of funds to the Company or (iii) solely in the case of the conversion of payments owed by the Company to i2 under the License Agreement, cancellation of license payments owed by the Company to i2. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to i2, subject to the exceptions specifically disclosed in writing in the disclosure letter delivered by the Company dated as of the date hereof and certified by a duly authorized officer of the Company (the "COMPANY DISCLOSURE LETTER") (which Company Disclosure Letter shall be deemed to be representations and warranties to i2 by the Company under this Section 3), as follows: 3.1 Organization of the Company. (a) The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority, and all requisite qualifications to do business as a foreign corporation, to conduct its business in the manner in which its business is currently being conducted, except where the failure to be so organized, existing or in good standing or to have such power, authority or qualifications would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (b) The Company has delivered or made available to i2 a true and correct copy of the Certificate of Incorporation (including any Certificates of Designation) and Bylaws of the Company and similar governing instruments of each of its subsidiaries, each as amended to date (collectively, the "COMPANY CHARTER DOCUMENTS"), and each such instrument is in full force and effect. Neither the Company nor any of its subsidiaries is in violation of any of the provisions of the Company Charter Documents. 3.2 Capitalization. (a) The authorized capital stock of the Company consists solely of 300,000,000 shares of Common Stock, of which there were 158,593,007 shares issued and outstanding as of the close of business on December 29, 2000, and 5,000,000 shares of Preferred Stock, par value $0.001 per share, of which no shares are issued or outstanding. All outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable and 3 4 are not subject to any right of rescission or preemptive rights created by statute, the Company Charter Documents or any agreement or document to which the Company is a party or by which it is bound. As of the date of this Agreement, there are no shares of Common Stock held in treasury by the Company. (b) As of the close of business on December 29, 2000, (i) 12,093,686 shares of Common Stock are subject to issuance pursuant to outstanding options (the "COMPANY OPTIONS") to purchase Common Stock under the Company's 1997 Stock Plan and 1999 Equity Incentive Plan ("COMPANY STOCK OPTION PLANS") for an aggregate exercise price of $54,922,563, (ii) 90,000 shares of Common Stock are subject to issuance pursuant to Company Options other than pursuant to Company Stock Option Plans for an aggregate exercise price of $ 996,891, (iii) 1,081,792 shares of Common Stock are subject to issuance pursuant to Company Options other than pursuant to the Company Stock Option Plans from the Pharos and EquipMD acquisitions for an aggregate exercise price of $3,384,412 and (iv) 572,635 shares of Company Common Stock are reserved for future issuance under the Company's 1999 Employee Stock Purchase Plan (the "COMPANY ESPP"). All shares of Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. Other than as set forth on Part 3.2(b) of the Company Disclosure Letter, there are no commitments or agreements of any character to which the Company is bound obligating the Company to accelerate the vesting of any Company Option as a result of the consummation of the transactions contemplated by this Agreement. (c) All outstanding shares of Company Common Stock, all outstanding Company Options, and all outstanding shares of capital stock of each subsidiary of the Company have been issued and granted in material compliance with (i) all applicable securities laws and other applicable material Legal Requirements and (ii) all material requirements set forth in applicable agreements or instruments. For the purposes of this Agreement, "LEGAL REQUIREMENTS" means any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity (as defined in Section 3.4). (d) The Shares, when issued and paid for as provided in this Agreement, will be duly authorized and validly issued, fully paid and nonassessable. (e) Based in part on the representations made by i2 in Section 4 hereof, the offer and sale of the Shares in accordance with this Agreement (assuming no change in currently applicable law) is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "1933 ACT"). 3.3 Obligations With Respect to Capital Stock. Except as set forth in Section 3.2 or Part 3.3 of the Company Disclosure Letter, there are no equity securities, partnership interests or similar ownership interests of any class of Company equity security, or any securities exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. All stock and rights to purchase stock of any subsidiary of the Company are owned free and clear of all Encumbrances. Except as set forth in Section 3.2 or Part 3.2 or Part 3.3 of the Company Disclosure Letter, there 4 5 are no subscriptions, options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which the Company or any of its subsidiaries is a party or by which it is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock, partnership interests or similar ownership interests of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to grant, extend, accelerate the vesting of or enter into any such subscription, option, warrant, equity security, call, right, commitment or agreement. There are no registration rights, and there is no shareholder agreement, investor agreement, voting trust, proxy, rights agreement, "poison pill" anti-takeover plan or other agreement or understanding to which the Company is a party or by which it is bound with respect to any equity security of any class of the Company or with respect to any equity security, partnership interest or similar ownership interest of any class of any of its subsidiaries. 3.4 Due Authorization. (a) The Company has all requisite corporate power and authority to enter into this Agreement and the License Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the License Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company. No approval of any holder of any securities of the Company is required in connection with the consummation of the transactions contemplated hereby or thereby. This Agreement and the License Agreement have each been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by i2, constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their 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 and the License Agreement by the Company does not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Company Charter Documents, (ii) subject to compliance with the requirements set forth in Section 3.4(c), conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or by which 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 the Company'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 the Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or any of its properties are 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 the Company. Part 3.4(b) of the Company Disclosure Letter lists all consents, waivers and approvals under any of the Company's or any of its subsidiaries' agreements, contracts, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated hereby, which, if individually or in the aggregate not obtained, would have a Material Adverse Effect on the Company. 5 6 (c) No consent, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other governmental entity or instrumentality, foreign or domestic ("GOVERNMENTAL ENTITY") is required to be obtained or made by the Company in connection with the execution, delivery and performance of this Agreement or the License Agreement or the consummation of the transactions contemplated hereby or thereby, except for (i) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign and state securities (or related) laws and the securities laws of any foreign country, and (ii) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not have a Material Adverse Effect on the Company or have a material adverse effect on the ability of the parties hereto to consummate the transactions contemplated hereby. 3.5 SEC Filings; Company Financial Statements. (a) The Company has filed all forms, reports and documents required to be filed by the Company with the Securities and Exchange Commission (the "SEC") since the effective date of the registration statement of the Company's initial public offering (the "COMPANY INITIAL REGISTRATION STATEMENT"), and has made available to i2 such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that the Company may file subsequent to the date hereof) and the Company Initial Registration Statement are referred to herein as the "COMPANY SEC REPORTS." As of their respective dates, the Company SEC Reports (i) were prepared in accordance with the requirements of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent corrected prior to the date of this Agreement by a subsequently filed Company SEC Report. None of the Company's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports (the "COMPANY FINANCIALS"), including any Company SEC Reports filed after the date hereof until the applicable Closing, (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 1O-Q, 8-K or any successor form under the 1934 Act) and (iii) fairly presented the consolidated financial position of the Company and its subsidiaries as at the respective dates thereof and the consolidated results of the Company's operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year-end adjustments. The balance sheet of the Company contained in the Company SEC Reports as of September 30, 2000 is hereinafter referred to as the "COMPANY BALANCE SHEET." Except as disclosed in the Company Financials, since the date of the Company Balance Sheet neither the Company nor any of its subsidiaries has any liabilities required under GAAP to be set forth on a balance sheet (absolute, accrued, contingent or otherwise) which are, individually or in the aggregate, material to the business, results of 6 7 operations or financial condition of the Company and its subsidiaries taken as a whole, except for liabilities incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practices and liabilities incurred in connection with this Agreement. 3.6 Absence of Certain Changes or Events. Since the date of the Company Balance Sheet there has not been (i) any Material Adverse Effect with respect to the Company, (ii) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company's or any of its subsidiaries' capital stock, or any purchase, redemption or other acquisition by the Company of any of the Company's capital stock or any other securities of the Company or its subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities except for repurchases from employees following their termination pursuant to the terms of their pre-existing stock option or purchase agreements, (iii) any split, combination or reclassification of any of the Company's or any of its subsidiaries' capital stock, (iv) any material change or alteration in the policy of the Company relating to the granting of stock options or other equity compensation to its employees and consultants other than in the ordinary course of business consistent with past practice, or (v) entry by the Company or any of its subsidiaries into, or material modification, amendment or cancellation of, any licensing or other agreement with regard to the acquisition, distribution or licensing of any material Intellectual Property other than licenses, distribution agreements, advertising agreements, or other similar agreements entered into in the ordinary course of business consistent with past practice. 3.7 Tax Returns and Payments. The Company has timely filed all tax returns and reports required by law. All tax returns and reports of the Company are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those, if any, currently being contested by it in good faith, which are listed in the Company Disclosure Schedule. 3.8 Title to Properties. (a) All real property leases to which the Company is a party and each amendment thereto that is in effect as of the date of this Agreement that provide for annual payments in excess of $250,000 are in full force and effect and are valid and enforceable in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default) that would give rise to a material claim against the Company which could reasonably be expected to have a Material Adverse Effect on the Company. (b) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Encumbrances, except as reflected in the Company Financials and except where the failure to have valid title or a valid leasehold interest would not have a Material Adverse Effect on the Company. 3.9 Intellectual Property. For the purposes of this Agreement, the following terms have the following definitions: "INTELLECTUAL PROPERTY" means any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and 7 8 applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, URLs, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; (vii) all moral and economic rights of authors and inventors, however denominated, throughout the world, and (viii) any similar or equivalent rights to any of the foregoing anywhere in the world. "COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that is owned by, or exclusively licensed to, the Company or one of its subsidiaries. "COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered Intellectual Property owned by, or filed in the name of, the Company or one of its subsidiaries. "REGISTERED INTELLECTUAL PROPERTY" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered copyrights and applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any Governmental Entity. (a) No material Company Intellectual Property or product or service of the Company is subject to any proceeding, agreement, or stipulation to which the Company is a party, or any outstanding decree, order or judgment, which arose out of any proceeding to which the Company was either a party or of which the Company has knowledge, restricting in any manner the use, transfer, or licensing thereof by the Company, or which may affect the validity, use or enforceability of such Company Intellectual Property. (b) Each material item of Company Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such Company Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such Company Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property, except, in each case, as would not materially adversely affect such item of Company Registered Intellectual Property. (c) The Company or one of its subsidiaries owns and has good and exclusive title to, or has license sufficient for the conduct of its business as currently conducted to, each material item of Company Intellectual Property free and clear of any Encumbrance (excluding licenses and related restrictions). 8 9 (d) Neither the Company nor any of its subsidiaries has transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material Company Intellectual Property, to any third party. (e) The operation of the business of the Company as such business currently is conducted, including the Company's design, development, marketing and sale of the products or services of the Company (including with respect to products currently under development) has not, does not and will not materially infringe or materially misappropriate the Intellectual Property of any third party or, to its knowledge, constitute unfair competition or trade practices under the laws of any jurisdiction. (f) The Company has not received written notice from any third party that the operation of the business of the Company or any act, product or service of the Company, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction, which allegation, if true, would have a Material Adverse Effect on the Company. (g) To the knowledge of the Company, no person has or is infringing or misappropriating any Company Intellectual Property, which infringement or misappropriation, individually or in the aggregate, would have a Material Adverse Effect on the Company. (h) The Company and its subsidiaries have taken reasonable steps to protect the Company's and its subsidiaries' rights in the Company's and such subsidiaries' confidential information and trade secrets, except where the failure to do so would not have a Material Adverse Effect on the Company. 3.10 Compliance with Laws; Certain Agreements. (a) Neither the Company nor any of its subsidiaries is in conflict with, or in default or in violation of (i) any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which the Company or any of its subsidiaries or any of their respective properties is bound or affected, or (ii) any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties is bound or affected, except for conflicts, violations and defaults that, individually or in the aggregate, would not have a Material Adverse Effect on the Company. To the Company's knowledge, no investigation or review by any Governmental Entity is pending or has been threatened in a writing delivered to the Company against the Company or any of its subsidiaries. There is no agreement with any Governmental Entity, judgment, injunction, order or decree binding upon the Company or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any material business practice of the Company or any of its subsidiaries, or any acquisition of material property by the Company or any of its subsidiaries. (b) The Company and its subsidiaries hold all permits, licenses, exemptions, orders and approvals from governmental authorities that are material to or required for the operation of the business of the Company as currently conducted (collectively, the "COMPANY PERMITS"), and are in compliance with the terms of the Company Permits, except where the 9 10 failure to hold such Company Permits, or be in such compliance, would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 3.11 Litigation. There are no claims, suits, actions or proceedings pending or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its subsidiaries, before any Governmental Entity or any arbitrator that seeks to restrain or enjoin the consummation of the transactions contemplated by this Agreement or which could reasonably be expected, either singularly or in the aggregate with all such claims, actions or proceedings, to have a Material Adverse Effect on the Company following the transactions contemplated hereby or have a material adverse effect on the ability of the parties hereto to consummate the transactions contemplated hereby. 3.12 Employee Benefit Plans. (a) Definitions. With the exception of the definition of "Affiliate" set forth in Section 3.12(a)(i) below (which definition shall apply only to this Section 3.12), for purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "AFFILIATE" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder; (ii) "COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each "EMPLOYEE BENEFIT PLAN," within the meaning of Section 3(3) of ERISA which is maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Company Employee; and (iii) "COMPANY EMPLOYEE" shall mean any current, former, or retired employee, officer, or director of the Company or any Affiliate. (b) Employee Plan Compliance. Except, in each case, as would not, individually or in the aggregate, have a Material Adverse Effect on the Company (i) the Company has performed in all material respects all obligations required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation by any other party to, each Company Employee Plan, and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination letter from the IRS with respect to each such Plan as to its qualified status under the Code or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination and no event has occurred which would adversely affect the status of such determination letter or the qualified status of such Plan; (iii) no "prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of 10 11 ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the applicable Closing in accordance with its terms, without liability to the Company or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company, threatened by the IRS or DOL with respect to any Company Employee Plan; (vii) neither the Company nor any Affiliate is subject to any material penalty or tax with respect to any Company Employee Plan under Section 402(i) of ERISA or Sections 4975 through 4980 of the Code; and (viii) all contributions due from the Company or any Affiliate with respect to any of the Company Employee Plans have been made as required under ERISA or have been accrued on the Company Balance Sheet. (c) Employment Matters. Except, in each case, as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the Company and each of its subsidiaries: (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Company Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Company Employees; (iii) has properly classified independent contractors for purposes of federal and applicable state tax laws, laws applicable to employee benefits and other applicable laws; (iv) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (v) is not liable for any material payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Company Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, or, to the Company's knowledge, threatened material claims or actions against the Company under any worker's compensation policy or long-term disability policy. To the Company's knowledge, no Company Employee has violated in any material manner any employment contract, nondisclosure agreement or noncompetition agreement by which such Company Employee is bound due to such Company Employee being employed by the Company and disclosing to the Company or using trade secrets or proprietary information of any other person or entity. (d) Labor. No work stoppage or labor strike against the Company is pending, threatened or reasonably anticipated. The Company does not know of any activities or proceedings of any labor union to organize any Company Employees. There are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the Company, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any Company Employee, including charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in any material liability to the Company. Neither the Company nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act. The Company is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company. 11 12 3.13 Environmental Matters. To the Company's knowledge, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the Company's knowledge, no material expenditures are or will be required in order to comply with any such statute, law or regulation. 3.14 Certain Agreements. Other than this Agreement and the License Agreement, and except as otherwise set forth in Part 3.14 of the Company Disclosure Letter, neither the Company nor any of its subsidiaries is a party to or is bound by: (a) any material agreement of indemnification, any material guaranty or any material instrument evidencing indebtedness for borrowed money by way of direct loan, sale of debt securities or purchase money obligation; (b) any agreement or obligation currently in force relating to the disposition or acquisition by the Company or any of its subsidiaries after the date of this Agreement of a material amount of assets not in the ordinary course of business, or pursuant to which the Company has any material ownership or participation interest in any corporation, partnership, joint venture, strategic alliance or other business enterprise other than the Company's subsidiaries; (c) any agreement or obligation currently in force to provide source code to any third party for any product or technology; (d) any agreement or obligation with any affiliate of the Company; or (e) any agreement or commitment currently in force providing for capital expenditures by the Company or its subsidiaries in excess of $1,000,000. The agreements required to be disclosed in the Company Disclosure Letter pursuant to clauses (a) through (e) above or pursuant to Section 3.9 or filed with any Company SEC Report (the "COMPANY CONTRACTS") are valid and in full force and effect, except to the extent that such invalidity would not have a Material Adverse Effect on the Company. Neither the Company nor any of its subsidiaries, nor to the Company's knowledge, any other party thereto, is in breach, violation or default under, and neither the Company nor any of its subsidiaries has received written notice that it has breached, violated or defaulted, any of the terms or conditions of any Company Contract in such a manner as would have a Material Adverse Effect on the Company. 3.15 Brokers' and Finders' Fees. The Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.16 Insurance. The Company and each of its subsidiaries have policies of insurance and bonds of the type and in amounts customarily carried by persons conducting business or owning assets similar to those of the Company and its subsidiaries. There is no material claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies have been paid and the Company and its subsidiaries are otherwise in compliance in all material respects with the terms of such policies and bonds. 12 13 ARTICLE IV REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF i2 i2 hereby represents and warrants to the Company, subject to the exceptions specifically disclosed in writing in the disclosure letter delivered by i2 dated as of the date hereof and certified by a duly authorized officer of i2 (the "i2 DISCLOSURE LETTER") (which i2 Disclosure Letter shall be deemed to be representations and warranties to the Company by i2 under this Section 4), as follows: 4.1 Organization, Good Standing and Qualification. i2 represents that it is an entity duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite power and authority, and all requisite qualifications to do business as a foreign entity, to conduct its business in the manner in which its business is currently being conducted, except where the failure to be so organized, existing or in good standing or to have such power, authority or qualifications would not have a Material Adverse Effect on i2. 4.2 Authorization. (a) i2 has all requisite power and authority to enter into this Agreement and the License Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the License Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of i2. This Agreement and the License Agreement have each been duly executed and delivered by i2 and constitute the valid and binding obligations of i2, enforceable against i2 in accordance with their 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 and the License Agreement by i2 does not, and the performance of this Agreement and the License Agreement by i2 will not, (i) conflict with or violate the certificate of incorporation, bylaws, operating agreement or other organizational documents of i2, (ii) subject to compliance with the requirements set forth in Section 4.2(c) with regard to i2, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to i2 or by which any of its 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 i2'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 i2 pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which i2 is a party or by which i2 or any of its properties are 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 i2. Except as set forth in a letter delivered by i2 to the Company concurrently with the execution of this Agreement, no consents, waivers and approvals under any of i2's or any of its subsidiaries' agreements, contracts, licenses or leases are required to be obtained in connection with the consummation of the transactions contemplated hereby, which, if individually or in the aggregate not obtained, would have a Material Adverse Effect on i2. 13 14 (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 i2 in connection with the execution and delivery of this Agreement or the License Agreement or the consummation of the transactions contemplated hereby, except for (i) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign and state securities (or related) laws and the securities laws of any foreign country, and (ii) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not have a Material Adverse Effect on i2 or have a material adverse effect on the ability of the parties hereto to consummate the transactions contemplated hereby. 4.3 Acquisition for Own Account. The Shares to be purchased by i2 hereunder will be acquired for investment for i2's own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the 1933 Act, and i2 represents that it has no present intention or agreement to sell, grant any participation in, or otherwise distribute any of the Shares to be purchased by i2 hereunder in any public resale or distribution within the meaning of the 1933 Act. i2 also represents that it has not been formed for the specific purpose of acquiring the Shares under this Agreement. 4.4 Disclosure of Information. i2 believes it has received or has had full access to all the information it considers necessary or appropriate to make an informed ownership decision with respect to the Shares to be purchased by i2 under this Agreement. i2 further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to i2 or to which i2 had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Section 3. 4.5 Experience. i2 understands that the purchase of the Shares involves substantial risk. i2: (i) has experience as an investor in securities of companies in the development stage and acknowledges that i2 is able to fend for itself, can bear the economic risk of i2's investment in the Shares and has such knowledge and experience in financial or business matters that i2 is capable of evaluating the merits and risks of this investment in the Shares and protecting its own interests in connection with this investment and/or (ii) has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables i2 to be aware of the character, business acumen and financial circumstances of such persons. 4.6 Accredited Investor Status. i2 is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. 4.7 Restricted Securities. i2 understands that the Shares will be characterized as "restricted securities" under the 1933 Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the 1933 Act and applicable regulations thereunder such securities may be resold without registration under the 1933 Act only in certain limited circumstances. In this connection, i2 represents that i2 is familiar with Rule 144 of the SEC, as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. 14 15 4.8 No Solicitation. At no time was i2 presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the issuance or delivery of the Shares. 4.9 Further Limitations on Disposition. Without in any way limiting the representations set forth above, i2 further agrees not to make any disposition of all or any portion of the Shares or of any interest therein to any person or entity unless: (a) there is then in effect a registration statement under the 1933 Act covering such proposed disposition of Shares and such disposition is made in accordance with such registration statement; or (b) i2 shall have notified the Company of the proposed disposition of the Shares and shall have furnished the Company with a statement of the circumstances surrounding such proposed disposition, and, at the expense of i2 or its transferee, with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such securities under the 1933 Act. 4.10 Legends. i2 understands and agrees that the certificates evidencing the Shares will bear legends substantially similar to those set forth below, as applicable, in addition to any other legend that may be required by applicable law, by the Company's Certificate of Incorporation or Bylaws, or by any agreement between the Company and i2: (a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OTHERWISE PERMITTED UNDER CONTRACTUAL RESTRICTIONS ON RESALE APPLICABLE TO THESE SECURITIES IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. (b) THE SECURITIES REPRESENTED HEREBY MAY BE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND THE HOLDERS HEREOF MAY BE BOUND BY CERTAIN RESTRICTIONS ON ACQUISITION OF THE ISSUER'S CAPITAL STOCK PURSUANT TO A COMMON STOCK PURCHASE AGREEMENT BETWEEN THE ORIGINAL HOLDERS OF THESE SECURITIES AND THE ISSUER, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. The legend set forth in (a) above shall be removed by the Company from any certificate evidencing Shares upon delivery to the Company of an opinion by counsel, reasonably satisfactory to the Company, to the effect that a registration statement under the 1933 Act is at that time in effect with respect to the legended security or to the effect that such security can be freely transferred in a public sale without such a registration statement being in effect and that 15 16 such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Shares. 4.11 Tax Liability. i2 has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. i2 relies solely on such advisors and not on any statements or representations of the Company, the Company's counsel, or any of the Company's agents. It understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Reasonable Efforts. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including the taking of all reasonable acts necessary to cause the conditions precedent set forth in Articles VI and VII to be satisfied. 5.2 Registration Rights. (a) Demand Right. Subject to the provisions of Section 5.3, if the Company shall receive a written request from i2 that the Company file a registration statement under the Securities Act covering the registration of Shares pursuant to this Section 5.2(a), then the Company shall, within twenty (20) days after the receipt of such written request, give written notice of such request (the "REQUEST NOTICE") to all Holders of Registrable Securities (as such terms are defined in that certain Amended and Restated Registration Rights Agreement, dated as of June 30, 2000, by and among the Company and certain investors in the Company's capital stock (the "PRIOR RIGHTS AGREEMENT")), and effect, as soon as practicable, by means of a Form S-3 registration statement if the Company is a registrant entitled to use such form, the registration under the Securities Act of all Shares and all Registrable Securities which have been requested to be registered and included in such registration by written notice given to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of Section 5.2(c); provided that the Shares requested by i2 to be registered pursuant to such request must have an anticipated aggregate public offering price (before any underwriting discounts and commissions) of not less than One Million Dollars ($1,000,000). The Company is obligated to effect only one such registration pursuant to this Section 5.2(a). Notwithstanding the foregoing, if the Company shall furnish to i2 a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of i2; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. 16 17 (b) Piggyback Rights. The Company shall notify i2 in writing at least five (5) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (excluding registration statements relating to any employee benefit plan or a corporate reorganization or other transaction covered by Rule 145 promulgated under the Securities Act, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Shares) and will afford i2 an opportunity to include in such registration statement all or any part of the Shares then held by i2. Should i2 desire to include in any such registration statement all or any part of the Shares, it shall, within five (5) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Shares it wishes to include in such registration statement. If i2 decides not to include all of its Shares in any registration statement thereafter filed by the Company, i2 shall nevertheless continue to have the right to include any Shares in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth in this Section 5.2. (c) Underwriting. The Company shall have the right to select one or more underwriters to manage a registration under this Section 5.2. If the registration to be effected pursuant to Section 5.2(a) or 5.2(b) is to be a registered public offering involving an underwriting, then the Company shall so advise i2. In such event, the right of i2 to include any Shares in a registration pursuant to this Section 5.2 shall be conditioned upon i2's participation in such underwriting and the inclusion of such Shares in the underwriting to the extent provided herein. In such event, i2 shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding anything set forth in this Section 5.2, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including the Shares) from the registration and the underwriting. If i2 disapproves of the terms of any such underwriting, i2 may elect to withdraw therefrom by written notice, given in accordance with Section 9.6 hereof, to the Company and the managing underwriter(s), delivered at least twenty (20) days prior to the effective date of the registration statement. Any Shares excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. (d) Expenses. All expenses incurred in connection with a registration pursuant to this Section 5.2, including without limitation all registration and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company, (but excluding underwriters' discounts and commissions), shall be borne by the Company. i2 shall bear its proportionate share (based on the number of shares sold by i2 over the total number of shares included in such registration at the time the registration statement is declared effective) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering and the fees and disbursements of any counsel for i2. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 5.2(a) if the registration request is subsequently withdrawn at the request of i2, unless i2 agrees to forfeit its right to its one (1) demand registration pursuant to Section 5.2(a); provided, further, however, that if at the time of such withdrawal, i2 has learned of a material adverse change in the condition, business, or prospects of the Company not known to i2 at the time of its request for such registration and has withdrawn its request for registration with reasonable promptness after learning of such material adverse change, then i2 17 18 shall not be required to pay any of such expenses and shall retain its demand registration right pursuant to Section 5.2(a). (e) Obligations of the Company. Whenever required to effect the registration of any Shares under this Agreement, the Company shall, as expeditiously as reasonably possible: (i) Prepare and file with the SEC a registration statement with respect to such Shares and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the earlier time that the distribution described in the registration statement has been completed; (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (iii) Furnish to i2 such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of the Shares that are included in such registration; (iv) Use reasonable efforts to register and qualify the Shares covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by i2, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering; and (vi) Notify i2 at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (f) Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 5.2 that i2 shall furnish to the Company such information regarding itself and the Shares held by it as shall be required to timely effect the registration of the Shares. (g) Indemnification. In the event any of the Shares are included in a registration statement under this Section 5.2: (i) By the Company. To the extent permitted by law, the Company will indemnify and hold harmless i2, the officers and directors of i2, any underwriter (as defined in the Securities Act) for i2 and each person, if any, who controls i2 or underwriter within the meaning of the Securities Act or 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or 18 19 other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, the "VIOLATIONS" and, individually, a "VIOLATION"): (A) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (C) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities law in connection with the offering covered by such registration statement. The Company will reimburse i2 and each officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, within three months after a request for reimbursement has been received by the Company, in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this subsection 5.2(e) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by i2 or any officer, director, underwriter or controlling person of i2. (ii) By i2. To the extent permitted by law, i2 will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, and any underwriter selling securities under such registration statement, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by i2 expressly for use in connection with such registration. i2 will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; within three months after a request for reimbursement has been received by i2, provided, however, that the indemnity agreement contained in this subsection 5.2(e) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of i2, which consent shall not be unreasonably withheld; and provided further, that the total amounts payable in indemnity by i2 under this subsection 5.2(e) in respect of any Violation shall not exceed the net proceeds received by i2 in the registered offering out of which such Violation arises. (iii) Notice. Promptly after receipt by an indemnified party under this Section 5.2 of notice of the commencement of any action (including any governmental action), 19 20 such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5.2, deliver to the indemnifying party a written notice of the commencement thereof. The indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 5.2, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 5.2. (iv) Defect Eliminated in Final Prospectus. The foregoing indemnity agreements of the Company and i2 are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. (v) Conflict with Underwriting Agreement. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement will control. (vi) Survival. The obligations of the Company and i2 under this Section 5.2 shall survive the completion of any offering of the Shares in a registration statement, and otherwise. (h) Termination of the Company's Obligations. The Company shall have no obligations pursuant to this Section 5.2 with respect to any Shares proposed to be sold by i2 in a registration pursuant to this Section 5.2 if, in the opinion of counsel to the Company, all such Shares proposed to be sold by i2 may be sold in a three (3) month period without registration under the Securities Act pursuant to Rule 144 under the Securities Act. (i) Delay of Registration. i2 will not have any right to obtain or seek an injunction restraining or otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement. (j) Prior Rights Agreement. i2 acknowledges that it is aware of the Prior Rights Agreement and agrees that the registration rights granted under this Section 5.2 are subject to the registration rights set forth in the Prior Rights Agreement. 20 21 (k) Registration. The terms "REGISTER," "REGISTRATION" and "REGISTERED" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement. 5.3 Market Standoff. Notwithstanding the provisions of Section 5.2 above, i2 hereby agrees that it shall not sell or otherwise transfer or dispose of (i) any Shares purchased in the Next Financing (other than to any affiliate of i2 that agrees to be similarly bound) for up to one hundred eighty (180) days following the date of the Closing of the Next Financing, (ii) any Shares purchased or issued in the Additional Financing (other than to any affiliate of i2 that agrees to be similarly bound) for up to one hundred eighty (180) days following the date of the Closing of the Additional Financing or (iii) any Shares issued to i2 pursuant to Section 1.2(c) in lieu of payments owed by the Company to i2 under the License Agreement (other than to any affiliate of i2 that agrees to be similarly bound) for up to one hundred eighty (180) days following the date of the Closing of such conversion of payments into Shares pursuant to Section 1.2(c). In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificate(s) representing the Shares and to impose stop transfer instructions with respect to the Shares until the end of such 180-day period. Notwithstanding the foregoing, in the event that i2 exercises its demand right under Section 5.2(a), i2 shall have the right to include in such registration effected pursuant to Section 5.2(a) Shares in the amount of up to the number of Shares it purchased in the Next Financing, regardless of whether the Shares to be included in such registration have been held by i2 for more than one hundred eighty (180) days; provided that in no event may i2 exercise such demand right within one hundred eighty (180) days following the date of the Closing of the Next Financing. 5.4 Public Disclosure. The Company and i2 agree that they will promptly after the date of this Agreement issue a joint press release with respect to their entry into this Agreement and the License Agreement. The Company and i2 will consult with each other, and to the extent practicable, agree, before issuing a joint press release or otherwise making any public statement with respect to their entry into this Agreement and the License Agreement and will not issue any such joint press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with a national securities exchange. ARTICLE VI CONDITIONS TO i2'S OBLIGATIONS AT EACH CLOSING The obligations of i2 under Sections 1 and 2 of this Agreement are subject to the fulfillment or waiver, on or before each Closing, of each of the following conditions: 6.1 Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on the date of each Closing with the same effect as though such representations and warranties had been made on and as of such Closing (other than representations and warranties that address matters only as of a particular date, which shall be true and correct as of such date), except where the failure of such representations or warranties to be true or correct would not have, individually or in the aggregate, a Material Adverse Effect on the Company. It is understood that, for purposes of determining the accuracy of such representations and warranties with respect to a particular Closing, any update of or modification to the Company Disclosure Letter made or purported to have been made after such Closing shall be disregarded. i2 shall have received a certificate with 21 22 respect to the foregoing signed on behalf of the Company by the General Counsel or the Chief Financial Officer of the Company. 6.2 Performance. The Company shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before each Closing. 6.3 Securities Exemptions. The offer and sale of the Shares to i2 pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act, the qualification requirements of the California Corporate Securities Law of 1968, as amended ("CALIFORNIA LAW") and the registration and/or qualification requirements of all other applicable state securities laws. 6.4 Consents. (i) All required approvals or consents of any Governmental Entity or other person in connection with the consummation of the transactions contemplated hereby shall have been obtained (and all relevant statutory, regulatory or other governmental waiting periods, shall have expired) unless the failure to receive any such approval or consent would not be reasonably likely, directly or indirectly, to result in a Material Adverse Effect on the Company and its subsidiaries, taken as a whole, and (ii) all such approvals and consents which have been obtained shall be on terms that are not reasonably likely, directly or indirectly, to result in a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. 6.5 Nasdaq Listing. If required, the Shares shall have been approved for listing on the Nasdaq Stock Market, subject to official notice of issuance. ARTICLE VII CONDITIONS TO THE COMPANY'S OBLIGATIONS AT EACH CLOSING The obligations of the Company under this Agreement are subject to the fulfillment or waiver on or before the Closing of each of the following conditions: 7.1 Representations and Warranties. The representations and warranties of i2 contained in Section 4 shall be true and correct in all material respects on the date of each Closing with the same effect as though such representations and warranties had been made on and as of such Closing. It is understood that, for purposes of determining the accuracy of such representations and warranties with respect to a particular Closing, any update of or modification to the i2 Disclosure Letter made or purported to have been made after such Closing shall be disregarded. The Company shall have received a certificate with respect to the foregoing signed on behalf of i2 by the General Counsel or the Chief Financial Officer of i2. 7.2 Performance. i2 shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before each Closing. 7.3 Securities Exemptions. The issuance of the Shares to i2 pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act, the qualifications requirements of California Law and the registration and/or qualification requirements of all other applicable state securities laws. 22 23 7.4 Consents. (i) All required approvals or consents of any Governmental Entity or other person in connection with the consummation of the transactions contemplated hereby shall have been obtained (and all relevant statutory, regulatory or other governmental waiting periods, shall have expired) unless the failure to receive any such approval or consent would not be reasonably likely, directly or indirectly, to result in a Material Adverse Effect on the Company and its subsidiaries, taken as a whole, and (ii) all such approvals and consents which have been obtained shall be on terms that are not reasonably likely, directly or indirectly, to result in a Material Adverse Effect on the Company and its subsidiaries, taken as a whole. ARTICLE VIII TERMINATION 8.1 Termination. (a) This Agreement may be terminated prior to each Closing by mutual written consent duly authorized by the Boards of Directors of the Company and i2; or (b) This Agreement may be terminated by either the Company or i2 if the Closing of the Additional Financing shall not have occurred by June 30, 2001 for any reason; provided, however, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes a breach of this Agreement; provided, further, however, that notwithstanding the passage of June 30, 2001, the Company shall still have ten (10) business days to convert all or a portion of any remaining payments it owes to i2 under the License Agreement into Shares as specified in Section 1.2(c), and this Agreement shall not terminate until the Closing of such transaction. 8.2 Notice of Termination; Effect of Termination. Any proper termination of this Agreement under Section 8.1 will be effective immediately upon the delivery of written notice of the terminating party to the other party hereto. In the event of the termination of this Agreement as provided in Section 8.1, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 8.2 and Article IX, each of which shall survive the termination of this Agreement, and (ii) nothing herein shall relieve either party from liability for any willful breach of this Agreement. ARTICLE IX GENERAL PROVISIONS 9.1 Survival of Warranties. The representations, warranties and covenants of i2 (except for any covenant that by its express terms survives a Closing, and for the representations, warranties and covenants set forth in Sections 4.3 through 4.10 inclusive, which shall survive the execution and delivery of this Agreement and each Closing) contained in or made pursuant to this Agreement shall terminate at the Closing of the Next Financing, the Closing of the Additional Financing (provided that i2 purchases Shares in the Additional Financing) or the Closing of the conversion of payments owed by the Company to i2 under the License Agreement into Shares pursuant to Section 1.2(c), whichever occurs last. The representations, warranties and covenants of the Company (except for any covenant that by its express terms survives the Closing) contained in or made pursuant to this Agreement shall 23 24 terminate at the Closing of the Next Financing, the Closing of the Additional Financing (provided that i2 purchases Shares in the Additional Financing) or the Closing of the conversion of payments owed by the Company to i2 under the License Agreement into Shares pursuant to Section 1.2(c), whichever occurs last. 9.2 Assignment. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written consent of the other party hereto. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Any purported assignment in violation of this Section shall be void. 9.3 Governing Law. This Agreement shall be governed by and construed under the internal laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without reference to principles of conflict of laws or choice of laws. 9.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 9.5 Interpretation; Certain Defined Terms. (a) When a reference is made in this Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement unless otherwise indicated. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein shall be deemed in each case to be followed by the words "WITHOUT LIMITATION." The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When reference is made herein to "THE BUSINESS OF" an entity, such reference shall be deemed to include the business of all direct and indirect subsidiaries of such entity. Reference to the subsidiaries of an entity shall be deemed to include all direct and indirect subsidiaries of such entity. (b) For purposes of this Agreement, "ENCUMBRANCES" means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset) (other than (i) liens for taxes not yet due and payable; (ii) liens reflected on the Company Balance Sheet, if applicable; (iii) liens which are not material in character, amount or extent, and which do not materially detract from the value or materially interfere with the use of the property subject thereto or affected thereby; and (iv) contractor's liens). (c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT" when used in connection with an entity means any change, event, violation, inaccuracy, circumstance or effect that is or is reasonably likely to be materially adverse to the business, assets (including intangible assets), capitalization, financial condition, operations or results of operations of such 24 25 entity taken as a whole with its subsidiaries, except to the extent that any such change, event, violation, inaccuracy, circumstance or effect directly and primarily results from (i) changes in general economic conditions or changes affecting the industry generally in which such entity operates (provided that such changes do not affect such entity in a substantially disproportionate manner) or (ii) changes in the trading prices for such entity's capital stock. (d) For purposes of this Agreement, the term "PERSON" shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization, entity or Governmental Entity. 9.6 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon delivery either personally or by commercial delivery service, or sent via facsimile (receipt confirmed) to the parties at the following addresses or facsimile numbers (or at such other address or facsimile number for a party as shall be specified by like notice): If to i2: With a copy to: i2 Technologies, Inc. i2 Technologies, Inc. One i2 Place One i2 Place 11701 Luna Road 11701 Luna Road Dallas, Texas 75234 Dallas, Texas 75234 Facsimile: (214) 860-6060 Facsimile: (469) 357-6566 Attn: Chief Financial Officer Attn: General Counsel If to the Company: With a copy to: Neoforma.com, Inc. Fenwick & West LLP 3061 Zanker Road Two Palo Alto Square, Palo Alto, California 94306 San Jose, California 95134 Facsimile: 650-494-1417 Facsimile: 408-468-4040 Attn: Gordon K. Davidson Attn: Chief Financial Officer Douglas N. Cogen
9.7 Expenses; Finder's Fees. All fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether or not a Closing occurs. i2 agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's or broker's fee (and any asserted liability) for which i2 or any of its officers, partners, members, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless i2 from any liability for any commission or compensation in the nature of a finder's or broker's fee (and any asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 9.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 25 26 9.9 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, and the License Agreement constitute the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings duties or obligations between the parties with respect to the subject matter hereof. 9.10 Further Assurances. From and after the date of this Agreement, upon the request of i2 or the Company, the Company and i2 shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. 9.11 Amendment; Extension; Waiver. Subject to applicable law, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of the Company and i2. At any time prior to any Closing any party hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. 9.12 Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 9.13 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.14 Company Disclosure Letter. Disclosure made with regard to a representation or warranty of the Company in the Company Disclosure Letter shall also be deemed to qualify other representations and warranties of the Company if it is readily apparent from the language contained in such disclosure that such disclosure is applicable to such other representation or warranty. 9.15 Waiver Of Jury Trial. EACH OF THE COMPANY AND i2 HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR 26 27 OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS THE COMPANY OR i2 IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. * * * * * 27 28 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized respective officers as of the date first written above. NEOFORMA.COM, INC. By: ------------------------------------ Name: Title: i2 TECHNOLOGIES, INC. By: ------------------------------------ Name: Title: [Signature Page to Common Stock Purchase Agreement] EX-21.1 14 f70406ex21-1.txt EXHIBIT 21.1 1 EXHIBIT 21.1 Subsidiaries ------------ Neoforma GAR, Inc. Pharos Technologies, Inc. EquipMD, Inc. Neoforma Lifeline, Inc. EX-23.1 15 f70406ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated April 16, 2001 included in this Form 10-K into the Company's previously filed Registration Statements (File No.'s 333-95299 and 333-54548) on Form S-8. /s/ Arthur Andersen LLP San Jose, California April 16, 2001 -----END PRIVACY-ENHANCED MESSAGE-----