-----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, T39cYvFC8JZ8vgkm4MUMpE3N4ldSSkcVaH4nUrdHQvTcnCRtCk80C0nv0Qw/BkWT yY/TesKf1A9j2IvpkK+Haw== 0000891618-01-500773.txt : 20010516 0000891618-01-500773.hdr.sgml : 20010516 ACCESSION NUMBER: 0000891618-01-500773 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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-Q SEC ACT: SEC FILE NUMBER: 000-28715 FILM NUMBER: 1639252 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-Q 1 f72110e10-q.txt FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31,2001 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NO. 000-28715 ------------------------ NEOFORMA.COM, INC. (EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER) 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) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At May 15, 2001, there were 182,715,617 outstanding shares of our common stock, $.001 par value per share. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 NEOFORMA.COM, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000....................................... 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000.................. 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000.................. 5 Notes to Unaudited Condensed Consolidated Financial Statements.................................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................................ 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 34 Item 2. Changes in Securities and Use of Proceeds................... 34 Item 3. Defaults Upon Senior Securities............................. 34 Item 4. Submission of Matters to a Vote of Security Holders......... 34 Item 5. Other Information........................................... 34 Item 6. Exhibits and Reports on Form 8-K............................ 34 SIGNATURES................................................................ 35
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS NEOFORMA.COM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS
DECEMBER 31, MARCH 31, 2000 2001 ------------ ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................. $ 22,597 $ 24,203 Short-term investments.................................... 7,163 841 Accounts receivable, net of allowance for doubtful accounts of $384 and $588, respectively................ 1,353 3,239 Unbilled revenue.......................................... 946 500 Prepaid expenses and other current assets................. 3,770 3,547 Deferred debt costs, current portion...................... 413 413 --------- --------- Total current assets.............................. 36,242 32,743 --------- --------- PROPERTY AND EQUIPMENT, net................................. 32,529 31,431 INTANGIBLES, net of amortization............................ 127,799 119,990 CAPITALIZED PARTNERSHIP COSTS, net of amortization.......... 308,330 292,266 NON-MARKETABLE INVESTMENTS.................................. 8,400 8,400 OTHER ASSETS................................................ 456 337 DEFERRED DEBT COSTS, less current portion................... 182 77 --------- --------- Total assets...................................... $ 513,938 $ 485,244 ========= ========= CURRENT LIABILITIES: Notes payable, current portion............................ $ 8,089 $ 6,554 Accounts payable.......................................... 22,744 10,862 Accrued payroll........................................... 3,106 2,286 Other accrued liabilities................................. 2,303 2,419 Deferred revenue.......................................... 947 1,195 --------- --------- Total current liabilities......................... 37,189 23,316 --------- --------- NOTES PAYABLE, less current portion......................... 7,958 6,841 --------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common Stock $0.001 par value: Authorized -- 300,000 shares at March 31, 2001 Issued and outstanding: 134,935 shares at December 31, 2000 and 161,506 at March 31, 2001.................... 135 162 Warrants.................................................... 11,733 3,688 Additional paid-in capital.................................. 761,252 801,713 Notes receivable from stockholders.......................... (7,112) (7,049) Deferred compensation....................................... (32,346) (25,332) Unrealized loss on available-for-sale securities............ (3) (4) Accumulated deficit......................................... (264,868) (318,091) --------- --------- Total stockholders' equity........................ 468,791 455,087 --------- --------- Total liabilities and stockholders' equity........ $ 513,938 $ 485,244 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 NEOFORMA.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 2000 2001 -------- -------- REVENUE: Sales of used equipment................................... $ 76 $ -- Transaction fees.......................................... 801 2,404 Services.................................................. -- 14 Website sponsorship fees and other........................ 351 394 -------- -------- Total revenue..................................... 1,228 2,812 OPERATING EXPENSES: Cost of used equipment sold............................... 22 -- Cost of services.......................................... -- 4,394 Operations................................................ 3,714 3,915 Product development....................................... 6,131 5,554 Selling and marketing..................................... 12,153 10,262 General and administrative................................ 8,161 5,009 Amortization of intangibles............................... 1,311 7,809 Amortization of partnership costs......................... -- 18,978 Write off of acquired in-process research and development............................................ 3,000 -- -------- -------- Total operating expenses.......................... 34,492 55,921 -------- -------- Loss from operations.............................. (33,264) (53,109) OTHER INCOME (EXPENSE): Interest income........................................... 1,508 321 Interest expense.......................................... (221) (303) Other income (expense).................................... -- (132) -------- -------- Net loss.......................................... (31,977) (53,223) ======== ======== NET LOSS PER SHARE: Basic and diluted......................................... $ (0.77) $ (0.36) ======== ======== Weighted average shares -- basic and diluted.............. 41,520 149,474 ======== ======== PRO FORMA NET LOSS PER SHARE: Basic and diluted......................................... $ (0.61) $ (0.36) ======== ======== Weighted average shares -- basic and diluted.............. 52,067 149,474 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 NEOFORMA.COM, INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 2000 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(31,977) $(53,223) Adjustment to reconcile net loss to net cash used in operating activities: Amortization resulting from issuance of Series E preferred stock in connection with prepaid consulting services.... 335 -- Common stock issued to employees.......................... -- 349 Valuation of common stock options issued in connection with consulting services................................ 212 -- Valuation of warrants to purchase common stock in exchange for consulting services................................. 67 -- Provision for doubtful accounts........................... -- 632 Write off of acquired in-process research and development............................................. 3,000 -- Depreciation and amortization of property and equipment... 1,727 2,648 Amortization of intangibles............................... 1,311 7,809 Amortization of partnership costs......................... -- 18,978 Amortization of deferred compensation..................... 8,466 6,330 Amortization of deferred debt costs....................... 105 105 Change in assets and liabilities, net of acquisitions: Accounts receivable..................................... (491) (2,072) Inventory............................................... -- (300) Prepaid expenses and other assets....................... (321) 639 Accounts payable........................................ 10,220 (11,882) Accrued liabilities and accrued payroll................. (217) (704) Deferred revenue........................................ (29) 248 -------- -------- Net cash used in operating activities................. (7,592) (30,443) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable investments....................... (862) (618) Sale of marketable investments............................ 10,800 6,940 Cash paid for the acquisition of Pharos Technologies, Inc, net of cash acquired.................................... (500) -- Cash paid for the acquisition of U.S. Lifeline, Inc, net of cash acquired........................................ (3,219) -- Purchase of non-marketable investments.................... (3,000) -- Cash paid on note issued in connection with the acquisition of General Asset Recovery, Inc.............. (367) (412) Purchases of property and equipment....................... (13,469) (1,550) -------- -------- Net cash provided by (used in) investing activities... (10,617) 4,360 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of notes payable............................... (229) (2,239) Repayments of notes receivable from stockholders.......... 10 -- Proceeds from the issuance of common stock under the employee stock purchase plan............................ -- 559 Common stock repurchased, net of cancellation of notes receivable issued to common stockholders................ -- (83) Proceeds from the issuance of common stock, net of issuance costs.......................................... 95,328 29,452 -------- -------- Net cash provided by financing activities............. 95,109 27,689 -------- -------- Net increase in cash and cash equivalents............. 76,900 1,606 CASH AND CASH EQUIVALENTS, beginning of period.............. 25,292 22,597 -------- -------- CASH AND CASH EQUIVALENTS, end of period.................... $102,192 $ 24,203 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for interest.................. $ 116 $ 189 ======== ======== SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Conversion of preferred stock to common stock............. $ 88,824 $ -- ======== ======== Issuance of note payable to related party in connection with acquisition of Pharos Technologies, Inc............ $ 22,000 $ -- ======== ======== Issuance of common stock in connection with the acquisition of U.S. Lifeline, Inc....................... $ 2,769 $ -- ======== ======== Notes receivable from common stockholders cancelled in repurchase of common shares............................. $ -- $ 63 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 NEOFORMA.COM, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Neoforma.com, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report for the year ended December 31, 2000 filed on Form 10-K with the Securities and Exchange Commission. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows for the periods indicated. The results of operations for interim periods are not necessarily indicative of the results that may be expected for future quarters or the year ending December 31, 2001. Since inception, the Company has incurred significant losses, and, as of March 31, 2001, had an accumulated deficit of $318.1 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 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 its 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 its 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 ("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. RECLASSIFICATIONS Certain reclassifications have been made to the historical consolidated financial statements to conform to the 2001 presentation. INVESTMENTS Investments classified as cash equivalents amounted to approximately $16.7 million and $16.4 million at December 31, 2000 and March 31, 2001, respectively. Investments with maturities greater than ninety days and less than one year are classified as short-term investments. The investments are classified as "available-for-sale," and the difference between the cost and fair value of these investments is immaterial and is included in other comprehensive income. 6 7 NEOFORMA.COM, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amortized costs, aggregate fair value and gross unrealized holding losses by major security type were as follows (in thousands):
AS OF MARCH 31, 2001 -------------------------------------- UNREALIZED AMORTIZED AGGREGATE HOLDING COST FAIR VALUE LOSS --------- ---------- ----------- Debt securities issued by states of the United States and political subdivisions of the states........................................... $ 7,845 $ 7,845 $-- Corporate debt securities.......................... 9,438 9,434 (4) ------- ------- --- $17,283 $17,279 $(4) ======= ======= ===
AS OF DECEMBER 31, 2000 ------------------------------------- UNREALIZED AMORTIZED AGGREGATE HOLDING COST FAIR VALUE LOSS --------- ---------- ---------- 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) ======= ======= ====
COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income (loss) 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. The components of comprehensive loss for the three months ended March 31, 2000 and 2001 were as follows (in thousands):
THREE MONTHS ENDED MARCH 31, -------------------- 2000 2001 -------- -------- Net loss............................................... $(31,977) $(53,223) Net loss on available-for-sale securities.............. (6) (1) -------- -------- Comprehensive loss..................................... $(31,983) $(53,224) ======== ========
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 three months ended March 31, 2000 and 2001, the Company operated in a single business segment building and operating e-commerce marketplaces for healthcare providers and suppliers in the medical products, supplies and equipment industry. 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 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 7 8 NEOFORMA.COM, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) relating to these securities was approximately none and 48.4 million for the three months ended March 31, 2000 and 2001, respectively. Pro forma basic and diluted net loss per 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 that resulted from the automatic conversion of outstanding shares of convertible preferred stock, which occurred upon the closing of the Company's initial public offering in January 2000. The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share for the three months ended March 31, 2000 and 2001 (in thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31, -------------------- 2000 2001 -------- -------- Net loss.................................................... $(31,977) $(53,223) ======== ======== Basic and diluted: Weighted average shares of common stock outstanding....... 51,637 154,011 Less: Weighted average shares of common stock subject to repurchase............................................. (10,117) (4,537) -------- -------- Weighted average shares used in computing basic and diluted net loss per share............................. 41,520 149,474 ======== ======== Basic and diluted net loss per common share............... $ (0.77) $ (0.36) ======== ======== Pro forma: Net loss.................................................. $(31,977) $(53,223) ======== ======== Shares used above........................................... 41,520 149,474 Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock......... 10,547 -- -------- -------- Weighted average shares used in computing pro forma basic and diluted net loss per share............................ 52,067 149,474 -------- -------- Pro forma basic and diluted net loss per share.............. $ (0.61) $ (0.36) ======== ========
3. 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 was performance based, and was 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, the Company issued to VHA and UHC 8 9 NEOFORMA.COM, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, upon obtaining stockholder approval for the Agreement and the related issuance of shares, the Company issued the common stock discussed above to VHA and UHC. The common stock was issued in consideration for VHA and UHC entering into the Agreement, and the total valuation of those shares of $291.3 million was capitalized. In addition, approximately $9.4 million of deal costs, comprised primarily of attorneys, lawyers and bankers fees, was capitalized. These amounts have been recorded in Capitalized Partnership Costs in the accompanying condensed consolidated balance sheets and are being amortized over the estimated beneficial life of the Agreement of five years. Due to the performance criteria on the warrants, the valuation of the warrants was not calculated until earned. 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%. These amounts have 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 are being amortized over the life of the commerce agreement signed between the Company and that healthcare organization (between two to three years). As of March 31, 2001, the Company has recorded total Capitalized Partnership Costs relating to these shares of $41.1 million and total amortization against the Capitalized Partnership Costs of $49.5 million. 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 were $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 it 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. 9 10 NEOFORMA.COM, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. 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 of the assets of USL, the Company's healthcare content subsidiary, for $1.25 million. The purchase price was comprised 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 31, 2002, the Company can borrow funds up to an amount based on a specified formula based on the gross volume of transactions through the Marketplace. 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 assets. 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. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those discussed in "-- Factors That May Affect Operating Results" and elsewhere in this report. OVERVIEW Neoforma 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 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 costs 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 provided interactive content to healthcare facility planners and designers, including 360 degree interactive photographs of rooms and suites in medical facilities that we believed represented industry best practices, together with floor plans and information about the products in the room. Our Services Delivery service provides scalable and cost-effective implementation solutions for both healthcare providers and suppliers. 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 11 12 the products sold through Shop or Auction. During the first quarter of 2001, we also received revenue from the following sources: - subscription fees paid by healthcare providers and manufacturers 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; 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. Both our operating expenses and our revenue have increased significantly since inception. 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, 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. Additionally, our headcount increased from 269 full-time employees as of the beginning of 2000 to as many as 326 during 2000, and decreased to 249 full-time employees as of March 31, 2001 as a result of the reduction in force we announced on May 25, 2000 and normal attrition. Under the terms of our outsourcing and operating agreement with Novation, which was 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 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 were based upon the historical purchasing volume of VHA and UHC member healthcare organizations that sign up to use Marketplace@Novation, the online marketplace only available to the patrons and members of VHA, UHC and HPPI. The targets increased 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. 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 12 13 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 as of 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 Technologies, 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 were approximately $1.1 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 the planned divestitures of our Auction and USL operations, at December 31, 2000, we wrote down the assets of these operations to our estimate of the net realizable disposal value of the operations based on their activity through that date. 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. Since inception, we have incurred significant losses and, as of March 31, 2001, had an accumulated deficit of $318.1 million. We expect operating losses and negative cash flow to continue for the remainder of the fiscal year. We anticipate our losses will increase significantly as compared to fiscal 2000 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, 13 14 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 Due to our limited operating history, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as an indication of future performance. THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Revenue Sales of Used Equipment. Sales of used equipment consists of the gross revenue generated from the sales of used and refurbished medical equipment that we own as part of our Auction service. We had no revenue from the sale of used equipment during the three months ended March 31, 2001, as compared to $76,000 for the three months ended March 31, 2000, as our Auction operations in 2001 were focused solely on hospital closures and other consignment sales. As a result, we also had no cost of used equipment sold, as there were no sales of inventory that we owned during the three months ended March 31, 2001. If we succeed in selling our Auction operations, we will not recognize any future revenue from sales of used equipment. Transaction Fees. Transaction fees consist of transaction fees paid by buyers and sellers for purchases through our marketplaces, 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 $2.4 million for the quarter ended March 31, 2001, an increase of 200% from $0.8 million for the quarter ended March 31, 2000. The increase is due primarily to increased gross transaction volume through our marketplaces, as revenue resulting from such transactions comprised $2.3 million of the total $2.4 million in transaction fees for the three months ended March 31, 2001. If we succeed in selling our Auction operations, we will not recognize any future revenue from Auction transaction fees. Services. Services revenue is generated primarily from our e-commerce readiness services and implementation and integration services. These are services performed by our Services Delivery organization for our trading partners in order to allow them to maximize the benefit of their utilization of our marketplaces. The Services Delivery group commenced activities in the first half of fiscal 2000 and, as such, there was no activity or cost associated with this group in the first quarter of 2000. During the three months ended March 31, 2001, services revenue was $14,000, which related solely to e-commerce readiness and implementation services performed for members of our marketplaces. 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 of which relate 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 for our trading partners. Website sponsorship fees and other revenue increased 12% to $394,000 for the quarter ended March 31, 2001, from $351,000 for the quarter ended March 31, 2000. The increase in fiscal 2001 was due primarily to subscription revenue relating to the USL operations and an increase in software license and maintenance revenue. Minimal revenue was generated from USL in the first quarter of 2000, as USL was not acquired until March 2000. As a result of the sale of our USL operations in April 2001, combined with our reduced focus on 14 15 our Plan services, we do not expect to recognize any Plan revenue in future periods. Consequently, we expect website sponsorship fees and other revenue to generate nominal revenue over the next several quarters. Cost of Services. Cost of services consists primarily of the costs to perform e-commerce readiness services and buyer and supplier implementation activities for our marketplaces. These expenditures consist primarily of fees for independent contractors, technology costs, software licenses and salaries and other personnel expenses for our Services Delivery personnel. Cost of services for the first quarter of 2001 was approximately $4.4 million as compared to none for the first quarter of 2000. The increase was due to the fact that the Services Delivery group was not created until after the first quarter of 2000, and thus there were no costs for that period. We expect our cost of services to continue at these levels in future periods as we continue to perform e-commerce readiness services and implement both buyers and sellers in order to expand the number of users connected and utilizing our marketplaces. Operations. Operations expenses consist primarily of expenditures for the operation and maintenance of our website and our marketplace technology infrastructure. These expenditures consist primarily of fees for independent contractors, technology costs and software licenses and salaries and other personnel expenses for our site operations personnel. Operations expenses increased from approximately $3.7 million for the three months ended March 31, 2000 to $3.9 million for the three months ended March 31, 2001. The increase was primarily due to an increase in operations personnel related costs, an increase in payments to third party consultants and increased expenditures 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 marketplace platforms. 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. Product development expenses decreased from $6.2 million for the quarter ended March 31, 2000 to $5.6 million for the same quarter in 2001. The decrease was primarily due to reduced costs relating to contractors and consultants. We believe that continued investment in product development is critical to attaining our strategic objectives and, as such, we intend to continue to invest in this area. As a result, we expect product development expenses to increase slightly 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 decreased from approximately $12.2 million for the three months ended March 31, 2000 to $10.3 million for the three months ended March 31, 2001. The decrease was primarily due to reduced sales and marketing personnel costs and a resulting reduction in expenses related to travel and attendance at trade shows. As part of our realignment of 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 next several quarters. 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 decreased from approximately $8.2 million for the quarter ended March 31, 2000 to $5.0 million for the quarter ended March 31, 2001. The decrease was primarily due to reduced administrative personnel costs, including finance, accounting and administrative personnel, as well as a decrease in recruiting, legal and accounting expenses. These reductions were the result of the fact that in 2001, we did not incur the administrative costs associated with acquisitions that were in process during the first quarter of fiscal 2000, as well as those costs resulting from preparations for our initial public offering which occurred in January 2000. Given the streamlining we are undertaking in focusing on our core strategy, we expect general and administrative expenses to continue to decrease during the coming periods as we continue to divest ourselves of operations that are not aligned with our core strategy, and the general and administrative costs associated with those operations. 15 16 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 $7.8 million for the quarter ended March 31, 2001, as compared to $1.3 million for the quarter ended March 31, 2000. The increase was primarily a result of a full quarter of amortization being taken in the first quarter of 2001 on the intangibles associated with the acquisition of Pharos in January 2000, as well as additional amortization related to the intangibles recorded as part of our acquisitions of USL in March 2000, EquipMD in April 2000 and certain assets of NCL in July 2000. We expect the amortization of intangibles to decrease in future periods as a significant portion of the intangibles relating to the operations to be divested, specifically GAR, NCL and USL, will be eliminated as part of the divestitures of those operations. Amortization of Partnership Costs. Amortization of capitalized partnership costs represents the amortization of the capitalized valuation of consideration given to our strategic partners as part of entering into our operating relationships with those partners. As of March 31, 2001, capitalized partnership costs represent consideration given to VHA and UHC as part of our entering into our outsourcing and operating agreement with those entities and with their purchasing division, Novation, as well as certain legal and accounting fees relating to the agreement. The consideration consisted of common stock and warrants, which were subsequently converted to restricted common stock. The value of the common stock issued is being amortized over a five year estimated useful life. The restricted common stock is being valued, and the related valuation is being capitalized, as the shares are earned. The capitalized partnership costs relating to the restricted stock are being amortized over the term of the agreement with the healthcare organizations which resulted in the shares being earned, which is generally two to three years. For the quarter ended March 31, 2001, total amortization of partnership costs was $19.0 million. As the outsourcing and operating agreement did not close until July of 2000, there was no amortization of partnership costs in the quarter ended March 31, 2000. Write Off of Acquired In-process Research and Development. For the quarter ended March 31, 2000, we expensed $3.0 million related to the write off of acquired in-process research and development in connection with the Pharos acquisition in January 2000. Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income for the quarter ended March 31, 2001 was $321,000 compared to $1.5 million for the quarter ended March 31, 2000. The decrease in interest income was due to the decrease in our average net cash and cash equivalents balance as a result of our utilization of cash to fund our operations in fiscal 2000. Interest expense increased from $221,000 for the quarter ended March 31, 2000 to $303,000 for the same period in 2001, primarily as a result of the interest associated with significantly higher levels of leases and notes payable outstanding throughout the period. 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, and which expire at 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. 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 $89.0 million. We have also financed our operations through an equipment loan and lease financing and bank and other borrowings. As of March 31, 2001, we had outstanding bank, other borrowings and notes payable of $13.4 million, and we had approximately $25.0 million of cash and cash equivalents and short-term investments. 16 17 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 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 in July 1999. This loan was secured by all of our assets at the time the loan was made. In connection with this loan, we issued Comdisco a warrant to purchase 228,813 shares of common stock at $1.18 per share. As of March 31, 2001, the outstanding balance on the loan was approximately $926,000. In July 1999, Comdisco provided us with a $2.5 million loan and lease facility to finance computer hardware and software equipment. Amounts borrowed to purchase hardware bear interest at 9% per annum and are payable in 48 monthly installments consisting of interest only payments for the first year and principal and interest payments for the remaining 39 months, with a balloon payment of the remaining principal payable at maturity. Amounts borrowed to purchase software bear interest at 8% per annum and are payable in 30 monthly installments consisting of interest only payments for the first four months and principal and interest payments for the remaining 26 months, with a balloon payment of the remaining principal payable at maturity. As of March 31, 2001, we had outstanding approximately $1.8 million in total loans due under this facility. This facility is secured by the computer equipment purchased with the loans. In August 1999, as a result of the GAR acquisition, we issued a promissory note in the principal amount of $7.8 million payable monthly over five years bearing interest at a rate of 7% per annum. As of March 31, 2001, the outstanding balance on the note was approximately $4.6 million. 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 March 31, 2001. 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 March 31, 2001, the remaining principal balance was $1.2 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 connection with our operating lease on our corporate headquarters in San Jose, California, we established a letter of credit in the amount of $2.0 million payable to our landlord to secure our obligations under the lease. Under the terms of the lease, which allow for reductions in the amount of the letter of credit over time as we fulfill our obligations under the lease, we are in the process of reducing the letter of credit to $1.5 million. 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 will pay Ariba specified fees for transactions occurring through Ariba's network, subject to minimum monthly amounts. The agreement also provides for joint marketing activities and sales planning. 17 18 In July 2000, in recognition of the advisory services rendered in connection with the terminated Healthvision and Eclipsys mergers, our outsourcing and operating agreement and our acquisition of EquipMD, we entered into a promissory note with 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 March 31, 2001, the remaining balance on the note was $4.5 million. In April 2001, we amended the terms of the note such that the remaining balance was payable in two installments: the first $2.0 million payable in May 2001 and the remaining $2.5 million payable in April 2002. In July 2000, as part of the acquisition of certain assets of NCL, we issued one 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 March 31, 2001, the balance of all four notes in total was $156,000. 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 $62,500 to each of the four principals of NCL. As of March 31, 2001, 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 was $7.6 million for the three months ended March 31, 2000 and $30.4 million for the three months ended March 31, 2001. Net cash used in operating activities for the three months ended March 31, 2001 related primarily to funding net operating losses, a $2.1 million increase in accounts receivable and an $11.9 million decrease in accounts payable. Net cash used in investing activities for the three months ended March 31, 2000 was $10.6 million consisting primarily of $13.5 million paid for the purchase of property and equipment, $3.0 million paid for non-marketable investments and $3.2 million paid for the acquisition of USL, partially offset by $10.8 million received from the sale of marketable securities. For the three months ended March 31, 2001, net cash provided by investing activities was $4.4 million, primarily resulting from $6.9 million of proceeds from the sale of marketable investments, partially offset by $1.6 million in cash paid for the purchase of property and equipment to continue to develop our marketplace infrastructure. Net cash provided by financing activities was $95.1 million for the three months ended March 31, 2000 and $27.7 million for the three months ended March 31, 2001. Net cash provided from financing activities for the three months ended March 31, 2001 resulted primarily from proceeds of common stock issuances of approximately $29.5 million, net of expenses. 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 18 19 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. 19 20 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 $14.3 million from our inception through March 2001. 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 $53.2 million for the three months ended March 31, 2001. In addition, as of March 31, 2001, we had an accumulated deficit of approximately $318.1 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. 20 21 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 our cash, cash equivalents and investments 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. 21 22 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 22 23 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. 23 24 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. 24 25 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. 25 26 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. 26 27 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 27 28 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. 28 29 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 March 31, 2001, we had 249 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. 29 30 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. 30 31 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. 31 32 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 May 14, 2001 the closing price was $0.76. 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. 32 33 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk: Our exposure to market risk for changes in interest rates relate 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 its 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):
FISCAL YEARS ------------------------------------------------- 2001 2002 2003 2004 2005 ------- ------ -------- -------- -------- Cash equivalents and short-term investments: Fixed rate short-term investments................... $17,279 -- -- -- -- Average interest rate............ 6.71% -- -- -- --
33 34 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) Recent Sales of Unregistered Securities 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 Technologies, VHA and UHC. No underwriters were used in the transaction. The shares of common stock were issued in reliance upon an exemption from the registration requirements of the Securities Act of 1933 provided by Section 4(2) of the Securities Act, or Rule 506 of Regulation D promulgated thereunder. Both VHA and UHC made certain representations as to investment intent, that they possessed a sufficient level of financial sophistication and that they received information about us. The shares issued in the transactions were subject to restrictions on transfer absent registration under the Securities Act, and no offers to sell the securities were made by any form of general solicitation or general advertisement. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS
EXHIBIT NUMBER EXHIBIT ------- ------- 10.1 Common Stock Purchase Agreement, dated as of January 25, 2001, by and between Neoforma.com, Inc. and VHA Inc. 10.2 Common Stock Purchase Agreement, dated as of January 25, 2001, by and between Neoforma.com, Inc. and University Healthsystem Consortium 10.3 Amendment to Amended and Restated Common Stock and Warrant Agreement, dated as of January 25, 2001, by and between Neoforma.com, Inc. and University Healthsystem Consortium 10.4* Second Amended and Restated Outsourcing and Operating Agreement, dated as of January 1, 2001, by and among Neoforma.com, Inc., Novation LLC, VHA Inc., University Healthsystem Consortium and Healthcare Purchasing Partners International, LLC
- --------------- * Confidential treatment has been requested for portions of this agreement B. REPORTS ON FORM 8-K None 34 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEOFORMA.COM, INC. By /s/ ANDREW L. GUGGENHIME ------------------------------------ Andrew L. Guggenhime Chief Financial Officer and Assistant Secretary Date: May 15, 2001 35 36 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBITS - ------- -------- 10.1 Common Stock Purchase Agreement, dated as of January 25, 2001, by and between Neoforma.com, Inc. and VHA Inc. 10.2 Common Stock Purchase Agreement, dated as of January 25, 2001, by and between Neoforma.com, Inc. and University Healthsystem Consortium 10.3 Amendment to Amended and Restated Common Stock and Warrant Agreements, dated as of January 25, 2001, by and between Neoforma.com, Inc. and University Healthsystem Consortium 10.4* Second Amended and Restated Outsourcing and Operating Agreement, dated as of January 1, 2001, by and among Neoforma.com, Inc., Novation LLC, VHA Inc., University Healthsystem Consortium and Healthcare Purchasing Partners International, LLC
- --------------- * Confidential treatment has been requested for portions of this agreement. 36 EX-10.1 2 f72110ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of January 25, 2001 by and between Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), and VHA Inc., a Delaware corporation ("VHA"). RECITALS WHEREAS, the Company desires to sell to VHA, and VHA desires to purchase from the Company, shares of the Company's common stock, par value $0.001 per share (the "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 SELL AND PURCHASE STOCK 1.1 Agreement to Sell and Purchase the Shares. The Company agrees to sell to VHA at the Closing, and VHA agrees to purchase from the Company at the Closing, 11,834,320 shares of Common Stock (the "SHARES") at a purchase price of $1.69 per share. ARTICLE II CLOSING 2.1 Closing. The purchase and sale of the Shares will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, at 10 a.m. Pacific Time on January 25, 2001, or at such other date, time and location as the Company and VHA mutually agree upon (which time and place are referred to in this Agreement as the "CLOSING"). At the Closing, the Company will deliver to VHA a certificate representing the Shares against delivery to the Company by VHA of the purchase price paid by (i) a check payable to the Company's order or (ii) wire transfer of immediately available funds to the Company. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to VHA, 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 VHA by the Company under this Article III), as follows: 3.1 Organization of the Company. 2 (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 VHA 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 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 2 3 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 VHA in Article IV 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 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 to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of 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. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by VHA, constitutes 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. 3 4 (b) The execution and delivery of this 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. (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 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 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 VHA 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 4 5 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 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 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. 5 6 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 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 6 7 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). (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, 7 8 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 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. 8 9 (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 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 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 9 10 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. 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 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 10 11 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. ARTICLE IV REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF VHA VHA hereby represents and warrants to the Company, subject to the exceptions specifically disclosed in writing in the disclosure letter delivered by VHA dated as of the date hereof and certified by a duly authorized officer of VHA (the "VHA DISCLOSURE LETTER") (which VHA Disclosure Letter shall be deemed to be representations and warranties to the Company by VHA under this Section 4), as follows: 4.1 Organization, Good Standing and Qualification. VHA 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 VHA. 4.2 Authorization. (a) VHA has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of VHA. This Agreement has been duly executed and delivered by VHA and constitute the valid and binding obligations of VHA, enforceable against VHA 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 by VHA does not, and the performance of this Agreement by VHA will not, (i) conflict with or violate the certificate of incorporation, bylaws, operating agreement or other organizational documents of VHA, (ii) subject to compliance with the requirements set forth in Section 4.2(c) with regard to VHA, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to VHA or 11 12 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 VHA'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 VHA pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which VHA is a party or by which VHA 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 VHA. Except as set forth in a letter delivered by VHA to the Company concurrently with the execution of this Agreement, no consents, waivers and approvals under any of VHA'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 VHA. (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 VHA in connection with the execution and delivery of this 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 VHA 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 VHA hereunder will be acquired for investment for VHA'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 VHA 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 VHA hereunder in any public resale or distribution within the meaning of the 1933 Act. VHA also represents that it has not been formed for the specific purpose of acquiring the Shares under this Agreement. 4.4 Disclosure of Information. VHA 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 VHA under this Agreement. VHA 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 VHA or to which VHA had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Article III. 4.5 Experience. VHA understands that the purchase of the Shares involves substantial risk. VHA: (i) has experience as an investor in securities of companies in the development stage and acknowledges that VHA is able to fend for itself, can bear the economic risk of VHA's investment in the Shares and has such knowledge and experience in financial or business matters that VHA is capable of evaluating the merits and risks of this investment in the 12 13 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 VHA to be aware of the character, business acumen and financial circumstances of such persons. 4.6 Accredited Investor Status. VHA is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. 4.7 Restricted Securities. VHA 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, VHA represents that VHA is familiar with Rule 144 of the SEC, as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. 4.8 No Solicitation. At no time was VHA 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, VHA 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) VHA 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 VHA 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. VHA 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 VHA: (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 13 14 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 ON VOTING 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 SECURITES 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 such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Shares. 4.11 Tax Liability. VHA 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. VHA 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 Voting of Common Stock. VHA agrees that from and after the date of the Closing through the fifth anniversary of the Closing (the "FIFTH ANNIVERSARY"), and for as long after the Fifth Anniversary as the outstanding shares of Common Stock (including the Shares and any outstanding Restricted Shares and Vested Shares (as such terms are defined in Article II of that certain Amendment to Amended and Restated Common Stock and Warrant Agreement, dated as of October 18, 2000, by and between the Company and VHA (the "COMMON STOCK AND WARRANT AGREEMENT"))) beneficially owned by VHA together with all "affiliates" (which for purposes of this Agreement (other than Section 3.12) shall have the meaning given such term in Rule 144(a)(1) promulgated under the 1933 Act) of VHA is greater than 49.9% of the then outstanding Common Stock of the Company (the entire such period, the "RESTRICTED PERIOD"), VHA shall, and shall cause its affiliates to, vote all Shares it holds or is entitled to vote in proportion to the votes cast by all other stockholders of the Company in connection with each matter submitted to the Company's stockholders for approval. In the event that the outstanding shares of Common Stock (including the Shares and any outstanding Restricted Shares and Vested Shares) beneficially owned by VHA and its affiliates exceeds 35% but does not exceed 49.9% of the then outstanding Common Stock of the Company, the Shares shall be considered Excess Shares (as such term is defined in Section 6.1 of the Common Stock and Warrant Agreement). 14 15 5.2 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. 5.3 Registration Rights. The Company shall use its reasonable best efforts to cause the requisite holders of registration rights under the Amended and Restated Registration Rights Agreement among the Company and certain of its investors dated June 30, 2000 to amend such agreement in substantially the form attached hereto as Exhibit A. 5.4 Public Disclosure. The Company and VHA agree that they will promptly after the date of this Agreement issue a joint press release with respect to their entry into this Agreement. The Company and VHA 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 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. 5.5 Board of Directors. The Board of Directors of the Company will take all actions necessary such that as soon as practicable following the Closing, C. Tom Smith shall be appointed by VHA to the Company's Board of Directors. For so long as VHA beneficially owns 30% or more of the outstanding Common Stock of the Company on a fully converted basis, the Company will take all actions reasonably necessary to have three persons appointed by VHA be members of the Company's Board of Directors. ARTICLE VI CONDITIONS TO VHA'S OBLIGATIONS AT CLOSING The obligations of VHA under Sections 1 and 2 of this Agreement are subject to the fulfillment or waiver, on or before the 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 the Closing with the same effect as though such representations and warranties had been made on and as of the 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, any update of or modification to the Company Disclosure Letter made or purported to have been made after the execution of this Agreement shall be disregarded. VHA shall have received a certificate with respect to the foregoing signed on behalf of the Company by the Chief Executive Officer or the Chief Financial Officer of the Company. 15 16 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 the Closing. 6.3 Securities Exemptions. The offer and sale of the Shares to VHA 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 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 VHA contained in Article IV shall be true and correct in all material respects on the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. It is understood that, for purposes of determining the accuracy of such representations and warranties, any update of or modification to the VHA Disclosure Letter made or purported to have been made after the execution of this Agreement shall be disregarded. The Company shall have received a certificate with respect to the foregoing signed on behalf of VHA by the Chief Executive Officer or the Chief Financial Officer of VHA. 7.2 Performance. VHA 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 the Closing. 7.3 Securities Exemptions. The issuance of the Shares to VHA 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. 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 16 17 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. This Agreement may be terminated prior to the Closing: (a) by mutual written consent duly authorized by the Boards of Directors of the Company and VHA; (b) by either the Company or VHA if the Closing shall not have occurred by February 15, 2001 for any reason; provided, however, that the right to terminate this Agreement under this Section 9.1(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; or (c) by either the Company or VHA if a Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Closing, which order, decree, ruling or other action is final and nonappealable. 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 VHA (except for any covenant that by its express terms survives the 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 the Closing) contained in or made pursuant to this Agreement shall terminate at the Closing. 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 terminate at the Closing. 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. 17 18 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 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. 18 19 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 VHA: WITH A COPY TO: VHA Inc. Skadden, Arps, Slate, 220 East Las Colinas Boulevard Meagher & Flom, LLP Irving, Texas 75039-5500 Four Times Square Facsimile: 972-830-0391 New York, New York 10036 Attn: Chief Financial Officer Facsimile: 212-735-2000 Attn: Nancy A. Lieberman IF TO THE COMPANY: WITH A COPY TO: Neoforma.com, Inc. Fenwick & West LLP 3061 Zanker Road Two Palo Alto Square, San Jose, California 95134 Palo Alto, California 94306 Facsimile: 408-468-4040 Facsimile: 650-494-1417 Attn: Chief Financial Officer Attn: Gordon K. Davidson 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 the Closing occurs. VHA 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 VHA or any of its officers, partners, members, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless VHA 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. 9.9 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, 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 VHA or the Company, the Company and VHA 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 VHA. At any time prior to the Closing any party 19 20 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 VHA HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS THE COMPANY OR VHA IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. * * * * * 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:__________________________ 20 21 Title:_________________________ VHA INC. By:____________________________ Name:__________________________ Title:_________________________ [SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT] 22 SCHEDULE OF EXHIBITS Exhibit A: Registration Rights Agreement Amendment 23 EXHIBIT A 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 24 Delaware limited liability company ("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company, VHA and UHC, (viii) 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 (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] 25 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-10.2 3 f72110ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of January 25, 2001 by and between Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), and University HealthSystem Consortium, an Illinois corporation ("UHC"). RECITALS WHEREAS, the Company desires to sell to UHC, and UHC desires to purchase from the Company, shares of the Company's common stock, par value $0.001 per share (the "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 SELL AND PURCHASE STOCK 1.1 Agreement to Sell and Purchase the Shares. The Company agrees to sell to UHC at the Closing, and UHC agrees to purchase from the Company at the Closing, 3,254,438 shares of Common Stock (the "SHARES") at a purchase price of $1.69 per share. ARTICLE II CLOSING 2.1 Closing. The purchase and sale of the Shares will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, at 10 a.m. Pacific Time on January 25, 2001, or at such other date, time and location as the Company and UHC mutually agree upon (which time and place are referred to in this Agreement as the "CLOSING"). At the Closing, the Company will deliver to UHC a certificate representing the Shares against delivery to the Company by UHC of the purchase price paid by (i) a check payable to the Company's order or (ii) wire transfer of immediately available funds to the Company. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to UHC, 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 UHC by the Company under this Article III), as follows: 2 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 UHC 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 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. 3 (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 UHC in Article IV 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 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 to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. No approval of any 4 holder of any securities of the Company is required in connection with the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by UHC, constitutes 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 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. (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 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 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 UHC 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 5 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 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 10-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 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 6 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 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. 7 "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). (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. 8 (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 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. 9 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 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 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 10 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. 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 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: 11 (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. ARTICLE IV REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF UHC UHC hereby represents and warrants to the Company as follows: 12 4.1 Organization, Good Standing and Qualification. UHC 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 UHC. 4.2 Authorization. (a) UHC has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of UHC. This Agreement has been duly executed and delivered by UHC and constitute the valid and binding obligations of UHC, enforceable against UHC 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 by UHC does not, and the performance of this Agreement by UHC will not, (i) conflict with or violate the certificate of incorporation, bylaws, operating agreement or other organizational documents of UHC, (ii) subject to compliance with the requirements set forth in Section 4.2(c) with regard to UHC, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to UHC 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 UHC'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 UHC pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which UHC is a party or by which UHC 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 UHC. Except as set forth in a letter delivered by UHC to the Company concurrently with the execution of this Agreement, no consents, waivers and approvals under any of UHC'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 UHC. (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 UHC in connection with the execution and delivery of this 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 13 not have a Material Adverse Effect on UHC 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 UHC hereunder will be acquired for investment for UHC'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 UHC 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 UHC hereunder in any public resale or distribution within the meaning of the 1933 Act. UHC also represents that it has not been formed for the specific purpose of acquiring the Shares under this Agreement. 4.4 Disclosure of Information. UHC 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 UHC under this Agreement. UHC 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 UHC or to which UHC had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Article III. 4.5 Experience. UHC understands that the purchase of the Shares involves substantial risk. UHC: (i) has experience as an investor in securities of companies in the development stage and acknowledges that UHC is able to fend for itself, can bear the economic risk of UHC's investment in the Shares and has such knowledge and experience in financial or business matters that UHC 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 UHC to be aware of the character, business acumen and financial circumstances of such persons. 4.6 Accredited Investor Status. UHC is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. 4.7 Restricted Securities. UHC 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, UHC represents that UHC is familiar with Rule 144 of the SEC, as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. 4.8 No Solicitation. At no time was UHC 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. 14 4.9 Further Limitations on Disposition. Without in any way limiting the representations set forth above, UHC 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) UHC 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 UHC 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. UHC 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 UHC: (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 ON VOTING 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 such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Shares. 15 4.11 Tax Liability. UHC 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. UHC 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 Voting of Common Stock. UHC acknowledges and agrees that for so long as the outstanding shares of Common Stock (including the Shares and any outstanding Restricted Shares and Vested Shares, as such terms are defined in that certain Amendment to Amended and Restated Common Stock and Warrant Agreement, dated as of January 25, 2001, by and between the Company and UHC) beneficially owned by UHC and its "affiliates" (which for purposes of this Agreement (other than Section 3.12) shall have the meaning given such term in Rule 144(a)(1) promulgated under the 1933 Act) exceeds 9% of the then outstanding Common Stock of the Company, the Shares shall be considered Excess Shares (as such term is defined in Section 6.1 of that certain Amended and Restated Common Stock and Warrant Agreement, dated as of March 30, 2000, by and between the Company and UHC (the "COMMON STOCK AND WARRANT AGREEMENT")) and shall be subject to the restriction set forth in Section 6.1 of the Common Stock and Warrant Agreement. 5.2 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. 5.3 Registration Rights. The Company shall use its reasonable best efforts to cause the requisite holders of registration rights under the Amended and Restated Registration Rights Agreement among the Company and certain of its investors dated June 30, 2000 to amend such agreement in substantially the form attached hereto as Exhibit A. 5.4 Public Disclosure. The Company and UHC agree that they will promptly after the date of this Agreement issue a joint press release with respect to their entry into this Agreement. The Company and UHC 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 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. 5.5 Company Board of Directors. The Board of Directors of the Company will take all actions necessary such that as soon as practicable following the Closing, Robert J. Baker 16 shall be appointed to the Company's Board of Directors. For so long as the Company remains UHC's exclusive provider of an Internet-based exchange related to Supply Chain Management Services as set forth in Section 6.1 of that certain Outsourcing and Operating Agreement, dated as of March 30, 2000, and amended and restated as of May 24, 2000 and January 25, 2001, the Company will take all actions reasonably necessary to have one person appointed by UHC, who shall be UHC's chief executive officer or such other person as UHC and the Company mutually agree upon, be a member of the Company's Board of Directors. ARTICLE VI CONDITIONS TO UHC'S OBLIGATIONS AT CLOSING The obligations of UHC under Sections 1 and 2 of this Agreement are subject to the fulfillment or waiver, on or before the 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 the Closing with the same effect as though such representations and warranties had been made on and as of the 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, any update of or modification to the Company Disclosure Letter made or purported to have been made after the execution of this Agreement shall be disregarded. UHC shall have received a certificate with respect to the foregoing signed on behalf of the Company by the Chief Executive Officer 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 the Closing. 6.3 Securities Exemptions. The offer and sale of the Shares to UHC 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. 17 6.5 Nasdaq Listing. 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 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 UHC contained in Article IV shall be true and correct in all material respects on the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. The Company shall have received a certificate with respect to the foregoing signed on behalf of UHC by the Chief Executive Officer or the Chief Financial Officer of UHC. 7.2 Performance. UHC 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 the Closing. 7.3 Securities Exemptions. The issuance of the Shares to UHC 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. 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. This Agreement may be terminated prior to the Closing: (a) by mutual written consent duly authorized by the Boards of Directors of the Company and UHC; (b) by either the Company or UHC if the Closing shall not have occurred by February 15, 2001 for any reason; provided, however, that the right to terminate this Agreement under this Section 9.1(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; or 18 (c) by either the Company or UHC if a Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Closing, which order, decree, ruling or other action is final and nonappealable. 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 UHC (except for any covenant that by its express terms survives the 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 the Closing) contained in or made pursuant to this Agreement shall terminate at the Closing. 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 terminate at the Closing. 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 19 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 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 UHC: WITH A COPY TO: University HealthSystem Consortium McDermott, Will & Emery 2001 Spring Road, Suite 700 227 West Monroe Street Oak Brook, Illinois 60523 Chicago, Illinois 60606 Facsimile: 630-954-4730 Facsimile: 312-984-7700 Attn: Executive Vice President Attn: Virginia H. Holden 20 IF TO THE COMPANY: WITH A COPY TO: Neoforma.com, Inc. Fenwick & West LLP 3061 Zanker Road Two Palo Alto Square, San Jose, California 95134 Palo Alto, California 94306 Facsimile: 408-468-4040 Facsimile: 650-494-1417 Attn: Chief Financial Officer Attn: Gordon K. Davidson 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 the Closing occurs. UHC 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 UHC or any of its officers, partners, members, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless UHC 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. 9.9 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, 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 UHC or the Company, the Company and UHC 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 UHC. At any time prior to the 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. 21 9.12 Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly onferred 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 UHC HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS THE COMPANY OR UHC IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. * * * * * 22 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:__________________________________ UNIVERSITY HEALTHSYSTEM CONSORTIUM By:_____________________________________ Name:___________________________________ Title:__________________________________ [SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT] 23 SCHEDULE OF EXHIBITS Exhibit A: Registration Rights Agreement Amendment 24 EXHIBIT A 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 25 Delaware limited liability company ("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company, VHA and UHC, (viii) 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 (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] 26 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-10.3 4 f72110ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 AMENDMENT TO AMENDED AND RESTATED COMMON STOCK AND WARRANT AGREEMENT This AMENDMENT, dated as of January 25, 2001 (this "AMENDMENT"), amends the Amended and Restated Common Stock and Warrant Agreement made and entered into as of March 30, 2000, and amended and restated as of May 24, 2000 (the "AGREEMENT"), by and between Neoforma.com, Inc., a Delaware corporation ("PARENT"), and University HealthSystem Consortium, an Illinois corporation ("UHC"). RECITALS WHEREAS, Parent, Novation, LLC, a Delaware limited liability company ("NOVATION"), VHA Inc., a Delaware corporation ("VHA"), UHC, and Healthcare Purchasing Partners International, LLC, a Delaware limited liability company ("HPPI"), have entered into that certain Outsourcing and Operating Agreement, dated as of March 30, 2000, and amended and restated as of May 24, 2000 and January 25, 2001 (the "OUTSOURCING AGREEMENT"). Capitalized terms in this Amendment which are not otherwise defined in this Amendment shall have the meanings assigned to them in the Agreement, or if not defined therein, in the Outsourcing Agreement. WHEREAS, in consideration of the services rendered and to be rendered by UHC pursuant to the Outsourcing Agreement and UHC's fulfillment of its duties and obligations thereunder, Parent issued to UHC (i) 11,279,150 shares (such shares, the "SHARES") of Parent common stock, par value $0.001 per share ("COMMON STOCK"), and (ii) a warrant to purchase up to 7,519,436 shares of Common Stock (the "WARRANT"). WHEREAS, on December 19, 2000, UHC exercised its right to purchase 1,879,859 shares of Common Stock subject to the Warrant, representing all of the vested and exercisable shares of Common Stock available for purchase pursuant to Sections 1.1.2 (1) and 1.1.3 (1) of the Warrant, leaving a balance of 5,639,577 shares of Common Stock that remain subject to the Warrant. WHEREAS, Parent and UHC mutually desire to cancel the Warrant and substitute for the remaining shares subject to potential vesting under the Warrant, 5,639,577 shares of restricted Common Stock, which shares shall be subject to forfeiture by UHC to Parent, in each case, subject to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Amendment, the Agreement and the Outsourcing Agreement, the parties agree as follows: 2 ARTICLE I SUBSTITUTION OF RESTRICTED SHARES FOR WARRANT 1.1 Authorization; Closing. As of the consummation of the transactions substituting Restricted Shares (as defined below) for the Warrant (the "SUBSTITUTION CLOSING"), Parent will have authorized the issuance to UHC of 4,229,682 shares of restricted Common Stock (the "TRANCHE A SHARES") and 1,409,895 shares of restricted Common Stock (the "TRANCHE B SHARES", and collectively with the Tranche A Shares, the "RESTRICTED SHARES"). The Substitution Closing will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, on January 25, 2001, or such other time and date as mutually agreed upon by the parties. 1.2 Cancellation and Substitution of Warrant and Issuance of Restricted Shares. (a) At the Substitution Closing, UHC shall return to Parent for cancellation, and Parent shall cancel, the Warrant. On and after the Substitution Closing, the Warrant shall, in all respects, be cancelled, terminated and of no further force or effect. (b) At the Substitution Closing, Parent shall issue to UHC 4,229,682 Tranche A Shares and 1,409,895 Tranche B Shares. UHC's right to fully enjoy beneficial ownership of the Restricted Shares shall be subject to a substantial risk of forfeiture by UHC to Parent pursuant to the terms and to the extent set forth in this Article I (the "FORFEITURE RISK"). Restricted Shares that become vested pursuant to this Article I and are no longer subject to the Forfeiture Risk are referred to as "VESTED SHARES." 1.3 Definitions. (a) "CUMULATIVE SIGNED PURCHASING VOLUME" means, as of any Determination Date (as defined in Sections 1.4(a), (b) and (c) of this Amendment), the sum of (x) the cumulative dollar volume of purchases by Healthcare Organizations that are members or patrons of UHC (calculated, for each such Healthcare Organization, by multiplying (A) the amount of Novation contract purchases (as reported in the SRIS system maintained for Novation's benefit) by such Healthcare Organization during the most recent complete calendar year ending prior to the first Determination Date on or prior to which such Healthcare Organization Signed-Up with Parent by (B) 2.4 (the "BASE AMOUNT")) and that Signed-Up with Parent on or prior to such Determination Date, plus (y) 19.6% of the cumulative dollar volume of purchases by Healthcare Organizations that are members or patrons of HPPI (using, for each such Healthcare Organization, its Base Amount) and that Signed-Up with Parent on or prior to such Determination Date, provided that (i) for purposes of computing the first Base Amount for each Healthcare Organization, such Base Amount will be increased by 3.625% and (ii) in addition to the increase in the Base Amount for any Healthcare Organization pursuant to the preceding clause (i), the Base Amount for each Healthcare Organization shall also be increased annually by 7.25% when computing Cumulative Signed Purchasing Volume for Determination Dates which are subsequent to the first Determination Date on or prior to which a particular Healthcare Organization Signed-Up with Parent. For purposes of clarity, the parties agree that once a Healthcare Organization is deemed to have "Signed-Up" with Parent, its Cumulative Signed Purchasing Volume, as computed and increased under the formula set forth in this definition, 2 3 shall be included in the computation of Cumulative Signed Purchasing Volume for all Determination Dates arising on or after the date such Healthcare Organization Signed-Up with Parent, whether or not such Healthcare Organization continues to do business with Parent. (b) "HEALTHCARE ORGANIZATION" shall mean any facility providing health care services. (c) "PREFERRED PROVIDER" means the Healthcare Organization agrees to use the Parent internet-based system for at least 50% of its internet-based purchases of Novation contracted products. (d) "SIGNED-UP" means, with respect to any Healthcare Organization, that such Healthcare Organization and Parent have entered into a written agreement, arrangement or understanding for Parent to be the Preferred Provider of an Internet-based system for the acquisition of Novation contracted products by such Healthcare Organization. 1.4 Vesting of Tranche A Shares. (a) 1,409,894 Tranche A Shares shall become Vested Shares on June 30, 2002 (the "FIRST DETERMINATION DATE") if Cumulative Signed Purchasing Volume as of the First Determination Date is at least $1,520 million (the "FIRST TRANCHE A TARGET AMOUNT"). (b) 1,409,894 Tranche A Shares shall become Vested Shares on June 30, 2003 (the "SECOND DETERMINATION DATE") if Cumulative Signed Purchasing Volume as of the Second Determination Date is at least $2,347 million (the "SECOND TRANCHE A TARGET AMOUNT"). (c) 1,409,894 Tranche A Shares shall become Vested Shares on June 30, 2004 (the "THIRD DETERMINATION DATE") if Cumulative Signed Purchasing Volume as of the Third Determination Date is at least $3,231 million (the "THIRD TRANCHE A TARGET AMOUNT"). (d) In the event the Tranche A Target Amount of Cumulative Signed Purchasing Volume specified in any of Section 1.4 paragraphs (a), (b) or (c) above is not achieved as of the particular Determination Date specified in such paragraph (such shortfall below a particular Tranche A Target Amount being referred to as a "TRANCHE A SHORTFALL AMOUNT"), then the number of Tranche A Shares which shall become Vested Shares at a particular Determination Date pursuant to Section 1.4 paragraphs (a), (b), or (c) above shall equal the product of 1,409,894 and a fraction, the numerator of which is the Cumulative Signed Purchasing Volume as of the Determination Date in question and the denominator of which is the Tranche A Target Amount for the Determination Date in question. By way of example, using the formula in the preceding sentence, if as of June 30, 2002, Cumulative Signed Purchasing Volume is $1,000 million, 927,562 Tranche A Shares shall become Vested Shares: 1,409,894 x 1,000 = 927,562 Vested Shares ----- 1,520 If there is a Tranche A Shortfall Amount relating to a particular Determination Date, then the number of Tranche A Shares which will not vest due to such shortfall shall equal 3 4 1,409,894 minus the number of Tranche A Shares which became Vested Shares on such Determination Date (the "TRANCHE A SHORTFALL SHARES"). Using the facts set forth in the preceding example, if as of June 30, 2002, Cumulative Signed Purchasing Volume is $1,000 million, and 927,562 Tranche A Shares become Vested Shares, then 482,332 Tranche A Shares shall be deemed Tranche A Shortfall Shares as of the First Determination Date: 1,409,894 - 927,562 = 482,332 Tranche A Shortfall Shares A Determination Date as of which there is a Tranche A Shortfall Amount is referred to as a "TRANCHE A SHORTFALL DETERMINATION DATE." A Determination Date which occurs immediately after a Tranche A Shortfall Determination Date is referred to as a "TRANCHE A CATCH UP DETERMINATION DATE." If as of a Tranche A Catch Up Determination Date, the applicable Tranche A Target Amount for such Tranche A Catch Up Determination Date is met or exceeded, then the Tranche A Shortfall Shares which did not vest on such Tranche A Shortfall Determination Date shall immediately become Vested Shares on the Tranche A Catch Up Determination Date, it being agreed that if the Tranche A Target Amount relating to such Tranche A Catch Up Determination Date is not met, such Tranche A Shortfall Shares shall never become vested. By way of example, if the Tranche A Shortfall Amount on the First Determination Date is $520 million resulting in 482,332 Tranche A Shortfall Shares, and as of the Second Determination Date (which, in this example, is the Tranche A Catch Up Determination Date with respect to the First Determination Date) the Second Tranche A Target Amount of Cumulative Signed Purchasing Volume of $2,347 million is met, then the 482,332 Tranche A Shortfall Shares relating to the First Determination Date which had become a Tranche A Shortfall Determination Date will become Vested Shares on the Second Determination Date, provided however, that if as of the Second Determination Date Cumulative Signed Purchasing Volume is less than $2,347 million, the 482,332 Tranche A Shortfall Shares relating to the First Determination Date shall never become vested, even if as of the Third Determination Date the relevant Tranche A Target Amount for such Determination Date is met or exceeded. (e) If, on the December 15 immediately preceding a Determination Date, UHC delivers to Parent written evidence establishing that a number of Tranche A Shares would become Vested Shares on such December 15 if such December 15 were to be treated as if it were the immediately following Determination Date (but not any other subsequent Determination Date or December 15), then such Tranche A Shares shall become Vested Shares as of such December 15, and the number of Tranche A Shares eligible to become Vested Shares on the immediately following Determination Date shall be reduced by a like amount. If less than all of the Tranche A Shares available to become Vested Shares on a particular December 15 become Vested Shares on such date, any and all such Tranche A Shares which did not become Vested Shares on such December 15 may become Vested Shares on the Determination Date immediately following such December 15 in accordance with the pro rata provisions of paragraph (d), and if such Determination Date immediately following such December 15 is a Tranche A Shortfall Determination Date, each of the December 15 immediately following such Tranche A Shortfall Determination Date and the Determination Date immediately following such Tranche A Shortfall Determination Date, but no other December 15 or Determination Date, shall be a Tranche A Catch Up Determination Date for such Tranche A Shortfall Determination Date. All other provisions and limitations of paragraph (d) with respect to a Tranche A Catch Up Determination Date shall be applicable. 4 5 1.5 Forfeiture of Tranche A Shares. On and following any date on which any Tranche A Shares cannot become Vested Shares pursuant to the provisions of Section 1.4 of this Amendment, all such Tranche A Shares that cannot become Vested Shares shall, without the payment of any consideration by Parent or any further action by UHC or Parent, be forfeited by UHC to Parent. Upon any such forfeiture of Tranche A Shares, UHC shall promptly, but in no event later than three business days after such forfeiture, return the certificates representing the shares so forfeited to Parent for cancellation. 1.6 Vesting of Tranche B Shares. (a) 469,965 Tranche B Shares shall become Vested Shares on the First Determination Date if Cumulative Signed Purchasing Volume as of the First Determination Date is at least $2,026 million (the "FIRST TRANCHE B TARGET AMOUNT"). (b) 469,965 Tranche B Shares shall become Vested Shares on the Second Determination Date if Cumulative Signed Purchasing Volume as of the Second Determination Date is at least $3,130 million (the "SECOND TRANCHE B TARGET AMOUNT"). (c) 469,965 Tranche B Shares shall become Vested Shares on the Third Determination Date if Cumulative Signed Purchasing Volume as of the Third Determination Date is at least $4,308 million (the "THIRD TRANCHE B TARGET AMOUNT"). (d) In the event the Tranche B Target Amount of Cumulative Signed Purchasing Volume specified in any of Section 1.6 paragraphs (a), (b), or (c) above is not achieved as of the particular Determination Date specified in such paragraph (such shortfall below a particular Tranche B Target Amount being referred to as a "TRANCHE B SHORTFALL AMOUNT"), then the number of Tranche B Shares which shall become Vested Shares at a particular Determination Date pursuant to Section 1.6 paragraphs (a), (b), or (c) above shall equal the product of 469,965 and a fraction, the numerator of which is the Cumulative Signed Purchasing Volume as of the Determination Date in question minus the Tranche A Target Amount for the Determination Date in question and the denominator of which is the Tranche B Target Amount for the Determination Date in question minus the Tranche A Target Amount for the Determination Date in question. It is agreed that no Tranche B Shares will become Vested Shares on a particular Determination Date if the Tranche A Target Amount relating to such Determination Date is not exceeded. By way of example, if as of June 30, 2002, Cumulative Signed Purchasing Volume is $2,000 million, 445,817 Tranche B Shares shall become Vested Shares: 469,965 x (2,000 - 1,520) = 445,817 Vested Shares --------------- (2,026 - 1,520) If there is a Tranche B Shortfall Amount relating to a particular Determination Date, then the number of Tranche B Shares which will not vest due to such shortfall shall equal 469,965 minus the number of Tranche B Shares which became Vested Shares on such Determination Date (the "TRANCHE B SHORTFALL SHARES"). If no Tranche B Shares became Vested Shares on a Determination Date, then there will be 469,965 Tranche B Shortfall Shares with 5 6 respect to the Determination Date in question. Using the facts set forth in the preceding example, if as of June 30, 2002, Cumulative Signed Purchasing Volume is $2,000 million, and 445,817 Tranche B Shares become Vested Shares, then 24,148 Tranche B Shares shall be deemed Tranche B Shortfall Shares as of the First Determination Date: 469,965 - 445,817 = 24,148 Tranche B Shortfall Shares A Determination Date as of which there is a Tranche B Shortfall Amount is referred to as a "TRANCHE B SHORTFALL DETERMINATION DATE." A Determination Date which occurs immediately after a Tranche B Shortfall Determination Date is referred to as a "TRANCHE B CATCH UP DETERMINATION DATE." If as of a Tranche B Catch Up Determination Date, the applicable Tranche B Target Amount for such Tranche B Catch Up Determination Date is met or exceeded, then the Tranche B Shortfall Shares which did not vest on such Tranche B Shortfall Determination Date shall immediately become Vested Shares on the Tranche B Catch Up Determination Date, it being agreed that if the Tranche B Target Amount relating to such Tranche B Catch Up Determination Date is not met, such Tranche B Shortfall Shares shall never become vested. By way of example, if the Tranche B Shortfall Amount on the First Determination Date is $26 million resulting in 24,148 Tranche B Shortfall Shares, and as of the Second Determination Date (which, in this example, is the Tranche B Catch Up Determination Date with respect to the First Determination Date) the Second Tranche B Target Amount of Cumulative Signed Purchasing Volume of $3,130 million is met, then the 24,148 Tranche B Shortfall Shares relating to the First Determination Date which had become a Shortfall Determination Date will become Vested Shares on the Second Determination Date, provided however, that if as of the Second Determination Date Cumulative Signed Purchasing Volume is less than $3,130 million, the 24,148 Tranche B Shortfall Shares relating to the First Determination Date shall never become vested, even if as of the Third Determination Date the relevant Tranche B Target Amount for such Determination Date is met or exceeded. (e) If, on the December 15 immediately preceding a Determination Date, UHC delivers to Parent written evidence establishing that a number of Tranche B Shares would become Vested Shares on such December 15 if such December 15 were to be treated as if it were the immediately following Determination Date (but not any other subsequent Determination Date or December 15), then such Tranche B Shares shall become Vested Shares as of such December 15, and the number of Tranche B Shares eligible to become Vested Shares on the immediately following Determination Date shall be reduced by a like amount. If less than all of the Tranche B Shares available to become Vested Shares on a particular December 15 become Vested Shares on such date, any and all such Tranche B Shares which did not become Vested Shares on such December 15 may become Vested Shares on the Determination Date immediately following such December 15 in accordance with the pro rata provisions of paragraph (d), and if such Determination Date immediately following such December 15 is a Tranche B Shortfall Determination Date, each of the December 15 immediately following such Tranche B Shortfall Determination Date and the Determination Date immediately following such Tranche B Shortfall Determination Date, but no other December 15 or Determination Date, shall be a Tranche B Catch Up Determination Date for such Tranche B Shortfall Determination Date. All other provisions and limitations of paragraph (d) with respect to a Tranche B Catch Up Determination Date shall be applicable. 6 7 1.7 Forfeiture of Tranche B Shares. On and following any date on which any Tranche B Shares cannot become Vested Shares pursuant to the provisions of Section 1.6 of this Amendment, all such Tranche B Shares that cannot become Vested Shares shall, without the payment of any consideration by Parent or any further action by UHC or Parent, be forfeited by UHC to Parent. Upon any such forfeiture of Tranche B Shares, UHC shall promptly, but in no event later than three business days after such forfeiture, return the certificates representing the shares so forfeited to Parent for cancellation. 1.8 Continuation of Vesting Provisions. In the event of a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Parent pursuant to which shares of Common Stock are converted into a different number or kind of security or other property (other than cash), all Restricted Shares that are not Vested Shares shall remain subject to the vesting provisions and the Forfeiture Risk described in this Article I, after equitably and proportionately adjusting the provisions of this Article I to the number and kind of securities or other property into which the Restricted Shares have been converted pursuant to such corporate transaction. In the event of a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Parent pursuant to which all shares of Common Stock are converted into cash, or a cash tender offer for all shares of Common Stock is consummated, all Restricted Shares shall become Vested Shares. ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF PARENT Parent hereby represents and warrants to UHC, subject to the exceptions specifically disclosed in writing in the disclosure letter delivered by Parent dated as of the date hereof and certified by a duly authorized officer of Parent (the "PARENT DISCLOSURE LETTER") (which Parent Disclosure Letter shall be deemed to be representations and warranties to UHC by Parent under this Article II), as follows: 2.1 Organization of Parent. (a) Parent 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 Parent. (b) The Restricted Shares, when issued as provided in this Agreement, will be duly authorized and validly issued, fully paid and nonassessable. (c) Based in part on the representations made by UHC in Article III hereof, the issuance of the Restricted Shares solely to UHC 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"). 7 8 2.2 Due Authorization. (a) Parent has all requisite corporate power and authority to enter into this Amendment and to consummate the transactions contemplated hereby. The execution and delivery of this Amendment and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent. This Amendment has been duly executed and delivered by Parent and, assuming the due authorization, execution and delivery thereof by UHC, constitutes the valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally and general principles of equity. (b) The execution and delivery of this Amendment by Parent does not, and the performance of this Amendment by Parent will not, (i) conflict with or violate the Parent Charter Documents, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent 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 Parent'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 Parent pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent is a party or by which Parent 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 Parent or a material adverse effect on Parent's ability to perform its obligations hereunder. There are no consents, waivers or approvals under any of Parent'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 Parent or a material adverse effect on Parent's ability to perform its obligations hereunder. (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 Parent in connection with the execution, delivery and performance of this Amendment 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 (ii) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not have a Material Adverse Effect on Parent or have a material adverse effect on the ability of the parties hereto to consummate or perform the transactions contemplated hereby. 2.3 Nasdaq Listing. Parent agrees that it will authorize for listing on the Nasdaq Stock Market the Restricted Shares issuable in connection with this Amendment, effective upon official notice of issuance. 8 9 2.4 Litigation. There are no claims, suits, actions or proceedings pending or, to the knowledge of Parent, threatened against, relating to or affecting Parent 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 Amendment. 2.5 Brokers' and Finders' Fees. Parent 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 Amendment. 2.6 Anti-Takeover Protections. The Board of Directors of Parent has taken all actions so that the restrictions contained in Section 203 of the General Corporation Law of the State of Delaware applicable to a "business combination" (as defined in such Section 203) will not apply to the execution, delivery or performance of this Amendment. To Parent's knowledge, no other anti-takeover, control share acquisition, fair price, moratorium or other similar statute or regulation applies or purports to apply to this Amendment or the transactions contemplated hereby. ARTICLE III REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF UHC UHC hereby represents and warrants to Parent as follows: 3.1 Organization, Good Standing and Qualification. UHC 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 UHC. 3.2 Authorization. (a) UHC has all requisite power and authority to enter into this Amendment and to consummate the transactions contemplated hereby. The execution and delivery of this Amendment and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of UHC. This Amendment has been duly executed and delivered by UHC and constitutes the valid and binding obligations of UHC, enforceable against UHC in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally and general principles of equity. (b) The execution and delivery of this Amendment by UHC does not, and the performance of this Amendment by UHC will not, (i) conflict with or violate the certificate of incorporation, bylaws, operating agreement or other organizational documents of UHC, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to UHC 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 UHC's rights or alter the rights or obligations of any third party under, or give to others 9 10 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 UHC pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which UHC is a party or by which UHC 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 UHC or a material adverse effect on UHC's ability to perform its obligations hereunder. There are no consents, waivers or approvals under any of UHC's or any of its subsidiaries' agreements, contracts, licenses or leases which 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 UHC or a material adverse effect on UHC's ability to perform its obligations hereunder. (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 UHC in connection with the execution and delivery of this Amendment 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 (ii) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not have a Material Adverse Effect on UHC or have a material adverse effect on the ability of the parties hereto to consummate or perform the transactions contemplated hereby. 3.3 Acquisition for Own Account. Except as previously disclosed to Parent, the Restricted Shares to be delivered to UHC hereunder will be acquired for UHC'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 UHC represents that it has no present intention or agreement to sell, grant any participation in, or otherwise distribute any of the Restricted Shares to be acquired by UHC hereunder in any public resale or distribution within the meaning of the 1933 Act. UHC also represents that it has not been formed for the specific purpose of acquiring the Restricted Shares. 3.4 Disclosure of Information. UHC 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 Restricted Shares to be issued to UHC under this Agreement. UHC further has had an opportunity to ask questions and receive answers from Parent regarding the terms and conditions of the offering of the Restricted Shares and to obtain additional information (to the extent Parent possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to UHC or to which UHC had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by Parent in Article II. 3.5 Experience. UHC understands that ownership of the Restricted Shares involves substantial risk. UHC: (i) has experience as owner of securities of companies in the development stage and acknowledges that UHC is able to fend for itself, can bear the economic risk of UHC's ownership of the Restricted Shares and has such knowledge and experience in financial or business matters that UHC is capable of evaluating the merits and risks of ownership 10 11 of the Restricted Shares and protecting its own interests in connection with this ownership and/or (ii) has a preexisting personal or business relationship with Parent and certain of its officers, directors or controlling persons of a nature and duration that enables UHC to be aware of the character, business acumen and financial circumstances of such persons. 3.6 Accredited Investor Status. UHC is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. 3.7 Restricted Securities. UHC understands that the Restricted Shares will be characterized as "restricted securities" under the 1933 Act inasmuch as they are being acquired from Parent 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, UHC represents that UHC is familiar with Rule 144 of the SEC, as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. 3.8 No Solicitation. At no time was UHC 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 Restricted Shares. 3.9 Further Limitations on Disposition. Without in any way limiting the representations set forth above, UHC agrees not to make any disposition of all or any portion of the Vested 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 the Vested Shares and such disposition is made in accordance with such registration statement; or (b) UHC shall have notified Parent of the proposed disposition of the Vested Shares and shall have furnished Parent with a statement of the circumstances surrounding such proposed disposition, and, at the expense of UHC or its transferee, with an opinion of counsel, reasonably satisfactory to Parent, that such disposition will not require registration of such securities under the 1933 Act. 3.10 Transfer of Restricted Shares. UHC agrees that it will not, directly or indirectly, in a single transaction or series of related transactions, without the prior written consent of Parent, sell, pledge, Encumber, transfer, assign or otherwise dispose (each, a "TRANSFER") of legal or beneficial ownership of any Restricted Shares to any person prior to such time as they become Vested Shares pursuant to this Agreement. Any purported Transfer in violation of the foregoing restriction shall be void and Parent may, and may instruct the transfer agent of the Common Stock to, refuse to record, whether on the stock records of Parent or otherwise, any purported transfer of unvested Restricted Shares or recognize any purported transferee of unvested Restricted Shares and Parent may issue stop transfer orders with respect to any such Transfer of unvested Restricted Shares. 3.11 Legends. UHC understands and agrees that the certificates evidencing the Restricted Shares and the Vested Shares will bear legends substantially similar to those set forth 11 12 in paragraphs (a) and (b) below, and that the certificates evidencing the Restricted Shares will bear a legend substantially similar to that set forth in paragraph (c) below, in addition to any other legend that may be required by applicable law, by Parent's Certificate of Incorporation or Bylaws, or by any agreement between Parent and UHC: (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 ON VOTING AND THE HOLDERS HEREOF MAY BE BOUND BY CERTAIN RESTRICTIONS ON ACQUISITION OF THE ISSUER'S CAPITAL STOCK PURSUANT TO AN AMENDED AND RESTATED COMMON STOCK AND WARRANT AGREEMENT BETWEEN THE ORIGINAL HOLDER OF THESE SECURITIES AND THE ISSUER, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. (c) PURSUANT TO THE TERMS OF AN AMENDED AND RESTATED COMMON STOCK AND WARRANT AGREEMENT BETWEEN THE ORIGINAL HOLDER OF THESE SECURITIES AND THE ISSUER, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER, THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, PLEDGED, ENCUMBERED OR OTHERWISE TRANSFERRED. THE ISSUER WILL NOT RECOGNIZE ON ITS STOCK TRANSFER RECORDS ANY PURPORTED TRANSFEREE OF THE SECURITIES REPRESENTED HEREBY. The legend set forth in (a) above shall be removed by Parent from any certificate evidencing Restricted Shares or Vested Shares upon delivery to Parent of an opinion by counsel, reasonably satisfactory to Parent, 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 such transfer will not jeopardize the exemption or exemptions from registration pursuant to which Parent issued the Restricted Shares or the Vested Shares when they were Restricted Shares. The legend set forth in (b) above shall be removed by Parent from any certificate evidencing Restricted Shares or Vested Shares upon delivery to Parent of an opinion by counsel, reasonably satisfactory to Parent, to the effect that the resale, voting and standstill restrictions contained in this Agreement, as amended hereby, are no longer applicable to the holder of the securities represented thereby. The legend set forth in (c) above shall be removed by Parent from any certificate evidencing Restricted Shares which have become Vested Shares. 12 13 3.12 Dividends for Restricted Shares. In the event that Parent declares a dividend or other distribution to holders of its Common Stock, any such dividend paid or distribution made in respect of Restricted Shares that have not become Vested Shares shall be paid or made to an escrow holder selected by Parent and reasonably satisfactory to UHC and held by such person to be delivered either to UHC upon the vesting and delivery of the Restricted Shares in respect of which such dividend or distribution was made or to Parent upon the forfeiture of the Restricted Shares in respect of which such dividend or distribution was made. ARTICLE IV ADDITIONAL AMENDMENTS 4.1 Amendment of Voting Provisions. Section 6.1 of the Agreement is hereby amended to read in its entirety as follows: "6.1 Voting of Common Stock. UHC agrees that from and after the date of the Closing through the fifth anniversary of the Closing (the "FIFTH ANNIVERSARY"), and for as long after the Fifth Anniversary as the outstanding shares of Common Stock (including Restricted Shares and Vested Shares) beneficially owned by UHC together with all "affiliates" (which for purposes of this Agreement (other than Section 3.12) shall have the meaning given such term in Rule 144(a)(1) promulgated under the 1933 Act) of UHC exceeds 9% of the then outstanding Common Stock of Parent (the entire such period, the "RESTRICTED PERIOD"), to the extent that the outstanding shares of Common Stock (including outstanding Shares, Restricted Shares and Vested Shares) beneficially owned by UHC together with all affiliates of UHC exceeds 9% of the then outstanding Common Stock of Parent (the shares (including outstanding Shares, Restricted Shares and Vested Shares) in excess of such 9% threshold, "EXCESS SHARES"), UHC shall, and shall cause its controlled affiliates to, vote all Excess Shares it holds or is entitled to vote in proportion to the votes cast by all other stockholders of Parent in connection with each matter submitted to Parent's stockholders for approval, except for (i) a proposed Change of Control or (ii) an amendment of the Certificate of Incorporation of Parent that would materially and adversely affect UHC as a Parent stockholder in a manner different from the effect such amendment would have on other Parent stockholders generally. On all matters submitted to Parent stockholders for approval other than those identified in clauses (i) and (ii) of the preceding sentence, UHC shall, and shall cause its controlled affiliates to, vote all Excess Shares in proportion to the votes cast by all other stockholders of Parent in connection with each matter submitted to Parent stockholders' for approval, including, without limitation, on any matters regarding equity-based or other compensation plans of Parent, the issuance of capital stock of Parent, amendments to the Certificate of Incorporation of Parent other than as set forth in clause (ii) above, elections of directors to the Board of Directors, or transactions involving interested or related parties. Notwithstanding the foregoing, all Restricted Shares that are not Vested Shares shall be voted on all matters submitted to Parent's stockholders for approval in proportion to the votes cast by all other stockholders of Parent, including those matters identified in items (i) and (ii) of the first sentence of this section. Notwithstanding any voting restrictions set forth herein, the Board of Directors of Parent may waive any voting restriction set forth herein with respect to any particular matter. For purposes of 13 14 this Agreement, "CHANGE OF CONTROL" means the consummation of any transaction or series of related transactions, including an acquisition of Parent by another entity and any reorganization, merger, consolidation or share exchange, that results in the beneficial owners of Parent's capital stock immediately prior to the transaction or transactions holding less than 50% of the voting power of Parent immediately after the transaction or transactions, or a transaction or series of related transactions which result in the sale, exchange, transfer, acquisition or disposition of more than 50% of the assets of Parent. For the avoidance of doubt, for purposes of this Section 6.1, VHA, Novation and HPPI are not "affiliates" of UHC." 4.2 Other Amendments. (a) Section 6.2 of the Agreement shall be amended by deleting the phrase "except pursuant to the Warrant." (b) Section 6.4(a) of the Agreement shall be amended by deleting the phrase, in two locations, "on a fully converted basis (taking into account for VHA, all shares of Common Stock issuable upon the exercise of the warrant issued to VHA pursuant to the VHA Agreement)." (c) Section 6.4(b) of the Agreement shall be amended by deleting the phrase, "on a fully converted basis (taking into account for UHC, all shares of Common Stock issuable upon the exercise of the Warrant)." Section 6.4(b) of the Agreement shall be further amended by adding the following sentence at the end of such Section 6.4(b): "Notwithstanding the foregoing, UHC will not have the right to nominate a person to Parent's Board of Directors pursuant to this Section 6.4(b) for so long as Robert J. Baker, or any other person nominated or appointed by UHC, is a member of Parent's Board of Directors." (d) Section 6.4(c) of the Agreement shall be amended by deleting the phrase, "on a fully converted basis (taking into account for UHC, all shares of Common Stock issuable upon the exercise of the Warrant)." Section 6.4(c) of the Agreement shall be further amended by adding the following sentence at the end of such Section 6.4(c): "Notwithstanding the foregoing, Parent will not be obligated to comply with the foregoing provisions of this Section 6.4(c) for so long as Robert J. Baker, or any other person nominated or appointed by UHC, is a member of Parent's Board of Directors." (e) Section 10.9 of the Agreement is hereby amended to read in its entirety as follows: "10.9 Entire Agreement. The Agreement, as amended by this Amendment, together with all exhibits and schedules and any disclosure letters delivered pursuant thereto and hereto, and the Outsourcing Agreement constitute the entire agreement and understanding of the parties with respect to the subject matter thereof and hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings duties or obligations between the parties with respect to the subject matter hereof." 14 15 ARTICLE V GENERAL PROVISIONS 5.1 Reaffirmation. The Agreement, as amended hereby, is in all respects ratified, reaffirmed and remade, and is in full force and effect. 5.2 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. 5.3 Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. * * * * * 15 16 6.5 Nasdaq Listing. 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 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 UHC contained in Article IV shall be true and correct in all material respects on the date of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. The Company shall have received a certificate with respect to the foregoing signed on behalf of UHC by the Chief Executive Officer or the Chief Financial Officer of UHC. 7.2 Performance. UHC 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 the Closing. 7.3 Securities Exemptions. The issuance of the Shares to UHC 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. 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. This Agreement may be terminated prior to the Closing: (a) by mutual written consent duly authorized by the Boards of Directors of the Company and UHC; (b) by either the Company or UHC if the Closing shall not have occurred by February 15, 2001 for any reason; provided, however, that the right to terminate this Agreement under this Section 9.1(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; or 17 (c) by either the Company or UHC if a Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Closing, which order, decree, ruling or other action is final and nonappealable. 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 UHC (except for any covenant that by its express terms survives the 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 the Closing) contained in or made pursuant to this Agreement shall terminate at the Closing. 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 terminate at the Closing. 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 18 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 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 UHC: WITH A COPY TO: University HealthSystem Consortium McDermott, Will & Emery 2001 Spring Road, Suite 700 227 West Monroe Street Oak Brook, Illinois 60523 Chicago, Illinois 60606 Facsimile: 630-954-4730 Facsimile: 312-984-7700 Attn: Executive Vice President Attn: Virginia H. Holden 19 IF TO THE COMPANY: WITH A COPY TO: Neoforma.com, Inc. Fenwick & West LLP 3061 Zanker Road Two Palo Alto Square, San Jose, California 95134 Palo Alto, California 94306 Facsimile: 408-468-4040 Facsimile: 650-494-1417 Attn: Chief Financial Officer Attn: Gordon K. Davidson 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 the Closing occurs. UHC 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 UHC or any of its officers, partners, members, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless UHC 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. 9.9 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, 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 UHC or the Company, the Company and UHC 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 UHC. At any time prior to the 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. 20 9.12 Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly onferred 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 UHC HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS THE COMPANY OR UHC IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. * * * * * 21 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:__________________________________ UNIVERSITY HEALTHSYSTEM CONSORTIUM By:_____________________________________ Name:___________________________________ Title:__________________________________ [SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT] 22 SCHEDULE OF EXHIBITS Exhibit A: Registration Rights Agreement Amendment 23 EXHIBIT A 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 24 Delaware limited liability company ("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company, VHA and UHC, (viii) 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 (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] 25 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] 26 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized respective officers as of the date first written above. NEOFORMA.COM, INC. By:______________________________________ Name:____________________________________ Title:___________________________________ UNIVERSITY HEALTHSYSTEM CONSORTIUM By:______________________________________ Name:____________________________________ Title:___________________________________ [SIGNATURE PAGE TO UHC AMENDMENT TO AMENDED AND RESTATED COMMON STOCK AND WARRANT AGREEMENT] EX-10.4 5 f72110ex10-4.txt EX-10.4 1 [EXECUTION COPY] ================================================================================ SECOND AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT * dated as of January 1, 2001 among NOVATION, LLC, VHA INC., UNIVERSITY HEALTHSYSTEM CONSORTIUM, HEALTHCARE PURCHASING PARTNERS INTERNATIONAL, LLC, and NEOFORMA.COM, INC. ================================================================================ * Confidential treatment requested for certain portions of this exhibit. 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS......................................................................... 2 2. NOVATION OBLIGATIONS................................................................ 8 2.1 Agency Relationship.......................................................... 8 2.2 Novation Duties.............................................................. 8 2.3 Certain Contracts............................................................ 9 3. NEOFORMA OBLIGATIONS................................................................10 3.1 Service......................................................................10 3.2 Service Levels...............................................................10 3.3 Cooperation with Novation....................................................10 3.4 The First * Locations........................................................10 3.5 Quality Assurance Program....................................................10 3.6 Notice of Materially Adverse Facts...........................................10 3.7 Case Studies.................................................................11 3.8 Supplier Sign-Up and Integration.............................................11 4. THE EXCHANGE........................................................................12 4.1 Maintenance of Exchange......................................................12 4.2 Consultation.................................................................12 4.3 Provision of Non-Contract Product Information................................12 4.4 Provision of Contract Product Information....................................13 4.5 Independent Users............................................................13 4.6 Multiple Memberships.........................................................13 4.7 User Registration............................................................13 4.8 Delivery and Order Fulfillment...............................................14 4.9 Removal of Products from the Exchange........................................14 4.10 Customized Exchanges.........................................................14 4.11 Links........................................................................14 4.12 Reasonable Assistance........................................................14 5. NOVATION EXCHANGE AND HPPI EXCHANGE.................................................14 5.1 Development..................................................................14 5.2 Hosting......................................................................15 5.3 Delivery and Order Fulfillment...............................................15 5.4 Display of Material..........................................................15 5.5 Reports and Meetings.........................................................15 5.6 Retained Contracts...........................................................16 5.7 Marketing....................................................................16 5.8 Neoforma Auction.............................................................16 5.9 Neoforma Plan................................................................16 6. EXCLUSIVITY AND RIGHT OF FIRST OFFER................................................17
* Confidential treatment requested. 3 6.1 Novation, VHA, UHC and HPPI Exclusivity......................................17 6.2 Neoforma Exclusivity.........................................................17 6.3 Right of First Offer for Novation and Neoforma...............................18 6.4 First Offer for Non-Exclusive Services.......................................19 7. LICENSES AND OWNERSHIP..............................................................20 7.1 Ownership of Marks...........................................................20 7.2 Novation Marks...............................................................20 7.3 Neoforma Marks...............................................................20 7.4 VHA, UHC and HPPI Marks......................................................20 7.5 Ownership of Neoforma Materials and Novation Materials.......................21 7.6 Neoforma Materials...........................................................21 7.7 Novation Materials...........................................................21 7.8 Development of Tools.........................................................21 7.9 Access License...............................................................22 8. FEES AND TAXES......................................................................22 8.1 Contract Product Transaction Fees............................................22 8.2 Revenue Sharing..............................................................23 8.3 Adjustment of Transaction Fees...............................................23 8.4 Reporting and Payment of Novation Exchange Transaction Fees and Revenue Sharing......................................................................24 8.5 * ...........................................................................24 8.6 Taxes........................................................................26 8.7 New Markets..................................................................26 8.8 Product Returns..............................................................26 8.9 Neoforma * and Neoforma *, and * and * ......................................26 8.10 * ...........................................................................26 8.11 Other Expenses...............................................................27 9. TERM AND TERMINATION................................................................27 9.1 Initial Term.................................................................27 9.2 Renewal and Extension of Term................................................28 9.3 Termination for Cause........................................................28 9.4 Termination for Insolvency Events............................................28 9.5 Termination for Rejection in Bankruptcy......................................28 9.6 Termination Upon Neoforma Change of Control..................................29 9.7 Return of Materials..........................................................29 9.8 Survival.....................................................................29 9.9 Termination Assistance Services..............................................29 9.10 Third Party Products.........................................................31 10. USER DATA...........................................................................32 10.1 Registration.................................................................32 10.2 Transaction Database.........................................................32 10.3 Member Data..................................................................32 10.4 Aggregated Member Data.......................................................32
* Confidential treatment requested. ii 4 10.5 Transaction Database.........................................................33 10.6 License Grant of Information to Novation.....................................33 10.7 No Other Licenses or Use.....................................................33 10.8 Other Data...................................................................33 10.9 Neoforma Information.........................................................34 11. SAFEGUARDING OF DATA; CONFIDENTIALITY...............................................34 11.1 Novation Data................................................................34 11.2 Confidentiality..............................................................34 12. REPRESENTATIONS AND WARRANTIES......................................................36 12.1 Representations by Neoforma..................................................36 12.2 Representations by Novation, VHA, UHC and HPPI...............................37 12.3 Warranty Disclaimer..........................................................39 13. USE OF SUBCONTRACTORS...............................................................39 13.1 Generally....................................................................39 13.2 Novation's Right to Revoke Approval..........................................39 13.3 Continuing Responsibility....................................................39 13.4 Confidential Information.....................................................39 14. INSURANCE...........................................................................39 14.1 Insurance....................................................................39 14.2 Proof of Insurance...........................................................40 15. INDEMNITY...........................................................................40 15.1 Neoforma Indemnity...........................................................40 15.2 Novation Indemnity...........................................................41 15.3 Infringement Claims..........................................................41 15.4 Indemnity Procedures.........................................................42 16. LIMITATION OF LIABILITY.............................................................42 16.1 Limitations..................................................................42 16.2 Exceptions...................................................................43 16.3 Liquidated Damages...........................................................43 17. AUDIT RIGHTS........................................................................44 17.1 General......................................................................44 17.2 Frequency of Audits..........................................................45 17.3 Auditors.....................................................................45 17.4 Record Retention.............................................................45 17.5 Cooperation..................................................................45 17.6 Overcharges..................................................................45 18. DISPUTE RESOLUTION..................................................................45 18.1 Resolution of Disputes.......................................................45 18.2 Negotiations and Escalation..................................................46
iii 5 18.3 Appointment of Arbitral Body.................................................46 18.4 Qualifications of Arbitrator.................................................46 18.5 Initiation of Arbitration and Procedures.....................................46 18.6 Procedures...................................................................47 18.7 Governing Law; Jurisdiction..................................................47 18.8 Arbitration Award............................................................47 18.9 Cooperation of the Parties...................................................48 18.10 Costs........................................................................48 18.11 Judgment on the Award; Enforcement...........................................48 18.12 Preservation of Equitable Relief; Third-Party Litigation.....................48 18.13 Continued Performance........................................................49 19. GUARANTY OF PERFORMANCE.............................................................49 19.1 VHA and UHC Guarantees.......................................................49 19.3 VHA and UHC Waivers..........................................................49 19.3 Scope of Liability...........................................................50 19.4 Continued Performance by Neoforma............................................50 20. GENERAL PROVISIONS..................................................................51 20.1 No Waiver....................................................................51 20.2 Entire Agreement.............................................................51 20.3 Publicity....................................................................51 20.4 Covenant of Good Faith.......................................................51 20.5 Compliance with Laws and Regulations.........................................51 20.6 Assignment; Successors and Assigns...........................................52 20.7 Governing Law................................................................52 20.8 Notices......................................................................52 20.9 No Agency....................................................................53 20.10 Force Majeure................................................................53 20.11 Interest.....................................................................54 20.12 Program Management...........................................................54 20.13 Severability.................................................................54 20.14 Counterparts.................................................................54 20.15 Headings.....................................................................55 20.16 Section 365(n) Matters.......................................................55
iv 6 EXHIBITS: Exhibit A Marks + Exhibit B Current Marks Usage Guidelines for Novation + Exhibit C Current Marks Usage Guidelines for Neoforma + Exhibit D Current Marks Usage Guidelines for VHA, UHC and HPPI + Exhibit E Reports and Other Information Requirements Exhibit F Program Management + Exhibit G Minimum Fee Exhibit H Target Fee Levels Exhibit I Examples Exhibit J Priority Suppliers
+ Exhibit filed previously and not included here. v 7 SECOND AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT This Second Amended and Restated Outsourcing and Operating Agreement ("AGREEMENT") entered into as of January 1, 2001 (the "EFFECTIVE DATE"), by and among Neoforma.com, Inc., a Delaware corporation with offices at 3255-7 Scott Boulevard, Santa Clara, California 95054 ("NEOFORMA"), Novation, LLC, a Delaware limited liability company with offices at 125 East John Carpenter Freeway, Irving, Texas 75062 ("NOVATION"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company with offices at 125 East John Carpenter Freeway, Irving, Texas 75062 ("HPPI"), VHA Inc., a Delaware corporation with offices at 220 East Las Colinas Boulevard, Irving, Texas 75039-5500 ("VHA"), and University HealthSystem Consortium, an Illinois corporation with offices at 2001 Spring Road, Suite 700, Oak Brook, Illinois 60523 ("UHC"). RECITALS WHEREAS, Neoforma is a provider of Internet (as defined in Section 1) e-commerce services to the healthcare industry facilitating the sale, rental or lease of new and used equipment, products, supplies, services information and other content, and provides information regarding various healthcare facilities and equipment through its online offerings and programs; WHEREAS, VHA and UHC are organizations whose patrons are hospitals and healthcare providers, who view e-commerce as an essential part of their cooperative purchasing programs on behalf of their patrons for the future and who desire to more fully develop the services they render to their patrons through this Agreement; WHEREAS, VHA and UHC together own all the ownership interests in Novation and HPPI; WHEREAS, Novation is a contracting agent that develops and delivers supply chain management agreements, programs and services on behalf of VHA and UHC and their patrons; WHEREAS, HPPI is a GPO that serves healthcare organizations that are not members of VHA and UHC and other GPOs and which develops and delivers supply-chain management programs and services to such healthcare organizations; WHEREAS, the parties wish to establish a long-term, global relationship to enable the parties to achieve increased efficiency and cost savings through Internet-based technology and pursuant to which (i) Neoforma will develop and manage the Exchange (as defined in Section 1), an e-commerce web site for the benefit of the members of VHA and UHC, the associated healthcare organizations of HPPI and for the benefit of other users unaffiliated with VHA, UHC or HPPI, (ii) Novation will serve as the contracting agent for Neoforma by recruiting, contracting with and managing relationships with healthcare equipment manufacturers and service suppliers on Neoforma's behalf and (iii) VHA and UHC will provide marketing support for the Exchange, guarantee Novation's obligations to the extent provided under this Agreement and enter into the exclusivity provisions hereunder; 1 8 WHEREAS, the parties have previously entered into an Outsourcing and Operating Agreement (the "ORIGINAL OUTSOURCING AND OPERATING AGREEMENT"), dated as of March 30, 2000 (the "ORIGINAL EFFECTIVE DATE"), and have also previously entered into an amended and restated Original Outsourcing and Operating Agreement, dated as of May 24, 2000 (the "FIRST AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT"), and each of Novation, VHA, UHC and HPPI, together with Neoforma, desire to amend, restate, remake and reaffirm the First Amended and Restated Outsourcing and Operating Agreement as set forth herein; and WHEREAS, in consideration for the services initially agreed to be provided by VHA and UHC pursuant to the Original Outsourcing and Operating Agreement and the First Amended and Restated Outsourcing and Operating Agreement, Neoforma issued to VHA and UHC shares of, and warrants to purchase, common stock of Neoforma. NOW, THEREFORE, for good and valuable consideration, the parties agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the respective meanings set forth below. Other capitalized terms shall have the meanings set forth elsewhere in this Agreement. "ADJUSTED GROSS TRANSACTION VALUE(S)" means, with regard to a confirmed purchase, rental or lease on the Novation Exchange, * which are related to the Product purchased, rented or leased. "AFFILIATE(S)" means, with respect to a specified person, any other person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person. Neoforma, on the one hand, and Novation, VHA and/or UHC, on the other hand, shall not be Affiliates. "AGGREGATED MEMBER DATA" means all or any of an aggregate of the Information relating to any two or more Members. "API(s)" means language and messaging formats, in human and computer readable form, that define how programs interact with an operating system, a database, with functions in other programs, with communication systems, or with hardware drivers. "CONTRACT PRODUCT(S)" means any Product that is part of the Novation Contract Portfolio and available on the Novation Exchange or the HPPI Exchange. "CUSTOMIZED EXCHANGE(S)" means that portion of the Exchange created specifically for and accessible only to members of a particular purchasing organization. * Confidential treatment requested. 2 9 "EXCHANGE" means the Novation Exchange, HPPI Exchange, all Customized Exchanges and all other portions of the Neoforma web sites. "EXPECTED TRANSACTION FEES" means all amounts of Novation Exchange Transaction Fees expected to be paid by a Supplier during the period commencing on the applicable * or *, as the case may be, up to and including * of such Supplier. Such Expected Transaction Fees shall be calculated with respect to each Supplier by multiplying (i) the * sales, rentals and leases of * (as evidenced by the most recent *) and * (as evidenced by reasonable supporting documentation provided to Neoforma by Novation) by * that were * prior to the applicable * or *, as the case may be, and that processed transactions with the applicable * through the Novation Exchange during the preceding *, by (ii) the applicable * for sales, rentals and leases of * and * as defined in the agreement between Neoforma and such Supplier. In order to calculate the * Expected Transaction Fees, the resulting number is then multiplied by a fraction, the numerator of which is * for the first * days subsequent to the * , * for the second * days, * for the third * days, and * thereafter, and the denominator of which is *. By way of example, if (A) as of a certain *, * (as described above) representing * purchases of * and * from the applicable Supplier in the preceding * were processing transactions through the Novation Exchange, and (B) such Supplier was obligated to pay a Novation Exchange Transaction Fee of * with respect to such transactions through the Novation Exchange, then in the first * days following such *, * would be multiplied by *, and the resultant number of * would be multiplied by the quotient of * and *, or *, to calculate a * Expected Transaction Fee of *. "GAAP" means United States generally accepted accounting principles as in effect at the time of the application thereof. "GPO(s)" means any entity in the United States that meets the definition of a "Group Purchasing Organization" as set forth in 42 CFR Section 1001.952(j), and any entity outside the United States performing a similar function. "GROSS REVENUE" means, with respect to Novation's responsibility for any * in Minimum Fees, the aggregate of (i) the marketing fees and other revenue recognized by VHA and the administrative fees and other revenue recognized by UHC pursuant to Novation-related agreements with suppliers and distributors and (ii) revenue recognized by Novation pursuant to Sections 8.2, 8.9 and 8.10, less any revenues recognized from HPPI and amounts related to purchases made through VHA's Care Continuum Program and any substantially similar program operated by UHC. "HIGH-VOLUME SUPPLIER" means a Supplier whose sales of Products from the Novation Contract Portfolio (whether purchased through the Novation Exchange or otherwise) are at least * Confidential treatment requested. 3 10 * annually as evidenced by the * during the preceding 12-month period. "HPPI EXCHANGE" means that portion of the Novation Exchange accessible only to HPPI Members. "HPPI MEMBER(S)" means, at any date, those organizations acting as purchasers, renters or lessees in their respective markets that are associates of HPPI and to which HPPI provides procurement related services, cost management programs and other services. "INFORMATION" means the information and data maintained by Neoforma in the Transaction Database, which shall include, at minimum, (i) any and all information and data collected, developed and/or stored by Neoforma relating to Users and (ii) any and all information and data relating to use of or transactions on the Exchange by Users. "INTELLECTUAL PROPERTY RIGHTS" means all copyrights, patents, trade names and trademarks (in each of the preceding cases, whether registered or not) and trade secrets and other intellectual property rights of a person. "INTEGRATION" means the integration of the current system of a Supplier or Member, as applicable, with the Exchange such that such Supplier or Member, as the case may be, may (i) conduct transactions through the Exchange and receive confirmations of such transactions, or (ii) solely in the case of a Supplier that conducts transactions through distributors rather than directly through the Exchange, access information regarding transactions, in each such case, in accordance with the functionality set forth in the then-current Functionality Specifications. "INTERNET" means the public, global network of computer networks and individual computers constantly connected using standardized communications protocols, specifically TCP/IP or any successor protocol thereof. "MATERIAL(S)" means information on equipment, products, supplies or services, including, without limitation, product availability and pricing information, provided to Neoforma for display to Users of the Exchange. "MEMBER(S)" means, at any date, those organizations that are (i) patrons or members of VHA or UHC, or are associated therewith, or (ii) HPPI Members, and in each case, that are listed in an electronic file supplied to Neoforma and updated periodically by Novation. "MEMBER DATA" means any and all Transaction Database information relating to a specific Member. "NEOFORMA AUCTION" means Neoforma's auction services offered on the Exchange. "NEOFORMA CHANGE OF CONTROL" means the occurrence of any of the following: (a) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or * Confidential treatment requested. 4 11 substantially all of the properties and assets of Neoforma and its subsidiaries taken as a whole to any "person" or "group" (as such terms are used in Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act")), other than Novation or any of its Affiliates; (b) the adoption by the Board of Directors of Neoforma of a plan relating to the liquidation or dissolution of Neoforma; (c) the consummation of any transaction or series of related transactions (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as defined above), other than Novation or any of its Affiliates, becomes the "beneficial owner" (as such term is used in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of more than 50% of the capital stock of Neoforma, measured by voting power or economic interest rather than number of shares; (d) the consummation of any transaction or series of related transactions (including, without limitation, any merger or consolidation) the result of which is that the beneficial owners (as defined above) of the capital stock of Neoforma immediately prior to such transaction or transactions cease to be the beneficial owners of at least 50.1% of the capital stock, measured by voting power or economic interest rather than number of shares, of the surviving or resulting entity of such transaction or transactions; or (e) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Neoforma (together with any new directors whose election by the Board of Directors or whose nomination for election by the stockholders of Neoforma was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously approved) cease to constitute a majority of the directors then in office. "NEOFORMA INFORMATION" means Information received from non-Members. "NEOFORMA MATERIALS" means Materials provided by Neoforma and displayed on and available to Users of the Exchange but shall not include the Novation Materials. "NEOFORMA PLAN" means Neoforma's medical facility planning services offered on the Exchange. "NON-CONTRACT PRODUCT" means any Product available through the Exchange that is not part of the Novation Contract Portfolio or any other GPO-specific contract portfolio. "NOVATION CONTRACT PORTFOLIO" means a catalog of all Products and Novation Materials that will appear on the Novation Exchange or the HPPI Exchange, for which Novation has contracted, for the benefit of the Members. 5 12 "NOVATION COMPETITOR" means any person that, at the time of determination, would reasonably be considered to be (i) a competitor of Novation or (ii) a competitor of any Member. "NOVATION EXCHANGE" means that portion of the Exchange accessible only to members of VHA, UHC or HPPI which may include Contract and Non-Contract Products. "NOVATION EXCHANGE TRANSACTION FEE(S)" means fees to be paid by Suppliers in respect of transactions occurring on the Novation Exchange, excluding fees associated with Neoforma Auction and Neoforma Plan. "NOVATION MATERIALS" means Materials provided by Novation or by Novation Suppliers to Neoforma for display to Users of the Exchange, including to Members on the Novation Exchange. "NOVATION SUPPLIERS" means suppliers, manufacturers or distributors that provide equipment, products, supplies, services, information and other content for sale, rental or lease through the Novation Exchange and HPPI Exchange under the Novation Contract Portfolio. "PARTY" means each of Neoforma, Novation, HPPI, VHA and UHC and any other person who becomes a signatory to this Agreement, unless the context requires otherwise. "PATRON(S)" means a person who is entitled to receive a patronage refund from VHA or UHC. "PERSON" means a natural person, corporation, partnership (limited or general), limited liability company, business trust or other entity. "PRODUCT(S)" means equipment, products, supplies, services, information and other content provided by Suppliers and available for purchase, rental or lease by Users through the Exchange. "REMOTE ORDER ENTRY" means the ability of Users, including, without limitation, persons outside of central purchasing/materials management departments to create requisitions and to have such requisitions turned into valid orders in accordance with the protocol agreed to by the Novation Exchange and the User. "RETAINED CONTRACT(S)" means those product or service contracts of VHA or UHC that have not been transferred to Novation and which the Members may have access to because they are Members in VHA or UHC. "SERVICE(S)" means the services to be provided hereunder by Neoforma. "SERVICE LEVEL(S)" means the objective criteria establishing the level of Neoforma's required performance of the Services under this Agreement. 6 13 "SIGN-UP" (also "SIGNS-UP" and "SIGNED-UP") means for a party to enter into a contractual relationship with a Supplier to enable all or any portion of that Supplier's equipment, products, supplies, services, information and other content to be displayed on the Exchange. "SUPPLIER(S)" means suppliers, manufacturers or distributors that provide Products and Materials for display, sale, rental or lease through the Exchange, including, without limitation, High-Volume Suppliers. "SUPPLIER INTEGRATION DEADLINE" means the later of (i) * following the date on which a Supplier is Signed-up or (ii) the * specified in the contract between the Supplier and Neoforma, as either may be adjusted pursuant to Section 3.8.2. "SUPPLY CHAIN MANAGEMENT SERVICES" means (i) with respect to Novation, VHA and HPPI, operations and activities related to the evaluation, bidding, negotiation, contracting, administering, marketing, distribution, sale, acquisition or disposal of equipment, products, supplies, services, information and other content by healthcare organizations from third parties and (ii) with respect to UHC only, operations and activities related to the evaluation, bidding, negotiation, contracting, administering, marketing, distribution, sale, acquisition or disposal of equipment, products, supplies and services by healthcare organizations from third parties, and in the case of each of clause (i) and (ii), including operations and activities directly related to Neoforma Plan and Neoforma Auction. Notwithstanding the generality of the foregoing, and with respect to UHC only, Supply Chain Management Services do not include outsourcing, consulting, information technology products and services (unless related to equipment or supplies), financial products and services, insurance products and services, education and networking and communication products and services. "TARGET FEE LEVELS" has the meaning specified in Section 8.2.1 of this Agreement. "TOOL(S)" means a program, utility or user interface that helps the user of the program, utility or user interface analyze or search for data. "TRANSACTION DATA" means the data maintained by Neoforma on the Transaction Database. "TRANSACTION DATABASE" means any and all means used to store Information. "TRANSACTION FEE(S)" means fees to be paid by Suppliers with whom Novation has contracted on Neoforma's behalf in respect of transactions occurring on the Exchange but excluding fees associated with the Novation Exchange, Neoforma Auction and Neoforma Plan. "USER(S)" means all Members and other users of the Exchange, including, without limitation, participating healthcare organizations, GPOs or other registered users that do not act as Suppliers. * Confidential treatment requested. 7 14 2. NOVATION OBLIGATIONS 2.1 Agency Relationship. Neoforma hereby appoints Novation to act as Neoforma's agent to Sign-up Suppliers, and Novation accepts such appointment, for the principal purpose of facilitating e-commerce purchases by the patrons of VHA and UHC and by others. 2.2 Novation Duties. In connection with Novation's appointment as agent under Section 2.1, Novation will perform the following obligations: 2.2.1 Neoforma and Novation shall meet to discuss and mutually agree upon certain commercially reasonable negotiating parameters within which Novation may negotiate with Suppliers without seeking Neoforma's approval. While within such parameters, Novation may negotiate with and Sign-up any Supplier and obtain any terms and conditions that in Novation's reasonable discretion are consistent with its obligations under this Agreement. Novation agrees that if it wishes to conclude any agreement (i) upon terms and conditions outside of the agreed upon negotiating parameters, or (ii) with respect to Exchanges other than the Novation Exchange, at Transaction Fee levels that are lower than the levels agreed upon by Neoforma and Novation under Section 8.3, it will seek Neoforma's prior consent, which consent shall not be unreasonably withheld or delayed. Novation shall use its diligent efforts to obtain favorable terms from each Supplier with whom it negotiates on behalf of Neoforma. Neoforma agrees, however, that Novation shall have no obligation to obtain the best terms and conditions available from any Supplier. 2.2.2 Neoforma and Novation shall meet no less frequently than on a quarterly basis (or at any time that either Neoforma or Novation reasonably requests such a meeting) to review the then-current negotiating parameters. At such meetings, Neoforma and Novation shall in good faith review whether the negotiating parameters then in effect are market competitive and, if not, shall adjust so that they are market competitive. For the avoidance of doubt, the parties agree that "market competitive" shall mean that (i) Suppliers are reasonably likely to sign such agreement (after negotiation) or (ii) the negotiating parameters are commercially reasonable. 2.2.3 Novation will provide to Neoforma promptly after the Sign-up of each Supplier agreement that Novation enters into on Neoforma's behalf, all information concerning such agreement that is necessary for Neoforma to fulfill its obligations thereunder. 2.2.4 Novation will manage the Supplier relationships in respect of each Supplier that Novation Signs-up on Neoforma's behalf, and will use diligent efforts to facilitate favorable commercial relationships between Neoforma and such Suppliers. 8 15 2.2.5 Novation shall make available a number of employees as will be necessary to perform Novation's agency obligations hereunder. No such employees will be required to devote their full time to providing such services hereunder. 2.2.6 Novation and Neoforma shall cooperate to increase the number of Suppliers on the Exchange. Additionally, on or before *, Novation shall Sign-up at least * additional *. If Novation does not Sign-up at least * additional * on or before *, then for each day after * that such * has not been Signed-up, Novation shall pay to Neoforma the sum of *. If Novation is subject to a penalty pursuant to this Section 2.2.6, then the Target Fee Level (as defined in Section 8.2.1) for the applicable Calendar Quarter shall be reduced by the aggregate amount of such penalty paid in such Calendar Quarter. 2.2.7 Novation will reasonably cooperate with Neoforma to resolve performance problems with respect to any Supplier that it has Signed-up on Neoforma's behalf and who has become the subject of numerous User complaints. In the resolution of such issues, Novation will act solely as Neoforma's agent with respect to Suppliers, and Novation shall not be required to contact any Users. 2.2.8 Subject to its obligations under Section 11.2, Novation will bring to Neoforma's attention, reasonably promptly after learning thereof, any fact that would reasonably be likely to materially adversely affect the Exchange, Neoforma or Users, including, without limitation, the institution of litigation against Novation or any Supplier. 2.2.9 In connection with the negotiation of Supplier agreements, Novation will provide Suppliers with technical information and specifications provided by Neoforma to enable such Suppliers to effectively connect to and interface with the Exchange. Novation shall not independently negotiate or modify any aspects of Neoforma's technical specifications regarding the Exchange without Neoforma's prior written consent. 2.2.10 In performing its duties under this Section 2, Novation shall not be required to initiate or carry on litigation. 2.3 Certain Contracts. For the avoidance of doubt, the parties agree that the contracts constituting the Novation Contract Portfolio or the Retained Contracts, as now or hereafter constituted, shall remain obligations of Novation, UHC or VHA, as the case may be, and shall not be transferred to, or assumed by, Neoforma in connection with this Agreement. * Confidential treatment requested. 9 16 3. NEOFORMA OBLIGATIONS 3.1 Service. Neoforma shall provide Services as shall be mutually agreed upon by the parties hereto and referred to as the "FUNCTIONALITY SPECIFICATIONS." Neoforma and Novation anticipate that the Services will evolve and be modified or be enhanced over time to keep pace with technological advancements and improvements in e-commerce and shall include at least the functionality described in the Functionality Specifications. Once agreed upon, all modifications to the Functionality Specifications must be in writing and agreed to by the parties in writing. 3.2 Service Levels. Neoforma shall provide such professional and technical personnel and other resources (including, without limitation, hardware, software, facilities, equipment and other assets) as shall be required to perform the Services in accordance with service levels as shall be mutually agreed upon by the parties hereto and referred to as the "SERVICE LEVEL SPECIFICATIONS." Once agreed upon, all modifications to the Service Level Specifications must be in writing and agreed to by the parties in writing. 3.3 Cooperation with Novation. Neoforma shall cooperate with Novation in the performance of Novation's agency obligations under Section 2. 3.4 The First * Locations. No later than *, Neoforma shall have completed the Integration of, and shall have made operational for Remote Order Entry, * locations jointly identified by Neoforma and Novation. Of the * locations, (i) * shall be *, (ii) * shall be * and (iii) each of * of such * shall have * of products of *, based on each location's purchasing, renting and leasing * during the *. 3.5 Quality Assurance Program. Neoforma will administer a quality assurance program that has been mutually agreed to by Neoforma and Novation, among other things, to monitor Supplier performance and order confirmation for Products ordered by Users. 3.6 Notice of Materially Adverse Facts. Subject to its obligations under Section 11.2, Neoforma will bring to the attention of each of Novation, VHA and UHC, reasonably promptly after learning thereof, any fact that would reasonably be likely to materially adversely affect the Exchange, the Novation Exchange, the HPPI Exchange or the Members, VHA, UHC or HPPI, including, without limitation, the institution of litigation against Neoforma or any Supplier. 3.7 Case Studies. 3.7.1 Within * following the completion of the currently in-process * study of the potential economic value of the Exchange to * Confidential treatment requested. 10 17 Suppliers and Members, Neoforma and Novation shall meet and mutually agree to a methodology pursuant to which Neoforma will conduct the studies and value assessments contemplated by this Section 3.7. 3.7.2 During each of the * through *, Neoforma shall on * basis (but in no event later than *) undertake to prepare * or more User case studies documenting the economic value that the Exchange has for each of Suppliers and Members. After calendar year *, such case studies shall be prepared by Neoforma from time to time as mutually agreed by Novation and Neoforma. In addition, during the Term, Neoforma shall measure * provided to Members and Suppliers by the Exchange. Each case study prepared by Neoforma will be sent to each of Novation, VHA, and UHC for the purpose of marketing the Exchange to other Suppliers and Members. 3.8 Supplier Sign-Up and Integration. 3.8.1 Neoforma and Novation shall meet within 30 days after the execution of this Agreement, and at each Cross-Functional Management Team Meeting thereafter, to establish a plan (i) to Sign-up additional Suppliers, (ii) to Integrate and make operational such Suppliers for receiving and confirming orders, and (iii) to eliminate the back-log of Suppliers, if any, that have been previously Signed-up but not yet Integrated. 3.8.2 Neoforma shall complete the Integration and make operational for receiving and confirming orders for each Supplier that is Signed-up by the Supplier Integration Deadline. In the event that a * by the applicable *, then Neoforma shall * Notwithstanding the foregoing, if (i) Neoforma does not * before the applicable *, as the case may be, (ii) such * is a result of that *, and (iii) prior to the 30th day before the applicable *, Neoforma (A) notifies Novation in writing of such * and the likelihood that such * by the applicable * and (B) reasonably demonstrates to Novation's reasonable satisfaction such * then the applicable *, as the case may be, will be * as the * day following the date of such *. * Confidential treatment requested. 11 18 3.8.3 Neoforma shall complete the Integration and make operational for receiving and confirming orders for each Supplier set forth on Exhibit J (each a "PRIORITY SUPPLIER") not later than * following the date of this Agreement (the "PRIORITY SUPPLIER INTEGRATION DEADLINE"). In the event that a Priority Supplier is * , then Neoforma shall * in respect of such *. Notwithstanding the foregoing, if (i) Neoforma does not * before the * or any *, as the case may be, (ii) such * is a result of that *, and (iii) prior to the 30th day before the * or any *, as the case may be, Neoforma (A) notifies Novation in writing of such * and the likelihood that such * by the * or any *, as the case may be, and (B) demonstrates to Novation's reasonable satisfaction such *, then the * or any *, as the case may be, will be * with respect to * as the * day following the date of such *. 4. THE EXCHANGE 4.1 Maintenance of Exchange. Neoforma shall use its best efforts to maintain the Exchange as a leading provider of e-commerce services to the healthcare industry. 4.2 Consultation. Neoforma, Novation, VHA and UHC will consult regularly (but no less frequently than on a quarterly basis) to discuss the strategic direction of the Exchange, including the features and functions that would provide additional value to patrons and others. 4.3 Provision of Non-Contract Product Information. The Suppliers will be responsible for providing Neoforma with Materials to be located on the Exchange in respect of all Non-Contract Products. Novation will review such Materials relating to the Non-Contract Products, subject to Neoforma providing Novation a methodology for previewing such Materials. 4.4 Provision of Contract Product Information. Novation shall be responsible for providing Neoforma with pricing for Contract Products and any unique facts and summary sheets relating to such Contract Products that are prepared by Novation. The Suppliers will be responsible for providing Neoforma with all other information regarding such Contract Products. Subject to Neoforma providing to Novation a methodology for allowing Novation to preview Materials relating to * Confidential treatment requested. 12 19 Contract Products, Novation will review such information and determine that such information is reasonably accurate, prior to being loaded on the Exchange (e.g., correct pricing, product numbers, description, etc.). 4.5 Independent Users. Prior to the date on which Neoforma concludes an agreement with a GPO (other than HPPI) having its own Supplier contracts (an "INDEPENDENT GPO") who, as a condition to using the Exchange, contractually requires Neoforma to act in a neutral manner, Neoforma shall refer any User who requests access to a Customized Exchange (other than a Member entitled to use the Novation Exchange) to the HPPI Exchange. After the date on which an Independent GPO is on the Exchange, if a User (other than a Member entitled to use the Novation Exchange) approaches Neoforma requesting access to a Customized Exchange, Neoforma shall act in a neutral manner with regard to such User and shall not be required to recommend or otherwise refer such User to any specific part of the Exchange, including the HPPI Exchange or the Novation Exchange. Notwithstanding the preceding sentence, Neoforma will at all times feature the HPPI Exchange at least as prominently on the Exchange as any other Customized Exchange. 4.6 Multiple Memberships. If a Member is also a member of any other GPO that has a Customized Exchange on the Exchange, that Member will have access to all of the Exchange, including the Novation Exchange or HPPI Exchange, as the case may be, and the applicable Customized Exchange. Members who are also Users of Customized Exchanges will have access rights to the Novation Exchange or the HPPI Exchange equal to those of Members that do not belong to Customized Exchanges. Notwithstanding the foregoing, Neoforma shall provide favorable view and framing in respect of the Novation Contract Portfolio to any Member accessing the Exchange. 4.7 User Registration. Upon implementation of the Novation Exchange, Neoforma, with Novation's assistance, will develop a Tool to register Members on the Exchange. Neoforma will require Members to create and use passwords as a necessary condition to accessing the Novation Exchange. Neoforma shall be responsible for keeping the Novation Exchange registry and the HPPI Exchange registry current and for not allowing access to such Exchanges by unauthorized Users. 4.8 Delivery and Order Fulfillment. Neoforma will notify Suppliers and provide Suppliers access to the Transaction Database for sales, rentals and leases of Products by such Suppliers, in a form and format mutually agreed upon by Neoforma and Suppliers and to the extent set forth in the Functionality Specifications. 4.9 Removal of Products from the Exchange. With regard to Non-Contract Products, Neoforma shall remove Product listings from the Exchange promptly after determining that the appearance of such Products will, or is reasonably likely to, result in liability to Neoforma, Novation, HPPI, VHA, UHC or any Users. Upon 13 20 such removal, Neoforma will promptly notify Novation of such action and the reasons therefore. With regard to Contract Products, Neoforma shall notify Novation promptly after becoming aware of any problems with a Contract Product or that any such Contract Product will, or is reasonably likely to, result in liability to Neoforma, Novation, HPPI, VHA, UHC or any Users. In addition and at the same time, Neoforma shall provide to Novation all information of which it is aware regarding the problems with such Contract Product. Neoforma will obtain Novation's prior written consent, prior to taking any action to remove such Contract Product listing from the Exchange. 4.10 Customized Exchanges. In accordance with the Functionality Specifications to be agreed upon, Neoforma may create Customized Exchanges and other customized sites for the use and benefit of Users on the Exchange. Neoforma will not intentionally create Customized Exchanges for the purpose of evading fees owed to Novation under Section 8 of this Agreement. 4.11 Links. The parties will establish and maintain hypertext links from the Novation web site, HPPI web site, VHA web site and UHC web site to the Exchange. Each of Novation, HPPI and Neoforma will use reasonable efforts to ensure that the respective links that each party maintains linking Novation, HPPI and Members to the Exchange function correctly. 4.12 Reasonable Assistance. Each party will provide the other parties with on-going reasonable assistance with regard to technical, administrative and service-oriented issues relating to the Exchange. 5. NOVATION EXCHANGE AND HPPI EXCHANGE 5.1 Development. The parties shall meet from time to time to agree to the "look and feel" and organization of the Novation Exchange and the HPPI Exchange. In addition, they will jointly develop and agree upon an implementation plan and schedule for development of the Novation Exchange and the HPPI Exchange; provided, however, that, notwithstanding anything herein to the contrary, the Novation Exchange and the HPPI Exchange will have at least the minimum functionality in the applicable time periods as will be described in the Functionality Specifications. 5.2 Hosting. Neoforma will create, host and implement the Novation Exchange and the HPPI Exchange according to the agreed plan and display the Novation Contract Portfolio in a manner similar to the way in which products currently appear on the Exchange. 5.3 Delivery and Order Fulfillment. Neoforma will notify the Suppliers of purchases, rentals and leases made by Members in a form and format according to the terms of Neoforma's agreements with Suppliers. 14 21 5.4 Display of Material. In order to facilitate efficient presentation of Product information, Neoforma will categorize, organize and display all Products on the Novation Exchange and the HPPI Exchange in a manner consistent with that in which it organizes similar information on the Exchange. 5.5 Reports and Meetings. 5.5.1 Subject to obtaining the consent of the Members' in accordance with Section 10, Neoforma will provide each of Novation, VHA, UHC and HPPI with real-time, on-line reports of its Members usage statistics and reports on other reasonable matters. Such reports shall be made available in the form of Excel(TM) files transferred via electronic transmission to Novation, VHA, UHC or HPPI, or in such other format as the parties agree. The parties will mutually agree as to the scope, format and substance of the standardized reporting system that Neoforma will develop (at no extra charge) and that will be available to Novation, VHA, UHC and HPPI via the Internet. 5.5.2 Neoforma and Novation shall establish a cross-functional management team in order to review operations of the Novation Exchange. The cross-functional management team shall meet (each a "CROSS-FUNCTIONAL MANAGEMENT TEAM MEETING") no less frequently than on a quarterly basis. The cross-functional management team shall include the lead executive from each of Neoforma and Novation responsible for overseeing this Agreement, and shall also include management representatives from each of Neoforma and Novation from each functional area, including marketing, Member sales, Supplier relations, implementation and development. Additionally, one or more representatives from each of VHA and UHC shall be invited to participate in each Cross-Functional Management Team Meeting. In addition, Neoforma and Novation shall establish a strategic planning team to discuss the direction and strategy of the Novation Exchange. The strategic planning team shall meet at least twice in each calendar year. 5.6 Retained Contracts. Either VHA or UHC may at any time elect to put their respective Retained Contracts on the Novation Exchange. If the posting on the Novation Exchange is merely informational and Members are not able to purchase, rent or lease Products covered by such Retained Contracts through the Exchange, no fees shall be paid for such posting. If during the Term, Novation Signs-up the Suppliers under such Retained Contracts, such contracts shall then become subject to Section 8. 5.7 Marketing. Novation, VHA, UHC and HPPI will use commercially reasonable efforts to drive traffic to the Novation Exchange and the HPPI Exchange, including, without limitation, making appropriate introductions for Neoforma, allowing Neoforma preferred space and visibility at Member forums, and presenting satellite broadcasts or web casting targeted at the Members. Novation, 15 22 VHA and UHC will work with Neoforma to develop new initiatives targeted toward increasing Members' participation on the Exchange, including the Novation Exchange and the HPPI Exchange. 5.8 Neoforma Auction. 5.8.1 On the Original Effective Date, the Exchange will include Neoforma Auction. 5.8.2 Novation, VHA, UHC and HPPI will promote the use of Neoforma's asset management and recovery services and related activities of Neoforma Auction to patrons and others. 5.8.3 Any Member wishing to utilize the Neoforma Auction and Neoforma's asset management and recovery services shall enter into an Asset Recovery Services Agreement with Neoforma. 5.8.4 Neoforma may delegate the performance of the asset management and recovery services to a third party appointed by Neoforma. 5.9 Neoforma Plan. 5.9.1 On the Original Effective Date, the Exchange will include Neoforma Plan. 5.9.2 Novation, VHA, UHC and HPPI will promote use of the services included in Neoforma Plan to patrons and others in connection with their capital equipment programs. 5.9.3 Novation will inform Suppliers that they have the option to sponsor specific "Centers of Excellence" within Neoforma Plan. Any Supplier wishing to participate in Neoforma Plan shall enter into a Plan Sponsorship Agreement with Neoforma. 6. EXCLUSIVITY AND RIGHT OF FIRST OFFER 6.1 Novation, VHA, UHC and HPPI Exclusivity. Except as provided in Section 6.3, each of Novation, HPPI, VHA and UHC agrees that it will not directly or indirectly develop, promote, contract for the development of, assist others to develop, or enter into any agreement with any other person to provide to any of them, or promote to their Members, any Internet-based exchange related to Supply Chain Management Services by acute or non-acute healthcare providers anywhere in the world other than the Exchange. 6.2 Neoforma Exclusivity. 6.2.1 Except as otherwise provided in Section 6.3, neither Neoforma nor its Affiliates will develop, promote, contract for the development of, assist 16 23 others to develop, or enter into any agreement with any other person to provide, any Internet-based system related to the acquisition or disposal of equipment, products, supplies, services, information and other content by acute or non-acute healthcare providers anywhere in the world other than the Exchange. 6.2.2 Except as provided in Section 6.2.3, Novation will be Neoforma's and Neoforma's Affiliates' exclusive agent to Sign-up Suppliers. Neoforma will not, and will cause any Affiliate of Neoforma not to, (i) Sign-up any Supplier directly or (ii) contract with, or pay any financial incentives to, any person to act as a contracting agent of Neoforma or Neoforma's Affiliates to Sign-up any Supplier on Neoforma's or Neoforma's Affiliates' behalf; provided, however, that nothing herein shall be construed to impose upon Neoforma any obligation to seek to terminate agreements with Suppliers previously entered into by Neoforma and existing as of the Original Effective Date. 6.2.3 Notwithstanding the provisions of Subsection 6.2.2, Neoforma may Sign-up any Supplier, if: (i) Neoforma refers a Supplier to Novation for contracting, and notwithstanding such referral, the Supplier specifically requests to Sign-up with Neoforma or Novation informs Neoforma that Novation will not Sign-up that Supplier; or (ii) a Supplier is under contract to an Independent GPO and the Independent GPO, as a condition to using the Exchange, contractually requires Neoforma to Sign-up its Suppliers directly. 6.2.4 As promptly as practical after January 1, 2001, Neoforma and Novation shall meet to discuss and mutually agree upon certain commercially reasonable negotiating parameters within which Neoforma may negotiate with Suppliers as are permitted under Section 6.2.3 without seeking Novation's approval. Neoforma and Novation shall use commercially reasonable efforts to agree on the negotiating parameters within 90 days after January 1, 2001. While within such parameters, Neoforma may negotiate with and Sign-up the Suppliers permitted under Section 6.2.3 and obtain any terms and conditions that in Neoforma's reasonable discretion are consistent with its obligations under this Agreement. Neoforma agrees that if it wishes to conclude any agreement (i) upon terms or conditions outside of the agreed upon negotiating parameters or (ii) at Transaction Fee levels that are lower than the levels agreed upon by Neoforma and Novation under Section 8.3, it will seek Novation's prior consent, which consent shall not be unreasonably withheld or delayed. Neoforma shall use its diligent efforts to obtain favorable terms from each Supplier with which it negotiates pursuant to Section 6.2.3. Novation 17 24 agrees,however, that Neoforma shall have no obligation to obtain the best terms and conditions available from any Supplier. 6.3 Right of First Offer for Novation and Neoforma. 6.3.1 If either Novation or Neoforma elects to commence an Internet-venture in any country other than the United States or in any market that is not then served by the Exchange (whether in the United States or otherwise), such party (the "OFFEROR") shall offer to the other (the "OFFEREE") the opportunity to participate in such venture in a manner commensurate with the Offeree's role under this Agreement (including the right of Novation to create other contract portfolios similar to the Novation Contract Portfolio or to recruit suppliers for such venture). The Offeror shall provide full information to the Offeree regarding the venture, and shall make its senior executives available to meet with the Offeree to discuss the venture. The Offeror shall also notify the Offeree of such venture a reasonable time prior to commencement of the venture (but in no event less than 60 days prior to the date on which the Offeree must decide to participate). If after consideration the Offeree declines to participate in such venture, then, notwithstanding Section 6.1 or 6.2, as the case may be, the Offeror may proceed with such venture, but solely in that market or country, and on no less favorable terms and conditions in the aggregate as had been offered to the Offeree. In addition, the Offeree shall be released from its obligations under Section 6.1 or 6.2, as the case may be, but solely in respect of the market or country that was the subject of such Offer. If the Offeror subsequently does not consummate the venture, and the Offeror wishes to commence another venture in the same market or country, the Offeror must once again offer such opportunity to the Offeree. The Offeror shall have no obligation to share any fees earned in a venture in which the Offeree has not elected to participate. 6.3.2 Business development representatives of Neoforma and Novation shall meet on a quarterly basis to review existing opportunities in foreign markets and countries and to review existing opportunities in markets not then served by the Exchange. Such representatives shall prepare a joint plan to identify and exploit such other opportunities in foreign markets and in other healthcare markets. Any right of an Offeror to proceed with a venture under Subsection 6.3.1 without the Offeree shall be conditioned on such Offeror's compliance with this Subsection 6.3.2. 6.4 First Offer for Non-Exclusive Services. 6.4.1 The term "NON-EXCLUSIVE SERVICE(S)" means Internet-related services available primarily through Neoforma that are outside the scope of Section 6.1, including, without limitation, the products and services excluded from the definition of Supply Chain Management Services as applied to UHC. For purposes of clarification, Non-Exclusive Services will not include 18 25 Internet-related services the majority of which are provided by an entity other than Neoforma. UHC shall give favorable consideration to Neoforma as a third-party provider to UHC of Non-Exclusive Services as follows: if (i) UHC elects to provide for itself or for the benefit of all or substantially all of UHC's Members any new Non-Exclusive Service or (ii) UHC intends to replace any agreement for the provision of a Non-Exclusive Service then being provided to UHC by a third party, then UHC shall first offer to Neoforma the opportunity to provide such Non-Exclusive Service (the "OPPORTUNITY"). Promptly upon becoming aware of an Opportunity, UHC shall send notice of the Opportunity in electronic or paper writing to the Chief Executive Officer of Neoforma, or his or her designate. Promptly after receiving such notification, but in no less than 15 days, Neoforma shall meet with UHC to discuss the Opportunity and Neoforma's proposed role therein. Neoforma and UHC shall continue to meet and discuss the Opportunity for the 30-day period commencing upon UHC's notification to Neoforma. Neither UHC nor Neoforma will have any obligation to meet and to discuss the Opportunity (i) if Neoforma does not meet with UHC within the time required, or (ii) after the expiration of the 30-day discussion period. The communication by UHC to Neoforma of any Opportunity, including the ideas, concepts or other intellectual property contained therein, will be Confidential Information subject to Section 11. 6.4.2 For the avoidance of doubt and notwithstanding anything to the contrary in this Agreement, in no event, will UHC be required to obtain any Non-Exclusive Service from Neoforma. 7. LICENSES AND OWNERSHIP 7.1 Ownership of Marks. Each party will own and retain all right, title and interest in and to its intellectual property, including its trademarks, trade names, service marks and logos ("MARKS") worldwide, as specified in Exhibit A. 7.2 Novation Marks. Subject to the terms of this Agreement, Novation grants to Neoforma, VHA, UHC and HPPI a worldwide, nontransferable, non-exclusive, royalty-free license to use, transmit and display Novation's Marks in connection with the Exchange during the Term of this Agreement, provided that such use is in accordance with Novation's then-current trademark usage guidelines. A copy of Novation's current trademark usage guidelines is attached as Exhibit B. Upon any change in such guidelines, Novation will promptly provide to Neoforma a copy of such revised usage guidelines. Neoforma will not modify the Novation Marks or combine any of the Novation Marks with any other mark or term. Subject to the provisions of Section 9.9, upon termination or expiration of this Agreement, Neoforma will cease all use of the Novation Marks. 19 26 7.3 Neoforma Marks. Subject to the terms of this Agreement, Neoforma grants to Novation, VHA, UHC and HPPI a worldwide, nontransferable, non-exclusive, royalty-free license to use, transmit and display Neoforma's Marks during the Term only in promotional materials used to encourage participation on the Exchange, provided that such use is in accordance with Neoforma's then-current trademark usage guidelines. A copy of Neoforma's current trademark usage guidelines is attached as Exhibit C. Upon any change in such guidelines, Neoforma will promptly provide to Novation, VHA, UHC and HPPI a copy of such revised usage guidelines. Except as authorized under this Agreement, Novation, VHA, UHC and HPPI will not modify any of the Neoforma Marks or combine the Neoforma Marks with any other mark or term. Subject to the provisions of Section 9.9, upon the termination or expiration of this Agreement, Novation, VHA, UHC and HPPI will cease all use of the Neoforma Marks. 7.4 VHA, UHC and HPPI Marks. Subject to the terms of this Agreement, each of VHA, UHC and HPPI grants to Novation and Neoforma a worldwide, nontransferable, non-exclusive, royalty-free license to use, transmit and display its Marks solely to promote the Exchange to the Members during the Term, provided that such use is in accordance with the then-current trademark usage guidelines of VHA, UHC and HPPI, as the case may be. A copy of each of VHA's, UHC's and HPPI's current trademark usage guidelines are attached as Exhibit D. Except as authorized under this Agreement, Neoforma and Novation will not modify any of the Marks of VHA, UHC and HPPI or combine any of them with any other mark or term. Subject to the provisions of Section 9.9, upon the termination or expiration of this Agreement, Neoforma and Novation will cease all use of VHA's, UHC's and HPPI's Marks. 7.5 Ownership of Neoforma Materials and Novation Materials. Neoforma and Novation will own and retain all worldwide right, title and interest in and to the Neoforma Materials and Novation Materials, respectively. Neither Neoforma nor Novation will alter or delete any copyright or other proprietary notice that may appear in the other party's Materials without prior written consent of such party. 7.6 Neoforma Materials. Neoforma grants to Novation a worldwide, nontransferable, non-exclusive, royalty-free license to use the Neoforma Materials only in promotional materials used to encourage participation on the Exchange. 7.7 Novation Materials. Novation grants to Neoforma a worldwide, nontransferable, non-exclusive, royalty-free license to use the Novation Materials on the Exchange during the Term solely to enable Neoforma to provide the Services contemplated under this Agreement. 7.8 Development of Tools. From time to time during the Term, Novation may request Neoforma to design Tools for Members or Suppliers in addition to the Tools, functions and APIs, which will be mutually agreed upon and contained in the Functionality Specifications. Within a reasonable time after such request, 20 27 appropriate personnel from Novation and Neoforma will meet to discuss and draft technical specifications for the desired customized Tools, functions and APIs. 7.8.1 If the Tool, function or API requested by Novation will be used by all Users of the Exchange, Neoforma will develop such Tool, function or API promptly and at its own expense. Neoforma will own and retain all right, title and interest to all the intellectual property, including the source code, object code and other Confidential Information, in and to the Neoforma developed Tools, functions and APIs. 7.8.2 If Neoforma does not otherwise agree to develop such Tool, function or API for use by all Users of the Exchange, Novation may, in its sole discretion, agree to pay for the development of such Tool, function or API. If Novation agrees to pay Neoforma for the development of such Tool, function or API, Neoforma will promptly endeavor to develop such requested Tool, function or API, and Novation will own all right, title and interest to all the intellectual property, including all source code, object code and other Confidential Information, in and to such Tools, functions and APIs. Any fees charged to Novation for development of any Tool, function or API shall be provided by Neoforma at the most favorable fee Neoforma charges to any other person for such development or integration services. 7.8.3 Nothing in this Section 7.8 shall limit Neoforma's obligation to provide the Services as shall be set forth in the Functionality Specifications. 7.9 Access License. Neoforma grants to Novation a non-exclusive, worldwide, non-assignable license to members of Novation and HPPI in order to access the Exchange. Novation and HPPI grant to Neoforma a non-exclusive, worldwide, non-assignable license to access the Novation and HPPI web sites and computer systems solely to enable Neoforma to provide the services contemplated under this Agreement. 8. FEES AND TAXES 8.1 Fees. 8.1.1 Neoforma shall use its reasonable best efforts to collect all Transaction Fees and Novation Exchange Transaction Fees required to be paid by Suppliers pursuant to this Agreement with respect to sales, rentals and leases of Products on the Exchange. 8.1.2 Novation * to Neoforma aggregate minimum Novation Exchange Transaction Fees (the "MINIMUM FEES") on all purchases made through the Novation Exchange. The Minimum Fees shall be calculated as a percentage (the "SUPPLIER TARGET PERCENTAGE") of the * * Confidential treatment requested. 21 28 * on a * basis as set forth on Exhibit G. Subject to Section 3.8 and Subsections 8.1.3 and 8.2.4, Novation shall pay to Neoforma the *, if any, in any * the * calculated in accordance with this Section 8.1.2 and the * recognized by Neoforma in accordance with GAAP for such *. (Exhibit I, Example 1, sets forth a hypothetical calculation of Novation's obligation under Subsections 8.1.1 and 8.1.2.) 8.1.3 Notwithstanding anything in this Agreement to the contrary, Novation shall not be responsible for any * (i) to the extent that the * in any * results from the * by a * of its agreement with Neoforma as a result of Neoforma's * of such *, (ii) during the period commencing on * and ending *, to the extent that the * in any * of * for such *, or (iii) beginning *, to the extent that the * in any * of * for such *; provided, however, that the * in clauses (ii) and (iii) above may be adjusted from time to time pursuant to Section 8.5; provided, further, that any such * adjustment shall not result in a *. 8.1.4 In the event that Novation notifies Neoforma that its obligations under Section 8.1.2 are limited by Section 8.1.3(ii) or Section 8.1.3(iii), Neoforma may request in writing Novation's financial statements for the applicable *. Novation shall provide to Neoforma relevant financial statements in sufficient detail to verify Novation's * for such * within a reasonable period of time following such request from Neoforma. 8.2 Revenue Sharing. 8.2.1 The parties have agreed to the Target Fee Levels (the "TARGET FEE LEVELS"), set forth in Exhibit H. 8.2.2 Neoforma shall pay to Novation * of any Novation Exchange Transaction Fees recognized by Neoforma in accordance with GAAP in excess of the Target Fee Level for any given *, but only if Novation has fulfilled its obligations under Subsection 8.1.2. 8.2.3 In any * in which Neoforma has not recognized in accordance with GAAP the * specified in Exhibit G, either from *, * or from * pursuant to Section *, Neoforma shall retain *, including * Confidential treatment requested. 22 29 * that would otherwise be subject to * pursuant to Section *. 8.2.4 For the * up to and including the *, the amount by which the * recognized by Neoforma in accordance with GAAP shall represent the * which Novation * in the event of a * calculated pursuant to Subsection *. (Exhibit I, Example 2 sets forth a hypothetical calculation of * under this Subsection 8.2.4.) 8.3 Adjustment of Transaction Fees. Neoforma and Novation shall meet no less frequently than on a quarterly basis (or at any time that either Neoforma or Novation reasonably requests such a meeting) to review the Transaction Fees then in effect. At such meetings, Neoforma and Novation shall in good faith review whether the Transaction Fees then in effect are market competitive and, if not, shall adjust such Transaction Fees so that they are market competitive. For the avoidance of doubt, the parties agree that "market competitive" shall mean that (i) Suppliers are reasonably likely to agree to pay such fees at such time or (ii) such fees are competitive with similar Transaction Fees paid by suppliers in similar e-commerce or related industries. Until Neoforma and Novation have agreed upon a change to the Transaction Fees, as the case may be, the then-existing fees shall remain in effect. 8.4 Reporting and Payment of Novation Exchange Transaction Fees and Revenue Sharing. Within 15 days of the end of each * (in aggregated reporting for the entire *), Neoforma will provide each of Novation, VHA and UHC, with a written report consisting of (i) aggregate Adjusted Gross Transaction Values for all purchases, rentals and leases of Products through the Novation Exchange, (ii) the calculation of any Transaction Fees, (iii) the calculation of any Novation Exchange Transaction Fees, (iv) the calculation pursuant to the Supplier Target Percentage of the *, (v) the *, if any, pursuant to Subsection 8.1.2, (vi) the calculation of revenue sharing amounts under Sections 8.2, 8.9, and 8.10, and (vii) the calculation of any other fees to be paid by Neoforma hereunder. Novation shall pay any * within 30 days after receipt of Neoforma's report. Any report submitted by Neoforma to Novation, VHA and UHC shall include the information set forth in Exhibit E and such other information as Novation may reasonably request. 8.5 *. 8.5.1 Right to *. Beginning on * and from time to time thereafter, either Novation or Neoforma may initiate an * (the "* PROCESS") in order to * * Confidential treatment requested. 23 30 8.5.2 * Process. In the case of a general * Process, (i) either Novation or Neoforma may select and hire a *, which * shall be reasonably acceptable to the other party, and the party selecting such * shall pay all costs associated with the * Process; or (ii) Novation and Neoforma shall mutually agree upon an independent, third party * and Novation and Neoforma shall share all costs associated with such shared *. In addition, in the case of a * Process with respect to *, or if Neoforma and Novation otherwise agree with respect to a general * Process, Neoforma and Novation may rely on publicly available information in carrying out the * Process, and to carry out the * Process without the use of a third-party *. The Parties shall cooperate to facilitate the * Process, including by providing reasonable information as is necessary to conduct the * Process. 8.5.3 General *. The * Process for general items shall * (i) with respect to Neoforma, the * provided by Neoforma to Novation, the * offered to Members, the * offered to Suppliers, the * of the Services, and Neoforma's * its obligations under this Agreement and (ii) with respect to Novation, the * by Novation of its * obligations pursuant to Section * and the * for any * in * as provided in Subsection * and, in each case, shall be based upon a *, including, without limitation, *. If the * Results indicate that the * by Novation or Neoforma, as the case may be, are not * Neoforma and Novation shall promptly meet and enter into a good faith negotiation to determine whether there should be an *. 8.5.4 *. The * Process with respect to * shall be based upon review of whether such * are *. If the * Results indicate that the * in place during the period examined are * then Neoforma and Novation shall promptly meet and * such * so that they are *. For the avoidance of doubt, the parties agree that * shall mean that (i) * are reasonably likely to agree to * at such time or (ii) such * * Confidential treatment requested. 24 31 8.5.5 * Results. Within 30 days after the completion of any * Process, the *, if any, shall deliver the results of the * (the "* RESULTS") in a written report, including identification of the *, to Novation and Neoforma. In the event that the * Process does not utilize a third-party *, the party initiating the * Process shall be responsible for writing and delivering such report of the * Results to the other party. 8.5.6 * Review Period. For a period of 60 days following delivery of the * Results from the * (the "* REVIEW PERIOD"), Novation and Neoforma shall review the * Results, and schedule one or more meetings to address any issues either Party may have with the * Results. 8.5.7 * Dispute. In the event Novation and Neoforma in good faith dispute the * Results or if the Novation and Neoforma have not reached agreement after the * Review Period, Novation may dispute such outcome in accordance with the provisions of Section 18 hereto. 8.6 Taxes. Neoforma and Novation shall cooperate to minimize any local, state, national and foreign taxes (including, without limitation, sales, use and VAT taxes which may apply), licenses, export/import fees and any other fees or similar obligations relating to any sale, rental or lease of a Contract Product through the Exchange. If in the future any such taxes or similar obligations are required to be paid by Neoforma or Novation in respect of Contract Products, such fees shall be shared by Neoforma and Novation proportionately based on revenues each derives from the Exchange. In no event shall Novation be required to share any taxes under this Section 8.6 for Products other than Products for which Novation receives Novation Exchange Transaction Fees. 8.7 New Markets. If Neoforma and Novation agree pursuant to Section 6.3 to enter any other healthcare market (other than the United States acute care market) that is not then served by the Exchange or that is in countries outside of the United States, Neoforma and Novation shall negotiate in good faith to set the Transaction Fees to be paid in respect of such products to be purchased, rented and leased on such Exchange. 8.8 Product Returns. Neoforma and Novation will cooperate in good faith to make any adjustments to the fees to be paid hereunder to reflect Products that have been returned by Users. 8.9 Neoforma *, Neoforma *, and * and *. Beginning *, Neoforma shall pay to Novation on a * basis * by Neoforma * from (i) Neoforma * and Neoforma * * Confidential treatment requested. 25 32 *, (ii) other * (excluding *), and (iii) all * of * from *. 8.10 *. Neoforma will pay to Novation * by Neoforma * in connection with *, whether to buyers or suppliers, but not including any * in any way related to Neoforma * and *. For the avoidance of doubt, the parties agree that this Section 8.10 shall not limit the scope of Section 6.2.1. 8.11 Other Expenses. Neither Neoforma nor Novation shall be required to pay to the other party any amounts for the performance of their respective obligations hereunder other than those expressly set forth in this Agreement. 8.12 VHA/UHC Allocation. VHA and UHC agree to allocate between themselves (i) any obligation of Novation to make shortfall payments pursuant to Section 8.1.2 and (ii) any fees received by Novation pursuant to Section 8.2.2, 8.9, 8.10, 10.6.3, or 16.3 as follows: (i) with respect to *, * to VHA and * to UHC; (ii) with respect to each succeeding *, VHA's allocation shall be a fraction (A) the numerator of which is the sum of the aggregate dollar amount of VHA's Members' purchases through Novation, plus * of the aggregate dollar amount of all purchases through HPPI, and (B) the denominator of which is the sum of the aggregate dollar amount of both VHA's and UHC's Members' purchases through Novation, plus * of the aggregate dollar amount of all purchases through HPPI, in each case during the immediately preceding calendar year and excluding purchases through VHA's Care Continuum Program or any similar program operated by UHC; and (iii) with respect to each succeeding *, UHC's allocation shall be a fraction (A) the numerator of which is the sum of the aggregate dollar amount of UHC's Members' purchases through Novation, plus * of the aggregate dollar amount of all purchases through HPPI, and (B) the denominator of which is the sum of the aggregate dollar amount of both VHA's and UHC's Members' purchases through Novation, plus * of the aggregate dollar amount of all purchases through HPPI, in each case during the immediately preceding calendar year and excluding purchases * Confidential treatment requested. 26 33 through VHA's Care Continuum Program or any similar program operated by UHC. 9. TERM AND TERMINATION 9.1 Initial Term. This Agreement commences on the Original Effective Date and will remain in effect for an initial term of 10 years (the "INITIAL TERM"), unless terminated earlier in accordance with the terms of this Agreement. 9.2 Renewal and Extension of Term. This Agreement will automatically renew for successive one-year terms after the completion of the Initial Term (each a "RENEWAL TERM") unless Neoforma or Novation provides written notice of its intention to terminate this Agreement to the other at least 90 days prior to the end of the Initial Term or any then-current Renewal Term. The Initial Term and any and all renewals or extensions thereof and any Termination Assistance Period are referred to herein as the "TERM". 9.3 Termination for Cause. Each of Neoforma and Novation, after complying with Section 18.2 hereunder, will have the right to terminate this Agreement if the other party materially breaches (i) its service obligations under this Agreement or (ii) its exclusivity obligations under Section 6 of this Agreement, unless the breaching party (x) cures such breach within 30 days after receiving written notice or (y) if such breach is not curable within 30 days, makes substantial progress in curing such breach within 30 days and cures such breach within 90 days. Any repeated or sustained failure of Neoforma to meet its Service Level obligations hereunder shall constitute a material breach of Neoforma's service obligations under Subsection (i) hereunder. 9.4 Termination for Insolvency Events. If either Neoforma or Novation is unable to obtain credit from any creditors, becomes insolvent, makes an assignment for the benefit of its creditors, or becomes the subject of a proceeding under Title 11 of the United States Code, as amended, or becomes the subject of similar state court proceedings, then in any such case, the other party, or in the case of Neoforma, VHA, UHC or HPPI, may, without prejudice to any other rights, immediately terminate this Agreement or, if such termination is subject to any statutory provision or judicial order staying such action, seek leave to modify such stay so as to terminate this Agreement. Each of Neoforma and Novation acknowledges and agrees that its insolvency, the making of an assignment for the benefit of its creditors, or its becoming the subject of a proceeding under Title 11 of the United States Code, is "cause" for the termination of any statutory or judicial stay of the rights of the other party hereunder to terminate this Agreement. Each of Neoforma and Novation acknowledges and agrees that, in such event, it could not provide "adequate protection" to the other party, or in the case of Neoforma, to VHA, UHC or HPPI, that the continued imposition of a stay would likely cause irreparable harm to the other party, and the continued imposition of a stay would 27 34 adversely affect the health, safety and welfare of communities served by the parties hereto. 9.5 Termination for Rejection in Bankruptcy. Each of Neoforma and Novation will have the right to immediately terminate this Agreement if the other party becomes a debtor or an alleged debtor in a case under Title 11 of the United States Code, as amended, and in such proceeding this Agreement is rejected in such case in accordance with Title 11 of the United States Code. 9.6 Termination Upon Neoforma Change of Control. Novation may terminate this Agreement upon any Neoforma Change of Control. 9.7 Return of Materials. Subject to Section 9.8, upon termination or expiration of this Agreement for any reason, each of Neoforma and Novation shall promptly return to the other party, and shall not take, use or disclose, all Products of any nature that belong to the other party and all records (in any form, format or medium) containing or relating to Neoforma Materials or Novation Materials or the Confidential Information of the other party. 9.8 Survival. The provisions of Sections 7.1, 7.5, 8.4, 9.7, 9.8, 9.9, 9.10, 10, 11, 15, 16, 17, 18, 19 and 20 will survive termination or expiration of this Agreement for any reason. 9.9 Termination Assistance Services. 9.9.1 General. Upon any termination or expiration of this Agreement, Neoforma shall provide termination assistance and shall comply with the reasonable directions of Novation, or, if applicable, VHA or UHC, to allow the Services to continue without interruption or adverse effect and to facilitate the orderly transition and migration of all Services then being performed by Neoforma, including any transition and migration from Neoforma to Novation or, if applicable, VHA and UHC, (or a third-party provider undertaking, on behalf of Novation, VHA or UHC, to provide the Services) (the "TERMINATION ASSISTANCE SERVICES"), all in accordance with this Section 9. Additionally, all of Novation's, or, if applicable, VHA's and UHC's, rights under this Agreement (including, without limitation, the right to license software hereunder), as such rights exist immediately prior to any expiration or termination, but excluding any right to share Novation Exchange Transaction Fees with Neoforma pursuant to Section 8, shall continue during any Termination Assistance Period (as defined in Section 9.9.2). Novation or, if applicable, VHA and UHC, shall cooperate in good faith with Neoforma in connection with Neoforma's obligations under this Section 9. 9.9.2 Termination Assistance Period. Neoforma shall commence providing Termination Assistance Services (i) with respect to the scheduled expiration of this Agreement, 90 days prior to such scheduled expiration 28 35 or such earlier date as Novation may reasonably request, and (ii) with respect to any termination of this Agreement, upon the delivery of the notice of termination. Neoforma shall continue providing Termination Assistance Services through the effective date of the expiration or termination of this Agreement and for a period of not less than * days thereafter (the "TERMINATION ASSISTANCE PERIOD"). Upon at least 30 days prior written notice to Neoforma, Novation or, if applicable, each of VHA and UHC, may extend, from time to time, the Termination Assistance Period for an additional * period. During any Termination Assistance Period, Neoforma shall provide, at Novation's request, or, if applicable, VHA's or UHC's request, as applicable, as part of the Termination Assistance Services, any or all of the Services being provided by Neoforma prior to the date of the expiration or termination of this Agreement. 9.9.3 Termination Plan. Neoforma and Novation or, if applicable, VHA and UHC, shall cooperate in good faith to develop a termination plan setting forth the respective tasks to be accomplished by each party in connection with the termination and a schedule pursuant to which such tasks are to be completed in accordance with the Termination Assistance Services (collectively, the "TERMINATION PLAN"). 9.9.4 Certain Licenses. As of the Original Effective Date, Neoforma shall grant the following to Novation: (i) a * license to all third-party software that is required to provide the Services, to the extent Neoforma is entitled to sublicense such software, and to the extent Neoforma is not entitled to sublicense such software, Neoforma shall provide a list of all third-party software licenses that are required to provide the Services and shall assist Novation in licensing a substantially similar software at a commercially reasonable price; and (ii) a * license, solely for Novation's internal use, to all Neoforma-owned software that is required to provide the Services. For the avoidance of doubt, "internal use" as used in this Section 9.9.4 shall include the right of other Internet exchanges or providers to use the software solely on behalf of Novation for its Members. In addition, Neoforma shall provide to Novation consulting services, at no charge to Novation, as may be reasonably required in order to recreate the Exchange environment for Novation. (iii) Additionally, if at any time after the Original Effective Date Neoforma begins using any software to provide the Services, then Neoforma shall be deemed to have granted, as of the first date on which such software is used to provide the Services and for so long * Confidential treatment requested. 29 36 as such software is either used or required to provide the Services, the following licenses to Novation: (x) with respect to third-party software, a * license to such software, to the extent Neoforma is entitled to sublicense such software, and (y) with respect to Neoforma-owned software, a * license, solely for Novation's internal use, to such software. (iv) Notwithstanding the other provisions in this Section 9.9.4, Novation shall not use such licenses until the effective date of the termination of this Agreement in accordance with Section 9.3, 9.4, or 9.5. 9.9.5 Equitable Remedies. Neoforma acknowledges that, if it breaches (or attempts or threatens to breach) its obligation to provide Novation or, if applicable, VHA and UHC, Termination Assistance Services in accordance with this Section 9.9, Novation or, if applicable, VHA and UHC, will be irreparably harmed. In such circumstance, and notwithstanding the provisions of Section 18, Novation or, if applicable, each of VHA and UHC, may proceed directly to court. If a court of competent jurisdiction should find that Neoforma has breached (or attempted or threatened to breach) any such obligations, Neoforma agrees that even without any additional findings of irreparable injury or other conditions to injunctive relief, it shall not oppose the entry of an appropriate order compelling performance by Neoforma restraining it from further breaches (or attempted or threatened breaches). 9.10 Third Party Products. Notwithstanding anything in this Agreement to the contrary, prior to entering any agreement with a third party for the provision of software (other than providers of off the shelf software) (the "THIRD PARTY PRODUCTS"), Neoforma shall use commercially reasonable and good faith efforts to obtain the agreement of each provider of a Third Party Product that such Third Party Product may be assigned and/or sublicensed without additional charge to each and any of Neoforma, VHA or UHC. If Neoforma is not able to obtain such written agreement or, in the event that Neoforma is informed that such provision will be made available on at additional cost to Neoforma, Neoforma shall promptly provide notice of such to each of Novation, VHA and UHC, setting forth with particularity in such notice the nature of the proposed Third Party Product, the nature of the assignment and/or sublicense proposed, the agreement to be signed and, if applicable, the additional cost for the required assignment and/or sublicense provision. Each of Novation, VHA and UHC shall have one business day after the receipt of such notice from Neoforma to advise Neoforma as to whether Novation, VHA or UHC, or any of them or any combination of them, agrees to pay the additional cost involved for the proposed assignment and/or sublicense provision. Failure of Novation, VHA or UHC to advise Neoforma of its decision within one business day after the receipt of notice from Neoforma shall be deemed an affirmative refusal to pay additional amounts * Confidential treatment requested. 30 37 required to obtain the proffered assignment and/or sublicense provision and, provided that the agreement is not materially modified in a manner that might cause the sublicense and/or assignment provision to be renegotiated in a manner more favorable to Novation, VHA or UHC, Neoforma may proceed to enter into the agreement for such Third Party Product without further obligation to Novation, VHA or Neoforma under this Section 9.10. 10. USER DATA 10.1 Registration. Users who are representatives of Members will be required to register as a representative of a Member prior to using the Exchange. To effect such registration, Neoforma will require that each Member or other User complete a registration form in form and substance reasonably acceptable to Novation, which form shall request, among other things, submission of contact information regarding the User, including, without limitation, the User's name, name of the Member organization, mailing address, and email address. Neoforma will verify such information against the on-line data base information made available by Novation and ensure that such registration is authorized in accordance with registration and password issuance and protection procedures acceptable to Neoforma and in accordance with the Functionality Specifications to be mutually agreed upon. Neoforma will store data collected during registration as part of the Information in the Transaction Database. 10.2 Transaction Database. Neoforma will create and maintain the Transaction Database relating to all activity occurring on the Exchange in accordance with the Functionality Specifications to be mutually agreed upon. Novation and Neoforma shall only use Information in accordance with the provisions of this Section 10. Neoforma shall at all times make all Information available to Novation in any manner that it is, or can reasonably be, made available. 10.3 Member Data. Members shall own their respective Member Data. Novation will use commercially reasonable efforts to acquire a nonexclusive, non-transferable license from Members (or sublicense from VHA, UHC or HPPI) to permit: (i) Novation to access and use such Member Data for, among other things, (A) legal compliance purposes, (B) to track the performance of Suppliers, (C) to be able to track payments to VHA, UHC and HPPI and cooperative payments to the Members, (D) to consult with each of the Members and (E) to promote utilization and standardization among Members; and (ii) Neoforma to use such Member Data provided that such use is (A) solely related to the performance of Neoforma's obligations pursuant to this Agreement and (B) in accordance with the confidentiality provisions of Section 11. 10.4 Aggregated Member Data. Subject to the receipt of a license or sublicense for use of the Member Data, Novation shall own the Aggregated Member Data. 31 38 10.5 Transaction Database. Subject to the ownership rights of the Members in Member Data and of Novation in Aggregated Member Data, Neoforma shall own the derivative works created by using the Member Data and the Aggregated Member Data, provided that no such information may be used by Neoforma other than subject to the following conditions: (i) in accordance with the license or sublicense to be obtained from Members in accordance with the provisions of Subsection 10.3 (ii); or (ii) Member-related Information is (a) combined with non-Member related User Information that * and (b) the Information is provided in such a manner that the identity of the Member, Member Data and Aggregated Member Data can not be discerned or identified by using such Information in connection with any other information. 10.6 License Grant of Information to Novation. 10.6.1 Subject to the terms and conditions of this Agreement, Neoforma hereby grants to Novation a nonexclusive, non-transferable license during the Term to access and use the Information; provided, however, that (i) such use is solely for Novation's internal use and for the sublicensing of the use of such data to VHA, UHC and HPPI for their use in serving the needs of their Members (provided that a party may not license, sell or otherwise make available the Information), (ii) such use complies with the privacy policy in existence on the Exchange at the time of such use and (iii) Novation, VHA, UHC and HPPI each treat such Information as Confidential Information subject to Section 11 of this Agreement. 10.6.2 Subject to the terms and conditions of this Agreement, Neoforma hereby grants to Novation a nonexclusive, non-transferable license, as agent, to sublicense the Information described in Section 10.5 to Suppliers. 10.6.3 With respect to the Information sublicensed by Novation under Subsection 10.6.2, Novation will keep * of the gross license fees and the remaining * of such license fees shall be paid to Neoforma. 10.7 No Other Licenses or Use. Except as expressly set forth in this Section 10, none of the Members, Novation or Neoforma grants any license, express or implied, in the Member Data, Aggregated Member Data or Information. The failure to abide by the terms and conditions of this Section 10 shall constitute a material default of this Agreement. 10.8 Other Data. Neoforma and Novation acknowledge that all other data that a party gathers or develops independent of this Agreement shall not be covered by this Agreement, provided that Neoforma shall not solicit any information from a Member without fully disclosing to the Member all intended uses for which such information is being collected and will be used. * Confidential treatment requested. 32 39 10.9 Neoforma Information. Notwithstanding anything herein to the contrary, Neoforma may use the Neoforma Information in any manner that it chooses, provided that such information does not include Member Data or Aggregated Member Data. 11. SAFEGUARDING OF DATA; CONFIDENTIALITY 11.1 Novation Data. 11.1.1 Generally. As between Neoforma and its Affiliates, on the one hand, and Novation and its Affiliates, on the other hand, information relating to Novation, VHA or UHC or their respective Affiliates, Members or customers, whether or not marked "confidential" and whether disclosed in tangible or in intangible (e.g., oral or visual) form, including, without limitation, (i) information regarding the operations, affairs and business of Novation, VHA or UHC, or their respective Affiliates, Members or customers, (ii) Novation Materials and (iii) all Transaction Data, except as provided in Section 10, (collectively, the "NOVATION DATA") is confidential and will be subject to Section 11.2. Novation Data is the property of Novation, VHA or UHC, or their respective Affiliates, Members or customers. Neoforma shall have access to and may make use of Novation Data to the extent reasonably necessary to perform its obligations under this Agreement. Neoforma shall not, however, use Novation Data for any purpose other than providing Services, except as provided in Section 10. Upon termination or expiration of this Agreement for any reason, or upon Novation's request, Neoforma shall promptly return to Novation all of the Novation Data in Neoforma's possession (including backup or archival copies). 11.1.2 Safeguarding of Data. Neoforma shall maintain appropriate safeguards, consistent with prevailing industry standards, against the destruction, inappropriate disclosure, wrongful access or use, loss or alteration of the Novation Data in the possession of Neoforma. In any event, Neoforma shall maintain safeguards that are no less rigorous than those maintained by Neoforma for its own information of a similar nature and, in no event, less than a reasonable level of safeguards. 11.2 Confidentiality. 11.2.1 Confidential Information. "CONFIDENTIAL INFORMATION" means (i) business or technical information of any party, including, without limitation, information relating to a party's product plans, designs, costs, product prices, finances, marketing plans, business opportunities, personnel, research, development, know-how or the pricing information available to Members, (ii) any information communicated with respect to an Opportunity, including the ideas, concepts or other intellectual property contained therein, (iii) any information designated "confidential" or 33 40 "proprietary" or which, under the circumstances, should reasonably have been understood to be confidential, (iv) Novation Data and (v) the terms and conditions of this Agreement. 11.2.2 Confidentiality Obligations. Each party agrees that (i) it will not use or disclose to any other party or third person including its Affiliates any Confidential Information disclosed to it by any other party except as contemplated by this Agreement and (ii) it will take all reasonable measures to maintain the confidentiality of all Confidential Information of each other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance. 11.2.3 Exclusions. Subsection 11.2.2 will not prevent a party from disclosing Information that (i) is owned by such party or its Affiliates or is already known by the recipient party or its Affiliates without an obligation of confidentiality other than under this Agreement, (ii) is publicly known or becomes publicly known through no unauthorized act of the recipient party, (iii) is rightfully received from a third party, provided that the source is not known to be bound by a confidentiality agreement or (iv) is independently developed by employees of a party or an Affiliate of a party without use of the other party's Confidential Information. If Confidential Information is required to be disclosed pursuant to a requirement of a governmental authority, such Confidential Information may be disclosed pursuant to such requirement so long as the party required to disclose the Confidential Information, to the extent possible, (i) provides the party that owns the Confidential Information with timely prior notice of such requirement and coordinates with such other party in an effort to limit the nature and scope of such required disclosure and (ii) uses commercially reasonable efforts to ensure that, within applicable law, such Confidential Information will not be further disclosed. If Confidential Information is required to be disclosed in connection with the conduct of any arbitration proceeding conducted pursuant to Section 18, such Confidential Information may be disclosed pursuant to and in accordance with the approval and at the direction of the arbitrator conducting such proceeding. Upon written request at the termination or expiration of this Agreement for any reason, all such Confidential Information in tangible form (and all copies thereof) owned by the requesting party or its Affiliates will be returned to the requesting party or at the requesting party's option will be destroyed, with written certification thereof being given to the requesting party, and subject to any rights expressly granted to the other party under this Agreement, the other party shall cease all further use of any Confidential Information, whether tangible or intangible. 11.2.4 No License. Nothing contained in this Section 11.2 will be construed as obligating a party to disclose its Confidential Information to another party, or as granting to or conferring on a party, expressly or implied, any patent, 34 41 copyright, trademark, trade name, trade secret or other Intellectual Property Rights or any license to the Confidential Information of the other party. 11.2.5 Loss of Confidential Information. In the event of any breach by the recipient party of this Section 11.2 that results in a disclosure or loss of, or inability to account for, any Confidential Information of the furnishing party, the receiving party shall promptly, at its own expense, (i) notify the furnishing party in writing, (ii) take such commercially reasonable actions as may be necessary or reasonably requested by the furnishing party to minimize the breach, and (iii) cooperate in all reasonable respects with the furnishing party to minimize the breach and any damage resulting therefrom. 12. REPRESENTATIONS AND WARRANTIES 12.1 Representations by Neoforma. Neoforma represents and warrants to Novation, VHA, UHC and HPPI that each of the following statements in this Section 12.1 are true and correct as of the Effective Date of this Agreement. 12.1.1 Due Organization. Neoforma is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 12.1.2 Authority; Non-Contravention. (a) Neoforma has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Neoforma. This Agreement has been duly executed and delivered by Neoforma, and it constitutes the valid and binding obligation of Neoforma, enforceable against Neoforma in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally and general principles of equity. (b) The execution and delivery of this Agreement by Neoforma does not, and the performance of this Agreement by Neoforma will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of Neoforma, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Neoforma or by which Neoforma or any of its properties is bound or affected or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Neoforma's rights or alter the rights or obligations 35 42 of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an encumbrance on any of the properties or assets of Neoforma pursuant to, any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise or other instrument or obligation to which Neoforma is a party or by which Neoforma or its assets is bound or affected, except, in the case of clauses (ii) and (iii), for such conflicts, violations, breaches, defaults, impairments, or rights which, individually or in the aggregate, would not have a material adverse effect on Neoforma. (c) No consent, approval, order or authorization of, or registration, declaration or filing with any governmental entity is required to be obtained or made by Neoforma in connection with the execution, delivery and performance of this Agreement. 12.1.3 Performance. All Services will be performed in a professional and workmanlike manner, consistent with the high professional standards and practices prevailing in the Internet e-commerce services industry. 12.2 Representations by Novation, VHA, UHC and HPPI. Each of Novation, VHA, UHC and HPPI, severally and not jointly, represents and warrants to Neoforma that the following statements made by it in this Section 12.2 are true and correct as of the Effective Date of this Agreement. 12.2.1 Due Organization. Novation is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware; UHC is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois; VHA is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; HPPI is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. 12.2.2 Authority; Non-Contravention. (a) Each of Novation and HPPI has all requisite limited liability company power and authority, and each of VHA and UHC has all requisite corporate power and authority, to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action on the parts of Novation and HPPI and all necessary corporate action on the parts of VHA and UHC. This Agreement has been duly executed and delivered by Novation, VHA, UHC 36 43 and HPPI, and it constitutes the valid and binding obligation of each of Novation, VHA, UHC and HPPI, enforceable against each of Novation, VHA, UHC and HPPI in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally and general principles of equity. (b) The execution and delivery of this Agreement by Novation, VHA, UHC and HPPI does not, and the performance of this Agreement by each of Novation, VHA, UHC and HPPI will not, (i) conflict with or violate the limited liability company and corporate organizational documents, respectively, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Novation, VHA, UHC or HPPI or by which Novation, VHA, UHC or HPPI, or any of their respective properties are bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Novation's, VHA's, UHC's or HPPI's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an encumbrance on any of the properties or assets of Novation, VHA, UHC or HPPI pursuant to, any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise or other instrument or obligation to which Novation, VHA, UHC or HPPI is a party or by which Novation, VHA, UHC or HPPI, or any of their assets, is bound or affected, except, in the case of clauses (ii) and (iii), for such conflicts, violations, breaches, defaults, impairments, or rights which, individually or in the aggregate, would not have a material adverse effect on Novation, VHA, UHC and HPPI, respectively. (c) No consent, approval, order or authorization of, or registration, declaration or filing with any governmental entity is required to be obtained or made by Novation, VHA, UHC or HPPI in connection with the execution, delivery and performance of this Agreement. 12.3 Warranty Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. 13. USE OF SUBCONTRACTORS 13.1 Generally. Neoforma may subcontract its obligations under this Agreement subject to the limitations imposed by this Section 13.1. Neoforma shall not subcontract any of the following without the prior written consent of Novation, such consent not to be unreasonably withheld: 37 44 (i) any Services involving any contact or interface with Members, including, without limitation, sales efforts, implementation and integration and call center services; or (ii) any Services to a Novation Competitor. 13.2 Novation's Right to Revoke Approval. Novation shall have the right during the Term to revoke its prior approval of a subcontractor and direct Neoforma to replace such subcontractor as soon as possible if the subcontractor's performance is materially deficient, good faith doubts exist concerning the subcontractor's ability to render future performance because of changes in the subcontractor's ownership, management, financial condition, or otherwise, or there have been material misrepresentations by or concerning the subcontractor. 13.3 Continuing Responsibility. Neoforma shall remain responsible for obligations performed by subcontractors to the same extent as if such obligations were performed by Neoforma's employees. Neoforma shall be Novation's sole point of contact regarding the Services, including with respect to payment. 13.4 Confidential Information. Neoforma shall not disclose Confidential Information of any of Novation, VHA, UHC or HPPI to a subcontractor unless and until such subcontractor has agreed in writing to protect the confidentiality of such Confidential Information as required of Neoforma under this Agreement. 14. INSURANCE 14.1 Insurance. Each of Neoforma and Novation shall determine the types and amounts of insurance coverage it requires in connection with this Agreement, including, without limitation, general public liability, property damage and workers compensation insurance. Neither Neoforma nor Novation is required to obtain insurance for the benefit of the other, including, without limitation, business interruption insurance. Each of Neoforma and Novation will pay all costs and receive all benefits under policies arranged by it, and each waives rights of subrogation it may otherwise have regarding the other's insurance policies. 14.2 Proof of Insurance. When requested by Neoforma or Novation, an insurance certificate indicating the coverage described in Section 14.1, issued by an insurance company licensed to do business in the relevant state or states and signed by an authorized agent, shall be furnished by the insured party to the requesting party. Each of Neoforma and Novation shall provide the other with at least 30 days prior written notice of any cancellation or material modification of such insurance. 15. INDEMNITY 15.1 Neoforma Indemnity. Subject to Section 15.4, Neoforma shall indemnify, defend and hold harmless each of Novation, VHA, UHC and HPPI and each of their 38 45 Affiliates, officers, directors, employees, consultants and agents from and against any and all damages, liabilities, claims, actions, suits, proceedings, costs, charges and expenses, including reasonable attorneys' fees (collectively, "LOSSES"), incurred or sustained by any of such persons as a result of or from any third-party claim relating to (i) any claims based on Neoforma's confidentiality obligations contained in Section 11 or its warranties contained in Section 12; (ii) the failure of Neoforma to perform any of its obligations under any agreement between Neoforma and a third party (including, without limitation, any agreements between Neoforma and a Supplier); (iii) any claims arising out of Neoforma's breach of this Agreement; (iv) any claim arising out of the death of or bodily injury to any employee of any of Novation, VHA, UHC and HPPI and each of their Affiliates (or their respective subcontractors) to the extent caused by the negligence or willful misconduct of Neoforma or its Affiliates; (v) the loss of or damage to the real or tangible personal property (whether owned or leased) of each of Novation, VHA, UHC and HPPI and each of their Affiliates, officers, directors, employees, consultants and agents to the extent caused by the negligence or willful misconduct of Neoforma or its Affiliates; (vi) any third-party claim that arises in connection with the use by any of Novation, VHA, UHC and HPPI and each of their Affiliates of any deliverables or services provided by Neoforma to any of Novation, VHA, UHC and HPPI and each of their Affiliates under this Agreement, except to the extent covered by Novation's indemnities set forth in Section 15.2; (vii) Neoforma's failure to pay and discharge any taxes (including interest and penalties) for which Neoforma is responsible pursuant to the terms of this Agreement; (viii) any claim asserted against any of Novation, VHA, UHC and HPPI and each of their Affiliates by an employee of Neoforma to the extent such claim arises from decisions, acts, omissions or violations of statute by Neoforma with respect to such employee's employee/employer relationship with Neoforma. 15.2 Novation Indemnity. Subject to Section 15.4, Novation shall indemnify, defend and hold harmless each of Neoforma and its Affiliates, officers, directors, employees, consultants and agents from and against any and all Losses awarded against or paid in settlement by Neoforma, incurred or sustained by any of such persons as a result of or from any third-party claim relating to (i) any claims based on Novation's confidentiality obligations contained in Section 11 or its warranties contained in Section 12; (ii) the failure of Novation to perform any of its obligations under any agreement between Novation and a third party; (iii) any claims arising out of Novation's breach of this Agreement; (iv) any claim arising out of the death of or bodily injury to any employee of Neoforma or its Affiliates (or their respective subcontractors) to the extent caused by the negligence or willful misconduct of Novation or its Affiliates; (v) the loss of or damage to the real or tangible personal property (whether owned or leased) of Neoforma and its Affiliates, officers, directors, employees, consultants and agents to the extent caused by the negligence or willful misconduct of Novation or its Affiliates; (vi) any third-party claim that arises in connection with the use by Neoforma and its Affiliates or any deliverables or services provided by Novation to any of Neoforma or its Affiliates under this Agreement, except to the extent covered by 39 46 Neoforma's indemnities set forth in Section 15.1; (vii) Novation's failure to pay and discharge any taxes (including interest and penalties) for which Novation is responsible pursuant to the terms of this Agreement; or (viii) any claim asserted against Neoforma by an employee of Novation to the extent such claim arises from decisions, acts, omissions or violations of statute by Novation with respect to such employee's employee/employer relationship with Novation. 15.3 Infringement Claims. 15.3.1 Each of Neoforma and Novation, at their respective expense, shall indemnify, defend and hold harmless the other party and its Affiliates, and their respective officers, directors, employees, consultants, agents, successors and assigns, from and against any and all Losses arising from any Services, software, hardware or the indemnitor's Materials ("ITEM(s)") provided or delivered by the indemnitor to the indemnitee under this Agreement, when used in conformity with all applicable written instructions and documentation, (i) infringes any patent in any country that is a signatory to the Patent Cooperation Treaty, (ii) infringes any copyright in any country that is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, or (iii) constitutes misappropriation of any trade secret in any country in which a trade secret right exists such that it would be enforceable in the United States (each such third-party claim, action, suit or proceeding, an "INFRINGEMENT CLAIM"). 15.3.2 Notwithstanding anything to the contrary herein, the indemnitor shall have no obligation to defend or indemnify the indemnitee for any Infringement Claim to the extent arising out of or relating to modifications to any Item made by or on behalf of the indemnitee where but for such modifications there would have been no Infringement Claim. 15.3.3 If the indemnitee's use of any Item is enjoined or otherwise prohibited, or if the indemnitor reasonably believes that there exists a threat of the same, the indemnitor shall have the right, in its sole discretion and at its expense, in addition to its indemnification obligations above, to (i) obtain for the indemnitee the right to continue to use the affected Item, (ii) replace the affected Item with a non-infringing product or service that will not degrade the performance quality of the affected component of the Services or (iii) modify the affected Item so that it becomes non-infringing. If the alternatives in (i), (ii) and (iii) are not feasible, the indemnitor shall remove the Item from the Services and equitably adjust the charges to reflect such removal. 15.3.4 THIS SECTION SETS FORTH THE SOLE AND EXCLUSIVE REMEDY OF THE INDEMNITEES, AND THE ENTIRE OBLIGATION AND LIABILITY OF THE INDEMNITOR, AS TO 40 47 ANY INFRINGEMENT CLAIMS IN CONNECTION WITH ANY ACTIVITY UNDER THIS AGREEMENT. 15.4 Indemnity Procedures. The party seeking indemnification under Section 15.1 through 15.3, as the case may be (the "INDEMNIFIED PARTY"), shall give prompt written notice to the other party (the "INDEMNIFYING PARTY"). In addition, the Indemnified Party shall allow the Indemnifying Party to direct the defense and settlement of any such claim, with counsel of the Indemnifying Party's choosing that is reasonably acceptable to the Indemnified Party, and will provide the Indemnifying Party, at the Indemnifying Party's expense, with information and assistance that is reasonably necessary for the defense and settlement of the claim. The Indemnified Party reserves the right to retain counsel, at the Indemnified Party's sole expense, to participate in the defense of any such claim. The Indemnifying Party shall not settle any such claim or alleged claim without first obtaining the Indemnified Party's prior written consent, which consent shall not be unreasonably withheld, if the terms of such settlement would not adversely affect the Indemnified Party's rights under this Agreement. 16. LIMITATION OF LIABILITY 16.1 Limitations. IN NO EVENT WILL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY LOST PROFITS, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. 16.2 Exceptions. The limitation set forth in Section 16.1 above will not apply to (i) Neoforma's obligations under Section 11, Section 15.1, Section 15.3 or Section 16.3, (ii) Novation's obligations under Section 11, Section 15.2 or Section 15.3, (iii) Neoforma's willful misconduct or gross negligence in the provision of Services or (iv) Neoforma's wrongful termination or abandonment of this Agreement. 16.3 Liquidated Damages. 16.3.1 Neoforma acknowledges that proper achievement of each of the functions and responsibilities as shall be agreed upon and set forth in the Functionality Specifications and the completion of each Functional Deliverable (as shall be defined in the Functionality Specifications) within the time frames specified pursuant to the process set forth therein (or as otherwise agreed to by Neoforma and Novation) are critical to the business operations of Novation. In connection therewith, Neoforma agrees that if any of its functions and responsibilities or any of the functions and responsibilities with respect to any Functional Deliverable (as shall be described in the Functionality Specifications) are not properly achieved by the applicable target date (a "FAILURE"), such Failure shall be deemed to constitute a material breach of Neoforma's service obligations 41 48 under this Agreement. Upon such Failure, Neoforma shall pay liquidated damages to Novation for each day past the applicable target date in which the objective is still not achieved in the amount of (i) * provided, however, that any Failure by Neoforma to complete any of its functions and responsibilities under the Functionality Specifications or any Functional Deliverable within the time frames to be agreed upon as described in the Functionality Specifications shall be excused if and to the extent (A) such Failure by Neoforma resulted principally from a material failure by Novation to perform its obligations in respect of such Phase (as such obligations are set forth pursuant to the Functionality Specifications) and (B) Neoforma used commercially reasonable efforts to perform notwithstanding Novation's failure to perform; provided, further, that any Failure by Neoforma pursuant to the preceding proviso shall only be excused for a number of days equal to the number of days Novation failed to perform its obligations in respect of such function, responsibility or Functional Deliverable (as such obligations are set forth pursuant to the Functionality Specifications). Notwithstanding the foregoing, Neoforma shall not be required to pay any liquidated damages under this Section 16.3.1 until the * occurrence of Failures in any consecutive * period. Upon the occurrence of the * such Failure, Neoforma shall retroactively pay liquidated damages in respect of each Failure in such period (including the * previous Failures) in an amount equal to the amount that would have been paid by Neoforma if each such prior Failure had not been subject to the exception in the penultimate sentence of this Subsection 16.3.1. 16.3.2 Neoforma acknowledges that proper achievement of the Service Levels as shall be set forth in the Service Level Specifications (including those Service Levels which will be determined after the Effective Date) are critical to the business operations of Novation. Accordingly, in connection with any failure to meet Service Levels, Neoforma and Novation shall agree on a methodology whereby Neoforma shall pay to Novation liquidated damages up to *. Such methodology shall be defined in the Service Level Specifications. 16.3.3 The parties agree that the damages provided in this Section 16 apply only with respect to the failures to perform described in Subsections 16.3.1 and 16.3.2. Moreover, the parties agree that the damages provided in this Section 16 are a reasonable estimate of the damages that would be suffered by Novation as a consequence of the failures described in Subsections 16.3.1 and 16.3.2 and do not constitute a penalty (the parties hereby acknowledging the inconvenience and difficulty of otherwise obtaining an adequate remedy). Notwithstanding anything to the contrary * Confidential treatment requested. 42 49 in this Agreement, the aggregate amount of liquidated damages paid by Neoforma to Novation pursuant to this Section 16.3 (including all payments to be agreed upon and described in the Functionality Specifications and the Service Level Specifications) shall not exceed * 17. AUDIT RIGHTS 17.1 General. Upon 10 days prior notice from Novation, Neoforma shall provide to such auditors as Novation may designate in writing, subject to the limitation imposed by Section 17.3, access during normal business hours to Neoforma's applicable facilities and to appropriate Neoforma management personnel and subcontractors, and to the data and records maintained by Neoforma with respect to the Services for the purpose of (i) performing audits and inspections of Neoforma and its businesses, (ii) to verify the integrity of Novation Materials and Neoforma Materials, (iii) to examine the systems that process, store, support and transmit such Novation Materials, (iv) to verify user volume reports, (v) to verify the accuracy of Novation Exchange Transaction Fees and (vi) to confirm Neoforma's compliance with this Agreement. To the extent applicable to the Services performed by Neoforma, the scope of such audits may include, without limitation, (i) Neoforma's practices and procedures, (ii) the adequacy of general controls and security practices and procedures and (iii) the adequacy of disaster recovery and back-up procedures. Subject to Section 17.6, such audits shall be conducted at Novation's expense. 17.2 Frequency of Audits. Operational audits, to examine the technological aspects of Neoforma's provision of Services, may not be conducted more than once in any 12-month period. Financial audits, which examine Neoforma's financial records, and other supporting records, may not be conducted more than once in any 12-month period. Novation may, at its election, conduct operational and financial audits concurrently. 17.3 Auditors. For the purposes of conducting financial audits, Novation may designate any internal auditor who customarily audits contract compliance issues for Novation or any nationally recognized accounting firm. For the purposes of conducting operational audits, Novation may designate any party to act as its auditor, subject to Neoforma's consent, which shall not be unreasonably delayed or withheld. 17.4 Record Retention. In order to document the Services and the Novation Exchange Transaction Fees paid or payable by Novation under this Agreement, Neoforma shall retain its standard records and supporting documentation for at least seven years. 17.5 Cooperation. Neoforma shall use commercially reasonable efforts to assist such auditors, inspectors, regulators and representatives in connection with such audits and inspections. * Confidential treatment requested. 43 50 17.6 Overcharges. If, as a result of any such audit, Novation determines that Neoforma has overcharged Novation, Novation shall notify Neoforma of the amount of such overcharge and Neoforma shall promptly pay to Novation the amount of the overcharge, plus interest at a rate of 1.5% per month or the maximum rate permitted by law, whichever is less, calculated from the date of receipt by Neoforma of the overcharged amount until the date of payment to Novation. If any such audit reveals an overcharge to Novation during any 12-month period exceeding 5% of all Novation Exchange Transaction Fees in the aggregate paid by Novation during such period, Neoforma shall reimburse Novation for the out-of-pocket costs and expenses incurred for such audit. 18. DISPUTE RESOLUTION 18.1 Resolution of Disputes. Except as otherwise provided in this Section 18, any and all disputes arising out of or in connection with the execution, interpretation, performance or nonperformance of this Agreement (each such dispute, a "DISPUTED MATTER") will be resolved by the procedures established in this Section 18. 18.2 Negotiations and Escalation. Each party shall use commercially reasonable efforts expeditiously to resolve any Disputed Matter which arises from time to time between it and any of the other parties on a mutually acceptable negotiated basis. In connection therewith, any party involved in a Disputed Matter may deliver a notice to each of the other parties (an "ESCALATION NOTICE") demanding an in-person meeting of the senior level management representatives of the parties involved (and providing, as a courtesy, notice to the parties not involved). Any agenda, location or procedures for such discussions or negotiations may be established by the parties to the Disputed Matter, but such parties shall, in any event, meet within 10 days after the delivery of the Escalation Notice. The parties to a Disputed Matter may, if they mutually so desire, retain a mutually agreed upon mediator to assist in resolution of the Disputed Matter, but (i) all statements and opinions of such mediator shall be only advisory and shall be inadmissible in any subsequent proceedings between the parties concerning the Disputed Matter, (ii) the parties thereto shall bear the costs of any such mediation equally (but each party to the mediation shall be responsible for its own expenses) and (iii) mediation is not a prerequisite to arbitration. If the parties to the Disputed Matter are unable to resolve it by the earlier of (i) 30 days after the delivery of the Escalation Notice or (ii) the conclusion of the meeting held pursuant to the applicable Escalation Notice, then any party thereto may institute arbitration, as provided below, concerning the Disputed Matter. 18.3 Appointment of Arbitral Body. Except as provided in Section 18.11, any Disputed Matters not resolved pursuant to Section 18.2 or otherwise settled between the parties will be finally resolved solely by arbitration, by a single arbitrator appointed in accordance with the rules and procedures (the "RULES") of 44 51 the American Arbitration Association, or if the American Arbitration Association is no longer conducting such arbitrations, a successor organization thereto or such other private arbitration service as the parties shall mutually agree (the actual authority involved, the "ARBITRAL BODY"). Except as set forth below in Sections 18.10 and 18.11, the parties renounce all recourse to litigation to resolve Disputed Matters and agree that the Award of the arbitrator will be final and subject to no judicial review. 18.4 Qualifications of Arbitrator. The arbitrator shall be selected pursuant to the rules and procedures of the Arbitral Body, but shall be (i) impartial and will not have been employed by or affiliated with any of the parties to this Agreement or any of their respective Affiliates, (ii) experienced in commercial dispute resolution and (iii) familiar with commercial business practices in the medical supplies procurement business or the business involved in the Disputed Matter. If the Arbitral Body is unable to provide an arbitrator with the qualifications set forth in this Section 18.4, the Arbitral Body will consult with the parties and consider their recommendations for the arbitrator. 18.5 Initiation of Arbitration and Procedures. After the expiration of the 30-day period referred to in Section 18.2, arbitration procedures may be initiated concerning a Disputed Matter by any of the parties thereto by giving written notice to the other parties thereto and in compliance with any of the applicable Rules. If not specified by the Rules, such notice shall be given to the parties to the Disputed Matter in the manner provided generally for notices in this Agreement. Any notice will specify in reasonable detail the dispute being submitted to arbitration and comply with all other Rules concerning commencement of arbitration. 18.6 Procedures. The arbitrator will conduct the proceedings, including arguments and briefs, in accordance with the Rules; provided that the provisions of this Section 18 will prevail in the event of any conflict between the Rules and its provisions. Within five days after his or her appointment, the arbitrator shall contact the parties to the Disputed Matter and arrange an initial conference with them, to be conducted within 30 days after his or her appointment, at which conference (the "HEARING CONFERENCE") the arbitrator and the parties will establish procedures (based on a brief written plan submitted in letter form by each party to the Disputed Matter in advance of such Hearing Conference concerning expected measures to prepare for hearing on the merits) and a schedule for the resolution of the Disputed Matter by hearing on the merits in a timely and efficient manner, giving due consideration to the nature and extent of the Disputed Matter, the apparent complexity of preparations for, and complexity of, hearing on its merits and other factors (such as third-party litigation pending against one of the parties on the same subject-matter as raised in the Disputed Matter). In the event of a dispute concerning such procedures at the Hearing Conference, the arbitrator shall have the power to impose the schedule upon the parties to the Disputed Matter, giving due consideration to resolution of the Disputed Matter by a full and fair hearing on the merits. The arbitrator shall include in procedures established at the Hearing Conference provisions which permit the parties to engage in reasonable, 45 52 limited discovery in preparation for hearing on the merits and which protect and preserve privileges and shield confidential proprietary information from disclosure. The hearing on the merits will be held within 60 days after the Hearing Conference, and evidentiary matters at such hearing will be determined in accordance with the Federal Rules of Evidence as applied at the place of arbitration. 18.7 Governing Law; Jurisdiction. The arbitrator will decide the issues submitted in accordance with the provisions and commercial purposes of this Agreement, provided that all substantive questions of law will be determined under the laws of the State of New York. The parties consent to venue in the State in which the principal place of business of the party initiating arbitration regarding a Disputed Matter is located. 18.8 Arbitration Award. All decisions of the arbitrator will be in writing and submitted to the parties, and the decision after hearing on the merits which announces resolution of the Disputed Matter (the "AWARD") shall, in addition, set forth findings of fact and conclusions of law to support the arbitrator's resolution of the merits of the Disputed Matter. The arbitrator will issue the Award within 30 days after completion of the hearing on the merits. 18.9 Cooperation of the Parties. The parties to the Disputed Matter will facilitate the arbitration by (i) making available to one another and to the arbitrator for examination, inspection and extraction all documents, books, records and personnel under their control if determined by the arbitrator to be relevant to the dispute, (ii) conducting arbitration hearings to the greatest extent possible on successive days and (iii) observing strictly the time periods and procedures established by the Rules or by the arbitrator for submission of evidence or briefs, conduct of the hearing on the merits and preparations therefor. 18.10 Costs. All costs of the arbitration shall initially be borne equally by the parties thereto as incurred, but upon completion of the arbitration, the arbitrator shall award to the prevailing party, as determined by the arbitrator in accordance with principles of New York law for determining prevailing parties in litigation, all reasonable costs, fees and expenses related to the arbitration, including reasonable fees and expenses of attorneys, accountants and other professionals or experts incurred by the prevailing party. 18.11 Judgment on the Award; Enforcement. Judgment on the Award may be entered in any court having jurisdiction and procedures therefor. Each party agrees that any Award of an arbitrator against it and on which judgment is entered may be executed against the assets of any party which is a judgment debtor or otherwise enforced in any jurisdiction pursuant to the procedures in and protections of such jurisdiction which are generally applicable to enforcement of judgments, including provision in such jurisdiction for the enforcement of equitable remedies provided in the Award. 46 53 18.12 Preservation of Equitable Relief; Third-Party Litigation. Notwithstanding any provision of this Section 18 to the contrary, any party will be entitled (i) to seek a temporary restraining order or injunctive or other equitable relief in any court of competent jurisdiction with respect to a breach (or attempted or threatened breach) of this Agreement by any party (including, without limitation, the matters referred to in Subsection 9.9.5) or (ii) to institute litigation or other formal proceedings to the extent necessary (A) to enforce the award of the arbitrator, (B) to avoid the expiration of any applicable limitations period or (C) to preserve a superior position with respect to other creditors. Nothing in this Section 18 shall prevent parties to this Agreement who become involved in a Disputed Matter and who have become parties to litigation instituted by a third party concerning facts involved in such Disputed Matter from resolving disputes between them arising in connection with such Disputed Matter through such litigation in lieu of arbitration under this Section 18. 18.13 Continued Performance. Each party agrees to continue performing its obligations under this Agreement during the pendency of any dispute resolution process conducted in accordance with this Section 18. 19. GUARANTY OF PERFORMANCE 19.1 VHA and UHC Guarantees. Subject to Section 19.4, VHA and UHC agree, severally but not jointly, that they will be responsible for the obligations and liabilities of Novation under this Agreement, as follows: (i) to the extent that any such obligation or liability relates primarily to any action or omission by UHC or an UHC Member, UHC shall be responsible; (ii) to the extent that any such obligation or liability relates primarily to any action or omission by VHA or a VHA Member, VHA shall be responsible; and (iii) to the extent that the allocations set forth in (i) and (ii) are not applicable, VHA and UHC shall be responsible in accordance with the allocation provisions set forth in Section 8.12. 19.2 VHA and UHC Waivers. Each of VHA and UHC hereby waives the following with regard to its guaranty obligations under this Section 19: (i) any right to require Neoforma to pursue any other remedy in Neoforma's power whatsoever, other than Neoforma proceeding exclusively against VHA or UHC with respect to a liability described in Section 19.1 (iii) (ii) any defense resulting from the absence, impairment or loss of any right of reimbursement, subrogation or contribution of VHA or UHC against Neoforma, or against one another; 47 54 (iii) any defense of discharge, relief or stay of the principal's obligations hereunder based upon a filing of or against Novation under the U.S. Bankruptcy Code or Novation's request for any relief of its obligations under this Agreement based on laws for the relief of debtors generally; (iv) any right to be informed by Neoforma of the financial or other condition of Novation or of VHA or UHC or any change therein or any other circumstances bearing upon the risk of nonperformance by Novation; and (v) any defense of exoneration or release based on amendment of this Agreement. Each of VHA and UHC agrees that its guarantee, as set forth in Section 19.1, constitutes a guarantee of payment when due and not of collection. 19.3 Scope of Liability. Neither VHA's nor UHC's obligations and liabilities under this Agreement shall be subject to any set-off, reduction, limitation, impairment or termination for any reason, including, without limitation, compromise, and shall not be subject to any defense or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of its obligations and liabilities under this Agreement; excluding, however, any defenses based upon Neoforma's failure to perform any of its obligations under this Agreement. 19.4 Continued Performance by Neoforma. 19.4.1 In the event that the Operating Agreement, dated October 21, 1997, as amended from time to time, between VHA and UHC is terminated (and not replaced by any successor document) (the "NOVATION DISSOLUTION"), Neoforma agrees that it shall continue to perform its obligations under this Agreement for a period of no less than * following the date of such termination (and any additional Termination Assistance Period required by this Agreement). Additionally, during such * period, Neoforma shall offer to enter into separate agreements with each of VHA and UHC upon substantially similar terms and conditions and pursuant to which Neoforma will provide services substantially similar to the Services provided hereunder at the time of such termination and create separate proprietary exchanges for each of VHA and UHC. The price for the aggregate services to be rendered under the new separate agreements shall be substantially similar to the price paid by Novation hereunder at the time of such termination; provided, however, that with respect to each of the separate agreements, (i) VHA and UHC (in their separate agreements) will provide services substantially similar to those being provided by Novation hereunder (or, if either VHA or UHC elects not to provide such services, Neoforma and the party so electing will negotiate in good faith to adjust the cost of the services to be provided by Neoforma to such party), and (ii) * Confidential treatment requested. 48 55 Neoforma may charge VHA or UHC, as applicable, incremental costs associated with the transition of services provided by Neoforma from the Novation Exchange to the separate exchanges, including, without limitation, incremental costs relating to establishing a separate "look and feel" to the proprietary exchanges and creating separate exchanges. 19.4.2 Notwithstanding the foregoing, neither VHA nor UHC shall be obligated to enter into an agreement with Neoforma as described in Subsection 19.4.1. In the event that either VHA or UHC elects not to enter into such an agreement with Neoforma, then that party's obligations to Neoforma shall be limited to its guarantee under Section 19.1 hereunder. 20. GENERAL PROVISIONS 20.1 No Waiver. The delay or omission by any party to exercise or enforce any right or power of any provision of this Agreement shall not be construed as a waiver or relinquishment to any extent of such party's right to assert or rely upon any such provision or right in that or any other instance. A waiver by any party hereto of any of the covenants to be performed by any other or any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant herein contained. 20.2 Entire Agreement. This Agreement, the Exhibits attached hereto, and all other agreements contemplated by this Agreement to be agreed upon by the parties hereto pursuant to the terms of this Agreement (the "CONTEMPLATED AGREEMENTS"), together constitute the complete and exclusive agreement between the parties hereto, and supersede any and all prior agreements of the parties with respect to the subject matter hereof. Except in the case of Section 8.12 (which may be amended with the approval of VHA and UHC only), this Agreement, the Exhibits attached hereto and the Contemplated Agreements may be amended or modified, or any rights under it waived, only by a written document executed by all parties. For the avoidance of doubt, the term "AGREEMENT", as used throughout this document, shall include the Contemplated Agreements. 20.3 Publicity. Except as required by law or provided in this Agreement, no party will make any public statement, press release or other announcement relating to the terms of or existence of this Agreement without the prior written approval of all other parties. The parties will cooperate prior to the filing of any public document which may require the filing of this Agreement as an exhibit or the filing of a description thereof in order to preserve the confidentiality and proprietary information contained herein. 20.4 Covenant of Good Faith. Each party agrees that, in its respective dealings with all other parties under or in connection with this Agreement, it shall act in good faith. 20.5 Compliance with Laws and Regulations. Each of Neoforma and Novation shall perform its respective obligations under this Agreement in a manner that complies 49 56 with applicable law, including, without limitation, identifying and procuring required permits and approvals. 20.6 Assignment; Successors and Assigns. This Agreement will be binding on the parties hereto and their respective successors and permitted assigns. No party may, or will have the power to, assign this Agreement without the prior written consent of all other parties. For the purposes of this Section 20.6, any assignment by operation of law, under an order of any court, or pursuant to any Neoforma Change of Control, plan of merger, consolidation, reorganization, or liquidation or will be deemed an assignment for which prior consent is required, and any assignment made without such consent will be void and of no effect as between the parties. Notwithstanding the forgoing, no assignment made in respect of or as a result of any dissolution of Novation will be deemed an assignment for which prior consent is required, and such assignment will be valid. 20.7 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York, without regard to or application of conflicts of law rules or principles. 20.8 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed given if sent by prepaid registered or certified United States mail, return receipt requested, overnight mail with a nationally recognized overnight mail courier, or sent by facsimile or similar communication, and confirmed by such mail, postage prepaid, addressed to another party at the address shown below or at such other address for which such party gives notice hereunder. Notices will be deemed given five business days after deposit in the U.S. Mail, two business days after deposit with an overnight mail courier, or when confirmation of receipt is obtained if sent by facsimile or similar communication, or if by personal delivery, when received, as applicable: 50 57 IF TO NOVATION: WITH A COPY TO: Novation, LLC Baker Botts L.L.P. 125 East John Carpenter Freeway 2001 Ross Avenue Irving, Texas 75062 Dallas, Texas 75201-2980 Facsimile: (972) 581-5778 Facsimile: (214) 953-6503 Attn: General Counsel Attn: Sarah M. Rechter, Esq. IF TO VHA: WITH A COPY TO: VHA, Inc. Skadden, Arps, Slate, Meagher & Flom LLP 220 East Las Colinas Boulevard 1440 New York Avenue, N.W. Irving, Texas 75039-5500 Washington, DC 20005 Facsimile: (972) 830-0391 Facsimile: (202) 393-3760 Attn: Chief Financial Officer Attn: C. Kevin Barnette, Esq. IF TO UHC: WITH A COPY TO: University HealthSystem Consortium McDermott, Will & Emery 2001 Spring Road, Suite 700 227 West Monroe Street Oak Brook, Illinois 60523 Chicago, Illinois 60606 Facsimile: (630) 954-4730 Facsimile: (312) 984-7700 Attn: Executive Vice President Attn: Virginia H. Holden, Esq. General Counsel IF TO NEOFORMA: WITH A COPY TO: Neoforma.com, Inc. Fenwick & West LLP 3255-7 Scott Boulevard Two Palo Alto Square Santa Clara, California 95054 Palo Alto, California 94306 Facsimile: (408) 549-6399 Facsimile: (650) 494-1417 Attn: General Counsel Attn: Gordon K. Davidson, Esq. Douglas N. Cogen, Esq. 20.9 No Agency. The parties are independent contractors and will have no power or authority to assume or create any obligation or responsibility on behalf of each other, except as expressly provided herein. This Agreement will not be construed to create or imply any partnership, agency or joint venture. 20.10 Force Majeure. 20.10.1 Subject to 20.10.2, no party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by: flood, earthquake, elements of nature or acts of God, riots, civil disorders, rebellions or revolutions in any country, or any other cause beyond the reasonable control of such party, provided that (i) the non-performing party is without fault in failing to prevent or causing such default or delay and (ii) such default or delay cannot reasonably be circumvented 51 58 by the non-performing party through the use of alternate sources, workaround plans or other means (including with respect to Neoforma, by Neoforma executing its disaster recovery plans). 20.10.2 In such event, the non-performing party shall be excused from further performance or observance of the obligation(s) so affected for as long as such circumstances prevail and such party continues to use commercially reasonable efforts to recommence performance or observance whenever and to whatever extent possible without delay. With respect to Neoforma's performance, such efforts shall be no less than the efforts used for any other customer of Neoforma. Any party so delayed in its performance shall immediately notify the party to whom performance is due by telephone (to be confirmed in writing within two days after the inception of such delay) and describe at a reasonable level of detail the circumstances causing such delay. 20.10.3 Notwithstanding anything in this Section 20.10 to the contrary, upon the occurrence of an event described in Subsection 20.10.1 that substantially prevents, hinders or delays performance of services necessary for the performance of "critical functions" of such party for more than *, such party to whom such affected or delayed performance is due will have the right to immediately terminate this Agreement. For the purposes of this Subsection 20.10.3, "critical functions" means with respect to a party, those business functions that are reasonably and in good faith determined by that party to be essential and critical to its business operations or the business operations of its Members. 20.11 Interest. Any payment under this Agreement which is not paid when due, shall accrue interest at the lower of a monthly rate of 1.5% or the highest amount allowed by law. 20.12 Program Management. Neoforma and Novation shall meet to develop a program management plan to manage the delivery of Services hereunder. Such plan shall have features similar to those illustrated in Exhibit F. 20.13 Severability. If for any reason a court of competent jurisdiction finds any provision or portion of this Agreement to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. 20.14 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which, together, will constitute one and the same instrument. 20.15 Headings. Section headings are included for only convenient reference and do not describe the sections to which they relate. * Confidential treatment requested. 52 59 20.16 Section 365(n) Matters. Neoforma acknowledges that if Neoforma as a debtor-in-possession or a trustee in bankruptcy in a case under the U.S. Bankruptcy Code rejects this Agreement, the Contemplated Agreements, or any agreement supplementary hereto or thereto, Novation may elect to retain its rights under this Agreement, the Contemplated Agreements, or any agreement supplementary hereto or thereto, as and to the extent provided in Section 365(n) of the U.S. Bankruptcy Code. Upon the written request of Novation to Neoforma or the bankruptcy trustee, Neoforma or such bankruptcy trustee, as provided in Section 365(n) of the U.S. Bankruptcy Code, (i) shall provide to Novation the intellectual property for the Services as described in this Agreement, including all third-party software and all Neoforma-owned software, and (ii) shall not interfere with the rights of Novation as provided in this Agreement or any agreement supplementary hereto, including the Functionality Specifications, the Service Level Specifications, or any escrow agreement that may be entered, to obtain such intellectual property from the bankruptcy trustee. 53 60 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. NEOFORMA.COM, INC. NOVATION, LLC By: By: ------------------------------- ------------------------------- Name: Andrew L. Guggenhime Name: Mark McKenna ----------------------------- ----------------------------- Title: Chief Financial Officer Title: President ---------------------------- ---------------------------- Date: January 25, 2001 Date: January 25, 2001 ----------------------------- ----------------------------- VHA, INC. UNIVERSITY HEALTHSYSTEM CONSORTIUM By: By: ------------------------------- ------------------------------- Name: Curt Nonomaque Name: Mark Mitchell ----------------------------- ----------------------------- Title: Chief Financial Officer Title: ---------------------------- ---------------------------- Date: January 25, 2001 Date: January 25, 2001 ----------------------------- ----------------------------- HEALTHCARE PURCHASING PARTNERS INTERNATIONAL, LLC By: ------------------------------- Name: Mark McKenna ----------------------------- Title: Chief Executive Officer ---------------------------- Date: January 25, 2001 ----------------------------- [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT] 54 61 EXHIBIT G SUPPLIER TARGET PERCENTAGES The * shall be determined by multiplying the * in any * by the applicable * set forth below: * * Confidential treatment requested. G-1 62 EXHIBIT H TARGET FEE LEVELS *
* Confidential treatment requested. H-1 63 EXHIBIT I EXAMPLES Example 1 * Example 2 * * Confidential treatment requested. J-1 64 EXHIBIT J PRIORITY SUPPLIERS * * Confidential treatment requested. J-1 -----END PRIVACY-ENHANCED MESSAGE-----