10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

                    (MARK ONE)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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, INC.

(Exact name of 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
(Registrant’s telephone number, including area code)

Neoforma.com, Inc.
(Registrant’s former name)

         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     No   

         At November 14, 2001, there were 18,292,339 outstanding shares of our common stock, $.001 par value per share.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2

NEOFORMA, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001

TABLE OF CONTENTS

			PAGE
PART I.		FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000	3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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

PART I. FINANCIAL INFORMATION

         ITEM 1. Condensed Consolidated Financial Statements

NEOFORMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

		December 31,			September 30,
		2000			2001
					(unaudited)
CURRENT ASSETS:
	Cash and cash equivalents	$	22,597		$	17,744
	Short-term investments		7,163			—
	Accounts receivable, net of allowance for doubtful accounts of $384 and $306, respectively		1,353			900
	Unbilled revenue		946			—
	Inventory		300			—
	Prepaid expenses and other current assets		3,470			2,859
	Deferred debt costs, current portion		413			280
	Total current assets		36,242			21,783
PROPERTY AND EQUIPMENT, net			32,529			31,061
INTANGIBLES, net of amortization			127,799			101,600
CAPITALIZED PARTNERSHIP COSTS, net of amortization			308,330			257,424
NON-MARKETABLE INVESTMENTS			8,400			6,145
OTHER ASSETS			456			2,704
DEFERRED DEBT COSTS, less current portion			182			—
	Total assets	$	513,938		$	420,717
CURRENT LIABILITIES:
	Notes payable, current portion	$	8,089		$	19,818
	Accounts payable		22,744			10,066
	Accrued payroll		3,106			3,899
	Other accrued liabilities		2,303			4,669
	Deferred revenue		947			2,332
	Total current liabilities		37,189			40,784
NOTES PAYABLE, less current portion			7,958			2,101
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY:
	Common Stock $0.001 par value:
	Authorized: 300,000 shares at September 30, 2001 Issued and outstanding: 13,494 shares at December 31, 2000 and 16,295 at September 30, 2001		13			16
Warrants			11,733			3,688
Additional paid-in capital			761,374			804,551
Notes receivable from stockholders			(7,112	)		(7,038	)
Deferred compensation			(32,346	)		(15,674	)
Unrealized loss on available-for-sale securities			(3	)		—
Accumulated deficit			(264,868	)		(407,711	)
	Total stockholders’ equity		468,791			377,832
	Total liabilities and stockholders’ equity	$	513,938		$	420,717

The accompanying notes are an integral part of these condensed consolidated
financial statements.

NEOFORMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2000			2001			2000			2001
REVENUE:
	Transaction fees	$	633		$	7,740		$	1,879		$	14,699
	Sales of used equipment		2,738			13			3,306			250
	Services		485			86			943			151
	Website sponsorship fees and other		870			196			2,044			590
	Total revenue		4,726			8,035			8,172			15,690
OPERATING EXPENSES:
	Cost of equipment sold		2,398			—			2,562			216
	Cost of services		2,759			3,767			3,657			11,856
	Operations		3,169			3,820			10,260			11,955
	Product development		6,403			4,124			18,661			14,114
	Selling and marketing		12,750			6,062			41,944			23,900
	General and administrative		5,276			4,047			20,830			13,900
	Amortization of intangibles		8,149			7,168			17,546			22,182
	Amortization of partnership costs		11,958			19,267			11,958			57,698
	Write off of acquired in-process research and development		—			—			18,000			—
	Abandoned acquisition costs		—			—			2,742			—
	Restructuring		—			—			2,100			—
	Gain on divested businesses		—			(879	)		—			(258	)
	Write down of non-marketable investments		—			3,000			—			3,000
	Total operating expenses		52,862			50,376			150,260			158,563
	Loss from operations		(48,136	)		(42,341	)		(142,088	)		(142,873	)
OTHER INCOME (EXPENSE):
	Interest income		938			60			3,904			539
	Interest expense		(345	)		(337	)		(896	)		(955	)
	Other income		21			652			21			441
	Net loss	$	(47,522	)	$	(41,966	)	$	(139,059	)	$	(142,848	)
NET LOSS PER SHARE:
Basic and diluted		$	(4.57	)	$	(2.64	)	$	(20.48	)	$	(9.19	)
Weighted average shares- basic and diluted			10,392			15,907			6,789			15,546
PRO FORMA NET LOSS PER SHARE:
Basic and diluted								$	(19.48	)
Weighted average shares- basic and diluted									7,140

The accompanying notes are an integral part of these condensed consolidated
financial statements.

NEOFORMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		Nine Months Ended
		September 30,
		2000			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss	$	(139,059	)	$	(142,848	)
	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		670			—
	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		—			773
	Write off of acquired in-process research and development		18,000			—
	Write off of non-marketable investment		—			3,000
	Gain on divested businesses		—			(258	)
	Depreciation and amortization of property and equipment		5,936			7,772
	Amortization of intangibles		17,546			22,182
	Amortization of partnership costs		11,958			57,698
	Amortization of deferred compensation		27,368			14,658
	Amortization of deferred debt costs		315			315
	Change in assets and liabilities, net of acquisitions:
	Accounts receivable, net		(1,375	)		24
	Unbilled revenue		(943	)		500
	Inventory		(1,095	)		196
	Prepaid expenses and other assets		166			1,427
	Accounts payable		5,179			(12,666	)
	Accrued liabilities and accrued payroll		1,127			3,465
	Deferred revenue		71			2,078
	Net cash used in operating activities		(53,857	)		(41,335	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of marketable investments		(1,658	)		(2,660	)
	Sale of marketable investments		18,873			9,823
	Cash paid for the acquisition of Pharos Technologies, Inc., net of cash acquired		(669	)		—
	Cash paid for the acquisition of U.S. Lifeline, Inc., net of cash acquired		(3,772	)		—
	Cash paid for the acquisition of EquipMD, Inc., net of cash acquired		(3,908	)		—
	Purchase of non-marketable investments		(5,500	)		—
	Cash paid for costs related to establishing partnerships		(9,000	)		—
	Cash surrendered with divested businesses, net of cash proceeds received from divestitures		—			(164	)
	Cash paid on note payable issued in connection with the acquisition of General Asset Recovery, Inc.		(1,238	)		(1,910	)
	Proceeds from repayment of notes receivable relating to divestitures		—			150
	Purchases of property and equipment		(18,955	)		(6,631	)
	Net cash used in investing activities		(25,827	)		(1,392	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from the issuance of notes payable		6,000			—
	Repayments of notes payable		(1,505	)		(6,217	)
	Repayments of notes receivable from stockholders		75			—
	Proceeds from draw under line of credit		—			14,000
	Proceeds from the issuance of common stock under the employee stock purchase plan		641			734
	Common stock repurchased, net of cancellation of notes receivable issued to common stockholders		(294	)		(107	)
	Proceeds from the exercise of options, net of repurchases		98			12
	Proceeds from the issuance of common stock, net of notes receivable and issuance costs		95,328			29,452
	Net cash provided by financing activities		100,343			37,874
	Net increase/(decrease) in cash and cash equivalents		20,659			(4,853	)
CASH AND CASH EQUIVALENTS, beginning of period			25,292			22,597
CASH AND CASH EQUIVALENTS, end of period		$	45,951		$	17,744

		Nine Months Ended
		September 30,
		2000			2001
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
	Cash paid during the period for interest	$	601		$	767
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
	Conversion of preferred stock to common stock	$	88,824		$	—
	Issuance of warrants to purchase common stock	$	24,170		$	—
	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		$	—
	Reduction of deferred compensation resulting from employee terminations	$	—		$	2,014
	Issuance of common stock in connection with the acquisition of EquipMD, Inc.	$	133,615		$	—
	Notes receivable from common stockholders cancelled in repurchase of common shares	$	(2,242	)	$	74
	Notes receivable issued to common stockholders	$	1,750		$	—
	Cancellation of note payable as part of divestiture	$	—		$	500
	Issuance of common stock in connection with partnership agreements	$	291,330		$	—

The accompanying notes are an integral part of these condensed consolidated
financial statements.

NEOFORMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

         The condensed consolidated financial statements included herein have been prepared by Neoforma, 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 unaudited condensed 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.

         On August 13, 2001, as part of the Company’s annual meeting of stockholders, the stockholders voted to approve a proposal to change the name of the Company from Neoforma.com, Inc. to Neoforma, Inc. Additionally, the stockholders also voted to approve a proposal, which gave the Company’s board of directors the authority to implement a reverse stock split of the Company’s common stock. The board of directors was granted the authority to implement the reverse stock split at any one of three approved exchange ratios (1-for-6, 1-for-8, or 1-for-10), if it believed that it was in the best interests of the Company to do so. On August 27, 2001, the Company implemented a 1-for-10 reverse split of its common stock as approved by the board of directors. All share and per share numbers, both current and historical, contained in these financial statements and the accompanying footnotes, have been restated to reflect the impact of the reverse stock split.

         Since inception, the Company has incurred significant losses, and, as of September 30, 2001, had an accumulated deficit of $407.7 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 unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, General Asset Recovery, Inc. (“GAR”), Pharos Technologies, Inc. (“Pharos”), U.S. Lifeline, Inc. (“USL”) and EquipMD, Inc. (“EquipMD”) for all applicable periods. 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.

NEOFORMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Investments

         Investments classified as cash equivalents amounted to approximately $16.7 million and $2.3 million at December 31, 2000 and September 30, 2001, respectively. Investments with original 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.

         The amortized costs, aggregate fair values and gross unrealized holding losses by major security type were as follows (in thousands):

	As of September 30, 2001
					Unrealized
	Amortized		Aggregate		Holding
	Cost		Fair Value		Loss
Debt securities issued by states of the United States and political subdivisions of the states	$	2,297	$	2,297	$	—
	$	2,297	$	2,297	$	—

	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 and nine months ended September 30, 2000 and 2001 were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2000			2001			2000			2001
Net loss	$	(47,522	)	$	(41,966	)	$	(139,059	)	$	(142,848	)
Unrealized gain/(loss) on available-for-sale securities		(11	)		2			29			3
Comprehensive loss	$	(47,533	)	$	(41,964	)	$	(139,030	)	$	(142,845	)

NEOFORMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 and nine months ended September 30, 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 is excluded, as they are anti-dilutive as a result of the Company’s net losses. The total number of shares excluded from the diluted loss per share calculation relating to these securities was approximately 2.2 million and 4.6 million for the nine months ended September 30, 2000 and 2001, respectively.

         Pro forma basic and diluted net loss per share are 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 and nine months ended September 30, 2000 and 2001 (in thousands, except per share amounts):

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2000			2001			2000			2001
Net loss		$	(47,522	)	$	(41,966	)	$	(139,059	)	$	(142,848	)
Basic and diluted:
	Weighted average shares of common stock outstanding		11,049			16,250			7,442			15,942
	Less: Weighted average shares of common stock subject to repurchase		(657	)		(343	)		(653	)		(396	)
	Weighted average shares used in computing basic and diluted net loss per share		10,392			15,907			6,789			15,546
	Basic and diluted net loss per common share	$	(4.57	)	$	(2.64	)	$	(20.48	)	$	(9.19	)
Pro forma:
Net loss								$	(139,059	)
Shares used above									6,789
Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock									351
Weighted average shares used in computing pro forma basic and diluted net loss per share									7,140
Pro forma basic and diluted net loss per share								$	(19.48	)

Recent Accounting Pronouncements

         In April 2001, the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products.” EITF 00-25 addresses accounting and

NEOFORMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

reporting for certain types of consideration provided by a vendor to resellers of the vendor’s products or services. It specifically addresses the characterization of the costs related to that consideration, and whether such costs should be reported as operating expenses or as a reduction in revenue. The accounting and reporting specified in the consensus is required to be adopted for periods beginning after December 15, 2001. The consensus also requires restatement of prior period financial information provided for comparative purposes in all filings after adoption. The Company is currently assessing the applicability of this consensus to its operations, and as such has not yet determined the effect that adoption of the consensus will have on its results of operations or financial position.

         In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141, “Business Combinations.” SFAS No. 141 addresses financial accounting and reporting for business combinations and it requires business combinations in the scope of this statement to be accounted for using the purchase method. The provisions of this statement apply to all business combinations initiated after June 30, 2001. The Company does not believe that the adoption of this statement will have a material impact on its results of operations, financial position or cash flows.

         In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other acquired assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. With the adoption of this statement, goodwill is no longer subject to amortization over its estimated useful life. Goodwill will be assessed for impairment at least annually using fair-value-based tests. This statement becomes effective January 1, 2002. The Company is currently assessing the impact of the discontinued amortization of goodwill and, while the Company is not aware of any impairment charges, an analysis will have to be done upon adoption of this statement to determine if an impairment charge is necessary. As such, the Company has not yet determined the effect SFAS No. 142 will have on its results of operations or financial position.

         In August 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 supercedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” in that it removes goodwill from its impairment scope and allows for different approaches in cash flow estimation. However, SFAS 144 retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of. SFAS 144 also supercedes the business segment concept in APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” in that it permits presentation of a component of an entity, whether classified as held for sale or disposed of, as a discontinued operation. However, SFAS 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations. The Company is required to adopt the provisions of SFAS 144 effective January 1, 2002, with earlier application encouraged. The Company believes that the implementation of this standard will not have a material effect on the Company’s results of operations and financial position.

3. LITIGATION

         In July 2001, the Company was named as a defendant in two securities class action lawsuits filed in federal court in the Southern District of New York (Index Nos. 01 CV 6689 and 01 CV 6712) related to the Company’s initial public offering (the “Offering”) on behalf of those who purchased stock from January 24, 2000 to December 6, 2000. Approximately 180 other issues and their underwriters have also had similar lawsuits filed against them. Since that time, additional lawsuits have been filed against us asserting federal securities claims arising from the Offering. The lawsuits also named certain of the underwriters (Merrill Lynch, Pierce, Fenner & Smith; Bear Stearns; and FleetBoston Robertson Stephens), the Company’s Chairman and CEO (Robert Zollars) and former CFO (Fred Ruegsegger) as defendants. The complaints filed in connection with the lawsuits contain substantially identical allegations: that the prospectus and

NEOFORMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the registration statement for the Offering failed to disclose that the underwriters solicited and received “excessive” commissions from investors and that some investors in the Offering agreed to buy more shares later at predetermined prices in a scheme to artificially inflate the price of the Company’s stock. The complaints seek unspecified damages, rescissory damages to members of the class that no longer hold the Company’s stock, interest, attorney and expert fees and other litigation costs.

         The Company has not yet made any responsive filings and discovery has not yet commenced. The Company believes that the claims made in the lawsuit against the Company and its current and former executive officers are without merit and plans to vigorously defend these actions. As such, the Company does not believe the lawsuits will have a material impact on the Company’s financial position and results of operations.

4. DIVESTED BUSINESSES

         In July 2001, the Company entered into a purchase agreement to sell substantially all of the assets of the Company’s Auction operations to Med-XS Solutions, Inc. (“MedXS”), in exchange for consideration in the amount of $2.5 million. The Company agreed to contribute approximately $1.8 million of net assets, consisting of $300,000 of tangible assets including inventory and fixed assets, $1.5 million of intangible assets, and eliminated $180,000 of liabilities. Under the amended purchase agreement, the consideration provided to the Company by MedXS consisted of $150,000 cash delivered to the Company at closing and a $2.35 million promissory note payable to the Company over two years from the date of closing, which was September 5, 2001. In addition, the Company will receive a revenue share and profit share from MedXS on the sold operations which will be recognized when earned. The net result of the transaction to the Company was a gain on the divestiture of these assets of approximately $879,000.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         Statements in this document, other than statements of historical information, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may identify these statements by the use of words such as “will,” “may,” “might,” “could,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “predict,” “project,” “estimate,” “potential,” “continue” and similar expressions. Such forward-looking statements involve known and unknown risks and other factors which may cause our actual results in future periods to differ materially from those expressed in any forward-looking statements. These risks and factors include those discussed below under the headings “Liquidity and Capital Resources” and “Factors That May Affect Future Operating Results.” You should also carefully review the risks described in other documents we file from time to time with the Securities and Exchange Commission. We caution that the risks and factors discussed below and in such filings are not exclusive. We do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of Neoforma. You are urged to carefully review and consider the various disclosures in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise you of certain risks and factors that may affect our business. You are cautioned not to place undue reliance on these forward-looking statements to reflect events or circumstances occurring after the date hereof. The following should be read in conjunction with our consolidated financial statements and notes to these consolidated financial statements.

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 electronic commerce, or e-commerce, 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, such as hospitals and integrated delivery networks, or IDNs, manufacturers, distributors, and group purchasing organizations, or GPOs, 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, and GPOs.

         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 provided private marketplaces where buyers could easily identify, locate and purchase new products and suppliers could access new customers and markets. Healthcare providers could use our Shop service to purchase a wide range of products, from disposable gloves to surgical instruments and diagnostic equipment. Our Auction service created 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 were not aligned with this core strategy. As such, in early fiscal 2001, we announced our intent to divest our Auction operations and portions of our Plan operations. In April 2001, we implemented part of this strategy by selling U.S. Lifeline, Inc., or USL, and FDI Information Resources, LLC, or FDI, which together comprised substantially all of our Plan operations, to Medical Distribution Solutions, Inc., or MDSI, and Attainia, Inc., or Attainia, respectively. In September 2001, we completed the sale of our Auction operations to Med-XS Solutions, Inc., or Med-XS, which completed the divestitures we had planned to execute in 2001 as part of our refocused strategy.

         During the third quarter of 2001, in order to continue to maintain our focus on delivering core customer solutions and to increase our resource commitment to the more scalable, higher return acute care business, we obtained board approval to begin exploring strategic alternatives for our Atlanta-based alternate site healthcare business unit, NeoMD™, which consists primarily of the assets of our wholly-owned subsidiary, EquipMD, Inc., or EquipMD. Concurrently, we are continuing to streamline our organizational structure to increase operational efficiency in part by reallocating or eliminating internal Neoforma assets focused on the alternate site healthcare business. The costs relating to divesting the NeoMD operations, and those to implement these and other organizational changes are expected to be characterized as a restructuring charge relating to the divestiture of businesses in our fourth quarter 2001 financial statements.

         To date, our principal source of revenue has been transaction fees paid by the buyers and sellers of products that use our Shop and Auction services. These transaction fees represent a negotiated percentage of the sale price of the products sold through Shop or Auction. During the third quarter of 2001, we also received revenue from the following sources:

• service delivery fees for implementation and consulting services paid by users of our marketplaces; and

• license and consulting revenue from the sale of licenses to proprietary software developed for internal use in our marketplaces to outside parties.

         We recognize transaction fees as revenue when the seller confirms a buyer’s order. For live and online Auction services, we recognize seller transaction fees, as well as a buyer’s premium, when the product is sold. 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.

         We have also identified new potential revenue opportunities within the scope of our core strategy of developing and operating Internet marketplaces. We have

identified opportunities to develop and sell additional products and services, or premium services, into our existing customer base that can not only provide significant value to trading partners on our marketplaces, but which could represent significant future revenue opportunities for us going forward. In connection with this strategy, we have refocused our efforts on identifying opportunities to license the proprietary technology that we have developed and are developing as part of our marketplace development efforts. While licensing these internally developed software and technology solutions has consistently been part of our core strategy, only recently have our marketplaces achieved volume levels sufficient to validate our technology and enable us to pursue technology licensing opportunities. While our sale of certain software and technology underlying our connectivity solution to Global Healthcare Exchange, LLC, or GHX, in August 2001 was the first such sale of our proprietary, internally developed software, we intend to continue to aggressively market our technology solutions to other marketplace providers and participants in the healthcare arena, as well as in other vertical markets.

         Both our operating expenses and our revenue have increased significantly since inception. The revenue increases resulted from growth primarily in our Shop and Plan operations, the addition of the Services Delivery revenue stream in mid-2000 and the sale of certain software and technology underlying our connectivity solution to GHX in 2001. 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 193 full-time employees as of September 30, 2001 as a result of the reduction in force we announced on May 25, 2000, the business divestitures we have completed and normal attrition.

         Under the terms of our outsourcing and operating agreement with Novation, LLC, VHA Inc., University HealthSystem Consortium, LLC, and Healthcare Purchasing Partners International, LLC, or Novation, VHA, UHC and HPPI respectively, which was approved by our stockholders on July 26, 2000, VHA received approximately 4.6 million shares of our common stock, representing approximately 36% of our then outstanding common stock, and UHC received approximately 1.1 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 3.1 million and approximately 0.8 million additional shares of our common stock, respectively, over a four-year period by meeting specified performance targets. These performance targets are based upon the historical purchasing volume of VHA and UHC member healthcare organizations that sign up to use Marketplace@Novation, the e-commerce marketplace only available to the patrons and members of VHA, UHC and HPPI. The targets increase annually to a level equivalent to total healthcare organizations representing approximately $22 billion of combined purchasing volume at the end of the fourth year.

         Under our outsourcing and operating agreement, 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 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 3.1 million shares of our common stock. In substitution for the warrant, we issued to VHA approximately 3.1 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 0.6 million shares of our common stock. In substitution for the warrant, we issued to UHC approximately 0.6 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. 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.

         In September 2001, Neoforma and Novation, along with VHA, UHC and HPPI, agreed to amend the amended outsourcing and operating agreement. Pursuant to the amendment, we will be able to provide to our trading partners within Marketplace@Novation information relating to all purchases made by members from suppliers that have agreed to participate in Marketplace@Novation, thereby enhancing our ability to capture critical supply chain data. This revision will enable us to capture important purchasing information without first requiring full adoption of our connectivity services.

         On January 25, 2001, we entered into stock purchase agreements with i2 Technologies, Inc., or i2, VHA and UHC under which they purchased a total of approximately 1.8 million shares of our common stock at a purchase price of $16.90 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 then 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 recorded an accrual for the anticipated costs to sell these operations. The total impact of these planned divestitures on our statement of operations for the year ended December 31, 2000 was $14.4 million, which consisted of an approximately $13.3 million reduction in the net realizable value of the assets relating to the operations to be sold, and $1.1 million of accruals for anticipated deal costs, including any severance for the employees of those operations, accrued rent relating to potentially idle facilities, as well as financial and legal advisory fees. As of September 30, 2001, approximately $300,000 of the accrual had been utilized for severance and other employee related costs associated with the divestitures. The remaining approximately $800,000 accrual consists primarily of accrued rent relating to idle facilities formerly utilized by the divested businesses.

         In April 2001, we completed the sale of substantially all of the assets of our USL operations to MDSI. Under the terms of the asset purchase agreement, we agreed to transfer substantially all of the net assets of the USL operations, totaling approximately $750,000, in exchange for the purchase price of $500,000 of cash delivered upon the closing and a $750,000 non-interest bearing promissory note payable in annual installments over five years. The net result of the transaction was a gain on the divestiture of the USL operations of approximately $500,000.

         In April 2001, we also entered into an agreement to sell substantially all of the remaining assets of our Plan operations to Attainia. We agreed to contribute approximately $1.8 million of net assets in exchange for 1,490,637 shares of Attainia’s Series A Preferred Stock, which, valued at $0.50 per share, resulted in

consideration of approximately $745,000 being provided to us upon closing. These shares are recorded in the Non-Marketable Investments section of the accompanying financial statements. The net result of the transaction was a loss on the divestiture of these assets of approximately $1.1 million.

         In September 2001, we completed the sale of substantially all of the assets of our Auction operations to Med-XS, in exchange for consideration in the amount of $2.5 million. We agreed to contribute approximately $1.8 million of net assets, consisting of $300,000 of tangible assets including inventory and fixed assets, $1.5 million of intangible assets, and eliminated $180,000 of liabilities. The consideration provided by Med-XS at closing on September 5, 2001 consisted of $150,000 cash and a $2.35 million promissory note payable over two years. In addition to the consideration discussed above, we will receive a revenue share and profit share from Med-XS on the sold business which will be recognized when earned. The net result of the transaction was a gain on the divestiture of these assets of approximately $879,000.

         On August 13, 2001, as part of our annual meeting of stockholders, the stockholders voted to approve a proposal to change our name from Neoforma.com, Inc. to Neoforma, Inc. Additionally, the stockholders voted to approve a proposal, which gave the board of directors the authority to implement a reverse stock split of our common stock at any one of three approved exchange ratios (1-for-6, 1-for-8, or 1-for-10), if it believed that it was in our best interests to do so. On August 27, 2001, we implemented a 1-for-10 reverse split of our common stock as approved by our board of directors. All share and per share numbers, both current and historical, contained in these financial statements and the accompanying footnotes, have been restated to reflect the impact of the reverse stock split.

         Since inception, we have incurred significant losses and, as of September 30, 2001, had an accumulated deficit of $407.7 million. We expect operating losses and negative cash flow to continue for the remainder of the fiscal year. We anticipate our losses will increase 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, 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 associated with our 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 SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000

Revenue

         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 $7.7 million for the quarter ended September 30, 2001, an increase of $7.1 million from $633,000 for the quarter ended September 30, 2000. The increase was due primarily to increased gross transaction volume through our e-commerce marketplaces, as revenue resulting from such transactions comprised the entire $7.7 million of the transaction fees for the three months ended September 30, 2001, as opposed to only $500,000 for the three months ended September 30, 2000. Because we have sold our Auction operations, we do not anticipate that we will recognize any future revenue from Auction transaction fees.

         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 owned as part of our Auction service. We had total sales of used equipment of $13,000 for the quarter ended September 30, 2001, a significant decrease from $2.7 million for the quarter ended September 30, 2000. The decrease is a direct result of our entering into the agreement to sell the Auction operations in July, the subsequent closing of the sale in September 2001 and the resulting cessation of Auction activities in September 2001. Because we have sold our Auction operations, we do not anticipate that we will recognize any future revenue from sales of used equipment.

         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 to allow them to maximize the benefit of their utilization of our marketplaces. We had total services revenue of $86,000 for the quarter ended September 30, 2001, a decrease of 82% from $485,000 for the quarter ended September 30, 2000. The decrease was a result of the fact that for the quarter ended September 30, 2000, services revenue resulted from an e-commerce readiness project we performed for a single customer, and for the quarter ended September 30, 2001, we did not perform a similar project. During the three months ended September 30, 2001, services revenue 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 includes sponsorship setup, maintenance, software license and support revenue related to our Plan service, subscription revenue relating to the USL operations, and setup fees relating to the digitization and categorization of data for our trading partners. As a result of the sales in early April 2001 of our USL operations to MDSI and certain of the remaining Plan assets sold to Attainia, there was no website sponsorship fees and other revenue related to the Plan operations for the three months ended September 30, 2001. The $196,000 of website sponsorship fees and other revenue for the quarter ended September 30, 2001 related solely to the license of a proprietary internally developed software connectivity solution to GHX for $3.5 million. Because this was our first sale of this type of internally developed technology and that we concurrently entered into a joint development agreement with GHX at the same time, we will recognize the revenue on the license ratably over the three-year term of the joint development agreement. The website sponsorship fees and other revenue represented a 77% decrease from the $870,000 of website sponsorship fees and other revenue for the quarter ended September 30, 2000, which consisted almost entirely of subscription revenue from our USL operations and sponsorship setup, maintenance and software license revenue from the other activities of our Plan operations. As a result of the sale of our USL operations in April 2001, our sale of the FDI assets in April 2001 and our discontinuation of our remaining Plan services, we do not expect to recognize any website sponsorship fees and other revenue related to our Plan operations in future periods. Consequently, we expect website sponsorship fees and other revenue be lower over the next several quarters as compared to the same quarters in previous years.

Operating Expenses

         Cost of Equipment Sold. Cost of equipment sold consists primarily of the costs of owned inventory of used medical equipment held for sale as part of our

Auction operations. There was no cost of equipment sold for the third quarter of 2001 as compared to $2.4 million for the third quarter of 2000. The decrease was due to the sale of the Auction operations in the third quarter of 2001, which resulted in no owned inventory being sold by the Auction operations. As a result, we did not incur any cost of equipment sold during the third quarter of 2001. Because of the sale of our Auction operations, we do not anticipate that we will incur any future expense relating to cost of equipment sold resulting from the sale of used equipment.

         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 technology costs, software licenses, salaries and other personnel expenses for our Services Delivery personnel and fees for independent contractors. Cost of services for the third quarter of 2001 was approximately $3.8 million as compared to $2.8 million for the third quarter of 2000. The increase was due to the fact that the Services Delivery group was created early in fiscal 2000, and thus during the third quarter of 2000 the group was still in its developmental stages. Additionally, in 2001, the Services Delivery organization has significantly expanded both the quantity and the scope of the services it provides to our customers, and the infrastructure costs of the group have increased as compared to 2000 in order to support this growth. We expect our cost of services to increase slightly in future periods as we continue to perform e-commerce readiness services, connect both buyers and sellers to our marketplaces and support and service an increasing number of trading partners.

         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 $3.2 million for the three months ended September 30, 2000 to $3.8 million for the three months ended September 30, 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 $6.4 million for the quarter ended September 30, 2000 to $4.1 million for the quarter ended September 30, 2001. The decrease was primarily due to reduced costs relating to product development personnel, specifically with respect 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 $12.8 million for the three months ended September 30, 2000 to $6.1 million for the three months ended September 30, 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 increase significantly 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 $5.3 million for the quarter ended September 30, 2000 to $4.0 million for the quarter ended September 30, 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 primarily the result of the fact that by the third quarter of 2001, we had divested several of the operations we acquired during the previous year, including the USL and FDI operations. As a result, in the third quarter of 2001, we incurred significantly reduced general and administrative costs relating to these businesses when compared to the third quarter of fiscal 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.

         Amortization of Intangibles. Intangibles include goodwill and the value of software and other intangibles purchased in acquisitions. Intangibles are currently amortized on a straight-line basis over a period of three to seven years. Amortization of intangibles decreased to $7.2 million for the quarter ended September 30, 2001, as compared to $8.1 million for the quarter ended September 30, 2000. The decrease was primarily a result of the fact that during the quarter ended September 30, 2001, we incurred little or no amortization from the USL and FDI intangibles as a result of the divestitures of those operations in the prior quarter. Additionally, we incurred significantly reduced amortization relating to the GAR and NCL intangibles as a result of the write-down we took on the Auction operations in the fourth quarter of 2000 in preparation for the sale of the Auction operations, combined with the fact that we only amortized the reduced intangibles for a portion of the quarter as a result of the closing of the sale of the Auction operations during the third quarter of 2001. We expect the amortization of intangibles to decrease in future periods as the intangibles relating to the operations that have been or are to be divested are 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 our entering into operating relationships with those partners. As of September 30, 2001, capitalized partnership costs represented consideration given to VHA and UHC as part of our entering into the outsourcing and operating agreement with those entities and with their purchasing organization, Novation, as well as certain legal and accounting fees relating to the agreement. The consideration consisted of common stock and warrants. The warrants 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 that resulted in the shares being earned, generally two to three years. For the quarter ended September 30, 2001, total amortization of partnership costs was $19.3 million as compared to $12.0 million for the quarter ended September 30, 2000. The increase from the third quarter of 2000 was primarily the result of the amortization of a full three months of the common stock issued to VHA and UHC compared to approximately two months for the quarter ended September 30, 2000, as the outsourcing agreement did not become effective until late July 2000, resulting in higher amortization levels during the third quarter of 2001. In addition, there were incremental partnership costs capitalized from September 30, 2000 through September 30, 2001 as VHA and UHC earned a portion of the restricted stock per the performance criteria. As the period over which VHA and UHC can earn the stock extends four years from the date of the agreement, we expect partnership costs to continue to increase as VHA and UHC earn the restricted stock and, as a result, we expect the amortization of partnership costs to continue to increase for the next several quarters.

         Gain on Divested Businesses. Gain on divested businesses consists of the net gain incurred as a result of the divestiture of non-core business units during fiscal 2001. During the quarter ended September 30, 2001, the gain on divested businesses consisted of the gain we recognized on the sale of the Auction operations to Med-XS. The gain on divested businesses is calculated by reducing the consideration paid to us for the divested operations by the net book value of all assets and liabilities transferred with the divested operations. The divestiture of

the Auction operations resulted in a gain of $879,000 on the sale of the net assets for the third quarter of 2001.

         Write Down of Non-marketable Investments. In September 2001, we received notice from Pointshare, Inc. that it was in the process of selling its remaining assets and winding down its operations. Pointshare is a privately held business-to-business administration services company in which we invested $3.0 million in March 2000. Based on our subsequent discussions with Pointshare’s management, we felt that it was highly unlikely that we would recover any material portion of our initial investment. As such, we wrote off our $3.0 million investment in Pointshare as of September 30, 2001.

         Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income for the quarter ended September 30, 2001 was $60,000 compared to $938,000 for the quarter ended September 30, 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 and in the first nine months of fiscal 2001. Other income (expense) increased from $21,000 in the third quarter of 2000 to $652,000 in the third quarter of 2001. This increase in other income was primarily the result of the cancellation of $500,000 of debt under our note payable to the original owner of the GAR business. This $500,000 was cancelled by the former owner of the GAR business in connection with the termination of his employment during the quarter ended September 30, 2001.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000

Revenue

         Transaction Fees. We had total transaction fee revenue of $14.7 million for the nine months ended September 30, 2001, an increase of 674% from $1.9 million for the same period ended September 30, 2000. The increase was due primarily to increased gross transaction volume through our e-commerce marketplaces, as revenue resulting from such transactions comprised of the majority of the $14.7 million of total transaction fees for the nine months ended September 30, 2001. As of September 30, 2001, we had completed the sale of our Auction operations, and as such we do not anticipate that we will recognize any future revenue from Auction transaction fees.

         Sales of Used Equipment. We had total sales of used equipment of $250,000 for the nine months ended September 30, 2001, a decrease of 92% from $3.3 million for the nine months ended September 30, 2000. The decrease was a direct result of our focus on selling the Auction operations in 2001, and a resulting reduction of purchased inventory being acquired and sold during the nine months ended September 30, 2001. As of September 30, 2001, we had completed the sale of our Auction operations, and as such we do not anticipate that we will recognize any future revenue from sales of used equipment.

         Services. We had total services revenue of $151,000 for the first nine months of fiscal 2001, a decrease of 84% from $943,000 for the first nine months of fiscal 2000. The decrease was a result of the fact that for the nine months ended September 30, 2000, services revenue resulted from an e-commerce readiness project we performed for a single customer, and for the nine months ended September 30, 2001, we did not perform a similar project. During the nine months ended September 30, 2001, services revenue related solely to e-commerce readiness and implementation services performed for members of our marketplaces.

         Website Sponsorship Fees and Other. We had total website sponsorship fees and other revenue of $590,000 for the nine months ended September 30, 2001, a decrease of 71% from $2.0 million for the nine months ended September 30, 2000. The decrease was a result of the sales in early April 2001 of our USL operations to MDSI and the remaining Plan operations to Attainia. Website sponsorship fees and other revenue for the nine months ended September 30, 2000 and for the similar period ended September 30, 2001 consisted primarily of subscription revenue from our USL operations and sponsorship setup, maintenance and software license revenue from the other activities of our Plan operations. Approximately $196,000 of the website

sponsorship fees and other revenue for the nine months ended September 30, 2001 related to the license of a proprietary internally developed software connectivity solution to GHX for $3.5 million in the third quarter of 2001. Given that this was our first sale of this type of internally developed technology and that we concurrently entered into a joint development agreement with the GHX at the same time, we will recognize the revenue on the license ratably over the three-year term of the joint development agreement. As a result of the sale of our USL operations in April 2001, the sale of our FDI operations in April 2001 and our discontinuation of our remaining Plan services, we do not expect to recognize any website sponsorship fees and other revenue related to ourPlan operations in future periods. Consequently, we expect website sponsorship fees and other revenue to be lower over the next several quarters as compared to prior years.

Operating Expenses

         Cost of Equipment Sold. Cost of equipment sold for the first nine months of fiscal 2001 was approximately $216,000, as compared to $2.6 million for the same period in fiscal 2000. The decrease was due to preparation for the sale of the Auction operations, which took place during the third quarter of 2001, resulting in reduced amounts of owned inventory being sold by the Auction operations as we prepared to sell those operations and assets. Because of the sale of our Auction operations, we do not anticipate that we will incur any future expense relating to cost of equipment sold resulting from the sale of used equipment.

         Cost of Services. Cost of services for the nine months ended September 30, 2001 was approximately $11.9 million, as compared to $3.7 million for the nine months ended September 30, 2000. The increase was due to the fact that the Services Delivery group was created early in fiscal 2000 and thus there were minimal costs for a significant portion of that period as the group was still building its operations. We expect our cost of services to increase slightly in future periods as we continue to perform e-commerce readiness services, implement both buyers and sellers to our marketplaces, and support and service an increasing number of trading partners.

         Operations. Operations expenses increased from approximately $10.3 million for the nine months ended September 30, 2000 to $12.0 million for the nine months ended September 30, 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 decreased from $18.7 million for the first three quarters of fiscal 2000 to $14.1 million for the same period in 2001. The decrease was primarily due to reduced costs relating to product development personnel, including 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 decreased from approximately $41.9 million for the nine months ended September 30, 2000 to $23.9 million for the nine months ended September 30, 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 have been 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 increase significantly in the next several quarters.

         General and Administrative. General and administrative expenses decreased from approximately $20.8 million for the first nine months of 2000 to $13.9 million for the same period in 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 also the result of the fact that in the first three quarters of 2000, we incurred the full administrative costs of the entities we acquired during 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 complete the divestitures of operations that are not aligned with our core strategy, thereby eliminating the remaining general and administrative costs associated with those operations.

         Amortization of Intangibles. Amortization of intangibles increased to $22.2 million for the nine months ended September 30, 2001, as compared to $17.5 million for the nine months ended September 30, 2000. The increase was primarily a result of the fact that we incurred a full nine months of amortization on the approximately $125 million of EquipMD intangible assets in 2001, as opposed to the first nine months of 2000 when we incurred only five months of such amortization as a result of the acquisition closing at the end of April 2000. We expect amortization of intangibles to decrease in future periods as compared to the same periods from the prior year as the intangibles relating to the divested operations, specifically GAR, NCL, USL and FDI, have been eliminated as part of the divestitures of those operations.

         Amortization of Partnership Costs. For the nine months ended September 30, 2001, total amortization of partnership costs was $57.7 million, as compared to $12.0 million for the nine months ended September 30, 2000. The increase is the result of the fact that the outsourcing and operating agreement did not become effective until late July 2000, and thus there were only approximately two months of amortization of partnership costs during the nine months ended September 30, 2000, as compared to a full nine months in the nine months ended September 30, 2001.

         Gain on Divested Businesses. Gain on divested businesses consists of the net gain incurred as a result of the divestiture of the USL, FDI and Auction operations during the first nine months of 2001. The gain on divested businesses is calculated by reducing the consideration paid to us for the divested operations by the net book value of all assets and liabilities transferred with the divested operations. The divestiture of USL resulted in a gain of $500,000 on the sale of the net assets, the divestiture of FDI resulted in a loss of $1.1 million on the sale of the net assets and the divestiture of the Auction operations resulted in a gain of $879,000 on the sale of the net assets. The resulting net gain on divested businesses during the nine months ended September 30, 2001 was $258,000.

         Write Down of Non-marketable Investments. In September 2001, we received notice from Pointshare, Inc. that it was in the process of selling its remaining assets and winding down its operations. Pointshare is a privately held business-to-business administration services company in which we invested $3.0 million in March 2000. Based on our subsequent discussions with Pointshare’s management, we felt that it was highly unlikely that we would recover any material portion of our initial investment. As such, we wrote off our $3.0 million investment in Pointshare as of September 30, 2001.

         Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income for the nine months ended September 30, 2001 was $539,000 compared to $3.9 million for the same period ended September 30, 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 and in the first three quarters of fiscal 2001. Other income (expense) increased from $21,000 in the first three quarters of 2000 to $441,000 in the first three quarters of 2001. This increase in other income was primarily the result of the cancellation of debt under our note payable to the original owner of the GAR business. Approximately $500,000 was cancelled by the former owner of the GAR business in connection with the termination of his employment during the quarter ended September 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

         In January 2000, we completed our initial public offering and issued 805,000 shares of our common stock at an initial public offering price of $130.00 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 September 30, 2001, we had outstanding bank, other borrowings and notes payable of $21.9 million, and we had approximately $17.7 million of cash and cash equivalents and short-term investments.

         In January 2001, we completed a $30.5 million private round of financing in which we sold 1,804,738 shares of our common stock at $16.90 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. As of September 30, 2001, we had outstanding borrowings of $14.0 million under the line of credit, and remaining available funds of $11.0 million.

         In May 2001, we entered into a leasing facility with CapitalWerks, LLC to provide us with a $10.2 million lease line facility to finance the purchase of capital equipment, software and other assets. Based on the terms of the facility, we have until November 30, 2001 to draw down against the lease line, at which time any amount unused under the facility is no longer available. Amounts financed under the lease line will bear interest at 9.9% and will be payable in monthly installments over 60 months. As of September 30, 2001, there were no amounts outstanding under this facility.

         In May 1999, we entered into an agreement with ECRI, a non-profit health services research agency focusing on healthcare technology. The agreement provides us with content from ECRI’s database of information about medical products and manufacturers and a license to use elements of its classification system. In addition, the agreement provides for joint marketing activities and collaboration in the development of Plan’s database of product and vendor information. This agreement requires us to make revenue sharing payments to ECRI during the three-year term of the agreement and for two years following expiration or termination of the agreement based on a percentage of revenue derived from our Plan service. During the second and third years of the term of the agreement, we are required to pay to ECRI a minimum nonrefundable fee equal to $600,000 per year, which shall be credited against any revenue sharing payments payable to ECRI. As a result of our reduced focus and ultimate discontinuation of our Plan services, we negotiated an immediate termination of our operating agreement with ECRI. Under the terms of the final settlement, we are obligated to make aggregate payments of $425,000 through February 2002, at which point our obligations under the agreement cease. As of September 30, 2001, we have paid $200,000 of the remaining obligation.

         In May 1999, Comdisco, Inc., or 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 22,881 shares of common stock at $11.80 per share. As of September 30, 2001, the outstanding balance on the loan was approximately $573,000.

         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 September 30, 2001, we had outstanding approximately $1.2 million due under this facility. The computer equipment purchased with the proceeds of the loans secures this facility.

         In August 1999, in connection with the GAR acquisition, we issued a promissory note in the principal amount of $7.8 million payable monthly over five years that bears interest at a rate of 7% per annum. In July 2001, we modified the terms of this promissory note in exchange for the release of the security interest the note holder had in the assets of the Auction operations. Per the revised terms of the note, $750,000 of the balance was paid in August 2001, and an additional $500,000 was cancelled by the note holder. The remaining balance due on the promissory note is to be paid in equal monthly installments, with interest accruing at 7% per annum, over the subsequent 30 months. As of September 30, 2001, the outstanding balance on the note was approximately $2.6 million.

         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 September 30, 2001, the remaining principal balance was $600,000.

         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 have reduced the letter of credit to $1.5 million.

         In March 2000, we entered into a Hosting Alliance Agreement with Ariba, Inc., or Ariba, under which we have the right to offer Ariba’s ORMX procurement solution to users of our marketplace. We paid Ariba a substantial up-front fee for use of the ORMX procurement solution, and under the terms of the agreement, we were to pay specified fees for transactions occurring through Ariba’s network, subject to minimum monthly amounts. The agreement also provided for joint marketing activities and sales planning. We are currently in discussions with Ariba to modify the terms of the agreement.

         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. 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. At September 30, 2001, the remaining balance on the note was $2.5 million.

         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 twenty-four equal monthly installments, with the first payment due on August 15, 2000. As of September 30, 2001, the total balance of the four notes was $100,000. 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 September 30, 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 $53.9 million for the nine months ended September 30, 2000 and $41.3 million for the nine months ended September 30, 2001. Net cash used in operating activities for the nine months ended September 30, 2001 related primarily to funding net operating losses and a $12.7 million decrease in accounts payable, reduced by a $1.4 million decrease in prepaid expenses, a $3.5 million increase in accrued liabilities and a $2.0 million increase in deferred revenue.

         Net cash used in investing activities for the nine months ended September 30, 2000 was $25.8 million, consisting primarily of $19.0 million paid for the purchase of property and equipment, $3.9 million paid for the acquisition of EquipMD, $3.8 million paid for the acquisition of USL, $9.0 million paid to establish partnerships and $5.5 million paid for non-marketable investments, partially offset by $17.2 million net received from the sale of marketable securities. For the nine months ended September 30, 2001, net cash used in investing activities was $1.4 million, primarily resulting from $7.2 million of net proceeds from the sale of marketable investments, offset by $1.9 million in cash payments on the note payable relating to the GAR acquisition and $6.6 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 $100.3 million for the nine months ended September 30, 2000 and $37.9 million for the nine months ended September 30, 2001. Net cash provided from financing activities for the nine months ended September 30, 2001 resulted primarily from proceeds of common stock issuances of approximately $29.5 million, net of expenses, as well as from proceeds resulting from the $14.0 million drawn down against our $25.0 million line of credit, partially offset by $6.2 million in payments on notes payable.

         We currently anticipate that our available funds, consisting of cash, cash equivalents and investments, combined with those funds available to us through our lines of credit and other sources, will be sufficient to meet our anticipated needs for working capital and capital expenditures through at least the next 12 months. Our future long-term capital needs will depend significantly on the rate of growth of our business, the timing of expanded service offerings, the success of these services once they are launched and our ability to adjust our operating expenses to an appropriate level if the growth rate of our business is slower than expected. Any projections of future long-term cash needs and cash flows are subject to substantial uncertainty. If our available funds and cash generated from operations are insufficient to satisfy our long-term liquidity requirements, we may seek to sell additional equity or debt securities, obtain additional lines of credit, curtail expansion of our services including reductions in our staffing levels and related expenses or potentially liquidate selected assets. If we issue additional securities to raise funds, those securities may have rights, preferences or privileges senior to those of the rights of our common stock and our stockholders may experience dilution. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

         In April 2001, the Emerging Issues Task Force, or EITF, came to a consensus on EITF Issue 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products.” EITF 00-25 addresses accounting and reporting for certain types of consideration provided by a vendor to resellers of the vendor’s products or services. It specifically addresses the characterization of the costs related to that consideration, and whether such costs should be reported

as operating expenses or as a reduction of revenues. The accounting and reporting specified in the consensus is required to be adopted for periods beginning after December 15, 2001. The consensus also requires restatement of prior period financial information provided for comparative purposes in all filings after adoption. Management is currently assessing the applicability of this consensus to our operations, and as such we have not yet determined the effect that adoption of the consensus will have on our results of operations or financial position.

         In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, “Business Combinations.” SFAS No. 141 addresses financial accounting and reporting for business combinations and it requires business combinations in the scope of this statement to be accounted for using the purchase method. The provisions of this statement apply to all business combinations initiated after June 30, 2001. Management does not believe that the adoption of this statement will have a material impact on our results of operations, financial position or cash flows.

         In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other acquired assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. With the adoption of this statement, goodwill is no longer subject to amortization over its estimated useful life. Goodwill will be assessed for impairment each year using fair-value-based tests. This statement becomes effective January 1, 2002. We are currently assessing the impact of the discontinued amortization of goodwill and, while we are not aware of any impairment charges, an analysis will have to be done upon adoption of this statement to determine if an impairment charge is necessary. As such, we have not yet determined the effect SFAS No. 142 will have on our results of operations or financial position.

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.

We have a history of losses, anticipate incurring losses in the foreseeable future and may never achieve profitability

         We have experienced losses from operations in each period since our inception, including a net loss of $142.8 million for the nine months ended September 30, 2001. In addition, as of September 30, 2001, we had an accumulated deficit of approximately $407.7 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, our divestitures of USL and FDI in April 2001, and the sale of our Auction operations in September 2001. If our revenue does not increase substantially or if we do not succeed in controlling 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.

If our trading partners do not accept our business model of providing Internet and electronic 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 focused our efforts on building and operating Internet and electronic 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 could decline. Even if buyers and suppliers accept the Internet or other electronic communications as a means of buying and selling products, they may not accept e-commerce marketplaces for conducting this type of business. Instead, they may choose to establish and operate their own devices to buy or sell products and services. For example, a group of large suppliers of medical products, including Abbott Laboratories, Baxter International, Inc., GE Medical Systems, Johnson & Johnson and Medtronic, Inc., have created a healthcare exchange for the purchase and sale of medical products. In addition, four large distributors of medical products, AmerisourceBergen Corporation, Cardinal Health Inc., Fischer Scientific International Inc. and McKesson HBOC, Inc., have formed a business-to-business exchange for the sales of pharmaceuticals 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.

Our operating results are volatile and difficult to predict, and if we fail to meet the expectations of investors or securities analysts, the market price of our common stock would likely decline

         Our revenue and operating results are likely to fluctuate significantly from quarter to quarter, because of a number of factors. These factors include:

• the amount and timing of payments to our strategic partners and technology partners;

• 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;

• the timing and size of any future acquisitions;

• changes in the fees we charge users of our services;

• budgetary fluctuations of purchasers of medical products, supplies and equipment; and

• changes in general economic and market conditions.

Fluctuations in our operating results may cause us to fail to meet the expectations of investors or securities analysts. If this were to happen, the market price of our common stock would likely decline.

         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 had difficulty accurately forecasting 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.

Because we have decided to focus 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

         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 focused our business efforts in this manner and have a limited operating history in this business, 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, because of our limited operating history, we believe that period-to-period comparisons of our revenue and results of operations are not meaningful.

If we are unable to obtain additional financing for our future capital needs, we may be unable to develop new Internet or electronic 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 twelve months. Our current lease line of credit is set to expire on November 30, 2001. To date, we have not been able to obtain any financing from this lease line of credit, and we do not know if we will be able to before it expires. We may need to raise additional funds prior to the expiration of the next twelve months if, for example, we do not generate significantly increased revenue from our marketplaces, experience operating losses that exceed our current expectations, pursue additional acquisitions or lose one or more of our funding sources. 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 marketplaces, expand our operations, respond appropriately to competitive pressures or continue our operations.

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 use our 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 continue quickly building 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 other strategic partners such as GHX to bring buyers and suppliers to our marketplaces. Under our outsourcing and operating agreement, 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 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 exclusively 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 is terminated, our business and financial results could be seriously harmed. The outsourcing and operating agreement may be terminated if we fail to cure 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 e-commerce marketplaces and in integrating healthcare organizations and suppliers to our e-commerce 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 552 healthcare organizations had signed up to use Marketplace@Novation as of September 30, 2001, we had only completed implementations for 333 of these healthcare organizations to connect them to Marketplace@Novation. 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 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 services with one of our competitors, medibuy.com, Inc. Ventro Corporation, a business-to-business e-commerce company providing supply chain solutions, has formed a joint venture, Broadlane, Inc. with Tenet Healthcare, Corp., 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 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 established relationships with a number of suppliers, including Abbott Laboratories, Allegiance Corporation, Alliant Foodservice Inc., Becton, Dickinson and Company, Kimberly-Clark Corporation, Eastman Kodak Company, McKesson HBOC and Owens & Minor, Inc., 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 marketplaces, including:

• reluctance of suppliers to offer products in marketplaces 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 marketplaces;

• perceptions by suppliers that we give other suppliers preferred treatment on our 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. E-commerce 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 electronic 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 security and confidentiality; and

• their investment in existing purchasing and distribution methods and the costs required to switch methods.

         Should healthcare providers and suppliers of products and services to healthcare organizations choose not to use e-commerce generally 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 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 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. 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. Under our outsourcing and operating agreement, 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 marketplaces and in integrating buyers and suppliers to our 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.

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

         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.

If we do not timely add product information to our marketplaces or if that information is not accurate, our reputation may be harmed and we may lose users of our marketplaces

         We have undertaken to enter product information into our database and categorize the information for search purposes. If we do not do so in a timely manner, we will encounter difficulties in expanding our marketplaces. 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 may use an independent company to assist us in digitizing and inputting the data provided to us by suppliers, and we may 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 have undertaken to 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.

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 GHX, which was founded by five healthcare manufacturers, Abbott Laboratories, Baxter International, GE Medical Systems, Johnson & Johnson and Medtronic, and HealthNexis LLC, which was formed by four healthcare distributors, AmerisourceBergen, Cardinal Health, Fisher Scientific and McKesson HBOC;
	•        GHX, while a competitor, is also a new strategic partner of ours;
•	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 AG, Oracle Corporation, PeopleSoft Inc., Lawson Software and McKesson HBOC;
•	vendors establishing electronic marketplaces and procurement capabilities, including Ariba and Commerce One, Inc.; and
•	supply chain software vendors, including Manugistics Group, Inc. and Logility, Inc.

         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.

         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 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 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 results 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, VHA and UHC, the owners of Novation, own approximately 5.8 million and 1.7 million shares of our common stock, respectively. In addition, VHA and UHC own approximately 3.1 million shares and 0.6 million shares, respectively, of common stock which was subject to restrictions upon issuance, and of which some portion is still subject to

those restrictions. 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.

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. 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.

         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 September 30, 2001, our headcount had declined to 193 employees. The reduction in the number of our employees was caused, in part, by the divestiture of our Auction operations, which reduced our headcount by an additional 25 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 or organizational changes would likely cause similar, and perhaps increased, strain on our systems and controls.

We have been named in securities class action lawsuits relating to investment banking practices in connection to our initial public offering

         In July 2001, we were named as a defendant in two securities class action lawsuits filed in federal court in the Southern District of New York relating to our initial public offering, or IPO, by stockholders who purchased our common stock during the period from January 24, 2000, to December 6, 2000. Since that time, additional lawsuits have been filed asserting federal securities claims arising from our IPO. The lawsuits also name certain of the underwriters, Merrill Lynch, Pierce, Fenner & Smith, Bear Stearns, and Fleet Boston Robertson Stephens, as well as our Chairman and CEO and our former CFO as defendants. The lawsuits contain substantially identical allegations, which are that the prospectus and the registration statement for the IPO failed to disclose that the underwriters solicited and received excessive commissions from investors, and that some investors in the IPO agreed to buy more shares of our common stock in the secondary market, at predetermined prices, in a scheme to artificially inflate our common stock. Although we believe that the claims made against us and our current and former employees in these suits are without merit, they could be time consuming and costly to defend, divert management attention and resources and require us to pay significant damages.

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, Inc., or Exodus, in Sunnyvale, California, which is an area susceptible to earthquakes. Exodus is currently operating under bankruptcy protection and we do not know what effect, if any, that this will have on our relationship with Exodus. We also have a fail-over system for marketplace transaction processing located in Atlanta, Georgia.

         Our systems and operations are vulnerable to damage or interruption from human error, terrorist attacks, 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.

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.

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 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.

         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, Inc., 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 Software, Inc. and TIBCO Software Inc. 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 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.

Regulation of the Internet is unsettled, and future regulations could inhibit the growth of e-commerce and limit the market for our services

         A number of legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, such as user privacy, taxation of goods and services provided over the Internet and the pricing, content and quality of services. Legislation could dampen the growth in Internet usage and decrease or limit its acceptance as a communications and commercial medium. If enacted, these laws and regulations could limit the market for our services. In addition, existing laws could be applied to the Internet, including consumer privacy laws. Legislation or application of existing laws could expose companies involved in e-commerce to increased liability, which could limit the growth of e-commerce.

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 anti-kickback 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.

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. 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.

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 our 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	$	2,296			—		—		—		—
	Average interest rate		3.16	%		—		—		—		—

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         In July 2001, we were named as a defendant in two securities class action lawsuits filed in federal court in the Southern District of New York (Index Nos. 01 CV 6689 and 01 CV 6712) related to our initial public offering, or IPO, on behalf of those who purchased stock from January 24, 2000 to December 6, 2000. Approximately 180 other issuers and their underwriters have also had similar suits filed against them. The lawsuits also named certain of the underwriters involved in the IPO, including Merrill Lynch, Pierce, Fenner & Smith, Bear Stearns and FleetBoston Robertson Stephens, as well as our Chairman and Chief Executive Officer, Robert Zollars, and our former Chief Financial Officer, Fred Ruegsegger, as defendants. The complaints filed in connection with the two lawsuits contain identical allegations: that the prospectus and the registration statement for the IPO failed to disclose that the underwriters solicited and received “excessive” commissions from investors and that some investors in the IPO agreed to buy more shares later at predetermined prices in a scheme to artificially inflate the price of our stock. The complaints seek unspecified damages, rescissory damages to members of the class that no longer hold our stock, interest, attorney and expert fees and other litigation costs.

         We have not yet made any responsive filings and discovery has not yet commenced. We believe that the claims in the lawsuits against us and our current and former executive officers are without merit and plan to vigorously defend these actions. As such, we do not believe the lawsuits will have a material impact on our financial position and results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Our Annual Meeting of Stockholders was held on August 13, 2001 at which time our stockholders approved all five matters voted upon at the meeting. The matters voted upon and the number of votes cast for, against, abstain and unvoted as to each such matter, on a post-split basis, are as follows:

1.	To re-elect three (3) Class II directors to our board;
2.	To change the name of our company from “Neoforma.com, Inc.” to “Neoforma, Inc.”;
3.	To (1) modify the definition of “Outside Directors” under our 1999 Equity Incentive Plan, or the Plan, (2) provide for an increase in the annual number of stock options granted to non-employee directors by 75,000 shares, and (3) provide for an automatic annual grant of 100,000 stock options to those same directors who are also members of at least one committee of the board;
4.	To approve three potential amendments to our certificate of incorporation in order to provide the board of directors discretion to effect a reverse stock split at any one of three pre-approved ratios;
5.	To ratify the selection of Arthur Andersen LLP as our independent public auditors for the fiscal year ending December 31, 2001.

Proposal		For		Against		Abstain		Unvoted
Proposal No. 1
	Andrew J. Filipowski		16,173,849		0		0		2,079,102
	Jeffrey H. Hillebrand		16,179,949		0		0		2,079,102
	Robert J. Baker		16,179,949		0		0		2,079,102
Proposal No. 2			16,190,189		2,953		3,316		2,079,102
Proposal No. 3
	To expand the definition of outside directors		4,236,298		218,881		11,741,278		2,079,102
	To increase option grants to outside directors		4,123,422		321,693		11,751,342		2,079,102
	To grant options to outside directors who are on committees		4,129,957		313,359		11,753,141		2,079,102
Proposal No. 4
	1-for-6 reverse split		15,825,162		141,511		229,785		2,079,102
	1-for-8 reverse split		15,743,497		244,517		208,444		2,079,103
	1-for-10 reverse split		15,766,904		222,901		206,652		2,079,103
Proposal No. 5			16,176,722		12,765		6,970		2,079,102

         Curt Nonomaque, Michael J. Murray and Mark McKenna, our Class I directors, and Robert J. Zollars, Richard D. Helppie and C. Thomas Smith, our Class III directors, continued to serve as our directors after the meeting, as the Class I and Class III directors were not up for reelection at the 2001 Annual Meeting of Stockholders.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         A.     EXHIBITS

EXHIBIT
NUMBER	EXHIBIT
10.1*	Integrated Solution Agreement between Global Healthcare Exchange, LLC and Neoforma, Inc. dated August 28, 2001.
10.2*	First Amendment to the Second Amended and Restated Outsourcing and Operating Agreement effective July 1, 2001.

B.     REPORTS ON FORM 8-K

         We filed a Form 8-K on September 20, 2001 to report that we had consummated our previously announced disposition of substantially all of the assets of our wholly-owned subsidiary, Neoforma GAR, Inc.

* Confidential treatment has been requested for portions of this agreement

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, INC.
By	/s/ ANDREW L. GUGGENHIME Andrew L. Guggenhime Chief Financial Officer and Assistant Secretary

Date: November 14, 2001

INDEX TO EXHIBITS

EXHIBIT
NUMBER	EXHIBITS
10.1*	Integrated Solution Agreement between Global Healthcare Exchange, LLC and Neoforma, Inc. dated August 28, 2001.
10.2*	First Amendment to the Second Amended and Restated Outsourcing and Operating Agreement effective July 1, 2001.

* Confidential treatment has been requested for portions of this agreement.

EX-10.1 3 f76841ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 CONFIDENTIAL TREATMENT REQUESTED: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND, WHERE APPLICABLE, HAS BEEN MARKED WITH AN ASTERISK TO DENOTE WHERE OMISSIONS HAVE BEEN MADE. THE CONFIDENTIAL MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTEGRATED SOLUTION AGREEMENT between GLOBAL HEALTHCARE EXCHANGE, LLC and NEOFORMA, INC Dated as of August 28, 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS

Page ---- ARTICLE 1 BACKGROUND........................................................................1 ARTICLE 2 DEFINITIONS; RULES OF CONSTRUCTION................................................2 2.1. Definitions...................................................................2 2.2. Rules of Construction.........................................................7 2.3. Legal Review..................................................................8 ARTICLE 3 DEVELOPMENT AND ALLIANCE STRUCTURE................................................8 3.1. Initial Development Responsibilities..........................................8 3.2. Costs of Development and Integration.........................................11 3.3. API Cross Licenses...........................................................11 3.4. Future Development...........................................................12 3.5. Changes......................................................................12 3.6. Alliance Structure...........................................................12 ARTICLE 4 CONTENT LICENSE..................................................................13 4.1. License......................................................................13 4.2. Limitations on Display of Catalog............................................14 4.3. Catalog Updates..............................................................15 4.4. Withdrawal of Catalog........................................................15 4.5. Identification of the Exchange...............................................15 ARTICLE 5 SECURITY; PRIVACY................................................................15 5.1. Security.....................................................................15 5.2. Privacy......................................................................16 ARTICLE 6 MARKETING; REFERRALS.............................................................16 6.1. Alliance Management..........................................................16 6.2. Marketing; Expenses..........................................................16 6.3. Sales Cooperation; No Sales Agency...........................................16 6.4. Exclusivity..................................................................17 6.5. Recommending the Integrated Solution.........................................17 ARTICLE 7 IMPLEMENTATION AND SUPPORT.......................................................19 7.1. Implementation, Training and Fulfillment.....................................19 7.2. Technical Support............................................................19 7.3. Linkages.....................................................................20

i Table of Contents (continued)

Page ---- ARTICLE 8 REPRESENTATIONS AND WARRANTIES...................................................20 8.1. Representations and Warranties of the Exchange...............................20 8.2. Representations and Warranties of Neoforma...................................21 ARTICLE 9 OWNERSHIP........................................................................21 9.1. Ownership by the Exchange....................................................21 9.2. Ownership by Neoforma........................................................21 9.3. Ownership by Third Parties...................................................22 9.4. Transaction Data.............................................................22 9.5. Aggregated Data..............................................................22 9.6. Publicity; Use of Marks......................................................22 ARTICLE 10 CONFIDENTIALITY.................................................................23 10.1. Confidential Information.....................................................23 10.2. Obligations..................................................................23 10.3. Legal Process................................................................24 10.4. Injunctive Relief............................................................24 ARTICLE 11 INDEMNIFICATION.................................................................24 11.1. Neoforma.....................................................................24 11.2. The Exchange.................................................................25 ARTICLE 12 LIMITATION OF LIABILITY.........................................................25 12.1. Limitation of Neoforma's Liability...........................................25 12.2. Limitation of the Exchange's Liability.......................................26 12.3. Time Limits on Bringing an Action............................................26 ARTICLE 13 DISCLAIMERS.....................................................................26 13.1. DISCLAIMERS OF THE EXCHANGE..................................................26 13.2. DISCLAIMERS OF NEOFORMA......................................................27 ARTICLE 14 TERM AND TERMINATION............................................................27 14.1. Term.........................................................................27 14.2. Events of Termination........................................................27 14.3. Consequences of Termination..................................................28 ARTICLE 15 GENERAL.........................................................................29 15.1. Expenses.....................................................................29 15.2. Independent Contractors......................................................29 15.3. Integration and Waiver.......................................................29

ii Table of Contents (continued)

Page ---- 15.4. Severability.................................................................30 15.5. Non-Solicitation.............................................................30 15.6. Disputes.....................................................................30 15.7. Governing Law; Jurisdiction..................................................30 15.8. Force Majeure................................................................30 15.9. Assignment...................................................................30 15.10. Notices......................................................................31 15.11. Execution....................................................................31 15.12. Survival.....................................................................31 15.13. Third Party Beneficiaries....................................................31 15.14. Revisions to Agreements......................................................32 15.15. Inconsistent User Agreement Terms............................................32

iii THIS INTEGRATED SOLUTION AGREEMENT is entered into as of August 28, 2001 (the "Effective Date"), by and between GLOBAL HEALTHCARE EXCHANGE, LLC, a Delaware limited liability company (the "Exchange"), and NEOFORMA, INC., a Delaware corporation ("Neoforma"). ARTICLE 1 BACKGROUND The Exchange and Neoforma each operate on-line, independent electronic trading exchanges (the "Exchange Site" and the "Neoforma Marketplaces", respectively) intended to facilitate the real-time transfer of funds, information, goods and services in the medical and healthcare equipment, products, services and supplies market between suppliers ("Suppliers") of medical information, goods and services ("Products") and their customers ("Providers"). Users of both the Exchange and the Neoforma Marketplaces include both Suppliers and Providers, in each case that have executed an applicable user agreement with the applicable party (each such user agreement being a "User Agreement"). Suppliers and Providers using either the Exchange Site or the Neoforma Marketplaces are hereinafter referred to collectively as "Users." The Exchange has developed a proprietary e-commerce portal (the "Supplier Connectivity Portal") that permits Exchange Suppliers to supply Product information for display in a catalog containing Product Data of multiple Exchange Suppliers, organized according to the Exchange's proprietary classification scheme (the "Classification Scheme"). The Supplier Connectivity Portal also permits Exchange Purchasers to browse the Catalog and review the status of any Product orders, and it facilitates the formation of contracts between Users of the Exchange for the purchase and sale of Products. Neoforma Marketplaces provide customized marketplace solutions and services that enable customers to maximize their existing technology and supply chain relationships. Neoforma Marketplaces connect trading partners to a common marketplace platform and enable them to review hosted catalog and pricing information, facilitate the formation of contracts and review the status of purchase orders and invoice information. Neoforma Marketplaces deploy a catalog solution containing product data from a broad base of suppliers, organized according to Neoforma's proprietary classification scheme ("Neoforma Classification Scheme"). The Exchange and Neoforma wish to work together to develop a classification scheme that supports the needs of Users of the Integrated Solution. The Exchange and Neoforma wish to integrate the Neoforma Marketplaces with the Supplier Connectivity Portal by developing the Exchange Interface and the Neoforma Interface (each as defined below), respectively, and coordinate the marketing of the resulting integrated solution, which will enable: (1) the Exchange Site and the Neoforma Marketplaces to exchange order and other 1 information with one another, and (2) the Neoforma Marketplaces to display the Catalog (hereinafter, the "Integrated Solution"). The Integrated Solution is intended to create an integrated end-to-end supply chain solution that accelerates Supplier and Provider adoption of e-procurement in health care, minimizes supply chain costs of connectivity and information exchange, and thereby accelerates the realization of the benefits of e-commerce to Suppliers and Providers. Within the scope of this alliance, the Exchange shall provide connectivity solutions for Suppliers, and Neoforma shall provide connectivity solutions for Providers and additional procurement related functionality, both of which will be designed to accelerate adoption of ecommerce procurement solutions by Users. In addition, the parties may: (i) develop premium services, both independently and jointly, (ii) jointly offer the Integrated Solution to target markets outside each party's current customer base, (iii) co-market and cross-sell each party's respective premium services to buyers and suppliers, (iv) eliminate redundant costs of both the parties and the Users and (v) pursue other programs that accelerate adoption of ecommerce solutions by the Users. The Exchange and Neoforma wish to enter into this Agreement to specify their respective rights and obligations with respect to such integration, marketing and related matters. THEREFORE, the parties, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, agree as follows: ARTICLE 2 DEFINITIONS; RULES OF CONSTRUCTION 2.1. DEFINITIONS. The following terms shall have the following meanings: "Affiliate" means, with respect to a specific Person, any Person that, directly or indirectly, or through one or more intermediaries, owns or Controls, is owned or Controlled by, or is under common ownership or common Control with, such specific Person. "Aggregated Data" means aggregated Transaction Data. Aggregated Data shall not include any information that may identify the parties to the transactions comprising the Aggregated Data. "Agreement" means this Integrated Solution Agreement, as it may be amended in accordance with its terms. "Alliance Manager" has the meaning set forth in Section 6.1. "APIs" means application programming interfaces. 2 * * "Business Day" means any day when banks are generally open for business in New York. "Catalog" means the catalog of Product Data (compiled and owned by the Exchange) described in ARTICLE 1, to the extent that Exchange Suppliers have executed a Supplier Catalog Addendum with the Exchange, together with all elements of the Classification Scheme, including categories and subcategories, and all modifications or subsets thereof that Neoforma is entitled to create pursuant to Section 4.2. "Classification Scheme" has the meaning set forth in ARTICLE 1. "Confidential Information" has the meaning set forth in Section 10.1. "Control" means, as applied to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Covered Providers" means, at any particular time, (i) Novation and all members of VHA, UHC, HPPI and Medbuy, a Canadian GPO, (ii) members of other GPOs which the parties agree in writing shall be Covered Providers, and (iii) other independent healthcare providers which the parties have agreed in writing shall be Covered Providers. "Covered Suppliers" means, at any particular time, (i) all Exchange Suppliers, (ii) each Supplier set forth in Schedule A, but only for so long as such party has an agreement in effect with the Exchange concerning its participation in the Exchange (other than an agreement terminating such participation), (iii) other Suppliers which the parties have agreed in writing shall be Covered Suppliers, and (iv) subject to the following provisions of this definition, each Distributor that executes or has executed an Exchange User Agreement. Because the Distributor Service Level Requirements change over time, a Distributor that executes an Exchange User Agreement after the Effective Date shall constitute a Covered Supplier at all times from and after the later to occur of (A) the date such Distributor executes its Exchange User Agreement, and (B) the date the Exchange first satisfies in all material respects the Distributor Service Level Requirements in effect when such satisfaction occurs. Any Distributor that has executed an Exchange User Agreement on or before the Effective Date shall constitute a Covered Supplier on the date the Exchange first satisfies in all material respects the Distributor Service Level Requirements in effect when such satisfaction occurs. "Distributor" means any distributor of goods manufactured by others, whether acting as a supplier or purchaser. - -------- * Confidential treatment requested 3 "Distributor Service Level Requirements" means the service level requirements agreed to between the Exchange and Neoforma pursuant to Section 3.1.4, which shall in any event include (i) the service level requirements set forth in Schedule B, and (ii) all relevant service level targets in Neoforma's service level agreements with Distributors existing on the Effective Date, to the extent that (A) such targets are not already specified in Schedule B, and (B) Neoforma is meeting such service level targets in all material respects on the Effective Date for all applicable Distributors using the Neoforma Marketplaces. "Effective Date" has the meaning set forth in the first paragraph. "Exchange Aggregated Data" means Aggregated Data that is collected by the Exchange. "Exchange Confidential Information" has the meaning set forth in Section 10.1. "Exchange Intellectual Property" means all Intellectual Property, whether now existing or hereafter arising, embodied in or relating directly to the Exchange Solutions. "Exchange Interface" shall mean the Initial Exchange Interface and all modifications and additions thereto created by the Exchange. "Exchange Parties" has the meaning set forth in Section 11.1. "Exchange Purchasers" means Providers who have entered into an Exchange User Agreement with the Exchange. "Exchange Site" has the meaning set forth in ARTICLE 1. "Exchange Solutions" means (a) the Supplier Connectivity Portal, (b) the Exchange Site (including all web pages of the Exchange Site), (c) the Exchange Interface, including GHXml(TM), (d) the Classification Scheme, (e) product and connectivity specifications, schematics, documentation, source code and object code of Exchange software, (f) data maps and definitions, and (g) any modifications or enhancements to any of (a) through (f). "Exchange Suppliers" means Suppliers who have entered into an Exchange User Agreement with the Exchange. "Exchange User Agreement" means the User Agreement that the Exchange enters into with Exchange Users. "Exchange User" means a User who has entered into an Exchange User Agreement with the Exchange. "GHXml(TM)" means the Exchange's proprietary XML schema and document type definitions (DTDs). 4 "GPO" means a group purchasing organization. "HPPI" means Healthcare Purchasing Partners International, LLC. "Initial Consulting Services" has the meaning set forth in Section 3.1.6. "Initial Exchange Interface" means the APIs developed by the Exchange in accordance with Section 3.1. "Initial Neoforma Interface" means the APIs developed by Neoforma in accordance with Section 3.1. "Integrated Solution" has the meaning set forth in ARTICLE 1. "Integrated Solution User" means a User that (i) is both an Exchange User and a Neoforma User, and (ii) uses the Integrated Solution. "Interface" means the Exchange Interface or the Neoforma Interface, as the case may be. "Intellectual Property" means any: (a) Marks, trademarks, trade names, service marks, domain names, trade dress, logos, goodwill and brand, and other similar designations; (b) moral rights, copyrights or copyrightable works; (c) APIs, software programs, test tools, utilities and processes developed to support the integration between the Neoforma Marketplaces and the Exchange Site; (d) patents, patent rights, inventions or trade secrets; (e) design, so-called "look and feel" and graphical user interface; and (f) other protectable property rights. "Licensed Purpose" has the meaning set forth in Section 3.1.5. "Marks" means an entity's identity elements, including its name and logo and such other trademarks, trade names, trade dress, service marks and service names that such entity uses or to which it has registration rights. * * "Neoforma Aggregated Data" means Aggregated Data that is collected by Neoforma. "Neoforma Classification Scheme" has the meaning set forth in ARTICLE 1 "Neoforma Confidential Information" has the meaning set forth in Section 10.1. "Neoforma Intellectual Property" means all Intellectual Property, whether now existing or hereafter arising, embodied in or relating directly to the Neoforma Solutions. - -------- * Confidential treatment requested 5 "Neoforma Interface" shall mean the Initial Neoforma Interface and all modifications and additions thereto created by Neoforma. "Neoforma Parties" has the meaning set forth in Section 11.2. "Neoforma Products" has the meaning set forth in ARTICLE 1. "Neoforma Purchasers" means Providers who have entered into a Neoforma User Agreement with Neoforma. "Neoforma RCS" means the Neoforma software, in source and object code, and all related know-how, specifications, schematics and documentation, as more fully described in Schedule C. "Neoforma Solutions" means (a) the Neoforma Marketplaces (including all web pages of the Neoforma Marketplaces), (b) the Neoforma Interface, (c) the Neoforma Classification Scheme, (d) product and connectivity specifications, schematics, documentation, source code and object code of Neoforma software, (e) Neoforma RCS, (f) data maps and definitions, and (g) any modifications or enhancements to any of (a) through (f). "Neoforma User" means a User who has entered into a Neoforma User Agreement with Neoforma. "Neoforma User Agreement" means the User Agreement that Neoforma enters into with Neoforma Users. "Novation" means Novation, LLC, the supply company of VHA, UHC and HPPI. "Person" means any general partnership, limited partnership, corporation, limited liability company, joint venture, trust, business trust, governmental agency, cooperative, association, individual or other entity, as the context may require. "Product Data" means Product information that an Exchange Supplier provides to the Exchange to display on the Exchange Site or to communicate to Purchasers, including Product item numbers, features, functions, extended units of measure, contract identification numbers, product descriptions, catalog prices, catalogs, directions for use, text, pictures, sound, video and other data. "Products" has the meaning set forth in ARTICLE 1. "Providers" has the meaning set forth in ARTICLE 1. "Purchasers" means Neoforma Purchasers and Exchange Purchasers. "Supplier Connectivity Portal" has the meaning set forth in ARTICLE 1. 6 "Supplier Catalog Addendum" means an addendum to the Exchange User Agreement, or another agreement between the Exchange and the applicable Exchange Supplier, governing the Exchange's use of such Exchange Supplier's Product Data at a location other than the Exchange Site and authorizing the Exchange to distribute such Product Data to the Exchange's channel partners and other parties, including Neoforma. "Suppliers" has the meaning set forth in ARTICLE 1. "Term" has the meaning set forth in Section 14.1. "Territory" has the meaning set forth in Section 4.1. "Transaction Data" means any information communicated by the Exchange or Neoforma to a User, by a User to the Exchange or the Neoforma Marketplaces or between a Supplier and a Purchaser through the Exchange or Neoforma, that relates to Product purchase, sale, availability, price, terms of payment or order status, including summaries and compilations of the foregoing. "Transition Period" means the period of 180 days following the date on which this Agreement (or the license granted under Section 3.1.5) is terminated pursuant to ARTICLE 14; provided that if this Agreement is terminated due to a breach of ARTICLE 9 or ARTICLE 10, or if such license is terminated due to a breach of ARTICLE 10, then the Transition Period shall be only 90 days. "UHC" means University HealthSystem Consortium. "Unauthorized Access" means access to the Exchange Site or the Neoforma Marketplaces, as the case may be, that is not in conformity with the respective agreements or rules of the Exchange or Neoforma. "User Agreement" has the meaning set forth in ARTICLE 1. "Users" has the meaning set forth in ARTICLE 1. "VHA" means VHA Inc. 2.2. RULES OF CONSTRUCTION. In this Agreement, unless a clear, contrary intention appears: 2.2.1 the singular number includes the plural number and vice versa; 2.2.2 reference to any Person includes such Person's successors and assigns, if applicable, but only if such successors and assigns are permitted by this Agreement; 2.2.3 reference to any gender includes the other gender; 7 2.2.4 reference to any Article, Section or Schedule means such Article, such Section or such Schedule to this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition; 2.2.5 "herein", "hereunder", "hereof", "hereto", and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof; 2.2.6 "including" (and with correlative meaning "include") shall be deemed to be followed by the phrase "without limitation"; 2.2.7 reference to any law (including statutes and ordinances) means such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder; and 2.2.8 the headings contained in this Agreement (except for the Schedules) have been inserted for convenience of reference only, and are not to be used in construing this Agreement. 2.3. LEGAL REVIEW. This Agreement was negotiated by the parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against either party shall not apply to any construction or interpretation hereof. This Agreement shall be interpreted and construed to the maximum extent possible so as to uphold the enforceability of each of the terms and provisions hereof, it being understood and acknowledged that this Agreement was entered into by the parties after substantial and extended negotiations and with full awareness by the parties of the terms and provisions hereof and the consequences thereof. ARTICLE 3 DEVELOPMENT AND ALLIANCE STRUCTURE 3.1. INITIAL DEVELOPMENT RESPONSIBILITIES. 3.1.1 The Exchange shall provide the Catalog to Neoforma in digital form needed to support Purchaser functionality. Neoforma shall provide the Exchange with all relevant information regarding Neoforma Purchasers, including organization data, GPO eligibility and transaction information. 3.1.2 The Exchange does not have and will not build a master price file or include list prices in the Catalog, but the Supplier Connectivity Portal provides access to Supplier websites where prices may be accessed by Exchange Users. 8 3.1.3 As part of the process set forth in Section 3.1.4 below, the parties will evaluate the desirability of jointly developing and implementing pricing tools. Unless agreed otherwise as part of the implementation plan or as part of any future development undertaken pursuant to Section 3.4.2, the Exchange shall not use GPO or Covered Provider eligibility information provided by Neoforma or Covered Providers to develop or implement a set of collaboration tools and processes that allow a Provider and Supplier to interact and reach agreement upon a specific unit price. Neoforma shall not use, and shall not permit Covered Providers to use, electronic connections and communications systems the Exchange has established with Suppliers in order to develop or implement a set of collaboration tools and processes that allow a Provider and Supplier to interact and reach agreement upon a specific unit price. 3.1.4 Promptly following the Effective Date, the parties will collaborate to develop a high level integration plan and opportunity assessment to be presented jointly to senior management of both parties by not later than October 15, 2001. This initial plan and assessment shall be created and conducted by the parties to determine the best means of integrating the Neoforma Marketplaces with the Supplier Connectivity Portal, taking into account such considerations as cost, time and functionality, and shall include all Distributor Service Level Requirements and a plan and schedule for Neoforma's provision of the Initial Consulting Services. Promptly following the joint presentation and concurrence of the parties on the integration plan, the parties shall use commercially reasonable efforts to develop APIs as such plan determines to be necessary and appropriate to create the Integrated Solution and to allow Integrated Solution Users to access the Catalog, access price and inventory availability from Suppliers, issue purchase orders, receive purchase order acknowledgements, determine order status, maintain User information, and transmit order information. The parties shall collaborate as appropriate to ensure that the Integrated Solution functions in accordance with agreed-upon specifications and performance criteria before it is made available to Users. Each party shall deliver to the other its Interface and all modifications and enhancements thereto, as developed in accordance with and subject to the terms of this Agreement. The parties shall, as appropriate, participate in the development of and, in their sole discretion, adopt, industry standards to facilitate integration and improve functionality. As part of the plan and assessment, the Exchange will consider licensing the Neoforma Classification Scheme or parts thereof from Neoforma, and Neoforma will consider licensing the same to the Exchange, solely for the purposes of incorporation into the Classification Scheme and use in the Integrated Solution, provided that nothing in this Agreement shall require either party to enter into any such license. 3.1.5 In consideration for the payment of the license fees set forth in Section 3.1.7, Neoforma grants to the Exchange a perpetual, fully paid, 9 non-exclusive, non-transferable (except as provided in Section 15.9), non-sublicensable right (except to the extent permitted by this Section 3.1.5 below), subject to the terms and conditions of this Agreement, to install, use, copy, display, modify and create derivative works of the Neoforma RCS in * , solely for the purposes of creating connectivity between Exchange Suppliers and the Supplier Connectivity Portal (including its open interface specifications) and permitting the exchange of Transaction Data between Exchange Suppliers and the Supplier Connectivity Portal (the "Licensed Purpose"). Any derivative works created by the Exchange pursuant to this license shall constitute part of the Neoforma RCS and shall be subject to this license, it being understood that neither this license nor the Exchange's use of any property licensed hereunder shall transfer to Neoforma any right, title or interest in or to any of the Exchange Intellectual Property. The Exchange may sublicense, only to Suppliers, solely those portions of the Neoforma RCS necessary to be hosted or otherwise used by Suppliers (e.g. templates, data maps and connectivity scripts) necessary to support the Licensed Purpose. Notwithstanding any provision of this Agreement to the contrary, this license shall survive the termination of this Agreement, except as provided in Section 14.2.6. 3.1.6 Neoforma will provide * of knowledge transfer and consulting services in connection with the delivery and implementation of the Neoforma RCS by the Exchange ("Initial Consulting Services"). Neoforma shall provide the Initial Consulting Services in accordance with the integration plan developed under Section 3.1.4. Additional consulting services will be available at the Exchange's request. The hourly rate for any such services shall be based upon the nature of the services to be provided, as set forth on Schedule D. The Initial Consulting Services and all additional consulting services shall be performed by Neoforma personnel having skill sets that the Exchange reasonably considers necessary for the knowledge transfer or services to be performed. 3.1.7 In consideration of the license granted pursuant to Section 3.1.5 and the Initial Consulting Services, the Exchange shall pay Neoforma Three Million Five Hundred Thousand Dollars ($3,500,000), payable $1,500,000 on September 17, 2001, $1,500,000 on December 17, 2001, and $500,000 on March 15, 2002. Notwithstanding the foregoing, if Neoforma fails to perform Initial Consulting Services scheduled to be performed by the date any payment is due under this section and such failure occurred through no fault of the Exchange, then the Exchange may defer a part of the applicable payment, in an amount equal to the number of hours scheduled for each type of service contemplated by Schedule D, multiplied by the applicable hourly rate for such type of service. The - -------- * Confidential treatment requested 10 Exchange shall pay such deferred amount promptly after the late services are performed. 3.2. COSTS OF DEVELOPMENT AND INTEGRATION. Each party shall bear its own costs for the plan and assessment referred to above and for the cost of its own development responsibilities. The parties shall share equally the cost of any mutually required hardware and third party software. Each party, at its own expense, shall obtain all software and other rights necessary to access the software or systems of the other, to the extent such access is required hereunder. The parties will consider shared investment in any necessary technology in order to simplify integration or obtain more favorable terms for the purchase or license of any necessary third party technology, provided that nothing in this Agreement shall require either party to make any such investment. If, at Neoforma's request, the Exchange agrees to provide any consulting services to Neoforma hereunder, then such consulting services shall be provided at the rates set forth on Schedule D. 3.3. API CROSS LICENSES. 3.3.1 The Exchange grants to Neoforma during the Term a royalty-free, non-exclusive, non-transferable, non-sublicensable right, subject to the terms and conditions of this Agreement, to install, use, copy and display the Exchange Interface in * , together with all related specifications, software programs and documentation necessary to create and maintain the interfaces between the Neoforma Marketplaces and the Supplier Connectivity Portal (including its open interface specifications), solely for the purpose of creating and maintaining the Integrated Solution. The Exchange Interface shall be provided to Neoforma in object code form only. 3.3.2 Neoforma grants to the Exchange during the Term a royalty-free, non-exclusive, non-transferable, non-sublicensable right, subject to the terms and conditions of this Agreement, to install, use, copy and display the Neoforma Interface in * , together with all related specifications, software programs and documentation necessary to create and maintain the interfaces between the Neoforma Marketplaces and the Supplier Connectivity Portal (including its open interface specifications), solely for the purpose of creating and maintaining the Integrated Solution. The Neoforma Interface shall be provided to the Exchange in object code form only. 3.3.3 Nothing in this Section 3.3 shall authorize either party to display publicly, modify or create derivative works of the licensed software, if any, and APIs. - -------- * Confidential treatment requested 11 3.3.4 Neither party shall disassemble, reverse engineer or decompile any of the other party's property licensed under this Section 3.3. 3.4. FUTURE DEVELOPMENT. 3.4.1 Individual Enhancements. The Exchange and Neoforma, each reserve the right, in its sole discretion, to modify and add to the Exchange Interface and the Neoforma Interface, respectively. The Exchange and Neoforma shall share development plans and estimated release schedules with respect to changes, improvements and enhancements to the Exchange Interface and to the Neoforma Interface, respectively. Each party shall, at its own cost, develop modifications or additions to its APIs, so that Integrated Solution Users will be able to use all such changes, improvements and enhancements implemented by such party and to maintain all other functionality (including all relational links among entries in the database comprising the Catalog) of the Integrated Solution. 3.4.2 Combined Enhancements. The parties shall cooperate in the design, development and deployment of enhancements to the Integrated Solution, with functionality to be agreed upon by the parties. In particular, the parties may, at their option, develop and market a three-way price matching premium service to resolve price inconsistencies among GPOs (e.g., Novation), Suppliers and Providers. 3.5. CHANGES. Subject to Section 3.4.1, the Exchange, in its sole discretion, may (a) enhance, delete or modify any or all of the features, format, "look and feel," functions or services of the Exchange Site, the procedures for use of the Exchange Site, or the information offered on the Exchange Site, and (b) subject to Sections 3.4.1 and 4.2, Neoforma, in its sole discretion, may enhance, delete or modify any or all of the features, format, "look and feel," functions or services of the Neoforma Marketplaces, the procedures for use of the Neoforma Marketplaces, or the information offered on the Neoforma Marketplaces. Neoforma acknowledges that each Exchange Supplier that has authorized the Exchange to sublicense its Product Data to Neoforma may, at its option and upon sixty (60) days prior written notice to the Exchange, cause the Exchange to terminate that sublicense, unless such Exchange Supplier otherwise agrees with Neoforma. The Exchange shall provide Neoforma with forty-five (45) days prior written notice if any Supplier terminates any such sublicense. Neoforma shall notify the Exchange promptly after it receives any notice that a Provider has ceased to be a Neoforma User. 3.6. ALLIANCE STRUCTURE. 3.6.1 The Exchange shall connect Suppliers who are Integrated Solution Users to the Integrated Solution and shall retain all related fees and revenues. 12 3.6.2 Neoforma shall connect Providers who are Integrated Solution Users to the Integrated Solution and shall retain all related fees and revenues. 3.6.3 The parties may subcontract the performance of services hereunder to each other upon mutually agreed upon terms and conditions. 3.6.4 Neoforma shall display the Catalog, in accordance with ARTICLE 4, to Integrated Solution Users. The Exchange shall not charge Neoforma any fees for Neoforma's access to the Catalog. 3.6.5 Each party shall transmit to the other all order information that it receives regarding transactions between Neoforma Purchasers and Exchange Suppliers. Each party shall then transmit such order information to its applicable Users. Neither party shall charge the other party any fees for any such transmissions. The foregoing shall not preclude or affect any fees that any User agrees to pay either Neoforma or the Exchange. 3.6.6 Neoforma and the Exchange may each market and sell value-added services and/or premium services to any Provider or Supplier, and each may retain any revenue it receives in connection therewith. The parties may also agree to co-market and/or cross-sell such value-added services or premium services, and shall determine the division of any related revenues at such time, pursuant to a separate written agreement. 3.6.7 Neoforma and the Exchange shall evaluate opportunities to develop jointly value-added services and/or premium services that may be beneficial to Suppliers and Providers. Neoforma and the Exchange shall mutually agree, in writing, to cost-sharing and revenue-sharing terms before they begin any such joint development. ARTICLE 4 CONTENT LICENSE 4.1. LICENSE. The Exchange grants to Neoforma during the Term the non-exclusive, non-transferable, non-sublicensable, royalty-free right to perform the following activities, subject to the terms and conditions of this Agreement: (i) to host the Catalog on the Neoforma Marketplaces; (ii) to display the Catalog or any part thereof (subject to the provisions of Section 4.2), as part of the Integrated Solution, to any Integrated Solution User * (the "Territory"); (iii) to use GHXml(TM)solely in furtherance of the purposes of this Agreement; and (iv) to make such internal copies of the Catalog as are necessary for the foregoing purposes. Except as set forth herein, Neoforma shall not use, copy, display or - -------- * Confidential treatment requested 13 distribute the Catalog, in any form, in whole or in part, without the Exchange's prior written consent. 4.2. LIMITATIONS ON DISPLAY OF CATALOG. The Exchange acts as a passive conduit for the display and publication of Product Data, and the Exchange reserves to the Exchange Suppliers complete control over the form and substance of all Product Data, subject to such Exchange Suppliers' obligations under their respective Exchange User Agreements. Neoforma shall use and display the Catalog and all Product Data contained therein verbatim as received, and may not edit, modify or translate the Catalog or such Product Data in any way except as specified in this Agreement. Notwithstanding any other provision of this Section 4.2, Neoforma may use and display the Product Data without using and displaying related elements of the Classification Scheme. Without limiting the foregoing or the provisions of Section 4.1, unless the applicable Exchange Supplier agrees to allow Neoforma to do so, Neoforma shall not alter the Classification Scheme or any part thereof, nor shall Neoforma use or display Product Data under a modified Classification Scheme or under any classification system other than the Classification Scheme. Neoforma shall at all times maintain all relational links within the Catalog and shall not alter any part of the Catalog in any way that interferes with the Exchange's ability to maintain and update the Catalog. Neoforma shall not create derivative works of the Catalog or any part thereof; provided, however, that Neoforma may (i) extract subsets of the unmodified Catalog at the ------- direction of and for use by individual Purchasers, (ii) cross-reference Product numbers used by distributors that are authorized distributors of Products of Exchange Suppliers but are not Exchange Users, and(iii) format the Catalog to conform to the compilation or "look and feel" of the Neoforma Solutions. With regard to all such modifications and subsets created by Neoforma pursuant to this Section 4.2: (i) Neoforma shall not change the content of the individual fields of the Catalog, (ii) other than information regarding other products added by Neoforma, all such modifications and subsets shall constitute part of the Catalog, and (iii) Neoforma shall have no greater rights in any such modification or subset than its rights to use and display the Catalog as provided in this Agreement. Nothing herein shall limit Neoforma's right to display data regarding other products together with the Catalog or permitted subsets thereof. For purposes of clarity, Neoforma may offer any Integrated Solution User a GPO-specific catalog containing a subset of the Catalog together with data regarding other products, provided that such Integrated Solution User may use and display all Product Data in the Catalog at its option. Neoforma shall, at no charge to the Exchange or the Exchange Suppliers and upon the Exchange's request with reasonable prior notice, provide the Exchange and the Exchange Suppliers with sufficient access to the Neoforma Solutions to permit the Exchange and such Exchange Suppliers to verify Neoforma's compliance with this Agreement; provided, however, that nothing in this Agreement shall permit Neoforma to disclose any Supplier's Product Data to any other Supplier. At the time the Exchange's User Agreements are subject to renewal, the Exchange shall modify its form of User Agreement to permit Neoforma to display Product Data under the Neoforma Classification Scheme, and shall further use 14 commercially reasonable efforts to promptly (i) have all Users accept this modification to the User Agreement in accordance with the amendment process set forth in the User Agreement, and (ii) replace any outstanding MOUs with such modified User Agreements. 4.3. CATALOG UPDATES. Subject to Section 4.4, the Exchange shall provide Catalog updates promptly after they are created and published on the Exchange Site, or at a frequency and in a manner as is reasonably agreed by the parties. Neoforma shall use reasonable efforts to maintain its ability to receive and process such updates and to make the Catalog available at all times to Integrated Solution Users. 4.4. WITHDRAWAL OF CATALOG. The Exchange may withdraw or cancel all or any affected part of the Catalog if: (a) the Catalog or any part thereof becomes the subject of a claim that it infringes the rights of any third Person or that the Exchange otherwise does not have the right to permit others to use it; (b) the Catalog or any part thereof becomes illegal or contrary to any applicable law or regulation, or the Exchange is required by any compulsion of law, including an order or judgment from a court of competent jurisdiction, to withdraw all or any part of the Catalog; or (c) any Supplier terminates its Supplier Catalog Addendum, either in whole, or as to Neoforma specifically (unless the applicable Supplier has agreed with Neoforma not to so terminate its Supplier Catalog Addendum), or the Exchange terminates such Supplier Catalog Addendum with such Supplier, in which case the Exchange may withdraw all Product Data offered by such Supplier. If the Exchange withdraws or cancels all or part of the Catalog, the Exchange shall notify Neoforma promptly thereof. If the Exchange withdraws or cancels all of the Catalog, Neoforma shall be entitled to terminate this Agreement in accordance with Section 14.2.5. Neoforma acknowledges that Suppliers have the right to terminate Neoforma's use of the Catalog at any time and for any reason. Neoforma acknowledges that certain Suppliers intend to terminate Neoforma's use of the Catalog if Neoforma uses the Catalog to offer auction or reverse auction functions (as distinct from customary RFP processes) through the Neoforma Marketplaces. 4.5. IDENTIFICATION OF THE EXCHANGE. The Exchange shall be identified as the source of all Product Data used and displayed in the Integrated Solution in accordance with this ARTICLE 4. ARTICLE 5 SECURITY; PRIVACY 5.1. SECURITY. The Exchange shall use commercially reasonable efforts consistent with prevailing industry standards to maintain the security of the Exchange Site, including constructing and maintaining firewalls and other security devices to limit any Unauthorized Access to information accessible from the Exchange Site. The Exchange shall also use commercially reasonable 15 efforts consistent with prevailing industry standards to protect the Neoforma Marketplaces from any theft, harm, tampering, sabotage, interference, viewing, manipulation, copying or distribution by any User using the Exchange Solutions and the Exchange Interface. Neoforma shall use commercially reasonable efforts consistent with prevailing industry standards to maintain the security of the Neoforma Solutions, including constructing and maintaining firewalls and other security devices to limit any Unauthorized Access to information accessible through use of the Neoforma Solutions. Neoforma shall also use commercially reasonable efforts consistent with prevailing industry standards to protect the Exchange Site from any theft, harm, tampering, sabotage, interference, viewing, manipulation, copying or distribution by any User using the Neoforma Solutions and the Neoforma Interface. 5.2. PRIVACY. Neither party hereto shall breach or attempt to breach the computer or software security of the other, attempt to access the information of a User stored by the other, or otherwise invade the privacy of others in connection with providing the Integrated Solution. ARTICLE 6 MARKETING; REFERRALS 6.1. ALLIANCE MANAGEMENT. The Exchange and Neoforma each agree to establish an "Alliance Manager." The primary responsibility of the Alliance Managers shall be to coordinate the implementation of this Agreement and the marketing activities contemplated by Section 6.2, and to manage the day-to-day activities of the parties under this Agreement. 6.2. MARKETING; EXPENSES. Each party shall market and sell its own solutions and products, and retain all revenue derived therefrom unless otherwise agreed, through coordinated marketing and sales efforts involving joint meetings and other forms of cooperation as agreed by the parties during the sales process. The parties shall each provide sales and marketing support personnel who will work together on joint press announcements (all of which must be approved in accordance with Section 9.6), sales force alignment, joint marketing opportunities, conferences and similar activities. Each party shall bear its own expenses in connection with such sales and marketing activities. Each party hereby designates and shall identify the other party to its Users and prospects as its "Preferred Connectivity Solution". 6.3. SALES COOPERATION; NO SALES AGENCY. Each party shall be solely responsible for all sales and licenses of its products and services, and neither party hereto shall have the authority to sell or license the products or services of the other. Neoforma shall be entitled to market the Exchange's products and services and to use such marketing materials as the Exchange may provide to Neoforma from time to time. Neoforma may also present the Exchange's then-current Exchange User Agreement (as supplied to Neoforma by the Exchange from time to time) to any prospects and obtain the signatures of such prospects thereon; provided, however, that the Exchange shall not be bound by any such Exchange User Agreement until it has executed the same. The Exchange shall not be obligated to execute any such Exchange User Agreement. The Exchange may also present Neoforma's then-current Neoforma User Agreement (as supplied to the Exchange 16 by Neoforma from time to time) to any prospects and obtain the signatures of such prospects thereon; provided, however, that Neoforma shall not be bound by any such Neoforma User Agreement until it has executed the same. Neoforma shall not be obligated to execute any such Neoforma User Agreement. Notwithstanding the foregoing, neither party shall participate in any discussions or negotiations regarding any fees to be charged by the other party pursuant to such party's User Agreement, and neither party shall knowingly provide the other party with any information regarding such fees. 6.4. EXCLUSIVITY. For a period of * after the Effective Date, neither party shall enter into a strategic alliance substantially similar to that contemplated by this Agreement with * . Thereafter, and during the Term, the Exchange shall not enter into any agreement with * which grants any broader rights to such party than those granted to Neoforma under this Agreement with respect to any means of connecting with the Exchange or Supplier Connectivity Portal developed with such party, in preference to the Integrated Solution. Except as expressly -- provided in this Section 6.4, this Agreement is not intended to be an exclusive arrangement and nothing contained herein shall limit either party's right to enter into alliance or other agreements with any other Person, including any direct competitor of the other party. Subject to the provisions of this Section 6.4 and Section 6.5, and the other express provisions of this Agreement, each party shall be free to pursue its own interests and shall not be restricted from: (a) recommending and marketing services or products which may be competitive with the other party's services or products, (b) entering into an alliance, joint marketing agreement or other relationship with a competitor of the other party, or (c) referring to a competitor a prospective customer that is not already a customer of the other party. 6.5. RECOMMENDING THE INTEGRATED SOLUTION. 6.5.1 By the Exchange. (a) The Exchange shall recommend the Integrated Solution to all Covered Providers that it contacts and will not recommend any other solution to such Covered Providers except as provided in Sections 6.5.3 and 6.5.4. The Exchange may, at its option, also market any other products or services then offered by the Exchange to any such Covered Providers. If Neoforma refers a Provider who is not a Covered Provider to the Exchange, the Exchange shall recommend the Integrated Solution to such - -------- * Confidential treatment requested 17 Provider in accordance with Section 6.3, provided, that such Provider had not previously been contacted by the Exchange or referred to the Exchange by a third party during the preceding six months. The Exchange shall recommend the Integrated Solution to Providers that it contacts who are not Covered Providers, but the Integrated Solution need not be the exclusive connectivity solution recommended to such Providers. (b) The Exchange may present a Neoforma User Agreement to any such Covered Providers in accordance with Section 6.3. 6.5.2 By Neoforma. (a) Neoforma shall recommend the Integrated Solution to all Covered Suppliers that it contacts (including all Distributors that are Neoforma Users at the time the Exchange first satisfies in all material respects the Distributor Service Level Requirements in effect at the time such satisfaction occurs) and will not recommend any other solution to such Covered Suppliers except as provided in Section 6.5.3. Neoforma may, at its option, also market any other products or services then offered by Neoforma to any such Covered Suppliers. If the Exchange refers a Supplier who is not a Covered Supplier to Neoforma, Neoforma shall recommend the Integrated Solution to such Supplier in accordance with Section 6.3, provided, that such Supplier had not previously been contacted by Neoforma or referred to Neoforma by a third party during the preceding six months. Neoforma shall recommend the Integrated Solution to Suppliers that it contacts who are not Covered Suppliers, but the Integrated Solution need not be the exclusive connectivity solution recommended to such Suppliers. (b) Neoforma may present an Exchange User Agreement to any such Covered Suppliers in accordance with Section 6.3. 6.5.3 Other Referral Issues. (a) If a prospect informs either party that it prefers to connect to such party other than through the Integrated Solution, then such party may connect such prospect either directly or through another Person. The Exchange or Neoforma, as the case may be, shall notify the other party promptly after it learns that any such prospect wishes to connect other than through the Integrated Solution. (b) The parties may, at their option, cooperate on a case-by-case basis to jointly approach prospects who are neither Covered Providers nor Covered Suppliers. 18 (c) All prospect referrals for Covered Suppliers, Covered Providers, and others under Section 6.5.3(b) shall be jointly managed under a mutually approved prospect referral program. The prospect referral, notification and targeting programs shall be put in place by both parties within 30 days of the Effective Date and managed by each party's Alliance Manager. 6.5.4 Exceptions. Notwithstanding any provisions hereof to the contrary, nothing in this Agreement shall obligate the Exchange to violate the terms of those current or currently-pending (as of the Effective Date) agreements listed on Schedule E hereto with other Persons that limit the Exchange's right to recommend the Integrated Solution, if such other party refers a prospect to the Exchange. In particular, this Section 6.5 shall not apply to prospects that are referred to either party by such party's strategic allies, to the extent that the applicable agreement restricts such party from offering integrated solutions or products other than those contemplated by the applicable agreement. ARTICLE 7 IMPLEMENTATION AND SUPPORT 7.1. IMPLEMENTATION, TRAINING AND FULFILLMENT. Each party hereto shall, to the extent necessary, be responsible for installing and implementing its own proprietary components of the Integrated Solution. Each party hereto shall provide its own implementation and training services to the Users using the Integrated Solution. Each party shall fulfill its products for its Users through its own distribution network. 7.2. TECHNICAL SUPPORT. 7.2.1 Personnel. During the Term, each party hereto shall maintain an appropriate number of trained personnel to provide, in a professional manner, technical support and enhancements ("Maintenance") with respect to its proprietary components of the Integrated Solution. Maintenance shall include identifying problems, supplying updates to remedy bugs, fixing errors and providing, where applicable, new versions or releases of such components. Each party shall also maintain a number of trained personnel sufficient to enable such party to meet its obligations under Section 7.2.2 below. 7.2.2 Customer Support. (a) Neoforma shall, pursuant to its customary agreements with its customers, respond to and fix problems associated with User calls related to the Neoforma Solutions. If an Integrated Solution User calls regarding an operational issue, Neoforma shall verify the integrity of the system followed by, if necessary, passing a call to 19 the Exchange, if Neoforma determines that the source of the User's problem is associated with the Exchange Solutions. (b) The Exchange, shall, pursuant to its customary agreements with its Users, respond to and fix problems associated with User calls related to the Exchange Solutions. If an Integrated Solution User calls regarding an operational issue, the Exchange shall verify the integrity of the system followed by, if necessary, passing a call to Neoforma, if the Exchange determines that the source of the User's problem is associated with the Neoforma Solutions. (c) When the source of any particular customer problem cannot readily be determined, the parties' respective support organizations shall collaborate reasonably to identify the cause of the problem and to implement a solution. 7.3. LINKAGES. Neoforma and the Exchange shall each be responsible for the creation, management and monitoring of their respective components of the telecommunications and hardware connections between multiple Exchange data centers and multiple Neoforma data centers (the "Linkages"), and shall cooperate with each other to create, manage and monitor the Linkages. Both parties shall make commercially reasonable efforts to ensure that their respective components of the Linkages and the Integrated Solution will operate in compliance with reasonable and customary technical performance standards. Neither party shall be liable for any Internet or telecommunications failure, computer virus, third-party interference or other third party software or hardware failure that may interrupt or delay access to any Internet site or interfere with the performance of the Linkages or the Integrated Solution, unless such problem was caused or created directly by such party. ARTICLE 8 REPRESENTATIONS AND WARRANTIES 8.1. REPRESENTATIONS AND WARRANTIES OF THE EXCHANGE. The Exchange represents and warrants to Neoforma that: (a) it has all requisite right, power and authority to enter into this Agreement and to perform its obligations hereunder; (b) the entry into and performance of this Agreement by the Exchange has been duly authorized by all necessary limited liability company action on the part of the Exchange and this Agreement constitutes a valid agreement, binding upon and enforceable against the Exchange in accordance with its terms; and (c) the execution and delivery of this Agreement by the Exchange and the consummation of the transactions herein 20 provided will not (i) conflict with any agreement, document or instrument to which the Exchange is a party; (ii) violate any order, writ, injunction or decree of court, administrative agency or governmental body, or (iii) require the approval, consent or permission of any governmental or regulatory body or authority of which the Exchange is aware, having authority over the Exchange. 8.2. REPRESENTATIONS AND WARRANTIES OF NEOFORMA. Neoforma represents and warrants to the Exchange that: (a) Neoforma has all requisite right, power and authority to enter into this Agreement and to perform its obligations hereunder; (b) the entry into and performance of this Agreement by Neoforma has been duly authorized by all necessary corporate action on the part of Neoforma, and this Agreement constitutes a valid agreement, binding upon and enforceable against Neoforma in accordance with its terms; (c) the execution and delivery of this Agreement by Neoforma and the consummation of the transactions herein provided will not (i) conflict with any agreement, document or instrument to which Neoforma is a party; (ii) violate any order, writ, injunction or decree of court, administrative agency or governmental body, or (iii) require the approval, consent or permission of any governmental or regulatory body or authority of which Neoforma is aware, having authority over Neoforma; and (d) As of the Effective Date, Neoforma is meeting in all material respects all of the service level requirements set forth on Schedule B for all Distributors using the Neoforma Marketplaces. ARTICLE 9 OWNERSHIP 9.1. OWNERSHIP BY THE EXCHANGE. As between the Exchange and Neoforma, the Exchange owns and shall own all right, title and interest in and to all Exchange Intellectual Property. Neither any license granted hereunder nor the Exchange's use of any property licensed hereunder shall transfer to Neoforma any right, title or interest in or to any of the Exchange Intellectual Property. 9.2. OWNERSHIP BY NEOFORMA. As between Neoforma and the Exchange, Neoforma owns all right, title and interest in and to all Neoforma Intellectual Property. Neither any license granted hereunder nor Neoforma's use of any property licensed hereunder shall transfer to the Exchange any right, title or interest in or to any of the Neoforma Intellectual Property. 21 9.3. OWNERSHIP BY THIRD PARTIES. The Exchange Site and the Catalog contain third party Marks and other Intellectual Property belonging to third parties, including Product Data and Transaction Data. The Neoforma Marketplaces contain third party Marks and other Intellectual Property belonging to third parties, including Product Data and Transaction Data. All such Intellectual Property is and shall remain the property of its respective owners. Except as expressly provided in this Agreement, the Exchange does not grant to Neoforma any right to copy or use any such Intellectual Property. 9.4. TRANSACTION DATA. 9.4.1 The parties to each transaction (e.g., the applicable Supplier and Purchaser) shall own the Transaction Data relating to such transaction. Neither the Exchange nor Neoforma may disclose any Transaction Data to any third party without the consent of either owner of such Transaction Data. 9.4.2 Nothing in this Agreement shall affect the ownership of contract price files. 9.5. AGGREGATED DATA. Neither party shall collect, compile or use any Aggregated Data without the consent of all the Suppliers and Purchasers whose Transaction Data is included, in whole or in part, in such Aggregated Data. Such consent may be included in either party's separate agreements with Suppliers or Purchasers. Notwithstanding the foregoing, each party shall use commercially reasonable efforts to obtain such consents. Neither party shall have any right to Aggregated Data collected by the other party. Neoforma may provide Novation with Neoforma Aggregated Data regarding contract and non-contract purchasing to assist Novation in managing its GPO operations, subject to Neoforma receiving the consent of the applicable Suppliers and Providers, to the extent that such consent is required by this ARTICLE 9. Each party may sell its own Aggregated Data, and the parties may also jointly sell Aggregated Data, but Aggregated Data may not be sold by either party to a Supplier or Purchaser who has not consented to allow the parties to create Aggregated Data from such Supplier's or Purchaser's Transaction Data. Notwithstanding the foregoing, the Exchange shall not sell any Aggregated Data which is derived from use of the Integrated Solution and which is aggregated on an individual GPO level without such GPO's consent, and further, in no event shall such Aggregated Data be sold unless data from any one GPO is combined with other data that equals at least 30% of the total Aggregated Data being sold. At the time the Exchange's User Agreements are subject to renewal, the Exchange shall use commercially reasonable efforts to obtain consent from each Supplier sufficient to permit Neoforma to collect, compile and use Aggregated Data arising from such Supplier's Transaction Data. 9.6. PUBLICITY; USE OF MARKS. Except as otherwise set forth in this Agreement, neither party shall use any of the other party's Marks in advertising 22 or other promotional material or activity (including Internet sites) without first obtaining the owner's prior written consent, which consent shall not be unreasonably withheld or delayed. The party using the owner's Marks must adhere to the owner's internal policies regarding their use. Any press release related to this Agreement or the transactions contemplated hereby must be approved in writing by both parties, such approval not to be unreasonably withheld or delayed. ARTICLE 10 CONFIDENTIALITY 10.1. CONFIDENTIAL INFORMATION. All business, operational, customer, technological, financial and commercial information furnished or disclosed by each party to this Agreement, including (i) Exchange Intellectual Property; (ii) Neoforma Intellectual Property; (iii) Product Data, Transaction Data and Aggregated Data; (iv) the terms and conditions on which each party provides its respective products and services and (v) other non-public information about each party's business strategies and future products or offerings, constitutes the sole and exclusive confidential and proprietary information of the disclosing party. Confidential information of the Exchange is referred to hereinafter as "Exchange Confidential Information" and confidential information of Neoforma is referred to hereinafter as "Neoforma Confidential Information." Exchange Confidential Information includes the Exchange Intellectual Property and (regardless of whether or not the Exchange owns the same) all Product Data, Transaction Data, the Classification Scheme and Exchange Aggregated Data. Neoforma Confidential Information includes Neoforma Intellectual Property, Transaction Data, the Neoforma Classification Scheme and Neoforma Aggregated Data. Exchange Confidential Information and Neoforma Confidential Information are collectively referred to hereinafter as "Confidential Information." In addition, except as necessary to fulfill its obligations hereunder, each party agrees to treat the terms of this Agreement as Confidential Information. 10.2. OBLIGATIONS. Each party agrees to protect the confidentiality of the other's Confidential Information in the same manner that it protects the confidentiality of its own proprietary and confidential information of like kind, but in no event with less than due care and attention. Except as necessary to perform its obligations hereunder or as expressly permitted hereunder, neither party shall reproduce or use any Confidential Information of the other party or disclose to any other Person the other party's Confidential Information, in any case without the prior written consent of the other party or, in the case of Transaction Data, without the prior written consent of the applicable Supplier or Purchaser. Neoforma may share Confidential Information, other than Product Data and Transaction Data, with Novation, VHA, UHC and HPPI provided (A) those parties agree to comply with the obligations of this Section 10.2, and (B) those parties use such Confidential Information solely in support of the transactions contemplated by this Agreement. For avoidance of doubt, Neoforma may share Product Data and 23 Transaction Data with Novation, VHA, UHC and HPPI if permitted by other provisions of this Agreement. A party receiving Confidential Information shall have no obligations under this Section 10.2 as to Confidential Information that the receiving party establishes: (a) is published or otherwise becomes available to the general public without breach of this Agreement; (b) was furnished by a third party in a manner not involving a breach of such third party's obligations to the disclosing party, except that this clause (b) shall in no event apply to Transaction Data transmitted by Users; (c) was in a party's possession prior to the disclosure by the other party; or (d) was developed independently by an employee or agent who was not aware of Confidential Information furnished to the receiving party pursuant to this Agreement. 10.3. LEGAL PROCESS. If either party receives a subpoena or other validly issued administrative or judicial process requesting Confidential Information of the other party, it shall provide prompt notice to the other of such receipt. The party receiving the subpoena or process shall thereafter be entitled to comply with such subpoena or other process; provided that such party shall reasonably cooperate with the other party's efforts to obtain an appropriate protective order to preserve the confidentiality of the requested Confidential Information. 10.4. INJUNCTIVE RELIEF. Each party hereto acknowledges and agrees that money damages alone cannot adequately compensate the other party for a breach of this Section 10.4; and that any such breach will cause immediate and irreparable harm. ARTICLE 11 INDEMNIFICATION 11.1. NEOFORMA. Neoforma agrees to indemnify and hold harmless the Exchange and any member, officer, director, employee or agent thereof (collectively, "Exchange Parties"), from any and all liabilities, damages, costs and expenses, including reasonable attorneys' fees incurred by the Exchange or any Exchange Party as a result of any claim relating to (a) any claim that any of the Neoforma Solutions provided to the Exchange, any Exchange Party or any User hereunder infringes or violates a third party's Intellectual Property, and (b) any use of the Product Data or the Catalog by Neoforma other than as permitted by ARTICLE 4. Neoforma shall pay all damages and costs finally awarded against the Exchange or any Exchange Party which are attributable to such a claim or 24 amounts agreed to be paid by the Exchange or any Exchange Party in settlement thereof, provided that the Exchange: (i) promptly notifies Neoforma of any such related claim or suit by a third party; (ii) permits Neoforma to assume sole authority to conduct the trial or settlement of such claim or suit or any negotiations related thereto at Neoforma's own expense; and (iii) provides information and assistance reasonably requested by Neoforma in connection with such claim or suit, at Neoforma's own expense if so requested; provided, further, however that: (A) the Exchange may participate in any such claim or suit at its own expense and (B) Neoforma shall not, without the Exchange's consent, agree to any settlement which (1) makes any admission on behalf of the Exchange, any Exchange Party or any User, (2) consents to any injunction against the Exchange, any Exchange Party or any User (except an injunction relating solely to continued use of any infringing intellectual property) or (3) imposes any ongoing liability on the Exchange, any Exchange Party or any User. 11.2. THE EXCHANGE. The Exchange agrees to indemnify and hold harmless Neoforma and any stockholder, officer, director, employee or agent thereof (collectively, "Neoforma Parties"), from any and all liabilities, damages, costs and expenses, including reasonable attorneys' fees incurred by Neoforma or any Neoforma Party as a result of any claim relating to (a) a claim that the Exchange provided to Neoforma the Catalog, or any part thereof, including any Product Data, that the Exchange had no right to so provide, or (b) a claim that any of the Exchange Solutions provided to Neoforma or any Neoforma Party hereunder infringes or violates a third party's Intellectual Property. The Exchange shall pay all damages and costs finally awarded against Neoforma or any Neoforma Party which are attributable to such a claim or amounts agreed to be paid by Neoforma or any Neoforma Party in settlement thereof, provided that Neoforma: (i) promptly notifies the Exchange of any such related claim or suit by a third party; (ii) permits the Exchange to assume sole authority to conduct the trial or settlement of such claim or suit or any negotiations related thereto at the Exchange's own expense; and (iii) provides information and assistance reasonably requested by the Exchange in connection with such claim or suit, at the Exchange's own expense if so requested; provided, further, however that: (A) Neoforma may participate in any such claim or suit at its own expense and (B) the Exchange shall not, without Neoforma's consent, agree to any settlement which (1) makes any admission on behalf of Neoforma or any Neoforma Party, (2) consents to any injunction against Neoforma or any Neoforma Party (except an injunction relating solely to continued use of any infringing intellectual property) or (3) imposes any ongoing liability on Neoforma or any Neoforma Party. ARTICLE 12 LIMITATION OF LIABILITY 12.1. LIMITATION OF NEOFORMA'S LIABILITY. Neoforma's aggregate liability for all claims of any kind (other than liabilities arising from death, bodily injury, Neoforma's obligations under Section 11.1, and breaches of Section 9.4 and 25 ARTICLE 10), whether based on contract, indemnity, warranty, tort (including negligence), strict liability or otherwise, for all losses or damages arising out of, connected with, or resulting from this Agreement or from the performance or breach thereof, or from any services covered by or furnished under this Agreement, shall in no case exceed $500,000. Except for liabilities arising from death, bodily injury, Neoforma's obligations under Section 11.1, and breaches of Section 9.4 and ARTICLE 10, Neoforma shall not be liable for any loss of business, use of data, interruption of business, lost profits or goodwill, or other indirect, special, incidental, exemplary or consequential damages of any kind, even if Neoforma has been advised of the possibility of such loss, and notwithstanding any failure of essential purpose of any remedy. 12.2. LIMITATION OF THE EXCHANGE'S LIABILITY. The Exchange's aggregate liability for all claims of any kind (other than liabilities arising from death, bodily injury, the Exchange's obligations under Section 11.2, and breaches of Section 9.4 and ARTICLE 10), whether based on contract, indemnity, warranty, tort (including negligence), strict liability or otherwise, for all losses or damages arising out of, connected with, or resulting from this Agreement or from the performance or breach thereof, or from any services covered by or furnished under this Agreement, shall in no case exceed $500,000. Except for liabilities arising from death, bodily injury, the Exchange's obligations under Section 11.2, and breaches of Section 9.4 and ARTICLE 10, the Exchange shall not be liable for any loss of business, use of data, interruption of business, lost profits or goodwill, or other indirect, special, incidental, exemplary or consequential damages of any kind, even if the Exchange has been advised of the possibility of such loss, and notwithstanding any failure of essential purpose or of any limited remedy. 12.3. TIME LIMITS ON BRINGING AN ACTION. No action may be brought by either party under this Agreement or otherwise more than two (2) years after the earlier of the time when the cause of action arose, or when the party was aware of facts which put it on notice thereof. ARTICLE 13 DISCLAIMERS 13.1. DISCLAIMERS OF THE EXCHANGE. OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE EXCHANGE MAKES NO REPRESENTATIONS, WARRANTIES OR COVENANTS TO NEOFORMA WITH RESPECT TO THE EXCHANGE INTELLECTUAL PROPERTY OR THE CATALOG. OTHER THAN AS EXPRESSLY SET FORTH ABOVE, THE EXCHANGE PROVIDES ALL SERVICES PERFORMED HEREUNDER "AS IS." THE EXCHANGE HEREBY DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY OF DATA, NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. THE EXCHANGE DOES NOT WARRANT THAT IT WILL BE ABLE TO CORRECT ALL REPORTED DEFECTS IN THE EXCHANGE SOLUTIONS OR THAT USE OF THE 26 EXCHANGE SOLUTIONS, OR ACCESS TO PRODUCT DATA OR LINKS TO OTHER SUPPLIER MATERIALS WILL BE UNINTERRUPTED OR ERROR-FREE. THE EXCHANGE PROVIDES NO WARRANTIES WITH RESPECT TO THE FUNCTIONALITY OF THE EXCHANGE SOLUTIONS. THE EXCHANGE MAKES NO WARRANTY REGARDING FEATURES, SOFTWARE OR SERVICES PROVIDED BY THIRD PARTIES. 13.2. DISCLAIMERS OF NEOFORMA. OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEOFORMA MAKES NO REPRESENTATIONS, WARRANTIES OR COVENANTS TO ANY PERSON OR ENTITY WITH RESPECT TO THE NEOFORMA INTELLECTUAL PROPERTY. OTHER THAN AS EXPRESSLY SET FORTH ABOVE, NEOFORMA PROVIDES ALL SERVICES PERFORMED HEREUNDER "AS IS." NEOFORMA HEREBY DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY OF DATA, NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE WITH REGARD TO NEOFORMA SOLUTIONS. NEOFORMA DOES NOT WARRANT THAT IT WILL BE ABLE TO CORRECT ALL REPORTED DEFECTS IN THE NEOFORMA SOLUTIONS OR THAT USE OF THE NEOFORMA SOLUTIONS WILL BE UNINTERRUPTED OR ERROR-FREE. NEOFORMA PROVIDES NO WARRANTIES WITH RESPECT TO THE FUNCTIONALITY OF NEOFORMA SOLUTIONS. NEOFORMA MAKES NO WARRANTY REGARDING FEATURES, SOFTWARE OR SERVICES PROVIDED BY THIRD PARTIES. ARTICLE 14 TERM AND TERMINATION 14.1. TERM. The term of this Agreement shall commence upon the Effective Date and continue in effect thereafter for a period of three (3) years, and shall remain in effect for the duration of any renewal periods to which the parties may mutually agree (collectively, the "Term"). This Agreement shall be renewable for additional successive one-year terms by mutual written consent of the parties. 14.2. EVENTS OF TERMINATION. This Agreement shall terminate upon the expiration of the Term, absent renewal by the parties, and may be terminated prior to the end of the Term: 14.2.1 by either party on ten (10) Business Days' prior written notice to the defaulting party if the defaulting party breaches its obligations under Section 4.1, Section 4.2, ARTICLE 9 or ARTICLE 10 and such breach has not been cured within such ten (10) Business Day period; 14.2.2 by either party upon forty-five (45) days prior written notice to the defaulting party if the defaulting party breaches, in any material respect, any of its representations, warranties or covenants in this Agreement (other than those described in Section 14.2.1), and such breach has not been cured within forty-five (45) days after receipt of written notice of such default from the non-defaulting party; 27 14.2.3 immediately by either party if: (i) the other party files a voluntary petition for relief under the United States Bankruptcy Code (the "Code"); (ii) an involuntary proceeding under the Code is instituted against the other party and such proceeding is not dismissed within sixty (60) days of filing; (iii) the other party is otherwise adjudged bankrupt; (iv) a trustee or receiver is appointed by the court for all or a substantial portion of the assets of the other party; (v) the other party becomes insolvent or suspends its business; or (vi) the other party makes an assignment of all or substantially all of its assets for the benefit of its creditors; 14.2.4 by the Exchange upon ten (10) Business Days' prior written notice and failure by Neoforma to cure any of the following within such notice period: (i) the Neoforma Solutions do not meet the standards of the Exchange or fail to transmit Transaction Data promptly or accurately; or (ii) the Exchange receives multiple, significant complaints from Users concerning the Neoforma Solutions and Neoforma fails to take appropriate corrective action; provided, however, that the Exchange may terminate this Agreement immediately if the Exchange, in the exercise of its reasonable discretion, determines that failure to take such action is likely to cause irreparable harm as a result of (i) or (ii). 14.2.5 by Neoforma upon ten (10) Business Days' prior written notice and failure by the Exchange to cure any of the following within such notice period: (i) the Exchange Solutions do not meet the standards of Neoforma or fail to transmit Transaction Data promptly or accurately; (ii) Neoforma receives multiple, significant complaints from Users concerning the Exchange Solutions; (iii) the Exchange withdraws the entire Catalog pursuant to Section 4.4(d); or (iv) if Exchange Suppliers constituting 30% of the average number of Exchange Suppliers for the preceding twelve months terminate their Supplier Catalog Addenda as to Neoforma; provided, however, that Neoforma may terminate this Agreement immediately if Neoforma, in the exercise of its reasonable discretion, determines that failure to take such action is likely to cause irreparable harm as a result of (i) or (ii). 14.2.6 by Neoforma, solely as to the license of Neoforma RCS granted in Section 3.1.5, upon ten (10) Business Days' prior written notice and failure by the Exchange to cure any of the following within such notice period: (i) the Exchange uses the Neoforma RCS in violation of the terms of the license set forth in Section 3.1.5, (ii) the Exchange fails to make any payment required by Section 3.1.7 when due, or (iii) the Exchange breaches the terms of ARTICLE 10 with respect to the Neoforma RCS. 14.3. CONSEQUENCES OF TERMINATION. If this Agreement terminates in accordance with ARTICLE 14, then upon expiration of the Transition Period, Neoforma shall (i) cease all use of Exchange Confidential Information, return or delete from all electronic media all such Exchange Confidential Information and 28 certify any such deletion to the Exchange, and (ii) terminate connectivity to the Exchange Interface. If this Agreement terminates in accordance with ARTICLE 14, then upon expiration of the Transition Period, the Exchange shall (i) cease all use of Neoforma Confidential Information, return or delete from all electronic media all such Neoforma Confidential Information and certify any such deletion to Neoforma, and (ii) terminate connectivity to the Neoforma Interface. Notwithstanding the foregoing, Transaction Data may be retained for archive purposes and for purposes permitted by either of its joint owners. If the license of the Neoforma RCS terminates in accordance with Section 14.2.6, then upon expiration of the Transition Period, the Exchange shall cease all use of Neoforma RCS and return or delete all software included in the Neoforma RCS from all electronic media and certify any such deletion to Neoforma. ARTICLE 15 GENERAL 15.1. EXPENSES. Except as expressly provided herein or agreed to in writing, each party shall bear all of its own costs and expenses hereunder, including all fees and other amounts payable to third parties such as license, maintenance and support fees. 15.2. INDEPENDENT CONTRACTORS. Each party to this Agreement shall be an independent contractor of the other, and shall not be a partner, principal, agent or fiduciary of the other party. Neither party shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other party. This Agreement shall not be interpreted or construed to create an association, joint venture or partnership between the parties or to impose any partnership obligation or liability upon either party. 15.3. INTEGRATION AND WAIVER. This Agreement and any schedules and exhibits attached hereto or subsequently executed hereunder constitute the entire agreement between the parties relating to this subject matter. All previous and collateral agreements, representations, warranties, promises and conditions relating to the subject matter of this Agreement are superseded by this Agreement. Any understanding, promise, representation, warranty or condition not incorporated into this Agreement shall not be binding on either party. No change, amendment or modification of any provision of this Agreement shall be valid unless set forth in a written instrument signed by the duly authorized representatives of both parties. Either party's failure, at any time or times hereafter, to require strict performance by the other party under any provision of this Agreement shall not waive, affect or diminish any right of that party thereafter to demand strict compliance and performance therewith. Any suspension or waiver by either party of the other party's performance under any provision of this Agreement shall not suspend, waive or affect the other party's obligation to perform under any other provision of this Agreement, whether the same is prior 29 or subsequent thereto and whether of the same or of a different kind or character. 15.4. SEVERABILITY. The invalidity or unenforceability of any term or provision herein shall in no way affect the validity or enforceability of any other term or provision. In such event, the invalid or unenforceable provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law. 15.5. NON-SOLICITATION. During the Term and for a period of one (1) year from the date of any termination of this Agreement, each party agrees not to knowingly solicit the employees of the other party without the prior written permission of the other party. 15.6. DISPUTES. Unless otherwise required in order to comply with deadlines under the law, and other than requests for injunctive or other preliminary relief, neither party shall file action or institute legal proceedings with respect to any dispute, controversy, or claim arising out of, relating to, or in connection with, this Agreement until: (i) the aggrieved party has given the other party written notice of its grievance setting forth the nature of the dispute, the amount involved, if any, and the remedy desired, and delivering in accordance with Section 15.10; (ii) the other party has failed to provide a prompt and effective remedy; (iii) the aggrieved party has requested senior executives for both parties to meet and discuss the matter in order to consider informal and amicable means of resolution; and (iv) either such meeting failed to occur within fifteen (15) days after such request or the meeting did not produce a mutually satisfactory resolution of the matter. 15.7. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York as though all acts or omissions related hereto occurred in such state. All court actions arising out of or relating to this Agreement shall be brought exclusively in a state or federal court located in the State of New York. Each party hereby consents to the jurisdiction of such courts. 15.8. FORCE MAJEURE. Neither party shall be liable for, or be considered in breach of or in default under this Agreement on account of, any delay or failure to perform as required by this Agreement as a result of any causes or conditions which are beyond such party's reasonable control and which such party is unable to overcome by the exercise of reasonable diligence; provided, however, that either party may terminate this Agreement upon written notice to the other party in the event such failure to perform continues unremedied for a period of thirty (30) days. 15.9. ASSIGNMENT. Neither party shall have the right to assign or transfer its rights or obligations pursuant to this Agreement without the prior written consent of the other party, except that either party may assign or transfer this Agreement: 30 (i) to a successor as a result of a merger, consolidation, acquisition, reorganization or sale of all or substantially all of such party's assets; or (ii) to a direct or indirect subsidiary. No such assignment or transfer shall have the effect of increasing the obligations of either party under this Agreement. The terms and conditions of this Agreement will inure to the benefit of, and shall be binding upon, each party's successors and permitted assigns. In addition, either party may delegate any of its rights and obligations hereunder to any subsidiary of such party, provided that the delegating party shall not thereby be relieved of any of its obligations hereunder. 15.10. NOTICES. Any notice, approval, request, authorization, direction or other communication under this Agreement shall be given in writing and shall be deemed to have been delivered and given for all purposes (i) on the delivery date if delivered personally to the party to whom the same is directed, (ii) one business day after deposit with a commercial overnight carrier, with written verification of receipt, or (iii) five business days after the mailing date, with written verification of receipt, if sent by United States certified mail, return receipt requested, postage and charges prepaid, to the address of the party to whom the same is directed. Notices sent pursuant to this Section 15.10 may not be sent via electronic mail. The mailing address for notice to either party shall be the address shown on the signature page of this Agreement. Either party may change its mailing address or facsimile number by providing notice to the other party in the manner set forth in this Section 15.10. 15.11. EXECUTION. This Agreement may be executed in one or more counterparts, each of which shall be considered an original counterpart, and shall become a binding agreement when each party shall have executed one counterpart. This Agreement may be signed in person or by facsimile and each party is entitled to rely upon facsimile signatures to this Agreement. 15.12. SURVIVAL. The provisions of ARTICLE 2, Section 3.1.5 (subject to Section 14.2.6), ARTICLE 9, ARTICLE 10, ARTICLE 11, ARTICLE 12, ARTICLE 13, Section 14.3, and ARTICLE 15 shall survive termination of this Agreement. 15.13. THIRD PARTY BENEFICIARIES. To the extent that (i) any proprietary rights of Users are granted by either Neoforma or the Exchange to the other hereunder, or (ii) any restrictions on the use or distribution of any such proprietary rights are included herein, then such Users shall be third party beneficiaries of this Agreement. As third party beneficiaries, Users shall be entitled to enforce directly the provisions of this Agreement governing such rights and restrictions, provided that (i) any breach of the terms and/or conditions or this Agreement by Neoforma or the Exchange has continued for at least 60 days after the expiration of any applicable grace or cure period specified herein, and (ii) Users' rights of enforcement shall be strictly subject to the terms and conditions of this Agreement, including all restrictions, exclusions and limitations set forth herein. 31 15.14. REVISIONS TO AGREEMENTS. Subject to the other provisions of this Agreement, promptly following the Effective Date, the parties will review and discuss revisions to their respective standard forms of agreement which would facilitate and encourage adoption and use of the Integrated Solution, provided that nothing in this Section 15.14 shall require either party to make any such change. 15.15. INCONSISTENT USER AGREEMENT TERMS. If any agreement entered into between a User and either party grants rights broader than the rights granted to the Exchange or to Neoforma under this Agreement, the provisions in the agreement with such User shall govern with respect to such matters. 32 IN WITNESS WHEREOF, the parties hereto have cause their duly authorized representatives to execute this Agreement effective as of the date set forth in the opening paragraph of this Agreement. GLOBAL HEALTHCARE EXCHANGE, LLC NEOFORMA, INC. By: /s/ Mike Mahoney By: /s/ Robert J. Zollars ------------------------------ ----------------------------------- Name: Name: Robert J. Zollars Title: President Title: CEO Address: Address: 10385 Westmoor Drive 3061 Zanker Road Suite 100 San Jose, CA 95134 Westminster, CO 82006 Attn: Chief Executive Officer Attn: General Counsel Fax: (408) 468-4045 Fax: (720) 887-7200 with a copy to the General Counsel at with a copy to: the same address. Sidley Austin Brown & Wood Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 Attn: Jeffrey S. Rothstein Fax: (312) 853-7036 SCHEDULE A Current Exchange MOU's and Evaluation Agreements - ------------------------- ------------------------- ------------------------- COMPANY NAME COMPANY NAME COMPANY NAME - ------------------------- ------------------------- ------------------------- * - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - ------------------------- ------------------------- ------------------------- - -------- * Confidential treatment requested SCHEDULE B Service Level Requirements to be included in Distributor Service Level Requirements

- ------------------------------ --------------------------------- ------------------------------------ BASE LEVEL SERVICE MEASUREMENT DEFINITION TARGET - ------------------------------ --------------------------------- ------------------------------------ System Up Time Percent of time Supplier * % Connectivity Portal is (24 hours a day, 365 days a year) available to all Users, excluding scheduled maintenance - ------------------------------ --------------------------------- ------------------------------------ Simultaneous User Capacity Number of Users accessing the * user accounts by *; Supplier Connectivity Portal * user accounts by * simultaneously which the Supplier Connectivity Portal can support - ------------------------------ --------------------------------- ------------------------------------ Total Transaction Capacity Number of Transactions which * by *; the Supplier Connectivity * by * Portal can support annually - ------------------------------ --------------------------------- ------------------------------------ Peak Time Transactions Number of Transactions which * by *; Capacity the Supplier Connectivity * by * Portal can support in a high-traffic period measuring 5 minutes - ------------------------------ --------------------------------- ------------------------------------ Transaction Throughput Maximum time within the PO's from User * Requirements Supplier Connectivity Portal Change PO's * for various types of PO Acknow. * Transactions Ship Notices from Supp. * Invoices from Distributor * Catalog, Price Files * - ------------------------------ --------------------------------- ------------------------------------ Network Connection Speed Supplier Connectivity Portal connection speed minimum * requirements - ------------------------------ --------------------------------- ------------------------------------

- -------- * Confidential treatment requested SCHEDULE C Description of Neoforma RCS Neoforma RCS is proprietary Neoforma Intellectual Property, together with all related documentation, that enables rapid, robust connectivity to Distributors by leveraging the following components: - - Existing business relationships - - Connectivity protocols processes - - Order document data maps - - Directory services and trading relationship management information - - Distributor specific business rules - - Distributor specific Service Level Agreement compliance monitoring - - Provider specific order monitoring and escalation setup (JIT, Order Deadlines) - - Customer service methodologies/escalation processes - - Proven operational Interfaces (people, process, technical understanding) - - Templates - - Set-ups - - Configurations - - Development methodologies which support Distributor connectivity Neoforma RCS currently supports a variety of connectivity protocols (*) all order document formats currently in use by Neoforma (*), and document translation services (*). - -------- * Confidential treatment requested 36 SCHEDULE D Rate Schedule for Additional Consulting Services

- ------------------------------------------------- ----------------------------- Nature of Service Hourly Rate* - ------------------------------------------------- ----------------------------- - ------------------------------------------------- ----------------------------- Technical Program Manager $* - ------------------------------------------------- ----------------------------- Implementation Manager $* - ------------------------------------------------- ----------------------------- Architecture and Design $* - ------------------------------------------------- ----------------------------- Senior Applications Engineer $* - ------------------------------------------------- ----------------------------- Applications Engineer $* - ------------------------------------------------- ----------------------------- Data Mapping and Integration Manager $* - ------------------------------------------------- ----------------------------- Data Mapping and Integration Specialist $* - ------------------------------------------------- ----------------------------- Customer Service Manager $* - ------------------------------------------------- ----------------------------- Training and Support Systems $* - ------------------------------------------------- -----------------------------

*The hourly rates set forth in this table are the rates in effect on the Effective Date and may be increased proportionally if Neoforma or the Exchange, as the case may be, increases the rates for consulting services it charges other parties. - -------- * Confidential treatment requested 37 SCHEDULE E Current and Pending Agreements Limiting the Exchange's Ability to Recommend the Integrated Solution Current and pending agreements with: * - -------- * Confidential treatment requested 38 EX-10.2 4 f76841ex10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 CONFIDENTIAL TREATMENT REQUESTED: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND, WHERE APPLICABLE, HAS BEEN MARKED WITH AN ASTERISK TO DENOTE WHERE OMISSIONS HAVE BEEN MADE. THE CONFIDENTIAL MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT This First Amendment to the Second Amended and Restated Outsourcing and Operating Agreement ("Agreement") is entered into effective as of July 1, 2001 (the "Effective Date"), by and among Neoforma, Inc., fdba Neoforma.com, Inc., a Delaware corporation with offices at 3061 Zanker Road, San Jose, CA 95134 ("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, the parties wish to accelerate the value offered by the Exchange to Members by expanding the scope of transactions covered by the Exchange to include * . WHEREAS, the parties wish to amend the Agreement as set forth below to enable this expansion to occur. 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 Agreement as follows: SECTION 1. A new definition of the term "EDI STANDARDS" shall be added which states: "EDI STANDARDS" means, the standard format for Electronic Data Interchange (EDI) generally accepted and used in North America, as may change from time to time. SECTION 2. A new definition of the term "EXCHANGE INFORMATION" shall be added which states: "EXCHANGE INFORMATION" means the delivery of information for use by Members and Suppliers, including but not limited to *, regarding the purchase of a Product by a Member participating in the Exchange made through * . A Member participating in the Exchange is a Member who has signed a Member participation agreement with Neoforma. * Confidential treatment requested 1 SECTION 3. A new definition of the term "EXCHANGE INFORMATION TRANSACTION VALUE(s)" shall be added which states: "EXCHANGE INFORMATION TRANSACTION VALUE(s)" means, with regard to the provision of Exchange Information, the * relating to the Product purchased, rented or leased. SECTION 4. A new definition of the term "*" will be added which states * SECTION 5. The definition of "NOVATION EXCHANGE TRANSACTION FEE(s)" shall be replaced in its entirety with the following: "NOVATION EXCHANGE TRANSACTION FEE(s)" means fees to be paid by Suppliers in respect of (i) transactions occurring on the Novation Exchange or (ii) receiving Exchange Information, excluding fees associated with Neoforma Auction and Neoforma Plan. SECTION 6. The definition of "SUPPLIER(s)" shall be replaced in its entirety with the following: "SUPPLIER(s)" means suppliers, manufacturers or distributors that provide Products and Materials for display, sale, rental or lease, including, without limitation, High-Volume Suppliers pursuant to an agreement allowing participation on the Exchange. SECTION 7. The definition of "TRANSACTION FEE(s)" shall be replaced in its entirety with the following: "TRANSACTION FEE(s)" means fees to be paid by Suppliers with whom Novation has contracted on Neoforma's behalf in respect of (i) transactions occurring on the Exchange or (ii) receiving Exchange Information, but excluding fees associated with the Novation Exchange, Neoforma Auction and Neoforma Plan. SECTION 8. Section 8.1.1 shall be replaced in its entirety with the following: 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 and the receipt of Exchange Information. SECTION 9. Section 8.1.2 shall be replaced in its entirety with the following: 8.1.2 Novation * to Neoforma (the "*") on all purchases made through the Novation Exchange and for Exchange Information. The * shall be calculated as a percentage (the "* PERCENTAGE") of the * (i) the * (ii) the * basis as set forth on *. Subject to Section 3.8 and Subsections 8.1.3, 8.1.5 and 8.2.4, * calculated in accordance * Confidential treatment requested 2 with this Section 8.1.2 and * in accordance with GAAP for * . (Exhibit I, Example 1, sets forth a hypothetical calculation of * under Subsections 8.1.1 and 8.1.2.). SECTION 10. A new Subsection 8.1.5 shall be added which states: 8.1.5 Notwithstanding anything in this Agreement to the contrary, any amount * and, if applicable, either Subsection 8.1.3 or Subsection 8.2.4, that is attributable to Transaction Fees in respect of Exchange Information will * , whichever is applicable, * (i) the * and (ii) 1.05. By way of example, if (A) the amount * and (B) * , then (C) the * . SECTION 11. Section 8.4 shall be replaced in its entirety with the following: Reporting and Payment of Novation Exchange Transaction Fees and Revenue Sharing. Within 15 days of the end of each * (in aggregated reporting for the * ), Neoforma will provide each of Novation, VHA and UHC, with a written report consisting of (i) aggregate Adjusted Gross Transaction Values and Exchange Information 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, (vii) the calculation of * , and (viii) 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. SECTION 12. Section 8.6 shall be replaced in its entirety with the following: 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 or relating to the Exchange Information. 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. SECTION 13. Section 10.2 shall be replaced in its entirety with the following: 10.2 Transaction Database. Neoforma will create and maintain the Transaction Database relating to all activity occurring on the Exchange and relating to Exchange Information in accordance with the Functionality Specifications to be mutually agreed upon. Novation and Neoforma shall only use Information in accordance with the * Confidential treatment requested 3 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. SECTION 14. Exhibit G shall be replaced in its entirety with the following: The * shall be determined by multiplying the * set forth below: In determining the foregoing calculation, the *. By way of example, if in a * for a total of $*. SECTION 15. Exhibit I shall be replaced in its entirety with the following: Example 1 * Example 2 * SECTION 16. All Other Terms Unchanged. Except as expressly modified by this Amendment, all terms of the Agreement shall remain in full force and effect. * Confidential treatment requested 4 SECTION 17. Governing Law. This Amendment shall be governed by and construed under the internal laws of the State of New York and shall be binding upon the parties hereto in the United States and worldwide. The federal and state courts of New York shall have exclusive jurisdiction to adjudicate any dispute arising out of this Amendment. SECTION 18. Counterparts. This Second 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. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates written below. NEOFORMA, INC. NOVATION, LLC By: /s/ Robert J. Zollars By: /s/ Mark McKenna ------------------------ ------------------------------------- Name: Robert J. Zollars Name: Mark McKenna ------------------------ ------------------------------------- Title: Chief Executive Officer Title: President Date: September 28, 2001 Date: September 28, 2001 ------------------------ ------------------------------------- VHA, INC. UNIVERSITY HEALTHSYSTEM CONSORTIUM By: /s/ Curt Nonomaque By: /s/ Robert J. Baker ------------------------ ------------------------------------- Name: Curt Nonomaque Name: Robert J. Baker ------------------------ ------------------------------------- Title: Chief Financial Officer Title: President and Chief Executive Officer ------------------------ ------------------------------------- Date: September 28, 2001 Date: September 28, 2001 ------------------------ ------------------------------------- HEALTHCARE PURCHASING PARTNERS INTERNATIONAL, LLC By: /s/ Mark McKenna -------------------------- Name: Mark McKenna -------------------------- Title: Chief Executive Officer -------------------------- Date: September 28, 2001 -------------------------- [SIGNATURE PAGE TO FIRST AMENDMENT TO SECOND AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT] 6 GRAPHIC 5 f76841xbox.gif GRAPHIC begin 644 f76841xbox.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA>`/]%8T:PH,%_ M&0`H7,@0(3UF_R)&C*8N`T)P"O1(1"4@F$6+UB@0^H=*P2V$*/]94\!$P$F4 J%B/^`1!%XL>('#-EC'BSY,F0(S]& GRAPHIC 6 f76841box.gif GRAPHIC begin 644 f76841box.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? M"!,J_/<#F;B'$!\:8"BNX,`#%"T*Q/BCHD:.'BV"U/AOY,>,)SN2Y&C@@,N7 &+@$$!``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1



CONFIDENTIAL TREATMENT REQUESTED: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND, WHERE APPLICABLE,
HAS BEEN MARKED WITH AN ASTERISK TO DENOTE WHERE OMISSIONS HAVE BEEN MADE. THE
CONFIDENTIAL MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.





- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------




                          INTEGRATED SOLUTION AGREEMENT

                                     between

                         GLOBAL HEALTHCARE EXCHANGE, LLC

                                       and

                                  NEOFORMA, INC


















                           Dated as of August 28, 2001




- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------




                                TABLE OF CONTENTS





                                                                                          Page
                                                                                          ----
                                                                                       
ARTICLE 1  BACKGROUND........................................................................1

ARTICLE 2  DEFINITIONS; RULES OF CONSTRUCTION................................................2

        2.1.   Definitions...................................................................2
        2.2.   Rules of Construction.........................................................7
        2.3.   Legal Review..................................................................8

ARTICLE 3  DEVELOPMENT AND ALLIANCE STRUCTURE................................................8

        3.1.   Initial Development Responsibilities..........................................8
        3.2.   Costs of Development and Integration.........................................11
        3.3.   API Cross Licenses...........................................................11
        3.4.   Future Development...........................................................12
        3.5.   Changes......................................................................12
        3.6.   Alliance Structure...........................................................12

ARTICLE 4  CONTENT LICENSE..................................................................13

        4.1.   License......................................................................13
        4.2.   Limitations on Display of Catalog............................................14
        4.3.   Catalog Updates..............................................................15
        4.4.   Withdrawal of Catalog........................................................15
        4.5.   Identification of the Exchange...............................................15

ARTICLE 5  SECURITY; PRIVACY................................................................15

        5.1.   Security.....................................................................15
        5.2.   Privacy......................................................................16

ARTICLE 6  MARKETING; REFERRALS.............................................................16

        6.1.   Alliance Management..........................................................16
        6.2.   Marketing; Expenses..........................................................16
        6.3.   Sales Cooperation; No Sales Agency...........................................16
        6.4.   Exclusivity..................................................................17
        6.5.   Recommending the Integrated Solution.........................................17

ARTICLE 7  IMPLEMENTATION AND SUPPORT.......................................................19

        7.1.   Implementation, Training and Fulfillment.....................................19
        7.2.   Technical Support............................................................19
        7.3.   Linkages.....................................................................20





                                       i



                                Table of Contents
                                   (continued)





                                                                                          Page
                                                                                          ----
                                                                                       
ARTICLE 8  REPRESENTATIONS AND WARRANTIES...................................................20

        8.1.   Representations and Warranties of the Exchange...............................20
        8.2.   Representations and Warranties of Neoforma...................................21

ARTICLE 9  OWNERSHIP........................................................................21

        9.1.   Ownership by the Exchange....................................................21
        9.2.   Ownership by Neoforma........................................................21
        9.3.   Ownership by Third Parties...................................................22
        9.4.   Transaction Data.............................................................22
        9.5.   Aggregated Data..............................................................22
        9.6.   Publicity; Use of Marks......................................................22

ARTICLE 10  CONFIDENTIALITY.................................................................23

        10.1.  Confidential Information.....................................................23
        10.2.  Obligations..................................................................23
        10.3.  Legal Process................................................................24
        10.4.  Injunctive Relief............................................................24

ARTICLE 11  INDEMNIFICATION.................................................................24

        11.1.  Neoforma.....................................................................24
        11.2.  The Exchange.................................................................25

ARTICLE 12  LIMITATION OF LIABILITY.........................................................25

        12.1.  Limitation of Neoforma's Liability...........................................25
        12.2.  Limitation of the Exchange's Liability.......................................26
        12.3.  Time Limits on Bringing an Action............................................26

ARTICLE 13  DISCLAIMERS.....................................................................26

        13.1.  DISCLAIMERS OF THE EXCHANGE..................................................26
        13.2.  DISCLAIMERS OF NEOFORMA......................................................27

ARTICLE 14  TERM AND TERMINATION............................................................27

        14.1.  Term.........................................................................27
        14.2.  Events of Termination........................................................27
        14.3.  Consequences of Termination..................................................28

ARTICLE 15  GENERAL.........................................................................29

        15.1.  Expenses.....................................................................29
        15.2.  Independent Contractors......................................................29
        15.3.  Integration and Waiver.......................................................29





                                       ii



                                Table of Contents
                                   (continued)





                                                                                          Page
                                                                                          ----
                                                                                       
        15.4.  Severability.................................................................30
        15.5.  Non-Solicitation.............................................................30
        15.6.  Disputes.....................................................................30
        15.7.  Governing Law; Jurisdiction..................................................30
        15.8.  Force Majeure................................................................30
        15.9.  Assignment...................................................................30
        15.10. Notices......................................................................31
        15.11. Execution....................................................................31
        15.12. Survival.....................................................................31
        15.13. Third Party Beneficiaries....................................................31
        15.14. Revisions to Agreements......................................................32
        15.15. Inconsistent User Agreement Terms............................................32





                                      iii



               THIS INTEGRATED SOLUTION AGREEMENT is entered into as of August
28, 2001 (the "Effective Date"), by and between GLOBAL HEALTHCARE EXCHANGE, LLC,
a Delaware limited liability company (the "Exchange"), and NEOFORMA, INC., a
Delaware corporation ("Neoforma").


                                   ARTICLE 1
                                   BACKGROUND

               The Exchange and Neoforma each operate on-line, independent
electronic trading exchanges (the "Exchange Site" and the "Neoforma
Marketplaces", respectively) intended to facilitate the real-time transfer of
funds, information, goods and services in the medical and healthcare equipment,
products, services and supplies market between suppliers ("Suppliers") of
medical information, goods and services ("Products") and their customers
("Providers"). Users of both the Exchange and the Neoforma Marketplaces include
both Suppliers and Providers, in each case that have executed an applicable user
agreement with the applicable party (each such user agreement being a "User
Agreement"). Suppliers and Providers using either the Exchange Site or the
Neoforma Marketplaces are hereinafter referred to collectively as "Users."

               The Exchange has developed a proprietary e-commerce portal (the
"Supplier Connectivity Portal") that permits Exchange Suppliers to supply
Product information for display in a catalog containing Product Data of multiple
Exchange Suppliers, organized according to the Exchange's proprietary
classification scheme (the "Classification Scheme"). The Supplier Connectivity
Portal also permits Exchange Purchasers to browse the Catalog and review the
status of any Product orders, and it facilitates the formation of contracts
between Users of the Exchange for the purchase and sale of Products.

               Neoforma Marketplaces provide customized marketplace solutions
and services that enable customers to maximize their existing technology and
supply chain relationships. Neoforma Marketplaces connect trading partners to a
common marketplace platform and enable them to review hosted catalog and pricing
information, facilitate the formation of contracts and review the status of
purchase orders and invoice information. Neoforma Marketplaces deploy a catalog
solution containing product data from a broad base of suppliers, organized
according to Neoforma's proprietary classification scheme ("Neoforma
Classification Scheme").

               The Exchange and Neoforma wish to work together to develop a
classification scheme that supports the needs of Users of the Integrated
Solution.

               The Exchange and Neoforma wish to integrate the Neoforma
Marketplaces with the Supplier Connectivity Portal by developing the Exchange
Interface and the Neoforma Interface (each as defined below), respectively, and
coordinate the marketing of the resulting integrated solution, which will
enable: (1) the Exchange Site and the Neoforma Marketplaces to exchange order
and other




                                       1


information with one another, and (2) the Neoforma Marketplaces to display the
Catalog (hereinafter, the "Integrated Solution"). The Integrated Solution is
intended to create an integrated end-to-end supply chain solution that
accelerates Supplier and Provider adoption of e-procurement in health care,
minimizes supply chain costs of connectivity and information exchange, and
thereby accelerates the realization of the benefits of e-commerce to Suppliers
and Providers.

               Within the scope of this alliance, the Exchange shall provide
connectivity solutions for Suppliers, and Neoforma shall provide connectivity
solutions for Providers and additional procurement related functionality, both
of which will be designed to accelerate adoption of ecommerce procurement
solutions by Users. In addition, the parties may: (i) develop premium services,
both independently and jointly, (ii) jointly offer the Integrated Solution to
target markets outside each party's current customer base, (iii) co-market and
cross-sell each party's respective premium services to buyers and suppliers,
(iv) eliminate redundant costs of both the parties and the Users and (v) pursue
other programs that accelerate adoption of ecommerce solutions by the Users.

               The Exchange and Neoforma wish to enter into this Agreement to
specify their respective rights and obligations with respect to such
integration, marketing and related matters.

               THEREFORE, the parties, for good and valuable consideration, the
receipt and sufficiency of which are acknowledged, agree as follows:


                                   ARTICLE 2
                       DEFINITIONS; RULES OF CONSTRUCTION

        2.1. DEFINITIONS. The following terms shall have the following meanings:

        "Affiliate" means, with respect to a specific Person, any Person that,
directly or indirectly, or through one or more intermediaries, owns or Controls,
is owned or Controlled by, or is under common ownership or common Control with,
such specific Person.

        "Aggregated Data" means aggregated Transaction Data. Aggregated Data
shall not include any information that may identify the parties to the
transactions comprising the Aggregated Data.

        "Agreement" means this Integrated Solution Agreement, as it may be
amended in accordance with its terms.

        "Alliance Manager" has the meaning set forth in Section 6.1.

        "APIs" means application programming interfaces.




                                       2


        *

        *

        "Business Day" means any day when banks are generally open for business
in New York.

        "Catalog" means the catalog of Product Data (compiled and owned by the
Exchange) described in ARTICLE 1, to the extent that Exchange Suppliers have
executed a Supplier Catalog Addendum with the Exchange, together with all
elements of the Classification Scheme, including categories and subcategories,
and all modifications or subsets thereof that Neoforma is entitled to create
pursuant to Section 4.2.

        "Classification Scheme" has the meaning set forth in ARTICLE 1.

        "Confidential Information" has the meaning set forth in Section 10.1.

        "Control" means, as applied to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.

        "Covered Providers" means, at any particular time, (i) Novation and all
members of VHA, UHC, HPPI and Medbuy, a Canadian GPO, (ii) members of other GPOs
which the parties agree in writing shall be Covered Providers, and (iii) other
independent healthcare providers which the parties have agreed in writing shall
be Covered Providers.

        "Covered Suppliers" means, at any particular time, (i) all Exchange
Suppliers, (ii) each Supplier set forth in Schedule A, but only for so long as
such party has an agreement in effect with the Exchange concerning its
participation in the Exchange (other than an agreement terminating such
participation), (iii) other Suppliers which the parties have agreed in writing
shall be Covered Suppliers, and (iv) subject to the following provisions of this
definition, each Distributor that executes or has executed an Exchange User
Agreement. Because the Distributor Service Level Requirements change over time,
a Distributor that executes an Exchange User Agreement after the Effective Date
shall constitute a Covered Supplier at all times from and after the later to
occur of (A) the date such Distributor executes its Exchange User Agreement, and
(B) the date the Exchange first satisfies in all material respects the
Distributor Service Level Requirements in effect when such satisfaction occurs.
Any Distributor that has executed an Exchange User Agreement on or before the
Effective Date shall constitute a Covered Supplier on the date the Exchange
first satisfies in all material respects the Distributor Service Level
Requirements in effect when such satisfaction occurs.

        "Distributor" means any distributor of goods manufactured by others,
whether acting as a supplier or purchaser.

- --------
* Confidential treatment requested




                                       3


        "Distributor Service Level Requirements" means the service level
requirements agreed to between the Exchange and Neoforma pursuant to Section
3.1.4, which shall in any event include (i) the service level requirements set
forth in Schedule B, and (ii) all relevant service level targets in Neoforma's
service level agreements with Distributors existing on the Effective Date, to
the extent that (A) such targets are not already specified in Schedule B, and
(B) Neoforma is meeting such service level targets in all material respects on
the Effective Date for all applicable Distributors using the Neoforma
Marketplaces.

        "Effective Date" has the meaning set forth in the first paragraph.

        "Exchange Aggregated Data" means Aggregated Data that is collected by
the Exchange.

        "Exchange Confidential Information" has the meaning set forth in Section
10.1.

        "Exchange Intellectual Property" means all Intellectual Property,
whether now existing or hereafter arising, embodied in or relating directly to
the Exchange Solutions.

        "Exchange Interface" shall mean the Initial Exchange Interface and all
modifications and additions thereto created by the Exchange.

        "Exchange Parties" has the meaning set forth in Section 11.1.

        "Exchange Purchasers" means Providers who have entered into an Exchange
User Agreement with the Exchange.

        "Exchange Site" has the meaning set forth in ARTICLE 1.

        "Exchange Solutions" means (a) the Supplier Connectivity Portal, (b) the
Exchange Site (including all web pages of the Exchange Site), (c) the Exchange
Interface, including GHXml(TM), (d) the Classification Scheme, (e) product and
connectivity specifications, schematics, documentation, source code and object
code of Exchange software, (f) data maps and definitions, and (g) any
modifications or enhancements to any of (a) through (f).

        "Exchange Suppliers" means Suppliers who have entered into an Exchange
User Agreement with the Exchange.

        "Exchange User Agreement" means the User Agreement that the Exchange
enters into with Exchange Users.

        "Exchange User" means a User who has entered into an Exchange User
Agreement with the Exchange.

        "GHXml(TM)" means the Exchange's proprietary XML schema and document
type definitions (DTDs).




                                       4


        "GPO" means a group purchasing organization.

        "HPPI" means Healthcare Purchasing Partners International, LLC.

        "Initial Consulting Services" has the meaning set forth in Section
3.1.6.

        "Initial Exchange Interface" means the APIs developed by the Exchange in
accordance with Section 3.1.

        "Initial Neoforma Interface" means the APIs developed by Neoforma in
accordance with Section 3.1.

        "Integrated Solution" has the meaning set forth in ARTICLE 1.

        "Integrated Solution User" means a User that (i) is both an Exchange
User and a Neoforma User, and (ii) uses the Integrated Solution.

        "Interface" means the Exchange Interface or the Neoforma Interface, as
the case may be.

        "Intellectual Property" means any: (a) Marks, trademarks, trade names,
service marks, domain names, trade dress, logos, goodwill and brand, and other
similar designations; (b) moral rights, copyrights or copyrightable works; (c)
APIs, software programs, test tools, utilities and processes developed to
support the integration between the Neoforma Marketplaces and the Exchange Site;
(d) patents, patent rights, inventions or trade secrets; (e) design, so-called
"look and feel" and graphical user interface; and (f) other protectable property
rights.

        "Licensed Purpose" has the meaning set forth in Section 3.1.5.

        "Marks" means an entity's identity elements, including its name and logo
and such other trademarks, trade names, trade dress, service marks and service
names that such entity uses or to which it has registration rights.

        *

        *

        "Neoforma Aggregated Data" means Aggregated Data that is collected by
Neoforma.

         "Neoforma Classification Scheme" has the meaning set forth in ARTICLE 1
"Neoforma Confidential Information" has the meaning set forth in Section 10.1.

        "Neoforma Intellectual Property" means all Intellectual Property,
whether now existing or hereafter arising, embodied in or relating directly to
the Neoforma Solutions.

- --------
* Confidential treatment requested




                                       5


        "Neoforma Interface" shall mean the Initial Neoforma Interface and all
modifications and additions thereto created by Neoforma.

        "Neoforma Parties" has the meaning set forth in Section 11.2.

        "Neoforma Products" has the meaning set forth in ARTICLE 1.

        "Neoforma Purchasers" means Providers who have entered into a Neoforma
User Agreement with Neoforma.

        "Neoforma RCS" means the Neoforma software, in source and object code,
and all related know-how, specifications, schematics and documentation, as more
fully described in Schedule C.

        "Neoforma Solutions" means (a) the Neoforma Marketplaces (including all
web pages of the Neoforma Marketplaces), (b) the Neoforma Interface, (c) the
Neoforma Classification Scheme, (d) product and connectivity specifications,
schematics, documentation, source code and object code of Neoforma software, (e)
Neoforma RCS, (f) data maps and definitions, and (g) any modifications or
enhancements to any of (a) through (f).

        "Neoforma User" means a User who has entered into a Neoforma User
Agreement with Neoforma.

        "Neoforma User Agreement" means the User Agreement that Neoforma enters
into with Neoforma Users.

        "Novation" means Novation, LLC, the supply company of VHA, UHC and HPPI.

        "Person" means any general partnership, limited partnership,
corporation, limited liability company, joint venture, trust, business trust,
governmental agency, cooperative, association, individual or other entity, as
the context may require.

        "Product Data" means Product information that an Exchange Supplier
provides to the Exchange to display on the Exchange Site or to communicate to
Purchasers, including Product item numbers, features, functions, extended units
of measure, contract identification numbers, product descriptions, catalog
prices, catalogs, directions for use, text, pictures, sound, video and other
data.

        "Products" has the meaning set forth in ARTICLE 1.

        "Providers" has the meaning set forth in ARTICLE 1.

        "Purchasers" means Neoforma Purchasers and Exchange Purchasers.

        "Supplier Connectivity Portal" has the meaning set forth in ARTICLE 1.




                                       6


        "Supplier Catalog Addendum" means an addendum to the Exchange User
Agreement, or another agreement between the Exchange and the applicable Exchange
Supplier, governing the Exchange's use of such Exchange Supplier's Product Data
at a location other than the Exchange Site and authorizing the Exchange to
distribute such Product Data to the Exchange's channel partners and other
parties, including Neoforma.

        "Suppliers" has the meaning set forth in ARTICLE 1.

        "Term" has the meaning set forth in Section 14.1.

        "Territory" has the meaning set forth in Section 4.1.

        "Transaction Data" means any information communicated by the Exchange or
Neoforma to a User, by a User to the Exchange or the Neoforma Marketplaces or
between a Supplier and a Purchaser through the Exchange or Neoforma, that
relates to Product purchase, sale, availability, price, terms of payment or
order status, including summaries and compilations of the foregoing.

        "Transition Period" means the period of 180 days following the date on
which this Agreement (or the license granted under Section 3.1.5) is terminated
pursuant to ARTICLE 14; provided that if this Agreement is terminated due to a
breach of ARTICLE 9 or ARTICLE 10, or if such license is terminated due to a
breach of ARTICLE 10, then the Transition Period shall be only 90 days.

        "UHC" means University HealthSystem Consortium.

        "Unauthorized Access" means access to the Exchange Site or the Neoforma
Marketplaces, as the case may be, that is not in conformity with the respective
agreements or rules of the Exchange or Neoforma.

        "User Agreement" has the meaning set forth in ARTICLE 1.

        "Users" has the meaning set forth in ARTICLE 1.

        "VHA" means VHA Inc.

        2.2. RULES OF CONSTRUCTION. In this Agreement, unless a clear, contrary
        intention appears:

             2.2.1 the singular number includes the plural number and vice
             versa;

             2.2.2 reference to any Person includes such Person's successors and
             assigns, if applicable, but only if such successors and assigns are
             permitted by this Agreement;

             2.2.3 reference to any gender includes the other gender;




                                       7


             2.2.4 reference to any Article, Section or Schedule means such
             Article, such Section or such Schedule to this Agreement, as the
             case may be, and references in any Section or definition to any
             clause means such clause of such Section or definition;

             2.2.5 "herein", "hereunder", "hereof", "hereto", and words of
             similar import shall be deemed references to this Agreement as a
             whole and not to any particular Section or other provision hereof
             or thereof;

             2.2.6 "including" (and with correlative meaning "include") shall be
             deemed to be followed by the phrase "without limitation";

             2.2.7 reference to any law (including statutes and ordinances)
             means such law as amended, modified, codified or reenacted, in
             whole or in part, and in effect from time to time, including rules
             and regulations promulgated thereunder; and

             2.2.8 the headings contained in this Agreement (except for the
             Schedules) have been inserted for convenience of reference only,
             and are not to be used in construing this Agreement.

        2.3. LEGAL REVIEW. This Agreement was negotiated by the parties with the
        benefit of legal representation, and any rule of construction or
        interpretation otherwise requiring this Agreement to be construed or
        interpreted against either party shall not apply to any construction or
        interpretation hereof. This Agreement shall be interpreted and construed
        to the maximum extent possible so as to uphold the enforceability of
        each of the terms and provisions hereof, it being understood and
        acknowledged that this Agreement was entered into by the parties after
        substantial and extended negotiations and with full awareness by the
        parties of the terms and provisions hereof and the consequences thereof.


                                   ARTICLE 3
                       DEVELOPMENT AND ALLIANCE STRUCTURE

        3.1. INITIAL DEVELOPMENT RESPONSIBILITIES.

             3.1.1 The Exchange shall provide the Catalog to Neoforma in digital
             form needed to support Purchaser functionality. Neoforma shall
             provide the Exchange with all relevant information regarding
             Neoforma Purchasers, including organization data, GPO eligibility
             and transaction information.

             3.1.2 The Exchange does not have and will not build a master price
             file or include list prices in the Catalog, but the Supplier
             Connectivity Portal provides access to Supplier websites where
             prices may be accessed by Exchange Users.




                                       8


             3.1.3 As part of the process set forth in Section 3.1.4 below, the
             parties will evaluate the desirability of jointly developing and
             implementing pricing tools. Unless agreed otherwise as part of the
             implementation plan or as part of any future development undertaken
             pursuant to Section 3.4.2, the Exchange shall not use GPO or
             Covered Provider eligibility information provided by Neoforma or
             Covered Providers to develop or implement a set of collaboration
             tools and processes that allow a Provider and Supplier to interact
             and reach agreement upon a specific unit price. Neoforma shall not
             use, and shall not permit Covered Providers to use, electronic
             connections and communications systems the Exchange has established
             with Suppliers in order to develop or implement a set of
             collaboration tools and processes that allow a Provider and
             Supplier to interact and reach agreement upon a specific unit
             price.

             3.1.4 Promptly following the Effective Date, the parties will
             collaborate to develop a high level integration plan and
             opportunity assessment to be presented jointly to senior management
             of both parties by not later than October 15, 2001. This initial
             plan and assessment shall be created and conducted by the parties
             to determine the best means of integrating the Neoforma
             Marketplaces with the Supplier Connectivity Portal, taking into
             account such considerations as cost, time and functionality, and
             shall include all Distributor Service Level Requirements and a plan
             and schedule for Neoforma's provision of the Initial Consulting
             Services. Promptly following the joint presentation and concurrence
             of the parties on the integration plan, the parties shall use
             commercially reasonable efforts to develop APIs as such plan
             determines to be necessary and appropriate to create the Integrated
             Solution and to allow Integrated Solution Users to access the
             Catalog, access price and inventory availability from Suppliers,
             issue purchase orders, receive purchase order acknowledgements,
             determine order status, maintain User information, and transmit
             order information. The parties shall collaborate as appropriate to
             ensure that the Integrated Solution functions in accordance with
             agreed-upon specifications and performance criteria before it is
             made available to Users. Each party shall deliver to the other its
             Interface and all modifications and enhancements thereto, as
             developed in accordance with and subject to the terms of this
             Agreement. The parties shall, as appropriate, participate in the
             development of and, in their sole discretion, adopt, industry
             standards to facilitate integration and improve functionality. As
             part of the plan and assessment, the Exchange will consider
             licensing the Neoforma Classification Scheme or parts thereof from
             Neoforma, and Neoforma will consider licensing the same to the
             Exchange, solely for the purposes of incorporation into the
             Classification Scheme and use in the Integrated Solution, provided
             that nothing in this Agreement shall require either party to enter
             into any such license.

             3.1.5 In consideration for the payment of the license fees set
             forth in Section 3.1.7, Neoforma grants to the Exchange a
             perpetual, fully paid,




                                       9


             non-exclusive, non-transferable (except as provided in Section
             15.9), non-sublicensable right (except to the extent permitted by
             this Section 3.1.5 below), subject to the terms and conditions of
             this Agreement, to install, use, copy, display, modify and create
             derivative works of the Neoforma RCS in * , solely for the purposes
             of creating connectivity between Exchange Suppliers and the
             Supplier Connectivity Portal (including its open interface
             specifications) and permitting the exchange of Transaction Data
             between Exchange Suppliers and the Supplier Connectivity Portal
             (the "Licensed Purpose"). Any derivative works created by the
             Exchange pursuant to this license shall constitute part of the
             Neoforma RCS and shall be subject to this license, it being
             understood that neither this license nor the Exchange's use of any
             property licensed hereunder shall transfer to Neoforma any right,
             title or interest in or to any of the Exchange Intellectual
             Property. The Exchange may sublicense, only to Suppliers, solely
             those portions of the Neoforma RCS necessary to be hosted or
             otherwise used by Suppliers (e.g. templates, data maps and
             connectivity scripts) necessary to support the Licensed Purpose.
             Notwithstanding any provision of this Agreement to the contrary,
             this license shall survive the termination of this Agreement,
             except as provided in Section 14.2.6.

             3.1.6 Neoforma will provide * of knowledge transfer and consulting
             services in connection with the delivery and implementation of the
             Neoforma RCS by the Exchange ("Initial Consulting Services").
             Neoforma shall provide the Initial Consulting Services in
             accordance with the integration plan developed under Section 3.1.4.
             Additional consulting services will be available at the Exchange's
             request. The hourly rate for any such services shall be based upon
             the nature of the services to be provided, as set forth on Schedule
             D. The Initial Consulting Services and all additional consulting
             services shall be performed by Neoforma personnel having skill sets
             that the Exchange reasonably considers necessary for the knowledge
             transfer or services to be performed.

             3.1.7 In consideration of the license granted pursuant to Section
             3.1.5 and the Initial Consulting Services, the Exchange shall pay
             Neoforma Three Million Five Hundred Thousand Dollars ($3,500,000),
             payable $1,500,000 on September 17, 2001, $1,500,000 on December
             17, 2001, and $500,000 on March 15, 2002. Notwithstanding the
             foregoing, if Neoforma fails to perform Initial Consulting Services
             scheduled to be performed by the date any payment is due under this
             section and such failure occurred through no fault of the Exchange,
             then the Exchange may defer a part of the applicable payment, in an
             amount equal to the number of hours scheduled for each type of
             service contemplated by Schedule D, multiplied by the applicable
             hourly rate for such type of service. The

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                                       10


             Exchange shall pay such deferred amount promptly after the late
             services are performed.

        3.2. COSTS OF DEVELOPMENT AND INTEGRATION. Each party shall bear its own
        costs for the plan and assessment referred to above and for the cost of
        its own development responsibilities. The parties shall share equally
        the cost of any mutually required hardware and third party software.
        Each party, at its own expense, shall obtain all software and other
        rights necessary to access the software or systems of the other, to the
        extent such access is required hereunder. The parties will consider
        shared investment in any necessary technology in order to simplify
        integration or obtain more favorable terms for the purchase or license
        of any necessary third party technology, provided that nothing in this
        Agreement shall require either party to make any such investment. If, at
        Neoforma's request, the Exchange agrees to provide any consulting
        services to Neoforma hereunder, then such consulting services shall be
        provided at the rates set forth on Schedule D.

        3.3. API CROSS LICENSES.

             3.3.1 The Exchange grants to Neoforma during the Term a
             royalty-free, non-exclusive, non-transferable, non-sublicensable
             right, subject to the terms and conditions of this Agreement, to
             install, use, copy and display the Exchange Interface in * ,
             together with all related specifications, software programs and
             documentation necessary to create and maintain the interfaces
             between the Neoforma Marketplaces and the Supplier Connectivity
             Portal (including its open interface specifications), solely for
             the purpose of creating and maintaining the Integrated Solution.
             The Exchange Interface shall be provided to Neoforma in object code
             form only.

             3.3.2 Neoforma grants to the Exchange during the Term a
             royalty-free, non-exclusive, non-transferable, non-sublicensable
             right, subject to the terms and conditions of this Agreement, to
             install, use, copy and display the Neoforma Interface in * ,
             together with all related specifications, software programs and
             documentation necessary to create and maintain the interfaces
             between the Neoforma Marketplaces and the Supplier Connectivity
             Portal (including its open interface specifications), solely for
             the purpose of creating and maintaining the Integrated Solution.
             The Neoforma Interface shall be provided to the Exchange in object
             code form only.

             3.3.3 Nothing in this Section 3.3 shall authorize either party to
             display publicly, modify or create derivative works of the licensed
             software, if any, and APIs.

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                                       11


             3.3.4 Neither party shall disassemble, reverse engineer or
             decompile any of the other party's property licensed under this
             Section 3.3.

        3.4. FUTURE DEVELOPMENT.

             3.4.1 Individual Enhancements. The Exchange and Neoforma, each
             reserve the right, in its sole discretion, to modify and add to the
             Exchange Interface and the Neoforma Interface, respectively. The
             Exchange and Neoforma shall share development plans and estimated
             release schedules with respect to changes, improvements and
             enhancements to the Exchange Interface and to the Neoforma
             Interface, respectively. Each party shall, at its own cost, develop
             modifications or additions to its APIs, so that Integrated Solution
             Users will be able to use all such changes, improvements and
             enhancements implemented by such party and to maintain all other
             functionality (including all relational links among entries in the
             database comprising the Catalog) of the Integrated Solution.

             3.4.2 Combined Enhancements. The parties shall cooperate in the
             design, development and deployment of enhancements to the
             Integrated Solution, with functionality to be agreed upon by the
             parties. In particular, the parties may, at their option, develop
             and market a three-way price matching premium service to resolve
             price inconsistencies among GPOs (e.g., Novation), Suppliers and
             Providers.

        3.5. CHANGES. Subject to Section 3.4.1, the Exchange, in its sole
        discretion, may (a) enhance, delete or modify any or all of the
        features, format, "look and feel," functions or services of the Exchange
        Site, the procedures for use of the Exchange Site, or the information
        offered on the Exchange Site, and (b) subject to Sections 3.4.1 and 4.2,
        Neoforma, in its sole discretion, may enhance, delete or modify any or
        all of the features, format, "look and feel," functions or services of
        the Neoforma Marketplaces, the procedures for use of the Neoforma
        Marketplaces, or the information offered on the Neoforma Marketplaces.
        Neoforma acknowledges that each Exchange Supplier that has authorized
        the Exchange to sublicense its Product Data to Neoforma may, at its
        option and upon sixty (60) days prior written notice to the Exchange,
        cause the Exchange to terminate that sublicense, unless such Exchange
        Supplier otherwise agrees with Neoforma. The Exchange shall provide
        Neoforma with forty-five (45) days prior written notice if any Supplier
        terminates any such sublicense. Neoforma shall notify the Exchange
        promptly after it receives any notice that a Provider has ceased to be a
        Neoforma User.

        3.6. ALLIANCE STRUCTURE.

             3.6.1 The Exchange shall connect Suppliers who are Integrated
             Solution Users to the Integrated Solution and shall retain all
             related fees and revenues.




                                       12


             3.6.2 Neoforma shall connect Providers who are Integrated Solution
             Users to the Integrated Solution and shall retain all related fees
             and revenues.

             3.6.3 The parties may subcontract the performance of services
             hereunder to each other upon mutually agreed upon terms and
             conditions.

             3.6.4 Neoforma shall display the Catalog, in accordance with
             ARTICLE 4, to Integrated Solution Users. The Exchange shall not
             charge Neoforma any fees for Neoforma's access to the Catalog.

             3.6.5 Each party shall transmit to the other all order information
             that it receives regarding transactions between Neoforma Purchasers
             and Exchange Suppliers. Each party shall then transmit such order
             information to its applicable Users. Neither party shall charge the
             other party any fees for any such transmissions. The foregoing
             shall not preclude or affect any fees that any User agrees to pay
             either Neoforma or the Exchange.

             3.6.6 Neoforma and the Exchange may each market and sell
             value-added services and/or premium services to any Provider or
             Supplier, and each may retain any revenue it receives in connection
             therewith. The parties may also agree to co-market and/or
             cross-sell such value-added services or premium services, and shall
             determine the division of any related revenues at such time,
             pursuant to a separate written agreement.

             3.6.7 Neoforma and the Exchange shall evaluate opportunities to
             develop jointly value-added services and/or premium services that
             may be beneficial to Suppliers and Providers. Neoforma and the
             Exchange shall mutually agree, in writing, to cost-sharing and
             revenue-sharing terms before they begin any such joint development.


                                   ARTICLE 4
                                 CONTENT LICENSE

             4.1. LICENSE. The Exchange grants to Neoforma during the Term the
             non-exclusive, non-transferable, non-sublicensable, royalty-free
             right to perform the following activities, subject to the terms and
             conditions of this Agreement: (i) to host the Catalog on the
             Neoforma Marketplaces; (ii) to display the Catalog or any part
             thereof (subject to the provisions of Section 4.2), as part of the
             Integrated Solution, to any Integrated Solution User * (the
             "Territory"); (iii) to use GHXml(TM)solely in furtherance of the
             purposes of this Agreement; and (iv) to make such internal copies
             of the Catalog as are necessary for the foregoing purposes. Except
             as set forth herein, Neoforma shall not use, copy, display or

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                                       13


             distribute the Catalog, in any form, in whole or in part, without
             the Exchange's prior written consent.

        4.2. LIMITATIONS ON DISPLAY OF CATALOG. The Exchange acts as a passive
        conduit for the display and publication of Product Data, and the
        Exchange reserves to the Exchange Suppliers complete control over the
        form and substance of all Product Data, subject to such Exchange
        Suppliers' obligations under their respective Exchange User Agreements.
        Neoforma shall use and display the Catalog and all Product Data
        contained therein verbatim as received, and may not edit, modify or
        translate the Catalog or such Product Data in any way except as
        specified in this Agreement. Notwithstanding any other provision of this
        Section 4.2, Neoforma may use and display the Product Data without using
        and displaying related elements of the Classification Scheme. Without
        limiting the foregoing or the provisions of Section 4.1, unless the
        applicable Exchange Supplier agrees to allow Neoforma to do so, Neoforma
        shall not alter the Classification Scheme or any part thereof, nor shall
        Neoforma use or display Product Data under a modified Classification
        Scheme or under any classification system other than the Classification
        Scheme. Neoforma shall at all times maintain all relational links within
        the Catalog and shall not alter any part of the Catalog in any way that
        interferes with the Exchange's ability to maintain and update the
        Catalog. Neoforma shall not create derivative works of the Catalog or
        any part thereof; provided, however, that Neoforma may (i) extract
        subsets of the unmodified Catalog at the ------- direction of and for
        use by individual Purchasers, (ii) cross-reference Product numbers used
        by distributors that are authorized distributors of Products of Exchange
        Suppliers but are not Exchange Users, and(iii) format the Catalog to
        conform to the compilation or "look and feel" of the Neoforma Solutions.
        With regard to all such modifications and subsets created by Neoforma
        pursuant to this Section 4.2: (i) Neoforma shall not change the content
        of the individual fields of the Catalog, (ii) other than information
        regarding other products added by Neoforma, all such modifications and
        subsets shall constitute part of the Catalog, and (iii) Neoforma shall
        have no greater rights in any such modification or subset than its
        rights to use and display the Catalog as provided in this Agreement.
        Nothing herein shall limit Neoforma's right to display data regarding
        other products together with the Catalog or permitted subsets thereof.
        For purposes of clarity, Neoforma may offer any Integrated Solution User
        a GPO-specific catalog containing a subset of the Catalog together with
        data regarding other products, provided that such Integrated Solution
        User may use and display all Product Data in the Catalog at its option.
        Neoforma shall, at no charge to the Exchange or the Exchange Suppliers
        and upon the Exchange's request with reasonable prior notice, provide
        the Exchange and the Exchange Suppliers with sufficient access to the
        Neoforma Solutions to permit the Exchange and such Exchange Suppliers to
        verify Neoforma's compliance with this Agreement; provided, however,
        that nothing in this Agreement shall permit Neoforma to disclose any
        Supplier's Product Data to any other Supplier. At the time the
        Exchange's User Agreements are subject to renewal, the Exchange shall
        modify its form of User Agreement to permit Neoforma to display Product
        Data under the Neoforma Classification Scheme, and shall further use




                                       14


        commercially reasonable efforts to promptly (i) have all Users accept
        this modification to the User Agreement in accordance with the amendment
        process set forth in the User Agreement, and (ii) replace any
        outstanding MOUs with such modified User Agreements.

        4.3. CATALOG UPDATES. Subject to Section 4.4, the Exchange shall provide
        Catalog updates promptly after they are created and published on the
        Exchange Site, or at a frequency and in a manner as is reasonably agreed
        by the parties. Neoforma shall use reasonable efforts to maintain its
        ability to receive and process such updates and to make the Catalog
        available at all times to Integrated Solution Users.

        4.4. WITHDRAWAL OF CATALOG. The Exchange may withdraw or cancel all or
        any affected part of the Catalog if: (a) the Catalog or any part thereof
        becomes the subject of a claim that it infringes the rights of any third
        Person or that the Exchange otherwise does not have the right to permit
        others to use it; (b) the Catalog or any part thereof becomes illegal or
        contrary to any applicable law or regulation, or the Exchange is
        required by any compulsion of law, including an order or judgment from a
        court of competent jurisdiction, to withdraw all or any part of the
        Catalog; or (c) any Supplier terminates its Supplier Catalog Addendum,
        either in whole, or as to Neoforma specifically (unless the applicable
        Supplier has agreed with Neoforma not to so terminate its Supplier
        Catalog Addendum), or the Exchange terminates such Supplier Catalog
        Addendum with such Supplier, in which case the Exchange may withdraw all
        Product Data offered by such Supplier. If the Exchange withdraws or
        cancels all or part of the Catalog, the Exchange shall notify Neoforma
        promptly thereof. If the Exchange withdraws or cancels all of the
        Catalog, Neoforma shall be entitled to terminate this Agreement in
        accordance with Section 14.2.5. Neoforma acknowledges that Suppliers
        have the right to terminate Neoforma's use of the Catalog at any time
        and for any reason. Neoforma acknowledges that certain Suppliers intend
        to terminate Neoforma's use of the Catalog if Neoforma uses the Catalog
        to offer auction or reverse auction functions (as distinct from
        customary RFP processes) through the Neoforma Marketplaces.

        4.5. IDENTIFICATION OF THE EXCHANGE. The Exchange shall be identified as
        the source of all Product Data used and displayed in the Integrated
        Solution in accordance with this ARTICLE 4.


                                   ARTICLE 5
                                SECURITY; PRIVACY

        5.1. SECURITY. The Exchange shall use commercially reasonable efforts
        consistent with prevailing industry standards to maintain the security
        of the Exchange Site, including constructing and maintaining firewalls
        and other security devices to limit any Unauthorized Access to
        information accessible from the Exchange Site. The Exchange shall also
        use commercially reasonable




                                       15


        efforts consistent with prevailing industry standards to protect the
        Neoforma Marketplaces from any theft, harm, tampering, sabotage,
        interference, viewing, manipulation, copying or distribution by any User
        using the Exchange Solutions and the Exchange Interface. Neoforma shall
        use commercially reasonable efforts consistent with prevailing industry
        standards to maintain the security of the Neoforma Solutions, including
        constructing and maintaining firewalls and other security devices to
        limit any Unauthorized Access to information accessible through use of
        the Neoforma Solutions. Neoforma shall also use commercially reasonable
        efforts consistent with prevailing industry standards to protect the
        Exchange Site from any theft, harm, tampering, sabotage, interference,
        viewing, manipulation, copying or distribution by any User using the
        Neoforma Solutions and the Neoforma Interface.

        5.2. PRIVACY. Neither party hereto shall breach or attempt to breach the
        computer or software security of the other, attempt to access the
        information of a User stored by the other, or otherwise invade the
        privacy of others in connection with providing the Integrated Solution.


                                   ARTICLE 6
                              MARKETING; REFERRALS

        6.1. ALLIANCE MANAGEMENT. The Exchange and Neoforma each agree to
        establish an "Alliance Manager." The primary responsibility of the
        Alliance Managers shall be to coordinate the implementation of this
        Agreement and the marketing activities contemplated by Section 6.2, and
        to manage the day-to-day activities of the parties under this Agreement.

        6.2. MARKETING; EXPENSES. Each party shall market and sell its own
        solutions and products, and retain all revenue derived therefrom unless
        otherwise agreed, through coordinated marketing and sales efforts
        involving joint meetings and other forms of cooperation as agreed by the
        parties during the sales process. The parties shall each provide sales
        and marketing support personnel who will work together on joint press
        announcements (all of which must be approved in accordance with Section
        9.6), sales force alignment, joint marketing opportunities, conferences
        and similar activities. Each party shall bear its own expenses in
        connection with such sales and marketing activities. Each party hereby
        designates and shall identify the other party to its Users and prospects
        as its "Preferred Connectivity Solution".

        6.3. SALES COOPERATION; NO SALES AGENCY. Each party shall be solely
        responsible for all sales and licenses of its products and services, and
        neither party hereto shall have the authority to sell or license the
        products or services of the other. Neoforma shall be entitled to market
        the Exchange's products and services and to use such marketing materials
        as the Exchange may provide to Neoforma from time to time. Neoforma may
        also present the Exchange's then-current Exchange User Agreement (as
        supplied to Neoforma by the Exchange from time to time) to any prospects
        and obtain the signatures of such prospects thereon; provided, however,
        that the Exchange shall not be bound by any such Exchange User Agreement
        until it has executed the same. The Exchange shall not be obligated to
        execute any such Exchange User Agreement. The Exchange may also present
        Neoforma's then-current Neoforma User Agreement (as supplied to the
        Exchange




                                       16


        by Neoforma from time to time) to any prospects and obtain the
        signatures of such prospects thereon; provided, however, that Neoforma
        shall not be bound by any such Neoforma User Agreement until it has
        executed the same. Neoforma shall not be obligated to execute any such
        Neoforma User Agreement. Notwithstanding the foregoing, neither party
        shall participate in any discussions or negotiations regarding any fees
        to be charged by the other party pursuant to such party's User
        Agreement, and neither party shall knowingly provide the other party
        with any information regarding such fees.

        6.4. EXCLUSIVITY. For a period of * after the Effective Date, neither
        party shall enter into a strategic alliance substantially similar to
        that contemplated by this Agreement with * . Thereafter, and during the
        Term, the Exchange shall not enter into any agreement with * which
        grants any broader rights to such party than those granted to Neoforma
        under this Agreement with respect to any means of connecting with the
        Exchange or Supplier Connectivity Portal developed with such party, in
        preference to the Integrated Solution. Except as expressly -- provided
        in this Section 6.4, this Agreement is not intended to be an exclusive
        arrangement and nothing contained herein shall limit either party's
        right to enter into alliance or other agreements with any other Person,
        including any direct competitor of the other party. Subject to the
        provisions of this Section 6.4 and Section 6.5, and the other express
        provisions of this Agreement, each party shall be free to pursue its own
        interests and shall not be restricted from: (a) recommending and
        marketing services or products which may be competitive with the other
        party's services or products, (b) entering into an alliance, joint
        marketing agreement or other relationship with a competitor of the other
        party, or (c) referring to a competitor a prospective customer that is
        not already a customer of the other party.

        6.5. RECOMMENDING THE INTEGRATED SOLUTION.

             6.5.1 By the Exchange.

                   (a) The Exchange shall recommend the Integrated Solution to
                   all Covered Providers that it contacts and will not recommend
                   any other solution to such Covered Providers except as
                   provided in Sections 6.5.3 and 6.5.4. The Exchange may, at
                   its option, also market any other products or services then
                   offered by the Exchange to any such Covered Providers. If
                   Neoforma refers a Provider who is not a Covered Provider to
                   the Exchange, the Exchange shall recommend the Integrated
                   Solution to such

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                                       17


                   Provider in accordance with Section 6.3, provided, that such
                   Provider had not previously been contacted by the Exchange or
                   referred to the Exchange by a third party during the
                   preceding six months. The Exchange shall recommend the
                   Integrated Solution to Providers that it contacts who are not
                   Covered Providers, but the Integrated Solution need not be
                   the exclusive connectivity solution recommended to such
                   Providers.

                   (b) The Exchange may present a Neoforma User Agreement to any
                   such Covered Providers in accordance with Section 6.3.

             6.5.2 By Neoforma.

                   (a) Neoforma shall recommend the Integrated Solution to all
                   Covered Suppliers that it contacts (including all
                   Distributors that are Neoforma Users at the time the Exchange
                   first satisfies in all material respects the Distributor
                   Service Level Requirements in effect at the time such
                   satisfaction occurs) and will not recommend any other
                   solution to such Covered Suppliers except as provided in
                   Section 6.5.3. Neoforma may, at its option, also market any
                   other products or services then offered by Neoforma to any
                   such Covered Suppliers. If the Exchange refers a Supplier who
                   is not a Covered Supplier to Neoforma, Neoforma shall
                   recommend the Integrated Solution to such Supplier in
                   accordance with Section 6.3, provided, that such Supplier had
                   not previously been contacted by Neoforma or referred to
                   Neoforma by a third party during the preceding six months.
                   Neoforma shall recommend the Integrated Solution to Suppliers
                   that it contacts who are not Covered Suppliers, but the
                   Integrated Solution need not be the exclusive connectivity
                   solution recommended to such Suppliers.

                   (b) Neoforma may present an Exchange User Agreement to any
                   such Covered Suppliers in accordance with Section 6.3.

             6.5.3 Other Referral Issues.

                   (a) If a prospect informs either party that it prefers to
                   connect to such party other than through the Integrated
                   Solution, then such party may connect such prospect either
                   directly or through another Person. The Exchange or Neoforma,
                   as the case may be, shall notify the other party promptly
                   after it learns that any such prospect wishes to connect
                   other than through the Integrated Solution.

                   (b) The parties may, at their option, cooperate on a
                   case-by-case basis to jointly approach prospects who are
                   neither Covered Providers nor Covered Suppliers.



                                       18


                   (c) All prospect referrals for Covered Suppliers, Covered
                   Providers, and others under Section 6.5.3(b) shall be jointly
                   managed under a mutually approved prospect referral program.
                   The prospect referral, notification and targeting programs
                   shall be put in place by both parties within 30 days of the
                   Effective Date and managed by each party's Alliance Manager.

             6.5.4 Exceptions. Notwithstanding any provisions hereof to the
             contrary, nothing in this Agreement shall obligate the Exchange to
             violate the terms of those current or currently-pending (as of the
             Effective Date) agreements listed on Schedule E hereto with other
             Persons that limit the Exchange's right to recommend the Integrated
             Solution, if such other party refers a prospect to the Exchange. In
             particular, this Section 6.5 shall not apply to prospects that are
             referred to either party by such party's strategic allies, to the
             extent that the applicable agreement restricts such party from
             offering integrated solutions or products other than those
             contemplated by the applicable agreement.


                                   ARTICLE 7
                           IMPLEMENTATION AND SUPPORT

        7.1. IMPLEMENTATION, TRAINING AND FULFILLMENT. Each party hereto shall,
        to the extent necessary, be responsible for installing and implementing
        its own proprietary components of the Integrated Solution. Each party
        hereto shall provide its own implementation and training services to the
        Users using the Integrated Solution. Each party shall fulfill its
        products for its Users through its own distribution network.

        7.2. TECHNICAL SUPPORT.

             7.2.1 Personnel. During the Term, each party hereto shall maintain
             an appropriate number of trained personnel to provide, in a
             professional manner, technical support and enhancements
             ("Maintenance") with respect to its proprietary components of the
             Integrated Solution. Maintenance shall include identifying
             problems, supplying updates to remedy bugs, fixing errors and
             providing, where applicable, new versions or releases of such
             components. Each party shall also maintain a number of trained
             personnel sufficient to enable such party to meet its obligations
             under Section 7.2.2 below.

             7.2.2 Customer Support.

                   (a) Neoforma shall, pursuant to its customary agreements with
                   its customers, respond to and fix problems associated with
                   User calls related to the Neoforma Solutions. If an
                   Integrated Solution User calls regarding an operational
                   issue, Neoforma shall verify the integrity of the system
                   followed by, if necessary, passing a call to




                                       19


                   the Exchange, if Neoforma determines that the source of the
                   User's problem is associated with the Exchange Solutions.

                   (b) The Exchange, shall, pursuant to its customary agreements
                   with its Users, respond to and fix problems associated with
                   User calls related to the Exchange Solutions. If an
                   Integrated Solution User calls regarding an operational
                   issue, the Exchange shall verify the integrity of the system
                   followed by, if necessary, passing a call to Neoforma, if the
                   Exchange determines that the source of the User's problem is
                   associated with the Neoforma Solutions.

                   (c) When the source of any particular customer problem cannot
                   readily be determined, the parties' respective support
                   organizations shall collaborate reasonably to identify the
                   cause of the problem and to implement a solution.

        7.3. LINKAGES. Neoforma and the Exchange shall each be responsible for
        the creation, management and monitoring of their respective components
        of the telecommunications and hardware connections between multiple
        Exchange data centers and multiple Neoforma data centers (the
        "Linkages"), and shall cooperate with each other to create, manage and
        monitor the Linkages. Both parties shall make commercially reasonable
        efforts to ensure that their respective components of the Linkages and
        the Integrated Solution will operate in compliance with reasonable and
        customary technical performance standards. Neither party shall be liable
        for any Internet or telecommunications failure, computer virus,
        third-party interference or other third party software or hardware
        failure that may interrupt or delay access to any Internet site or
        interfere with the performance of the Linkages or the Integrated
        Solution, unless such problem was caused or created directly by such
        party.


                                   ARTICLE 8
                         REPRESENTATIONS AND WARRANTIES

        8.1. REPRESENTATIONS AND WARRANTIES OF THE EXCHANGE. The Exchange
        represents and warrants to Neoforma that:

                   (a) it has all requisite right, power and authority to enter
                   into this Agreement and to perform its obligations hereunder;

                   (b) the entry into and performance of this Agreement by the
                   Exchange has been duly authorized by all necessary limited
                   liability company action on the part of the Exchange and this
                   Agreement constitutes a valid agreement, binding upon and
                   enforceable against the Exchange in accordance with its
                   terms; and

                   (c) the execution and delivery of this Agreement by the
                   Exchange and the consummation of the transactions herein




                                       20


                   provided will not (i) conflict with any agreement, document
                   or instrument to which the Exchange is a party; (ii) violate
                   any order, writ, injunction or decree of court,
                   administrative agency or governmental body, or (iii) require
                   the approval, consent or permission of any governmental or
                   regulatory body or authority of which the Exchange is aware,
                   having authority over the Exchange.

        8.2. REPRESENTATIONS AND WARRANTIES OF NEOFORMA. Neoforma represents and
        warrants to the Exchange that:

                   (a) Neoforma has all requisite right, power and authority to
                   enter into this Agreement and to perform its obligations
                   hereunder;

                   (b) the entry into and performance of this Agreement by
                   Neoforma has been duly authorized by all necessary corporate
                   action on the part of Neoforma, and this Agreement
                   constitutes a valid agreement, binding upon and enforceable
                   against Neoforma in accordance with its terms;

                   (c) the execution and delivery of this Agreement by Neoforma
                   and the consummation of the transactions herein provided will
                   not (i) conflict with any agreement, document or instrument
                   to which Neoforma is a party; (ii) violate any order, writ,
                   injunction or decree of court, administrative agency or
                   governmental body, or (iii) require the approval, consent or
                   permission of any governmental or regulatory body or
                   authority of which Neoforma is aware, having authority over
                   Neoforma; and

                   (d) As of the Effective Date, Neoforma is meeting in all
                   material respects all of the service level requirements set
                   forth on Schedule B for all Distributors using the Neoforma
                   Marketplaces.


                                    ARTICLE 9
                                    OWNERSHIP

        9.1. OWNERSHIP BY THE EXCHANGE. As between the Exchange and Neoforma,
        the Exchange owns and shall own all right, title and interest in and to
        all Exchange Intellectual Property. Neither any license granted
        hereunder nor the Exchange's use of any property licensed hereunder
        shall transfer to Neoforma any right, title or interest in or to any of
        the Exchange Intellectual Property.

        9.2. OWNERSHIP BY NEOFORMA. As between Neoforma and the Exchange,
        Neoforma owns all right, title and interest in and to all Neoforma
        Intellectual Property. Neither any license granted hereunder nor
        Neoforma's use of any property licensed hereunder shall transfer to the
        Exchange any right, title or interest in or to any of the Neoforma
        Intellectual Property.




                                       21


        9.3. OWNERSHIP BY THIRD PARTIES. The Exchange Site and the Catalog
        contain third party Marks and other Intellectual Property belonging to
        third parties, including Product Data and Transaction Data. The Neoforma
        Marketplaces contain third party Marks and other Intellectual Property
        belonging to third parties, including Product Data and Transaction Data.
        All such Intellectual Property is and shall remain the property of its
        respective owners. Except as expressly provided in this Agreement, the
        Exchange does not grant to Neoforma any right to copy or use any such
        Intellectual Property.

        9.4. TRANSACTION DATA.

             9.4.1 The parties to each transaction (e.g., the applicable
             Supplier and Purchaser) shall own the Transaction Data relating to
             such transaction. Neither the Exchange nor Neoforma may disclose
             any Transaction Data to any third party without the consent of
             either owner of such Transaction Data.

             9.4.2 Nothing in this Agreement shall affect the ownership of
             contract price files.

        9.5. AGGREGATED DATA. Neither party shall collect, compile or use any
        Aggregated Data without the consent of all the Suppliers and Purchasers
        whose Transaction Data is included, in whole or in part, in such
        Aggregated Data. Such consent may be included in either party's separate
        agreements with Suppliers or Purchasers. Notwithstanding the foregoing,
        each party shall use commercially reasonable efforts to obtain such
        consents. Neither party shall have any right to Aggregated Data
        collected by the other party. Neoforma may provide Novation with
        Neoforma Aggregated Data regarding contract and non-contract purchasing
        to assist Novation in managing its GPO operations, subject to Neoforma
        receiving the consent of the applicable Suppliers and Providers, to the
        extent that such consent is required by this ARTICLE 9. Each party may
        sell its own Aggregated Data, and the parties may also jointly sell
        Aggregated Data, but Aggregated Data may not be sold by either party to
        a Supplier or Purchaser who has not consented to allow the parties to
        create Aggregated Data from such Supplier's or Purchaser's Transaction
        Data. Notwithstanding the foregoing, the Exchange shall not sell any
        Aggregated Data which is derived from use of the Integrated Solution and
        which is aggregated on an individual GPO level without such GPO's
        consent, and further, in no event shall such Aggregated Data be sold
        unless data from any one GPO is combined with other data that equals at
        least 30% of the total Aggregated Data being sold. At the time the
        Exchange's User Agreements are subject to renewal, the Exchange shall
        use commercially reasonable efforts to obtain consent from each Supplier
        sufficient to permit Neoforma to collect, compile and use Aggregated
        Data arising from such Supplier's Transaction Data.

        9.6. PUBLICITY; USE OF MARKS. Except as otherwise set forth in this
        Agreement, neither party shall use any of the other party's Marks in
        advertising




                                       22


        or other promotional material or activity (including Internet sites)
        without first obtaining the owner's prior written consent, which consent
        shall not be unreasonably withheld or delayed. The party using the
        owner's Marks must adhere to the owner's internal policies regarding
        their use. Any press release related to this Agreement or the
        transactions contemplated hereby must be approved in writing by both
        parties, such approval not to be unreasonably withheld or delayed.


                                   ARTICLE 10
                                 CONFIDENTIALITY

        10.1. CONFIDENTIAL INFORMATION. All business, operational, customer,
        technological, financial and commercial information furnished or
        disclosed by each party to this Agreement, including (i) Exchange
        Intellectual Property; (ii) Neoforma Intellectual Property; (iii)
        Product Data, Transaction Data and Aggregated Data; (iv) the terms and
        conditions on which each party provides its respective products and
        services and (v) other non-public information about each party's
        business strategies and future products or offerings, constitutes the
        sole and exclusive confidential and proprietary information of the
        disclosing party. Confidential information of the Exchange is referred
        to hereinafter as "Exchange Confidential Information" and confidential
        information of Neoforma is referred to hereinafter as "Neoforma
        Confidential Information." Exchange Confidential Information includes
        the Exchange Intellectual Property and (regardless of whether or not the
        Exchange owns the same) all Product Data, Transaction Data, the
        Classification Scheme and Exchange Aggregated Data. Neoforma
        Confidential Information includes Neoforma Intellectual Property,
        Transaction Data, the Neoforma Classification Scheme and Neoforma
        Aggregated Data. Exchange Confidential Information and Neoforma
        Confidential Information are collectively referred to hereinafter as
        "Confidential Information." In addition, except as necessary to fulfill
        its obligations hereunder, each party agrees to treat the terms of this
        Agreement as Confidential Information.

        10.2. OBLIGATIONS. Each party agrees to protect the confidentiality of
        the other's Confidential Information in the same manner that it protects
        the confidentiality of its own proprietary and confidential information
        of like kind, but in no event with less than due care and attention.
        Except as necessary to perform its obligations hereunder or as expressly
        permitted hereunder, neither party shall reproduce or use any
        Confidential Information of the other party or disclose to any other
        Person the other party's Confidential Information, in any case without
        the prior written consent of the other party or, in the case of
        Transaction Data, without the prior written consent of the applicable
        Supplier or Purchaser. Neoforma may share Confidential Information,
        other than Product Data and Transaction Data, with Novation, VHA, UHC
        and HPPI provided (A) those parties agree to comply with the obligations
        of this Section 10.2, and (B) those parties use such Confidential
        Information solely in support of the transactions contemplated by this
        Agreement. For avoidance of doubt, Neoforma may share Product Data and




                                       23


        Transaction Data with Novation, VHA, UHC and HPPI if permitted by other
        provisions of this Agreement. A party receiving Confidential Information
        shall have no obligations under this Section 10.2 as to Confidential
        Information that the receiving party establishes:

                   (a) is published or otherwise becomes available to the
                   general public without breach of this Agreement;

                   (b) was furnished by a third party in a manner not involving
                   a breach of such third party's obligations to the disclosing
                   party, except that this clause (b) shall in no event apply to
                   Transaction Data transmitted by Users;

                   (c) was in a party's possession prior to the disclosure by
                   the other party; or

                   (d) was developed independently by an employee or agent who
                   was not aware of Confidential Information furnished to the
                   receiving party pursuant to this Agreement.

        10.3. LEGAL PROCESS. If either party receives a subpoena or other
        validly issued administrative or judicial process requesting
        Confidential Information of the other party, it shall provide prompt
        notice to the other of such receipt. The party receiving the subpoena or
        process shall thereafter be entitled to comply with such subpoena or
        other process; provided that such party shall reasonably cooperate with
        the other party's efforts to obtain an appropriate protective order to
        preserve the confidentiality of the requested Confidential Information.

        10.4. INJUNCTIVE RELIEF. Each party hereto acknowledges and agrees that
        money damages alone cannot adequately compensate the other party for a
        breach of this Section 10.4; and that any such breach will cause
        immediate and irreparable harm.


                                   ARTICLE 11
                                 INDEMNIFICATION

        11.1. NEOFORMA. Neoforma agrees to indemnify and hold harmless the
        Exchange and any member, officer, director, employee or agent thereof
        (collectively, "Exchange Parties"), from any and all liabilities,
        damages, costs and expenses, including reasonable attorneys' fees
        incurred by the Exchange or any Exchange Party as a result of any claim
        relating to (a) any claim that any of the Neoforma Solutions provided to
        the Exchange, any Exchange Party or any User hereunder infringes or
        violates a third party's Intellectual Property, and (b) any use of the
        Product Data or the Catalog by Neoforma other than as permitted by
        ARTICLE 4. Neoforma shall pay all damages and costs finally awarded
        against the Exchange or any Exchange Party which are attributable to
        such a claim or




                                       24


        amounts agreed to be paid by the Exchange or any Exchange Party in
        settlement thereof, provided that the Exchange: (i) promptly notifies
        Neoforma of any such related claim or suit by a third party; (ii)
        permits Neoforma to assume sole authority to conduct the trial or
        settlement of such claim or suit or any negotiations related thereto at
        Neoforma's own expense; and (iii) provides information and assistance
        reasonably requested by Neoforma in connection with such claim or suit,
        at Neoforma's own expense if so requested; provided, further, however
        that: (A) the Exchange may participate in any such claim or suit at its
        own expense and (B) Neoforma shall not, without the Exchange's consent,
        agree to any settlement which (1) makes any admission on behalf of the
        Exchange, any Exchange Party or any User, (2) consents to any injunction
        against the Exchange, any Exchange Party or any User (except an
        injunction relating solely to continued use of any infringing
        intellectual property) or (3) imposes any ongoing liability on the
        Exchange, any Exchange Party or any User.

        11.2. THE EXCHANGE. The Exchange agrees to indemnify and hold harmless
        Neoforma and any stockholder, officer, director, employee or agent
        thereof (collectively, "Neoforma Parties"), from any and all
        liabilities, damages, costs and expenses, including reasonable
        attorneys' fees incurred by Neoforma or any Neoforma Party as a result
        of any claim relating to (a) a claim that the Exchange provided to
        Neoforma the Catalog, or any part thereof, including any Product Data,
        that the Exchange had no right to so provide, or (b) a claim that any of
        the Exchange Solutions provided to Neoforma or any Neoforma Party
        hereunder infringes or violates a third party's Intellectual Property.
        The Exchange shall pay all damages and costs finally awarded against
        Neoforma or any Neoforma Party which are attributable to such a claim or
        amounts agreed to be paid by Neoforma or any Neoforma Party in
        settlement thereof, provided that Neoforma: (i) promptly notifies the
        Exchange of any such related claim or suit by a third party; (ii)
        permits the Exchange to assume sole authority to conduct the trial or
        settlement of such claim or suit or any negotiations related thereto at
        the Exchange's own expense; and (iii) provides information and
        assistance reasonably requested by the Exchange in connection with such
        claim or suit, at the Exchange's own expense if so requested; provided,
        further, however that: (A) Neoforma may participate in any such claim or
        suit at its own expense and (B) the Exchange shall not, without
        Neoforma's consent, agree to any settlement which (1) makes any
        admission on behalf of Neoforma or any Neoforma Party, (2) consents to
        any injunction against Neoforma or any Neoforma Party (except an
        injunction relating solely to continued use of any infringing
        intellectual property) or (3) imposes any ongoing liability on Neoforma
        or any Neoforma Party.


                                   ARTICLE 12
                             LIMITATION OF LIABILITY

        12.1. LIMITATION OF NEOFORMA'S LIABILITY. Neoforma's aggregate liability
        for all claims of any kind (other than liabilities arising from death,
        bodily injury, Neoforma's obligations under Section 11.1, and breaches
        of Section 9.4 and




                                       25


        ARTICLE 10), whether based on contract, indemnity, warranty, tort
        (including negligence), strict liability or otherwise, for all losses or
        damages arising out of, connected with, or resulting from this Agreement
        or from the performance or breach thereof, or from any services covered
        by or furnished under this Agreement, shall in no case exceed $500,000.
        Except for liabilities arising from death, bodily injury, Neoforma's
        obligations under Section 11.1, and breaches of Section 9.4 and ARTICLE
        10, Neoforma shall not be liable for any loss of business, use of data,
        interruption of business, lost profits or goodwill, or other indirect,
        special, incidental, exemplary or consequential damages of any kind,
        even if Neoforma has been advised of the possibility of such loss, and
        notwithstanding any failure of essential purpose of any remedy.

        12.2. LIMITATION OF THE EXCHANGE'S LIABILITY. The Exchange's aggregate
        liability for all claims of any kind (other than liabilities arising
        from death, bodily injury, the Exchange's obligations under Section
        11.2, and breaches of Section 9.4 and ARTICLE 10), whether based on
        contract, indemnity, warranty, tort (including negligence), strict
        liability or otherwise, for all losses or damages arising out of,
        connected with, or resulting from this Agreement or from the performance
        or breach thereof, or from any services covered by or furnished under
        this Agreement, shall in no case exceed $500,000. Except for liabilities
        arising from death, bodily injury, the Exchange's obligations under
        Section 11.2, and breaches of Section 9.4 and ARTICLE 10, the Exchange
        shall not be liable for any loss of business, use of data, interruption
        of business, lost profits or goodwill, or other indirect, special,
        incidental, exemplary or consequential damages of any kind, even if the
        Exchange has been advised of the possibility of such loss, and
        notwithstanding any failure of essential purpose or of any limited
        remedy.

        12.3. TIME LIMITS ON BRINGING AN ACTION. No action may be brought by
        either party under this Agreement or otherwise more than two (2) years
        after the earlier of the time when the cause of action arose, or when
        the party was aware of facts which put it on notice thereof.


                                   ARTICLE 13
                                   DISCLAIMERS

        13.1. DISCLAIMERS OF THE EXCHANGE. OTHER THAN AS EXPRESSLY SET FORTH IN
        THIS AGREEMENT, THE EXCHANGE MAKES NO REPRESENTATIONS, WARRANTIES OR
        COVENANTS TO NEOFORMA WITH RESPECT TO THE EXCHANGE INTELLECTUAL PROPERTY
        OR THE CATALOG. OTHER THAN AS EXPRESSLY SET FORTH ABOVE, THE EXCHANGE
        PROVIDES ALL SERVICES PERFORMED HEREUNDER "AS IS." THE EXCHANGE HEREBY
        DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING WARRANTIES OF
        MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY OF DATA,
        NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING
        OR COURSE OF PERFORMANCE. THE EXCHANGE DOES NOT WARRANT THAT IT WILL BE
        ABLE TO CORRECT ALL REPORTED DEFECTS IN THE EXCHANGE SOLUTIONS OR THAT
        USE OF THE




                                       26


        EXCHANGE SOLUTIONS, OR ACCESS TO PRODUCT DATA OR LINKS TO OTHER SUPPLIER
        MATERIALS WILL BE UNINTERRUPTED OR ERROR-FREE. THE EXCHANGE PROVIDES NO
        WARRANTIES WITH RESPECT TO THE FUNCTIONALITY OF THE EXCHANGE SOLUTIONS.
        THE EXCHANGE MAKES NO WARRANTY REGARDING FEATURES, SOFTWARE OR SERVICES
        PROVIDED BY THIRD PARTIES.

        13.2. DISCLAIMERS OF NEOFORMA. OTHER THAN AS EXPRESSLY SET FORTH IN THIS
        AGREEMENT, NEOFORMA MAKES NO REPRESENTATIONS, WARRANTIES OR COVENANTS TO
        ANY PERSON OR ENTITY WITH RESPECT TO THE NEOFORMA INTELLECTUAL PROPERTY.
        OTHER THAN AS EXPRESSLY SET FORTH ABOVE, NEOFORMA PROVIDES ALL SERVICES
        PERFORMED HEREUNDER "AS IS." NEOFORMA HEREBY DISCLAIMS ALL IMPLIED
        WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
        PARTICULAR PURPOSE, ACCURACY OF DATA, NON-INFRINGEMENT AND IMPLIED
        WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE WITH
        REGARD TO NEOFORMA SOLUTIONS. NEOFORMA DOES NOT WARRANT THAT IT WILL BE
        ABLE TO CORRECT ALL REPORTED DEFECTS IN THE NEOFORMA SOLUTIONS OR THAT
        USE OF THE NEOFORMA SOLUTIONS WILL BE UNINTERRUPTED OR ERROR-FREE.
        NEOFORMA PROVIDES NO WARRANTIES WITH RESPECT TO THE FUNCTIONALITY OF
        NEOFORMA SOLUTIONS. NEOFORMA MAKES NO WARRANTY REGARDING FEATURES,
        SOFTWARE OR SERVICES PROVIDED BY THIRD PARTIES.


                                   ARTICLE 14
                              TERM AND TERMINATION

        14.1. TERM. The term of this Agreement shall commence upon the Effective
        Date and continue in effect thereafter for a period of three (3) years,
        and shall remain in effect for the duration of any renewal periods to
        which the parties may mutually agree (collectively, the "Term"). This
        Agreement shall be renewable for additional successive one-year terms by
        mutual written consent of the parties.

        14.2. EVENTS OF TERMINATION. This Agreement shall terminate upon the
        expiration of the Term, absent renewal by the parties, and may be
        terminated prior to the end of the Term:

              14.2.1 by either party on ten (10) Business Days' prior written
              notice to the defaulting party if the defaulting party breaches
              its obligations under Section 4.1, Section 4.2, ARTICLE 9 or
              ARTICLE 10 and such breach has not been cured within such ten (10)
              Business Day period;

              14.2.2 by either party upon forty-five (45) days prior written
              notice to the defaulting party if the defaulting party breaches,
              in any material respect, any of its representations, warranties or
              covenants in this Agreement (other than those described in Section
              14.2.1), and such breach has not been cured within forty-five (45)
              days after receipt of written notice of such default from the
              non-defaulting party;




                                       27


              14.2.3 immediately by either party if: (i) the other party files a
              voluntary petition for relief under the United States Bankruptcy
              Code (the "Code"); (ii) an involuntary proceeding under the Code
              is instituted against the other party and such proceeding is not
              dismissed within sixty (60) days of filing; (iii) the other party
              is otherwise adjudged bankrupt; (iv) a trustee or receiver is
              appointed by the court for all or a substantial portion of the
              assets of the other party; (v) the other party becomes insolvent
              or suspends its business; or (vi) the other party makes an
              assignment of all or substantially all of its assets for the
              benefit of its creditors;

              14.2.4 by the Exchange upon ten (10) Business Days' prior written
              notice and failure by Neoforma to cure any of the following within
              such notice period: (i) the Neoforma Solutions do not meet the
              standards of the Exchange or fail to transmit Transaction Data
              promptly or accurately; or (ii) the Exchange receives multiple,
              significant complaints from Users concerning the Neoforma
              Solutions and Neoforma fails to take appropriate corrective
              action; provided, however, that the Exchange may terminate this
              Agreement immediately if the Exchange, in the exercise of its
              reasonable discretion, determines that failure to take such action
              is likely to cause irreparable harm as a result of (i) or (ii).

              14.2.5 by Neoforma upon ten (10) Business Days' prior written
              notice and failure by the Exchange to cure any of the following
              within such notice period: (i) the Exchange Solutions do not meet
              the standards of Neoforma or fail to transmit Transaction Data
              promptly or accurately; (ii) Neoforma receives multiple,
              significant complaints from Users concerning the Exchange
              Solutions; (iii) the Exchange withdraws the entire Catalog
              pursuant to Section 4.4(d); or (iv) if Exchange Suppliers
              constituting 30% of the average number of Exchange Suppliers for
              the preceding twelve months terminate their Supplier Catalog
              Addenda as to Neoforma; provided, however, that Neoforma may
              terminate this Agreement immediately if Neoforma, in the exercise
              of its reasonable discretion, determines that failure to take such
              action is likely to cause irreparable harm as a result of (i) or
              (ii).

              14.2.6 by Neoforma, solely as to the license of Neoforma RCS
              granted in Section 3.1.5, upon ten (10) Business Days' prior
              written notice and failure by the Exchange to cure any of the
              following within such notice period: (i) the Exchange uses the
              Neoforma RCS in violation of the terms of the license set forth in
              Section 3.1.5, (ii) the Exchange fails to make any payment
              required by Section 3.1.7 when due, or (iii) the Exchange breaches
              the terms of ARTICLE 10 with respect to the Neoforma RCS.

        14.3. CONSEQUENCES OF TERMINATION. If this Agreement terminates in
        accordance with ARTICLE 14, then upon expiration of the Transition
        Period, Neoforma shall (i) cease all use of Exchange Confidential
        Information, return or delete from all electronic media all such
        Exchange Confidential Information and




                                       28


        certify any such deletion to the Exchange, and (ii) terminate
        connectivity to the Exchange Interface. If this Agreement terminates in
        accordance with ARTICLE 14, then upon expiration of the Transition
        Period, the Exchange shall (i) cease all use of Neoforma Confidential
        Information, return or delete from all electronic media all such
        Neoforma Confidential Information and certify any such deletion to
        Neoforma, and (ii) terminate connectivity to the Neoforma Interface.
        Notwithstanding the foregoing, Transaction Data may be retained for
        archive purposes and for purposes permitted by either of its joint
        owners. If the license of the Neoforma RCS terminates in accordance with
        Section 14.2.6, then upon expiration of the Transition Period, the
        Exchange shall cease all use of Neoforma RCS and return or delete all
        software included in the Neoforma RCS from all electronic media and
        certify any such deletion to Neoforma.


                                   ARTICLE 15
                                     GENERAL

        15.1. EXPENSES. Except as expressly provided herein or agreed to in
        writing, each party shall bear all of its own costs and expenses
        hereunder, including all fees and other amounts payable to third parties
        such as license, maintenance and support fees.

        15.2. INDEPENDENT CONTRACTORS. Each party to this Agreement shall be an
        independent contractor of the other, and shall not be a partner,
        principal, agent or fiduciary of the other party. Neither party shall
        have any right, power or authority to enter into any agreement for or on
        behalf of, or incur any obligation or liability of, or to otherwise
        bind, the other party. This Agreement shall not be interpreted or
        construed to create an association, joint venture or partnership between
        the parties or to impose any partnership obligation or liability upon
        either party.

        15.3. INTEGRATION AND WAIVER. This Agreement and any schedules and
        exhibits attached hereto or subsequently executed hereunder constitute
        the entire agreement between the parties relating to this subject
        matter. All previous and collateral agreements, representations,
        warranties, promises and conditions relating to the subject matter of
        this Agreement are superseded by this Agreement. Any understanding,
        promise, representation, warranty or condition not incorporated into
        this Agreement shall not be binding on either party. No change,
        amendment or modification of any provision of this Agreement shall be
        valid unless set forth in a written instrument signed by the duly
        authorized representatives of both parties. Either party's failure, at
        any time or times hereafter, to require strict performance by the other
        party under any provision of this Agreement shall not waive, affect or
        diminish any right of that party thereafter to demand strict compliance
        and performance therewith. Any suspension or waiver by either party of
        the other party's performance under any provision of this Agreement
        shall not suspend, waive or affect the other party's obligation to
        perform under any other provision of this Agreement, whether the same is
        prior




                                       29


        or subsequent thereto and whether of the same or of a different kind or
        character.

        15.4. SEVERABILITY. The invalidity or unenforceability of any term or
        provision herein shall in no way affect the validity or enforceability
        of any other term or provision. In such event, the invalid or
        unenforceable provision shall be deemed to be restated to reflect as
        nearly as possible the original intentions of the parties in accordance
        with applicable law.

        15.5. NON-SOLICITATION. During the Term and for a period of one (1) year
        from the date of any termination of this Agreement, each party agrees
        not to knowingly solicit the employees of the other party without the
        prior written permission of the other party.

        15.6. DISPUTES. Unless otherwise required in order to comply with
        deadlines under the law, and other than requests for injunctive or other
        preliminary relief, neither party shall file action or institute legal
        proceedings with respect to any dispute, controversy, or claim arising
        out of, relating to, or in connection with, this Agreement until: (i)
        the aggrieved party has given the other party written notice of its
        grievance setting forth the nature of the dispute, the amount involved,
        if any, and the remedy desired, and delivering in accordance with
        Section 15.10; (ii) the other party has failed to provide a prompt and
        effective remedy; (iii) the aggrieved party has requested senior
        executives for both parties to meet and discuss the matter in order to
        consider informal and amicable means of resolution; and (iv) either such
        meeting failed to occur within fifteen (15) days after such request or
        the meeting did not produce a mutually satisfactory resolution of the
        matter.

        15.7. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
        and construed in accordance with the laws of the State of New York as
        though all acts or omissions related hereto occurred in such state. All
        court actions arising out of or relating to this Agreement shall be
        brought exclusively in a state or federal court located in the State of
        New York. Each party hereby consents to the jurisdiction of such courts.

        15.8. FORCE MAJEURE. Neither party shall be liable for, or be considered
        in breach of or in default under this Agreement on account of, any delay
        or failure to perform as required by this Agreement as a result of any
        causes or conditions which are beyond such party's reasonable control
        and which such party is unable to overcome by the exercise of reasonable
        diligence; provided, however, that either party may terminate this
        Agreement upon written notice to the other party in the event such
        failure to perform continues unremedied for a period of thirty (30)
        days.

        15.9. ASSIGNMENT. Neither party shall have the right to assign or
        transfer its rights or obligations pursuant to this Agreement without
        the prior written consent of the other party, except that either party
        may assign or transfer this Agreement:




                                       30


        (i) to a successor as a result of a merger, consolidation, acquisition,
        reorganization or sale of all or substantially all of such party's
        assets; or (ii) to a direct or indirect subsidiary. No such assignment
        or transfer shall have the effect of increasing the obligations of
        either party under this Agreement. The terms and conditions of this
        Agreement will inure to the benefit of, and shall be binding upon, each
        party's successors and permitted assigns. In addition, either party may
        delegate any of its rights and obligations hereunder to any subsidiary
        of such party, provided that the delegating party shall not thereby be
        relieved of any of its obligations hereunder.

        15.10. NOTICES. Any notice, approval, request, authorization, direction
        or other communication under this Agreement shall be given in writing
        and shall be deemed to have been delivered and given for all purposes
        (i) on the delivery date if delivered personally to the party to whom
        the same is directed, (ii) one business day after deposit with a
        commercial overnight carrier, with written verification of receipt, or
        (iii) five business days after the mailing date, with written
        verification of receipt, if sent by United States certified mail, return
        receipt requested, postage and charges prepaid, to the address of the
        party to whom the same is directed. Notices sent pursuant to this
        Section 15.10 may not be sent via electronic mail. The mailing address
        for notice to either party shall be the address shown on the signature
        page of this Agreement. Either party may change its mailing address or
        facsimile number by providing notice to the other party in the manner
        set forth in this Section 15.10.

        15.11. EXECUTION. This Agreement may be executed in one or more
        counterparts, each of which shall be considered an original counterpart,
        and shall become a binding agreement when each party shall have executed
        one counterpart. This Agreement may be signed in person or by facsimile
        and each party is entitled to rely upon facsimile signatures to this
        Agreement.

        15.12. SURVIVAL. The provisions of ARTICLE 2, Section 3.1.5 (subject to
        Section 14.2.6), ARTICLE 9, ARTICLE 10, ARTICLE 11, ARTICLE 12, ARTICLE
        13, Section 14.3, and ARTICLE 15 shall survive termination of this
        Agreement.

        15.13. THIRD PARTY BENEFICIARIES. To the extent that (i) any proprietary
        rights of Users are granted by either Neoforma or the Exchange to the
        other hereunder, or (ii) any restrictions on the use or distribution of
        any such proprietary rights are included herein, then such Users shall
        be third party beneficiaries of this Agreement. As third party
        beneficiaries, Users shall be entitled to enforce directly the
        provisions of this Agreement governing such rights and restrictions,
        provided that (i) any breach of the terms and/or conditions or this
        Agreement by Neoforma or the Exchange has continued for at least 60 days
        after the expiration of any applicable grace or cure period specified
        herein, and (ii) Users' rights of enforcement shall be strictly subject
        to the terms and conditions of this Agreement, including all
        restrictions, exclusions and limitations set forth herein.




                                       31


        15.14. REVISIONS TO AGREEMENTS. Subject to the other provisions of this
        Agreement, promptly following the Effective Date, the parties will
        review and discuss revisions to their respective standard forms of
        agreement which would facilitate and encourage adoption and use of the
        Integrated Solution, provided that nothing in this Section 15.14 shall
        require either party to make any such change.

        15.15. INCONSISTENT USER AGREEMENT TERMS. If any agreement entered into
        between a User and either party grants rights broader than the rights
        granted to the Exchange or to Neoforma under this Agreement, the
        provisions in the agreement with such User shall govern with respect to
        such matters.





                                       32


               IN WITNESS WHEREOF, the parties hereto have cause their duly
authorized representatives to execute this Agreement effective as of the date
set forth in the opening paragraph of this Agreement.


GLOBAL HEALTHCARE EXCHANGE, LLC           NEOFORMA, INC.

By: /s/  Mike Mahoney                     By: /s/  Robert J. Zollars
   ------------------------------            -----------------------------------
Name:                                     Name: Robert J. Zollars
Title: President                          Title: CEO
Address:                                  Address:

10385 Westmoor Drive                      3061 Zanker Road
Suite 100                                 San Jose, CA  95134
Westminster, CO  82006                    Attn: Chief Executive Officer
Attn: General Counsel                     Fax:  (408) 468-4045
Fax:  (720) 887-7200
                                          with a copy to the General Counsel at
with a copy to:                           the same address.

Sidley Austin Brown & Wood
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois  60603
Attn: Jeffrey S. Rothstein
Fax:  (312) 853-7036




                                   SCHEDULE A


                Current Exchange MOU's and Evaluation Agreements

- -------------------------   -------------------------  -------------------------
      COMPANY NAME                COMPANY NAME               COMPANY NAME
- -------------------------   -------------------------  -------------------------
*
- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------

- -------------------------   -------------------------  -------------------------


- --------
* Confidential treatment requested



                                   SCHEDULE B


Service Level Requirements to be included
in Distributor Service Level Requirements




- ------------------------------ --------------------------------- ------------------------------------
                                                                         BASE LEVEL SERVICE
         MEASUREMENT                      DEFINITION                           TARGET
- ------------------------------ --------------------------------- ------------------------------------
                                                           
System Up Time                 Percent of time Supplier          *   %
                               Connectivity Portal is            (24 hours a day, 365 days a year)
                               available to all Users,
                               excluding scheduled maintenance
- ------------------------------ --------------------------------- ------------------------------------
Simultaneous User Capacity     Number of Users accessing the     * user accounts by *;
                               Supplier Connectivity Portal      * user accounts by *
                               simultaneously which the Supplier
                               Connectivity Portal can support
- ------------------------------ --------------------------------- ------------------------------------
Total Transaction Capacity     Number of Transactions which      *  by  *;
                               the Supplier Connectivity         *  by  *
                               Portal can support annually

- ------------------------------ --------------------------------- ------------------------------------
Peak Time Transactions         Number of Transactions which      *  by  *;
Capacity                       the Supplier Connectivity         *  by  *
                               Portal can support in a
                               high-traffic period measuring 5
                               minutes
- ------------------------------ --------------------------------- ------------------------------------
Transaction Throughput         Maximum time within the           PO's from User                 *
Requirements                   Supplier Connectivity Portal      Change PO's                    *
                               for various types of              PO Acknow.                     *
                               Transactions                      Ship Notices from Supp.        *
                                                                 Invoices from Distributor      *
                                                                 Catalog, Price Files           *
- ------------------------------ --------------------------------- ------------------------------------
Network Connection Speed       Supplier Connectivity Portal
                               connection speed minimum                                         *
                               requirements
- ------------------------------ --------------------------------- ------------------------------------



- --------
* Confidential treatment requested




                                   SCHEDULE C


                           Description of Neoforma RCS

Neoforma RCS is proprietary Neoforma Intellectual Property, together with all
related documentation, that enables rapid, robust connectivity to Distributors
by leveraging the following components:

- - Existing business relationships
- - Connectivity protocols processes
- - Order document data maps
- - Directory services and trading relationship management information
- - Distributor specific business rules
- - Distributor specific Service Level Agreement compliance monitoring
- - Provider specific order monitoring and escalation setup (JIT, Order Deadlines)
- - Customer service methodologies/escalation processes
- - Proven operational Interfaces (people, process, technical understanding)
- - Templates
- - Set-ups
- - Configurations
- - Development methodologies which support Distributor connectivity

Neoforma RCS currently supports a variety of connectivity protocols (*) all
order document formats currently in use by Neoforma (*), and document
translation services (*).



- --------
* Confidential treatment requested




                                       36


                                   SCHEDULE D


                Rate Schedule for Additional Consulting Services




- ------------------------------------------------- -----------------------------
Nature of Service                                       Hourly Rate*
- ------------------------------------------------- -----------------------------
                                               
- ------------------------------------------------- -----------------------------
Technical Program Manager                                    $*
- ------------------------------------------------- -----------------------------
Implementation Manager                                       $*
- ------------------------------------------------- -----------------------------
Architecture and Design                                      $*
- ------------------------------------------------- -----------------------------
Senior Applications Engineer                                 $*
- ------------------------------------------------- -----------------------------
Applications Engineer                                        $*
- ------------------------------------------------- -----------------------------
Data Mapping and Integration Manager                         $*
- ------------------------------------------------- -----------------------------
Data Mapping and Integration Specialist                      $*
- ------------------------------------------------- -----------------------------
Customer Service Manager                                     $*
- ------------------------------------------------- -----------------------------
Training and Support Systems                                 $*
- ------------------------------------------------- -----------------------------


*The hourly rates set forth in this table are the rates in effect on the
Effective Date and may be increased proportionally if Neoforma or the Exchange,
as the case may be, increases the rates for consulting services it charges other
parties.




- --------
* Confidential treatment requested




                                       37


                                   SCHEDULE E


             Current and Pending Agreements Limiting the Exchange's
                  Ability to Recommend the Integrated Solution


Current and pending agreements with:


               *



- --------
* Confidential treatment requested




                                       38

EX-10.2

                                                                    EXHIBIT 10.2



CONFIDENTIAL TREATMENT REQUESTED: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND, WHERE APPLICABLE,
HAS BEEN MARKED WITH AN ASTERISK TO DENOTE WHERE OMISSIONS HAVE BEEN MADE. THE
CONFIDENTIAL MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

                 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
                      OUTSOURCING AND OPERATING AGREEMENT

        This First Amendment to the Second Amended and Restated Outsourcing and
Operating Agreement ("Agreement") is entered into effective as of July 1, 2001
(the "Effective Date"), by and among Neoforma, Inc., fdba Neoforma.com, Inc., a
Delaware corporation with offices at 3061 Zanker Road, San Jose, CA 95134
("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, the parties wish to accelerate the value offered by the Exchange to
Members by expanding the scope of transactions covered by the Exchange to
include * .

WHEREAS, the parties wish to amend the Agreement as set forth below to enable
this expansion to occur.

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 Agreement as follows:

SECTION 1. A new definition of the term "EDI STANDARDS" shall be added which
states:

"EDI STANDARDS" means, the standard format for Electronic Data Interchange (EDI)
generally accepted and used in North America, as may change from time to time.

SECTION 2. A new definition of the term "EXCHANGE INFORMATION" shall be added
which states:

"EXCHANGE INFORMATION" means the delivery of information for use by Members and
Suppliers, including but not limited to *, regarding the purchase of a Product
by a Member participating in the Exchange made through * . A Member
participating in the Exchange is a Member who has signed a Member participation
agreement with Neoforma.


* Confidential treatment requested




                                       1


SECTION 3. A new definition of the term "EXCHANGE INFORMATION TRANSACTION
VALUE(s)" shall be added which states:

"EXCHANGE INFORMATION TRANSACTION VALUE(s)" means, with regard to the provision
of Exchange Information, the * relating to the Product purchased, rented or
leased.


SECTION 4. A new definition of the term "*" will be added which states

*

SECTION 5. The definition of "NOVATION EXCHANGE TRANSACTION FEE(s)" shall be
replaced in its entirety with the following:

"NOVATION EXCHANGE TRANSACTION FEE(s)" means fees to be paid by Suppliers in
respect of (i) transactions occurring on the Novation Exchange or (ii) receiving
Exchange Information, excluding fees associated with Neoforma Auction and
Neoforma Plan.

SECTION 6. The definition of "SUPPLIER(s)" shall be replaced in its entirety
with the following:

"SUPPLIER(s)" means suppliers, manufacturers or distributors that provide
Products and Materials for display, sale, rental or lease, including, without
limitation, High-Volume Suppliers pursuant to an agreement allowing
participation on the Exchange.

SECTION 7. The definition of "TRANSACTION FEE(s)" shall be replaced in its
entirety with the following:

"TRANSACTION FEE(s)" means fees to be paid by Suppliers with whom Novation has
contracted on Neoforma's behalf in respect of (i) transactions occurring on the
Exchange or (ii) receiving Exchange Information, but excluding fees associated
with the Novation Exchange, Neoforma Auction and Neoforma Plan.

SECTION 8. Section 8.1.1 shall be replaced in its entirety with the following:

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 and the receipt of Exchange Information.

SECTION 9. Section 8.1.2 shall be replaced in its entirety with the following:

8.1.2 Novation * to Neoforma (the "*") on all purchases made through the
Novation Exchange and for Exchange Information. The * shall be calculated as a
percentage (the "* PERCENTAGE") of the * (i) the * (ii) the * basis as set forth
on *. Subject to Section 3.8 and Subsections 8.1.3, 8.1.5 and 8.2.4, *
calculated in accordance


* Confidential treatment requested




                                       2


with this Section 8.1.2 and * in accordance with GAAP for * . (Exhibit I,
Example 1, sets forth a hypothetical calculation of * under Subsections 8.1.1
and 8.1.2.).

SECTION 10. A new Subsection 8.1.5 shall be added which states:

8.1.5 Notwithstanding anything in this Agreement to the contrary, any amount *
and, if applicable, either Subsection 8.1.3 or Subsection 8.2.4, that is
attributable to Transaction Fees in respect of Exchange Information will * ,
whichever is applicable, * (i) the * and (ii) 1.05. By way of example, if (A)
the amount * and (B) * , then (C) the * .

SECTION 11. Section 8.4 shall be replaced in its entirety with the following:

Reporting and Payment of Novation Exchange Transaction Fees and Revenue Sharing.
Within 15 days of the end of each * (in aggregated reporting for the * ),
Neoforma will provide each of Novation, VHA and UHC, with a written report
consisting of (i) aggregate Adjusted Gross Transaction Values and Exchange
Information 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, (vii) the calculation of * , and
(viii) 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.

SECTION 12. Section 8.6 shall be replaced in its entirety with the following:

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 or relating to the Exchange Information. 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.

SECTION 13. Section 10.2 shall be replaced in its entirety with the following:

10.2 Transaction Database. Neoforma will create and maintain the Transaction
Database relating to all activity occurring on the Exchange and relating to
Exchange Information in accordance with the Functionality Specifications to be
mutually agreed upon. Novation and Neoforma shall only use Information in
accordance with the


* Confidential treatment requested




                                       3


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.

SECTION 14. Exhibit G shall be replaced in its entirety with the following:

The * shall be determined by multiplying the * set forth below:

In determining the foregoing calculation, the *. By way of example, if in a *
for a total of $*.

SECTION 15. Exhibit I shall be replaced in its entirety with the following:

Example 1

*



Example 2

*



SECTION 16. All Other Terms Unchanged. Except as expressly modified by this
Amendment, all terms of the Agreement shall remain in full force and effect.



* Confidential treatment requested




                                       4


SECTION 17. Governing Law. This Amendment shall be governed by and construed
under the internal laws of the State of New York and shall be binding upon the
parties hereto in the United States and worldwide. The federal and state courts
of New York shall have exclusive jurisdiction to adjudicate any dispute arising
out of this Amendment.

SECTION 18. Counterparts. This Second 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.




                                       5


IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates
written below.



NEOFORMA, INC.                      NOVATION, LLC


By:    /s/ Robert J. Zollars        By:    /s/ Mark McKenna
       ------------------------            -------------------------------------

Name:  Robert J. Zollars            Name:  Mark McKenna
       ------------------------            -------------------------------------

Title: Chief Executive Officer      Title: President

Date:  September 28, 2001           Date:  September 28, 2001
       ------------------------            -------------------------------------


VHA, INC.                           UNIVERSITY HEALTHSYSTEM CONSORTIUM

By:    /s/ Curt Nonomaque           By:    /s/ Robert J. Baker
       ------------------------            -------------------------------------

Name:  Curt Nonomaque               Name:  Robert J. Baker
       ------------------------            -------------------------------------

Title: Chief Financial Officer      Title: President and Chief Executive Officer
       ------------------------            -------------------------------------

Date:  September 28, 2001           Date:  September 28, 2001
       ------------------------            -------------------------------------


HEALTHCARE PURCHASING PARTNERS
INTERNATIONAL, LLC


By:     /s/ Mark McKenna
       --------------------------

Name:   Mark McKenna
       --------------------------

Title:  Chief Executive Officer
       --------------------------

Date:   September 28, 2001
       --------------------------


        [SIGNATURE PAGE TO FIRST AMENDMENT TO SECOND AMENDED AND RESTATED

                      OUTSOURCING AND OPERATING AGREEMENT]




                                       6