-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GoB1hvwsdErX99QCQUaEVeGm0a03KhCnjDJ5bYS+6q8vwLPFblmDNFK0D9w2Tfdj H9rBRHAWs+Y5rKjmXBuc0Q== 0000891618-99-004573.txt : 19991018 0000891618-99-004573.hdr.sgml : 19991018 ACCESSION NUMBER: 0000891618-99-004573 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19991015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOFORMA COM INC CENTRAL INDEX KEY: 0001096219 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-89077 FILM NUMBER: 99728691 BUSINESS ADDRESS: STREET 1: 3235-7 SCOTT BOULEVARD CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4086545700 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NEOFORMA.COM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 5961 77-0424252 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
3255-7 SCOTT BLVD. SANTA CLARA, CALIFORNIA 95054 (408) 654-5700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ROBERT J. ZOLLARS CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER 3255-7 SCOTT BLVD. SANTA CLARA, CALIFORNIA 95054 (408) 654-5700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: GORDON K. DAVIDSON, ESQ. WILLIAM H. HINMAN, JR., ESQ. DAVID K. MICHAELS, ESQ. SHEARMAN & STERLING SCOTT J. LEICHTNER, ESQ. 1550 EL CAMINO REAL FENWICK & WEST LLP MENLO PARK, CA 94025 TWO PALO ALTO SQUARE (650) 330-2200 PALO ALTO, CA 94306 (650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ________________ . If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ________________ . If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ________________ . If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF SECURITIES TO BE PROPOSED MAXIMUM AMOUNT OF REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 par value per share...... $75,000,000 $20,850 - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1999 PROSPECTUS SHARES [NEOFORMA.COM LOGO] COMMON STOCK ------------------------ This is Neoforma.com, Inc.'s initial public offering of common stock. We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the common stock will be quoted on the Nasdaq National Market under the symbol "NEOF." INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS. ------------------------
PER SHARE TOTAL --------- ----- Public offering price...................................... $ $ Underwriting discount...................................... $ $ Proceeds, before expenses, to Neoforma.com, Inc............ $ $
The underwriters may also purchase up to an additional shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The shares of common stock will be ready for delivery in New York, New York on or about , 1999. ------------------------ MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC. ROBERTSON STEPHENS VOLPE BROWN WHELAN & COMPANY WILLIAM BLAIR & COMPANY ------------------------ The date of this prospectus is , 1999. 3 Cover Artwork [To come.] 4 TABLE OF CONTENTS Prospectus Summary.......................................... 3 Risk Factors................................................ 6 Special Note Regarding Forward-Looking Statements and Industry Data............................................. 18 Use of Proceeds............................................. 19 Dividend Policy............................................. 19 Capitalization.............................................. 20 Dilution.................................................... 22 Selected Financial Data..................................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 24 Business.................................................... 32 Management.................................................. 47 Certain Transactions........................................ 58 Principal Stockholders...................................... 62 Description of Capital Stock................................ 64 Shares Eligible for Future Sale............................. 67 Underwriting................................................ 69 Legal Matters............................................... 72 Experts..................................................... 72 Where You Can Find More Information......................... 72 Index to Financial Statements............................... F-1
------------------------ You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. Except as otherwise indicated, all information in this prospectus assumes: - the conversion of each outstanding share of preferred stock into one share of common stock upon the consummation of this offering; and - no exercise of the underwriters' over-allotment option. Neoforma, Neoforma.com, the Neoforma.com logo, Shop, Auction and Plan are our trademarks or service marks. Each trademark or service mark of any other company appearing in this prospectus belongs to its holder. We incorporated in California on March 4, 1996 and reincorporated in Delaware on November 4, 1998. Our address is 3255-7 Scott Boulevard, Santa Clara, California, 95054, and our telephone number is (408) 654-5700. 2 5 PROSPECTUS SUMMARY This summary may not contain all of the information that may be important to you. You should carefully read the entire prospectus, including "Risk Factors" and our financial statements, before making an investment decision. NEOFORMA.COM, INC. Neoforma.com is a leading provider of business-to-business e-commerce services in the large and highly fragmented market for medical products, supplies and equipment. Our services provide an open, online marketplace where any manufacturer or distributor may list and sell medical products. By aggregating a large number of suppliers and products, our services enable physicians, hospitals and other healthcare providers to efficiently purchase a wide range of new and used medical products. To increase the breadth and usage of our services, we have entered into strategic alliances with leading Internet, technology and healthcare-related organizations and medical products suppliers, such as Dell, General Electric Medical Systems, Healtheon, Owens & Minor, SAP and Superior Consultant. We offer three primary services that together address the entire healthcare purchasing lifecycle. Our Shop service, introduced in late August 1999, provides a unified marketplace where purchasers can easily locate and buy new medical products, and suppliers can access new customers and markets. Our Auction service, introduced in May 1999, creates an efficient marketplace for idle assets by enabling users to list, sell and buy used, refurbished and surplus medical products. Our Plan service, introduced in July 1998, provides interactive content to healthcare facility planners to reduce the complexities of planning and outfitting healthcare facilities. The worldwide market for new medical products, supplies and equipment is approximately $140 billion, and is growing at an estimated 6% per year. In the U.S. alone, there are over 20,000 manufacturers and distributors that supply new medical products to over 200,000 healthcare providers, including hospitals, physicians' offices and other healthcare delivery sites. In the market for used or surplus medical products, sellers typically are manufacturers and large healthcare providers located in U.S. urban centers, while buyers typically are healthcare providers located outside of the U.S. or in rural markets in the U.S. The high degree of buyer and supplier fragmentation in the market for both new and used medical products results in significant supply-chain inefficiencies. Our online marketplace provides significant benefits to both purchasers and sellers of new and used medical products, supplies and equipment. By aggregating product information from numerous suppliers, we offer healthcare providers a central, easy-to-use location for the purchase of medical products, enabling them to significantly reduce transaction and procurement costs. By aggregating a wide range of purchasers, we enable any supplier to offer its new and used medical products on a global basis, significantly expanding its market exposure without the expense associated with building or extending traditional distribution channels. Our objective is to become the leading online marketplace for new and used medical products. Key elements of our strategy to meet this objective include: - Build on our position as one of the first to offer comprehensive e-commerce services to our market and increase recognition of our brand; - Increase adoption of our online marketplace to create a network effect where the value of our marketplace significantly increases with each additional user; - Increase functionality of our services to drive broad market adoption; - Establish strategic alliances with leading industry participants; and - Expand internationally. 3 6 THE OFFERING Common stock offered............................... shares Common stock to be outstanding after this shares offering......................................... Use of proceeds.................................... For general corporate purposes, including sales and marketing, product development and working capital. Proposed Nasdaq National Market symbol............. NEOF
The number of shares of our common stock that will be outstanding after this offering is based on the actual number outstanding on September 30, 1999 and assumes the conversion into common stock of all our preferred stock outstanding on that date. The number of shares outstanding includes 12,693,663 shares of common stock issuable upon conversion of our Series E and Series E-1 preferred stock that we issued in October 1999. The number of shares outstanding excludes: - 6,765,709 shares issuable upon the exercise of stock options outstanding as of September 30, 1999, at a weighted average exercise price of $0.18 per share; - 421,525 shares issuable upon the exercise of warrants outstanding as of September 30, 1999, at a weighted average exercise price of $0.61 per share; and - shares available for future issuance under our stock plans as described under "Management -- Employee Benefit Plans." 4 7 SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The summary financial information below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the related notes included elsewhere in this prospectus.
PERIOD FROM INCEPTION YEAR ENDED SIX MONTHS ENDED (MARCH 6, 1996) DECEMBER 31, JUNE 30, TO DECEMBER 31, ---------------- ----------------- 1996 1997 1998 1998 1999 ---------------- ------ ------- ------- ------- (UNAUDITED) STATEMENTS OF OPERATIONS DATA: Total revenue........................ $ -- $ -- $ -- $ -- $ 7 Loss from operations................. (196) (408) (4,607) (1,065) (8,160) Net loss............................. (54) (416) (4,563) (1,061) (8,127) Basic and diluted net loss per share.............................. (0.01) (0.05) (1.65) (0.21) (7.95) Weighted-average shares -- basic and diluted............................ 8,000 8,083 2,762 5,077 1,022 Pro forma basic and diluted loss per share.............................. (0.36) (0.32) Weighted-average shares -- pro forma basic and diluted.................. 12,848 25,696
JUNE 30, 1999 (UNAUDITED) ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- BALANCE SHEET DATA: Cash and cash equivalents............................ $ 7,063 $77,601 $ Working capital...................................... 4,869 76,969 Total assets......................................... 9,759 81,859 Notes payable, less current portion.................. 1,624 1,624 Mandatorily redeemable convertible preferred stock... 15,870 -- Total stockholders' equity (deficit)................. (10,955) 77,694
See Note 2 of notes to financial statements for a description of the method we used to compute our basic and diluted net loss per share. The above table summarizes our balance sheet as of June 30, 1999: - on an actual basis; - on a pro forma basis to reflect the sale in October 1999 of 12,418,663 shares of our Series E and Series E-1 preferred stock for net proceeds of approximately $70.5 million, the issuance of 275,000 shares of our Series E-1 preferred stock in connection with a strategic alliance we entered into in October 1999 and the conversion of all outstanding shares of preferred stock into 39,814,961 shares of common stock; and - on a pro forma as adjusted basis to further reflect the application of the net proceeds from the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discount and estimated offering expenses. 5 8 RISK FACTORS Before you invest in our common stock, you should carefully consider the risks described below, together with all of the other information included in this prospectus. RISKS RELATED TO OUR BUSINESS OUR PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED We incorporated in March 1996. Prior to May 1999, our operations consisted primarily of the initial planning and development of our marketplace and the building of our operating infrastructure. We introduced our Auction service in May 1999, and we introduced our Shop service in late August 1999. Because we have only recently introduced our services, it is difficult to evaluate our business and our future prospects. For example, it is difficult to predict whether the market will accept our services and the level of revenue we can expect to derive from our services. An investor in our common stock should consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets such as the online market for the purchase and sale of new and used medical products, supplies and equipment. We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In addition, due to our limited operating history, we believe that period-to-period comparisons of our revenue and results of operations are not meaningful. As a result, you should not rely on our revenue or results of operations as an indication of future performance or prospects. 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. As of June 30, 1999, we had an accumulated deficit of approximately $13.2 million. We have not achieved profitability and we expect to continue to incur substantial operating losses for the foreseeable future. We have generated limited revenue to date. If our revenue does not increase substantially or if our expenses increase further than we expect, we may never become profitable. We anticipate that our operating losses will increase in the future, as we expect substantial increases in our costs and expenses in a number of areas, including: - marketing and promotion of our company and our services, including building recognition of our brand name; - expanding our direct field sales force; - expanding and enhancing our operating infrastructure, including hardware and software systems and administrative personnel; - extending the functionality of our online marketplace; and - expanding our services. 6 9 OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT, AND IF WE FAIL TO MEET THE EXPECTATIONS OF INVESTORS OR SECURITIES ANALYSTS, THE MARKET PRICE OF OUR COMMON STOCK WOULD LIKELY DECLINE SIGNIFICANTLY Our revenue and operating results are likely to fluctuate significantly from quarter to quarter, due to a number of factors. These factors include: - demand for and market acceptance of our services; - the amount and timing of payments to our strategic partners; - variability in the amount of equipment that we auction in a given quarter; - changes in the fees we charge users of our services; - the amount and timing of capital expenditures and other costs relating to the expansion of our operations; - the loss of one or more of our strategic partners or key suppliers or purchasers; - budgetary fluctuations of purchasers of medical products, supplies and equipment; - the timing and number of employee hires or departures; - technical difficulties with our online marketplace; and - changes in general economic and market conditions. Due to all of the above factors, fluctuations in our operating results may cause us to fail to meet the expectations of investors or securities analysts. If this were to happen, the market price of our common stock would likely decline significantly. In addition, as a result of our limited operating history, the emerging nature of our market and the evolving nature of our business model, we are unable to accurately forecast our revenue. We incur expenses based predominantly on operating plans and estimates of future revenue. Our expenses are to a large extent fixed. We may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfalls. Accordingly, a failure to meet our revenue projections would have an immediate and negative impact on profitability. OUR BUSINESS MODEL IS NEW AND MAY NOT BE ACCEPTED BY PURCHASERS AND SUPPLIERS OF MEDICAL PRODUCTS We offer an online marketplace that aggregates a number of suppliers and purchasers of medical products. This business model is new and unproven and depends upon buyers and sellers in this market adopting a new way to purchase and sell medical products, supplies and equipment. Suppliers and purchasers of medical products could be reluctant to accept our new, unproven approach, which involves new technologies and may not be consistent with their existing internal organization and procurement processes. Suppliers and purchasers may prefer to use traditional methods of selling and buying medical products, such as using paper catalogs and interacting in person or by phone with representatives of manufacturers or distributors. In addition, many of the individuals responsible for purchasing medical products do not have ready access to the Internet and may be unwilling to use the Internet to purchase medical products. Even if suppliers and purchasers accept the Internet as a means of selling and buying medical products, they may not accept our online marketplace for conducting this type of business. Instead, they may choose to establish and operate their own websites to purchase or sell new and used medical products. Reluctance of suppliers and purchasers to use our services would seriously harm our business. 7 10 IF WE CANNOT QUICKLY BUILD A CRITICAL MASS OF PURCHASERS AND SUPPLIERS OF MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT, WE WILL NOT ACHIEVE A NETWORK EFFECT AND OUR BUSINESS MAY NOT SUCCEED To encourage suppliers to list their products on our online marketplace, we need to increase the number of purchasers who use our services. However, to encourage purchasers to use our marketplace, it must offer a broad range of products from a large number of suppliers. If we are unable to quickly build a critical mass of purchasers and suppliers, we will not be able to benefit from a network effect, where the value of our services to each participant significantly increases with the addition of each new participant. Our inability to achieve a network effect would reduce the overall value of our Shop and Auction services to purchasers and suppliers and, consequently, would harm our business. IN ORDER FOR LARGE HEALTHCARE ORGANIZATIONS TO ACCEPT OUR SERVICES, WE MUST EXPAND THE BASE OF SUPPLIERS USING OUR SERVICES AND THE FUNCTIONALITY OF OUR SERVICES Currently, most of the registered users of our website are relatively small healthcare providers such as physicians offices, and these users have accounted for most of the purchases of new medical products through Shop. It is important to our success that our services be used by large healthcare organizations, such as hospitals, integrated delivery networks and members of large purchasing organizations. In order for these large organizations to accept our services, we must integrate our services with their information systems. In addition, we will need to develop customer-specific pricing capabilities before these organizations can use our services to purchase products covered by their negotiated agreements with suppliers. Finally, we will need to significantly increase the number of suppliers using our services to address the needs of these large organizations, which typically require a wide range of medical products. Many of these large healthcare organizations have established, or may establish, websites or electronic data interchange systems designed specifically for their needs and integrated with their existing processes and technologies. If we are unable to extend our capabilities and expand our base of suppliers as described above, we may not provide an attractive alternative to these websites or systems and may not achieve market acceptance by these large organizations. IF WE ARE UNABLE TO EXPAND THE BREADTH OF THE PRODUCTS OFFERED THROUGH OUR MARKETPLACE, THE ATTRACTIVENESS OF OUR SERVICES TO PURCHASERS WILL BE DIMINISHED The future success of our Shop service depends upon our ability to offer purchasers a wide range of medical products. The products currently listed on our Shop service are primarily oriented to the physicians' office market. Large healthcare organizations generally require a much broader range of products. To increase the breadth of the products listed on Shop, we must establish relationships with additional suppliers and expand the number and variety of products listed by existing suppliers. If we are unable to maintain and expand the breadth of medical products, supplies and equipment listed on Shop, the attractiveness of our services to purchasers will be diminished. A number of factors could significantly reduce, or prevent us from increasing, the number of suppliers and products offered on our online marketplace, including: - reluctance of suppliers to offer medical products in an online marketplace that potentially includes their competitors; - exclusive or preferential arrangements signed by suppliers with our competitors; - perceptions by suppliers that we give other suppliers preferred treatment on our online marketplace; and - consolidation among suppliers, which we believe is currently occurring. 8 11 WE DEPEND ON A LIMITED NUMBER OF KEY MANUFACTURERS AND DISTRIBUTORS TO PROVIDE MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT SOLD THROUGH OUR SHOP SERVICE, AND THE LOSS OF A KEY MANUFACTURER OR DISTRIBUTOR COULD RESULT IN A REDUCTION IN THE REVENUE WE GENERATE THROUGH THIS SERVICE We expect that a significant portion of the products sold through and revenue generated from our Shop service will come from a limited number of key manufacturers and distributors. These parties are generally not obligated to list any medical products on our Shop service. If any of these key manufacturers or distributors cease doing business with us or reduce the number of products they list on our Shop service, the revenue we generate through this service could be significantly reduced. Our supplier agreements are nonexclusive and, accordingly, these suppliers can sell their medical products, supplies and equipment to purchasers directly or through our competitors. IF WE DO NOT TIMELY ADD PRODUCT INFORMATION TO OUR ONLINE MARKETPLACE OR IF THAT INFORMATION IS NOT ACCURATE, OUR REPUTATION MAY BE HARMED, AND WE MAY LOSE USERS OF OUR ONLINE SERVICES Currently, we are responsible for entering product information into our database and categorizing the information for search purposes. If we do not do so in a timely manner, we will encounter difficulties in expanding our online marketplace. We currently have a backlog of products to be entered in our system. We will not derive revenue from the sale of products by these suppliers until the information is entered in our system. Timely entering of this information in our database depends upon a number of factors, including the format of the data provided to us by suppliers and our ability to accurately enter the data in our product database, any of which could delay the actual entering of the data. We use an independent company to input data provided to us by suppliers, and we rely on this company to accurately input the data. If this company fails to input data accurately, our reputation could be damaged, and we could lose users of our online services. If suppliers do not provide us in a timely manner with accurate, complete and current information about the products they offer and promptly update this information when it changes, our database will be less useful to purchasers. We cannot guarantee that the product information available from our services will always be accurate, complete and current, or that it will comply with governmental regulations. This could expose us to liability if this incorrect information harms users of our services or result in decreased adoption and use of our online marketplace. BECAUSE SOME OF THE PARTICIPANTS IN OUR ONLINE MARKETPLACE ARE STOCKHOLDERS OR HAVE STRATEGIC RELATIONSHIPS WITH US, WE MAY FIND IT DIFFICULT TO ATTRACT COMPETING COMPANIES WHICH COULD LIMIT THE BREADTH OF PRODUCTS OFFERED ON AND USERS OF OUR ONLINE MARKETPLACE Some suppliers participating in our online marketplace are our stockholders or have strategic relationships with us. For example, General Electric Medical Systems is entitled to sponsor rooms in our Plan service and has agreed to conduct other activities with us, and an affiliated entity has recently acquired shares of our preferred stock. See "Business -- Suppliers." These relationships may deter other suppliers, particularly those that compete directly with these participants, from participating in our online marketplace due to perceptions of bias in favor of one supplier over another. This could limit the array of products offered on our online marketplace, damage our reputation and limit our ability to maintain or increase our user base. IF WE ARE NOT ABLE TO KEEP UP WITH RAPIDLY CHANGING TECHNOLOGY AND DEVELOP ENHANCEMENTS TO OUR SERVICES, WE MAY NOT BE ABLE TO ATTRACT OR RETAIN PURCHASERS AND SUPPLIERS OF MEDICAL PRODUCTS If we do not maintain and expand the functionality and reliability of our services, purchasers and suppliers of medical products may not use our marketplace. There are rapid technological changes taking place in the business-to-business e-commerce market. To keep up with our competitors and 9 12 provide an attractive solution to purchasers and sellers of medical products, supplies and equipment, we must: - adapt to rapidly developing technologies; - comply with changing industry standards; and - constantly improve the functionality and reliability of our services. In particular, we believe that we must develop the capability to integrate our online services with enterprise software systems used by many suppliers of medical products and by many large healthcare organizations, and to enable our services to support customer-specific pricing. We may incur significant expenses to develop these capabilities, and may not succeed in developing them in a timely manner. In addition, developing the capability to integrate our services with suppliers' and purchasers' enterprise software systems will require the cooperation of and collaboration with the companies that develop and market these systems. Suppliers and purchasers use a variety of different enterprise software systems provided by a number of different vendors or developed internally. This lack of uniformity increases the difficulty and cost of developing the capability to integrate with the systems of a large number of suppliers and purchasers. Failure to provide these capabilities would limit the efficiencies that our services provide, and may deter many purchasers and suppliers from using our online marketplace, particularly large healthcare organizations. WE FACE INTENSE COMPETITION THAT COULD LIMIT OUR ABILITY TO MAINTAIN OR EXPAND THE BASE OF PURCHASERS AND SELLERS OF MEDICAL PRODUCTS USING OUR SERVICES The online market for medical products, supplies and equipment is new, rapidly evolving and intensely competitive. Our primary competition includes e-commerce providers that have established online marketplaces for medical products, supplies and equipment. We also face potential competition from a number of sources. Many companies have created websites to serve the information needs of healthcare professionals. Many of these companies are introducing e-commerce functions that may compete with our services. In addition, providers of online marketplaces and online auction services that currently focus on other industries could expand the scope of their services to include medical products. Existing suppliers of medical products may also establish online marketplaces that offer services to suppliers and purchasers, either on their own or by partnering with other companies. Moreover, live auction houses focusing on medical products may establish online auction services. See "Business -- Competition" for more information about our current and potential competitors. Competition is likely to intensify as our market matures. As competitive conditions intensify, competitors may: - enter into strategic or commercial relationships with larger, more established healthcare, medical products and Internet companies; - secure services and products from suppliers on more favorable terms; - devote greater resources to marketing and promotional campaigns; - secure exclusive or preferential arrangements with purchasers or suppliers that limit sales through our marketplace; and - devote substantially more resources to website and systems development. Many of our existing and potential competitors have longer operating histories in the medical products market, greater name recognition, larger customer bases and greater financial, technical and marketing resources than we do. As a result of these factors, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns for their brands and services and make more attractive offers to purchasers and 10 13 suppliers, potential employees and strategic partners. In addition, new technologies may increase competitive pressures. We cannot be certain that we will be able to maintain or expand our user base. We may not be able to compete successfully against current and future competitors and competition could result in price reductions, reduced sales, gross margins and operating margins and loss of market share. IF WE ARE NOT ABLE TO INCREASE RECOGNITION OF THE NEOFORMA.COM BRAND NAME, OUR ABILITY TO ATTRACT USERS TO OUR ONLINE MARKETPLACE WILL BE LIMITED We believe that recognition and positive perception of the Neoforma.com brand name in the healthcare industry are important to our success. We intend to significantly expand our advertising and publicity efforts in the near future. However, we may not achieve our desired goal of increasing the awareness of the Neoforma.com brand name. Even if recognition of our name increases, it may not lead to an increase in the number of visitors to our online marketplace or increase the number of users of our services. IF PARTICIPATING SELLERS ON OUR SHOP AND AUCTION SERVICES DO NOT PROVIDE TIMELY AND PROFESSIONAL DELIVERY OF MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT, PURCHASERS MAY NOT CONTINUE USING OUR SERVICES We rely on suppliers to deliver the medical products, supplies and equipment sold through our Shop service to purchasers. We also often rely on sellers to deliver products sold through our Auction service. In addition, suppliers do not guarantee the availability or timely delivery of products listed on to Shop. If these sellers fail to make delivery in a professional, safe and timely manner, then our services will not meet the expectations of purchasers, and our reputation and brand will be damaged. In addition, deliveries that are non-conforming, late or are not accompanied by information required by applicable law or regulations could expose us to liability or result in decreased adoption and use of our services. WE MAY BE SUBJECT TO LITIGATION FOR DEFECTS IN PRODUCTS SUPPLIED BY SELLERS USING OUR SERVICES, AND THIS TYPE OF LITIGATION MAY BE COSTLY AND TIME-CONSUMING TO DEFEND Because we facilitate the sale of new and used medical products by sellers using our services, we may become subject to legal proceedings regarding defects in these medical products, even though we do not take title to these products. Any claims, with or without merit, could: - be time-consuming to defend; - result in costly litigation; or - divert management's attention and resources. IF WE ARE UNABLE TO ATTRACT QUALIFIED PERSONNEL OR RETAIN OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN OUR INDUSTRY Our success depends on our ability to attract and retain qualified, experienced employees. Competition for qualified, experienced employees in both the Internet and the healthcare industry, particularly in the San Francisco Bay Area, is intense, and we may not be able to compete effectively to retain and attract employees. Should we fail to retain or attract qualified personnel, we may not be able to compete successfully in our industry, and our business would be harmed. We believe that our success will depend on the continued services of executive officers and other key employees. Other than initial offer letters containing information regarding compensation, we currently have employment agreements with only two members of our senior management. However, these agreements do not prevent these executives from terminating their employment at any time. As 11 14 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. We currently do not have an Executive Vice President of Sales, as we are involved in litigation with respect to the services of Daniel A. Eckert, an individual whom we had hired to serve in that position. If we are unable to resolve this litigation in a timely fashion, or are unable to hire an adequate replacement for Mr. Eckert if we are unsuccessful in this litigation, our business could be harmed. Other than the limited key person life insurance policies we have with our founders, Jeffrey H. Kleck and Wayne D. McVicker, we do not maintain any key person life insurance. WE ARE INVOLVED IN LITIGATION INVOLVING OUR RECENT HIRE OF AN EXECUTIVE OFFICER AND IF WE LOSE IN THIS LITIGATION, WE MAY NOT BE ABLE TO HIRE THIS EXECUTIVE OFFICER AND WE MAY HAVE TO PAY MONEY DAMAGES On August 6, 1999, Fisher Scientific International, Inc. filed a petition in the District Court of Montgomery County, Texas, against us and Daniel A. Eckert, an individual that we had hired to serve as our Executive Vice President of Sales. Fisher alleged that Mr. Eckert, previously President of one of Fisher's divisions, Fisher HealthCare, would be in breach of a covenant not to compete if he were to work for us. Fisher also alleged that Mr. Eckert had disclosed, and in working for us would inevitably disclose, Fisher's confidential and proprietary information, and that by hiring Mr. Eckert, we were interfering with Fisher's business relations. Finally, Fisher alleged that these actions constituted unfair competition. The outcome of litigation is uncertain and cannot be predicted. If Fisher prevails in this litigation, it could prevent Mr. Eckert from joining us in any capacity, and could require that we pay money damages to Fisher. In addition, litigation can divert management's attention and resources. MANY OF OUR EXECUTIVES AND OTHER EMPLOYEES RECENTLY JOINED OUR COMPANY, AND WE CANNOT ASSURE YOU THAT THEY WILL WORK TOGETHER EFFECTIVELY Many of our executive officers and other employees joined us only recently and have had a limited time to work together. For example, our Chief Executive Officer, Robert J. Zollars, joined Neoforma.com in July 1999, our Chief Financial Officer, Frederick J. Ruegsegger, joined Neoforma.com in July 1999, and our Executive Vice President of Products and Services, Bhagwan D. Goel, joined Neoforma.com in October 1999. We cannot assure you that they will be able to work effectively together to manage our growth and continuing operations. WE PLAN TO EXPAND OUR SERVICES INTERNATIONALLY, AND IF WE ARE UNABLE TO DO SO, OUR GROWTH WILL BE LIMITED An important part of our business strategy is to expand our services internationally. We have limited experience with the healthcare industry outside the U.S. and with marketing our services internationally. Our entry into international markets may require significant management attention and financial resources, which may harm our ability to effectively manage our existing business. Furthermore, entry into some international markets would require us to develop foreign language versions of our services. Accordingly, our planned international expansion may not be successful. We cannot be sure that we will be able to attract purchasers and sellers of medical products in foreign jurisdictions to our online marketplace. In addition, the market for the purchase and sale of medical products in many foreign countries is different from that in the U.S. For example, in many foreign countries, the government or a government-controlled entity is the principal purchaser of medical products. Competitors which have greater local market knowledge may exist or arise in these international markets and impede our ability to successfully expand in these markets. 12 15 WE MAY MAKE NEW ACQUISITIONS, WHICH COULD HARM OUR PROFITABILITY, PUT A STRAIN ON OUR RESOURCES, OR CAUSE DILUTION TO OUR STOCKHOLDERS We may find it necessary to make acquisitions of technologies and other companies in order to expand our business and the services we offer. For example, on August 6, 1999, we acquired General Asset Recovery, LLC, a live auction house and asset management company focused on medical products. Integrating newly acquired organizations and technologies into our company could be expensive, time consuming and may strain our resources. In addition, we may lose current users of our services if any acquired companies have relationships with competitors of our users. Consequently, we may not be successful in integrating any acquired businesses or technologies and may not achieve anticipated revenue and cost benefits. In addition, future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm our business. For example, in connection with the acquisition of General Asset Recovery, we recorded approximately $9.7 million in goodwill, which will be amortized over a period of seven years. IF WE ARE UNABLE TO MAINTAIN OUR STRATEGIC ALLIANCES OR ENTER INTO NEW ALLIANCES, WE MAY BE UNABLE TO INCREASE THE ATTRACTIVENESS OF OUR ONLINE MARKETPLACE OR PROVIDE SATISFACTORY SERVICES TO USERS OF OUR SERVICES Our business strategy includes entering into strategic alliances with leading technology and healthcare-related companies to increase users of our online marketplace, increase the number and variety of products that we offer and provide additional services and content to our users. We may not achieve our objectives through these alliances. These agreements do not, and future relationships may not, afford us any exclusive marketing or distribution rights. Many of these companies have multiple relationships and they may not regard us as significant for their business. These companies may pursue relationships with our competitors or develop or acquire services that compete with our services. In addition, in many cases these companies may terminate these relationships with little or no notice. If any existing alliance is terminated or we are unable to enter into alliances with leading technology and healthcare-related companies, we may be unable to increase the attractiveness of our online marketplace or provide satisfactory services to purchasers and suppliers of medical products. OUR RECENT GROWTH HAS PLACED A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND RESOURCES, AND WE MAY EXPERIENCE A SIMILAR OR INCREASED STRAIN IN MANAGING OUR EXPECTED GROWTH IN THE FUTURE We have grown rapidly and will need to continue to grow to execute our business strategy. Our total number of employees grew from four as of December 31, 1997, to 48 as of December 31, 1998, and to 148 as of September 30, 1999, and we anticipate further significant increases in the number of our employees. Our growth has placed significant demands on management as well as on our administrative, operational and financial resources and controls. We expect our future growth to cause similar, and perhaps increased, strain on our systems and controls. For example, our rapid growth requires that we integrate and manage a large number of new employees. In addition, we will need to substantially upgrade our information systems including our accounting system. We also will need to institute new systems such as an auction inventory tracking system. Any failure to successfully upgrade our systems and controls could result in errors in our financial or other reporting, or could result in inefficiencies in our business. OUR SYSTEMS MAY NOT BE ABLE TO PROVIDE ACCEPTABLE PERFORMANCE WITH INCREASED USE To date, we have processed a limited number and variety of transactions on our website. Our systems may not accommodate increased use while providing acceptable overall performance. We must continue to expand and adapt our network infrastructure to accommodate additional users and 13 16 increased transaction volumes. This expansion and adaptation will be expensive and will divert our attention from other activities. SYSTEM FAILURE MAY CAUSE INTERRUPTION OF OUR SERVICES, WHICH COULD IMPAIR OUR REPUTATION AND THE ATTRACTIVENESS OF OUR SERVICES The performance of our server and networking hardware and software infrastructure is critical to our business and reputation and our ability to process transactions, provide high quality customer service and attract and retain users of our services. Currently, our infrastructure and systems are located at one site at Exodus Communications in Sunnyvale, California, which is an area susceptible to earthquakes. We depend on our single-site infrastructure and any disruption to this infrastructure resulting from a natural disaster or other event could result in an interruption in our service, reduce the number of transactions we are able to process and, if sustained or repeated, could impair our reputation and the attractiveness of our services. Our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunications failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. We do not have a formal disaster recovery plan or alternative provider of hosting services. In addition, we do not carry sufficient business interruption insurance to compensate us for losses that could occur. Any failure on our part to expand our system or Internet infrastructure to keep up with the demands of our users, or any system failure that causes an interruption in service or a decrease in responsiveness of our online services or website, could result in fewer transactions and, if sustained or repeated, could impair our reputation and the attractiveness of our services. IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF THE CONFIDENTIAL INFORMATION OF THE USERS OF OUR ONLINE MARKETPLACE, THESE USERS MAY DISCONTINUE USING OUR SERVICES A significant barrier to the widespread adoption of e-commerce is the secure transmission of personally identifiable information of Internet users as well as other confidential information over public networks. If any compromise or breach of security were to occur, it could harm our reputation and expose us to possible liability. A party who is able to circumvent our security measures 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. THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS We regard our intellectual property as critical to our success. If we are unable to protect our intellectual property rights, our business would be harmed. We rely on trademark, copyright and trade secret laws to protect our proprietary rights. We have applied for registration of several marks including the Neoforma.com logo. Our trademark registration applications may not be approved or granted, or, if granted, may be successfully challenged by others or invalidated through administrative process or litigation. WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY CLAIMS AND WE COULD SUBSEQUENTLY LOSE OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD RESULT IN OUR INABILITY TO OPERATE OUR CURRENT BUSINESS We may from time to time be subject to claims of infringement of other parties' proprietary rights or claims that our own trademarks, patents or other intellectual property rights are invalid. Any claims of this type, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention and resources or require us to enter into royalty or license agreements. License agreements may not be available on commercially reasonable terms, if at all. 14 17 The loss of access to any key intellectual property right could result in our inability to operate our current business. IF WE FAIL TO LICENSE THIRD-PARTY SOFTWARE INCORPORATED IN OUR SERVICES, WE MAY NOT BE ABLE TO OPERATE OUR ONLINE MARKETPLACE We currently rely on software that we have licensed from a number of suppliers. For example, we use software that we license from NetDynamics, Inc., a subsidiary of Sun Microsystems, to provide part of our website infrastructure and we use information retrieval software that we license from SearchCafe Development Corporation to provide part of our search capabilities. These licenses may not continue to be available to us on commercially reasonable terms, or at all. In addition, the licensors may not continue to support or enhance the licensed software. In the future, we expect to license other third party technologies to enhance our services, to meet evolving user needs or to adapt to changing technology standards. Failure to license, or the loss of any licenses of, necessary technologies could impair our ability to operate our online marketplace until equivalent software is identified, licensed and integrated or developed by us. In addition, we may fail to successfully integrate licensed technology into our services, which could similarly harm development and market acceptance of our services. RISKS RELATED TO OUR INDUSTRY THE SUCCESS OF OUR BUSINESS DEPENDS ON THE PARTICIPANTS IN THE MARKET FOR MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT ACCEPTING THE INTERNET FOR DISTRIBUTION AND PROCUREMENT Business-to-business e-commerce is currently not a significant sector of the market for medical products, supplies and equipment. The Internet may not be adopted by purchasers and suppliers in the medical products, supplies and equipment market for many reasons, including: - reluctance by the healthcare industry to adopt the technology necessary to engage in the online purchase and sale of medical products; - failure of the market to develop the necessary infrastructure for Internet-based communications, such as wide-spread Internet access, high-speed modems, high-speed communication lines and computer availability; - their comfort with existing purchasing habits, such as ordering through paper-based catalogs and representatives of medical manufacturers and distributors; - their concern with respect to security and confidentiality; and - their investment in existing purchasing and distribution methods and the costs required to switch methods. Should healthcare providers and suppliers of medical products choose not to utilize or accept the Internet as a means of purchasing and selling medical products, our business model would not be viable. REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT THE GROWTH OF THE INTERNET AND OTHERWISE HARM OUR BUSINESS 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 15 18 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. Furthermore, numerous states have regulations regarding how auctions may be conducted and the liability of auctioneers in conducting these auctions. No legal determination has been made with respect to the applicability of these regulations to our online business to date and little precedent exists in this area. One or more states may attempt to impose these regulations upon us in the future. CHANGES IN THE REGULATORY AND ECONOMIC ENVIRONMENT AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY COULD HARM OUR BUSINESS The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. These factors affect the purchasing practices and operation of healthcare organizations. Changes in current healthcare financing and reimbursement systems could require us to make unplanned enhancements of our services, or result in delays or cancellations of orders or reduce demand for our services. Federal and state legislatures have periodically considered programs to reform or amend the U.S. healthcare system at both the federal and state level. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry providers operate. We do not know what effect any proposals would have on our business. Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with greater market power. As the healthcare industry consolidates, competition to provide services to industry participants will become more intense and the importance of establishing a relationship with each industry participant will become greater. These industry participants may try to use their market power to negotiate fee reductions of our services. If we were forced to reduce our fees, our operating results could suffer if we cannot achieve corresponding reductions in our expenses. WE FACE YEAR 2000 RISKS ASSOCIATED WITH OUR OWN SYSTEMS AND THOSE OF PURCHASERS, SUPPLIERS AND THE INTERNET Significant uncertainty exists concerning the potential costs and effects associated with any year 2000 compliance problems. Any year 2000 compliance problems faced by us, users of our online marketplace and strategic partners could seriously harm our business. In addition, our ability to operate our business depends upon delivery of accurate, electronic information via the Internet. To the extent year 2000 issues result in the long-term inoperability of the Internet or our online marketplace, our business would be seriously harmed. For more information regarding this risk, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000." 16 19 RISKS RELATED TO THIS OFFERING THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD LEAD TO LOSSES FOR INDIVIDUAL STOCKHOLDERS Although the initial public offering price of our common stock will be determined based on several factors, the market price after the offering will vary from the initial offering price. The market price of the common stock may fluctuate significantly in response to a number of factors, some which are beyond our control, including: - variations in our reported operating results; - changes in estimates of our financial performance by securities analysts; - changes in market valuation of business-to-business e-commerce companies generally; - announcements by us of significant contracts, acquisitions, strategic relationships, joint ventures or capital commitments; - loss of a major participant in our online marketplace or of a strategic partner; - departures of any of our key personnel; and - future sales of our common stock. The trading prices of many stocks of Internet-related companies have experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These fluctuations may continue and could harm our stock price. Any negative change in the public's perception of the prospects of Internet-related companies could also depress our stock price, regardless of our results. WE COULD BE SUBJECT TO SECURITIES CLASS ACTION LITIGATION IF OUR STOCK PRICE IS VOLATILE In the past, there have been class action lawsuits filed against companies after periods of fluctuations in the market price of their securities. If we were subject to this type of litigation, it would be a strain on our personnel and financial resources, and divert management's attention from running our company and could negatively affect our public image and reputation. OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL RETAIN SIGNIFICANT CONTROL OVER OUR BUSINESS AFTER THIS OFFERING After this offering, executive officers, directors and current holders of 5% or more of our outstanding common stock will, in the aggregate, own approximately % of our outstanding common stock. As a result, these stockholders will be able to influence significantly all matters requiring approval by our stockholders, including the election of directors and the approval of significant corporate transactions. This concentration of ownership may also delay, deter or prevent a change in control of our company and may make some transactions more difficult or impossible without the support of these stockholders. WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT THE SALE OF OUR COMPANY AND DIMINISH THE VOTING RIGHTS OF THE HOLDERS OF OUR COMMON STOCK Provisions of our certificate of incorporation, bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. For a description of these provisions, see "Description of Capital Stock -- Anti-Takeover Provisions." 17 20 AN AGGREGATE OF SHARES, OR %, OF OUR OUTSTANDING STOCK, WILL BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET BETWEEN 180 DAYS AND ONE YEAR AFTER THIS OFFERING, AND FUTURE SALES OF THIS STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE Sales of substantial amounts of our common stock in the public market after this offering could reduce the prevailing market prices for our common stock. Of the shares of common stock to be outstanding upon the closing of this offering, the shares offered in this offering will be freely tradable without restriction or further registration, other than shares purchased by our officers, directors or other affiliates within the meaning of Rule 144 under the Securities Act of 1933, which will be restricted from sale until 180 days after the date of this prospectus under the terms of agreements between these affiliates and the underwriters. An additional shares held by existing stockholders prior to this offering will be eligible for immediate sale in the public market without restriction. The remaining shares of our common stock held by existing stockholders upon the completion of this offering will become eligible for resale in the public market as follows:
NUMBER OF SHARES/PERCENT OUTSTANDING AFTER THE OFFERING DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET - ----------------- ----------------------------------------------------------------- 180 days after the date of this prospectus under the terms of agreements between the stockholders and the underwriters or us, provided that the underwriters can waive this restriction at any time. of these shares will also be subject to sales volume restrictions under Rule 144 under the Securities Act. Upon expiration of applicable one-year holding periods under Rule 144, which will expire between and , subject to sales volume restrictions under Rule 144.
In addition, we intend to file a registration statement on Form S-8 under the Securities Act after the date of this offering to register an aggregate of shares of common stock issued or reserved for issuance under our various stock plans. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA This prospectus contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions. We cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks outlined under "Risk Factors" and elsewhere in this prospectus. This prospectus contains estimates of market growth related to the Internet. These estimates have been included in studies published by Forrester Research, Efficient Healthcare Consumer Response and the Health Industry Manufacturers' Association. These estimates assume that certain events, trends and activities will occur. Although we believe that these estimates are generally indicative of the matters reflected in those studies, these estimates are inherently imprecise, and we caution you to read these estimates in conjunction with the rest of the disclosure in this prospectus, particularly the "Risk Factors" section. 18 21 USE OF PROCEEDS The net proceeds to us from the sale of the shares of common stock offered by us will be approximately $ million, or approximately $ million if the underwriters' over-allotment option is exercised in full, based on an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses. We intend to use the net proceeds from this offering primarily for general corporate purposes, including sales and marketing, product development and working capital. We may use a portion of the net proceeds from this offering to acquire or invest in businesses, technologies or services that are complementary to our business. However, we have no present commitments with respect to any transactions of this type. We will retain broad discretion in the allocation and use of the net proceeds of this offering. Pending these uses, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We intend to retain any future earnings to finance future growth and do not anticipate paying cash dividends for the foreseeable future. In addition, the terms of our credit facilities prohibit us from paying cash dividends on our capital stock without prior consent of the lender. 19 22 CAPITALIZATION The following table sets forth our cash and cash equivalents and capitalization as of June 30, 1999: - on an actual basis; - on a pro forma basis to reflect the sale in October 1999 of 12,418,663 shares of our Series E and Series E-1 preferred stock for net proceeds of approximately $70.5 million, the issuance of 275,000 shares of our Series E-1 preferred stock in connection with a strategic alliance we entered into in October 1999 and the conversion of all outstanding shares of preferred stock into 39,814,961 shares of common stock; and - on a pro forma as adjusted basis to further reflect the application of the net proceeds from the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share and the filing of our amended and restated certificate of incorporation prior to the completion of this offering, after deducting the estimated underwriting discount and estimated offering expenses.
JUNE 30, 1999 (UNAUDITED) --------------------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------------- -------------- ---------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Cash and cash equivalents................................. $ 7,063 $ 77,763 $ ======== ======== ======= Notes payable, less current portion....................... 1,624 1,624 -------- -------- ------- Mandatorily redeemable convertible preferred stock, $0.001 par value, 15,682,822 shares authorized, 15,261,298 issued and outstanding, actual; 15,682,822 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted............................... 15,870 -- -------- -------- Valuation of warrants issued in conjunction with debt..... 679 -- -------- -------- Stockholders' equity (deficit): Preferred stock, $0.001 par value; 11,860,000 shares authorized, 11,860,000 shares issued and outstanding, actual; 11,860,000 shares authorized, no shares issued and outstanding, pro forma; 5,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted.................................... 12 -- Common stock, $0.001 par value; 75,000,000 shares authorized, 1,380,611 shares issued and outstanding, actual; 200,000,000 shares authorized, 41,195,572 shares issued and outstanding, pro forma; 200,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted................... 1 41 Additional paid-in capital................................ 7,043 95,664 Valuation of warrants to purchase common stock............ 17 17 Notes receivable from stockholders........................ (17) (17) Deferred compensation..................................... (4,851) (4,851) Deficit accumulated during the development stage.......... (13,160) (13,160) -------- -------- ------- Total stockholders' equity (deficit)................. (10,955) 77,694 -------- -------- ------- Total capitalization............................ $ 7,218 $ 79,318 $ ======== ======== =======
20 23 - ------------------------- The number of shares of common stock outstanding set forth in the table above excludes the following: - 6,765,709 shares issuable upon the exercise of stock options outstanding as of September 30, 1999, at a weighted average exercise price of $0.18 per share; - 421,525 shares issuable upon the exercise of warrants outstanding as of September 30, 1999, at a weighted average exercise price of $0.61 per share; and - shares available for future issuance under our stock plans as described under "Management -- Employee Benefit Plans." The number of shares of common stock into which each share of our Series E and Series E-1 preferred stock will be converted upon completion of this offering may be adjusted under some circumstances as described in Note 13 of notes to financial statements. 21 24 DILUTION As of June 30, 1999, our pro forma net tangible book value was approximately $(10,926) million, or $(0.27) per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by 41,195,572 shares of common stock outstanding after giving effect to the sale of 12,693,663 shares of our Series E and Series E-1 preferred stock in October 1999 and the conversion of all outstanding shares of preferred stock into shares of common stock upon completion of this offering. After giving effect to the receipt of the proceeds from the sale of shares of our common stock in this offering and after deducting the estimated underwriting discount and estimated offering expenses, our pro forma net tangible book value as of June 30, 1999 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of June 30, 1999................................................... $ Increase per share attributable to new investors.......... Pro forma net tangible book value per share after this offering.................................................. ------ Dilution per share to new investors......................... $ ======
The following table summarizes as of June 30, 1999, on the pro forma basis described above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering, before deducting the estimated underwriting discount and estimated offering expenses:
TOTAL SHARES PURCHASED CONSIDERATION ----------------- ----------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------- ------- ------- ------- ------------- Existing stockholders...................... % $ % $ New investors.............................. ------- ---- ------- ---- Total............................ % $ % ======= ==== ======= ====
The above discussion and tables assume no exercise of any stock options or warrants outstanding as of June 30, 1999. As of June 30, 1999, there were options outstanding to purchase a total of 4,109,392 shares of common stock at a weighted average price of $0.10 per share and warrants outstanding to purchase a total of 273,814 shares of common stock with a weighted average exercise price of $1.11 per share. As of September 30, 1999, we had outstanding options to purchase 6,765,709 shares of our common stock at a weighted average exercise price of $0.18 per share and warrants to purchase 421,525 shares of our common stock at a weighted average exercise price of $1.14 per share. If any of these options or warrants are exercised, there will be further dilution to new public investors. Please see "Capitalization," "Management -- Employee Benefit Plans" and Notes 9 and 10 of notes to financial statements. 22 25 SELECTED FINANCIAL DATA The selected financial data as of and for the years ended December 31, 1997 and 1998 and for the period from inception (March 6, 1996) through December 31, 1996, are derived from our financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, and are included elsewhere in this prospectus. The selected financial data as of and for the six months ended June 30, 1998 and 1999 are derived from unaudited financial statements included elsewhere in this prospectus. We have prepared this unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of our financial position and operating results for such periods. When you read this selected financial data, it is important that you also read the historical financial statements and related notes included in this prospectus, as well as the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results. See Note 2 of notes to financial statements for an explanation of the determination of the number of shares used in computing per share amounts.
PERIOD FROM INCEPTION YEAR ENDED SIX MONTHS ENDED (MARCH 6, 1996) TO DECEMBER 31, JUNE 30, DECEMBER 31, ------------------- ------------------- 1996 1997 1998 1998 1999 --------------------- ------ -------- ------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS DATA: Revenue: Transaction fees................................ $ -- $ -- $ -- $ -- $ -- Website sponsorship fees and other.............. -- -- -- -- 7 ------ ------ -------- ------- -------- Total revenue................................. -- -- -- -- 7 Operating Expenses: Operations...................................... -- -- 627 190 1,319 Product development............................. 31 179 1,491 327 2,568 Selling and marketing........................... 111 153 1,409 321 2,382 General and administrative...................... 54 76 1,075 227 1,591 Amortization of deferred compensation........... -- -- 5 -- 307 ------ ------ -------- ------- -------- Loss from operations.......................... (196) (408) (4,607) (1,065) (8,160) Other Income (Expense): Interest income................................. -- -- 66 13 128 Interest expense................................ -- (15) (22) (9) (95) Other........................................... 142 7 -- -- -- ------ ------ -------- ------- -------- Net loss...................................... $ (54) $ (416) $ (4,563) $(1,061) $ (8,127) ====== ====== ======== ======= ======== Basic and diluted net loss per share.............. $(0.01) $(0.05) $ (1.65) $ (0.21) $ (7.95) ====== ====== ======== ======= ======== Weighted-average shares -- basic and diluted...... 8,000 8,083 2,762 5,077 1,022 ====== ====== ======== ======= ======== Pro forma basic and diluted loss per share (unaudited)..................................... $ (0.36) $ (0.32) ======== ======== Weighted-average shares -- pro forma basic and diluted (unaudited)............................. 12,848 25,696 ======== ========
DECEMBER 31, ------------------------ JUNE 30, 1996 1997 1998 1999 ---- ----- ------- ----------- (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents................................... $ 7 $ 32 $ 812 $ 7,063 Working capital............................................. 38 (23) 214 4,869 Total assets................................................ 51 55 1,672 9,759 Notes payable, less current portion......................... 75 385 279 1,624 Mandatorily redeemable convertible preferred stock.......... -- -- 3,884 15,870 Total stockholders' equity (deficit)........................ (34) (390) (3,155) (10,955)
23 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors including those discussed in "Risk Factors" and elsewhere in this prospectus. OVERVIEW Neoforma.com is a leading provider of business-to-business e-commerce services in the large and highly fragmented market for medical products, supplies and equipment. Our marketplace aggregates suppliers of a wide range of new and used medical products and presents their offerings to the physicians, hospitals and other healthcare organizations that purchase these products. We believe that our services will streamline procurement processes and extend the reach of existing sales and distribution channels, as well as reduce transaction costs for both buyers and sellers of medical products, supplies and equipment. We offer three primary services. Our Shop service provides a unified marketplace where purchasers can easily identify, locate and purchase new medical products and suppliers can access new customers and markets. Our Auction service creates an efficient marketplace for idle assets by enabling users to list, sell and buy used, refurbished and surplus medical products. Our Plan service provides interactive content to healthcare facility planners to reduce the complexities of planning and outfitting facilities. We incorporated on March 4, 1996. From inception, our operating activities have related primarily to the initial planning and development of our marketplace and the building of our operating infrastructure. We first introduced the Neoforma.com website in 1997 and have since released a number of enhancements to provide new services and content. Initially, our website provided only information for healthcare professionals. We began offering e-commerce services with the introduction of Auction in May 1999 and expanded our services with the introduction of Shop in late August 1999. Since we introduced our Auction and Shop services, we have focused on expanding and enhancing our services, establishing relationships with suppliers of medical products, expanding our purchaser base, developing strategic alliances, promoting our brand name and building our operating infrastructure. We have recognized limited revenue to date. We expect that our principal source of revenue will be transaction fees paid by the sellers of medical products that use our Shop and Auction services. We recognize transaction fees as revenue when the seller confirms a purchaser's order. For live auction services, we recognize seller transaction fees, as well as a buyer's premium, when the product is sold. We also expect to receive revenue from sponsorship fees in connection with suppliers' sponsoring of content on our Plan service, subscription fees for asset management and facilities planning services, development fees from participating sellers to digitize their product information for display on our website and service fees for maintenance of product information and content on our website. Development fees are recognized as development services are performed. Sponsorship, subscription and service fees will be recognized ratably over the period of the service agreement. Our operating expenses have increased significantly since our inception, and the rate of this increase has accelerated since our introduction of our Auction and Shop services. These increases are primarily due to additions to our staff as we have expanded all aspects of our operations. As a result 24 27 of our expansion, we have grown from four employees as of December 31, 1997, to 48 full-time employees as of December 31, 1998 to 148 full-time employees as of September 30, 1999. On August 6, 1999, we acquired General Asset Recovery, LLC, or GAR, a live auction house and asset management company focused on medical products. The total purchase price was approximately $9.7 million, including $1.7 million in cash, the issuance of a promissory note in the principal sum of $7.8 million, the assumption of $100,000 in liabilities and acquisition-related expenses of approximately $100,000. The promissory note is payable over five years and bears interest at 7% per annum. This acquisition was accounted for using the purchase method of accounting. As a result of this acquisition, we will record an aggregate of approximately $9.7 million in goodwill beginning in the third quarter of fiscal year 1999, which will be amortized on a straight-line basis over a seven-year period. Since inception, we have incurred significant losses and, as of June 30, 1999, had an accumulated deficit of $13.2 million. We expect operating losses and negative cash flow to continue for the foreseeable future. We anticipate our losses will increase significantly due to substantial increases in our expenses for sales and marketing, product development, operating infrastructure, general and administrative staff and development of strategic alliances. We have a limited operating history on which to base an evaluation of our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as the online market for the purchase and sale of new and used medical products, supplies and equipment. To address these risks, we must, among other things, expand the number of users of our online services, enter into new strategic alliances, increase the functionality of our services, implement and successfully execute our business and marketing strategy, respond to competitive developments and attract, retain and motivate qualified personnel. We may not be successful in addressing these risks, and our failure to do so could seriously harm our business. RESULTS OF OPERATIONS Due to our limited operating history, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as an indication of future performance. SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Revenue. Since inception, we have been in the development stage and have had only limited revenue. We derived revenue of $7,000 for the six months ended June 30, 1999 primarily from subscription fees for asset management services. We did not have any revenue for the six months ended June 30, 1998. Operations. Operations expenses consist primarily of expenditures for the acquisition and processing of content and the operation and maintenance of our website. These expenditures include fees for independent contractors, personnel expenses for our customer support and site operations personnel, Internet access and hosting charges and depreciation of the equipment required for operating our website. Operations expenses increased from $190,000 for the six months ended June 30, 1998 to $1.3 million for the six months ended June 30, 1999. The increase was primarily due to increased expenditures for the acquisition and processing of content and enhancement of the infrastructure of our website. We expect our operations expenses to significantly increase as we expand our operating infrastructure and add content and functionality to our website. Product Development. Product development expenses consist primarily of personnel expenses, consulting fees and depreciation of the equipment associated with the development and enhancement 25 28 of our services and website. Product development expenses increased from $327,000 for the six months ended June 30, 1998 to $2.6 million for the six months ended June 30, 1999. The increase was primarily due to increased personnel expenses incurred during development of our Auction and Shop services. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, expect product development expenses to increase significantly in future periods. We expense product development costs as they are incurred. Selling and Marketing. Selling and marketing expenses consist primarily of salaries, commissions, advertising, payments to strategic partners, promotions and related product marketing costs. Selling and marketing expenses increased from $321,000 for the six months ended June 30, 1998 to $2.4 million for the six months ended June 30, 1999. The increase was primarily due to significant expansion of our sales and marketing efforts and the hiring of additional sales and marketing personnel. We intend to significantly increase our selling and marketing expenses as we expand our sales force and invest in new marketing campaigns. In addition, we expect to make significant payments to strategic partners which will further increase our selling and marketing expenses in the periods in which these payments are made. See "-- Liquidity and Capital Resources." General and Administrative. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and other general corporate activities, and the depreciation and amortization of office furniture and leasehold improvements. This category will also include goodwill amortization related to corporate acquisitions. General and administrative expenses increased from $227,000 for the six months ended June 30, 1998 to $1.6 million for the six months ended June 30, 1999. The increase was primarily due to increased personnel, professional service fees and facility expenses necessary to support our growth. We expect general and administrative expenses to increase as we continue to expand our staff and incur additional costs to support the growth of our business and the costs of being a public company. We further expect our general and administrative expenses to increase due to the amortization of goodwill associated with the GAR acquisition and the integration of GAR with our business. Amortization of Deferred Compensation. Deferred compensation represents the aggregate difference, at the date of grant, between the exercise price of stock options and the estimated fair value for accounting purposes of the underlying stock. Deferred compensation is amortized over the vesting period of the underlying options, generally four years, based on an accelerated vesting method consistent with Financial Accounting Standards Board Interpretation No. 28. In connection with the grant of stock options to employees during fiscal 1998 and for the six months ended June 30, 1999, we recorded deferred compensation of $3.5 million. For the six months ended June 30, 1999, we recognized amortization of deferred compensation of $307,000. For the three months ended September 30, 1999, we recorded additional deferred compensation of approximately $40.9 million and will amortize approximately $4.4 million for the same period. At September 30, 1999, the remaining deferred compensation of approximately $39.7 million will be amortized as follows: $5.8 million in the last quarter of fiscal 1999, $18.1 million during fiscal 2000, $9.5 million during fiscal 2001, $4.8 million during fiscal 2002 and $1.5 million during fiscal 2003. The amortization expense relates to options awarded to employees in all operating expense categories. The amount of deferred compensation has not been separately allocated to these categories. The amount of deferred compensation expense to be recorded in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited. During the year ended December 31, 1998 and the six months ended June 30, 1999, we recorded stock-based compensation of $52,000 and $1.6 million related to equity instruments issued to non-employees as determined based upon the fair value at the date of issuance. 26 29 Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income for the six months ended June 30, 1999 was $128,000 compared to $13,000 for the six months ended June 30, 1998. The increase in interest income was due to an increase in our average net cash and cash equivalents balance as a result of our issuance of preferred stock in February 1999. Interest expense increased from $9,000 for the six months ended June 30, 1998 to $95,000 for the six months ended June 30, 1999, primarily as a result of the amortization of the fair value of a warrant issued in connection with a loan received during the period, together with an increase in debt. PERIOD FROM INCEPTION TO DECEMBER 31, 1996, AS COMPARED TO YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998 Revenue. We had no revenue for the period from inception to December 31, 1998. Operations. We had no operations expenses in 1996 and 1997. We began operating and maintaining our website and acquiring and processing content in 1998, and as a result, incurred operations expenses of $627,000. Product Development. Product development expenses increased from $31,000 in 1996 to $179,000 in 1997 to $1.5 million in 1998. The increase in 1998 was primarily due to increased personnel expenses as we developed features and added functionality to our website. Selling and Marketing. Selling and marketing expenses increased from $111,000 in 1996 to $153,000 in 1997 to $1.4 million in 1998. The increase in 1998 was primarily due to the significant expansion of our sales and marketing efforts and the hiring of additional sales and marketing personnel. General and Administrative. General and administrative expenses increased from $54,000 in 1996 to $76,000 in 1997 to $1.1 million in 1998. The increase in 1998 was primarily due to expenses related to increased personnel, professional service fees and facility expenses associated with our growth. Amortization of Deferred Compensation. Amortization of deferred compensation for the fiscal year ended December 31, 1998 was $5,000. No amortization of deferred compensation was expensed for fiscal years 1997 or 1996. Other Income (Expense). Interest income increased from none in 1996 and 1997 to $66,000 in 1998. The increase in interest income was due to an increase in cash and cash equivalents that resulted from our issuance of preferred stock during 1998. Interest expense increased from none in 1996 to $15,000 in 1997 to $22,000 in 1998. Other income was $142,000 in 1996, $7,000 in 1997 and none in 1998. Other income was primarily related to fees received from projects unrelated to our current business model. Income Taxes. As of December 31, 1998, we had federal and state net operating loss carryforwards of approximately $4.5 million which will be available to reduce future taxable income. The federal net operating loss carryforwards expire beginning in 2013 through 2018. A valuation allowance has been recorded for the entire deferred tax asset as a result of uncertainties regarding the realization of the asset due to our lack of earnings history. Federal and state tax laws impose significant restrictions on the amount of the net operating loss carryfowards that we may utilize in a given year. See Note 11 of notes to financial statements. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations since inception primarily through the private placement of equity securities, through which we have raised net proceeds of $17.4 million through June 30, 1999. We 27 30 have also financed our operations through an equipment loan and lease financing and bank and other borrowings. As of June 30, 1999, we had outstanding bank and other borrowings of $2.6 million. As of June 30, 1999, we had approximately $7.1 million of cash and cash equivalents. Since June 30, 1999, we have raised additional net proceeds of $70.5 million from our October 1999 sale of approximately 12,693,663 shares of our Series E and Series E-1 preferred stock, which includes the issuance of 275,000 shares of our Series E-1 preferred stock in connection with a strategic alliance we entered into in October 1999. In June 1998, we entered into a $750,000 secured credit facility with Silicon Valley Bank. This facility included a $225,000 term loan due December 1999 and an equipment loan facility providing for up to $525,000 of equipment loans. In July 1999, we converted the $433,000 of outstanding equipment loans into a term loan due July 2000. Our term loans from Silicon Valley Bank bear interest at the lender's prime rate (8.25% as of September 30, 1999). This facility is secured by substantially all of our assets other than equipment. In consideration for this credit facility, we granted Silicon Valley Bank a warrant to purchase 45,000 shares of our Series C preferred stock at an exercise price of $0.77 per share. In consideration for the conversion of our equipment loan to a term loan and the release of its security interest in equipment, we granted Silicon Valley Bank a warrant to purchase 10,000 shares of our Series D preferred stock at an exercise price of $1.18 per share. In May 1999, Comdisco provided us with a $2.0 million subordinated loan to provide working capital. We agreed to pay Comdisco principal and interest at a rate of 12.5% per annum in 36 equal monthly installments, commencing July 1999. This loan is secured by all of our assets. In connection with this loan, we issued Comdisco a warrant to purchase 228,813 shares of our Series D preferred stock at $1.18 per share. As of September 30, 1999, the outstanding balance on the note was approximately $1.9 million. In July 1999, Comdisco provided us with a $2.5 million loan and lease facility to finance computer hardware and software equipment. Amounts borrowed to purchase hardware bear interest at 9% per annum and are payable in 48 monthly installments consisting of interest only payments for the first nine months and principal and interest payments for the remaining 39 months, with a balloon payment of the remaining principal payable at maturity. Amounts borrowed to purchase software bear interest at 8% per annum and are payable in 30 monthly installments consisting of interest only payments for the first four months and principal and interest payments for the remaining 26 months, with a balloon payment of the remaining principal payable at maturity. As of September 30, 1999, we had outstanding approximately $1.3 million in hardware loans due September 2003 and approximately $254,000 in software loans due March 2002. This facility is secured by the computer equipment purchased with the loans. In connection with this facility, we issued Comdisco a warrant to purchase 137,711 shares of our Series D preferred stock at $1.18 per share. In August 1999, as a result of the GAR acquisition, we issued a promissory note in the principal amount of $7.8 million payable monthly over five years bearing interest at a rate of 7% per annum. As of September 30, 1999, the outstanding balance on the note was $7.6 million. In May 1999, we entered into an agreement with ECRI, a non-profit health services research agency focusing on healthcare technology. The agreement provides us with content from ECRI's database of information about medical products and manufacturers and a license to use elements of its classification system. In addition, the agreement provides for joint marketing activities and collaboration in the development of Plan's database of product and vendor information. This agreement requires us to make revenue sharing payments to ECRI during the three-year term of the agreement and for two years following expiration or termination of the agreement with respect to 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 nonrefundable fee equal to $600,000 per year, which shall be credited against any revenue sharing payments payable to ECRI. 28 31 In October 1999 we entered into an agreement with Superior Consultant Company, Inc., a wholly owned subsidiary of Superior Consultant Holdings Corporation, providing for collaboration between us and Superior. Superior is a supplier of Digital Business Transformation(TM) services to large healthcare organizations, including Internet-related services, systems integration, outsourcing and consulting, which enable Superior clients to utilize digital technologies and process innovations to improve their businesses. Under the agreement, we have agreed to market Superior's services to our users, and Superior has agreed to introduce our services to appropriate clients, based on their interests, and to incorporate our services into its Digital Business Transformation(TM) offerings. The agreement also provides for joint marketing activities. In consideration, we have agreed to make payments to Superior in an aggregate amount of up to approximately $2.0 million, as well as a percentage of specified Neoforma.com e-commerce transaction revenue and other payments. We have also agreed to utilize Superior's services on a preferred basis for systems integration, development, infrastructure, process improvement and consulting assistance, totaling at least $1.5 million of services from Superior, at a discount from Superior's standard fees. Our agreement with Superior expires in October 2002. See "Certain Transactions -- Commercial Transactions" for more information regarding this agreement and our relationship with Superior. In October 1999, we entered into an agreement with Dell Marketing, L.P. pursuant to which we agreed to develop complementary marketing programs with Dell and establish hyperlinks between our respective internet websites. We agreed to use Dell as our exclusive supplier of desktops, portables, workstations, servers and storage devices unless such products did not meet our reasonable technical requirements. We also agreed to purchase at least $5.0 million of Dell products and $100,000 of data center consulting services. See "Certain Transaction -- Commercial Transactions" for more information regarding this agreement and our relationship with Dell. Net cash used in operating activities was $87,000 for the period from inception through December 31, 1996, $322,000 for the year ended December 31, 1997 and $4.0 million for the year ended December 31, 1998. Net cash used in operating activities for the six months ended June 30, 1999 was $6.7 million. Net cash used in operating activities from inception through June 30, 1999 related primarily to funding net operating losses and increases in prepaid expenses, which were partially offset by increases in accrued expenses and accounts payable. Net cash used in investing activities was $1,000 for the period from inception through December 31, 1996, $13,000 for the year ended December 31, 1997 and $825,000 for the year ended December 31, 1998. Net cash used in investing activities for the six months ended June 30, 1999 was $1.3 million. Net cash used in investing activities for the six months ended June 30, 1999 related primarily to the purchase of equipment to operate our website. Net cash provided by financing activities was $95,000 for the period from inception through December 31, 1996, $360,000 for the year ended December 31, 1997 and $5.6 million for the year ended December 31, 1998. For the six months ended June 30, 1999, net cash provided by financing activities was $14.2 million. Net cash provided from financing activities for the period from inception to June 30, 1999 related primarily to preferred stock issuances of approximately $17.1 million. We currently anticipate that the net proceeds of this offering, together with our available funds, will be sufficient to meet our anticipated needs for working capital and capital expenditures through the next 12 months. Our future long-term capital needs will depend significantly on the rate of growth of our business, the timing of expanded service offerings and the success of these services once they are launched. Any projections of future long-term cash needs and cash flows are subject to substantial uncertainty. If the net proceeds of this offering, together with our available funds and cash generated from operations, are insufficient to satisfy our long-term liquidity requirements, we may seek to sell additional equity or debt securities, obtain a line of credit or curtail expansion of our services. If we issue additional securities to raise funds, those securities may have rights, preferences 29 32 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. YEAR 2000 Many existing computer programs use only two digits to identify a year. These programs were designed and developed without addressing the impact of the upcoming change in the century. If not corrected, many computer software applications could fail or create erroneous results by, at or beyond the year 2000. We use software, computer technology and other services internally developed and provided by third-party vendors that may fail due to the year 2000 phenomenon. We depend on a third party to host our servers, telecommunications vendors to maintain our network and other third-party carriers to deliver orders to customers. Because we are a comparatively new enterprise, the majority of software and hardware we use to manage our business has all been recently purchased or developed by us. While this does not completely protect us against year 2000 exposure, we believe our exposure is limited because the technology we use to manage our business is not based upon legacy hardware and software systems. State of Readiness. We are in the process of reviewing the year 2000 compliance of both internally developed and third-party systems. Internally developed systems include the software used to provide our website's search, customer interaction, transaction-processing and monitoring capabilities. Our third-party systems include software and hardware, and computer technology, back-up, hosting, accounting, database and security systems. We are working with vendors of these third-party systems to obtain assurances that their software, hardware or services are year 2000 compliant. To ensure that both our internally developed and third-party systems are year 2000 compliant, we continually assess, analyze and, where necessary, correct potential non-compliance issues. We expect to complete this assessment process during the fourth quarter of 1999. Based on our assessment to date and our planned activities, we believe that our internally developed and third-party systems will be year 2000 compliant. The failure of our software and computer systems, or those of our third-party suppliers, to be year 2000 compliant, would seriously harm our business. The year 2000 readiness of the general system necessary to support our operations is difficult to assess. For instance, we depend on the integrity and stability of the Internet to provide our services. We also depend on the year 2000 compliance of the computer systems used by consumers. Thus, the system necessary to support our operations consists of a network of computers and telecommunications systems located throughout the world and operated by numerous unrelated entities and individuals, none of which has the ability to control or manage the potential year 2000 issues that may impact the entire system. Our ability to assess the reliability of this system is limited and relies on generally available news reports, surveys and industry data. Based on these sources, we believe most entities and individuals that rely significantly on the Internet are reviewing and attempting to remediate issues relating to year 2000 compliance, but it is not possible to predict whether these efforts will be successful in reducing or eliminating the potential negative impact of year 2000 issues. The failure of our software and computer systems and those of our third-party suppliers to be year 2000 complaint would seriously harm our business. Cost. As of September 30, 1999, we had incurred immaterial costs in connection with identifying, evaluating and addressing year 2000 compliance issues. We anticipate that any future costs will not exceed $500,000. Most of these expenses are expected to relate to operating costs associated with time spent by our employees in the evaluation process. There may be some charges 30 33 related to remediation if any issues are identified during our assessment process. If these expenses are higher than anticipated, our business could suffer. Risks. We cannot assure you that we will achieve full year 2000 compliance before the end of 1999. A failure of our computer systems or the failure of purchasers or suppliers of medical products to effectively upgrade their software and systems for transition to the year 2000 could seriously harm our business. In addition, we cannot be certain that governmental agencies, utility companies, Internet access companies, third-party service providers and others outside of our control will be year 2000 compliant. The failure by these entities to be year 2000 compliant could result in a systemic failure beyond our control, such as a prolonged Internet, telecommunications or electrical failure, that could prevent us from delivering our services to our customers, decrease the use of the Internet or prevent users from accessing our website, any of which could seriously harm our business. Contingency Plan. At this time, we are developing a contingency plan to address situations that may result if we or our vendors are unable to achieve year 2000 compliance. The cost of developing and implementing such a plan, if necessary, could be material. Any failure of our material systems, our vendors' material systems or the Internet to be year 2000 compliant could have material adverse consequences for us. Such consequences could include difficulties in operating our website effectively, taking product orders, making product deliveries or conducting other fundamental parts of our business. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which we will be required to adopt for the year ending December 31, 2000. This statement establishes a new model for accounting for derivatives and hedging activities. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because we currently hold no derivative financial instruments and do not currently engage in hedging activities, adoption of SFAS No. 133 is expected to have no material impact on our financial condition or results of operations. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires entities to capitalize some of the costs related to internal-use software once the applicable criteria have been met. SOP No. 98-1 is effective for our 1999 financial statements. The adoption of SOP No. 98-1 did not have a material impact on our June 30, 1999 financial statements. In April 1998, the AICPA issued SOP 98-5, Reporting for the Costs of Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to new operations to be expensed as incurred. In addition, all start-up costs that were capitalized in the past must be written off when SOP No. 98-5 is adopted. SOP No. 98-5 is effective for our 1999 financial statements. The adoption of SOP No. 98-5 did not have a material impact on our June 30, 1999 financial statements. 31 34 BUSINESS Neoforma.com is a leading provider of business-to-business e-commerce services in the large and highly fragmented market for medical products, supplies and equipment. Our services enable users to efficiently and cost-effectively buy and sell new and used medical products in an open, online marketplace. Our marketplace aggregates suppliers of a wide range of medical products and presents their offerings to the physicians, hospitals and other healthcare organizations that purchase these products. We believe that our services provide supply chain efficiencies for both suppliers and purchasers of medical products and extend the reach of existing sales and distribution channels. Neoforma.com offers three primary services that together address the entire healthcare purchasing lifecycle, from planning through procurement to liquidation. Our Shop service provides a unified marketplace where purchasers can easily locate and buy new medical products, and suppliers can access new customers and markets. Our Auction service creates an efficient marketplace for idle assets by enabling users to list, sell and buy used, refurbished and surplus medical products. Our Plan service provides interactive content to healthcare facility planners to reduce the complexities of planning and outfitting facilities. INDUSTRY BACKGROUND GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE The Internet is rapidly changing the competitive landscape of many industries, creating significant opportunities for companies to expand and improve their businesses. Companies have increasingly begun to use the Internet to create business-to-business networks to streamline complex processes, purchase and sell goods and exchange information among fragmented groups of customers, manufacturers and distributors. Forrester Research has estimated that business-to-business e-commerce in the U.S. will increase from $109 billion in 1999 to $1.3 trillion in 2003. Business-to-business e-commerce enables purchasers and sellers in fragmented markets to reduce supply chain inefficiencies. Sellers are able to cost-effectively access global markets, streamline their sales, marketing and distribution operations, reduce their time to market and efficiently distribute updated product information. Buyers can improve their purchasing process and easily access current product information and a broad range of products and services. Because a growing number of businesses are establishing their own e-commerce websites, it is difficult for any individual business to attract a significant number of online customers. As a result, companies are increasingly realizing the value of a global online marketplace that aggregates purchasers and sellers. MEDICAL PRODUCTS, SUPPLIES AND EQUIPMENT MARKET Market for New Products The market for new medical products, supplies and equipment totaled an estimated $140 billion worldwide in 1998, including approximately $60 billion in the U.S. This market is growing at a rate of 6% per year worldwide and 7% per year in the U.S. This market is comprised of a wide range of products, including consumable supplies such as syringes and gloves, reusable medical products such as surgical instruments, and sophisticated diagnostic equipment such as magnetic resonance imaging systems. The traditional supply chain for new medical products is highly fragmented and inefficient. In the U.S. alone, products are supplied by over 20,000 manufacturers and distributors, ranging from small companies offering single products to Fortune 500 corporations with comprehensive offerings. These suppliers serve a diverse group of buyers, including hospitals, physician practices and clinics. The U.S. market includes approximately 6,000 hospitals, 175,000 physicians' offices and thousands of non-hospital healthcare delivery sites such as outpatient care facilities, nursing homes and ambulatory 32 35 surgery centers. These organizations may purchase medical products directly or through centralized buying organizations such as group purchasing organizations, or GPOs, and integrated delivery networks of care providers, or IDNs. Buyers within each of these organizations may purchase products from thousands of suppliers. The high degree of buyer and supplier fragmentation results in significant inefficiencies at each step of the procurement process. In the U.S., healthcare providers are under increasing pressure to reduce costs because of increased competition, as well as the ongoing tightening of reimbursement policies by private payors and the government. According to Efficient Healthcare Consumer Response, an independent study commissioned by a number of industry participants, the supply-chain costs of distributing medical products total approximately $23 billion per year, of which an estimated $11 billion could be eliminated by more efficient sharing of information, management of orders and movement of products. As a result, healthcare providers are increasingly seeking new ways to make their supply chain more efficient. Market for Used and Surplus Products Healthcare providers must continuously upgrade their medical equipment in order to remain competitive and keep up with advances in medical technology. Without an efficient, global market for the sale of replaced equipment, these organizations are left with idle equipment for either storage or disposal. Manufacturers taking trade-ins of existing equipment in connection with sales of new products also generate significant used equipment inventory. For both healthcare providers and manufacturers, an inability to efficiently dispose of idle assets increases their operational costs and ties up capital that could be used for more productive purposes. We believe that a significant opportunity to connect buyers and sellers exists in the market for used, refurbished and surplus medical products, supplies and equipment. We believe that this market, which is currently served primarily by local auction houses, equipment brokers and refurbishers, is significantly under-served and highly inefficient. While much of the demand for used equipment comes from healthcare providers located outside of the U.S. or in rural markets in the U.S., much of the supply comes from healthcare providers in urban centers in the U.S. or from manufacturers. As a result, traditionally it has been difficult for buyers and sellers to locate one another. LIMITATIONS OF TRADITIONAL APPROACHES TO BUYING AND SELLING MEDICAL PRODUCTS Healthcare Providers Purchasing decisions in physicians' offices and other small healthcare facilities are generally made by nurses, office managers or administrative staff. Purchasing activities include searching through paper catalogs, placing and tracking orders via telephone or fax machines and receiving frequent, time-consuming visits from numerous medical supply representatives. This approach makes it difficult and time-consuming for buyers to identify, compare and purchase specific items. Moreover, these inefficiencies can lead to clinical delays and purchases that are based on convenience instead of best practices or cost. Large healthcare organizations manage their buying activity through a centralized purchasing group as well as at the departmental level. Pricing is either negotiated or based on long term contracts, depending on the institution's buying power, membership in an IDN or GPO affiliations. The purchasing process involves evaluating products, negotiating price and delivery, ensuring compliance with purchasing contracts and placing and tracking orders through a variety of paper and electronic means. Outdated product and price information, lack of compliance with negotiated contracts and the significant effort required to manage a multitude of suppliers and orders can result in errors and inefficiencies. 33 36 Manufacturers and Distributors Manufacturers and distributors have limited resources to support the growing challenge of marketing and selling to the increasingly complex worldwide healthcare market. Many organizations lack the necessary infrastructure to establish a worldwide sales and marketing presence. In addition, the high cost of printing and distributing paper catalogs limits the ability of suppliers to cost-effectively provide timely updates of important catalog product and pricing information. Although many suppliers offer online versions of their catalogs, this does not address the primary cause of inefficiency for buyers -- the inability to quickly and easily find products and consolidate orders from different suppliers through a single source. MARKET OPPORTUNITY We believe that a significant opportunity exists for a business-to-business e-commerce solution that creates an open and efficient marketplace for purchasers and sellers of both new and used medical products, supplies and equipment. A unified online marketplace can offer several important advantages: - Purchasers and sellers of new and used medical products can have global access to each other, creating new levels of efficiency in the supply chain; - Industry, product and pricing information can be centralized, updated and organized for simplified access; and - The time and costs involved with traditional paper, telephone and fax purchasing methods can be significantly reduced. THE NEOFORMA.COM SOLUTION Neoforma.com is a leading provider of business-to-business e-commerce solutions for purchasers and suppliers of medical products, supplies and equipment. Our services address the traditional limitations of the medical products supply chain by enabling our users to efficiently and cost-effectively buy and sell new and used medical products in an open, online marketplace. Shop, Auction and Plan together address the entire healthcare purchasing lifecycle, from planning through procurement to liquidation. We believe that our services provide a number of benefits that will attract a growing number of purchasers and suppliers of new and used medical products to our marketplace. As more purchasers realize these benefits and use our services, we believe that they will attract more suppliers to our marketplace. As more suppliers offer products and content through our marketplace, we believe that more buyers will be encouraged to use our services, resulting in a network effect, where the value of our services to each participant increases significantly with the addition of each new participant. BENEFITS TO HEALTHCARE PROVIDERS: - Convenient, Unified Marketplace. We provide healthcare providers a central, easy-to-use location to identify and purchase a wide range of medical products from many suppliers. This reduces the time required to contact multiple distributors and suppliers using traditional paper or telephone approaches, or single-supplier Internet-based or electronic data interchange solutions. - Reduced Processing Costs. Our services streamline the purchasing process, allowing healthcare providers to reduce their procurement costs and benefit from centralized purchasing, tracking and record-keeping. 34 37 - Improved Access to Current Information. We provide online access to current product information, which is a significant improvement over paper-based catalogs that are often outdated. Our easy-to-use search capabilities enable healthcare providers to quickly locate products and obtain current information from multiple suppliers. Additionally, we provide previously unavailable information regarding used, refurbished and surplus medical products. - Efficient Marketplace for Idle Assets. Our Auction service provides an efficient marketplace for the purchase and sale of used and surplus medical products, allowing healthcare providers to maximize the value of their idle assets. BENEFITS TO MANUFACTURERS AND DISTRIBUTORS: - Access to New Customers and Markets. Our Shop and Auction services allow sellers to offer new and used products globally, extending their reach to new customers and markets. Our Plan service provides a new way for suppliers to feature their products being used in a best practices environment. - Participation in an Open Marketplace. We believe that by providing an open marketplace where any supplier can list and sell its products, we increase the attractiveness of our marketplace to a large number of suppliers. By providing purchasers with access to products from a wide range of suppliers, we can attract more purchasers to our marketplace, further increasing the value of our services to suppliers. - Increased Efficiencies and Reduced Transaction Costs. Because our services streamline and extend their distribution channels, suppliers can reduce their selling and marketing costs and time to market. For example, suppliers can reduce their costs of printing and distributing paper catalogs and taking individual orders by fax or by telephone. In addition, our services eliminate the costs and expenditures required for suppliers to establish and maintain their own e-commerce sites. - Efficiency in Distributing New Information. Our marketplace allows suppliers to efficiently reach customers and distribute product information, reducing the delays associated with printed catalog distribution. We enable suppliers to quickly and easily update product, pricing and other information on our website to address changes in their product line and respond to market requirements. STRATEGY Our objective is to become the leading online marketplace for new and used medical products, supplies and equipment. Our goal is to provide comprehensive services that together address the entire healthcare purchasing lifecycle, from planning through procurement to liquidation. Key elements of our strategy include: Build on First Mover Advantage and Increase Brand Recognition. We believe that our position as one of the first companies to offer comprehensive business-to-business e-commerce services for new and used medical products, supplies and equipment provides us with a first mover advantage that can enable us to attract a critical mass of suppliers and purchasers. To increase the number of purchasers and sellers that use our services, we intend to aggressively promote the Neoforma.com brand by advertising, participating in industry events and trade shows and conducting targeted promotions and public relations. Increase Adoption of Our Online Marketplace to Create Network Effect. We intend to continue to add suppliers and purchasers to become the most comprehensive online marketplace for medical products, supplies and equipment. By adding suppliers and broadening the range of products available 35 38 in our marketplace, we create additional value for purchasers. By attracting more purchasers to our marketplace, we create additional value for suppliers. As a result, we believe that we can create a network effect, where the value of our services to each participant increases significantly with the addition of each new participant. Increase Functionality to Drive Broad Market Adoption. We plan to expand the functionality of our services, increasing their value to both current and future purchasers and suppliers. For example, we intend to develop new information reporting and order management features as well as the capability to integrate our services with the information systems used by many suppliers and purchasers. In addition, we intend to develop the functionality to allow suppliers to provide customer-specific pricing. We believe that these enhancements will allow our services to become more closely integrated into the supply chain processes of distributors and group purchasing organizations and will be particularly important to large purchasers of medical products. Establish Strategic Alliances With Leading Industry Participants. We intend to continue to enter into alliances with leading Internet, technology and healthcare-related organizations to increase usage of our services, broaden the scope of our content, extend our technology and gain additional marketing resources. Our current strategic partners include Cisco, Dell, Healtheon, SAP and Superior Consultant. In addition, we have strategic relationships with key suppliers, such as General Electric Medical Systems and Owens & Minor. We plan to strengthen and broaden these relationships and enter into new strategic alliances and key supplier relationships. Expand Internationally. We believe that the capabilities of the Internet and the fragmented nature of many international markets for new and used medical products provide a significant opportunity for the creation of a global marketplace. We intend to capitalize on this opportunity by developing country-specific web pages for selected international markets and actively marketing and promoting our services. We believe that our registered user base already includes users located in over 100 countries. NEOFORMA SERVICES We offer three primary services -- Shop, Auction, and Plan -- that together address the entire healthcare purchasing lifecycle, from planning through procurement to liquidation. We also offer a wide range of content to healthcare practitioners and purchasers to enable them to make more informed purchasing decisions. Shop Our Shop service, released in late August 1999, provides a unified marketplace where purchasers can easily identify, locate and purchase new medical products, and suppliers can access new customers and markets. Shop currently has over 60,000 different stockkeeping units, or SKUs, available for purchase under agreements with 65 manufacturers and distributors. Our agreements with distributors provide listings of products from an additional 140 manufacturers. We have agreements with approximately 40 additional manufacturers and distributors that will provide us with access to an estimated 55,000 additional SKUs, which we are currently adding to Shop. The products currently available through Shop range from disposable gloves to surgical instruments and diagnostic equipment. We believe that these products represent a significant portion of the products commonly used in physicians' offices, our initial target market. Shop provides detailed descriptions, photographic images and vendors' shipping and billing policies for listed products, and we are currently adding pricing information for these products. Listings are displayed in a consistent format and organized by standard classification schemes to facilitate the selection of products. Shop's search capabilities further assist purchasers in locating and selecting products from multiple suppliers. Moreover, we also provide suppliers the ability to directly 36 39 update their product information on our website to include revised pricing, new product introductions or additional information. Purchasers can use Shop to order products at listed prices or to obtain price quotes from the supplier. Shop accelerates the process of negotiating and completing transactions between purchasers and sellers. Our system automatically notifies the supplier via an email when the purchaser places an order through Shop. When the supplier responds to or updates the order in any fashion, our system automatically notifies the buyer. This process is aided by our customer service organization, which answers questions about our system as necessary. We do not take ownership or possession of the products sold through Shop. Suppliers are responsible for providing product availability and delivery information through our website. They are also responsible for shipping, delivery, and returns. Suppliers can choose to accept payment by open accounts with the purchasers, payment upon delivery, letter of credit, or credit card. The purchaser is required to provide payment information to the supplier through our website when placing the order, and the supplier is responsible for payment processing and collection. We derive our revenue from Shop from transaction fees charged to suppliers for confirmed orders, and fees to digitize their product information for display on our website and for maintenance of product information and content on our website. Shop product information is provided to us by suppliers in a variety of electronic formats or in paper form, and is internally reviewed and categorized by our medical editors. We use an independent firm to convert this information into a consistent electronic format that conforms to our classification systems. We believe that our ability to process large volumes of product information allows us to rapidly increase our product database and provides significant flexibility to suppliers in loading and updating information. We plan to extend Shop's functionality by introducing new information reporting and order management features, allowing users to track their use of our services and helping them better ensure compliance with their procurement procedures and policies. We also intend to enable Shop to electronically transmit information directly to the order management and purchasing systems used by many large suppliers and medical product purchasers. In addition, we intend to develop customer-specific pricing capabilities, allowing our services to better integrate with the processes of distributors and large purchasing organizations. We believe these enhancements will be particularly important to large purchasing organizations, such as hospitals, IDNs and members of GPOs, that are focused on achieving new efficiencies and frequently rely on pre-negotiated pricing. Our future success relies on our ability to address the needs of large healthcare providers by successfully developing and introducing these capabilities in a timely manner. See "Risk Factors -- In order for large healthcare organizations to accept our services, we must expand the base of suppliers using our services and the functionality of our services." Auction Our Auction service, introduced in May 1999, enables users to list, sell and buy used, refurbished and surplus medical products. Our Auction service includes both online listings of used and surplus products for bids through our website, as well as live auctions through GAR. Our online auction service aggregates medical products from sellers in otherwise isolated local markets. On September 30, 1999, Auction offered online listings of 1,528 items from 85 sellers. When a buyer submits a bid for a listed product, the seller is automatically notified via an email from our website that a buyer has placed a bid for one of its products. The seller can then access our website to obtain information about the bid, including the identity of the buyer, the amount of the bid and the period of time that the buyer has indicated that it will keep its bid open. The seller can 37 40 accept the bid it finds most attractive. The buyer is automatically notified via an email if a seller has accepted its bid. The payment alternatives and shipping, delivery and return obligations are substantially identical to those for Shop described above. We also provide a service that allows sellers to specify that their products initially be offered to their other departments and facilities and subsequently to the public. In addition, the seller may choose to offer unsold products for charitable donation. We have entered into agreements with several IDNs and a number of other healthcare providers to allow them to use this asset management service. We augmented our Auction service through our August 1999 acquisition of General Asset Recovery, a live auction house and asset management company focused on medical products. The combination of Auction's online services and GAR's live services allows us to provide a complete solution for managing used and surplus healthcare equipment. We work with sellers to determine the best method, whether online listings or live auctions, for selling their used, refurbished or surplus products. We derive revenue from our Auction service primarily from commissions and asset management fees paid by sellers. In addition, in our live auctions, the purchaser also typically pays a fee, commonly referred to as a buyer's premium, equal to a percentage of the purchase price. We plan to expand the functionality of our Auction service to automatically identify the winning bidder at the end of a selected time period and notify the seller and winning bidder of the transaction. In addition, we plan to make available on our Auction service photographs and more detailed information regarding products that will be offered in future live auctions. Further, we intend to enable sellers to list their products on Auction in lots, which will help them to efficiently sell large quantities of the same products. Plan Our Plan service, introduced in July 1998, provides interactive content to healthcare facility planners to reduce the complexities of planning and outfitting facilities. Plan offers interactive photographic images of actual rooms and suites from medical facilities that we believe represent industry best practices. This service allows facilities and equipment planners to conduct virtual tours of these facilities, providing rich information for considering room plans and equipment purchases. Visitors can zoom in to see room details, including equipment placement, and can navigate to view different parts of the room in these 360 degree panoramic images. Plan currently displays more than 1,000 rooms from the University of Chicago's Center for Advanced Medicine and we intend to add rooms from other advanced medical facilities. Site visitors can browse a list of departments or can search to find specific rooms. Plan also provides links from rooms to associated categories of products that are available for purchase through Shop. We have recently begun offering suppliers the ability, for a fee, to sponsor rooms on Plan that feature one or more of their products. The supplier can then use these rooms as part of their own marketing campaigns. We intend to introduce an enhanced version of our Plan service in November 1999, designed to more closely integrate Plan with Shop and Auction, to inform users when products in the room are available on Shop or Auction and allow them to immediately access information about that product to order it through Shop or place a bid on Auction. Finally, we plan to add new fee-based services to Plan, such as subscription-based access to more detailed content and data and the ability to download blueprints for a fee. 38 41 Resources In addition to our three principal services, since July 1998, we have provided healthcare professionals with information resources to assist them in making informed and efficient purchasing decisions. Healthcare professionals can receive personalized news, review online product and vendor information and obtain information from other websites. In addition, users can access online continuing medical education courses and research regulatory and shipping requirements that may affect the price or delivery of their purchases. In September 1999, we significantly expanded the amount of information that we provide, and organized this information into a separate Resources section of our website to facilitate its use. SUPPLIERS Shop. As of September 30, 1999, we had agreements with 65 manufacturers and distributors to list their products on Shop. On September 30, 1999, the following suppliers had products listed directly on Shop:
DISTRIBUTORS MANUFACTURERS ------------ ------------- Alimed Accurate Surgical Independence Medical ARO Surgical Instruments Maintenance Warehouse Critikon Medline General Electric Medical Systems Optimal Wholesale Medical Hospital Associates Owens & Minor Howard Instruments PSS World Medical Protocol Systems Sammons Preston Sparta Surgical Ves International
Our agreements with distributors provide listings of products from an additional 140 manufacturers, including 3M, Beckman Coulter, Becton Dickinson, C.R. Bard and Smith & Nephew. We have agreements with approximately 40 additional suppliers that provide access to a large number of additional products which we plan to add to Shop. Auction. On Auction, suppliers include hospitals and healthcare organizations liquidating used equipment, manufacturers and distributors selling surplus products and finance companies selling leased equipment at the end of the lease term. Our acquisition of GAR provides us with the opportunity to offer our online services to its existing supplier base. We have entered into agreements with a number of Auction suppliers for whom we provide asset management and auction services, including manufacturers such as General Electric Medical Systems and Stryker and large healthcare organizations such as Banner Health System, Saint Barnabas Health Care System and Voluntary Hospitals of America. Strategic Supplier Relationships. We work with a number of key suppliers, including Owens & Minor and General Electric Medical Systems, or GEMS. Owens & Minor is a leading distributor of medical products, and we are working with Owens & Minor to list a wide range of products aimed at traditional physician's offices for sale through Shop. Under our October 1999 agreement with General Electric Medical Systems, GEMS has agreed to list products on Shop. GEMS also has the option to sponsor rooms on Plan on mutually agreed upon terms, and in the event that it sponsors any rooms, GEMS has agreed to promote Plan to its customers. In addition, GEMS is a customer of GAR, and has agreed to use Auction to sell a specified number of items of equipment. This agreement expires in December 2000, subject to automatic renewal unless either party elects to terminate. In connection with this agreement, we issued approximately 275,000 shares of our preferred stock to GE Capital Equity Investments, an 39 42 affiliate of GEMS, in October 1999. GE Capital Equity Investments, Inc., also purchased 1,760,563 additional shares of preferred stock in our October 1999 financing. PURCHASERS Purchasers currently using Shop include physician offices, multi-specialty groups, clinics and other healthcare providers. Buyers for large organizations, such as hospitals, IDNs and GPOs that purchase a large volume of products under negotiated contracts with suppliers, currently use Shop primarily to purchase products for which they do not have existing supplier contracts. We plan to add customer-specific pricing capabilities in order to enable these organizations to use Shop for their purchases of products for which they have contracts. Our Auction services have been used by a wide range of healthcare providers to purchase used, refurbished and surplus medical products. We believe that a large percentage of the products that are sold through our Auction services are purchased for use outside the U.S. or in rural communities in the U.S. If we are not able to quickly build a critical mass of purchasers who use our services, and increase the use of our services by large healthcare providers, our ability to expand our business would be seriously harmed. STRATEGIC ALLIANCES We enter into alliances with leading Internet, technology and healthcare-related organizations and medical products suppliers to increase usage of our services, broaden the scope of our content, extend the functionality of our technology and build additional marketing resources. We have entered into strategic alliances in the following areas. Healthcare-Focused Websites. Many healthcare professionals use specific healthcare-focused websites to obtain a variety of information. We believe that, by entering into relationships with companies that operate these websites, we can attract their visitors to use our services. We have developed strategic alliances with Healtheon Corporation and MD On-Line to provide us with increased market visibility and site traffic. We are an e-commerce provider of medical supplies and equipment for Healtheon's registered users, which include physicians and hospital and clinical administrators. Healtheon's registered users can purchase medical products, supplies and equipment in a co-branded environment on Neoforma.com without the need to register on our site. We also provide e-commerce services for MD On-Line, an Internet-based content provider for the physician market. Our agreements with Healtheon and MD On-Line require us to pay these companies specified percentages of our revenue generated by their users. These agreements each expire in 2000, subject to automatic renewals for additional one-year periods unless either party elects to terminate. Computer Hardware Providers. We believe that alliances with computer hardware providers will help us build recognition of our brand. We have established relationships with Dell Marketing, an affiliate of Dell Computer, and Cisco Systems. We have entered into an agreement with Dell to develop and undertake complementary marketing programs and to link our websites. See "Certain Transactions -- Commercial Agreements" for more information about our agreement with Dell. Cisco uses our services as a means of demonstrating its equipment to healthcare providers. As a result, we gain increased exposure of our services to large healthcare organizations. Information Technology Partners. We believe that by integrating our services with existing information systems used by many purchasers and sellers of medical products, we will further streamline their medical products supply chains. We have entered into an agreement with Superior Consultant, a supplier of Digital Business Transformation(TM) services to large healthcare organizations, including Internet-related services, systems integration, outsourcing and consulting, which enable 40 43 Superior clients to utilize digital technologies and process innovations to improve their businesses. Under the agreement, we have agreed to market Superior's services to our users, and Superior has agreed to introduce our services to appropriate clients, based on their interests, and to incorporate our services into its Digital Business Transformation(TM) offerings. The agreement also provides for joint marketing activities. See "Certain Transactions -- Commercial Agreements" for more information about our agreement with Superior Consultant. We are collaborating with SAP, a leading provider of enterprise software, to integrate our services with SAP's R/3 enterprise software products. This integration is intended to further automate the procurement process by allowing transactions to be communicated directly to these systems. In addition, we are integrating our services with MySAP.com, SAP's Internet business service. Content Providers. We believe that as we increase the breadth and depth of our content for our online marketplace, we will be able to attract and retain more users. Since content is often expensive and time-consuming to develop, we enter into relationships with other companies to provide content for our marketplace. ECRI, a leading non-profit health services research agency focusing on healthcare technology, provides us with detailed information about medical products and technology and facility planning. NewsReal has created a specialized healthcare headlines service to provide our users with personalized healthcare business news from over 60 different sources. Reuters provides us with its standard healthcare business news feed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" for a description of our agreement with ECRI. Medical Product Suppliers. We believe that by establishing relationships with key suppliers of medical products, we increase the depth and breadth of the products listed on our online marketplace, and benefit from their marketing resources. We have entered into agreements with Owens & Minor and General Electric Medical Systems. See "Suppliers -- Strategic Supplier Relationships" for more information about our strategic supplier relationships. TECHNOLOGY In order to establish a secure and reliable marketplace for suppliers and purchasers of new and used medical products, our underlying infrastructure is built on an open, multi-tier, distributed architecture using well-established applications and hardware from leading technology companies such as Sun Microsystems, Netscape and Oracle. Our infrastructure enables us to continuously enhance the features and functionality of our services to meet the evolving needs of our users. INFRASTRUCTURE Open Architecture. Our open architecture supports integration with our users' many existing legacy systems. The ability to integrate these diverse systems has enabled us to aggregate a wide range of purchasers and suppliers in our marketplace. Our architecture is based on industry standards such as Java, enabling us to rapidly introduce new features and functionality. Scalability, Performance and Availability. Our highly modular, distributed architecture is designed to enable us to readily add capacity as the number of users and transactions increase on our system. We have fully redundant hardware systems, which when combined with our distributed architecture, enables us to provide our services on an uninterrupted basis, even in the event of partial system failure. By locating our data center at an Exodus Communications hosted facility, we are able to easily and rapidly expand our network bandwidth and maintain the physical security of our systems. Secure e-Commerce Marketplace. Our platform contains a variety of features to ensure the secure transmission of business information among multiple trading partners and to protect against 41 44 communication failures. We use SSL, or secure sockets layer, an Internet security technology, at appropriate points in the transaction flow to protect user information during transactions. User information is encrypted to provide a high degree of security. Our employees do not have access to user information, except as necessary to perform customer service functions. The system authenticates users through standard secure login and password technologies. FUNCTIONALITY Our systems are designed to capture the real-world processes and workflows used by purchasers and suppliers using our services. We have incorporated these processes into an easy-to-use, intuitive online marketplace that can be accessed with standard web browsers, without requiring any special software. To support our online marketplace, we have developed customized search technologies to meet the requirements of purchasers of medical products, supplies and equipment. In order to enable users to quickly navigate to individual products, we have incorporated industry standard classifications, which support the purchasing process by grouping items that are similar and by mapping to other industry standard classification systems. Our search function allows users to continually refine and hone their searches to help them to quickly and efficiently locate a particular item. Additionally, we use three-dimensional visualization technologies which enhance suppliers' ability to display and feature their medical products, supplies and equipment. Although to date we have not experienced unscheduled system interruptions of our online marketplace, outages may occur from time to time as system usage increases. The volume of traffic on our website and the number of transactions being conducted by users has been increasing and will require us to expand and upgrade our technology, transaction processing systems and network infrastructure and add new engineering personnel. We may be unable to accurately project the rate or timing of increases, if any, in the use of our services or timely expand and upgrade our systems and infrastructure to accommodate such increases in a timely manner. Any failure to expand or upgrade our systems to keep pace with the growth in demand for capacity could cause the website to become unstable and possibly cease to operate for periods of time. Unscheduled downtime could harm our business. SALES, MARKETING AND SUPPORT We sell our services through our direct field sales force and our internal telemarketing staff. Our direct field sales force focuses on purchasers in physician offices, clinics, hospitals and large healthcare organizations. Our direct field sales force has significant experience in the sale of medical products, equipment and information technology systems. Our telemarketing programs are directed primarily at suppliers of medical products, supplies and equipment. We plan to augment our internal sales resources by working with the sales forces of our strategic partners. Our marketing programs include traditional and Internet-based marketing initiatives to increase awareness of the Neoforma.com brand and attract new purchasers and suppliers to our services. These programs include a variety of public relations initiatives, such as participation in industry conferences and trade shows, and ongoing relationships with healthcare, Internet and technology reporters and industry analysts. We also promote our services through advertising in healthcare industry trade journals and business publications. In addition, we conduct web-based marketing activities to attract new users to our online marketplace. Our relationships with Internet healthcare companies such as Healtheon and MD On-Line, suppliers such as General Electric Medical Systems and Owens & Minor, technology companies such as Cisco, Dell and SAP, and professional services providers such as Superior Consultant provide us 42 45 with additional marketing resources. These companies conduct a number of activities designed to strengthen awareness of our brand and our services. Our worldwide sales and marketing group consisted of 41 full-time employees as of September 30, 1999. We intend to expand our sales and marketing group and to establish additional sales offices. Competition for sales and marketing personnel is intense, and we may not be able to attract, assimilate or retain additional qualified personnel in the future. We believe that we can strengthen our relationships with purchasers and suppliers by providing good account management, customer support and service. Our customer service group provides ongoing support to customers, including site assistance, product searches, basic product questions and order processing questions. PRODUCT DEVELOPMENT We intend to continue to expand and enhance the functionality of our services. We are currently focusing our product development resources on integrating our services with other information systems used by suppliers and purchasers of healthcare products. In addition, we are developing the capability to allow suppliers to provide customer-specific pricing through Shop, and providing increased functionality to our online Auction service. Our future success, and in particular, our ability to fully address the needs of large healthcare providers, depends on our ability to successfully develop and introduce these capabilities in a timely manner. There are a number of risks and challenges involved in the development of new features and technologies. See "Risk Factors -- If we are not able to keep up with rapidly changing technology and develop enhancements to our services, we may not be able to attract or retain purchasers and suppliers of medical products." Our product development organization includes our product strategy group and our engineering group. The product strategy group is responsible for translating user needs into specifications and prototypes for new functions and services. Our engineering group is responsible for developing the technology that implements these initiatives, and maintaining and improving the technology, infrastructure and databases that we use to provide our services. As of September 30, 1999, our product development organization included 45 full-time employees. Our quality assurance group works with our product development organization throughout the development cycle to ensure that the new features and functions of our website meet our standards. In addition, we have a five person group that focuses on emerging technologies and market opportunities. In cases requiring specialized expertise, we have augmented the resources of our product development organization with independent contractors. Our product development expenses were $179,000 in 1997, $1.5 million in 1998 and $2.6 million in the first six months of 1999. To date, substantially all software development costs related to our services have been expensed as incurred. We believe that significant investments in product development will be required to remain competitive. PROPRIETARY RIGHTS AND LICENSING Our success and ability to compete depend on our ability to develop and maintain the proprietary aspects of our technology. We rely on a combination of copyright, trademark and trade secret laws 43 46 and contractual restrictions to establish and protect the proprietary aspects of our technology. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. Finally, we seek to avoid disclosure of our intellectual property by restricting access to our source code and by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, and to determine the validity and scope of the proprietary rights of others. Any resulting litigation could result in substantial costs and diversion of resources and could seriously harm our business. Our success and ability to compete also depend on our ability to operate without infringing upon the proprietary rights of others. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business would be seriously harmed. COMPETITION The online market for medical products, supplies and equipment is new, rapidly evolving and intensely competitive. Our primary competition includes e-commerce providers that have established online marketplaces for medical products, supplies and equipment. These competitors include companies such as Medibuy, Promedix and Cimtek Medical. Medibuy provides an auction site for the sale of used, refurbished and surplus products, and has announced plans to introduce e-commerce services for new products. Cimtek Medical and Promedix have websites for the sale of new products. Promedix has recently entered into an agreement to be acquired by Chemdex, a leading provider of e-commerce solutions to the life sciences industry. We also face potential competition from a number of sources. Many companies have created websites to serve the information needs of healthcare professionals, providing medical information, discussion groups, bulletin boards and directories. Many of these companies are introducing e-commerce functions that may compete with our services. In addition, providers of online marketplaces and online auction services that currently focus on other industries could expand the scope of their services to include medical products. Existing suppliers of medical products may also establish online marketplaces that offer services to suppliers and purchasers, either on their own or by partnering with other companies. Moreover, live auction houses focusing on medical products may establish online auction services. New companies may also be formed that compete with us. We believe that companies in our market compete to provide services to suppliers based on: - brand recognition; - number of purchasers using their services, and the volume of their purchases; - level of bias, or perceived bias, towards particular suppliers; - compatibility with suppliers' existing distribution methods; - the amount of the fees charged to suppliers; - ease of use and convenience; - ability to integrate their services with suppliers' existing systems and software; and - quality and reliability of their services. In addition, we believe that companies in our market compete to provide services to purchasers based on: - brand recognition; - breadth, depth and quality of product offerings; - ease of use and convenience; - ability to integrate their services with purchasers' existing systems and software; 44 47 - quality and reliability of their services; and - customer service. Competition is likely to intensify as our market matures. As competitive conditions intensify, competitors may: - enter into strategic or commercial relationships with larger, more established healthcare, medical products and Internet companies; - secure services and products from suppliers on more favorable terms; - devote greater resources to marketing and promotional campaigns; - secure exclusive arrangements with buyers that impede our sales; and - devote substantially more resources to website and systems development. Our current and potential competitors' services may achieve greater market acceptance than ours. Our existing and potential competitors may have longer operating histories in the medical products market, greater name recognition, larger customer bases or greater financial, technical and marketing resources than we do. As a result of these factors, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns for their brands and services and make more attractive offers to purchasers and suppliers, potential employees and strategic partners. In addition, new technologies may increase competitive pressures. We cannot be certain that we will be able to expand our purchaser and supplier base, or retain our current purchasers and suppliers. We may not be able to compete successfully against current and future competitors and competition could seriously harm our revenue, gross margins and market share. EMPLOYEES As of September 30, 1999, we had 148 full-time employees, including 45 in product development, 45 in sales, marketing and customer service, nine in business development, 29 in operations, and 20 in general and administrative functions. Our future success will depend in part on our ability to attract, train, retain, integrate and motivate highly qualified sales, technical and management personnel, for whom competition is intense. Our employees are not represented by any collective bargaining unit, and we have never experienced a work stoppage. We believe our relations with our employees are good. We also use independent contractors to support our services. We use a firm based in India to digitize and format product information for our Shop service. We plan to use a third party specializing in Internet support to respond to our most common customer service requests. We also use independent contractors for specific product development services requiring specialized expertise. FACILITIES Our executive, administrative and operating offices are located in approximately 33,378 square feet of leased office space located in Santa Clara, California under leases expiring in April 2004 and September 2006. We also maintain 19,765 square feet of office space and approximately 22,000 square feet of warehouse space for GAR in the metropolitan areas of Chicago, Illinois. We are currently negotiating the terms of a lease for a second warehouse in the Chicago, Illinois metropolitan area to provide an additional 120,000 square feet of space to store consigned items until they are sold in auctions. LEGAL PROCEEDINGS On August 6, 1999, Fisher Scientific International, Inc. filed a petition in the District Court of Montgomery County, Texas, against Neoforma and Daniel A. Eckert, an individual that we had hired to serve as our Executive Vice President of Sales. Fisher alleged that Mr. Eckert, previously President 45 48 of one of Fisher's divisions, Fisher HealthCare, would be in breach of a covenant not to compete if he were to work for us. Fisher also alleged that Mr. Eckert had disclosed, and in working for us would inevitably disclose, Fisher's confidential and proprietary information, and that by hiring Mr. Eckert, we were interfering with Fisher's business relations. Finally, Fisher alleged that these actions constituted unfair competition. On September 9, 1999, the court granted a temporary injunction until trial prohibiting Mr. Eckert from working for us and prohibiting us from interfering with Fisher Healthcare's business through the use of any of Fisher's confidential and proprietary information, among other things. In granting the injunction, the court determined, among other things, that Mr. Eckert's covenant not to compete might bar him from working for us. On September 27, 1999, we filed suit against Fisher in the Superior Court of Santa Clara County, California for misappropriation of trade secrets. On September 28, 1999, the court granted a temporary restraining order against Fisher prohibiting Fisher from acquiring, using or disclosing a document that we consider a trade secret and believe that Fisher has misappropriated. We intend to vigorously defend this litigation, and have filed a notice of appeal relating to the court's issuance of the temporary injunction. However, the outcome of complex litigation is uncertain and cannot be predicted. If Fisher prevails in this litigation, it would prevent Mr. Eckert from joining us in any capacity, and could require that we pay money damages to Fisher. 46 49 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The following table sets forth information regarding our executive officers, directors and other key employees as of October 12, 1999:
NAME AGE POSITION ---- --- -------- EXECUTIVE OFFICERS AND DIRECTORS: Robert J. Zollars.................... 42 Chairman, President and Chief Executive Officer Jeffrey H. Kleck..................... 38 Co-founder, Company Evangelist Wayne D. McVicker.................... 39 Co-founder, Senior Vice President of Research and Development and Director Frederick J. Ruegsegger.............. 44 Chief Financial Officer Bhagwan D. Goel...................... 35 Executive Vice President of Products and Services Robert Flury......................... 49 Senior Vice President of Business Development Erik Tivin........................... 34 Vice President of Auction Services and President of Neoforma GAR, Inc. David Douglass....................... 47 Director Terence Garnett...................... 42 Director Madhavan Rangaswami.................. 44 Director Richard D. Helppie................... 43 Director Andrew J. Filipowski................. 49 Director OTHER EMPLOYEES: Leigh D. Orlov....................... 43 Vice President of Sales John F. Duddy........................ 41 Vice President of Marketing
Robert J. Zollars has served as our Chairman, President and Chief Executive Officer since July 1999. From January 1997 to July 1999, he served as Executive Vice President and Group President of Cardinal Health, Inc., a healthcare products and services company, where he was responsible for four of its wholly-owned subsidiaries: Pyxis Corporation, Owen Healthcare, Inc., Medicine Shoppe International and Cardinal Information Corporation. From January 1992 to December 1996, he served as President of Hospital Supply, Scientific Products and U.S. Distribution of Baxter Healthcare Corporation, which in October of 1996 was spun off as Allegiance Corporation, a healthcare products and service company. Mr. Zollars holds an M.B.A. in finance from John F. Kennedy University and a B.S. in marketing from Arizona State University. Jeffrey H. Kleck has served as our Company Evangelist since July 1999, and co-founded Neoforma.com in April 1996. Dr. Kleck served as our Chief Executive Officer from March 1996 to July 1999 and as one of our directors from April 1996 to October 1999. Dr. Kleck was a senior engineer from June 1991 to February 1997 and Marketing Product Manager from February 1997 to February 1998 at Varian Associates, Inc., a manufacturer of medical radiology equipment. He is a visiting scientist at Los Alamos Laboratory. Dr. Kleck holds a Ph.D. in biomedical physics from, and is a member of the faculty of the School of Medicine at, the University of California, Los Angeles. He holds an M.S. in engineering management from Stanford University and M.S. and B.S. degrees in nuclear engineering from Texas A&M University. Wayne D. McVicker has served as our Senior Vice President of Research and Development since October 1999 and as a director since April 1996. Mr. McVicker co-founded Neoforma.com in April 1996, and served as our President from April 1996 to February 1999 and as our Vice President of Strategy from February 1999 to October 1999. From September 1987 to February 1997, 47 50 Mr. McVicker worked at Varian Associates, Inc., as manager of its architectural planning department. In addition, Mr. McVicker is a licensed architect. Frederick J. Ruegsegger has served as our Chief Financial Officer since July 1999. From December 1996 to July 1999, Mr. Ruegsgegger worked at Axys Pharmaceuticals, Inc., a biopharmaceutical company, most recently as Senior Vice President of Finance and Corporate Development and Chief Financial Officer. From July 1993 to December 1996, Mr. Ruegsegger was President, Chief Executive Officer and a director of EyeSys Technologies Inc., an eye care diagnostic equipment and software company. Mr. Ruegsegger holds a Master of Management from J. L. Kellogg Graduate School of Management, Northwestern University, and a B.S. in economics from the University of Illinois. Bhagwan D. Goel has served as our Executive Vice President of Products and Services since October 1999. From October 1998 to September 1999, Mr. Goel was Senior Vice President and General Manager, Commerce at InfoSeek Corporation, a provider of Internet services and software. From October 1996 to September 1998, Mr. Goel was Vice President of Products and Services at Internet Shopping Network Inc., an online retailer. From November 1993 to October 1995, Mr. Goel was Vice President of Product Development at Worldview Systems Corporation, a provider of online travel information. From October 1989 to October 1995, Mr. Goel worked at Knowledgeset Corporation, a software company that provides electronic retrieval systems, most recently as Director of Product Development. Mr. Goel holds an M.S. in electrical engineering from the University of Toledo and a B.S. in electrical engineering from the Indian Institute of Technology, New Delhi. Robert Flury has served as our Senior Vice President of Business Development since February 1999. From December 1997 to January 1999, Mr. Flury was Vice President and General Manager of the healthcare business unit at PeopleSoft Inc., an enterprise software company. From February 1997 to December 1997, Mr. Flury was a senior vice president at Visix Software Inc., a software company. From October 1994 to February 1997, Mr. Flury was a Senior Vice President of the middleware line of business at Software AG, an enterprise software company. Mr. Flury is a C.P.A. and holds an M.B.A. and a B.B.A. in accounting from Georgia State University. Erik Tivin has served as our Vice President of Auction Services and President of Neoforma GAR, Inc. since August 1999. From July 1998 to August 1999, Mr. Tivin served as owner and President of General Asset Recovery, LLC., a live auction house, which was acquired by Neoforma.com. From January 1990 to July 1998, he served as President of General Industrial Tool, a wholesale industrial equipment company. David Douglass has served as one of our directors since February 1999. Since February 1990, Mr. Douglass has served as a General Partner at Delphi Ventures L.P., a venture capital firm. Mr. Douglass holds an M.B.A. from Stanford University and a B.A. in political science from Amherst College. Terence Garnett has served as one of our directors since April 1998. Since April 1995, Mr. Garnett has served as a Venture Partner at Venrock Associates, a venture capital firm. From August 1994 to April 1995, he was an independent consultant. Mr. Garnett holds an M.B.A. from Stanford University and a B.S. in computer science from the University of California, Berkeley. Madhavan Rangaswami has served as one of our directors since April 1998. Since February 1997, Mr. Rangaswami has served as a Managing Director at Sand Hill Group LLC, a consulting and private investment company. From March 1995 to June 1996, Mr. Rangaswami served as Vice President of Worldwide Marketing at the Baan Company N.V., an enterprise software company. From February 1992 to February 1995, he served as Vice President of Marketing at Avalon Software Inc., a software company. Mr. Rangaswami holds an M.B.A. from Kent State University, and degrees in law and accounting from the University of Madras. 48 51 Richard D. Helppie has served as one of our directors since October 1999. Since August 1996, he has served as Chairman of the board of directors and Chief Executive Officer of Superior Consultant Holdings Corporation, a consulting firm comprised of two subsidiaries founded by Mr. Helppie, Superior Consultant Company, Inc. and UNITIVE Corporation. He has served as Chairman of the board of directors and Chief Executive Officer of Superior Consultant Company, a healthcare management and information systems consulting firm, since 1984 and as Chief Executive Officer of UNITIVE Corporation, a information technology consulting firm, since 1993. He has also served as President of Clearwater Aviation Company, Inc. since 1993. In addition, Mr. Helppie is a director of drkoop.com, Inc. Andrew J. Filipowski has served as one of our directors since October 1999. He is the President, Chief Executive Officer and Chairman of the Board of divine interVentures, inc., a venture investment firm that he co-founded in May 1999. He is also Chairman of the Board of PLATINUM Venture Partners, Inc., a venture investment firm that he founded in February 1992. Mr. Filipowski founded PLATINUM technology, inc. in April 1987 and served as its President, Chief Executive Officer and Chairman of the Board until it was acquired by Computer Associates in June 1999. PLATINUM technology, inc. was a software company that produced, acquired and distributed system software tools. Mr. Filipowski serves on the board of directors of Blue Rhino Corporation, Bluestone Software, Inc., eShare Technologies, Inc., Platinum Entertainment, Inc., and System Software Associates, Inc. Leigh D. Orlov has served as our Vice President of Sales since September 1999. He joined Neoforma.com as a Director of Sales in May 1999. Mr. Orlov worked at PeopleSoft Inc. as Vice President of Sales from January 1999 to May 1999 and as Regions Sales Manager from June 1994 to January 1999. John F. Duddy has served as our Vice President of Marketing since February 1999. From June 1998 to February 1999, Mr. Duddy was Vice President of Sales and Marketing at Metrika Inc., a medical device company. From April 1996 to June 1998, Mr. Duddy was director of sales and marketing at SmithKline Diagnostics, Inc., a medical instruments company. From February 1993 to April 1996, Mr. Duddy held sales management positions at Hybritech, a life sciences and diagnostic company and a subsidiary of Beckman Coulter. Mr. Duddy holds a B.S. in business administration from the University of Southern California. BOARD COMPOSITION Our amended and restated bylaws provide for a board of directors consisting of seven members. Our amended and restated certificate of incorporation and bylaws, each of which will become effective following the completion of this offering, provide that our board of directors will be divided into three classes, each serving staggered three-years terms: Class I, whose term will expire at the annual meeting of stockholders to be held in 2000; Class II, whose term will expire at the annual meeting of stockholders to be held in 2001; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2002. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their terms. Messrs. Douglass, McVicker and Rangaswami have been designated as Class I directors; Messrs. Filipowski and Garnett have been designated as Class II directors; and Messrs. Helppie and Zollars have been designated as Class III directors. 49 52 BOARD COMMITTEES The audit committee consists of Messrs. Filipowski, Garnett and Rangaswami. The audit committee: - reviews our financial statements and accounting practices; - makes recommendations to the board of directors regarding the selection of independent accountants; and - reviews the results and scope of the audit and other services provided by our independent accountants. The compensation committee consists of Messrs. Douglass, Filipowski and Helppie. The compensation committee: - reviews and recommends to the board of directors the compensation and benefits of all of our officers, directors and consultants; and - reviews general policy relating to compensation and benefits. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The compensation committee of our board of directors is currently comprised of Messrs. Douglass, Filipowski and Helppie. None of these individuals has at any time been one of our officers or employees. For a description of the transactions between Neoforma.com and members of the compensation committee and entities affiliated with the compensation committee members, see "Certain Transactions." Robert J. Zollars, our President and Chief Executive Officer, is a member of the board of directors of divine interVentures, inc., of which Mr. Filipowski is President, Chief Executive Officer and Chairman of the board of directors. EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS Mr. Zollars. In July 1999, we entered into an at-will employment agreement with Robert J. Zollars for him to serve as our Chairman, President and Chief Executive Officer. Under this agreement, Mr. Zollars receives a salary equal to $500,000 for the first year of the agreement, which can be increased by us in subsequent years. Mr. Zollars is also entitled to a $250,000 bonus if he continues to be employed by us on December 31, 1999. Beginning in 2000 and for each following year while he is employed by us, Mr. Zollars is eligible to receive a bonus payment of at least $500,000 for that fiscal year, based upon whether we achieve revenue and profitability targets and/or other organizational milestones to be specified by our board of directors. Upon entering into this employment agreement, Mr. Zollars received an option to purchase 1,637,160 shares of our common stock and an option to purchase 3,602,315 shares of our common stock, each at an exercise price of $0.10 per share. Both options were immediately exercisable and Mr. Zollars exercised these options in full in July 1999. As of September 30, 1999, all of the shares purchased under the option for 3,602,315 shares were subject to a repurchase right that lapses at a rate of 900,578 shares after his first year of employment and 75,048 shares per month thereafter. If we are acquired or if a change in control of Neoforma.com occurs, the then unvested portion of his option will become vested. Mr. Zollars is eligible to receive from us a moving assistance loan of $2.5 million, which will be forgiven in equal monthly installments on the last day of each month from the date of closing on his new home through June 30, 2003. Mr. Zollars also has the right to be reimbursed by us up to $300,000 for any loss on the sale of his previous home. We are obligated to reimburse Mr. Zollars for an additional $338,000 plus additional moving expenses incurred in connection with his joining us. 50 53 If Mr. Zollars' employment is terminated other than for disability or cause, or if Mr. Zollars resigns for good reason, he will be entitled to receive an amount equal to his annual salary, bonus and benefits. In addition, our right to repurchase all outstanding stock held by Mr. Zollars will lapse and the forgiveness of the home loan will be treated as if he had been employed by us for 12 additional months after the termination of employment. Good reason includes a reduction in his duties or responsibilities or a reduction in his salary, bonus or other benefits. Mr. Tivin. In August 1999, we entered into an employment agreement with Erik Tivin for him to serve as our Vice President of Auction Services and President of Neoforma GAR, Inc. This agreement expires on December 31, 2001. Under this agreement, Mr. Tivin receives a salary equal to $100,000 per year. Mr. Tivin is also eligible to receive a bonus payment of at least $50,000 per year that he is still employed by us, based upon our financial performance. Upon entering into this employment agreement, Mr. Tivin received an option to purchase 550,000 shares of our common stock at $0.10 per share. This option is immediately exercisable. As of September 30, 1999, 33,333 of the shares underlying the option had vested and none had been exercised. The shares underlying the option vest at a rate of 33,333 shares per month for the first 12 months of his employment and at a rate of 4,167 shares per month during each of months 13 through 47, with the balance of the remaining options vesting in month 48, so long as he is employed by us. In addition, in the event of a change of control of Neoforma.com and termination of Mr. Tivin's employment, 50% of the then unvested portion of Mr. Tivin's option shall immediately vest. Mr. Ruegsegger. In June 1999, we entered into an offer letter with Frederick J. Ruegsegger for him to serve as our Chief Financial Officer. Under this offer letter, Mr. Ruegsegger receives a salary equal to $200,000 per year. Mr. Ruegsegger is eligible to receive a bonus of up to $12,500 each quarter, based upon performance milestones to be specified by our president and assessed by our board of directors. Mr. Ruegsegger is also entitled to repayment of the outstanding amount of a $25,000 relocation loan. Upon entering into employment with us, Mr. Ruegsegger received an option to purchase 604,555 shares of our common stock at $0.50 per share. This option is immediately exercisable and Mr. Ruegsegger has exercised the option in full. As of September 30, 1999, all of the shares underlying the option were subject to a right of repurchase. The shares underlying the option vest over four years, with one fourth of the shares vesting at the end of the first year of employment with us and an additional one forty-eighth vesting each month thereafter, for so long as he is employed by us. If Mr. Ruegsegger's employment is terminated other than for cause, he will be entitled to receive an amount equal to three months of his salary. In addition, in the event of a change of control of Neoforma.com and termination of Mr. Ruegsegger's employment, 50% of the then unvested portion of Mr. Ruegsegger's option shall immediately vest. Mr. Goel. In September 1999, we entered into an offer letter with Bhagwan D. Goel for him to serve as our Executive Vice President of Products and Services. Under this offer letter, Mr. Goel receives a salary equal to $225,000 per year. Mr. Goel received a $50,000 bonus when he commenced his employment with us and is entitled to receive a bonus of $50,000 after one year of employment. Upon entering into employment with us, Mr. Goel received an option to purchase 595,000 shares of our common stock at $3.00 per share. This option is immediately exercisable. As of September 30, 1999, this option had not yet been granted. The shares underlying the option vest in equal monthly installments over four years, for so long as he is employed by us. If Mr. Goel's employment is terminated other than for cause, he will be entitled to receive an amount equal to 12 months of his salary. In addition, in the event of a change of control of Neoforma.com and termination of Mr. Goel's employment, 50% of the then unvested portion of Mr. Goel's option shall immediately vest. Mr. Flury. In December 1998, we entered into an offer letter with Robert Flury for him to serve as our Vice President of Enterprise Sales. Under this offer letter, Mr. Flury receives a salary equal to 51 54 $175,000 per year. Mr. Flury is entitled to receive a bonus of $25,000 each quarter during his first year with us, and thereafter is eligible to earn a bonus of up to $25,000 each quarter, based upon performance milestones to be specified by our president and assessed by our board of directors. Upon entering into employment with us, Mr. Flury received an option to purchase 609,392 shares at $0.10 per share. This option is immediately exercisable. As of September 30, 1999, none of the shares underlying the option had vested and none had been exercised. The shares underlying the option vest over four years, with one fourth of the shares vesting at the end of the first year of employment with us and an additional one forty-eighth vesting each month thereafter, for so long as he is employed by us. If Mr. Flury's employment is terminated other than for cause, he will be entitled to receive an amount equal to three months of his salary. In addition, in the event of a change of control of Neoforma.com and termination of Mr. Flury's employment, 50% of the then unvested portion of Mr. Flury's option shall immediately vest. DIRECTOR COMPENSATION Our directors do not receive cash compensation for their services as directors but are reimbursed for their reasonable and necessary expenses for attending board and board committee meetings. Each eligible director who is not our employee and who is or becomes a member of our board will be automatically granted an option to purchase shares of common stock under our 1999 Equity Incentive Plan, unless that director has previously received an option grant. Immediately following each annual meeting of stockholders, each eligible director will automatically be granted an option to purchase shares of common stock under our 1999 Equity Incentive Plan, provided that the director is a member of the board on that date and has served continuously as a member of the board for a period of at least one year since the date of the director's initial grant. All options will have an exercise price equal to the fair market value of our common stock on the date of grant. The options will have 10-year terms and will terminate three months following the date the director ceases to be one of our directors or consultants or 12 months after any termination due to death or disability. Options granted under the plan will generally vest over four years. Any unvested shares subject to these options will become immediately vested and exercisable upon a transaction which results in a change in our control. EXECUTIVE COMPENSATION The following table shows all compensation awarded to, earned by or paid for services rendered to us in all capacities during 1998 by our then chief executive officer and our other current or former executive officers who earned at least $100,000 in 1998. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------- SECURITIES NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS --------------------------- -------- -------- ------------------ Jeffrey H. Kleck.................................... $ 91,929 $ -- -- Co-founder, Company Evangelist(1) Wayne D. McVicker................................... 122,150 -- -- Co-founder, Senior Vice President of Research and Development and a director(2) Stephen A. Pieraldi................................. 104,421 -- 175,000 Vice President of Business Development(3)
52 55 - --------------- (1) Mr. Kleck was our Chief Executive Officer and a director in 1998. (2) Mr. McVicker was our President in 1998. (3) Mr. Pieraldi was our Vice President of Sales in 1998. The executive officers listed below joined us after 1998 and are not included in the tables relating to summary compensation and option grants in 1998. Robert J. Zollars, our Chairman, President and Chief Executive Officer, joined us in July 1999. Mr. Zollars is compensated at an annual rate of $500,000. He will receive a bonus of $250,000 if he continues to be employed by us on December 31, 1999. Mr. Zollars received an option to purchase 1,637,160 shares of our common stock and an option to purchase 3,602,315 shares of our common stock, each at $0.10 per share. Both options were immediately exercisable and Mr. Zollars exercised these options in full in July 1999. As of September 30, 1999, all of the shares underlying the option for 3,602,315 shares were subject to a repurchase right that lapses at a rate of 900,578 after his first year of employment and 75,048 shares per month thereafter. Frederick J. Ruegsegger, our Chief Financial Officer, joined us in July 1999. Mr. Ruegsegger is compensated at an annual rate of $200,000. He is eligible to receive a bonus of up to $12,500 each quarter. Mr. Ruegsegger was also granted an option to purchase 604,555 shares of our common stock at $0.50 per share. This option is immediately exercisable and Mr. Ruegsegger has exercised the option in full. As of September 30, 1999, all of the shares underlying the option were subject to a repurchase right that lapses at a rate of 151,138 shares after his first year of employment and 12,594 shares per month thereafter. Bhagwan D. Goel, our Executive Vice President of Products and Services, joined us in October 1999. Mr. Goel is compensated at an annual rate of $225,000. He received a $50,000 bonus upon joining us. Mr. Goel was also granted an option to purchase 595,000 shares of our common stock at $3.00 per share. This option is immediately exercisable. The shares underlying the option will vest at a rate of 12,395 shares per month. Robert Flury, our Senior Vice President of Business Development, joined us in February 1999. Mr. Flury is compensated at an annual rate of $175,000. He is entitled to receive a bonus of $25,000 each quarter. Mr. Flury was also granted an option to purchase 609,392 shares of our common stock at $0.10 per share. This option is immediately exercisable. As of September 30, 1999, the option had not yet been exercised. The shares underlying the option will vest at a rate of 152,348 shares after his first year of employment and 12,695 shares per month thereafter. For more information regarding the terms of employment agreements and offer letters with our executive officers, see "-- Employment Contracts and Change of Control Arrangements." OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth each grant of stock options during the fiscal year ended December 31, 1998 to each of the executive officers named in the Summary Compensation Table above. We granted the option listed below at an exercise price equal to the fair market value of our common stock, as determined by our board of directors on the date of grant. The option becomes exercisable as to 25% of the underlying shares upon the first anniversary of the date of grant and an 53 56 additional 2.083% per month thereafter. The option expires on the earlier of 10 years from the date of grant or three months after termination of employment.
POTENTIAL REALIZABLE NUMBER PERCENTAGE OF VALUE AT ASSUMED OF TOTAL ANNUAL RATES OF STOCK SECURITIES OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(2) OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------- NAME GRANTED IN 1998(1) PER SHARE DATE 5% 10% ---- ---------- ------------- --------- ---------- --------- --------- Jeffrey H. Kleck................ -- -- -- -- -- -- Wayne D. McVicker............... -- -- -- -- -- -- Stephen A. Pieraldi............. 175,000 12.2% $0.05 05/26/2008 $11,756 $36,640
- ------------------------- (1) Based on an aggregate of 1,457,700 shares underlying the options granted to our employees during fiscal 1998. (2) Potential realizable values are computed by (a) multiplying the number of shares of common stock subject to a given option by the deemed fair market value of the underlying common stock at December 31, 1999, (b) compounding the aggregate stock value derived from the foregoing calculation at an annual rate of 5% or 10% over the 10 year term of the option, and (c) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent our estimates or projections of future common stock prices. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth the number of shares of common stock acquired and the value realized upon exercise of stock options during 1998 and the number of shares of common stock subject to exercisable and unexercisable stock options held as of December 31, 1998 by each of the executive officers named in the Summary Compensation Table. Value at fiscal year end is the difference between the exercise price and the deemed fair market value of the underlying common stock at December 31, 1998.
NUMBER OF SECURITIES VALUE OF UNEXERCISED NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------- ----------- ------------- ----------- ------------- Jeffrey H. Kleck............... -- -- -- -- -- -- Wayne D. McVicker.............. -- -- -- -- -- -- Stephen A. Pieraldi............ -- -- -- 175,000 -- $8,750
EMPLOYEE BENEFIT PLANS 1997 Stock Plan Our 1997 Stock Plan was adopted by our board of directors in January 1997. As of September 30, 1999, there were outstanding options to purchase a total of 5,128,549 shares of common stock under this plan, and 2,659,309 shares remained available for future grants. This plan will terminate immediately prior to this offering, and no further options will be granted. However, the termination of this plan will not affect any outstanding options, which will remain outstanding until they are exercised, terminate or expire. 54 57 1999 Equity Incentive Plan Our 1999 Equity Incentive Plan will become effective on the date of this prospectus and will serve as the successor to our 1997 Stock Plan. We have reserved shares of common stock for issuance under this plan. The number of shares reserved for issuance under this plan will be increased to include: - any shares reserved under our 1997 Stock Plan not issued or subject to outstanding grants on the date of this prospectus; - any shares issued under our 1997 Stock Plan that are repurchased by us at the original purchase price; and - any shares issuable upon exercise of options granted under our 1997 Stock Plan that expire or become unexercisable without having been exercised in full. The number of shares reserved under this plan will be increased automatically on January 1 of each year by an amount equal to % of our total outstanding shares as of the immediately preceding December 31. Our board of directors or compensation committee may reduce the amount of the increase in any particular year. The following shares will be available for grant and issuance under our 1999 Equity Incentive Plan: - shares issuable upon exercise of an option granted under this plan that is terminated or cancelled before the option is exercised; - shares issued upon exercise of an option granted under this plan that are subsequently repurchased by us at the original purchase price; - shares subject to awards granted under this plan that are subsequently forfeited or repurchased by us at the original issue price; and - shares subject to stock bonuses granted under this plan that otherwise terminate without shares being issued. Our 1999 Equity Incentive Plan will terminate in 2009, unless earlier terminated in accordance with the terms of the plan. Our 1999 Equity Incentive Plan authorizes the award of options, restricted stock awards and stock bonuses. No person will be eligible to receive more than shares in any calendar year under this plan ( in the case of new employees). This plan is administered by the compensation committee of our board of directors, which currently consists of Messrs. Douglass, Filipowski and Helppie, all of whom are outside directors, as defined under applicable federal tax laws. The committee has the authority to interpret this plan and any agreement made under the plan, grant awards and make all other determinations for the administration of this plan. Also, our outside directors are entitled to receive automatic annual grants of options to purchase shares of our common stock, as described under "-- Director Compensation." Our 1999 Equity Incentive Plan provides for the grant of both incentive stock options that qualify under Section 422 of the Internal Revenue Code, and nonqualified stock options. Incentive stock options may be granted only to employees. Nonqualified stock options, and all other awards other than incentive stock options, may be granted to employees, officers, directors, consultants, independent contractors and advisors of Neoforma.com or subsidiary of Neoforma.com. However, consultants, independent contractors and advisors are only eligible to receive awards if they render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of that value. The exercise price of nonqualified stock options must be at least equal to 85% of the fair market value of the our common stock on the date of grant. The maximum term of options granted under our 1999 Equity Incentive Plan is 10 years. Except as provided under the 1999 Equity Incentive Plan, awards 55 58 granted under the plan may not be transferred in any manner other than by will or by the laws of descent and distribution. The compensation committee may allow exceptions to this restriction with respect to awards that are not incentive stock options. Options granted under our 1999 Equity Incentive Plan generally expire three months after the termination of the optionee's service. Except for options granted to outside directors, in the event of a change in control of Neoforma.com, if the successor does not assume outstanding options, they will expire upon conditions determined by the compensation committee. Alternatively, the compensation committee may accelerate the vesting of awards upon a change in control. 1999 Employee Stock Purchase Plan Our 1999 Employee Stock Purchase Plan will become effective on the first day on which price quotations are available for our common stock on the Nasdaq National Market. We have initially reserved shares of common stock for issuance under this plan. The number of shares reserved for issuance under our 1999 Employee Stock Purchase Plan will be increased automatically on January 1 of each year by an amount equal to % of our total outstanding shares as of the immediately preceding December 31. Our board of directors or compensation committee may reduce the amount of the increase in any particular year. Our compensation committee will administer our 1999 Employee Stock Purchase Plan. Employees generally will be eligible to participate in our 1999 Employee Stock Purchase Plan if they are employed by Neoforma.com, or any subsidiaries that Neoforma.com designates, for more than 20 hours per week and more than five months in a calendar year. Employees are not eligible to participate in our 1999 Employee Stock Purchase Plan if they are 5% stockholders, or would become 5% stockholders as a result of their participation in this plan. Under our 1999 Employee Stock Purchase Plan, eligible employees may acquire shares of our common stock through payroll deductions. Eligible employees may select a rate of payroll deduction between % and % of their cash compensation and are subject to maximum purchase limitations. Participation in this plan will end automatically upon termination of employment for any reason. A participant will not be able to purchase shares having a fair market value of more than $ , determined as of the first day of the applicable offering period, for each calendar year in which the employee participates in this plan. Each offering period under this plan will be for two years and will consist of four six-month purchase periods. The first offering period is expected to begin on the first business day on which price quotations for our common stock are available on the Nasdaq National Market. The first purchase period may be more or less than six months long. Offering periods thereafter will begin on and . The purchase price for common stock purchased under this plan will be 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or the last day of each purchase period. The compensation committee will have the power to change the duration of offering periods. Our 1999 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. This plan will terminate in 2009, unless it is terminated earlier pursuant to its terms. 401(k) Plan. We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code. Participants may make pre-tax contributions to the plan of up to 15% of their eligible earnings, subject to a statutorily prescribed annual limit. Participants are fully vested in their contributions and the investment earnings. We do not make matching contributions to the 401(k) plan. Contributions by the participants to the 401(k) plan, and the income earned on these contributions, are generally not taxable to the participants until withdrawn. Contributions are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. 56 59 INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of a director for monetary damages resulting from breach of his fiduciary duty as a director, except for liability: - for any breach of the director's duty of loyalty to us or our stockholders; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or - for any transaction from which the director derived an improper personal benefit. Our amended and restated bylaws provide that: - we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation law, subject to limited exceptions; - the rights conferred in the amended and restated bylaws are not exclusive; and - we are required to advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions. In addition to the indemnification required by our amended and restated certificate of incorporation and bylaws, before the completion of this offering, we intend to enter into indemnity agreements with each of our current directors and officers. These agreements provide for the indemnification of our officers and directors for all expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We also intend to obtain directors' and officers' insurance to cover our directors, officers and some of our employees for certain liabilities, including public securities matters. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, the value of a stockholder's investment may decline to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification from us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification by us. 57 60 CERTAIN TRANSACTIONS Other than compensation agreements and other arrangements, which are described in "Management," and the transactions described below, since we incorporated in March 1996, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: - in which the amount involved exceeded or will exceed $60,000, and - in which any director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. The agreements described below are included as exhibits to the registration statement of which this prospectus forms a part. TRANSACTIONS WITH PROMOTER In May 1996, in connection with our formation and initial financing, Jeffrey H. Kleck, our co-founder and Company Evangelist, purchased four million shares of our common stock at $0.00375 per share in exchange for $10,000 in cash and specified intellectual property and Wayne D. McVicker, our co-founder and Senior Vice President of Research and Development and a director, purchased four million shares of our common stock at $0.00375 per share in exchange for $10,000 in cash and specified intellectual property. Messrs. Kleck and McVicker each hold more than 5% of our common stock. STOCK FINANCINGS/STOCK EXCHANGES Series A preferred stock exchange In April 1998, we issued 9,000,000 shares of our Series A preferred stock in exchange for 9,000,000 shares of previously issued common stock. The holders of the Series A preferred stock included, among others: - Wayne D. McVicker -- 4,000,000 shares; and - Jeffrey H. Kleck -- 4,000,000 shares. Series B preferred stock financing In April 1998, we sold 2,860,000 shares of our Series B preferred stock for approximately $0.50 per share. The purchasers of the Series B preferred stock included, among others: - Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust UDT 4/2/97 -- 500,000 shares; and - Madhavan Rangaswami -- 200,000 shares. Terence J. Garnett is one of our directors. Mr. Garnett also holds, personally or through trusts of which he is a trustee, more than 5% of our common stock. Madhavan Rangaswami is one of our directors. Series C preferred stock financing In June 1998, we sold 5,064,937 shares of our Series C preferred stock for approximately $0.77 per share. The purchasers of the Series C preferred stock included, among others: - Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust UDT 4/2/97 -- 754,870 shares; 58 61 - Venrock Associates -- 1,467,073 shares; - Venrock Associates II, L.P. -- 1,944,724 shares; and - Madhavan Rangaswami -- 351,732 shares. Terence J. Garnett, one of our directors, is a Venture Partner of the general partner of Venrock Associates and Venrock Associates II, L.P. These entities, in the aggregate, hold more than 5% of our common stock. Series D preferred stock financing In February 1999, we sold 10,196,361 shares of our Series D preferred stock for approximately $1.18 per share. The purchasers of the Series D preferred stock included, among others: - Delphi BioInvestments IV, L.P. -- 59,915 shares; - Delphi Ventures IV, L.P. -- 2,906,187 shares; - Terence J. Garnett -- 50,848 shares; - Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust UDT 4/2/97 -- 423,728 shares; - Venrock Associates -- 694,915 shares; and - Venrock Associates II, L.P. -- 1,000,000 shares. David Douglass, one of our directors, is a General Partner of Delphi Ventures, L.P. Series E and Series E-1 preferred stock financing In October 1999, we sold an aggregate of 12,693,663 shares of our Series E and Series E-1 preferred stock for approximately $5.68 per share and issued an additional 275,000 shares of Series E-1 preferred stock in connection with entering into a strategic alliance in October 1999. The purchasers of the Series E and Series E-1 preferred stock included, among others: - Dell USA L.P. -- 4,401,408 shares; - Venrock Associates -- 133,033 shares; - Venrock Associates II, L.P. -- 191,438 shares; - Venrock Entrepreneurs Fund -- 17,077 shares; - Superior Consultant Company -- 880,282 shares; - divine interVentures, inc. -- 1,056,338 shares; and - Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust UDT 4/2/97 -- 10,563 shares. Dell USA L.P. holds more than 5% of our common stock. Richard D. Helppie, one of our directors, is Chairman of the Board and Chief Executive Officer of Superior Consultant Holdings Corporation. Andrew J. Filipowski, one of our directors, is the President, Chief Executive Officer and Chairman of the Board of divine interVentures, inc. 59 62 Appointment of Board Members. Messrs. McVicker, Garnett, Douglass, Helppie and Filipowski were appointed to our board of directors pursuant to rights held by our preferred stockholders. These rights terminate upon the closing of this offering. Investor Rights Agreement. In October 1999, we entered into a Second Amended and Restated Investor Rights Agreement with some of our stockholders, including some of our officers and directors, or their affiliated entities, under which they have registration rights with respect to their stock. See "Description of Capital Stock -- Registration Rights." CONSULTING AGREEMENTS In April 1998, we entered into a consulting agreement with Sand Hill Group LLC. Madhavan Rangaswami, one of our directors, is a member of Sand Hill Group LLC. Sand Hill Group LLC provides 16 hours per month of services to us through the end of 1999 in exchange for our sale of 250,000 shares of our common stock to each of Mr. Rangaswami and another member of Sand Hill Group LLC and our reimbursement of Sand Hill's out-of-pocket expenses. We retained a right to repurchase these shares, which right lapses ratably over six quarters after the issuance of the shares. In July 1999, we entered into a consulting agreement with Mr. Rangaswami. Under the agreement, Mr. Rangaswami agreed to provide us with consulting services for a period of three months in exchange for an option to purchase 95,325 shares of our common stock at an exercise price of $0.10, which vested at the end of the three month period. LOANS On July 10, 1999, we made a loan to Robert J. Zollars in connection with his exercise of a stock option granted to him under the terms of his employment agreement. The loan is evidenced by a promissory note in the principal amount of $162,078.84, with interest compounded quarterly on the unpaid balance at a rate of 5.70% per year. On July 10, 1999, we made a loan to Robert J. Zollars in connection with his exercise of a stock option granted to him under the terms of his employment agreement. The loan is evidenced by a promissory note in the principal amount of $356,629.19, with interest compounded quarterly on the unpaid balance at a rate of 5.70% per year. On September 7, 1999, we made a loan to Frederick J. Ruegsegger, in connection with his exercise of a stock option granted to him under the terms of his offer letter. The loan is evidenced by a promissory note in the principal amount of $301,672.95, with interest compounded quarterly on the unpaid balance at a rate of 5.85% per year. On October 4, 1999, we made a loan to Bhagwan D. Goel in connection with his exercise of a stock option granted to him under the terms of his offer letter. The loan is evidenced by a promissory note in the principal amount of $1,484,505.00, with interest compounded quarterly on the unpaid balance at a rate of 5.89% per year. On various dates from March 1997 through December 1997, Wayne D. McVicker made loans to us in an aggregate amount of $190,000. In April 1998, we issued a convertible note for $197,047.80 to Mr. McVicker in consideration of his agreement to cancel the outstanding promissory notes representing these loans. The convertible note paid interest at a rate of 8% per year. This note has been paid in full. On various dates from September 1996 through November 1997, Jeffrey H. Kleck made loans to us in an aggregate amount of $195,000. In April 1998, we issued a convertible note for $206,670.95 to Dr. Kleck in consideration of his agreement to cancel the promissory notes representing these loans. The convertible note paid interest at a rate of 8% per year. The convertible note was converted into 60 63 60,000 shares of Series B preferred stock at a price per share of $0.50 and the remaining balance was paid in full. In August 1999, we issued a promissory note to Erik Tivin in the amount of $7.8 million as partial payment of the purchase price of our acquisition of GAR. The note is payable over a five year period. COMMERCIAL TRANSACTIONS In connection with our October 1999 sale of Series E preferred stock, Richard D. Helppie, the Chairman and Chief Executive Officer of Superior Consultant Holdings Corporation, joined our board of directors. In addition, in October 1999 we entered into an agreement with Superior Consultant Company, Inc., a wholly owned subsidiary of Superior Consultant Holdings Corporation, providing for collaboration between us and Superior. Superior is a supplier of Digital Business Transformation(TM) services to large healthcare organizations, including Internet-related services, systems integration, outsourcing and consulting, which enable Superior clients to utilize digital technologies and process innovations to improve their businesses. Under the agreement, we have agreed to market Superior's services to our users, and Superior has agreed to introduce our services to appropriate clients, based on their interests, and to incorporate our services into its Digital Business Transformation(TM) offerings. The agreement also provides for joint marketing activities. In consideration, we have agreed to make payments to Superior in an aggregate amount of up to approximately $2.0 million, as well as a percentage of specified Neoforma.com e-commerce transaction revenue and other payments. We have also agreed to utilize Superior's services on a preferred basis for systems integration, development, infrastructure, process improvement and consulting assistance, totaling at least $1.5 million of services from Superior, at a discount from Superior's standard fees. Our agreement with Superior expires in October 2002. In October 1999, we entered into an agreement with Dell Marketing, L.P., an affiliate of Dell Computer, under which we agreed to develop complementary marketing programs with Dell and to establish links between our respective internet websites. We agreed to use Dell as our exclusive supplier of desktops, portables, workstations, servers and storage devices unless its products did not meet our reasonable technical requirements. We also agreed to purchase at least $5.0 million of Dell products and $100,000 of data center consulting services. Our agreement with Dell expires in 2001, subject to renewal for additional one-year periods. In addition, Dell purchased approximately 4.4 million shares of our preferred stock in October 1999. 61 64 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to beneficial ownership of our common stock as of September 30, 1999 and as adjusted to reflect the sale of the common stock in this offering by: - each stockholder known by us to be the beneficial owner of more than 5% of our common stock; - each of our directors; - each executive officer listed in the Summary Compensation Table; and - all executive officers and directors as a group. The percentage of outstanding shares beneficially owned before this offering in the following table is based on 48,841,241 shares of common stock outstanding as of September 30, 1999, assuming conversion of all outstanding shares of preferred stock into common stock, and also including 12,693,663 shares of common stock issuable upon conversion of our Series E and Series E-1 preferred stock that we issued in October 1999. The percentage of outstanding shares beneficially owned after this offering in the following table is based on shares of common stock outstanding after the completion of this offering. Under the rules of the Securities and Exchange Commission, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable under stock options or warrants that are exercisable within 60 days of September 30, 1999. Shares issuable under stock options or warrants are deemed outstanding for computing the percentage held by the person holding options but are not outstanding for computing the percentage of any other person. Unless otherwise indicated, the address for each listed stockholder is: c/o Neoforma.com, Inc., 3255-7 Scott Boulevard, Santa Clara, California 95054. To our knowledge, except as indicated in the footnotes to this table and under applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
PERCENTAGE OF OUTSTANDING SHARES BENEFICIALLY OWNED NUMBER OF SHARES --------------------------------- NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING ------------------------ ------------------ --------------- -------------- EXECUTIVE OFFICERS AND DIRECTORS Robert J. Zollars(1)...................... 5,239,475 10.7% Jeffrey H. Kleck.......................... 4,000,000 8.2% Wayne D. McVicker......................... 4,000,000 8.2% Stephen J. Pieraldi(2).................... 175,000 * David Douglass(3)......................... 3,066,102 6.3% Terence J. Garnett(4)..................... 7,688,269 15.7% Madhavan Rangaswami(5).................... 997,057 2.0% Richard D. Helppie(6)..................... 880,282 1.8% Andrew J. Filipowski(7)................... 1,056,338 2.2% All 12 executive officers and directors as a group(8).............................. 27,632,077 56.5% OTHER 5% STOCKHOLDERS Dell USA L.P.(9).......................... 4,401,408 9.0% Delphi Ventures(3)(10).................... 3,066,102 6.3% Venrock Associates(11).................... 5,448,260 11.2%
- ------------------------- * Represents beneficial ownership of less than 1%. 62 65 (1) Includes 3,452,219 shares of common stock subject to a repurchase right that lapses at a rate of 75,048 shares per month. (2) Represents 175,000 of common stock shares issuable under an option held by Mr. Pieraldi that is presently exercisable in full. 102,083 of these shares are subject to a repurchase right that lapses at a rate of 3,645 shares per month. (3) Includes 100,000 shares of common stock held of record by Mr. Douglass, 58,333 of which are subject to repurchase rights that lapse over time. Also includes 59,915 and 2,906,187 shares of common stock held of record by Delphi BioInvestments IV, L.P. and Delphi Ventures IV, L.P. Mr. Douglass, one of our directors, is a General Partner at Delphi Ventures, the general partner of Delphi BioInvestments IV, L.P. and Delphi Ventures IV, L.P. Mr. Douglass disclaims beneficial ownership of the shares held by Delphi. (4) Includes 550,848 shares of common stock held by Terence J. Garnett and 1,689,161 shares of common stock held by Terence J. and Katrina A. Garnett, Trustees of the Garnett Family Trust UDT 4/2/97. Also includes 52,778 shares of common stock that are subject to a repurchase right that lapses over time. This number further includes 2,295,021, 3,136,162 and 17,077 shares of common stock held by Venrock Associates, Venrock Associates II, L.P. and Venrock Entrepreneurs Fund. Mr. Garnett, one of our directors, is a Venture Partner at Venrock Associates, the general partner of Venrock Associates, L.P., Venrock Associates II, L.P. and Venrock Entrepreneurs Fund. Mr. Garnett disclaims beneficial ownership of the shares held by Venrock. (5) Includes 52,778 shares of common stock that are subject to a repurchase right that lapses over time. (6) Represents 880,282 shares of common stock held by Superior Consultant Holdings Corporation. Mr. Helppie, one of our directors, is the Chairman, Chief Executive Officer and President of Superior. Mr. Helppie disclaims beneficial ownership of the shares held by Superior. (7) Represents 1,056,338 shares of common stock held by divine interVentures, Inc. Mr. Filipowski, one of our directors, is President, Chief Executive Officer and Chairman of the Board of divine interVentures, Inc. Mr. Filipowski disclaims beneficial ownership of the shares held by divine interVentures, Inc. (8) Includes 99,999 shares of common stock issuable under options held by directors and executive officers that are presently exercisable within 60 days of September 30, 1999. Also includes 4,056,774 outstanding shares that are subject to repurchase rights that lapse over time. Does not include 595,000 shares of our common stock issued to Bhagwan D. Goel after September 30, 1999. These shares are subject to a repurchase right that lapses over time. (9) The address of Dell USA L.P. Corporation is One Dell Way, Round Rock, TX 78682. (10) The address of Delphi Ventures is 3000 Sand Hill Road, Bldg. 1 #135, Menlo Park, CA 94025. (11) Includes 2,295,021, 3,136,162 and 17,077 shares of common stock held by Venrock Associates, Venrock Associates II, L.P. and Venrock Entrepreneurs Fund. Venrock Associates is the general partner of each of these funds. The address of Venrock Associates is 2494 Sand Hill Road, Suite 200, Menlo Park, CA 94025. 63 66 DESCRIPTION OF CAPITAL STOCK Immediately following the closing of this offering, our authorized capital stock will consist of 200 million shares of common stock, $0.001 par value per share, and five million shares of preferred stock, $0.001 par value per share. As of September 30, 1999, assuming the conversion of all outstanding preferred stock into common stock upon the closing of this offering and including the 12,693,663 shares of common stock issuable upon conversion of the Series E and Series E-1 preferred stock that we issued in October 1999, there were outstanding 48,841,241 shares of common stock held of record by approximately 80 stockholders, options to purchase 6,765,709 shares of our common stock and warrants to purchase 421,525 shares of our common stock. The number of shares of common stock into which each share of our Series E and Series E-1 preferred stock will be converted upon completion of this offering may be adjusted under some circumstances as described in Note 13 of notes to financial statements. COMMON STOCK Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board of directors may determine. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our amended and restated certificate of incorporation. As a result, commencing at our first annual meeting of stockholders, the holders of a majority of the shares voted can elect all of the directors then standing for election. Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon our liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably with holders of any participating preferred stock in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, each outstanding share of preferred stock will be converted into shares of common stock. See Notes 7 and 8 of notes to financial statements for a description of our outstanding preferred stock. Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, without stockholder approval, to issue up to five million shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or restrictions. The board of directors can also increase or decrease the number of shares of any series, but not below the number of shares of such series then outstanding, without any further vote or action by the stockholders. The board of directors may authorize the issuance of preferred stock with voting, conversion or other rights that are superior to the rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of Neoforma.com and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plan to issue any shares of preferred stock after the offering. 64 67 WARRANTS As of September 30, 1999, we had issued warrants to purchase an aggregate of 421,525 shares of our common stock at a weighted average exercise price of $1.14. These warrants will remain outstanding after the completion of this offering and will represent warrants to purchase shares of our common stock. These warrants have expiration dates from 2003 to 2009. See Note 9 of notes to financial statements. REGISTRATION RIGHTS As a result of an investors' rights agreement between Neoforma.com and some of our stockholders, the holders of approximately 39,814,961 shares of common stock are entitled to rights with respect to the registration of these shares under the Securities Act, as described below. Demand Registration Rights. At any time beginning six months after the completion of this offering, the holders of at least 75% of the shares of common stock issuable upon conversion of our preferred stock can request that we register all or a portion of their shares. We will only be required to file two registration statements in response to their demand registration rights. We may postpone the filing of a registration statement for up to 90 days once in a 12 month period if we determine that the filing would be seriously detrimental to us or our stockholders. Piggyback Registration Rights. If we register any securities for public sale, the holders of the shares of common stock issuable upon conversion of our preferred stock will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to any of our employee benefit plans or a corporate reorganization. The managing underwriter of any underwritten offering will have the right to limit the number of shares registered by these holders to 15% of the total shares covered by the registration statement due to marketing reasons. Form S-3 Registration Rights. The holders of the shares of common stock issuable upon conversion of our preferred stock can request that we register their shares if we are eligible to file a registration statement on Form S-3 and if the aggregate price of the shares offered to the public is at least $1.0 million. The holders may only require us to file three registration statements on Form S-3 per calendar year. We will pay all expenses incurred in connection with the registrations described above, except for underwriters' and brokers' discounts and commissions, which will be paid by the selling stockholders. The registration rights will expire with respect to a particular stockholder if it can sell all of its shares in a three month period under Rule 144 of the Securities Act. In any event, the registration rights described above will expire five years after this offering is completed. Holders of these registration rights have waived the exercise of these registration rights for 180 days following the date of this prospectus. ANTI-TAKEOVER PROVISIONS The provisions of Delaware law, our amended and restated certificate of incorporation and bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. Delaware Law We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents some Delaware corporations from engaging, under some circumstances, in a business combination, which includes a merger or sale of more than 10% of the corporation's assets with any interested stockholder, or a stockholder who owns 15% or 65 68 more of the corporation's outstanding voting stock, as well as affiliates and associates of stockholder, for three years following the date that stockholder became an interested stockholder unless: - the transaction is approved by the board of directors prior to the date the interested stockholder attained that status; - upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or - on or subsequent to such date the business combination is approved by the board and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. A Delaware corporation may opt out of this provision with an express provision in its original certificate of incorporation or an express provision in its certificate or incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. However, we have not opted out of this provision. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us. Charter and Bylaw Provisions Our amended and restated certificate of incorporation and bylaws provide that: - following the completion of this offering, no action shall be taken by stockholders except at an annual or special meeting of the stockholders called in accordance with our bylaws and that stockholders may not act by written consent; - following the completion of this offering, the approval of two-thirds of the stockholders shall be required to adopt, amend or repeal our bylaws; - stockholders may not call special meetings of the stockholders or fill vacancies on the board; - following the completion of this offering, our board of directors will be divided into three classes, each serving staggered three-year terms, which means that only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective terms, and directors may only be removed for cause; and - we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. These provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is . Its address is and its telephone number is . LISTING We have applied to list our common stock on The Nasdaq National Market under the trading symbol "NEOF." 66 69 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has been no public market for our common stock. A significant public market for our common stock may not develop or be sustained after this offering. Future sales of substantial amounts of our common stock in the public market, or the possibility of these sales occurring, could adversely affect prevailing market prices for our common stock or our future ability to raise capital through an offering of equity securities. Upon completion of this offering, we will have shares of common stock outstanding, assuming no exercise of options and warrants outstanding as of September 30, 1999, and the conversion of all outstanding shares of preferred stock. Of these shares, the shares sold in this offering ( if the underwriters' over-allotment option is exercised in full) will be freely tradable in the public market without restriction or registration under the Securities Act, unless the shares are held by our "affiliates", as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock outstanding upon completion of this offering will be "restricted securities" as defined in Rule 144. We issued and sold these restricted securities in private transactions in reliance on exemptions from registration under the Securities Act. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, as summarized below. Under the terms of "lock-up" agreements, all the executive officers, directors and stockholders of Neoforma.com, who collectively hold an aggregate of of these restricted securities, have agreed not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any of these shares for a period of 180 days from the date of this prospectus, subject to limited exceptions. However, Merrill Lynch, Pierce, Fenner & Smith Incorporated may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. Taking into account the lock-up agreements, and assuming Merrill Lynch, Pierce, Fenner & Smith Incorporated does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times: - on the date of this prospectus, the shares sold in the offering will be immediately available for sale in the public market; - 180 days after the date of this prospectus, approximately shares will be eligible for sale, of which will be subject to volume, manner of sale and other limitations under Rule 144; and - of the remaining shares, will be eligible for sale under Rule 701 upon the expiration of our repurchase right with respect to those shares, and will be eligible for sale under Rule 144 upon the expiration of various one-year holding periods. Following the expiration of the lock-up period, shares issued upon exercise of options we granted prior to the date of this prospectus will also be available for sale in the public market pursuant to Rule 701 under the Securities Act. Rule 701 permits resales of these shares beginning 90 days after the date of this prospectus. In general, under Rule 144, after expiration of the lock-up period, a person who has beneficially owned restricted securities for at least one year would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: - 1% of the then outstanding shares of our common stock, or - the average weekly trading volume of our common stock during the four calendar weeks preceding the sale. 67 70 Sales under Rule 144 are also subject to manner of sale and notice requirements and the availability of current public information about us. Under Rule 144(k), a person who has not been our affiliate at any time during the three months before a sale and who has beneficially owned the shares proposed to be sold for at least two years can sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. After the effective date of this offering, we intend to file a registration statement on Form S-8 to register approximately shares of common stock outstanding or reserved for issuance under our various stock plans. The registration statement will become effective automatically upon filing. Shares issued under the foregoing employee benefit plans, after the filing of a registration statement on Form S-8, may be sold in the open market, subject, in the case of some holders, to the Rule 144 limitations applicable to affiliates, the lock-up agreements and our repurchase rights held by us. In addition, following this offering, the holders of 39,591,518 shares of outstanding common stock will, under some circumstances, have right to require us to register their shares for future sale. See "Description of Capital Stock -- Registration Rights." 68 71 UNDERWRITING We intend to offer our common stock through a number of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co., Inc., BancBoston Robertson Stephens Inc., Volpe Brown Whelan & Company, LLC and William Blair & Company, L.L.C. are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in a purchase agreement between us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters severally and not jointly has agreed to purchase from us, the number of shares of common stock set forth opposite its name below.
NUMBER OF SHARES UNDERWRITERS --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... Bear, Stearns & Co., Inc. .................................. BancBoston Robertson Stephens Inc. ......................... Volpe Brown Whelan & Company, LLC........................... William Blair & Company, L.L.C.............................. -------- Total......................................... ========
In the purchase agreement, the several underwriters have agreed, subject to the terms and conditions set forth in that agreement, to purchase all of the shares of our common stock being sold pursuant to the agreement if any of the shares of common stock being sold pursuant to the agreement are purchased. In the event of a default by an underwriter, the purchase agreement provides that, in some circumstances, the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated. We have agreed to indemnify the underwriters against some liabilities, including some liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities. The shares of common stock are being offered by the several underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of various legal matters by counsel for the underwriters and other conditions. The underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. COMMISSIONS AND DISCOUNTS The representatives have advised us that the underwriters propose initially to offer the shares of our common stock to the public at the initial public offering price set forth on the cover page of this prospectus, and to dealers at such price less a concession not in excess of $ per share of common stock. The underwriters may allow, and such dealers may re-allow, a discount not in excess of $ per share of common stock to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. 69 72 The following table shows the per share and total public offering price, underwriting discount to be paid by us to the underwriters and the proceeds before expenses to us. This information is presented assuming either no exercise or full exercise by the underwriters of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION --------- -------------- ----------- Public offering price................................ $ $ $ Underwriting discount................................ $ $ $ Proceeds, before expenses, to Neoforma.com........... $ $ $
The expenses of this offering, exclusive of the underwriting discount, are estimated at $ and are payable by us. OVER-ALLOTMENT OPTION We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to an aggregate of an additional shares of our common stock at the public offering price set forth on the cover of this prospectus, less the underwriting discount. The underwriters may exercise this option solely to cover over-allotments, if any, made on the sale of our common stock offered hereby. To the extent that the underwriters exercise this option, each underwriter will be obligated to purchase a number of additional shares of our common stock proportionate to such underwriter's initial amount reflected in the foregoing table. RESERVED SHARES At our request, the underwriters have reserved for sale, at the initial public offering price, up to of the shares offered hereby to be sold to individuals and entities designated by us. The number of shares of common stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not orally confirmed for purchase within one day of the pricing of the offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. NO SALES OF SIMILAR SECURITIES We, and our executive officers and directors and existing stockholders have agreed, with certain exceptions, without the prior written consent of Merrill Lynch on behalf of the underwriters for a period of 180 days after the date of this prospectus, not to directly or indirectly: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer any shares of our common stock or securities convertible into or exchangeable or exercisable for or repayable with our common stock, whether now owned or later acquired by the person executing the agreement or with respect to which the person executing the agreement later acquires the power of disposition, or file any registration statement under the Securities Act of 1933 relating to any shares of our common stock, or - enter into an swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of our common stock whether any such swap or transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise; provided that we may at any time and from time to time grant options to purchase shares of our common stock under our existing stock plans and issue shares of our common stock upon the exercise of outstanding options. 70 73 QUOTATION ON THE NASDAQ NATIONAL MARKET We expect our common stock to be approved for quotation on the Nasdaq National Market, subject to official notice of issuance, under the symbol "NEOF." Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives of the underwriters. The factors to be considered in determining the initial public offering price, in addition to prevailing market conditions, are the valuation multiples of publicly traded companies that the representatives believe to be comparable to us, some of our financial information, the history of, and the prospects for, our company and the industry in which we compete, and an assessment of our management, its past and present operations, the prospects for, and timing of, our future revenue and the present state of our development, and the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. There can be no assurance that an active trading market will develop for our common stock or that our common stock will trade in the public market subsequent to the offering at or above the initial public offering price. The underwriters do not expect sales of our common stock to be made to any accounts over which they exercise discretionary authority to exceed 5% of the number of shares being offered hereby. PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS Until the distribution of our common stock is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters and some selling group members to bid for and purchase our common stock. As an exception to these rules, the representatives are permitted to engage in transactions that stabilize the price of our common stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock. If the underwriters create a short position in our common stock in connection with the offering, i.e., if they sell more shares of our common stock than are set forth on the cover page of this prospectus, the representatives may reduce that short position by purchasing our common stock in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment options described above. The representatives may also impose a penalty bid on underwriters and selling group members. This means that if the representatives purchase shares of our common stock in the open market to reduce the underwriters' short position or to stabilize the price of our common stock, they may reclaim the amount of the selling concession from the underwriters and selling group members who sold those shares. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of our common stock to the extent that it discourages resales of our common stock. Neither our company nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters makes any representation that the representatives will engage in such transaction or that such transactions, once commenced, will not be discontinued without notice. 71 74 LEGAL MATTERS Fenwick & West LLP, Palo Alto, California, will pass upon the validity of the issuance of the shares of common stock offered by this prospectus for Neoforma.com. Shearman & Sterling, Menlo Park, California, will pass upon specified legal matters in connection with this offering for the underwriters. An entity affiliated with Fenwick & West LLP holds 35,212 shares of our common stock. EXPERTS The financial statements of Neoforma.com, Inc. from inception (March 6, 1996) to December 31, 1998 and of General Asset Recovery, LLC for the years ended December 31, 1997 and 1998 included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to Neoforma.com and our common stock, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document referred to are not necessarily complete; we refer you to the copy of each contract or document filed as an exhibit to the registration statement. Each such statement is qualified in all respects by reference to that exhibit. Upon completion of the offering, we will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information, as well as the registration statement, exhibits and schedules, may be inspected, without charge, or copied, at prescribed rates, at the public reference facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet site that contains reports, proxy and information statements, and other information, regarding issuers that file electronically with the Commission. The address of the Commission's site is http://www.sec.gov. 72 75 NEOFORMA.COM, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- NEOFORMA.COM, INC. FINANCIAL STATEMENTS Report of Independent Public Accountants.................. F-2 Balance Sheets............................................ F-3 Statements of Operations.................................. F-4 Statements of Changes in Stockholders' Equity (Deficit)... F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION Overview.................................................. F-24 Unaudited Pro Forma Condensed Combined Statements of Operations............................................. F-25 Notes to the Unaudited Pro Forma Condensed Combined Financial Information.................................. F-28 GENERAL ASSET RECOVERY, LLC Report of Independent Public Accountants.................. F-29 Balance Sheets............................................ F-30 Statements of Operations.................................. F-31 Statements of Members' Equity (Deficit)................... F-32 Statements of Cash Flows.................................. F-33 Notes to Financial Statements............................. F-34
F-1 76 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Neoforma.com, Inc.: We have audited the accompanying balance sheets of Neoforma.com, Inc. (a Delaware corporation in the development stage) as of December 31, 1998 and 1997, and the related statements of operations, changes in stockholders' deficit and cash flows for the three years in the period ended December 31, 1998 and for the period from inception (March 6, 1996) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neoforma.com, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the three years in the period ended December 31, 1998 and for the period from inception (March 6, 1996) to December 31, 1998 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP San Jose, California October 8, 1999 (except with respect to the matters discussed in Note 13, as to which the date is October 14, 1999) F-2 77 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY AT --------------- JUNE 30, JUNE 30, 1997 1998 1999 1999 (NOTE 7) ----- ------- -------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 32 $ 812 $ 7,063 Prepaid expenses and other current assets................. 5 45 124 Deferred debt costs, current portion...................... -- 11 223 ----- ------- -------- Total current assets................................ 37 868 7,410 PROPERTY AND EQUIPMENT, net................................. 12 741 1,777 OTHER ASSETS................................................ 6 63 145 DEFERRED DEBT COSTS, less current portion................... -- -- 427 ----- ------- -------- Total assets........................................ $ 55 $ 1,672 $ 9,759 ===== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Notes payable, current portion............................ $ -- $ 139 $ 991 Accounts payable.......................................... 22 285 1,311 Accrued payroll........................................... 13 141 149 Other accrued liabilities................................. 25 89 90 ----- ------- -------- Total current liabilities........................... 60 654 2,541 ----- ------- -------- NOTES PAYABLE, less current portion......................... 385 279 1,624 ----- ------- -------- COMMITMENTS (Note 6) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: Series C -- Authorized -- 5,110 shares at June 30, 1999 Issued and outstanding: none at December 31, 1997; 5,065 shares at December 31, 1998 and June 30, 1999 (none pro forma); par value -- $0.001; liquidation preference -- $3,900................................... -- 3,884 3,884 $ -- ----- ------- -------- -------- Series D -- Authorized -- 10,573 shares at June 30, 1999 Issued and outstanding; none at December 31, 1997 and December 31, 1998; 10,196 shares at June 30, 1999 (none pro forma); par value $0.001; liquidation preference -- $12,032.................................. -- -- 11,986 -- ----- ------- -------- -------- Warrants to purchase Series C............................. -- 10 10 -- ----- ------- -------- -------- Warrants to purchase Series D............................. -- -- 669 -- ----- ------- -------- -------- STOCKHOLDERS' EQUITY (DEFICIT): Series A -- convertible preferred stock; Authorized -- 9,000 shares at June 30, 1999 Issued and outstanding -- none at December 31, 1997; 9,000 shares at December 31, 1998 and June 30, 1999 (none pro forma); par value -- $0.001; liquidation preference -- $2,250................................. -- 9 9 -- Series B -- convertible preferred stock; Authorized -- 2,860 shares at June 30, 1999 Issued and outstanding -- none at December 31, 1997; 2,860 shares at December 31, 1998 and June 30, 1999 (none pro forma); par value -- $0.001; liquidation preference -- $1,430................................. -- 3 3 -- Common stock, $0.001 par value: Authorized -- 75,000 shares at June 30, 1999 Issued and outstanding -- 8,200 shares at December 31, 1997; 1,216 shares at December 31, 1998 and 1,381 shares at June 30, 1999 and 28,502 shares pro forma................................................ 8 1 1 29 Warrants to purchase common stock......................... -- 7 17 -- Additional paid-in capital................................ 72 1,915 7,043 23,593 Notes receivable from stockholders........................ -- (10) (17) (17) Deferred compensation..................................... -- (47) (4,851) (4,851) Deficit accumulated during the development stage.......... (470) (5,033) (13,160) (13,160) ----- ------- -------- -------- Total stockholders' equity (deficit)................ (390) (3,155) (10,955) $ 5,594 ----- ------- -------- ======== Total liabilities and stockholders' equity (deficit) $ 55 $ 1,672 $ 9,759 ===== ======= ========
The accompanying notes are an integral part of these balance sheets. F-3 78 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FROM INCEPTION SIX MONTHS ENDED (MARCH 6, 1996) THROUGH YEARS ENDED DECEMBER 31, JUNE 30, -------------------------- ------------------------- ----------------- DECEMBER 31, JUNE 30, 1996 1997 1998 1998 1999 1998 1999 ------ ------ ------- ------- ------- ------------ ----------- (UNAUDITED) (UNAUDITED) REVENUE: Transaction fees................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- Website sponsorship fees and other........................ -- -- -- -- 7 -- 7 ------ ------ ------- ------- ------- ------- -------- Total revenue.............. -- -- -- -- 7 -- 7 OPERATING EXPENSES: Operations...................... -- -- 627 190 1,319 627 1,946 Product development............. 31 179 1,491 327 2,568 1,701 4,269 Selling and marketing........... 111 153 1,409 321 2,382 1,673 4,055 General and administrative...... 54 76 1,075 227 1,591 1,205 2,796 Amortization of deferred compensation................. -- -- 5 -- 307 5 312 ------ ------ ------- ------- ------- ------- -------- Total operating expenses... 196 408 4,607 1,065 8,167 5,211 13,378 ------ ------ ------- ------- ------- ------- -------- Loss from operations....... (196) (408) (4,607) (1,065) (8,160) (5,211) (13,371) OTHER INCOME (EXPENSE): Interest income................. -- -- 66 13 128 66 194 Interest expense................ -- (15) (22) (9) (95) (37) (132) Other........................... 142 7 -- -- -- 149 149 ------ ------ ------- ------- ------- ------- -------- Net loss................... $ (54) $ (416) $(4,563) $(1,061) $(8,127) $(5,033) $(13,160) ====== ====== ======= ======= ======= ======= ======== NET LOSS PER SHARE: Basic and diluted............... $(0.01) $(0.05) $ (1.65) $ (0.21) $ (7.95) ====== ====== ======= ======= ======= Weighted-average shares -- basic and diluted.................. 8,000 8,083 2,762 5,077 1,022 ====== ====== ======= ======= ======= PRO FORMA NET LOSS PER SHARE (unaudited): Basic and diluted............... $ (0.36) $ (0.32) ======= ======= Weighted-average shares -- basic and diluted.................. 12,848 25,696 ======= =======
The accompanying notes are an integral part of these financial statements. F-4 79 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION (MARCH 6, 1996) THROUGH JUNE 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREFERRED STOCK --------------------------------- SERIES A SERIES B COMMON STOCK ADDITIONAL NOTES RECEIVABLE --------------- --------------- -------------------------- PAID-IN FROM SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL STOCKHOLDERS ------ ------ ------ ------ ------ ------ -------- ---------- ----------------- BALANCE, March 6, 1996 (inception)...................... -- $-- -- $-- -- $-- $ -- $ -- $ -- Common stock issued for cash of $20 and intellectual property valued at $10 at $0.00375 per share in March 1996............ -- -- -- -- 8,000 8 -- 22 -- Net loss......................... -- -- -- -- -- -- -- -- -- ----- --- ----- --- ------ --- ---- ------- ---- BALANCE, DECEMBER 31, 1996........ -- -- -- -- 8,000 8 -- 22 -- ----- --- ----- --- ------ --- ---- ------- ---- Common stock issued for cash at $0.25 per share in May 1997.... -- -- -- -- 100 -- -- 25 -- Common stock issued for cash at $0.25 per share in October 1997........................... -- -- -- -- 100 -- -- 25 -- Net loss......................... -- -- -- -- -- -- -- -- -- ----- --- ----- --- ------ --- ---- ------- ---- BALANCE, DECEMBER 31, 1997........ -- -- -- -- 8,200 8 -- 72 -- ----- --- ----- --- ------ --- ---- ------- ---- Common stock issued for cash at $0.25 per share in February 1998........................... -- -- -- -- 800 1 -- 199 -- Common stock issued in exchange for consulting services valued at $0.25 per share in March 1998........................... -- -- -- -- 500 -- -- 125 -- Conversion of founders stock to preferred stock at $0.00375 per share in April 1998............ 8,000 8 -- -- (8,000) (8) -- -- -- Conversion of common stock to preferred stock at $0.25 per share in April 1998............ 1,000 1 -- -- (1,000) (1) -- -- -- Preferred stock issued for cash at $0.50 per share in April and May 1998, net of issuance costs.......................... -- -- 2,520 3 -- -- -- 1,252 -- Conversion of notes payable to Series B preferred stock at $0.50 per share in May 1998.... -- -- 340 -- -- -- -- 170 -- Common stock issued for cash as a result of options exercised at $0.05 per share in May 1998.... -- -- -- -- 516 1 -- 25 -- Common stock issued for cash as a result of options exercised at $0.10 per share in November 1998........................... -- -- -- -- 200 -- -- 20 (10) Issuance of warrants to purchase common stock in November 1998........................... -- -- -- -- -- -- 7 -- -- Deferred compensation............ -- -- -- -- -- -- -- 52 -- Amortization of deferred compensation................... -- -- -- -- -- -- -- -- -- Net loss......................... -- -- -- -- -- -- -- -- -- ----- --- ----- --- ------ --- ---- ------- ---- BALANCE, DECEMBER 31, 1998........ 9,000 9 2,860 3 1,216 1 7 1,915 (10) ----- --- ----- --- ------ --- ---- ------- ---- UNAUDITED: Repayment of note receivable from shareholder.................... -- -- -- -- -- -- -- -- 10 Common stock issued as a result of options exercised at $0.10 per share, February 1999....... -- -- -- -- 39 -- -- 4 (4) Issuance of warrants to purchase common stock in February 1999........................... -- -- -- -- -- -- 10 -- -- Common stock issued as a result of options exercised at $0.10 per share, April 1999.......... -- -- -- -- 30 -- -- 3 (3) Common stock issued as a result of options exercised at $0.10 per share, June 1999........... -- -- -- -- 96 -- -- 10 (10) Deferred compensation............ -- -- -- -- -- -- -- 5,111 -- Amortization of deferred compensation................... -- -- -- -- -- -- -- -- -- Net loss......................... -- -- -- -- -- -- -- -- -- ----- --- ----- --- ------ --- ---- ------- ---- BALANCE, JUNE 30, 1999 (unaudited)...................... 9,000 $ 9 2,860 $ 3 1,381 $ 1 $ 17 $ 7,043 $(17) ===== === ===== === ====== === ==== ======= ==== DEFICIT ACCUMULATED TOTAL DEFERRED DURING THE STOCKHOLDERS' COMPENSATION DEVELOPMENT STAGE DEFICIT ------------ -------------------- -------------- BALANCE, March 6, 1996 (inception)...................... $ -- $ -- $ -- Common stock issued for cash of $20 and intellectual property valued at $10 at $0.00375 per share in March 1996............ -- -- 30 Net loss......................... -- (54) (54) -------- -------- -------- BALANCE, DECEMBER 31, 1996........ -- (54) (24) -------- -------- -------- Common stock issued for cash at $0.25 per share in May 1997.... -- -- 25 Common stock issued for cash at $0.25 per share in October 1997........................... -- -- 25 Net loss......................... -- (416) (416) -------- -------- -------- BALANCE, DECEMBER 31, 1997........ -- (470) (390) -------- -------- -------- Common stock issued for cash at $0.25 per share in February 1998........................... -- -- 200 Common stock issued in exchange for consulting services valued at $0.25 per share in March 1998........................... -- -- 125 Conversion of founders stock to preferred stock at $0.00375 per share in April 1998............ -- -- -- Conversion of common stock to preferred stock at $0.25 per share in April 1998............ -- -- -- Preferred stock issued for cash at $0.50 per share in April and May 1998, net of issuance costs.......................... -- -- 1,255 Conversion of notes payable to Series B preferred stock at $0.50 per share in May 1998.... -- -- 170 Common stock issued for cash as a result of options exercised at $0.05 per share in May 1998.... -- -- 26 Common stock issued for cash as a result of options exercised at $0.10 per share in November 1998........................... -- -- 10 Issuance of warrants to purchase common stock in November 1998........................... -- -- 7 Deferred compensation............ (52) -- -- Amortization of deferred compensation................... 5 -- 5 Net loss......................... -- (4,563) (4,563) -------- -------- -------- BALANCE, DECEMBER 31, 1998........ (47) (5,033) (3,155) -------- -------- -------- UNAUDITED: Repayment of note receivable from shareholder.................... -- -- 10 Common stock issued as a result of options exercised at $0.10 per share, February 1999....... -- -- -- Issuance of warrants to purchase common stock in February 1999........................... -- -- 10 Common stock issued as a result of options exercised at $0.10 per share, April 1999.......... -- -- -- Common stock issued as a result of options exercised at $0.10 per share, June 1999........... -- -- -- Deferred compensation............ (5,111) -- -- Amortization of deferred compensation................... 307 -- 307 Net loss......................... -- (8,127) (8,127) -------- -------- -------- BALANCE, JUNE 30, 1999 (unaudited)...................... $ (4,851) $(13,160) $(10,955) ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 80 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS FROM INCEPTION ENDED (MARCH 6, 1996) THROUGH YEARS ENDED DECEMBER 31, JUNE 30, -------------------------- ------------------------ ----------------- DECEMBER 31, JUNE 30, 1996 1997 1998 1998 1999 1998 1999 ---- ----- ------- ------- ------- ------------ ----------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................ $(54) $(416) $(4,563) $(1,061) $(8,127) $(5,033) $(13,160) Adjustments to reconcile net loss to net cash used in operating activities: Common stock issued in connection with consulting services.......................................... -- -- 125 125 -- 125 125 Amortization of deferred compensation -- -- 5 -- 307 5 312 Amortization of deferred debt costs................. -- -- 6 -- 41 6 47 Depreciation and amortization....................... 1 1 96 10 235 98 332 Changes in assets and liabilities: Prepaid expenses and other assets................. (44) 43 (97) (5) (164) (98) (249) Accounts payable.................................. 10 12 263 143 1,026 285 1,311 Accrued liabilities and accrued payroll........... -- 38 192 6 10 230 231 ---- ----- ------- ------- ------- ------- -------- Net cash used in operating activities......... (87) (322) (3,973) (782) (6,672) (4,382) (11,051) ---- ----- ------- ------- ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment................. (1) (13) (825) (300) (1,270) (839) (2,109) ---- ----- ------- ------- ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of notes payable......... 75 358 418 -- 2,197 851 3,047 Repayments of notes payable......................... -- (48) (215) (215) -- (263) (263) Proceeds from the issuance of Series B preferred stock, net of issuance costs...................... -- -- 1,255 1,255 -- 1,255 1,255 Proceeds from the issuance of Series C mandatorily redeemable convertible preferred stock, net of issuance costs.................................... -- -- 3,884 3,884 -- 3,884 3,884 Proceeds from the issuance of Series D mandatorily redeemable convertible preferred stock, net of issuance costs.................................... -- -- -- -- 11,986 -- 11,986 Proceeds from the issuance of common stock.......... 20 50 236 226 10 306 316 ---- ----- ------- ------- ------- ------- -------- Net cash provided by financing activities..... 95 360 5,578 5,150 14,193 6,033 20,225 ---- ----- ------- ------- ------- ------- -------- Net increase in cash and cash equivalents..... 7 25 780 4,068 6,251 812 7,063 CASH AND CASH EQUIVALENTS, beginning of period........ -- 7 32 32 812 -- -- ---- ----- ------- ------- ------- ------- -------- CASH AND CASH EQUIVALENTS, end of period.............. $ 7 $ 32 $ 812 $ 4,100 $ 7,063 $ 812 $ 7,063 ==== ===== ======= ======= ======= ======= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Intellectual property acquired from founders in exchange for common stock......................... $ 10 $ -- $ -- $ -- $ -- $ 10 $ 10 ==== ===== ======= ======= ======= ======= ======== Cash paid during the period for interest............ $ -- $ -- $ 14 $ 9 $ 49 $ 14 $ 63 ==== ===== ======= ======= ======= ======= ======== SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Conversion of common stock into Series A preferred stock............................................. $ -- $ -- $ 280 $ 280 $ -- $ 280 $ 280 ==== ===== ======= ======= ======= ======= ======== Conversion of notes payable into Series B preferred stock............................................. $ -- $ -- $ 170 $ 170 $ -- $ 170 $ 170 ==== ===== ======= ======= ======= ======= ======== Issuance of warrants to purchase common stock....... $ -- $ -- $ 7 $ -- $ 10 $ 7 $ 17 ==== ===== ======= ======= ======= ======= ======== Issuance of warrants to purchase Series C mandatorily redeemable convertible preferred stock............................................. $ -- $ -- $ 10 $ -- $ -- $ 10 $ 10 ==== ===== ======= ======= ======= ======= ======== Issuance of warrants to purchase Series D mandatorily redeemable convertible preferred stock............................................. $ -- $ -- $ -- $ -- $ 1,046 $ -- $ 1,046 ==== ===== ======= ======= ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-6 81 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND DEVELOPMENT STAGE RISKS: Neoforma, Inc. (the "Company"), was incorporated on March 4, 1996 in the state of California for the purpose of providing business-to-business e-commerce services for the medical products, supplies and equipment marketplace. On November 4, 1998, the Company re-incorporated in the state of Delaware. On September 14, 1999, the Company changed its name to Neoforma.com, Inc. All information for the year ended December 31, 1996 represents the period from inception (March 6, 1996) to December 31, 1996. From inception, the Company has been primarily engaged in organizational activities, including designing and developing its website, recruiting personnel, establishing office facilities, raising capital and developing a marketing plan. The Company began revenue generation activities in 1999 but no significant revenue has been generated as of June 30, 1999. Accordingly, the Company is classified as a development stage company. Successful completion of the Company's development program and, ultimately, the attainment of profitable operations is dependent upon future events, including obtaining adequate financing to fulfill its development activities, increasing its customer base, implementing and successfully executing its business and marketing strategy and hiring and retaining quality personnel. Negative developments in any of these conditions could have a material adverse effect on the Company's business, financial condition and results of operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: UNAUDITED INTERIM FINANCIAL DATA The interim financial statements for the six months ended June 30, 1998 and 1999, and the period from inception (March 6, 1996) to June 30, 1999, are unaudited and have been prepared on the same basis as the audited financial statements. In the opinion of management, such unaudited financial information includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION The Company expects to derive revenue from several sources. These include: (i) transaction fees paid by sellers of medical products on the Company's website, (ii) development fees from participating sellers to digitize the seller's product information for display on the Company's website, (iii) service fees for maintenance of product information and content on the site, (iv) fees for F-7 82 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) sponsorship of certain content and (v) subscription fees for asset management and facilities planning services. Transaction fees are recognized at the time the buyer's order is confirmed by the seller. Development fees are recognized as development services are performed. Sponsorship, subscription and maintenance fees are recognized ratably over the period of the service agreement. CONCENTRATION OF CREDIT RISK Financial instruments that may subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Cash is on deposit with one financial institution. Cash investments include high quality short-term money market instruments through a high credit quality financial institution. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, investments in money market accounts and treasury bills and are stated at cost which approximates fair market value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, and are depreciated on a straight-line basis over two to four years. Leasehold improvements are amortized, using the straight-line method, over the shorter of the lease term or the useful lives of the improvements. Repairs and maintenance costs are expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. PRODUCT DEVELOPMENT COSTS Product development costs include expenses incurred by the Company to develop and enhance the Company's website. Product development costs are expensed as incurred. STOCK BASED COMPENSATION PLAN In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation," which became effective for the Company's 1996 fiscal year. SFAS No. 123 allows companies which have stock-based compensation arrangements with F-8 83 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) employees to adopt a new fair-value basis of accounting for stock options and other equity instruments or to continue to apply the existing accounting rules under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," but with additional financial statement disclosure (see Note 10). The Company has elected to account for stock-based compensation expense under APB No. 25 and make the required pro forma disclosures for compensation expense (see Note 10). COMPREHENSIVE INCOME Effective January 1, 1998 the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. Through June 30, 1999 the Company has not had any transactions that are required to be reported in comprehensive income. SEGMENT INFORMATION Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company identifies its operating segments based on business activities, management responsibility and geographical location. During the years ended December 31, 1996, 1997 and 1998, the Company operated in a single business segment providing content to healthcare professionals in the medical products, supplies and equipment industry, primarily in the United States. Through June 30, 1999, foreign operations have not been significant in either revenue or investment in long-lived assets. BASIC AND DILUTED NET LOSS PER SHARE AND PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE Basic net loss per share on a historical basis is computed using the weighted-average number of shares of common stock outstanding. Diluted net loss per common share was the same as basic net loss per share for all periods presented since the effect of any potentially dilutive security is excluded as they are anti-dilutive because of the Company's net losses. The total number of shares excluded from the diluted loss per share calculation relating to these securities was approximately none, 225,000, 12.0 million, 4.8 million and 28.2 million shares for the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1998 and 1999, respectively. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 98, convertible preferred stock and common stock issued or granted for nominal consideration prior to the anticipated effective date of the initial public offering must be included in the calculation of basic and diluted net loss per common share as if they had been outstanding for all periods presented. To date, the Company has not had any issuance or grants for nominal consideration. Pro forma basic and diluted net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period (excluding shares subject to repurchase) plus the weighted-average number of common shares resulting from the automatic conversion of outstanding shares of convertible preferred stock, which will occur upon the closing of the planned initial public offering. F-9 84 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share (in thousands, except per share amounts):
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------ ------------------- 1996 1997 1998 1998 1999 -------- -------- -------- -------- -------- (UNAUDITED) Net loss.................................... $ (54) $ (416) $ (4,563) $ (1,061) $ (8,127) ======== ======== ======== ======== ======== Basic and diluted: Weighted-average shares of common stock outstanding.......................... 8,000 8,083 2,977 5,179 1,259 Less: Weighted-average shares of common stock subject to repurchase.......... -- -- (215) (102) (237) -------- -------- -------- -------- -------- Weighted-average shares used in computing basic and diluted net loss per share............................ 8,000 8,083 2,762 5,077 1,022 ======== ======== ======== ======== ======== Basic and diluted net loss per common share................................ $ (0.01) $ (0.05) $ (1.65) $ (0.21) $ (7.95) ======== ======== ======== ======== ======== Pro forma: Net loss............................... $ (4,563) $ (8,127) ======== ======== Shares used above...................... 2,762 1,022 Pro forma adjustment to reflect weighted-average effect of assumed conversion of convertible preferred stock (unaudited).................... 10,086 24,674 -------- -------- Weighted-average shares used in computing pro forma basic and diluted net loss per share (unaudited)....... 12,848 25,696 ======== ======== Pro forma basic and diluted net loss per share (unaudited)................ $ (0.36) $ (0.32) ======== ========
RECENT ACCOUNTING PRONOUNCEMENTS In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal use." SOP No. 98-1 requires entities to capitalize certain costs related to internal-use software once certain criteria has been met. Neoforma.com adopted SOP No. 98-1 in fiscal 1999. The adoption of SOP No. 98-1 did not have a material impact on the Company's financial position or results of operations. In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up costs that were previously capitalized must be written off when SOP No. 98-5 is adopted. Neoforma.com adopted SOP No. 98-5 in fiscal 1999. The adoption of SOP No. 98-5 did not have a material impact on the Company's financial position or results of operations. F-10 85 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 will be effective for Neoforma.com on January 1, 2000. SFAS No. 133 requires certain accounting and reporting standards for derivative financial instruments and hedging activities. Because the Company does not currently hold any derivative instruments and does not engage in hedging activities, management does not believe that the adoption of SFAS No. 133 will have a material impact on the Company's financial position or results of operations. 3. ACQUISITION: In August 1999, the Company acquired General Asset Recovery, LLC ("GAR"), a live auction house and asset management company focused on medical products. The acquisition will be accounted for using the purchase method of accounting and accordingly, the purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The total purchase price of approximately $9.7 million consisted of $1.7 million in cash, a note payable of $7.8 million, the assumption of $100,000 of liabilities and acquisition-related expenses of approximately $100,000. In the initial allocation of the purchase price, $25,000 was allocated to tangible assets and $9,675,000 was allocated to intangible assets. The intangible assets will be amortized over an estimated life of seven years. The note payable is due over a five-year period and bears interest at 7% per annum. 4. PROPERTY AND EQUIPMENT: As of December 31, 1997 and 1998, property and equipment consisted of the following (in thousands):
1997 1998 ---- ---- Computers and test equipment............................. $ 10 $580 Software................................................. 4 78 Furniture and fixtures................................... -- 140 Leasehold improvements................................... -- 41 ---- ---- 14 839 Less: Accumulated depreciation and amortization.......... (2) (98) ---- ---- Property and equipment, net.............................. $ 12 $741 ==== ====
5. LOANS AND NOTES PAYABLE: In 1996 and 1997, certain stockholders exchanged cash for notes payable. The interest rate for the notes was 5.6%. These notes were convertible into Series B preferred stock. As of December 31, 1998, $170,000 of the $385,000 notes payable were converted and the remainder was paid in full. In June 1998, the Company entered into a $750,000 secured credit facility with a bank. This facility included a $225,000 term loan due December 1999 and an equipment loan facility providing for up to $525,000 of equipment loans. At June 30, 1999, there were borrowings of approximately $225,000 and $433,000 under the term loan and equipment loan, respectively. In July 1999, the F-11 86 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) Company converted $433,000 of outstanding equipment loans into a term loan due June 2000 which bears interest at the lender's prime rate (8.25% as of September 30, 1999). This facility is secured by substantially all of the Company's assets other than equipment. In consideration for this credit facility, the Company granted the bank a warrant to purchase 45,000 shares of Series C preferred stock at an exercise price of $0.77 per share. In July 1999, in consideration for the conversion of the equipment loan to a term loan and the release of the security interest in equipment, the Company granted the bank a warrant to purchase 10,000 shares of Series D preferred stock at an exercise price of $1.18 per share (Note 9). In May 1999, the Company entered into a subordinated loan agreement (loan agreement) with a lender under which it can borrow up to $2.0 million. The loan agreement bears interest at 12.5% and expires in July 2002. At June 30, 1999 there were borrowings of approximately $2.0 million outstanding under the loan agreement. The loan agreement is collateralized by all of the assets of the Company. In addition, a warrant to purchase 228,813 shares of preferred Series D stock at an exercise price of $1.18 per share was issued in conjunction with the loan agreement (Note 9). In July 1999, the Company entered into a $2.5 million loan/lease facility with a lender to finance computer hardware and software equipment. Hardware amounts bear interest at 9% per annum and are payable in 48 monthly installments consisting of interest-only payments for the first nine months and principal and interest payments for the remaining 39 months, with a balloon payment of the remaining principal payable at maturity. Software amounts bear interest at 8% per annum and are payable in 30 monthly installments consisting of interest-only for the first four months and principal and interest-for the remaining 26 months, with a balloon payment of the remaining principal payable at maturity. This facility is secured by the computer equipment purchased. In connection with this facility, the Company issued the lender a warrant to purchase 137,711 shares of our Series D preferred stock at $1.18 per share (Note 9). Future maturities of principal on the loans and notes payable as of December 31, 1998 are as follows (in thousands): 1999..................................... $139 2000..................................... 139 2001..................................... 140 ---- $418 ====
6. COMMITMENTS The Company leases its office facilities under an operating lease. Rent expense for the years ended December 31, 1996, 1997 and 1998 was approximately $22,000, $40,000, and $304,000, respectively. F-12 87 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) Future minimum obligations under the non-cancelable operating lease at December 31, 1998 are as follows (in thousands): 1999.................................... $ 331 2000.................................... 344 2001.................................... 357 2002.................................... 370 2003.................................... 252 ------ $1,654 ======
In May 1999, the Company entered into an agreement with a non-profit health services research organization (the "organization"), which allows the Company to use content from the organization's database of information about medical products and manufacturers and obtain a license to use elements of its classification system. Additionally, the agreement provides for joint marketing activities and collaboration in the creation of a database of product and vendor information. This agreement requires the Company to make revenue sharing payments to the organization during the three-year term of the agreement and for two years following expiration or termination of the agreement with respect to revenue derived from the Company's Plan service. During the second and third years, the Company is required to pay a nonrefundable fee of $600,000 per year, in equal monthly installments, which shall be credited against any revenue sharing profits payable. 7. STOCKHOLDERS' EQUITY UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY In October 1999, the Company's board of directors authorized the filing of a registration statement with the Securities and Exchange Commission to register shares of its common stock in connection with the proposed initial public offering ("IPO"). If the IPO is consummated under the terms presently anticipated, all of the currently outstanding shares of preferred stock and the mandatorily redeemable convertible preferred stock will be converted into shares of common stock upon the closing of the IPO. The effect of this conversion has been reflected as unaudited pro forma stockholders' equity in the accompanying balance sheet as of June 30, 1999. COMMON STOCK As of December 31, 1998, the Company has reserved the following shares of common stock for future issuance as follows (in thousands): Conversion of Series A outstanding preferred stock.......... 9,000 Conversion of Series B outstanding preferred stock.......... 2,860 Conversion of Series C outstanding redeemable preferred stock..................................................... 5,065 1997 Stock Option Plan...................................... 1,284 Conversion of warrants/consultant's options outstanding..... 62 ------ 18,271 ======
During the year ended December 31, 1998, the Company amended an agreement to issue approximately 26,000 shares of common stock in exchange for services rendered. As of December 31, F-13 88 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1998 approximately 17,000 of the shares were due but had not been issued. In February 1999, approximately 13,000 of the shares were issued. Approximately 9,000 additional shares of common stock were due under the terms of the same agreement for the period ended June 30, 1999. As of June 30, 1999, such shares had not been issued; however, the related expense associated with the issued shares is included in the accompanying statements of operations. PREFERRED STOCK Preferred stock consists of 9,000,000 shares designated as Series A preferred stock ("Series A") and 2,860,000 shares designated as Series B preferred stock ("Series B"). The Series A preferred stock was issued in exchange for 9,000,000 shares of previously issued common stock. The Series B preferred stock was issued for cash at $0.50 per share. The rights and preferences of the outstanding Series A and Series B are as follows: DIVIDENDS The holders of Series A and Series B are entitled to receive non-cumulative dividends at $0.02 and $0.04 per share, respectively, or, if greater, an amount equal to that paid on any other outstanding shares of the Company, except that the shares of a given series of preferred stock shall not receive any greater dividend as a result of the Company's payment of a dividend on any such series of preferred stock. Such dividends shall be payable only when, as, and if declared by the board of directors. No dividends shall be payable on any common stock until dividends to Series A and Series B have been paid or declared by the board of directors. As of June 30, 1999, no dividends had been declared. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding up of the Company, holders of Series A and Series B are entitled to receive (along with the liquidation preference available to Series C and Series D stockholders -- see Note 8), in preference to holders of common stock, the amount of $0.25 and $0.50 per share, respectively, plus all declared but unpaid dividends. Such amounts will be adjusted for any stock splits, stock dividends and recapitalizations. If such assets of the Company are not available to sufficiently satisfy the full preferential amount of all series of preferred stock then the entire assets and funds of the Company shall be distributed among the holders of all series of the preferred stock in accordance with the aggregate preference payment to which they are entitled. After the payment or the setting aside of the payment set forth above, the remaining assets of the corporation shall be distributed on a pro-rata basis to the holders of the preferred stock, on an as-converted basis, and the holders of common stock until the holders of the Series A, B, C and D have received an additional $0.25, $0.50, $0.77 and $1.18 per share, respectively. After the distributions to the holders of preferred stock and redeemable preferred stock have been made, the remaining assets of the corporation available for distribution to shareholders shall be distributed pro rata among the holders of common stock. F-14 89 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) VOTING RIGHTS The holders of the Series A and Series B are entitled to a number of votes equal to the number of shares of common stock into which such preferred stock is convertible. CONVERSION Each share of Series A and Series B is convertible into one share of common stock at the option of the holder at any time after the date of issuance of such shares, and automatically converts at the consummation of the Company's sale of common stock in an underwritten public offering which results in net cash proceeds to the Company of at least $60,000,000 and an offering price to the public of at least $7.00 per share. The conversion rate is subject to adjustment for dilution, including, but not limited to, stock splits, stock dividends and stock combinations. 8. MANDATORILY REDEEMABLE PREFERRED STOCK: In August 1998, the Company completed an offering of 5,064,937 shares of Series C mandatorily redeemable preferred stock ("Series C") at $0.77 per share. Total proceeds of the offering amounted to approximately $3.9 million. In February 1999, the Company completed an offering of 10,196,361 shares of Series D mandatorily redeemable preferred stock ("Series D") at $1.18 per share. Total proceeds of the offering amounted to approximately $12.0 million. The rights and preferences of the outstanding Series C and Series D are as follows: DIVIDENDS The holders of Series C and Series D are entitled to receive non-cumulative dividends at $0.062 and $0.0944 per share, respectively, or, if greater, an amount equal to that paid on any other outstanding shares of the Company, except that the shares of a given series of preferred stock shall not receive any greater dividend as a result of the Company's payment of a dividend on any such series of preferred stock. Such dividends shall be payable only when, as, and if declared by the board of directors. As of June 30, 1999, no dividends had been declared. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding up of the Company, holders of Series C and Series D are entitled to receive (along with the liquidation preference available and Series A and Series B stockholders -- See Note 7) in preference to holders of common stock, the amount of $0.77 and $1.18 per share, respectively, plus all declared but unpaid dividends. Such amounts will be adjusted for any stock splits, stock dividends and recapitalizations. If such assets of the Company are not available to sufficiently satisfy the full preferential amount of all series of preferred stock, then the entire assets and funds of the Company shall be distributed among the holders of all series of preferred stock in accordance with the aggregate preference payment to which they are entitled. After the payment or the setting aside of the payment set forth above, the remaining assets of the corporation shall be distributed on a pro-rata basis to the holders of the preferred stock, on an F-15 90 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) as-converted basis, and the holders of common stock until the holders of the Series A and B and Series C and Series D have received an additional $0.25, $0.50, $0.77 and $1.18 per share, respectively. After the distributions to the holders of preferred stock and redeemable preferred stock have been made, the remaining assets of the corporation available for distribution to shareholders shall be distributed pro rata among the holders of common stock. VOTING RIGHTS The holders of the Series C and Series D are entitled to the number of votes equal to the number of shares of common stock into which such redeemable preferred stock is convertible. CONVERSION Each share of Series C and Series D is convertible into one share of common stock at the option of the holder at any time after the date of issuance of such shares, and automatically converts at the consummation of the Company's sale of common stock in an underwritten public offering which results in net cash proceeds to the Company of at least $60,000,000 and an offering price to the public of at least $7.00 per share. The conversion rate is subject to adjustment for dilution, including, but not limited to, stock splits, stock dividends and stock combinations. MANDATORY REDEMPTION Upon the affirmative vote of the holders of the majority of the Series C and Series D, the Company can be required to redeem all shares of Series C and Series D outstanding as of the date of such demand, which date shall hereinafter be referred to as the "Redemption Date." The Redemption Price of the Series C and Series D will be $0.77 and $1.18 per share, respectively, subject to adjustment for dilution. The stockholders cannot require redemption prior to seven years after the issuance of the Series C and Series D. Beginning with the first year anniversary of the Redemption Date, the Company shall be required to redeem annually no more than that number of shares of Series C and Series D equal to 25% of the Series C and Series D outstanding as of the Redemption Date. From and after the Redemption Date, all rights of the shares designated for redemption shall cease with respect to such shares. If the funds of the Company legally available for redemption of Series C and Series D on any Redemption Date are insufficient to redeem the total number of shares of the Series C and Series D to be redeemed on such date, those funds which are legally available will be used to redeem the maximum number of such shares on a pro rata basis among the holders of Series C and Series D based on each holder's share of the total redemption price. At any time thereafter when additional funds of the Company are legally available for the redemption of the shares of the Series C and Series D, such funds will immediately be set aside for the redemption of the balance of the shares which the Company was obligated to redeem on any Redemption Date but which it has not redeemed. F-16 91 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. WARRANTS: In June 1998, the Company issued a warrant to purchase 45,000 shares of Series C at an exercise price of $0.77 per share in conjunction with a loan agreement. The fair value of the warrant at the date of issuance was determined to be approximately $10,000 and was estimated using the Black-Scholes model with the following assumptions: risk-free rate of 5.6%; expected life of one year; and expected volatility of 70%. This amount is being recognized as additional interest expense over the expected life of the loan agreement. In February 1999, the Company issued warrants in exchange for certain consulting services to purchase 25,974 shares of the Company's common stock at exercise price of $0.10 per share. The deemed fair value of the warrants issued was approximately $11,000. In May 1999, the Company issued a warrant to purchase 228,813 shares of Series D at $1.18 per share in connection with a loan agreement. The warrant is exercisable immediately and expires the later of May 12, 2006 or three years from the effective date of an initial public offering. The fair value of the warrant at the date of issuance was determined to be approximately $640,000 and was estimated using the Black-Scholes model with the following assumptions: risk-free interest rate of 5.0%; expected life of one year; and expected volatility of 70%. This amount will be recognized as additional interest expense over the expected life of the loan agreement. As of June 30, 1999, none of the warrants mentioned above had been exercised. In July 1999, the Company issued a warrant to purchase 10,000 shares of Series D at an exercise price of $1.18 per share in conjunction with a loan agreement. The fair value of the warrant at the date of issuance was determined to be approximately $40,000 and was estimated using the Black-Scholes model with the following assumptions: risk-free rate of 5.3%; expected life of one year; and expected volatility of 70%. This amount will be recognized as additional interest expense over the expected life of the loan agreement. In July 1999, the Company issued a warrant to purchase 137,711 shares of Series D at $1.18 per share in connection with an equipment lease line. The warrant is exercisable immediately and expires the later of July 7, 2006 or three years from the effective date of an initial public offering. The fair value of the warrant at the date of issuance was determined to be approximately $559,000 and was estimated using the Black-Scholes model with the following assumptions: risk-free interest rate of 5.3%; expected life of one year; and expected volatility of 70%. This amount will be recognized as additional interest expense over the expected life of the lease line. In October 1999, the Company issued to a retained executive search firm a warrant to purchase 436,623 shares of the Company's common stock at an exercise price of $0.10 per share. The warrant is exercisable immediately and expires on September 9, 2009. The fair value of the warrant was determined to be approximately $2.4 million and was estimated using the Black-Scholes model with the following assumptions: risk-free interest rate of 5.5%; expected life of four months; and expected volatility of 70%. F-17 92 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. STOCK OPTIONS 1997 STOCK PLAN The Company, under the 1997 Stock Plan (the "Plan"), reserved approximately 14.7 million shares of common stock. The stock is reserved for employees, directors, and consultants. The term of each option will be stated in the option agreement, not to exceed 10 years after the grant date. If the optionee owns stock representing more than 10% of the voting power, the term of the option will not exceed 5 years after the grant date. Option pricing will not be less than 85% of the fair market value per share on the date of the grant. If the optionee owns stock representing more than 10% of the voting power, the option price will not be less than 110% of the fair market value per share on the date of the grant. If the stock option is an incentive stock option, then the price for the stock cannot be less than 100% of the fair market value per share on the date of the grant. Any option granted shall be exercisable at such times and under such conditions as determined by the board of directors. However, for most options, 25% of the shares subject to the option will vest 12 months after the vesting commencement date, and 1/48 of the shares will vest each month thereafter. Options under the Plan are exercisable immediately, subject to repurchase rights held by the Company, which lapse over the vesting period as determined. The Company's right of repurchase will lapse at a rate determined by the board of directors. However, for most options, the Company's right to repurchase will lapse at a rate of 25% of the shares after the first 12 months and 1/48 of the shares, per month, after the vesting commencement date. Activity under the Plan is as follows (in thousands, except per share amounts):
OUTSTANDING OPTIONS ------------------------ SHARES WEIGHTED- AVAILABLE AVERAGE FOR GRANT NUMBER EXERCISE PRICE --------- ------ -------------- BALANCE, JANUARY 24, 1997............................. 1,000 Granted............................................. (300) 300 $0.05 ------ ------ ----- BALANCE, DECEMBER 31, 1997............................ 700 300 $0.05 Authorized.......................................... 1,000 Granted............................................. (1,458) 1,458 $0.08 Exercised........................................... -- (716) $0.06 Canceled............................................ 30 (30) $0.10 ------ ------ ----- BALANCE, DECEMBER 31, 1998............................ 272 1,012 $0.09 Authorized (unaudited).............................. 12,656 Granted (unaudited)................................. (3,896) 3,896 $0.10 Exercised (unaudited)............................... -- (165) $0.10 Canceled (unaudited)................................ 633 (633) $0.10 ------ ------ ----- BALANCE, JUNE 30, 1999 (unaudited).................... 9,665 4,110 $0.10 ====== ====== =====
F-18 93 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Company accounts for the Plan under the provisions of APB No. 25. Had compensation expense for the stock option plans been determined consistent with SFAS No. 123, net losses would have increased to the following pro forma amounts (in thousands, except per share amounts):
SIX YEAR ENDED MONTHS DECEMBER 31, ENDED ---------------- JUNE 30, 1997 1998 1999 ----- ------- ----------- (UNAUDITED) Net loss as reported................................... $(416) $(4,563) $(8,127) Net loss pro forma..................................... (424) (4,597) (9,544) Net loss per share as reported......................... (0.05) (1.65) (7.95) Net loss per share pro forma........................... (0.05) (1.66) (9.34)
The weighted-average fair value of options granted during the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 was $0.03, $0.09 and $3.08, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions: risk-free interest rates ranging from 4.64 to 6.12 percent; expected dividend yields of zero percent for all four periods; an average expected life of four years; and expected volatility of 0.001% for all periods except the six months ended June 30, 1999, for which a volatility factor of 70% was used. The following table summarizes the stock options outstanding and exercisable as of June 30, 1999 (unaudited) (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE REMAINING EXERCISE EXERCISE PRICE NUMBER YEARS PRICE NUMBER PRICE -------- ------ --------- --------- ------ --------- $0.05 265 8.6 $0.05 152 $0.05 $0.10 3,845 9.7 $0.10 136 $0.10 ----- --- ----- --- ----- 4,110 9.6 $0.10 288 $0.07 ===== === ===== === =====
At June 30, 1999, 383,000 shares previously issued under the Plan were subject to repurchase at a weighted-average exercise price of $0.07. DEFERRED COMPENSATION In connection with the grant of certain stock options to employees during fiscal 1998 and for the six months ended June 30, 1999, the Company recorded deferred compensation of approximately $3.5 million, representing the difference between the estimated fair value of the common stock for accounting purposes and the option exercise price of these options at the date of grant. Such amount is presented as a reduction of stockholders' equity and amortized over the vesting period and the applicable options in a manner consistent with FASB Interpretation No. 28. The Company recorded amortization of deferred compensation of $307,000 during the six months ended June 30, 1999. For F-19 94 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) the three months ended September 30, 1999 the Company recorded additional deferred compensation of approximately $40.9 million and will amortize approximately $4.4 million for the same period. At September 30, 1999, the remaining deferred compensation of approximately $39.7 million will be amortized as follows: $5.8 million in the last quarter of fiscal 1999, $18.1 million during fiscal 2000, $9.5 million during fiscal 2001, $4.8 million during fiscal 2002 and $1.5 million during fiscal 2003. The amortization expense relates to options awarded to employees in all operating expense categories. The amount of deferred compensation has not been separately allocated to these categories. The amount of deferred compensation expense to be recorded in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited. During the year ended December 31, 1998 and the six months ended June 30, 1998 and 1999, the Company recorded stock-based compensation of $52,000, $9,000 and $1.6 million, respectively, related to equity instruments issued to non-employees as determined based upon the fair value at the date of issuance. 11. INCOME TAXES: Effective January 1, 1998, the Company accounts for income taxes pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined using the current applicable enacted tax rate and provisions of the enacted tax law. Due to the Company's loss position, there was no provision for income taxes for the year ended December 31, 1998 and six months ended June 30, 1999. At inception, the Company elected S-Corporation status. As of January 1, 1998, the Company elected C-Corporation status for Federal and state purposes. As a result, the Company is not entitled to any tax benefits associated with the period prior to C-Corporation election. At June 30, 1999, the Company had cumulative net operating loss carryforwards of approximately $8.7 million for Federal and state income tax purposes expiring in the years ended 2018 and 2006, respectively. At June 30, 1999, the Company had cumulative research and development credit carryforwards of approximately $116,000 and $107,000 for Federal and state income tax purposes, respectively. These credits are subject to expiration through various periods through 2018. The Tax Reform Act of 1986 contains provisions which may limit the net operating loss and credit carryfowards to be used in any given year upon the occurrence of certain events, including a significant change in ownership. F-20 95 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) The estimated tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets as of December 31, 1998 and for the six months ended June 30, 1999 are as follows (in thousands):
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1998 1999 ------------ ----------- (UNAUDITED) Temporary differences.................................. $ 943 $ 2,442 Net operating loss carryforwards....................... 1,845 3,582 Research and development tax carryforwards............. 102 223 ------- ------- 2,890 6,247 Valuation allowance.................................... (2,890) (6,247) ------- ------- $ -- $ -- ======= =======
Due to uncertainty surrounding the realization of the deferred tax attributes in future years, the Company has recorded a valuation allowance against its net deferred tax assets. The provision for income taxes at the Company's effective tax rate differed from the benefit from income taxes at the statutory rate due mainly to the increase in valuation allowance and no benefit of the operating losses was recognized. The provision for income taxes differs from the expected tax benefit amount computed by applying the statutory federal income tax rate of 35% to loss before taxes is as follows:
SIX YEAR MONTHS ENDED ENDED DECEMBER 31, JUNE 30, 1998 1999 ------------ ----------- (UNAUDITED) Federal statutory rate................................. 35.0% 35.0% State taxes, net of federal benefit.................... 5.8 5.8 Change in valuation allowance.......................... (40.8) (40.8) ------------ ----- 0.0% 0.0% ============ =====
12. RELATED PARTY TRANSACTIONS During 1996 and 1997, the Company borrowed a total of $433,000 from certain shareholders and officers. During 1997, $48,000 of the loans from these individuals was repaid in cash. At December 31, 1997, $385,000 of the loans from these individuals is included in notes payable. During 1998, $170,000 of the notes payable were converted to 340,000 shares of Series B and the remaining $215,000 was repaid in cash. F-21 96 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 13. SUBSEQUENT EVENTS (UNAUDITED) SERIES E In October 1999, the Company completed an offering of 12,693,663 shares of Series E mandatorily redeemable preferred stock ("Series E") and Series E-1 mandatorily redeemable preferred stock ("Series E-1") at $5.68 per share, of which 275,000 shares were issued to a manufacturer of medical equipment in connection with a marketing and commercial alliance agreement between the manufacturer and the Company. Total proceeds of the offering amounted to approximately $70.5 million. Series E-1 is identical in all respects to Series E, except as specifically noted. Each share of Series E and Series E-1 is convertible into one share of common stock at the option of the holder at any time after the date of issuance of such shares, and automatically converts at the consummation of the Company's sale of common stock in an underwritten public offering which results in net cash proceeds to the Company of at least $60,000,000 and, if the closing of the IPO occurs prior to December 31, 2000, an offering price to the public of at least $7.00 per share. The conversion rate is subject to adjustment for dilution, as well as for stock splits, stock dividends and stock combinations. The Series E and E-1 will be subject to the following adjustment: If the offering price to the public of the Company's common stock in the IPO is at least $7.00 per share but less than $10.00 per share, each share of Series E and Series E-1 will convert into the number of shares of common stock determined by (1) dividing the offering price to the public by $10.00 and multiplying the quotient obtained by the conversion price of the Series E-1 then in effect (the "Conversion Price") and (2) dividing $5.68 by the Conversion Price. The Series E-1 Preferred Stock will be subject to the following additional adjustments: (1) If the Company achieves $11.75 million or more of combined revenue from its "Shop" and "Plan" operations for fiscal year 2000, as set forth in the financial plan provided to the Investors by the Company (the "Financial Plan"), then each share of Series E-1 Preferred will be converted into 0.7143 shares of Common Stock; and (2) If the Company achieves $5 million or less of combined revenue from its "Shop" and "Plan" operations for fiscal year 2000, as set forth in the Financial Plan, and a holder of E-1 shares is in compliance with the terms of its commercial agreement with the Company, then each share of Series E-1 Preferred will be converted into 1.6667 shares of Common Stock. COMMITMENTS In October 1999, the Company entered into a three-year agreement with a consulting firm (the "Consultant"), which is a stockholder as a result of the Series E financing, in which the Consultant agreed to introduce the Company's services to appropriate clients, based on their interests, and to incorporate the Company's services into certain of its service offerings. The agreement also provides for joint marketing activities. In consideration, the Company has agreed to make payments to the Consultant in an aggregate amount of up to approximately $2.0 million, as well as a percentage of specified Neoforma.com e-commerce transaction revenue and other payments. The Company has also F-22 97 NEOFORMA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) agreed to utilize the Consultant's services on a preferred basis for systems integration, development, infrastructure, process improvement and consulting assistance, totaling at least $1.5 million of services from the Consultant, at a discount from the Consultant's standard fees. In October 1999, the Company entered into an agreement with a hardware vendor, which is a stockholder as a result of the Series E financing, pursuant to which the Company agreed to develop complementary marketing programs with the vendor and establish hyperlinks between their respective internet websites. The Company agreed to use the vendor as its exclusive supplier of certain hardware products and agreed to purchase at least $5,000,000 of the vendor's products and $100,000 of consulting services on a mutually agreed upon schedule. F-23 98 NEOFORMA.COM, INC. AND GENERAL ASSET RECOVERY, LLC UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION On August 6, 1999, Neoforma.com, Inc. ("Neoforma.com") completed the acquisition of General Asset Recovery, LLC ("GAR"). The acquisition of GAR has been accounted for as a purchase. Accordingly, the results of operations of GAR have been included in the consolidated statement of operations of Neoforma.com commencing on the date of acquisition. The accompanying pro forma condensed combined statements of operations of Neoforma.com for the twelve months ended December 31, 1998 and for the six months ended June 30, 1999 assume that the acquisition took place as of the beginning of each of these periods and combine GAR's statements of operations for the twelve months ended December 31, 1998 and for the six months ended June 30, 1999, respectively, with Neoforma.com's statements of operations for the twelve months ended December 31, 1998 and for the six months ended June 30, 1999, respectively. The pro forma condensed combined balance sheet as of June 30, 1999 assumes that the acquisition took place as of June 30, 1999 and combines Neoforma.com's June 30, 1999 balance sheet with GAR's July 31, 1999 balance sheet. The unaudited pro forma condensed combined information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have actually occurred if the acquisition had been consummated as of the date indicated, nor is it necessarily indicative of future operating results or financial position. The pro forma adjustments are based on the information available at the time of the printing of this prospectus. The historical financial statements of Neoforma.com and GAR are included elsewhere in this prospectus and the unaudited pro forma condensed combined information presented herein should be read in conjunction with those financial statements and related notes. F-24 99 NEOFORMA.COM, INC. AND GAR (A DEVELOPMENT STAGE COMPANY) UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1998 --------------------- PRO FORMA PRO FORMA NEOFORMA.COM GAR ADJUSTMENTS COMBINED ------------ ------ ----------- --------- REVENUE................................... $ -- $2,986 $ (1,472)(B) $ 1,514 COST OF SALES............................. -- 1,273 (754)(B) 519 ------- ------ -------- -------- -- 1,713 (718) 995 ------- ------ -------- -------- OPERATING EXPENSES: Operations.............................. 627 -- -- 627 Product development..................... 1,491 -- -- 1,491 Selling and marketing................... 1,409 345 (91)(B) 1,663 General and administrative.............. 1,075 1,756 (607)(B) 2,224 Amortization of goodwill................ -- -- 1,386(A) 1,386 Amortization of deferred compensation... 5 -- -- 5 ------- ------ -------- -------- Total costs and expenses............. 4,607 2,101 688 7,396 Income (loss) from operations........ (4,607) (388) (1,406) (6,401) OTHER INCOME (EXPENSE), net............... 44 100 (132)(B) 12 ------- ------ -------- -------- Net loss............................. $(4,563) $ (288) $ (1,538) $ (6,389) ======= ====== ======== ======== NET LOSS PER SHARE: Basic and diluted....................... $ (1.65) $ (2.31) ======= ======== Weighted average shares -- basic and diluted.............................. 2,762 2,762 ======= ========
F-25 100 NEOFORMA.COM, INC. AND GAR (A DEVELOPMENT STAGE COMPANY) UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 1999 ----------------------- PRO FORMA PRO FORMA NEOFORMA.COM GAR ADJUSTMENTS COMBINED ------------ ------- ----------- --------- REVENUE............................ $ 7 $ 1,676 $(554)(B) $ 1,129 COST OF SALES...................... -- 886 (262)(B) 624 ------- ------- ----- ------- 7 790 (292) 505 ------- ------- ----- ------- OPERATING EXPENSES: Operations....................... 1,319 -- -- 1,319 Product development.............. 2,568 -- -- 2,568 Selling and marketing............ 2,382 363 (168)(B) 2,577 General and administrative....... 1,591 700 (58)(B) 2,233 Amortization of goodwill......... -- -- 693(A) 693 Amortization of deferred compensation.................. 307 -- -- 307 ------- ------- ----- ------- Total operating expenses...... 8,167 1,063 467 9697 Income (loss) from operations.................. (8,160) (273) (759) (9,192) OTHER INCOME (EXPENSES), net....... 33 (11) -- 22 ------- ------- ----- ------- Net loss...................... $(8,127) $ (284) $(759) $(9,170) ======= ======= ===== ======= NET LOSS PER SHARE: Basic and diluted................ $ (7.95) $ (8.97) ======= ======= Weighted-average shares -- basic and diluted................... 1,022 1,022 ======= =======
F-26 101 NEOFORMA.COM, INC. AND GAR (A DEVELOPMENT STAGE COMPANY) UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS (IN THOUSANDS)
NEOFORMA.COM GAR ------------- ------------- PRO FORMA PRO FORMA JUNE 30, 1999 JULY 31, 1999 ADJUSTMENTS COMBINED ------------- ------------- ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents........... $ 7,063 $ 5 $(1,700)(C) $ 5,368 Accounts receivable................. -- 71 (46)(D) 25 Prepaid expenses and other current assets........................... 124 2 -- 126 Deferred debt costs, current portion.......................... 223 -- -- 223 -------- ---- ------- -------- Total current assets............. 7,410 78 (1,746) 5,742 PROPERTY AND EQUIPMENT, net........... 1,777 107 (107)(D) 1,777 OTHER ASSETS.......................... 145 13 (13)(D) 145 DEFERRED DEBT COSTS, less current portion............................. 427 -- -- 427 GOODWILL.............................. -- -- 9,675(E) 9,675 -------- ---- ------- -------- Total assets $ 9,759 $198 $ 7,809 $ 17,766 ======== ==== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Notes payable, current portion...... $ 991 $481 $ (481)(C) $ 3,187 2,196(C) Accounts payable.................... 1,311 147 (47)(C) 1,411 Accrued liabilities................. 239 -- 107(C) 346 -------- ---- ------- -------- Total current liabilities........ 2,541 628 1,775 4,944 NOTES PAYABLE, less current portion... 1,624 -- 5,604(C) 7,228 SERIES C AND D MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK......... 15,870 -- -- 15,870 SERIES C AND D WARRANTS............... 679 -- -- 679 STOCKHOLDERS EQUITY (DEFICIT)........................... (10,955) (430) 430 (10,955) -------- ---- ------- -------- Total liabilities and stockholders' equity (deficit)...................... $ 9,759 $198 $ 7,809 $ 17,766 ======== ==== ======= ========
F-27 102 NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The total purchase price of the GAR acquisition has been allocated to acquired assets and liabilities based on estimates of their fair values. The excess of the purchase price over the fair value of the tangible net assets acquired has been allocated to goodwill. The adjustments to the unaudited pro forma condensed combined statements of operations for the year ended December 31, 1998 and for the six months ended June 30, 1999, assume the acquisition occurred as of January 1, 1998 and January 1, 1999, respectively, and are as follows: (A) To reflect the amortization of approximately $9.7 million of estimated goodwill resulting from the acquisition. The goodwill will be amortized over seven years. (B) To remove the results of GAR's industrial products operations which were sold back to one of the members of GAR for nominal consideration. The adjustments to the unaudited pro forma condensed combined balance sheet as of June 30, 1999 assumes that the acquisition occurred as of June 30, 1999 and are as follows: (C) To reflect the purchase price paid as follows: cash paid of $1.7 million, issuance of notes payable of $7.8 million, the assumption of $100,000 of liabilities, and acquisition-related expenses of approximately $100,000. Liabilities in excess of $100,000 were not assumed and are thus deducted from outstanding liabilities to reduce them to $100,000. (D) To adjust asset values to fair value at the acquisition date. (E) To reflect goodwill of approximately $9.7 million resulting from the acquisition of GAR. F-28 103 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Members of General Asset Recovery, LLC: We have audited the accompanying balance sheets of GENERAL ASSET RECOVERY, LLC (an Illinois limited liability company) as of December 31, 1997 and 1998, and the related statements of operations, members' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of General Asset Recovery, LLC as of December 31, 1997 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois October 1, 1999 F-29 104 GENERAL ASSET RECOVERY, LLC BALANCE SHEETS ASSETS
DECEMBER 31, --------------------- JUNE 30, 1997 1998 1999 --------- -------- ----------- (UNAUDITED) CURRENT ASSETS: Cash.............................................. $ 29,712 $ 24,805 $ 88,146 Accounts receivable............................... 78,523 49,288 718,314 Prepaid expenses.................................. -- 2,587 -- --------- -------- ---------- Total current assets......................... 108,235 76,680 806,460 --------- -------- ---------- PROPERTY AND EQUIPMENT, NET......................... 30,479 60,188 83,665 --------- -------- ---------- OTHER ASSETS: Employee advances................................. -- -- 26,674 --------- -------- ---------- Deposits.......................................... 17,310 21,223 21,223 --------- -------- ---------- Total assets................................. $ 156,024 $158,091 $ 938,022 ========= ======== ========== LIABILITIES AND MEMBERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Line of credit.................................... $ 374,540 $147,500 $ 125,000 Accounts payable.................................. 68,749 67,445 1,208,885 Accrued expenses.................................. 164,156 36,771 38,695 --------- -------- ---------- Total current liabilities.................... 607,445 251,716 1,372,580 COMMITMENTS AND CONTINGENCIES (NOTE 7) MEMBERS' EQUITY (DEFICIT): Total members' equity (deficit).............. (451,421) (93,625) (434,558) --------- -------- ---------- Total liabilities and members' equity (deficit)................................. $ 156,024 $158,091 $ 938,022 ========= ======== ==========
The accompanying notes are an integral part of these balance sheets. F-30 105 GENERAL ASSET RECOVERY, LLC STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------ ------------------------- 1997 1998 1998 1999 ---------- ---------- ---------- ----------- (UNAUDITED) REVENUE............................... $2,404,654 $2,986,099 $1,667,908 $1,675,852 COST OF SALES......................... 1,349,462 1,273,333 696,072 885,714 ---------- ---------- ---------- ---------- 1,055,192 1,712,766 971,836 790,138 OPERATING EXPENSES: Selling and marketing............... 296,885 344,365 239,806 363,053 General and administrative.......... 1,059,130 1,756,355 720,551 700,140 ---------- ---------- ---------- ---------- Total operating expenses.... 1,356,015 2,100,170 960,357 1,063,193 ---------- ---------- ---------- ---------- Operating income (loss)..... (300,823) (387,954) 11,479 (273,055) ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE): Other income........................ 2,357 13,425 13,425 -- Rental income....................... 210,047 134,150 57,172 -- Interest expense.................... (35,326) (47,768) (6,073) (11,287) ---------- ---------- ---------- ---------- Total other income (expense)................ 177,078 99,807 64,524 (11,287) ---------- ---------- ---------- ---------- Net income (loss)........... $ (123,745) $ (288,147) $ 76,003 $ (284,342) ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. F-31 106 GENERAL ASSET RECOVERY, LLC STATEMENTS OF MEMBERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999
TOTAL MEMBERS' EQUITY (DEFICIT) ----------------- BALANCE, December 31, 1996.................................. $(218,525) Net loss.................................................. (123,745) Member distributions...................................... (109,151) --------- BALANCE, December 31, 1997.................................. (451,421) --------- Net loss.................................................. (288,147) Member distributions...................................... (37,612) Member contributed capital................................ 683,555 --------- BALANCE, December 31, 1998.................................. (93,625) --------- Net loss.................................................. (284,342) Member distributions...................................... (56,591) --------- BALANCE, June 30, 1999 (unaudited).......................... $(434,558) =========
The accompanying notes are an integral part of these statements. F-32 107 GENERAL ASSET RECOVERY, LLC STATEMENTS OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, --------------------- ---------------------- 1997 1998 1998 1999 --------- --------- --------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income(loss)............................. $(123,745) $(288,147) $ 76,003 $ (284,342) Adjustments to reconcile net income(loss) to net cash provided by (used in) operating activities Depreciation and amortization........... 2,458 27,814 3,294 11,560 Changes in operating assets and liabilities.......................... Accounts receivable.................. 123,380 29,235 46,645 (669,026) Prepaid expenses..................... -- (2,587) 2,587 Other assets......................... -- (3,913) (19,175) (26,674) Accounts payable..................... 35,914 (1,304) 26,318 1,141,440 Accrued expenses..................... 118,671 (127,385) (163,156) 1,924 --------- --------- --------- ---------- Net cash provided by (used in) operating activities......... 156,678 (366,287) (30,071) 177,469 --------- --------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net...... (32,937) (57,523) (148) (35,037) --------- --------- --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Contributed capital.......................... -- 683,555 -- -- Dividends.................................... (109,151) (37,612) (16,500) (56,591) Net borrowings (repayments) under line-of-credit agreement.................. (10,460) (227,040) 17,007 (22,500) --------- --------- --------- ---------- Net cash provided by (used in) financing activities......... (119,611) 418,903 507 (79,091) --------- --------- --------- ---------- Net increase (decrease) in cash and cash equivalents......... 4,130 (4,907) (29,712) 63,341 CASH AND CASH EQUIVALENTS, beginning of year... 25,582 29,712 29,712 24,805 --------- --------- --------- ---------- CASH AND CASH EQUIVALENTS, end of year......... $ 29,712 $ 24,805 $ -- $ 88,146 ========= ========= ========= ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest.................... $ 35,326 $ 32,767 $ 11,287 $ 21,074 ========= ========= ========= ========== Cash paid for taxes....................... $ -- $ -- $ -- $ -- ========= ========= ========= ========== SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Assumption of debt by majority member........ $ -- $ 683,555 $ -- $ -- ========= ========= ========= ==========
The accompanying notes are an integral part of these statements. F-33 108 GENERAL ASSET RECOVERY, LLC NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS General Asset Recovery, LLC (the "Company") is in the business of conducting live auctions and appraisals of medical equipment. 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies of the Company are as follows: REVENUE RECOGNITION Auction revenue is recognized when the equipment is sold which is represented by an auction commission received from the buyer and seller. Auction commissions represent a percentage of the final price at auction sales. Buyers pay an additional percentage of the final price as a buyer's premium. The Company does not provide any guarantee with respect to the authenticity of property offered for sale at auction. Each item is sold on an "as-is" basis with guarantee only of title. Upon completion of a final appraisal or inventory report, the Company recognizes appraisal and inventory revenue. Typically a final payment is due upon delivery of the report. MANAGEMENT'S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK The Company may extend trade credit in connection with its auction sales which are held throughout the United States. The Company evaluates each customer's creditworthiness on a case-by-case basis; generally, the customers who receive trade credit are professional dealers who have regularly purchased property at the Company's auctions or whose reputation within the industry is known and respected by the Company. In situations where trade credit is extended, the purchaser does not take possession of the property before payment is made by the purchaser to the Company, and the Company is liable to the consignor for the net sales proceeds (final auction price less commission to the Company). The Company pays the consignor generally not later than the 10th day after the sale, and when trade credit is extended, the Company assumes all risk of loss associated with the trade credit, and the responsibility of collection of the trade credit amount from the purchaser. Losses to date under these situations have not been material. INVENTORY The majority of the warehouse inventory is on consignment from the seller. For purchased inventory, the Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value and incurs a charge to operations for known and anticipated inventory obsolescence. Inventories are stated at the lower of cost or market. Cost is determined by specific identification. F-34 109 GENERAL ASSET RECOVERY, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is recognized using both accelerated and straight-line methods. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in results of operations for the period. The cost of repairs and maintenance is charged to operations as incurred. 3. RECEIVABLES Receivables represent advance payments, or loans, to the consignor prior to the auction sale, collateralized by the items received and held by the Company for the auction sale and the proceeds from such sale. Such advances generally are not outstanding for more than one month from the date of the note. 4. PROPERTY AND EQUIPMENT, NET As of December 31, 1998, property and equipment consisted of the following:
ESTIMATED USEFUL AMOUNT LIFE ------- ----------- Computer equipment........................................ $11,074 5 - 7 years Furniture and fixtures.................................... 79,387 5 - 7 years Less accumulated depreciation............................. (30,273) ------- Net property and equipment.............................. $60,188 =======
Depreciation expense for the years ended December 31, 1997 and 1998 was approximately $3,000 and $28,000, respectively. 5. LEASES The Company conducts its business on premises leased under leases that expire through the year 2004. Future minimum lease payments under noncancellable leases in effect at December 31, 1998, are set forth below: 1999.................................................. $ 83,309 2000.................................................. 50,198 2001.................................................. 45,060 2002.................................................. 45,828 2003.................................................. 46,786 2004.................................................. 7,826 -------- Total future minimum lease payments................. $279,007 ========
Rent expense was approximately $97,000 and $111,000 for the years ended December 31, 1997 and 1998, respectively. 6. LINE OF CREDIT As of December 31, 1998, the Company had a line of credit agreement with a bank that allowed for maximum borrowings of $400,000. Interest was at the bank's prime rate plus 0.5%. Borrowings F-35 110 GENERAL ASSET RECOVERY, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) were collateralized by all assets of the Company. At December 31, 1998, borrowings outstanding on the line of credit were $147,500 with a final payment due July 30, 1999. The Company paid off and terminated the entire line of credit on July 30, 1999. 7. COMMITMENTS AND CONTINGENCIES From time to time, the Company is subject to occasional lawsuits, investigations and claims arising out of the normal conduct of business. Management does not believe the outcome of any pending claims will have a material adverse effect on the Company's financial position or results of operations. 8. AGREEMENTS In March 1997, the Company entered into an agreement with a hospital to sell the hospital's surplus assets. The hospital engaged the Company to be its exclusive agent for a five-year period for the purpose of selling the surplus assets. In the event that an item does not sell within thirty days of the possession by the Company, the Company will return such items to the hospital. The gross sales, less a fee to the Company, are required to be disbursed to the hospital within five days of the end of the month of the sale. In December 1998, the Company entered into a one-year services agreement with a hospital organization to market and promote the Company's services to members and affiliates of the hospital organization. The Company is required to pay a marketing fee equal to a percentage of the total net proceeds, as defined, received from the current month's sale of the assets. During 1999, various auction agreements have been signed with hospitals in the organization. The agreements appoint the Company as the exclusive independent agent for periods up to three years for the purpose of selling the assets privately or at public auction. The Company must move the assets, catalog the assets, advertise the auction by publication and mailing of circulars and auction the assets for cash, "as is" and "where is", among other obligations. The net proceeds are required to be paid within 10 days of the auction sale. The Company receives a percentage of the net proceeds as a commission. In June 1999, a hospital appointed the Company as its exclusive agent for the purposes of selling auction assets. The Company receives a percentage of the net proceeds, less expenses and any buyers premium as a commission. The Company must, among other obligations, advertise the auction sale by publication and mailing of circulars, sell the assets for cash, keep accurate records of the auction sale and provide the records to the hospital within ten days of the sale and provide adequate personnel to supervise the removal of the assets sold. 9. INCOME TAXES The Company has elected to include its income and expenses with those of its members for federal income tax purposes. Accordingly, the statements of operations for the years ended December 31, 1997 and 1998 do not include a provision for federal income taxes. 10. SUBSEQUENT EVENT In August 1999, Neoforma.com, Inc. acquired the Company. The acquisition will be accounted for using the purchase method of accounting on Neoforma.com, Inc.'s financial statements. F-36 111 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Through and including , 1999 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SHARES [NEOFORMA.COM LOGO] COMMON STOCK --------------------- PROSPECTUS --------------------- MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC. ROBERTSON STEPHENS VOLPE BROWN WHELAN & COMPANY WILLIAM BLAIR & COMPANY , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 112 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses to be paid by Neoforma.com in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the SEC registration fee, the NASD filing fee and the Nasdaq National Market filing fee. SEC registration fee........................................ $ 20,850 NASD filing fee............................................. 8,000 Nasdaq National Market initial filing fee................... 5,000 Printing and engraving...................................... * Legal fees and expenses of the Registrant................... * Accounting fees and expenses................................ * Directors and officers liability insurance.................. * Blue sky fees and expenses.................................. * Transfer agent and registrar fees and expenses.............. * Miscellaneous............................................... * ---------- Total............................................. $ * ==========
- ------------------------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933. As permitted by the Delaware General Corporation Law, the Registrant's amended and restated certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a directory, except for liability: - for any breach of the director's duty of loyalty to the Registrant or its stockholders; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - under Section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or - for any transaction from which the director derived an improper personal benefit. As permitted by the Delaware General Corporation Law, the Registrant's amended and restated bylaws provide that: - the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions; - the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions; and II-1 113 - the rights conferred in the bylaws are not exclusive. In addition, the Registrant intends to enter into indemnity agreements with each of our current directors and officers. These agreements provide for the indemnification of officers and directors for all expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of the Registrant. The Registrant intends to obtain directors' and officers' insurance to cover its directors, officers and some of its employees for certain liabilities, including public securities matters. The Underwriting Agreement filed as Exhibit 1.01 to this Registration Statement provides for indemnification by the underwriters of the Registrant and its directors and officers for certain liabilities under the Securities Act of 1933, or otherwise. Reference is made to the following documents filed as exhibits to the Registration Statement regarding relevant indemnification provisions described above and elsewhere herein.
EXHIBIT DOCUMENT NUMBER ---------------- ------ Underwriting Agreement...................................... 1.01 Registrant's Amended and Restated Certificate of Incorporation............................................. 3.02 Registrant's Amended and Restated Bylaws.................... 3.04 Form of Indemnity Agreement................................. 10.01
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In the three years prior to the effective date of this Registration Statement, we have issued and sold the following unregistered securities: (1) In May 1996, the Registrant sold 8,000,000 shares of Common Stock to two founders of the Registrant for $0.00375 per share. (2) In April 1998, the Registrant issued 9,000,000 shares of our Series A preferred stock in exchange for 9,000,000 shares of previously issued common stock. (3) In April 1998, the Registrant sold 2,860,000 shares of our Series B preferred stock for approximately $0.50 per share. (4) In June 1998, the Registrant sold 5,064,937 shares of our Series C Preferred Stock for approximately $0.77 per share. (5) In February 1999, the Registrant sold 10,196,361 shares of our Series D Preferred Stock for approximately $1.18 per share. (6) In October 1999, the Registrant sold 12,693,663 shares of our Series E and Series E-1 preferred stock for approximately $5.68 per share. (7) As of September 30, 1999, the Registrant had issued an aggregate of 12,660,161 shares of Common Stock pursuant to exercises of stock options and stock purchase rights granted under the Registrant's 1997 Stock Plan at prices ranging from $0.05 to $0.50 per share. (8) In October 1999, the Registrant issued a warrant to purchase 436,623 shares of Common Stock at a price of $0.10 per share to an executive search firm in connection with recruitment services. II-2 114 (9) In June 1998, the Registrant issued a warrant to purchase 45,000 shares of Series C Preferred Stock at a price of $0.77 per share to Silicon Valley Bank in connection with a financing transaction. (10) In May 1999, the Registrant issued a warrant to purchase 228,814 shares of Series D Preferred Stock at a price of $1.18 per share to Comdisco, Inc. in connection with a financing transaction. (11) In July 1999, the Registrant issued a warrant to purchase 10,000 shares of Series D Preferred Stock at a price of $1.18 per share to Silicon Valley Bank in connection with a financing transaction. (12) In July 1999, the Registrant issued a warrant to purchase 137,711 shares of Series D Preferred Stock at a price of $1.18 per share to Comdisco, Inc. in connection with a financing transaction. All sales of common stock made pursuant to the exercise of stock options were made in reliance on Rule 701 of the Securities Act or on Section 4(2) of the Securities Act. All other sales were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. These sales were made without general solicitation or advertising. Each purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment and represented to the Registrant that the shares were being acquired for investment. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith:
NUMBER EXHIBIT TITLE ------ ------------- 1.01* Form of Underwriting Agreement. 2.01 Securities Purchase Agreement By and Among Neoforma GAR, Inc. and Neoforma, Inc. and General Asset Recovery, LLC, Erik Tivin and Fred Tivin dated as of July 16, 1999. 3.01 Amended and Restated Certificate of Incorporation of the Registrant, as amended through October 12, 1999. 3.02* Form of Amended and Restated Certificate of Incorporation of the Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 3.03 Bylaws of the Registrant, as amended through June 29, 1999. 3.04* Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 4.01* Form of Specimen Certificate for Registrant's common stock. 4.02* Second Amended and Restated Investors' Rights Agreement. 4.03* Warrant to Purchase Common Stock of Registrant issued to Heidrick & Struggles. 4.04 QuickStart Warrant to Purchase Series C Preferred Stock of Registrant dated June 25, 1998 issued to Silicon Valley Bank, as amended on March 5, 1999. 4.05 Warrant Agreement to Purchase Series D Preferred Stock of Registrant dated as of May 12, 1999 issued to Comdisco, Inc. 4.06 QuickStart Warrant to Purchase Series D Preferred Stock of Registrant dated July 20, 1999 issued to Silicon Valley Bank. 4.07 Warrant to Purchase Series D Preferred Stock of Registrant dated as of July 7, 1999 issued to Comdisco, Inc.
II-3 115
NUMBER EXHIBIT TITLE ------ ------------- 5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered. 10.01 Form of Indemnity Agreement between the Registrant and its directors and officers. 10.02 1997 Stock Plan, as amended. 10.03 Form of 1999 Equity Incentive Plan. 10.04 Form of 1999 Employee Stock Purchase Plan. 10.05* Development and License Agreement dated May 14, 1999 between ECRI and the Registrant. 10.06* Distribution and Services Agreement dated October 1, 1999 between Superior Consultant Company, Inc. and the Registrant. 10.07* Strategic Alliance Agreement dated October 11, 1999 between Dell Marketing L.P. and the Registrant. 10.08 Consulting Agreement dated July 1, 1999 between Madhavan Rangaswami and the Registrant. 10.09* Employment Agreement dated July 1, 1999 between Robert J. Zollars and the Registrant. 10.10 Employment Agreement dated August 1999 between Erik Tivin and the Registrant. 10.11 Offer Letter dated September 17, 1999 with Bhagwan D. Goel. 10.12 Offer Letter dated December 19, 1998 with Robert Flury, as amended on January 5, 1999. 10.13 Offer Letter dated June 29, 1999 with Frederick Ruegsegger. 10.14 Consulting Agreement dated August 1999 between Fred Tivin and the Registrant. 10.15 Promissory Note for $7,800,000 dated August 1999 payable to Erik Tivin. 10.16 Quickstart Loan and Security Agreement dated June 25, 1998 between Silicon Valley Bank and the Registrant, as amended on July 20, 1999. 10.17* Subordinated Loan and Security Agreement dated May 12, 1999 between Comdisco, Inc. and the Registrant. 10.18 Subordinated Promissory Note for $2,000,000 dated May 27, 1999 payable to Comdisco, Inc. 10.19 Loan and Security Agreement dated as of July 7, 1999 between Comdisco, Inc. and the Registrant. 10.20 Hardware Secured Promissory Note for $1,032,001.98 dated September 3, 1999 payable to Comdisco, Inc. 10.21 Softcost Secured Promissory Note for $240,363.61 dated September 3, 1999 payable to Comdisco, Inc. 10.22 Lease Agreement dated July 30, 1998 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 10.23 Amendment No. 1 dated March 1, 1999 to Lease Agreement dated July 30, 1998 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 10.24 Lease Agreement dated March 1, 1999 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended.
II-4 116
NUMBER EXHIBIT TITLE ------ ------------- 10.25 Lease Agreement dated August 16, 1999 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 21.01 Subsidiary of the Registrant. 23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01). 23.02 Consent of Arthur Andersen LLP independent public accountants. 24.01 Power of Attorney (included on signature page). 27.01 Financial Data Schedule.
- ------------------------- * To be supplied by amendment. Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 117 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on the 15th day of October, 1999. NEOFORMA.COM, INC. By: /s/ ROBERT J. ZOLLARS ------------------------------------ ROBERT J. ZOLLARS Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Robert J. Zollars and Frederick J. Ruegsegger, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
NAME TITLE DATE ---- ----- ---- /s/ ROBERT J. ZOLLARS President, Chief October 15, 1999 - ----------------------------------------------------- Executive Officer, ROBERT J. ZOLLARS Chairman of the Board and Director /s/ FREDERICK J. RUEGSEGGER Chief Financial Officer October 15, 1999 - ----------------------------------------------------- FREDERICK J. RUEGSEGGER /s/ DAVID DOUGLASS Director October 15, 1999 - ----------------------------------------------------- DAVID DOUGLASS /s/ TERENCE GARNETT Director October 15, 1999 - ----------------------------------------------------- TERENCE GARNETT
II-6 118
NAME TITLE DATE ---- ----- ---- /s/ RICHARD D. HELPPIE Director October 15, 1999 - ----------------------------------------------------- RICHARD D. HELPPIE /s/ WAYNE D. MCVICKER Director October 15, 1999 - ----------------------------------------------------- WAYNE D. MCVICKER /s/ ANDREW J. FILIPOWSKI Director October 15, 1999 - ----------------------------------------------------- ANDREW J. FILIPOWSKI /s/ MADHAVAN RANGASWAMI Director October 15, 1999 - ----------------------------------------------------- MADHAVAN RANGASWAMI
II-7 119 EXHIBIT INDEX
NUMBER EXHIBIT TITLE ------ ------------- 1.01* Form of Underwriting Agreement. 2.01 Securities Purchase Agreement By and Among Neoforma GAR, Inc. and Neoforma, Inc. and General Asset Recovery, LLC, Erik Tivin and Fred Tivin dated as of July 16, 1999. 3.01 Amended and Restated Certificate of Incorporation of the Registrant, as amended through October 12, 1999. 3.02* Form of Amended and Restated Certificate of Incorporation of the Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 3.03 Bylaws of the Registrant, as amended through June 29, 1999. 3.04* Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 4.01* Form of Specimen Certificate for Registrant's common stock. 4.02* Second Amended and Restated Investors' Rights Agreement. 4.03* Warrant to Purchase Common Stock of Registrant issued to Heidrick & Struggles. 4.04 QuickStart Warrant to Purchase Series C Preferred Stock of Registrant dated June 25, 1998 issued to Silicon Valley Bank, as amended on March 5, 1999. 4.05 Warrant Agreement to Purchase Series D Preferred Stock of Registrant dated as of May 12, 1999 issued to Comdisco, Inc. 4.06 QuickStart Warrant to Purchase Series D Preferred Stock of Registrant dated July 20, 1999 issued to Silicon Valley Bank. 4.07 Warrant to Purchase Series D Preferred Stock of Registrant dated as of July 7, 1999 issued to Comdisco, Inc. 5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered. 10.01 Form of Indemnity Agreement between the Registrant and its directors and officers. 10.02 1997 Stock Plan, as amended. 10.03 Form of 1999 Equity Incentive Plan. 10.04 Form of 1999 Employee Stock Purchase Plan. 10.05* Development and License Agreement dated May 14, 1999 between ECRI and the Registrant. 10.06* Distribution and Services Agreement dated October 1, 1999 between Superior Consultant Company, Inc. and the Registrant. 10.07* Strategic Alliance Agreement dated October 11, 1999 between Dell Marketing L.P. and the Registrant. 10.08 Consulting Agreement dated July 1, 1999 between Madhavan Rangaswami and the Registrant. 10.09* Employment Agreement dated July 1, 1999 between Robert J. Zollars and the Registrant. 10.10 Employment Agreement dated August 1999 between Erik Tivin and the Registrant. 10.11 Offer Letter dated September 17, 1999 with Bhagwan D. Goel. 10.12 Offer Letter dated December 19, 1998 with Robert Flury, as amended on January 5, 1999. 10.13 Offer Letter dated June 29, 1999 with Frederick Ruegsegger. 10.14 Consulting Agreement dated August 1999 between Fred Tivin and the Registrant. 10.15 Promissory Note for $7,800,000 dated August 1999 payable to Erik Tivin. 10.16 Quickstart Loan and Security Agreement dated June 25, 1998 between Silicon Valley Bank and the Registrant, as amended on July 20, 1999.
120
NUMBER EXHIBIT TITLE ------ ------------- 10.17* Subordinated Loan and Security Agreement dated May 12, 1999 between Comdisco, Inc. and the Registrant. 10.18 Subordinated Promissory Note for $2,000,000 dated May 27, 1999 payable to Comdisco, Inc. 10.19 Loan and Security Agreement dated as of July 7, 1999 between Comdisco, Inc. and the Registrant. 10.20 Hardware Secured Promissory Note for $1,032,001.98 dated September 3, 1999 payable to Comdisco, Inc. 10.21 Softcost Secured Promissory Note for $240,363.61 dated September 3, 1999 payable to Comdisco, Inc. 10.22 Lease Agreement dated July 30, 1998 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 10.23 Amendment No. 1 dated March 1, 1999 to Lease Agreement dated July 30, 1998 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 10.24 Lease Agreement dated March 1, 1999 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 10.25 Lease Agreement dated August 16, 1999 between the Registrant and John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (John Arrillaga Survivor's Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended. 21.01 Subsidiary of the Registrant. 23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01). 23.02 Consent of Arthur Andersen LLP, independent public accountants. 24.01 Power of Attorney (included on signature page). 27.01 Financial Data Schedule.
- ------------------------- * To be supplied by amendment. EX-2.01 2 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 2.01 SECURITIES PURCHASE AGREEMENT BY AND AMONG NEOFORMA GAR, INC. AND NEOFORMA, INC. AND GENERAL ASSET RECOVERY, LLC, ERIK TIVIN AND FRED TIVIN DATED AS OF JULY 16TH, 1999 2 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement entered into as of July 16th, 1999 by and among Neoforma GAR, Inc., a Delaware corporation (the "ACQUISITION SUB") and Neoforma, Inc., a Delaware corporation ("NEOFORMA"), on the one hand, and General Asset Recovery, LLC, an Illinois limited liability company ("GAR"), Erik Tivin ("TIVIN") and Fred Tivin ("FTIVIN"), on the other. RECITALS Tivin and FTivin (collectively, the "MEMBERS") are the only members of GAR and hold all of the Member Interests (defined in Section 2.2 below) in GAR. The Members desire to sell to the Acquisition Sub, all of the Member Interests in GAR held by them, and the Acquisition Sub desires to purchase such Member Interests from the Members (the "SECURITIES PURCHASE"). Tivin desires to assist Neoforma and the Acquisition Sub in operating the business operated by GAR prior to the Closing Date, with the exception of the industrial auction business (the "BUSINESS"). The Business shall include all assets used in the medical equipment auction business of GAR but shall exclude the Excluded Assets referred to in Section 5.9 below. It is intended by the parties that these transactions be carried out all upon the terms and conditions set forth in this Agreement and, in furtherance thereof, each of such parties have approved the Securities Purchase and entered into this Agreement. GAR, Tivin and Neoforma desire to make certain representations and warranties and other agreements in connection with the Securities Purchase, which are set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I PURCHASE 1.1 PURCHASE OF SECURITIES. Upon the terms and subject to the conditions contained in this Agreement, at the Closing, the Members shall sell, assign, transfer and convey to the Acquisition Sub, and the Acquisition Sub shall purchase, acquire and accept from the Members, all of the issued and outstanding Member Interests in GAR held by them, which constitute all of the issued and outstanding Member Interests of GAR (the "PURCHASED SECURITIES"). 1.2 PURCHASE PRICE. The purchase price for the Purchased Securities (the "PURCHASE PRICE") shall be Nine Million Five Hundred Thousand Dollars ($9,500,000) which amount shall be paid as follows: 2 3 (a) Cash Payment. One Million Seven Hundred Thousand Dollars ($1,700,000) shall be paid the Acquisition Sub to Tivin and FTivin on the Closing Date (defined below) in immediately available funds, provided however that in the event the amount of GAR's aggregate accounts payable and indebtedness shall exceed the amount of One Hundred Thousand Dollars ($100,000) on the Closing Date, the amount of such cash payment payable to Tivin shall be reduced by the amount of such excess. (b) Promissory Note. Seven Million Eight Hundred Thousand Dollars ($7,800,000) shall be paid to Tivin in the form of a promissory note, substantially in the form attached as Exhibit A hereto, from the Acquisition Sub to Tivin in such principal amount (the "NOTE"), bearing interest at a rate of seven percent (7%) per annum, which note shall be guaranteed by Neoforma and be repayable as follows: (i) During the first twelve months following the Closing Date, the Acquisition Sub shall make payments beginning on the first day of the month following the Closing Date and on the first day of each month thereafter in an amount equal to the amount of interest accrued on the outstanding balance under the Note during the preceding month plus a principal payment of One Hundred Eighty Three Thousand Three Hundred Thirty Three Dollars ($183,333); and (ii) During the thirteenth through the forty-eighth month following the Closing Date, the Acquisition Sub shall make payments on the first day of each month in an amount equal to the amount of interest accrued on the outstanding balance under the Note during the preceding month plus a principal payment of One Hundred Thirty Seven Thousand Five Hundred Dollars ($137,500). (iii) During the forty-ninth through the sixtieth month following the Closing Date, the Acquisition Sub shall make payments on the first day of each month in an amount equal to the amount of interest accrued on the outstanding balance under the Note during the preceding month plus a principal payment of Fifty Four Thousand One Hundred Sixty Seven Dollars ($54,167). The Note may be prepaid without penalty and shall not be convertible into shares of Neoforma or the Acquisition Sub. The Note shall be secured by a first priority security interest in all assets of the Acquisition Sub. Payment of the Note shall be guaranteed by Neoforma pursuant to a guaranty, substantially in the form attached as Exhibit B hereto. The Note's terms shall provide for its immediately becoming due and payable upon the occurrence of one of the following events: (i) the dissolution or termination of existence of Neoforma or the Acquisition Sub; or (ii) the making of an assignment for the benefit of creditors, insolvency, appointment of a receiver (not discharged within sixty (60) days) of any part of the property of, or the filing of a petition in bankruptcy, or the commencement of any proceedings under any bankruptcy or insolvency law or any law relating to the relief of debtors, readjustment or indebtedness, reorganization, composition or extension, by or (if not discharged within sixty (60) days) against, Neoforma or the Acquisition Sub. In the event of the termination of the Employment Agreement (as defined in Section 5.7 hereof) by the Acquisition Sub or Neoforma without cause, an amount equal to fifty percent (50%) of the unpaid portion of the Note shall become immediately payable, 3 4 with the balance of the Note continuing to be payable in the same manner and over the same time period over the balance of the term of the Note, except that each monthly principal payment shall be reduced by fifty percent (50%). 1.3 CLOSING. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Acquisition (the "CLOSING") will take place as promptly as practicable, but no later than five (5) business days, following satisfaction or waiver of the conditions set forth in Article VI, at a location mutually agreed upon by Neoforma and GAR, unless another place or time is agreed to by Neoforma and GAR. The date upon which the Closing actually occurs is herein referred to as the "CLOSING DATE." The parties currently intend that the Closing Date will occur on or before to September 17, 1999. ARTICLE II REPRESENTATIONS AND WARRANTIES OF GAR GAR and Tivin hereby jointly and severally represent and warrant to Neoforma, subject to such exceptions as are specifically disclosed in any Schedule to this Agreement supplied by GAR or Tivin to Neoforma (the "GAR SCHEDULES") and dated as of the date hereof, as follows: 2.1 ORGANIZATION OF GAR. GAR is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Illinois. GAR also maintains an office in the State of North Carolina. GAR has the power to own its properties and to carry on its business as now being conducted. GAR is not qualified as a foreign limited liability company in any jurisdiction. To the best of Tivin's or GAR's knowledge, GAR is duly qualified to do business in each jurisdiction in which it operates and in which the failure to qualify as a foreign limited liability company would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of GAR (hereinafter referred to as a "GAR MATERIAL ADVERSE EFFECT"). GAR has delivered a true and correct copy of its Organizational Documents, each as amended to date, to Neoforma. 2.2 GAR CAPITAL STRUCTURE. (a) The authorized capitalization of GAR consists of member interests issued and outstanding to Tivin and FTivin (the "MEMBER INTERESTS"), which at the Closing shall be conveyed to the Acquisition Sub, free and clear from any liens or encumbrances. Tivin and FTivin shall be permitted to clear any liens or encumbrances against the Member Interests at the Closing by their directing the Acquisition Sub to pay a portion of the cash portion of the Purchase Price to any party holding a lien against or pledge of any Member Interest. All of the issued and outstanding Member Interests are owned either by Tivin or FTivin. GAR does not have any other class or category of equity security authorized or outstanding. All of the outstanding Member Interests are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, any Operating Agreement of General Asset Recovery, LLC (as in effect, including any amendments or restatements) and the Articles of Organization (together, the "ORGANIZATIONAL DOCUMENTS") of GAR or any agreement to which GAR is a party or by which it is bound. All of the Member Interests have been issued in compliance with the terms of GAR's Organizational Documents. Upon the transfer of all 4 5 Member Interests owned by Tivin and FTivin to the Acquisition Sub, the Acquisition will have full ownership of all outstanding equity interests in GAR. (b) There are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which GAR is a party or by which it is bound obligating GAR to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any ownership interests of GAR (each, a "GAR MEMBER INTEREST EQUIVALENT") or obligating GAR to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such GAR Member Interest Equivalent. 2.3 SUBSIDIARIES. Except as set forth on Schedule 2.3, GAR does not have and has never had any subsidiaries or affiliated organizations and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability, company, association, joint venture or other business entity. The status with the regard to the existence as of the Closing Date of each such subsidiary or affiliated organization is set forth on Schedule 2.3. 2.4 AUTHORITY. GAR and Tivin have all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The vote required of GAR's Members to duly approve the Securities Purchase and this Agreement is a Majority in Interest of the Members (as defined in the Organizational Documents). The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of GAR. This Agreement has been duly executed and delivered by GAR and constitutes the valid and binding obligation of GAR, enforceable in accordance with its terms. The execution and delivery of this Agreement by GAR and Tivin does not, and, as of the Closing, the consummation of the transactions contemplated hereby (including the Securities Purchase) will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "GAR CONFLICT") (i) any provision of the Organizational Documents of GAR, or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to GAR or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any GAR Conflict) is required by or with respect to GAR in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (ii) such other consents, waivers, authorizations, filings, approvals and registrations as are set forth on Schedule 2.4. 2.5 FINANCIAL STATEMENTS. Schedule 2.5 sets forth GAR's unaudited balance sheet as of December 31, 1998 and the related unaudited statement of income and cash flow for the period from inception to December 31, 1998 (the "GAR 1998 FINANCIALS") and GAR's unaudited balance sheet as of May 31, 1999 and the related unaudited statements of income and 5 6 cash flow for the period then ended (the "GAR UNAUDITED FINANCIALS") (collectively, such financial statements are sometimes referred to herein as "GAR FINANCIAL STATEMENTS"). The GAR 1998 Financials and GAR Unaudited Financials present fairly the financial condition, operating results and cash flows of GAR as of the dates and during the periods indicated therein, subject in the case of GAR Unaudited Financials, to normal year-end adjustments, which will not be material in amount or significance. GAR's unaudited balance sheet dated as of May 31, 1999 shall be referred to as the "GAR CURRENT BALANCE SHEET". GAR has no reason to believe that any of its accounts receivable are not fully collectible. Since December 31, 1998, GAR has not changed its methodology for valuation of accounts receivable. 2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, GAR does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the GAR Current Balance Sheet, or (ii) has not arisen in the ordinary course of GAR's business since the date of the GAR Current Balance Sheet, consistent with past practices. 2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of the GAR Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by GAR except in the ordinary course of business as conducted as of the date of the GAR Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Organizational Documents of GAR; (c) capital expenditure or commitment by GAR, either individually or in the aggregate, exceeding $5,000; (d) destruction of, damage to or loss of any material assets, business or customer of GAR (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by GAR; (g) revaluation by GAR of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to any units of GAR, or any direct or indirect redemption, purchase or other acquisition by GAR of any of its units; (i) increase in the salary or other compensation payable or to become payable to any of its officers, directors, employees or advisors, or the declaration, payment or 6 7 commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement; (j) sale, lease, license or other disposition of any of the assets or properties of GAR, except in the ordinary course of business as conducted on that date and consistent with past practices; (k) any Lien placed on any of GAR's assets which remains in existence on the date hereof and which has not been disclosed in writing to Neoforma; (l) amendment or termination of any material contract, agreement or license to which GAR is a party or by which it is bound; (m) loan by GAR to any person or entity, the incurrance by GAR of any indebtedness, the guaranty by GAR of any indebtedness, issuance or sale of any debt securities of GAR or the guaranty of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (n) waiver or release of any right or claim of GAR, including any write-off or other compromise of any account receivable of GAR; (o) any contingent liabilities incurred by GAR with respect to the obligations of any other person that would be assumed hereunder; (p) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of GAR or its affairs; (q) notice of any claim of ownership by a third party of GAR's Intellectual Property (as defined in Section 2.11 below) or of infringement by GAR of any third party's Intellectual Property rights; (r) issuance or sale by GAR of any of its Member Interests, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities; (s) change in pricing or royalties set or charged by GAR to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to GAR; (t) event or condition of any character that has or could be reasonably expected to have a GAR Material Adverse Effect on GAR; (u) any postponement or delay in payment of any accounts payable or other liabilities of GAR; or (v) negotiation or agreement by GAR or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (u) (other than negotiations 7 8 with Neoforma and its representatives regarding the transactions contemplated by this Agreement). 2.8 TAX AND OTHER RETURNS AND REPORTS. (a) Definition of Taxes. For the purposes of this Agreement, "TAX" or, collectively, "TAXES", means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.8: (i) GAR as of the Closing will have prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("RETURNS") relating to any and all Taxes concerning or attributable to GAR or its operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) As of the Closing, GAR (A) will have paid or accrued all Taxes it is required to pay or accrue, and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) GAR has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against GAR, nor has GAR executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of GAR is currently in progress, nor has GAR been notified of any request for such an audit or other examination. (v) GAR does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against on GAR Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and Tivin and GAR have no knowledge of any basis for the assertion of any such liability attributable to GAR, its assets or operations. (vi) GAR has made available to Neoforma copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of GAR's organization. 8 9 (vii) There are (and as of immediately following the Effective Date there will be) no liens, pledges, charges, claims, security interests or other encumbrances of any sort ("LIENS") on the assets of GAR relating to or attributable to Taxes. (viii) Tivin and GAR have no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of GAR. (ix) None of GAR's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) As of the Closing, there will not be any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of GAR that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or 162 of the Code. (xi) GAR has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by GAR. (xii) GAR is not a party to a tax sharing or allocation agreement nor does GAR owe any amount under any such agreement. (xiii) GAR is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) GAR's tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income tax deductions is accurately reflected on GAR's tax books and records. 2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as disclosed in Schedule 2.9 hereto, there is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which GAR is a party or otherwise binding upon GAR which has or reasonably could be expected to have the effect of prohibiting or impairing its ability to operate the Business after the Closing Date, any acquisition of property (tangible or intangible) by GAR or the conduct of the Business. Without limiting the foregoing, GAR has not entered into any agreement under which GAR is restricted from selling, licensing or otherwise distributing any of its products to any class of customers, in any geographic area, during any period of time or in any segment of the market that would be applicable to the Business after the Closing Date. 2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. (a) GAR owns no real property, nor has it ever owned any real property. Schedule 2.10(a) sets forth a list of all real property currently, or at any time in the past, leased by GAR, the name of the lessor, the date of the lease and each amendment thereto and, with 9 10 respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease and any security interest in GAR's assets created by such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). All such current leases will remain in full force and effect following the Closing Date. (b) GAR has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its assets, real, personal and mixed, used or held for use in the Business, free and clear of any Liens (as defined in Section 2.8(b)(vii)), except as reflected in GAR Financial Statements or in Schedule 2.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.11 INTELLECTUAL PROPERTY. (a) To the best of its knowledge and the knowledge of Tivin, GAR owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material that are used in the Business as currently conducted and as proposed to be conducted by GAR (the "GAR INTELLECTUAL PROPERTY RIGHTS"). Neither GAR or Tivin have any knowledge, nor have they received any written notice, of any violation of any of the GAR Intellectual Property Rights upon the rights of any other party. Schedule 2.11(a) sets forth a complete list of all patents, registered and material unregistered trademarks and service marks, registered copyrights and trade names, and any applications therefor, included in GAR Intellectual Property Rights, and specifies, where applicable, the jurisdictions in which each such GAR Intellectual Property Right has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers and the names of all registered owners. (b) Schedule 2.11(b) sets forth a complete list of all licenses, sublicenses and other agreements as to which GAR is a party and pursuant to which GAR or any other person is authorized to use any GAR Intellectual Property or trade secrets of GAR, and includes the identity of all parties thereto, a description of the nature and subject agreement substantially in GAR's standard forms. 2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 2.12, GAR does not have, is not a party to, nor is it bound by, and Neoforma will not be bound, by virtue of the transactions contemplated hereby, by: (a) any consulting or sales agreement, contract or commitment under which any firm or other organization provides services to GAR, 10 11 (b) any operating agreement or other agreement relating to the operations of any business organization, including GAR, (c) any fidelity or surety bond or completion bond, (d) any lease of personal property having a value individually in excess of $15,000, (e) any agreement of indemnification or guaranty, (f) any agreement, contract or commitment containing any covenant limiting the freedom of GAR to engage in any line of business or to compete with any person, (g) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $15,000, (h) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of GAR's business, (i) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (i) hereof, (j) any purchase order or contract for the purchase of raw materials involving $15,000 or more, (k) any construction contracts, (l) any distribution, joint marketing or development agreement, (m) any agreement pursuant to which GAR has granted or may grant in the future, to any party, a source-code license or option or other right to use or acquire source-code, or (n) any other agreement, contract or commitment that involves $15,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 2.11(b) or Schedule 2.12, as appropriate, GAR has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.11(b) or Schedule 2.12 (any such agreement, contract or commitment, a "GAR CONTRACT"). Each GAR Contract is in full force and effect and, except as otherwise disclosed in 11 12 Schedule 2.11(b) or Schedule 2.12, is not subject to any default thereunder of which Tivin or GAR has knowledge by any party obligated to GAR pursuant thereto. 2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13, no officer, director or Member of GAR (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has or has had, directly or indirectly, (i) an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that GAR furnishes or sells, or proposes to furnish or sell, (ii) an economic interest in any entity that purchases from or sells or furnishes to GAR any goods or services or (iii) a beneficial interest in any contract or agreement set forth in Schedule 2.11(b) or Schedule 2.12; provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.13. Except as disclosed on Schedule 2.13, all interested party transactions were made on terms no more favorable to such interested party than could have been obtained on an arm's-length basis. 2.14 COMPLIANCE WITH LAWS. To Tivin's or GAR's knowledge, GAR has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. GAR holds all permits, licenses, variances, exemptions, authorizations, orders and approvals of all Governmental Agencies (as hereinafter defined, with each being a "PERMIT") that are required for it to own, lease or operate its properties and assets and to carry on its business as presently conducted, which Permits are listed on Schedule 2.14 hereto. There is presently no default under any such Permit. GAR is in compliance in all material respects with (a) all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Agency, and (b) their own respective internal policies and procedures. Tivin holds all Permits required for the conduct of auctions in each jurisdiction in which the failure to hold any such Permit would result in a GAR Material Adverse Effect. Neither Tivin nor GAR has received any notification or communication from any Governmental Agency which has not been fully and finally resolved (a) asserting that either Tivin or GAR is not in substantial compliance with any of the statutes, regulations, ordinances or guidelines which such Governmental Agency enforces or administers, or with the internal policies and procedures of GAR, (b) threatening to revoke any material Permit, (c) requiring or threatening to require Tivin or GAR, or indicating that it may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement, or (d) directing, restricting or limiting, or purporting to direct, restrict or limit, in any manner the operations of Tivin or GAR. Neither Tivin nor GAR has received, consented to or entered into, or is subject to, any agreement with a Governmental Agency, nor has it been advised by any Governmental Agency that such Governmental Agency is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such agreement. The term "Governmental Agency" shall mean shall mean any court, administrative agency or commission, or other governmental authority or instrumentality, domestic or foreign, including, but not limited to, the United States Food and Drug Administration. 12 13 2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action, suit or proceeding of any nature pending or threatened against GAR, its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 2.15, there is no investigation pending or threatened against GAR, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 2.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Agency has at any time challenged or questioned the legal right of GAR to manufacture, offer or sell any of its products in the present manner or style thereof. 2.16 INSURANCE. Set forth on Schedule 2.16 is a list of all of GAR's insurance policies and fidelity bonds. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of GAR, there is no claim by GAR pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and GAR is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). Tivin or GAR has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.17 MINUTE BOOKS. The minute books of GAR, if any, have been made available to counsel for Neoforma, are the only minute books of GAR and, to the extent they exist, contain a reasonably accurate summary of all meetings of directors (or committees thereof) and Members or actions by written consent since the time of organization of GAR. 2.18 ENVIRONMENTAL MATTERS. (a) Hazardous Material. GAR has not operated any underground storage tanks, and has no knowledge of the existence, at any time, of any underground storage tank (or related piping or pumps), at any property that GAR has at any time owned, operated, occupied or leased. GAR has not released any amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, oil and petroleum products, urea-formaldehyde and all substances listed as a "hazardous substance," "hazardous waste," "hazardous material" or "toxic substance" or words of similar import, under any law, including but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended; the Resource Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended, and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present as a result of the actions or omissions of GAR, or, to GAR's knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that GAR has at any time owned, operated, occupied or leased. 13 14 (b) Hazardous Materials Activities. GAR has not transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, nor has GAR disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) Permits. To GAR's knowledge, it currently holds all environmental approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct of GAR's Hazardous Material Activities and other businesses of GAR as such activities and businesses are currently being conducted. (d) Environmental Liabilities. No action, proceeding, revocation proceeding, amendment, procedure, writ, injunction or claim is pending, or to GAR's knowledge, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of GAR. GAR is not aware of any fact or circumstance which could involve GAR in any environmental litigation or impose upon GAR any environmental liability. (e) No Violation. The Business includes the temporary occupancy of hospitals and other medical facilities by GAR and Tivin for the purpose of auctioning or otherwise liquidating obsolete or excess medical equipment. Such medical facilities may have had storage tanks, piping or pumps which contained Hazardous or Toxic Materials located on them. This fact and/or knowledge of the same by GAR or Tivin shall not constitute a breach of any representation, warranty or other agreement contained herein. 2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth on Schedule 2.19, GAR has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Schedule 2.19 sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. Schedule 2.19 also sets forth GAR's current reasonable estimate of all outside expenses expected to be incurred by GAR in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby. 2.20 EMPLOYEE MATTERS AND BENEFIT PLANS. (a) Definitions. For purposes of this section, the following terms shall have the meanings set forth below: (i) "GAR AFFILIATE" shall mean any other person or entity under common control with GAR within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder; 14 15 (ii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (iii) "GAR EMPLOYEE PLAN" shall refer to any collective bargaining agreement or any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, performance awards, bonus, profit sharing, stock options, stock appreciation rights, unit or unit related awards, severance, termination pay, retirement benefits, pension, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by GAR or any GAR Affiliate for the benefit of any "GAR Employee" (as defined below), and pursuant to which GAR or any GAR Affiliate has or may have any material liability contingent or otherwise; (iv) "GAR EMPLOYEE" shall mean any current, former, or retired employee, officer, or director of GAR or any GAR Affiliate; (v) "GAR EMPLOYEE AGREEMENT" shall refer to each contract, agreement or commitment concerning management, employment, severance, post-employment liabilities or obligations, consulting, relocation, repatriation, expatriation, visas, work permit or any similar agreement or contract between GAR or any Affiliate and any Employee or consultant; (vi) "IRS" shall mean the Internal Revenue Service; (vii) "MULTIEMPLOYER PLAN" shall mean any "PENSION PLAN" (as defined below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA; and (viii) "GAR PENSION PLAN" shall refer to each GAR Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (b) Schedule. Schedule 2.20 contains an accurate and complete list of each GAR Employee Plan and each GAR Employee Agreement, if any, together with a schedule of all liabilities, whether or not accrued, under each such GAR Employee Plan or GAR Employee Agreement. GAR does not have any plan or commitment, whether legally binding or not, to establish any new GAR Employee Plan or GAR Employee Agreement, to modify any GAR Employee Plan or GAR Employee Agreement (except to the extent required by law or to conform any such GAR Employee Plan or GAR Employee Agreement to the requirements of any applicable law, or as required by this Agreement), or to enter into any GAR Employee Plan or GAR Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 2.20, GAR has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any GAR Employee Agreement. Each GAR Employee Agreement is in full force and effect and, except as 15 16 otherwise disclosed in Schedule 2.20, is not subject to any default thereunder of which Tivin or GAR has knowledge by any party obligated to GAR pursuant thereto. (c) Documents. GAR has made available to Neoforma (i) correct and complete copies of all documents embodying or relating to each GAR Employee Plan and each GAR Employee Agreement including all amendments thereto and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each GAR Employee Plan; (iii) the most recent annual report (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each GAR Employee Plan or related trust; (iv) if GAR Employee Plan is funded, the most recent annual and periodic accounting of GAR Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each GAR Employee Plan; (vi) all IRS determination letters and rulings relating to GAR Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any GAR Employee Plan; (vii) all communications material to any GAR Employee or GAR Employees relating to any GAR Employee Plan and any proposed GAR Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to GAR; and (viii) all registration statements and prospectuses prepared in connection with each GAR Employee Plan. (d) Employee Plan Compliance. Except as set forth on Schedule 2.20, (i) GAR has performed in all material respects all obligations required to be performed by it under each GAR Employee Plan, and each GAR Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any GAR Employee Plan; (iii) there are no actions, suits or claims pending, or, to the knowledge of GAR, threatened or anticipated (other than routine claims for benefits) against any GAR Employee Plan or against the assets of any GAR Employee Plan; and (iv) each GAR Employee Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without liability to GAR, Neoforma or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no inquiries or proceedings pending or, to the knowledge of GAR or any affiliates, threatened by the IRS or DOL with respect to any GAR Employee Plan; and (vi) neither GAR nor any Affiliate is subject to any penalty or tax with respect to any GAR Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code. (e) Pension Plans. GAR does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has GAR contributed to or been requested to contribute to any Multiemployer Plan. 16 17 (g) No Post-Employment Obligations. Except as set forth in Schedule 2.20, no GAR Employee Plan provides, or has any liability to provide, life insurance, medical or other employee benefits to any GAR Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and GAR has never represented, promised or contracted (whether in oral or written form) to any GAR Employee (either individually or to GAR Employees as a group) that such GAR Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. (h) Effect of Transaction. (i) Except as set forth on Schedule 2.20, the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any GAR Employee Plan, GAR Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any GAR Employee. (ii) Except as set forth on Schedule 2.20, no payment or benefit which will or may be made by GAR or Neoforma or any of their respective affiliates with respect to any Employee will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (i) Employment Matters. GAR (i) to its knowledge, is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to GAR Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to GAR Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for GAR Employees (other than routine payments to be made in the normal course of business and consistent with past practice). (j) Labor. No work stoppage or labor strike against GAR is pending or, to the best knowledge of GAR, threatened. Except as set forth in Schedule 2.20, GAR is not involved in or, to the knowledge of GAR, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any GAR Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to GAR. Neither GAR nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to GAR. Except as set forth in Schedule 2.20, GAR is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining 17 18 agreement or union contract with respect to GAR Employees and no collective bargaining agreement is being negotiated by GAR. 2.21 REPRESENTATIONS COMPLETE. None of the representations or warranties made by GAR or Tivin (as modified by Schedules), nor any statement made in any schedule or certificate furnished by GAR or Tivin pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the Members in connection with soliciting their consent to this Agreement and the Securities Purchase, contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF NEOFORMA Neoforma hereby represents and warrants to GAR and Tivin, subject to such exceptions as are specifically disclosed in any Schedule to this Agreement supplied by Neoforma to GAR or Tivin (the "NEOFORMA SCHEDULES") and dated as of the date hereof, as follows: 3.1 ORGANIZATION OF NEOFORMA. Neoforma is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Neoforma has the corporate power to own its properties and to carry on their business as now being conducted. Neoforma is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of Neoforma (hereinafter referred to as a "NEOFORMA MATERIAL ADVERSE EFFECT"). Neoforma has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to GAR. 3.2 NEOFORMA CAPITAL STRUCTURE. The authorized capital stock of Neoforma consists of 40,000,000 shares of authorized Common Stock, $0.001 par value (the "Common Stock"), of which 1,259,961 shares are issued and outstanding, and 27,420,022 shares of preferred stock, $0.001 par value (the "Preferred Stock"), of which 27,121,298 shares are issued and outstanding. All shares of the Preferred Stock are convertible into shares of Common Stock on a one for one basis. All outstanding shares of the Common Stock and Preferred Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Neoforma or any agreement to which Neoforma is a party or by which it is bound. The Acquisition Sub, as of the Closing Date, shall have delivered a true and correct copy of its organizational documents, amended to date, to GAR. All issued and outstanding shares of the common stock of the Acquisition Sub are, and shall until such time as the Note is repaid in full continue to be, owned by Neoforma. 3.3 AUTHORITY. Neoforma has, and as of the Closing Date the Acquisition Sub shall have, all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this 18 19 Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Neoforma. Neoforma's Board of Directors have approved the Securities Purchase and this Agreement. This Agreement has been duly executed and delivered by Neoforma and constitutes the valid and binding obligation of Neoforma, enforceable in accordance with its terms. Except as set forth on Schedule 3.3, the execution and delivery of this Agreement by Neoforma does not, and, as of the Closing, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "NEOFORMA CONFLICT") (i) any provision of the Certificate of Incorporation or Bylaws of Neoforma, or (ii) any mortgage, indenture, lease, contract, or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Neoforma or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any third party (so as not to trigger any Neoforma Conflict) is required by or with respect to Neoforma in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (ii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 3.3 of this Agreement. 3.4 REPRESENTATIONS COMPLETE. None of the representations or warranties made by Neoforma, nor any statement made in any schedule or certificate furnished by Neoforma pursuant to this Agreement contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE IV CONDUCT PRIOR TO THE CLOSING 4.1 CONDUCT OF BUSINESS OF GAR. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing, GAR agrees (except to the extent that Neoforma shall otherwise consent in writing) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Closing. GAR shall promptly notify Neoforma of any event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting GAR or its business. Except as set forth on Schedule 4.1 hereto or as expressly contemplated by this Agreement, GAR shall not, without the prior written consent of Neoforma: 19 20 (a) Enter into any commitment, activity or transaction not in the ordinary course of business; (b) Transfer to any person or entity any rights to any GAR Intellectual Property Rights; (c) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of GAR; (d) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in GAR Schedules; (e) Commence any litigation; (f) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, equity interests or property) in respect of any of its units or other evidences of ownership, or split, combine or reclassify any of its units or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for units or other evidences of ownership of GAR, or repurchase, redeem or otherwise acquire, directly or indirectly, any GAR Member Interests (or GAR Member Interest Equivalents); (g) Issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any units or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such units or other convertible securities; (h) Cause or permit any amendments to its Organizational Documents; (i) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, limited liability company, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of GAR; (j) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice; (k) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of GAR or guarantee any debt securities of others; 20 21 (l) Grant any severance or termination pay to any director, officer, employee or consultant, except payments made pursuant to standard written agreements outstanding on the date hereof (which agreements are disclosed on Schedule 2.20; (m) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees (other than the two employees of GAR currently under review); (n) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable in excess of $10,000 in the aggregate; (o) Pay, discharge or satisfy, in an amount in excess of $10,000, in any one case, or $25,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in GAR Financial Statements; (p) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (q) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (r) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (s) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (t) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (u) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership, limited liability company or other business entity in which GAR directly or indirectly holds any interest on the date hereof; or (v) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through 4.1(u) above, or any other action that would prevent GAR from performing or cause GAR not to perform its covenants hereunder. 21 22 4.2 NO GAR SOLICITATION. Until the earlier of the Closing and the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, GAR will not (nor will GAR permit any of GAR's officers, directors, Members, agents, representatives or affiliates to) directly or indirectly, take any of the following actions with any party other than Neoforma and its designees: (a) solicit, initiate, entertain, or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of GAR or any of its subsidiaries (whether by way of merger, purchase of equity securities, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in GAR or any of its subsidiaries, (b) provide information with respect to it to any person, other than Neoforma, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of GAR (whether by way of merger, purchase of equity securities, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in GAR or any of its subsidiaries, (c) enter into an agreement with any person, other than Neoforma, providing for the acquisition of GAR (whether by way of merger, purchase of equity securities, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in GAR or any of its subsidiaries, or (d) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of GAR or any of its subsidiaries (whether by way of merger, purchase of equity securities, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in GAR or any of its subsidiaries by any person, other than by Neoforma. GAR shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if GAR receives prior to the Closing or the termination of this Agreement any offer or proposal relating to any of the above, GAR shall immediately notify Neoforma thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Neoforma may reasonably request. Except as contemplated by this Agreement, disclosure by GAR of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.2. ARTICLE V ADDITIONAL AGREEMENTS 5.1 ACCESS TO INFORMATION. GAR shall afford Neoforma and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Closing to (a) all of its properties, books, contracts, commitments and records, and (b) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of it as Neoforma may reasonably request. Neoforma shall afford GAR and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Closing to all materials necessary to reasonably permit it to carry out the due diligence provided for in Section 6.2 (d) of this Agreement as GAR may reasonably request. No information or knowledge obtained in any investigation pursuant to this Section 5.1 shall affect or be deemed to modify any representation or warranty contained herein. 22 23 5.2 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep the terms of this Agreement (except to the extent contemplated hereby) and such information or knowledge obtained in any investigation pursuant to Section 5.1, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, confidential; PROVIDED, HOWEVER, that the foregoing shall not apply to information or knowledge which (a) a party can demonstrate was already lawfully in its possession prior to the disclosure thereof by the other party, (b) is generally known to the public and did not become so known through any violation of law, (c) became known to the public through no fault of such party, (d) is later lawfully acquired by such party without confidentiality restrictions from other sources, (e) is required to be disclosed by order of court or government agency with subpoena powers (provided that such party shall have provided the other party with prior notice of such order or subpoena and an opportunity to object or take other available action) or (f) which is disclosed in the course of any litigation between any of the parties hereto. 5.3 EXPENSES. Whether or not the Securities Purchase is consummated, all fees and expenses incurred in connection with the Securities Purchase including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. 5.4 PUBLIC DISCLOSURE. Neoforma shall have the right to issue such press releases or other disclosures regarding the transactions contemplated hereby in its sole discretion following the execution of this Agreement. Neoforma shall obtain the prior consent of Tivin in the event he is named or quoted in any such press release or disclosures. 5.5 CONSENTS. Neoforma, GAR and Tivin shall use their reasonable best efforts to obtain the consents, waivers, assignments and approvals under any of the GAR Contracts as may be required in connection with the Securities Purchase (all of such consents, waivers and approvals are set forth in GAR Schedules) so as to preserve and transfer all rights of and benefits to Neoforma thereunder (or retain such rights and benefits with GAR). 5.6 REASONABLE EFFORTS. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use its reasonable efforts to ensure that its representations and warranties remain true and correct in all material respects, and to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents, assignments and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement; PROVIDED, that Neoforma shall not be required to agree to any divestiture of any business, assets or property of Neoforma or its subsidiaries or, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 23 24 5.7 EMPLOYMENT OF TIVIN. On the Closing Date, the Acquisition Sub, Neoforma and Tivin agree to enter into an employment agreement in substantially the same form as Exhibit C hereto (the "EMPLOYMENT AGREEMENT") which provides for Tivin's being employed by the Acquisition Sub for a period of four (4) years. The Employment Agreement shall provide for a base salary of One Hundred Thousand Dollars ($100,000) per year, a bonus based upon the Acquisition Sub's attaining certain sales thresholds to be agreed upon by the parties following the Closing Date in a minimum amount of Fifty Thousand Dollars ($50,000) per year, and shall provide for an automobile allowance of Fourteen Hundred Dollars ($1,400) per month. 5.8 CONSULTING AGREEMENT WITH FTIVIN. On the Closing Date, the Acquisition Sub and FTivin agree to enter into a consulting agreement in substantially the same form as Exhibit D hereto, which provides for FTivin's acting as a consultant to the Acquisition Sub for a period of two years in consideration for a consulting fee in the amount of $150,000 per year, which consulting agreement shall be guaranteed by Neoforma pursuant to a guaranty in substantially the same form as Exhibit E hereto. 5.9 TRANSFER OF INDUSTRIAL EQUIPMENT AUCTION ASSETS TO FTIVIN. Neoforma agrees that ownership of those assets listed on Schedule 5.9 hereto, (the "EXCLUDED ASSETS") which relate solely to the industrial equipment business currently being conducted by GAR are being transferred to FTivin or his nominee, on or before the Closing Date without there being any payment of consideration to GAR by FTivin. Neoforma shall not consider such transfer to be in breach of this Agreement. The parties expressly agree that the Excluded Assets shall not include any assets owned by GAR and used in any manner in the medical equipment auction business operated by GAR prior to the Closing Date. 5.10 NOTIFICATION OF CERTAIN MATTERS. GAR shall give prompt notice to Neoforma, and Neoforma shall give prompt notice to GAR, of (a) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of GAR, Neoforma, respectively, contained in this Agreement to be untrue or inaccurate at or prior to the Closing and (b) any failure of GAR or Neoforma, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.10 shall not limit or otherwise affect any remedies available to the party receiving such notice. 5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. ARTICLE VI CONDITIONS TO THE SECURITIES PURCHASE 6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE SECURITIES PURCHASE. The respective obligations of each party to this Agreement to effect 24 25 the Securities Purchase shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) GAR Member Approval. This Agreement and the Securities Purchase shall have been approved and adopted by the Members of GAR by the requisite vote under applicable law and GAR's Organizational Documents. (b) Neoforma Board Approval. This Agreement and the Securities Purchase shall have been approved and adopted by the Board of Directors of Neoforma by the requisite vote under applicable law and Neoforma's organizational documents. (c) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Securities Purchase shall be in effect. (d) Permits. All approvals from government authorities, including any requisite Blue Sky approvals, which are appropriate or necessary for the consummation of the Securities Purchase, shall have been obtained. (e) Litigation. There shall be no BONA FIDE action, suit, claim or proceeding of any nature pending, or overtly threatened, against Neoforma, GAR or Tivin, their respective properties or any of their officers or directors, arising out of, or in any way connected with, the Securities Purchase or other transactions contemplated by the terms of this Agreement. (f) Schedules. All Schedules and Exhibits to this Agreement and the Employment Agreement shall have been prepared, agreed to by the parties and attached to such agreements. 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF GAR. The obligations of GAR and Tivin to consummate the Securities Purchase and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by GAR and Tivin: (a) Representations and Warranties. The representations and warranties of Neoforma contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on Neoforma; and GAR and Tivin shall have received a certificate to such effect signed on behalf of Neoforma by a duly authorized officer of Neoforma. (b) Agreements and Covenants. Neoforma shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be 25 26 performed or complied with by them on or prior to the Closing, and GAR and Tivin shall have received a certificate to such effect signed by a duly authorized officer of Neoforma. (c) Legal Opinion; Tax Advice. GAR and Tivin shall have received a legal opinion from Pepe & Hazard, LLP, counsel to Neoforma, in form reasonably satisfactory to their legal counsel. (d) Financial Due Diligence. GAR shall be satisfied that the financial statements of Neoforma provided to it are complete and accurately reflect the financial condition of Neoforma as represented by Neoforma and with the results of its due diligence investigation of Neoforma. 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF NEOFORMA. The obligations of Neoforma to consummate the Securities Purchase and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Neoforma: (a) Representations and Warranties. The representations and warranties of GAR contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on GAR or Neoforma; and Neoforma shall have received a certificate to such effect signed on behalf of GAR by the chief executive officer and chief financial officer of GAR. (b) Agreements and Covenants. GAR and Tivin shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing, and Neoforma shall have received a certificate to such effect signed by a duly authorized officer of GAR and Tivin. (c) Third Party Consents. Neoforma shall have been furnished with evidence satisfactory to it that GAR has obtained the consents, approvals and waivers, if any, required to carry out the transactions set forth in this Agreement. (d) Legal Opinion. Neoforma shall have received a legal opinion from Marks, Marks and Kaplan, Ltd., legal counsel to GAR and Tivin, in form reasonably satisfactory to its legal counsel. (e) Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets) financial condition or results of operations of GAR since the date of GAR Balance Sheet. 26 27 (f) Noncompetition Agreements. Each of the persons listed on Schedule 6.3(f) (which may be provided or supplemented on or before the Closing Date) shall have executed and delivered to Neoforma on or before the Closing Date a Noncompetition Agreement in form satisfactory to its legal counsel, and all of the Noncompetition Agreements shall be in full force and effect. (g) Employment Agreement. Erik Tivin shall have entered into the Employment Agreement. (h) Consulting Agreement. Fred Tivin shall have entered into the Consulting Agreement. (i) GAR Indebtedness. The total amount of indebtedness owing by GAR (including accounts payable) shall not exceed One Hundred Thousand Dollars ($100,000). (j) Due Diligence. Neoforma and its advisors shall be satisfied with the results of its due diligence investigation of GAR and the Business. Neoforma agrees to notify GAR of any additional due diligence requested by its investment bankers, to the extent such due diligence is above or beyond that being conducted by Neoforma's other advisors, and Neoforma's investment bankers shall only be permitted to conduct such due diligence upon the consent of Tiven, which consent shall not be unreasonably withheld. ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of GAR, Tivin and Neoforma contained in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the corresponding Schedules thereto) shall survive the Securities Purchase and continue until 5:00 p.m., California time, on the two (2) year anniversary of the Closing Date (the "EXPIRATION DATE"). 7.2 INDEMNIFICATION. (a) Indemnification by GAR and Tivin. GAR and Tivin jointly and severally agree to indemnify and hold harmless Neoforma, the Acquisition Sub and their officers, directors, and shareholders, against any and all loss, cost, liability, claim, damage, deficiency, and expense whatsoever, including without limitation legal fees and disbursements ("DAMAGE"), provided that Neoforma or the Acquisition Sub may not make any claim for any Damage until such time as the aggregated amount of any such Damage is equal to or exceeds $50,000, and provided further that such indemnification shall be limited to an amount equal to the unpaid portion of the Purchase Price (except to the extent otherwise specifically stated herein), arising out of or resulting from: (i) any misrepresentation, omission, breach of a representation or warranty or other breach or non-fulfillment of any covenant on the part of GAR or Tivin under this Agreement or any schedule, certificate or other instrument furnished to Neoforma or the 27 28 Acquisition Sub hereunder, or under any other agreement entered into in connection with GAR's or Tivin's consummating the transactions contemplated by and carrying out the purposes of this Agreement; (ii) any liabilities arising from events occurring prior to the Closing which have not been disclosed to Neoforma or the Acquisition Sub and which have not arisen as the result of any act or omission attributable to Neoforma or the Acquisition Sub, including but not limited to any tax assessments (including but not limited to any tax liability related to General Industrial Tool or Worldwide Auction Services), uninsured liabilities or breach of contract; (iii) any brokers' or finders' fees; and (iv) all demands, assessments, judgments, costs and legal and other fees and expenses arising from or in connection with any action, suit, proceeding or claim incident to any of the foregoing. (b) Neoforma's Procedure. Should any claim be made against Neoforma or the Acquisition Sub for which indemnification is provided for in Section 7.2 (a) by a person not a party to this Agreement, Neoforma or the Acquisition Sub shall promptly give GAR (if such claim is brought prior to the Closing) and Tivin written notice of any such claim, and GAR (if such claim is brought prior to the Closing) and Tivin shall thereafter defend or settle any such claim, at their sole expense, on their own behalf and with counsel of their own choosing. In such defense or settlement, Neoforma shall cooperate with and assist GAR (if such claim is brought prior to the Closing) and Tivin to the maximum extent reasonably possible and may participate therein with its own counsel. Any payment resulting from such defense or settlement, together with the total expense thereof, shall be binding on GAR (if such claim is brought prior to the Closing) and Tivin. Failure to give notice within a reasonable period of time shall not constitute a defense, in whole or in part, to any claim for indemnification by Neoforma or the Acquisition Sub except and only to the extent that such failure by Neoforma shall result in material prejudice to Tivin. Notwithstanding the foregoing, Neoforma may, after not less than sixty (60) days written notice to Tivin, make settlement of such claim, and such settlement shall be binding on all such parties for purposes of this Section 7.2 (b); however, if within said sixty (60) day period Tivin shall have requested Neoforma not to settle such claim and to deny such claim at the expense of Tivin, Neoforma shall comply with such request provided that (i) Tivin shall diligently defend such claim as provided above, and (ii) in Neoforma's reasonable judgment failure to settle the same will not have a material or adverse affect on the conduct of the business of Neoforma in the normal course. Any payment resulting from such defense or settlement, together with the total expense thereof, shall be binding on all parties, for the purposes of this Section 7.2 (b). Failure to give notice within a reasonable period of time shall not constitute a defense, in whole or in part, to any claim for indemnification by Neoforma, except and only to the extent that such failure by Neoforma shall result in a material prejudice to GAR (if such claim is brought prior to the Closing) and Tivin. In the event Neoforma or the Acquisition Sub incur, or a 28 29 claim is made seeking, any Damages for which indemnification is allowed pursuant to Section 7.2 (a) (i), (ii), (iii) or (iv), Neoforma or the Acquisition Sub shall, in addition to any other remedies, have the right to offset the amount of any such Damages against any amount which may be owing to Tivin under this Agreement, the Note, or any agreement entered into between Tivin and/or GAR, on the one hand, and the Acquisition Sub and/or Neoforma, on the other hand, pursuant to this Agreement or otherwise and, to the extent such amount exceeds any amounts still owing at such time from Neoforma to GAR. Anything herein to the contrary notwithstanding, in no event shall Neoforma be required to consent to a non-monetary term or condition to such settlement as a condition to indemnification hereunder. (c) Indemnification by Neoforma. Neoforma shall indemnify Tivin and hold Tivin harmless at all times after the Closing against and in respect of any of the following: (i) any and all liabilities and obligations of Neoforma or GAR arising after the Closing except to the extent that the same may have been caused by circumstances existing prior to the Closing; (ii) any and all Damages resulting from any misrepresentation, omission, breach of representation or warranty, or non-fulfillment of any covenant on the part of Neoforma under this Agreement or any schedule to this Agreement or in any certificate or other instrument furnished to Tivin hereunder or any other agreement entered into in connection with Neoforma consummating the transactions contemplated by this Agreement; (iii) any increased tax liability, including without limitation all penalties and interest, incurred by Tivin due to the payments under the Note being construed as ordinary income as opposed to capital gains; and (iv) all demands, assessments, judgments, costs and legal and other fees and expenses arising from or in connection with any action, suit, proceeding or claim incident to any of the foregoing. (d) Tivin's Procedure. Should any claim be made against Tivin for which indemnification is provided for in Section 7.2 (c) by a person not a party to this Agreement, Tivin shall promptly give Neoforma written notice of any such claim, and Neoforma shall thereafter defend or settle any such claim, at its sole expense, on its own behalf and with counsel of its own choosing. In such defense or settlement, Tivin shall cooperate with and assist Neoforma and Tivin may participate therein to the maximum extent reasonably possible with his own counsel. Any payment resulting from such defense or settlement, together with the total expense thereof, shall be binding on Neoforma. Failure to give notice within a reasonable period of time shall not constitute a defense, in whole or in part, to any claim for indemnification by Tivin except and only to the extent that such failure by Tivin shall result in material prejudice to Neoforma. Notwithstanding the foregoing, Tivin may, after not less than sixty (60) days written notice to Neoforma, make settlement of such claim, and such settlement shall be binding on all such parties for purposes of this Section 7.2 (d); however, if within said sixty (60) day period 29 30 Neoforma shall have requested Tivin not to settle such claim and to deny such claim at the expense of Neoforma, Tivin shall comply with such request provided that (i) Neoforma shall diligently defend such claim as provided above, and (ii) in Tivin's reasonable judgment failure to settle the same will not have a material or adverse affect on the conduct of the business of Tivin in the normal course. Any payment resulting from such defense or settlement, together with the total expense thereof, shall be binding on all parties, for the purposes of this Section 7.2 (d). Failure to give notice within a reasonable period of time shall not constitute a defense, in whole or in part, to any claim for indemnification by Tivin, except and only to the extent that such failure by Tivin shall result in a material prejudice to Neoforma or the Acquisition Sub. In the event a claim is made seeking any Damages for which indemnification is allowed pursuant to Section 7.2 (c), Tivin shall, in addition to any other remedies, have the right to offset the amount of any such Damages against any amount which may be owing to Neoforma under this Agreement, any agreement entered into pursuant to this Agreement or otherwise. Anything herein to the contrary notwithstanding, in no event shall Tivin be required to consent to a non-monetary term or condition to such settlement as a condition to indemnification hereunder. (e) Remedies Cumulative. Except as herein expressly provided, the remedies provided herein shall be cumulative and shall not preclude the assertion by one Party of any other rights or the seeking of any other remedies against the other Party. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement may be terminated and the Securities Purchase abandoned at any time prior to the Closing: (a) by mutual consent of GAR, Tivin and Neoforma; (b) by Neoforma, GAR or Tivin if: (i) the Closing has not occurred before 5:00 p.m. (Pacific time) on September 17, 1999 (provided that the right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Closing to occur on or before such date); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Securities Purchase; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Securities Purchase by any governmental entity that would make consummation of the Securities Purchase illegal; (c) by Neoforma if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Securities Purchase, by any Governmental Entity, which would: (i) prohibit Neoforma's ownership of GAR or ownership or operation of all or any portion of the Business or the Acquisition Sub's ownership or operation of all or any portion of the Business or (ii) compel Neoforma or the Acquisition Sub to dispose of or hold separate all or a portion of the business or assets of GAR or Neoforma as a result of the Securities Purchase; 30 31 (d) by Neoforma if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of GAR and (i) such breach has not been cured within five (5) business days after written notice to GAR (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied; or (e) by GAR if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Neoforma and (i) such breach has not been cured within five (5) business days after written notice to Neoforma (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied. Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized, in the case of Neoforma, by the Board of Directors of Neoforma, and in the case of GAR, by Tivin (if prior to the Closing Date). 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Neoforma, or GAR, or their respective officers, directors, shareholders or Members, or Tivin; PROVIDED, that each party shall remain liable for any breaches of this Agreement prior to its termination; and PROVIDED FURTHER, that, the provisions of Sections 5.2 and 5.3 of this Agreement shall remain in full force and effect and survive any termination of this Agreement. 8.3 AMENDMENT. Except as is otherwise required by applicable law after the Members of GAR approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 8.4 EXTENSION; WAIVER. At any time prior to the Closing, Neoforma, on the one hand, and GAR and Tivin, on the other, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations of the other party hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. 31 32 ARTICLE IX GENERAL PROVISIONS 9.1 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Neoforma, to: Neoforma, Inc. 3255-7 Scott Boulevard Santa Clara, California 95054 Attention: Wm. Samuel Veazey, Controller Telephone No.: (408) 654-5700 Facsimile No.: (408) 549-6299 With a copy to: Pepe & Hazard, LLP 150 Federal Street, 28th Floor Boston, Massachusetts 02110 Attn: John A. Kostrubanic, Esq. Telephone No.: (617) 695-9090 Facsimile No.: (617) 695-9255 If to GAR or Tivin, to: General Asset Recovery 3190 Kennicott Avenue Arlington Heights, Illinois 60004 Attention: Erik Tivin Telephone No.: (847) 222-1000 Facsimile No.: (847) 255-2922 With a copy to: Marks, Marks and Kaplan Ltd. 120 North La Salle Street, Suite 3200 Chicago, Illinois 60602 Attn: Spencer J. Marks, Esq. Telephone No.: (312) 332-5200 Facsimile No.: (312) 332-2952 32 33 9.2 INTERPRETATION. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 9.4 TRANSFER TAXES. GAR shall pay all real property transfer Taxes, sales Taxes, stock transfer Taxes, documentary stamp Taxes, recording charges and other similar Taxes resulting from, arising under or in connection with the transfer of the Member Interests or any other related transaction under the Agreement. 9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Neoforma may assign its respective rights and delegate its obligations hereunder to its affiliates; PROVIDED, that such affiliates agree to be bound by the terms hereof. 9.6 SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 9.8 GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. Any 33 34 dispute arising under this Agreement shall be resolved in a court of competent jurisdiction within the State of California and the parties hereby consent to the jurisdiction of such court. 9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. All Schedules and Exhibits hereto shall be considered incorporated herein by reference and are made a part hereof. 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. IN WITNESS WHEREOF, Neoforma, GAR, and Tivin, have caused this Agreement to be signed by their duly authorized respective officers and representatives, all as of the date first written above. GENERAL ASSET RECOVERY, LLC NEOFORMA, INC. By: _______________________________ By: _______________________________ Name: Name: Title: Title: NEOFORMA GAR, INC. By: _______________________________ Name: Title: GAR MEMBER INTEREST HOLDERS __________________________________ __________________________________ Erik Tivin, Individually Fred Tivin, Individually 34 35 EXHIBIT A TO EXHIBIT 2.01 PROMISSORY NOTE $7,800,000 August _______, 1999 FOR VALUE RECEIVED, the undersigned, Neoforma GAR, Inc., a Delaware corporation, with an address c/o Neoforma, Inc., 3255-7 Scott Boulevard, Santa Clara, California 95054 (the "MAKER"), promises to pay Erik Tivin of 430 Newtown Drive, Buffalo Grove, Illinois 60089 ("TIVIN") the principal sum of Seven Million Eight Hundred Thousand Dollars ($7,800,000) with interest on the unpaid balance from the date hereof at the rate of Seven Percent (7%) per annum. This Note is entered into pursuant to the terms of a Securities Purchase Agreement dated July 16th, 1999 by and among Neoforma, Inc. (the maker's parent company), Tivin and General Asset Management, LLC pursuant to which the maker has acquired all of the issued and outstanding securities of General Asset Management, LLC (the "SECURITIES PURCHASE") and shall be subject to the terms and conditions thereof, including without limitation, (i) the right of the maker to set off against any amounts of principal and interest due hereunder the amount of any indemnification which is determined to be payable by Tivin under Section 7 of said Securities Purchase Agreement, and (ii) the partial acceleration of this Note pursuant to Section 1.2 of said Securities Purchase Agreement as set forth in Section 4 below. This Note shall have the following additional terms and provisions: 1. Payment. Principal and interest shall be due and payable as follows: (a) During the first twelve months following the closing date of the Securities Purchase (the "CLOSING DATE"), the maker shall make payments beginning on the first day of the month following the Closing Date and on the first day of each month thereafter in an amount equal to the amount of interest accrued on the outstanding balance under this Note during the preceding month plus a principal payment of One Hundred Eighty Three Thousand Three Hundred Thirty Three Dollars ($183,333); (b) During the thirteenth through the forty-eighth month following the Closing Date, the maker shall make payments on the first day of each month in an amount equal to the amount of interest accrued on the outstanding balance under this Note during the preceding month plus a principal payment of One Hundred Thirty Seven Thousand Five Hundred Dollars ($137,500); -35- 36 (c) During the forty-ninth through the sixtieth month following the Closing Date, the maker shall make payments on the first day of each month in an amount equal to the amount of interest accrued on the outstanding balance under this Note during the preceding month plus a principal payment of Fifty Four Thousand One Hundred Sixty Seven Dollars ($54,167). 2. Prepayment/Conversion. This Note may be prepaid in whole or in part at any time and from time to time without premium or penalty and without prior notice to Tivin, and any such prepayments may not be directed to be applied to any subsequent installments of principal. This Note shall not be convertible into shares of the maker or of any endorser hereon or guarantor hereof. 3. Full Acceleration. This Note shall, at the option of Tivin, become immediately due and payable without notice or demand by Tivin to the maker upon the occurrence of any of the following events (each being an "EVENT OF DEFAULT"): (a) Failure of the maker to pay within ten (10) days after notice thereof by Tivin to the maker that any payment of principal or interest herein required shall have become due and not paid in a timely manner; (b) Dissolution or termination of existence of the maker or of any endorser hereon or guarantor hereof; or (c) The making of an assignment for the benefit of creditors, insolvency, appointment of a receiver (not discharged within sixty (60) days) of any part of the property of, or the filing of a petition in bankruptcy, or the commencement of any proceedings under any bankruptcy or insolvency law or any law relating to the relief of debtors, readjustment or indebtedness, reorganization, composition or extension, by or (if not discharged within sixty (60) days) against, the maker or any endorser hereon or guarantor hereof. 4. Partial Acceleration. In the event of the termination of the Employment Agreement dated August _____, 1999 between the maker of this Note and Tivin without "cause" as defined in said Employment Agreement, an amount equal to fifty percent (50%) of the unpaid portion of this Note shall become immediately payable, with the balance of this Note continuing to be payable in the same manner and over the same time period over the balance of the term of this Note, except that each monthly principal payment shall be reduced to an amount equal to fifty percent (50%) of the payments set forth in Section 1. 5. Notices. Any notice, request or instruction to be given hereunder shall be in writing and shall be delivered in person or transmitted by facsimile (with confirmation in writing to be made available upon request) or mailed by certified mail, return receipt -36- 37 requested, postage prepaid, and delivered to the appropriate party and address as shown above. Either of the addresses specified above may be changed by notice given as herein provided. All communications will be deemed effective upon receipt. 6. No Assignment. This Note shall inure solely to the benefit of Tivin and shall not be assignable. 7. Waiver. (a) The maker and all endorsers and guarantors of this Note hereby waive presentment, demand, protest and all other demands in connection with the delivery and enforcement of this Note. (b) Tivin shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver be in writing and signed by Tivin, and then only to the extent expressly set forth therein. A waiver on any one occasion shall not constitute or be construed as a bar to or a waiver of any such right or remedy on any future occasion. 8. Choice of Law. The execution, delivery and performance of this Note shall be governed by and construed in accordance with the laws of the State of Delaware. 9. Legal Fees. Maker shall be liable for any and all fees and expenses incurred by Tivin, including legal fees, in connection with his enforcing this Note. This Note has been executed under seal on the day and year first above written. NEOFORMA GAR, INC. _____________________________ By:_____________________________ Witness -37- 38 EXHIBIT B TO EXHIBIT 2.01 GUARANTY THIS GUARANTY ("GUARANTY"), executed as of the ____ day of August, 1999 is by Neoforma, Inc., a Delaware corporation, having a mailing address of 3255-7 Scott Boulevard, Santa Clara, California 95054 ("GUARANTOR") for the benefit of Erik Tivin having an address of 430 Newtown Drive, Buffalo Grove, Illinois 60089 ( the "SELLER"). RECITALS This Guaranty is given in connection with a promissory note (the "NOTE") of even date herewith executed by Neoforma GAR, Inc., a Delaware corporation (the "BUYER") in favor of the Seller in the original principal amount of Seven Million Eight Hundred Thousand Dollars ($7,800,000) issued pursuant to and as an inducement to Seller to enter into that certain Securities Purchase Agreement dated July 16th, 1999, by and among Guarantor, Buyer and Seller (the "AGREEMENT") which provided for the purchase by the Buyer of the issued and outstanding securities of General Asset Recovery, LLC, an Illinois limited liability company. NOW THEREFORE, in consideration of the transactions contemplated in the Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby makes the following representations and warranties to Seller and hereby covenants and agrees with Seller as follows: 1. GUARANTY. Guarantor hereby absolutely, unconditionally and irrevocably guaranties to Seller the performance and payment when due, whether at maturity, by acceleration or otherwise, of all liabilities and obligations now or hereafter owing by, or chargeable to Buyer under the Note, including without limitation, principal and interest, and all other liabilities and obligations of Buyer to Seller, which become due, if ever, under the Note (the foregoing being hereinafter collectively referred to as the "OBLIGATIONS"). Upon the occurrence of an Event of Default (as defined in the Note), Guarantor shall, on demand by Seller, immediately pay and perform all Obligations as are then or may thereafter from time to time become due and owing, without further notice from Seller. 2. MISCELLANEOUS. (a) Notices. Any notice, request or instruction to be given hereunder shall be in writing and shall be delivered in person or transmitted by facsimile (with confirmation in writing to be made available upon request) or mailed by certified mail, return receipt requested, postage prepaid, and delivered to the appropriate party and address as shown above. Either of the addresses specified above may be changed by notice given as herein provided. All communications will be deemed effective upon receipt. 38 39 (b) No Assignment. This Guaranty shall be binding upon Guarantor and inure solely to the benefit of Seller and shall not be assignable. (c) Termination. If all sums and indebtedness owing under the Note shall be fully and indefeasibly paid in cash, this Guaranty shall terminate and be of no further force or any effect. (d) Governing Law. The execution, delivery and performance of this Guaranty shall be governed by the laws of the State of Delaware. (e) Legal Fees. Guarantor shall be liable for any and all fees and expenses incurred by Seller, including legal fees, in connection with its enforcing this Guaranty. GUARANTOR Neoforma, Inc. By: ------------------------------------- Robert J. Zollars, President and Chief Executive Officer 39 40 EXHIBIT C TO EXHIBIT 2.01 EMPLOYMENT AGREEMENT This Employment Agreement (the "EMPLOYMENT AGREEMENT") is made this _____ day of August, 1999, by and between Neoforma GAR, Inc., a Delaware corporation, (the "COMPANY"), Neoforma, Inc., a Delaware corporation, ("NEOFORMA"), and Erik Tivin of Buffalo Grove, Illinois (the "EMPLOYEE"). RECITALS The Company has acquired all of the issued and outstanding securities (the "SECURITIES PURCHASE") of General Asset Recovery, LLC, ("GAR") pursuant to the terms of a certain Securities Purchase Agreement dated July 16th, 1999, which provided for the employment of the Employee by the Company. The Company and the Employee acknowledge that the Employee's abilities and services are essential to the prospects of the Company, the Company desires to hire the Employee as its President, and the Employee desires to accept such employment. The parties hereto desire to enter into a comprehensive agreement to set forth the terms and conditions pursuant to which the Employee shall be employed by the Company. NOW, THEREFORE, in consideration of Employee's employment by the Company, the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee, intending to be legally bound, agree as follows: 1. Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment, all upon the terms, conditions and covenants set forth in this Employment Agreement which the Company and Employee agree are reasonable. 2. Duties. The Employee shall serve on a full-time basis as the Company's President, with all powers and duties customarily associated with such title and as are otherwise set forth herein, and shall: (a) faithfully and diligently perform the duties of President of the Company, and Vice President of Neoforma, the Company's parent company; (b) comply with the overall reasonable business policies established by the Chief Executive Officer (the "CHIEF EXECUTIVE OFFICER") of Neoforma, or by the Board of Directors (the "BOARD OF DIRECTORS") of Neoforma; and (c) do all things reasonably within his power to promote, develop, operate and expand the "business of the Company" in a manner designed to meet with the projections set forth on Schedule A hereto. For the purposes of setting forth the duties of the Employee in 40 41 this Section 2, the "business of the Company" shall include, (i) the business operated as GAR prior to its acquisition by the Company, which the Employee agrees to operate in substantially the same manner as it was operated by him prior to such acquisition; (ii) a medical equipment auction business, which may include Neoforma Trade, over which the Employee is given oversight, whether such business is operated directly through the Company or otherwise; and (iii) the asset management business operated by Neoforma prior to the acquisition of GAR by the Company, whether operated through the Company or otherwise. The Employee agrees to perform such other related duties as may be delegated to the Employee from time to time by the Chief Executive Officer or by the Board of Directors. The Employee shall devote his full time and reasonable business efforts in the performance of his duties and shall not have any outside employment while employed on a full-time basis by the Company. The Employee shall report directly to the Chief Executive Officer or a similar level executive officer of Neoforma appointed by the Board of Directors, and shall be required to submit a monthly operations report to such Chief Executive Officer or such other officer on or before the fifteenth day of each month with respect to the Company's operations for the prior month. The Employee shall not be required to relocate his base of employment outside of the State of Illinois. 3. Term. The term of this Employment Agreement shall begin on the date hereof (the "EFFECTIVE DATE") and shall continue until the earlier of December 31, 2001 or the date of any termination hereunder (the "TERM"). 4. Compensation. All compensation paid or payable hereunder shall be deemed to be paid or payable by the Company in accordance with the Company's general policy, as set forth in the Company's written manuals, unless this Employment Agreement specifically states otherwise. (a) Salary. During the Term of this Employment Agreement, the Company shall pay to the Employee, in consideration for the services provided by him hereunder, an annual base salary in the minimum of One Hundred Thousand Dollars ($100,000) per year (the "ANNUAL SALARY"), which amount shall be payable in accordance with Neoforma's customary payroll practices and shall be prorated for any partial years of employment hereunder. The Board of Directors shall have the right but not the obligation to increase the amount of the Annual Salary based upon the performance of the Company and the Employee. (b) Bonus. As further compensation, provided Employee remains employed by the Company, Employee shall be entitled to receive an annual bonus payable following the completion of each year during the Term, based on the level of sales attained by the Company, which bonus shall be calculated in the manner set forth on Schedule B attached hereto but which shall not be less than Fifty Thousand Dollars ($50,000) per year. (c) Stock Options. In consideration of his continued employment hereunder, the Employee shall be granted options to purchase up to Five Hundred Fifty 41 42 Thousand (550,000) shares of the common stock, $0.001 par value, of Neoforma, which options shall be exercisable at a price of $0.10 per share. The options shall vest (i) at a rate of Thirty Three Thousand Three Hundred Thirty Three (33,333) shares per month during each of months one through twelve following the closing date of the Securities Purchase (the "CLOSING Date") (on the same date of each month as the Closing Date), and (ii) at the rate of Four Thousand One Hundred Sixty Seven (4,167) shares per month during each of months thirteen through forty-seven, with the balance of the remaining options to vest in month forty-eight, following the Closing Date (on the same day of each month as the Closing Date). Notwithstanding the foregoing, in the event Employee ceases to be employed by the Company during the term of this Employment Agreement, other than if Employee is terminated by the Company without cause as defined in Section 9, Employee shall forfeit the right to exercise any options which have not yet vested. The options being issued hereunder shall be exercisable for a period of seven years and shall be issued pursuant to Neoforma's 19__ Employee Stock Option Plan. 5. Benefits. All benefits paid or payable hereunder shall be deemed to be paid or payable by the Company in accordance with the Company's general policy, as set forth in the Company's written manuals, unless this Employment Agreement specifically states otherwise. (a) Vacation, Paid Holidays. During the Term, the Employee shall be entitled to take twenty-two (22) days of paid time off, unless otherwise agreed upon by the Employee and the Company. The Employee shall also be entitled to paid absence for all holidays provided by the Company to its other employees plus any other holiday upon which the Company is closed for business. Nothing herein shall prohibit the Company from changing the holidays which it observes hereafter. (b) Other Benefits. During the Term, the Employee shall be entitled to participate (to the extent that he is eligible) in all other employee benefits, if any, provided by the Company under the same terms and conditions as provided for its other executive officers including but not limited to: (i) health and disability insurance under such policies or plans as the Company may adopt; (ii) participation in such 401(k) plan as the Company may establish; and (iii) term life insurance coverage in such amounts and under such policies or plans as the Company may adopt. (c) Automobile Allowance. The Employee shall be entitled each month to an automobile allowance in the amount of One Thousand Four Hundred Dollars ($1,400) which shall be used for automobile related expenses incurred by the Employee in the performance of his duties hereunder. 6. Reimbursement for Expenses. Upon the submission of appropriate invoices or vouchers, the Employee shall be entitled to reimbursement for all reasonable expenses that he incurs in the performance of his duties under this Employment Agreement in furthering the 42 43 business and policies of the Company, such reimbursement to be paid in accordance with Neoforma's customary expense reimbursement practices. 7. Key Person Life Insurance. The Company shall have the right but not the obligation to maintain and pay for a key person life insurance policy on the life of the Employee, as to which the Company shall be the sole beneficiary and owner. The Employee agrees upon the execution of this Employment Agreement to cooperate fully with the Company and to provide the Company with all necessary documents in order for the Company to obtain such policy. 8. Withholding. The Company shall withhold or deduct from the Employee's cash compensation any amounts required by law to be so withheld or deducted. 9. Termination by The Company. (a) This Employment Agreement may be terminated by the Company upon the occurrence of any of the following: (i) the Employee's death. If the Employee dies during the Term, the Company's obligations under this Employment Agreement shall terminate immediately and the Employee's estate shall be entitled to all arrearages of salary and expenses but shall not be entitled to further compensation unless otherwise specifically provided for under this Employment Agreement. (ii) the action by the Board of Directors following the Employee's "disability". For this purpose, "disability" means a physical or mental illness or other incapacity which renders the Employee unable to perform substantially all of his duties for a period of six (6) months. For purposes of this Employment Agreement, disability shall be deemed a continuation of any prior disability if the disability is related to the prior disability and commences within twelve (12) months of the termination of the prior disability. Disability, and any relation to any prior disability, shall be determined by a physician acceptable to the Company and the Employee provided that if the Company and the Employee fail to agree on a mutually acceptable physician, a third physician shall be chosen by each party's physician and any determination by such third physician shall be binding. If the Employee becomes disabled during the Term, the Employee may pursue his rights under any disability plan maintained by the Company. (iii) the action of Neoforma's Board of Directors for Cause. "Cause" is defined as the occurrence of any of the following events: (A) fraud, misappropriation, embezzlement or intentional misconduct on the part of the Employee, (B) the Employee's willful failure to substantially perform his duties for the Company when, and to the extent, requested by the Board of Directors, or its lawfully designated representative, to do so and failure to correct same within five (5) business days after notice from the Board of Directors or its lawfully designated representative requesting the Employee to do so, which has a materially 43 44 adverse effect upon the Company, or (C) the Employee's willful breach of any material provision of this Employment Agreement and such breach continues for a period of five (5) business days after notice from the Board of Directors or its lawfully designated representative of such breach. Termination by the Company for cause will be effective immediately upon receipt by the Employee of notice of such termination. (b) Termination of Benefits. In the event of any termination by the Company for "cause" pursuant to Section 9 (a) hereof, or any voluntary termination by the Employee, in addition to the termination of the various benefits and compensation payable to the Employee hereunder generally, the benefits provided for pursuant to Section 4 of this Employment Agreement shall, to the extent not yet accrued or vested, automatically cease and terminate, and any and all unvested stock options held by Employee in Neoforma shall automatically expire. (c) Survival. Notwithstanding anything else in this Employment Agreement, the provisions of Section 10 (Confidentiality), Section 11 (Non-Competition and Non-Solicitation), Section 12 (Developments), Section 13 (Representations and Warranties) and Section 23 (Equitable Remedies) shall survive the termination of the Employee's employment with the Company, if by the Company, for "cause" or by the Employee. In the event the Employee's employment hereunder is terminated by the Company without cause, or due to the bankruptcy or insolvency of the Company, or due to any material breach of this Employment Agreement by the Company, the only provision of this Employment Agreement which shall survive shall be Section 10 (Confidentiality) to the extent that it deals with Confidential Information of the Company which existed prior to the date of this Employment Agreement. 10. Confidentiality. During the Term of this Employment Agreement and thereafter, the Employee hereby covenants and agrees that he shall not other than for the benefit of the Company publish, disclose to any third party or in any way use for his own benefit any confidential information ("Confidential Information"), including without limitation, any balance sheet or income statement information (including but not limited to the value, amount or condition of capital assets and/or inventory, sales figures, profitability, etc.), or any other financial data, banking information, credit information, trade secrets, financial statements or related data, customer lists or information pertaining to customers or any unique distribution, manufacturing, marketing and research methods of the Company or its parent or affiliates (or formerly of General Asset Recovery, LLC), and any other Confidential Information concerning the Company's or its parent or affiliate's, business, structure or affairs, (or the business, structure or affairs formerly of General Asset Recovery, LLC). All Confidential Information and copies thereof are the sole property of the Company and Employee shall deliver promptly to the Company at the termination of his employment or at any time as the Board of Directors may request, without retaining copies, any Confidential Information made, compiled, delivered, made available or otherwise obtained by Employee. Employee shall also use his best efforts and exercise utmost diligence to protect and safeguard the Confidential Information of the Company's customers, contractors and others with whom 44 45 the Company has a business relationship, whether learned or acquired by Employee during the course of his employment by the Company. The nondisclosure obligations of this Section 10 shall not apply to: (a) information that may be disclosed generally or is in the public domain through no fault of the Employee; (b) information received from a third party outside the Company that was disclosed without a breach of any confidentiality obligation; (c) information approved for release by written authorization of the Company; or (d) information that may be required by law or an order of any court, agency or proceeding to be disclosed. This Section 10 shall remain in effect notwithstanding any termination of this Employment Agreement. 11. Non-Competition and Non-Solicitation. (a) During the time Employee is employed by the Company, Employee shall devote his full time and efforts to the business of the Company and shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company. For a period of eighteen (18) months after the termination of employment with the Company for any reason: (i) Employee shall not hire or attempt to hire any employee of the Company, or assist in such hiring by anyone else, or encourage any employee to terminate his or her employment with the Company; (ii) Employee shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company in the medical equipment re-sale industry, medical facility planning industry or in any other business in which the Company is engaged, in any state in which the Company does business; and (iii) Employee shall not cause or assist to cause any of the customers of the Company with whom Employee communicated, dealt with or became acquainted during his term of employment with the Company to enter into contractual arrangements with himself or any other person, firm, partnership, corporation or other company in any business or activity that is in competition with the Company. (b) "Blue Pencil" Rule. The Employee and the Company desire that the provisions of this Section 11 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If a court of competent jurisdiction, however, determines that any restrictions imposed on the Employee in this Section are unreasonable or unenforceable because of duration, area of restriction, or otherwise, the Employee and the Company agree and intend that the court shall enforce this Section 11 to whatever extent the court deems reasonable to effect the intent of this Section 11. (c) Legitimate Purpose. The Employee has read carefully all of the terms and conditions of this Section 11 and agrees that the restraints set forth herein (i) are reasonable and necessary to support the legitimate business interests and goodwill of the Company, and (ii) will not preclude the Employee from earning a livelihood during the life of this Section 11. 45 46 12. Developments. All Confidential Information and all other discoveries, inventions, processes, methods, and improvements conceived, developed, or otherwise made by Employee at any time, alone or with others, and in any way relating to the Company's present or future business or products, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice, during the Term of employment ("DEVELOPMENTS"), shall be the sole property of the Company. Employee agrees to and hereby does assign to the Company all right, title, and interest throughout the world in and to all Developments and agrees to promptly disclose such Developments to the Company and take all such actions reasonably requested by the Company to establish and confirm the Company's ownership of such Developments. Employee agrees that all such Developments shall constitute works made for hire under the copyright laws of the United States and hereby assigns to the Company all copyrights, patents, trademarks and other proprietary rights the Employee may have in such Developments. 13. Representations and Warranties. Prior to the execution and delivery of this Employment Agreement, the Employee represents and warrants that he has terminated all of his obligations under any other employment agreement or other similar agreement, whether written or oral, with any other party. The Employee has delivered copies of all such employment or other agreements and evidence satisfactory to the Company of the termination of such agreements. The Employee represents and warrants that the execution of this Employment Agreement will not result in a breach of any written agreement to which the Employee is a party or by which the Employee is bound. The Employee covenants and agrees to defend, indemnify and hold harmless the Company, its affiliates and its successors and assigns against any and all claims, damages, liabilities, suits, actions, costs, charges and expenses, including, without limitation, attorneys' fees, resulting from a breach of this Section 13. 14. Notice. All necessary notices, payments, demands and requests shall be in writing and shall be deemed duly given three (3) days after being mailed by certified mail, postage prepaid, return receipt requested, or when actually received if sent by facsimile, overnight delivery or other means, and addressed as follows: Company: c/o Neoforma, Inc. 3255-7 Scott Boulevard Santa Clara, California 95054 Attn: Wm. Samuel Veazey, Controller Facsimile: (408) 549-6299 With a Copy to: John A. Kostrubanic, Esq. Pepe & Hazard, LLP 150 Federal Street, 28th Floor Boston, Massachusetts 02110 Facsimile: (617) 695-9255 46 47 Employee: Erik Tivin 430 Newtown Drive Buffalo Grove, Illinois 60089 Facsimile: (847) 255-2922 With a copy to: Spencer J. Marks, Esq. Marks, Marks and Kaplan, Ltd. 120 North La Salle Street, Suite 3200 Chicago, Illinois 60602 Facsimile: (312) 332-2952 Each addressee may change its address or facsimile number for notice by giving notice of change of address or facsimile number in the manner set forth above. 15. Assignment. This Employment Agreement shall be freely assignable by the Company to, and shall inure to the benefit of and be binding upon, any other entity which shall succeed to the business presently being operated by the Company, but, being a contract for personal services, neither this Employment Agreement nor any rights hereunder shall be assignable by the Employee. 16. Further Execution. The parties agree to execute all documents necessary to further effectuate the terms of this Employment Agreement. 17. Litigation. In the event of any dispute respecting this agreement, such dispute shall be resolved in a court of competent jurisdiction in the State of Illinois, and the parties hereto consent to such venue and jurisdiction. Each party shall bear the cost of its own fees and expenses. 18. Authority. Each party represents that its undersigned representative or corporate officer has all requisite power and authority to enter into this Employment Agreement and to execute any and all instruments and documents on its behalf necessary to and in performance of their respective obligations hereunder. 19. Counterparts. This Employment Agreement may be executed in separate counterparts, each of which shall be deemed original and all of which together shall constitute one and the same instrument. 20. Waivers. No waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Employment Agreement, nor any waiver on the part of any party of any provisions or conditions of this Employment Agreement, shall be valid unless made in writing and signed by the party to be charged therewith, and shall be effective only to the extent specifically set forth in such writing. No delay or omission to exercise any right, 47 48 power or remedy inuring to any party, upon any breach or default of any party under this Employment Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Employment Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 21. Severability. If any provisions of this Employment Agreement shall be held to be invalid or unenforceable to any extent or in any application, then the remainder of this Employment Agreement and such terms and conditions, except to such extent or in such application, shall not be affected thereby, and each and every term and condition of this Employment Agreement shall be valid and enforced to the fullest extent and in the broadest application permitted by law. 22. Headings. The paragraph headings contained herein are for convenience and reference only, and shall be given no effect in the interpretation of any term or condition of this Employment Agreement. 23. Equitable Remedies. Each party hereto hereby confirms that damages at law may be an inadequate remedy for the breach or threatened breach of this Employment Agreement and agrees that, in the event of a breach or threatened breach by a party of any provision hereof, the other party's rights and obligations hereunder shall be enforceable by specific performance, injunction, or other equitable remedy, in addition to and not in lieu of any rights to damages at law or other rights provided by statute or otherwise for a breach or threatened breach of any provision hereof. Accordingly, each party hereto hereby waives and agrees not to assert any objection to such equitable relief based upon the purported existence of an adequate remedy at law, notwithstanding that another party may also assert claims for damages at law or other claims as an alternative to, or in addition to, such equitable relief. 24. Miscellaneous. This Employment Agreement is entered into and shall be construed under the laws of the State of Illinois applicable to contracts made and to be entirely performed within that State. This Employment Agreement shall be amended, modified or terminated only by an instrument in writing, signed by the party or parties to be charged. This Employment Agreement is the entire agreement of the parties relating to the employment of the Employee by the Company and supersedes all previous written or oral agreements. 48 49 IN WITNESS WHEREOF the parties have executed or caused to be executed this Employment Agreement under seal as of the day and year first above written. NEOFORMA GAR, INC. NEOFORMA, INC. By:_______________________________ By:_______________________________ Wayne McVicker, President Robert J. Zollars, President and Chief Executive Officer EMPLOYEE: __________________________________ Erik Tivin 49 50 EXHIBIT D TO EXHIBIT 2.01 CONSULTING AGREEMENT This Consulting Agreement (the "Agreement") is made this ____ day of August, 1999, by and between Neoforma GAR, Inc., a Delaware corporation (the "COMPANY"), and Fred Tivin of Highland Park, Illinois (the "CONSULTANT"). RECITALS The Company is a wholly-owned subsidiary of Neoforma, Inc. ("NEOFORMA"), a Delaware corporation, and has acquired all of the issued and outstanding securities (the "SECURITIES PURCHASE") of General Asset Recovery, LLC, ("GAR") pursuant to the terms of a certain Securities Purchase Agreement dated July 16th, 1999, which provided for the Consultant's acting as a consultant to the Company. The Company wishes to hire the Consultant as an independent contractor to perform the services set forth herein, for the period of time, and upon the terms and subject to the conditions, which are more particularly set forth below; and The Consultant desires to perform such services, for such period of time and upon such terms and subject to such conditions; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consulting Period. The Consultant is hereby retained by the Company to perform, and the Consultant hereby agrees to perform, the services provided for herein, as an independent contractor, for a period commencing on the date hereof and ending on the two (2) year anniversary of the date hereof unless terminated earlier as provided for herein (the "CONSULTING PERIOD"). 2. Services and Duties. The Consultant agrees that during the Consulting Period, he will provide certain services to the Company, consisting of support and assistance in connection with the operation of the business previously operated by General Asset Recovery, LLC, as well as such other tasks and responsibilities which may be delegated to the Consultant by or under the authority of the President of the Company and/or the Chief Executive Officer of Neoforma, from time to time (the "CONSULTING SERVICES"). The Consultant shall report directly to the President of the Company and to the Chief Executive Officer of Neoforma or to any officer of Neoforma designated by the Board of Directors of Neoforma. 50 51 The Consultant agrees that he will conduct himself in a professional and ethical manner at all times during the term of this Agreement and will take no action that might cause injury to the business or goodwill of the Company. The Consultant shall not perform consulting or other services for any entity or person which is directly competitive with Neoforma or the Company during the Consulting Period without the prior written consent of the Board of Directors of Neoforma, which shall not be unreasonably withheld. However, Consultant shall be permitted to perform consulting services for and be employed by other non-competing businesses. It is the intention of the parties that Consultant shall not be required to devote his full time and efforts to his duties under this Consulting Agreement. 3. Compensation/Reimbursement for Expenses. All compensation paid or payable hereunder shall be deemed to be paid or payable by the Company unless this Agreement specifically states otherwise. (a) Consulting Fees. In consideration for the Consulting Services and subject to the due performance thereof, the Company shall pay to the Consultant during the Consulting Period a fee of One Hundred Fifty Thousand Dollars ($150,000) per year (the "CONSULTING FEE") which Consulting Fee shall be payable during the term of this Agreement in equal semi-monthly installments in accordance with the Company's customary practices. The Consulting Fee shall be pro-rated for any partial year during which the Consultant provides Consulting Services. (b) Reimbursement for Expenses. At the end of each month during the Consulting Period, the Company shall reimburse the Consultant for reasonable items of miscellaneous and travel expenses incurred in furtherance of the business of the Company, but payment shall be made only against a signed itemized list of such expenditures. (c) Automobile Allowance. The Consultant shall be entitled each month to an automobile allowance in an amount equal to his actual automobile related expenses, up to the amount of One Thousand Four Hundred Dollars ($1,400) which shall be used for automobile related expenses incurred by the Consultant in the performance of his duties hereunder. 4. Key Person Life Insurance. The Company shall have the right but not the obligation to maintain and pay for a key person life insurance policy on the life of the Consultant throughout the duration of this Agreement, as to which the Company shall be the sole beneficiary and owner. The Consultant agrees upon the execution of this Agreement to 51 52 cooperate fully with the Company and to provide the Company with all necessary documents in order for the Company to obtain such policy. 5. Status as Independent Consultant. It is the intent and purpose of this Agreement to create a legal relationship of independent contractor, and not employment, as between the Company and the Consultant. The Consultant will not be treated as an employee of the Company for purposes of the Federal Insurance Contributions Act, the Social Security Act, the Federal Unemployment Tax Act, income tax withholding at source, or workmen's compensation laws, and will not be eligible for any employee benefits whatsoever, other than those set forth herein. The Consultant shall be responsible for the payment of self-employment and federal income taxes due on all payments hereunder. In the event that any governmental or administrative agency, whether federal, state or local, shall subsequently determine that for their purposes, the relationship is one of employment as between said parties, then in such event Consultant shall bear any and all loss, costs and expenses of the Company in connection with or arising out of such determination, whether in the nature of past or future FICA contributions, Social Security taxes, unemployment taxes or income taxes. The Consultant shall indemnify the Company and hold it harmless from any liability to any former Company or to any other party in connection with or arising out of any such governmental or administrative determination, or otherwise as a consequence of Consultant's status as an independent contractor rather than an employee of the Company. 6. Termination. (a) This Agreement may be terminated upon any of the following: (i) the Consultant's death; (ii) the action by the Board of Directors of Neoforma following the Consultant's "disability". For this purpose, "disability" means a physical or mental illness or other incapacity which renders the Consultant unable to perform substantially all of his duties for a period of two (2) months. For purposes of this Agreement, disability shall be deemed a continuation of any prior disability if the disability is related to the prior disability and commences within eight (8) months of the termination of the prior disability. Disability, and any relation to any prior disability, shall be determined by a physician acceptable to the Company; or (iii) the action of the Board of Directors or Chief Executive Officer of Neoforma or the President of the Company for Cause. "Cause" is defined as the occurrence of any of the following events: (A) fraud, misappropriation, embezzlement or intentional misconduct on the part of the Consultant, (B) the Consultant's willful failure to substantially 52 53 perform his duties for the Company when, and to the extent, requested by the Board of Directors, or its lawfully designated representative, to do so and failure to correct same within five (5) business days after notice from the Board of Directors or its lawfully designated representative requesting the Consultant to do so, which has a materially adverse effect upon the Company, or (C) the Consultant's willful breach of any material provision of this Agreement and such breach continues for a period of five (5) business days after notice from the Board of Directors or its lawfully designated representative of such breach. Termination by the Company for cause will be effective immediately upon receipt by the Consultant of notice of such termination. (b) Termination of Benefits. In the event of any termination pursuant to this Section during the term of this Agreement, in addition to the termination of the various benefits and compensation payable to the Consultant hereunder generally, the benefits provided for pursuant to Section 3 of this Agreement shall, to the extent not yet accrued, automatically cease and terminate. (c) Survival. Notwithstanding anything else in this Agreement, the provisions of Section 7 (Confidentiality), Section 8 (Non-Competition and Non-Solicitation), Section 9 (Developments), and Section 20 (Equitable Remedies) shall survive the termination of this Agreement, if by the Company, for "cause" or by the Consultant. In the event this Agreement is terminated by the Company without cause, or due to the bankruptcy or insolvency of the Company, or due to any material breach of this Agreement by the Company, the only provision of this Agreement which shall survive shall be Section 7 (Confidentiality) to the extent that it deals with Confidential Information of the Company which existed prior to the date of this Agreement. 7. Confidentiality. During the Consulting Period and thereafter, the Consultant hereby covenants and agrees that he shall not other than for the benefit of the Company publish, disclose to any third party or in any way use for his own benefit any confidential information ("Confidential Information"), including without limitation, any balance sheet or income statement information (including but not limited to the value, amount or condition of capital assets and/or inventory, sales figures, profitability, etc.), or any other financial data, banking information, credit information, trade secrets, financial statements or related data, customer lists or information pertaining to customers or any unique distribution, manufacturing, marketing and research methods of the Company or its parent or affiliates (or formerly of General Asset Recovery, LLC), and any other Confidential Information concerning the Company's or its parent or affiliate's, business, structure or affairs, (or the business, structure or affairs formerly of General Asset Recovery, LLC). All Confidential Information and copies thereof are the sole property of the Company and Consultant shall deliver promptly to the Company at the termination of his Consulting Period or at any time as 53 54 Neoforma's Board of Directors may request, without retaining copies, any Confidential Information made, compiled, delivered, made available or otherwise obtained by Consultant. Consultant shall also use his best efforts and exercise utmost diligence to protect and safeguard the Confidential Information of the Company's customers, contractors and others with whom the Company has a business relationship, whether learned or acquired by Consultant during the course of his Consulting Period. The nondisclosure obligations of this Section 7 shall not apply to: (a) information that may be disclosed generally or is in the public domain through no fault of the Consultant; (b) information received from a third party outside the Company that was disclosed without a breach of any confidentiality obligation; (c) information approved for release by written authorization of the Company; or (d) information that may be required by law or an order of any court, agency or proceeding to be disclosed. This Section 7 shall remain in effect notwithstanding any termination of this Agreement. 8. Non-Competition and Non-Solicitation. (a) During the time the Consultant is consulting for the Company, Consultant shall devote his full time and efforts to the business of the Company and shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company. For a period of eighteen (18) months after the termination of the Consulting Period with the Company for any reason: (i) Consultant shall not hire or attempt to hire any employee of the Company, or assist in such hiring by anyone else, or encourage any employee to terminate his or her employment with the Company; (ii) Consultant shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company in the medical equipment re-sale industry, medical facility planning industry or in any other business in which the Company is engaged, in any state in which the Company does business; and (iii) Consultant shall not cause or assist to cause any of the customers of the Company with whom Consultant communicated, dealt with or became acquainted during his term of consulting for the Company to enter into contractual arrangements with himself or any other person, firm, partnership, corporation or other company in any business or activity that is in competition with the Company. (b) "Blue Pencil" Rule. The Consultant and the Company desire that the provisions of this Section 8 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If a court of competent jurisdiction, however, determines that any restrictions imposed on the Consultant in this Section are unreasonable or unenforceable because of duration, area of restriction, or otherwise, the Consultant and the Company agree and intend that the court shall enforce this Section 8 to whatever extent the court deems reasonable to effect the intent of this Section 8. -54- 55 (c) Legitimate Purpose. The Consultant has read carefully all of the terms and conditions of this Section 8 and agrees that the restraints set forth herein (i) are reasonable and necessary to support the legitimate business interests and goodwill of the Company, and (ii) will not preclude the Consultant from earning a livelihood during the life of this Section 8. 9. Developments. All Confidential Information and all other discoveries, inventions, processes, methods, and improvements conceived, developed, or otherwise made by Consultant at any time, alone or with others, and in any way relating to the Company's present or future business or products, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice, during the term of this agreement and for six months thereafter ("Developments"), shall be the sole property of the Company. Consultant agrees to and hereby does assign to the Company all right, title, and interest throughout the world in and to all Developments and agrees to promptly disclose such Developments to the Company and take all such actions reasonably requested by the Company to establish and confirm the Company's ownership of such Developments. Consultant agrees that all such Developments shall constitute works made for hire under the copyright laws of the United States and hereby assigns to the Company all copyrights, patents, trademarks and other proprietary rights the Consultant may have in such Developments. 10. Notices. All necessary notices, payments, demands and requests shall be in writing and shall be deemed duly given three (3) days after being mailed by certified mail, postage prepaid, return receipt requested, or when actually received if sent by facsimile, overnight delivery or other means, and addressed as follows: Company: c/o Neoforma, Inc. 3255-7 Scott Boulevard Santa Clara, California 95054 Attn: Wm. Samuel Veazey, Controller Facsimile: (408) 549-6299 With a Copy to: John A. Kostrubanic, Esq. Pepe & Hazard, LLP 150 Federal Street, 28th Floor Boston, Massachusetts 02110 Facsimile: (617) 695-9255 Consultant: Fred Tivin 747 Sumac Drive Highland Park, Illinois 60035 -55- 56 With a Copy to: Marks, Marks and Kaplan Ltd. 120 North La Salle Street, Suite 3200 Chicago, Illinois 60602 Attn: Spencer J. Marks, Esq. Facsimile No.: (312) 332-2952 Each addressee may change its address or facsimile number for notice by giving notice of change of address or facsimile number in the manner set forth above. 11. Assignment. This Agreement shall be freely assignable by the Company to, and shall inure to the benefit of and be binding upon, any other entity which shall succeed to the business presently being operated by the Company, but, being a contract for personal services, neither this Agreement nor any rights hereunder shall be assignable by the Consultant. 12. Further Execution. The parties agree to execute all documents necessary to further effectuate the terms of this Agreement. 13. Litigation. In the event of any dispute respecting this agreement, such dispute shall be resolved in a court of competent jurisdiction in the State of Illinois, and the parties hereto consent to such venue and jurisdiction. Each party shall bear the cost of its own fees and expenses. 14. Authority. Each party represents that its undersigned representative or corporate officer has all requisite power and authority to enter into this Agreement and to execute any and all instruments and documents on its behalf necessary to and in performance of their respective obligations hereunder. 15. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 16. Waivers. No waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, nor any waiver on the part of any party of any provisions or conditions of this Agreement, shall be valid unless made in writing and signed by the party to be charged therewith, and shall be effective only to the extent specifically set forth in such writing. No delay or omission to exercise any right, power or remedy inuring to any party, upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or -56- 57 default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 17. Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, such provision shall be reformed to the extent necessary to permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 18. Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 19. Equitable Remedies. Each party hereto hereby confirms that damages at law may be an inadequate remedy for the breach or threatened breach of this Agreement and agrees that, in the event of a breach or threatened breach by a party of any provision hereof, the other party's rights and obligations hereunder shall be enforceable by specific performance, injunction, or other equitable remedy, in addition to and not in lieu of any rights to damages at law or other rights provided by statute or otherwise for a breach or threatened breach of any provision hereof. Accordingly, each party hereto hereby waives and agrees not to assert any objection to such equitable relief based upon the purported existence of an adequate remedy at law, notwithstanding that another party may also assert claims for damages at law or other claims as an alternative to, or in addition to, such equitable relief. 20. Miscellaneous. This Agreement is entered into and shall be construed under the laws of the State of Illinois applicable to contracts made and to be entirely performed within that state. This Agreement shall be amended, modified or terminated only by an instrument in writing, signed by the party or parties to be charged. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof, and supersedes all previous oral or written agreements, correspondence and understandings with regard to such subject matter. -57- 58 IN WITNESS WHEREOF the parties have executed or caused to be executed this Agreement under seal as of the day and year first above written. CONSULTANT: NEOFORMA GAR, INC. __________________________________ By:________________________________ Fred Tivin 58 59 EXHIBIT E TO EXHIBIT 2.01 GUARANTY THIS GUARANTY ("GUARANTY"), executed as of the ____ day of August, 1999 is by Neoforma, Inc., a Delaware corporation, having a mailing address of 3255-7 Scott Boulevard, Santa Clara, California 95054 ("GUARANTOR") for the benefit of Fred Tivin having an address of 430 Newtown Drive, Buffalo Grove, Illinois 60089 ( the "CONSULTANT"). RECITALS This Guaranty is given as an inducement for the Consultant to enter into a consulting agreement (the "CONSULTING AGREEMENT") of even date herewith with the Guarantor's wholly-owned subsidiary, Neoforma GAR, Inc., a Delaware corporation (the "BUYER"), pursuant to that certain Securities Purchase Agreement dated July 16th, 1999, by and among Guarantor, Buyer and Consultant which provided for the purchase by the Buyer of the issued and outstanding securities of General Asset Recovery, LLC, an Illinois limited liability company. NOW THEREFORE, in consideration of the Consulting Services (as defined in the Consulting Agreement) contemplated in the Consulting Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby covenants and agrees with Consultant as follows: 1. GUARANTY. Guarantor hereby absolutely, unconditionally and irrevocably guaranties to Consultant the payment when due of the Consulting Fee (as defined in the Consulting Agreement). Upon the failure of the Buyer to pay within ten (10) days after the notice thereof by the Consultant to the Buyer that any payment of the Consulting Fee shall have become due and not paid in a timely manner, Guarantor shall, on demand by Consultant, immediately pay such portion of the Consulting Fee as is then or may thereafter from time to time become due and owing, without further notice from Consultant. 2. MISCELLANEOUS. (a) Notices. Any notice, request or instruction to be given hereunder shall be in writing and shall be delivered in person or transmitted by facsimile (with confirmation in writing to be made available upon request) or mailed by certified mail, return receipt requested, postage prepaid, and delivered to the appropriate party and address as shown above. Either of the addresses specified above may be changed by notice given as herein provided. All communications will be deemed effective upon receipt. (b) No Assignment. This Guaranty shall be binding upon Guarantor and inure solely to the benefit of Consultant and shall not be assignable. 59 60 (c) Termination. If all sums and indebtedness owing under the Consulting Agreement shall be fully and indefeasibly paid in cash, this Guaranty shall terminate and be of no further force or any effect. (d) Governing Law. The execution, delivery and performance of this Guaranty shall be governed by the laws of the State of Delaware. (e) Legal Fees. Guarantor shall be liable for any and all fees and expenses incurred by Consultant, including legal fees, in connection with its enforcing this Guaranty. GUARANTOR Neoforma, Inc. By: ------------------------------------- Robert J. Zollars, President and Chief Executive Officer 60 EX-3.01 3 AMENDED AND RESTATED CERTIFICATE OF INC. 1 EXHIBIT 3.01 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEOFORMA.COM, INC. Neoforma.com, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Neoforma.com, Inc. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on August 18, 1998. B. Pursuant to Section 228, 242, and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this corporation. C. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ONE The name of this corporation is Neoforma.com, Inc. TWO The address of the registered office of the corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent, DE 19901. The name of its registered agent at that address is Incorporating Services, Ltd. THREE The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOUR This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is 240,747,048 shares. 200,000,000 shares shall be Common Stock with a par value of $.001. 40,747,048 shares shall be Preferred Stock with a par value of $.001, 9,000,000 of which shall be designated as Series A Preferred Stock, 2,860,000 of which shall be designated as Series B Preferred Stock, 5,109,937 of which shall be designated as Series C Preferred Stock, 10,572,886 of which shall be designated as Series D Preferred Stock, 11,168,662 of which are designated Series E Preferred Stock and 2,035,563 of which are designated Series E-1 Preferred Stock. FIVE The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as follows: 1 Dividend Provisions. a. Series E Preferred Stock and Series E-1 Preferred Stock. The holders of shares of Series E Preferred Stock and Series E-1 Preferred Stock shall be entitled to receive 2 dividends, out of any assets legally available therefor, prior and in preference to any declaration, payment or setting aside of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Common Stock of this corporation, at the rate of $0.4544 per share per annum for the Series E Preferred Stock and Series E-1 Preferred Stock, or, if greater (as determined on a per annum basis and on an as converted basis for such Preferred Stock), an amount equal to that paid on any outstanding shares of Common Stock of this corporation. b. Remaining Preferred Stock. Subject to the prior dividend rights of the Series E Preferred Stock and the Series E-1 Preferred Stock as set forth in Section 1(a), the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock, at the rate of $.02 per share per annum for the Series A Preferred Stock, $.04 per share per annum for the Series B Preferred Stock, $.062 per share per annum for the Series C Preferred Stock, and $.0944 per share per annum for the Series D Preferred Stock, or, if greater (as determined on a per annum basis and on an as converted basis for the Preferred Stock), an amount equal to that paid on any outstanding shares of Common Stock of this corporation. c. Dividends Non-Cumulative. The dividends payable under Section 1(a) and 1(b) shall be payable when, as and if declared by the Board of Directors, and shall not be cumulative, and no right shall accrue to holders of Common Stock or Preferred Stock by reason of the fact that dividends on said shares are not declared in any period. 2 Liquidation Preference. (a) Series E and Series E-1 Preferred Preference. In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, the holders of the Series E Preferred Stock and the holders of the Series E-1 Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or funds of this corporation to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Common Stock by reason of their ownership thereof, an amount per share equal to $5.68, for each outstanding share of such Series E Preferred Stock and Series E-1 Preferred Stock held, plus an amount equal to any declared but unpaid dividends on such share of Series E Preferred Stock or Series E-1 Preferred Stock up to the date fixed for distribution. If upon the occurrence of such event, the assets and funds of this corporation legally available for distribution to the stockholders shall be insufficient to permit the payment to holders of Series E Preferred Stock and Series E-1 Preferred Stock of the full aforesaid preferential amounts, then the entire assets and funds of this corporation legally -2- 3 available for distribution to the stockholders shall be distributed ratably among the holders of the Series E Preferred Stock and Series E-1 Preferred Stock in accordance with the aggregate preference payment to which they are entitled. (b) Remaining Preferred Stock. Subject to the prior payment of the liquidation preference for the Series E Preferred Stock and Series E-1 Preferred Stock as described in Section 2(a) above, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or funds of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to $.25, $.50, $.77 and $1.18, respectively, for each outstanding share of such Preferred Stock held, plus an amount equal to any declared but unpaid dividends on such share of Preferred Stock up to the date fixed for distribution. If upon the occurrence of such event, the assets and funds of this corporation legally available for distribution under this Section 2(b) to the holders of Series A Preferred Sock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be insufficient to permit the payment to holders of such Preferred Stock of the full aforesaid preferential amounts, then, the entire assets and funds of this corporation then legally available for distribution to such stockholders shall be distributed ratably among the holders of such Preferred Stock in accordance with the aggregate preference payment to which they are entitled. (c) Participation. After the payment or setting aside of payment set forth in Sections 2(a) and 2(b) above, the remaining assets and funds of the corporation legally available for distribution to the stockholders shall be distributed on a pro-rata basis to the holders of the Preferred Stock, on an as converted basis, and the holders of the Common Stock until the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series E-1 Preferred Stock have received an additional $.25, $.50, $.77, $1.18, $5.68 and $5.68 per share, respectively. After the distributions to the stockholders pursuant to Sections 2(a), 2(b) and 2(c) above have been made, the remaining assets and funds of the corporation legally available for distribution to stockholders shall be distributed pro-rata solely among the holders of Common Stock. (d) Mergers. A merger, reorganization, or sale of all or substantially all of the assets of this corporation, or other transaction or series of related transactions in which either (i) the stockholders of this corporation immediately prior to the transaction or series of related transactions possess less than 50% of the voting power of the surviving or acquiring entity (or its parent) immediately after the transaction or (ii) one or a group of affiliated stockholders acquires more than 50% of the voting power of this corporation (a "CHANGE OF CONTROL") shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 2; provided that the holders of Preferred Stock and Common Stock shall be paid in cash or in securities received or in a combination thereof (which combination shall be in the same proportions as the consideration received in the transaction). Any securities to be delivered to the holders of the Preferred Stock and Common Stock upon merger, reorganization, sale of substantially all the -3- 4 assets of the corporation or transaction or related series of transactions resulting in a Change of Control shall be valued as follows: (i) if traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing sale prices of the securities on such exchange over the 30-day period ending three (3) business days prior to the closing; (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices (or closing sales prices, whichever is applicable) over the 30-day period ending three (3) business days prior to the closing; or (iii) if there is no active public market, the value shall be the fair market value thereof as determined in good faith by the Board of Directors of the corporation, but if challenged by the holders of more than 50% of the outstanding shares of Preferred Stock, then as determined by an independent appraiser selected by the Board of Directors of the corporation, the cost of such appraisal to be borne by the corporation. (e) This corporation will give written notice of any liquidation, dissolution or winding up (or any transaction which might reasonably be deemed to be a liquidation, dissolution or winding up pursuant to part (d) above) to each record holder of Preferred Stock not less than 20 days prior to the date stated therein for the distribution and payment of the amounts provided in this Section 2. Each holder of Preferred Stock may convert all or any portion of the Preferred Stock into Common Stock at any time on or prior to the date fixed in such notice for distribution and payment or the date of a merger, consolidation or sale of assets deemed to be a liquidation, dissolution or winding up of the Company. 3 Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"): (a) Right to Convert. Each share of Preferred Stock shall be convertible into share(s) of Common Stock without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred Stock. Each share of Preferred Stock shall be convertible into the number of fully paid and nonassessable shares of Common Stock which results from dividing the Conversion Price (as hereinafter defined) per share in effect for the Preferred Stock at the time of conversion into the per share Conversion Value (as hereinafter defined) of such series. On the date of the filing of this document with the Delaware Secretary of State: the initial Conversion Price per share of the Series A Preferred Stock shall be $.25; and the Conversion Value per share of the Series A Preferred Stock shall be $.25; the initial Conversion Price per share of the Series B Preferred Stock shall be $.50; and the Conversion Value per share of the Series B Preferred Stock shall be $.50; the initial Conversion Price per share of the Series C Preferred Stock shall be $.77; the Conversion Value per share of the Series C Preferred Stock shall be $.77; the initial Conversion Price per share of the Series D Preferred Stock shall be $1.18; and the Conversion Value per share of the Series D Preferred -4- 5 Stock shall be $1.18; the initial Conversion Price per share of the Series E Preferred Stock and of the Series E-1 Preferred Stock shall be $5.68; and the Conversion Value per share of the Series E Preferred Stock and of the Series E-1 Preferred Stock shall be $5.68. The initial Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as provided below. The number of shares of Common Stock into which a single share of a particular series of Preferred Stock is convertible is hereinafter referred to as the "CONVERSION RATE" of such series of Preferred Stock. (b) Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at its then effective Conversion Rate immediately prior to the initial closing of an underwritten initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock in which (a) the public offering price equals or exceeds $10.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and (b) the aggregate proceeds of the offering to the Company before deduction of underwriting discounts and expenses of the offering equals or exceeds $60,000,000; provided, however, if the closing of such public offering occurs on or before December 31, 2000, then the minimum price per share for purposes of clause (a) of this paragraph shall be $7.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization), and for the purposes of the automatic conversion described in this Section 3(b), the Conversion Price per share of Series E Preferred Stock and the Conversion Price per share of Series E-1 Preferred Stock shall be adjusted such that the Conversion Price shall equal the Conversion Price in effect immediately prior to the closing of such public offering multiplied by the ratio of (z) the public offering price divided by (q) $10.00. "QUALIFIED IPO" shall mean any public offering in which the public offering price and the aggregate proceeds raised equal or exceed the thresholds in this Section 3(b) for automatic conversion of the Preferred Stock. (c) Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Preferred Stock (or in the case of a lost certificate, shall present such evidence of loss and an appropriate undertaking as the corporation may require) and shall give written notice to the corporation at such office that such holder elects to convert the same (except that no such written notice of election to convert shall be necessary in the event of an automatic conversion pursuant to Section 3(b) hereof). The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted (except that in the case of an automatic conversion pursuant to Section 3(b) hereof such conversion shall be deemed to have been made immediately prior to the initial closing of the offering referred to in Section 3(b) without regard to surrender of the certificate) and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. -5- 6 (d) Fractional Shares. In lieu of any fractional shares to which the holder of Preferred Stock would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the fair market value of one share of such series of Preferred Stock as determined by the Board of Directors of the corporation. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock of each holder to be converted at such time into Common Stock and the number of shares of Common Stock issuable to such holder upon such aggregate conversions. (e) Adjustment of Conversion Price. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: (i) If the corporation shall issue, after the date on which any shares of Series E Preferred Stock or Series E-1 Preferred Stock were first issued, any Common Stock or Common Stock equivalents other than "Excluded Stock," as defined below, for a consideration per share less than the Conversion Price for a series of Preferred Stock in effect immediately prior to the issuance of such Common Stock (excluding stock dividends, subdivisions, split-ups, combinations, dividends or recapitalizations which are covered by Section 3(e)(iii), (iv), (v) and (vi)) (such issuance with such exclusions, a "DILUTIVE ISSUANCE"), the Conversion Price for such series in effect immediately after each such Dilutive Issuance shall forthwith (except as provided in this Section 3(e)) be adjusted as set forth below for the respective series of Preferred Stock: (A) with regard to the Series E Preferred Stock and, subject to the provisions of Section 3(e)(ix), the Series E-1 Preferred Stock, such Conversion Price shall be adjusted to the Effective Price (as defined below) per share of such share of Common Stock or Common Stock equivalent issued in such Dilutive Issuance, provided, however, that if application of the foregoing provision of this clause (A) would reduce the Conversion Price for the Series E Preferred Stock or Series E-1 Preferred Stock, as applicable, below the then effective Conversion Price for the Series D Preferred Stock, then the Conversion Price of Series E Preferred Stock and/or Series E-1 Preferred Stock, as the case may be, shall be reduced under this clause (A) only to the then effective Conversion Price for the Series D Preferred Stock, and the Series E Preferred Stock and/or Series E-1 Preferred Stock shall thereafter be deemed to be included in, and any further adjustment with regard to, such Dilutive Issuance or any subsequent Dilutive Issuance shall be calculated only with regard to, the formula set forth in Section 3(e)(i)(B). As used in this paragraph, "EFFECTIVE PRICE" shall mean the lowest price per share of Common Stock and Common Stock equivalents issued or deemed to be issued under Section 3(e)(i)(C); and (B) with regard to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and, subject to the foregoing paragraph, Series E Preferred Stock and Series E-1 Preferred Stock, such Conversion Price shall be adjusted to a price equal to the quotient obtained by dividing: (1) an amount equal to the sum of -6- 7 (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock, or deemed to have been issued pursuant to Section 3(e)(i)(C)(3) or pursuant to Section 3(e)(ii)) immediately prior to such Dilutive Issuance multiplied by the Conversion Price in effect immediately prior to such Dilutive Issuance, plus (y) the consideration received by the corporation upon such Dilutive Issuance, by (2) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock or deemed to have been issued pursuant to Section 3(e)(i)(C)(3) or pursuant to Section 3(e)(ii)) immediately prior to such Dilutive Issuance plus the additional shares of Common Stock issued in such Dilutive Issuance (but not including any additional shares of Common Stock deemed to be issued as a result of any adjustment in the Conversion Price resulting from such Dilutive Issuance). (C) For purposes of any adjustment of the Conversion Price pursuant to this Section 3(c)(i), the following provisions shall be applicable: (1) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor after deducting any discounts or commissions paid or incurred by the corporation in connection with the issuance and sale thereof. (2) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors of the corporation, in accordance with generally accepted accounting principles; provided, however, that such fair market value as determined by the Board of Directors of the corporation shall equal the aggregate Current Market Price (as defined below) of the shares of Common Stock being issued for consideration other than cash. (3) In the case of the issuance of (i) options to purchase or rights to subscribe for Common Stock (other than Excluded Stock), (ii) securities by their terms convertible into or exchangeable for Common Stock (other than Excluded Stock), or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities (other than Excluded Stock) ("Common Stock equivalents"): (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in -7- 8 Sections 3(e)(i)(C)(1) and (2) above), if any, received by the corporation for the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 3(e)(i)(C)(1) and (2) above); (C) on any change in the number of shares of Common Stock deliverable upon exercise of any such options or rights or conversion of or exchange for such convertible or exchangeable securities, or on any change in the minimum purchase price of such options, rights or securities, other than a change resulting from the antidilution provisions of such options, rights or securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon (x) the issuance of such options, rights or securities not exercised, converted or exchanged prior to such change, as the case may be, been made upon the basis of such change or (y) the options or rights related to such securities not converted or exchanged prior to such change, as the case may be, been made upon the basis of such change; and (D) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, convertible or exchangeable securities or options or rights related to such convertible or exchangeable securities, as the case may be, been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such convertible or exchangeable securities or upon the exercise of the options or rights related to such convertible or exchangeable securities, as the case may be. (ii) "EXCLUDED STOCK" shall mean: (A) all shares of Common Stock and warrants or other contract rights to purchase Common Stock issued and outstanding on the date this document is filed with the Delaware Secretary of State, and the shares of Common Stock issued upon exercise of such warrants; -8- 9 (B) all shares of Preferred Stock and warrants and other rights to purchase Preferred Stock issued and outstanding on the date this document is filed with the Delaware Secretary of State, the shares of Preferred Stock issued upon exercise of such warrants, all additional shares of Series E Preferred Stock and Series E-1 Preferred Stock issued or issuable pursuant to that certain Preferred Stock Purchase Agreement between the Company and certain purchasers of the Company's Series E Preferred Stock and Series E-1 Preferred Stock (the "PURCHASE AGREEMENT"), as amended from time to time, and the Common Stock into which all such outstanding or issuable shares of Preferred Stock are convertible; (C) all shares of Common Stock, warrants or options to purchase Common Stock or other securities and all shares of Preferred or Common Stock issuable upon exercise or conversion thereof issued to officers, directors, consultants or employees of the corporation pursuant to any plan or arrangement approved by the Board of Directors of the corporation, whether issued before or after the date this document is filed with the Delaware Secretary of State; (D) up to 14,000 shares of Common Stock, warrants or options to purchase Common Stock or Preferred Stock or other securities convertible into or exchangeable for Common Stock issued after the date this document is filed with the Delaware Secretary of State to lending or leasing institutions pursuant to any plan or arrangement approved by the Board of Directors of the corporation; (E) up to 1,000,000 shares of Common Stock issued after the date this document is filed with the Delaware Secretary of State in connection with the acquisition of another corporation or entity by this corporation by consolidation, merger, purchase of all or substantially all of the assets, or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other corporation or entity; and (F) all shares of Common Stock, warrants or options to purchase Common Stock or other securities and all shares of Preferred or Common Stock issued upon exercise or exchange of such securities issued pursuant to or in connection with the undertaking by the Corporation of each Commercial Agreement (as defined in the Purchase Agreement). All outstanding shares of Excluded Stock (including any shares issuable upon conversion of the Preferred Stock) shall be deemed to be outstanding after issuance of such Excluded Stock or issuance or options or warrants constituting Excluded Stock for all purposes of the computations of Section 3(e)(i)(B) above. (iii) If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or Common Stock equivalent or by a subdivision or split-up of shares of Common Stock, then, on -9- 10 the date such payment is made or such change is effective, the Conversion Price of each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of such series of Preferred Stock shall be increased in proportion to such increase of outstanding shares. (iv) If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, on the effective date of such combination, the Conversion Price of each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of any shares of a series of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (v) In case the corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the corporation convertible into or exchangeable for Common Stock), then, in each such case, the holders of shares of Preferred Stock shall, concurrent with the distribution to holders of Common Stock, receive a like distribution based upon the number of shares of Common Stock into which such shares of Preferred Stock are convertible. (vi) In case, at any time after the date hereof, of any capital reorganization, or any reclassification of the stock of the corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the corporation with or into another person (other than a consolidation or merger in which the corporation is the continuing entity and which does not result in any change in the Common Stock), or of the sale or other disposition of all or substantially all the properties and assets of the corporation, the shares of Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the corporation or otherwise to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition he had converted his shares of Preferred Stock into Common Stock. The provisions of this clause (vi) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. (vii) All calculations under this Section 3 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. (viii) For the purpose of any computation pursuant to this Section 3(e), the "CURRENT MARKET PRICE" at any date of one share of Common Stock, shall be deemed to be the average of the highest reported bid and the lowest reported offer prices on the preceding business day as furnished by the National Quotation Bureau, Incorporated (or equivalent recognized source -10- 11 of quotations); provided, however, that if the Common Stock is not traded in such manner that the quotations referred to in this clause (viii) are available for the period required hereunder, Current Market Price shall be determined in good faith by the Board of Directors of the corporation, but if challenged by the holders of more than 50% of the outstanding shares of Preferred Stock, then as determined by an independent appraiser selected by the Board of Directors of the corporation, the cost of such appraisal to be borne by the challenging parties. (ix) (A) In addition to the adjustments to the Conversion Rate for Dilutive Issuances effecting the Series E-1 Preferred Stock provided in Section 3(e)(i): if the Company shall have exceeded the Revenue Targets (as defined in the Purchase Agreement), then the Conversion Ratio of the Series E-1 Preferred Stock shall be adjusted as of the Revenue Adjustment Date (as defined in the Purchase Agreement), so that each share of Series E-1 Preferred Stock shall be convertible into 0.7143 shares of Common Stock; and if the Company shall have failed to achieve its Revenue Threshold (as defined in the Purchase Agreement), then the Conversion Ratio of the Series E-1 Preferred Stock shall be adjusted as of the Revenue Adjustment Date so that each share of Series E-1 Preferred Stock shall be convertible into 1.6667 shares of Common Stock; (B) The Conversion Rates in the immediately preceding clause (A) will be proportionally adjusted for events described in Section 3(e)(iii) and Section 3(e)(iv) before the Revenue Adjustment Date; and (C) notwithstanding any other provision of this Section 3(e)(ix) if, (x) before the Revenue Adjustment Date, the corporation effects a Dilutive Issuance which results in an adjustment to the Conversion Price of the Series E-1 Preferred Stock, and (y) the corporation thereafter shall have failed to exceed the Revenue Threshold, then the combined effect on the Conversion Rate of the Series E-1 Preferred Stock after all adjustments to the Conversion Price under Section 3(e)(i) for Dilutive Issuances before the Revenue Adjustment Date and of the adjustment to the Conversion Rate under the immediately clause (A) of this paragraph shall not result in a Conversion Rate which causes one share of Series E-1 Preferred Stock to convert into a larger number of shares of Common Stock than the greater of that determined by (q) adjustments under Section 3(e)(i) for all Dilutive Issuances before the Revenue Adjustment Date or (z) the application of the provisions of clause (A) of this paragraph. (f) Minimal Adjustments. No adjustment in the Conversion Price of a series of Preferred Stock need be made if such adjustment would result in a change in the Conversion Price of such series of Preferred Stock of less than $0.01. Any adjustment of less than $0.01 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in the Conversion Price of such series of Preferred Stock. (g) No Impairment. Without the consent of the majority of the outstanding shares of Preferred Stock and a majority of the outstanding Series E and Series E-1, voting together as a class, the corporation will not through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be -11- 12 necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. (h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to this Section 3, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Rate of such series at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversions of such holder's shares of Preferred Stock. (i) Notices of Record Date. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property or to receive any other right, the corporation shall mail to each holder of Preferred Stock at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (k) Notices. Any notice required by the provisions of this Section 3 to be given to the holder of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the corporation. (l) Reissuance of Converted Shares. No shares of Preferred Stock which have been converted into Common Stock after the original issuance thereof shall ever again be reissued and all such shares so converted shall upon such conversion cease to be a part of the authorized shares of the corporation. -12- 13 4. Voting Rights. (a) Preferred Stock. The holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which each share of Preferred Stock could be converted on the record date for the vote or consent of stockholders by written consent and, except as otherwise required by law, shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the corporation and shall vote with holders of the Common Stock upon the election of directors and upon any other matter submitted to a vote of stockholders, except those matters required by law or by the provisions of this Certificate to be submitted to a class vote. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating as to each holder of Preferred Stock all shares of Common Stock into which such holder's shares of Preferred Stock could be converted) shall be rounded to the nearest whole number (with one-half rounded upward to one). (b) Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share held. (c) Board of Directors. (i) The Board of Directors of the corporation shall consist of seven (7) members. (ii) For so long as an aggregate of 1,000,000 shares of the Series C Preferred Stock and 1,500,000 shares of the Series D Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations and the like) are outstanding: the holders of the Series D Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation; the holders of the Series C Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation; the holders of the Series A Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation and the holders of the Common Stock, voting together as a separate class, shall be entitled to elect one (1) director of the corporation. (iii) For so long as an aggregate of 2,000,000 shares of Series E Preferred and Series E-1 Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations and the like) are outstanding, the holders of the Series E Preferred Stock and Series E-1 Preferred Stock, voting together on an as converted basis, shall be entitled to elect (1) director. (iv) All remaining directors of the corporation shall be elected by the holders of the Common Stock and Preferred Stock voting together as a single class in accordance with the provision set forth in Section 4(a) above. (v) Vacancies on the Board of Directors may be filled by a majority of series, class or classes of shares whose holders could elect an individual to fill such vacancy on the Board of Directors, except that a vacancy created by the removal of a director or directors by the vote or written consent of the stockholders, such stockholders being those who hold a majority of the outstanding shares of the series, class or classes entitled to elect such director or directors, or by court order may be filled by only the vote of a majority of the outstanding shares entitled to vote thereon. In addition, the stockholders entitled to vote thereon may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. -13- 14 5. Redemption Rights of the Certain Preferred Stock. (a) Redemption on Demand by Series E and Series E-1 Preferred. Subject to applicable law, at any time following the sixth anniversary of the initial closing of the purchase and sale of Series E Preferred Stock and/or Series E-1 Preferred Stock under the Purchase Agreement and upon the affirmative vote of the holders of the majority of the Series E Preferred Stock and Series E-1 Preferred Stock, voting as a separate class on an as-converted basis, the corporation shall redeem, in accordance with this Section 5, all shares of Series E Preferred Stock and Series E-1 Preferred Stock outstanding as of the date of such demand, prior to and in preference to any other redemption of the corporation's capital stock. In addition, and subject to applicable law, following the sixth anniversary of the initial closing of the purchase and sale of Series E Preferred Stock and/or Series E-1 Preferred Stock under the Purchase Agreement, upon the request of any holder of shares of Series E Preferred Stock and/or Series E-1 Preferred Stock with an aggregate value of $1,000,000 (at a deemed per share price, for this purpose, equal to the initial Conversion Price for the Series E Preferred Stock and Series E-1 Preferred Stock), the corporation shall redeem, in accordance with this Section 5, such shares of Series E Preferred Stock and Series E-1 Preferred Stock for which such holder shall request redemption. (b) Redemption on Demand for other Preferred Stock. Subject to applicable law and the satisfaction of the prior redemption rights of the Series E Preferred Stock and Series E-1 Preferred Stock in Section 5(a), at any time following the seventh anniversary of the initial closing of the purchase and sale of Series D Preferred Stock and upon the affirmative vote of the holders of the majority of the Series C Preferred Stock and Series D Preferred Stock, voting together as a single class on an as converted basis, the corporation shall redeem, in accordance with this Section 5, all shares of Series C Preferred Stock and Series D Preferred Stock outstanding as of the date of such demand. (c) As used in this Section 5: (i) The term "REDEMPTION TRIGGER DATE" shall mean, (x) with regard to the Series E Preferred Stock and/or Series E-1 Preferred Stock, the date after the sixth anniversary of the initial closing of the purchase and sale of Series E Preferred Stock and/or Series E-1 Preferred Stock under the Purchase Agreement on which the requisite holder or holders of Series E Preferred Stock and/or Series E-1 Preferred Stock as set forth in Section 5(a) demand redemption thereof, or (y) with regard to the holders of the Series C Preferred Stock and Series D Preferred Stock, the date after the seventh anniversary of the initial closing of the purchase and sale of Series D Preferred Stock on which the requisite holders of Series C Preferred Stock and Series D Preferred stock as set forth in Section 5(b) demand redemption thereof. (ii) The term "REDEMPTION NOTICE" means a written notice to the holders of the particular series of Preferred Stock or shares of Preferred Stock notifying each holder of the redemption to be effected, specifying the amount and series of Preferred Stock to be redeemed from such holder, the date on which such redemption shall be effected, the -14- 15 Redemption Price, the place at which payment may be obtained and the date on which such holder's right to convert such series of Preferred Stock into Common Stock, as to such shares, terminates and calling upon such holder to surrender to the corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed. (iii) The term "REDEMPTION DATE" means, with regard to a particular series of Preferred Stock or shares of Preferred Stock, each date on which redemption of outstanding shares of such series of Preferred Stock is to take place pursuant to a Redemption Notice directed to the holders of such shares of Preferred Stock as provided below. (iv) The term "REDEMPTION PRICE" means (in each case appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events): for Series C Preferred Stock, $0.77 per share; for the Series D Preferred Stock, $1.18 per share; and for the Series E Preferred Stock and Series E-1 Preferred Stock, $5.68 per share, plus all declared but unpaid dividends. (d) Redemption Notification for Series E and Series E-1 Preferred Stock. Within 90 days of the applicable Redemption Trigger Date for the Series E Preferred Stock and Series E-1 Preferred Stock, the corporation shall redeem all outstanding shares of Series E Preferred Stock and Series E-1 Preferred Stock outstanding as of the applicable Redemption Trigger Date or in the case of holders of such Preferred Stock permitted individually to redeem their shares of such Preferred Stock, the number of shares of Series E Preferred Stock and/or Series E-1 Preferred Stock for which redemption has been demanded. At least 20 days prior to the Redemption Date, the corporation shall send the Redemption Notice by first class mail, postage prepaid, to each affected holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series E Preferred Stock and Series E-1 Preferred Stock, at the address last shown on the records of the corporation for such holder or given by the holder to the corporation for the purpose of notice or if no such address appears or is given, at the place where the principal executive office of the corporation is located. (e) Redemption Notification for other Preferred Stock. Beginning with the first year anniversary of the Redemption Trigger Date for the Series C Preferred Stock and Series D Preferred Stock, and subject in each case to the prior satisfaction of all redemption rights for the Series E Preferred Stock and Series E-1 Preferred Stock, the corporation shall be required to redeem annually no more than that number of shares of Series C Preferred Stock and Series D Preferred Stock equal to twenty-five (25) percent of the shares of Series C Preferred Stock and Series D Preferred Stock outstanding as of the applicable Redemption Trigger Date. Annually thereafter, each holder of Series C Preferred Stock and Series D Preferred Stock shall surrender to the corporation for redemption no more than that number of shares equal to twenty-five (25) percent of the shares held by such holder on the applicable Redemption Trigger Date (with one-half being rounded upwards). At least 20 days prior to each anniversary of the applicable Redemption Trigger Date until all such shares have been redeemed or converted into Common Stock, the Redemption Notice shall be mailed first class, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which -15- 16 notice is given) of the Series C Preferred Stock and Series D Preferred Stock, at the address last shown on the records of the corporation for such holder or given by the holder to the corporation for the purpose of notice or if no such address appears or is given, at the place where the principal executive office of the corporation is located. (f) Effect of Redemption Notice. Except as provided in Section 5(g), from and after an applicable Redemption Date, (i) each holder of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series E-1 Preferred Stock to be redeemed on such Redemption Date shall surrender to the corporation the certificate or certificates representing such shares (or in the case of a lost certificate, shall present such evidence of loss and an appropriate undertaking as the corporation may require), in the manner and at the place designated in the Redemption Notice, and thereupon, the aggregate Redemption Price of such shares shall be payable in cash to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled, and (ii) unless there shall have been a default in payment of the Redemption Price for shares of Preferred Stock to be redeemed on such Redemption Date, all rights of the holders of such shares designated for redemption on such Redemption Date (as holders of the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series E-1 Preferred Stock, as the case may be, except the right to receive their respective Redemption Price without interest upon surrender of their certificate (or in the case of a lost certificate such evidence of loss and an appropriate undertaking as the corporation may require)) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. (g) Incomplete Redemption. If the funds of the corporation legally available for redemption of shares of the Series C Preferred Stock and Series D Preferred Stock or Series E Preferred Stock and Series E-1 Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of the Series C Preferred Stock and Series D Preferred Stock or Series E Preferred Stock and Series E-1 Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares on a pro rata basis among the holders of the Series C Preferred Stock and Series D Preferred Stock or Series E Preferred Stock and Series E-1 Preferred Stock based upon each holder's share of the total redemption price, provided that the corporation shall not redeem any shares of Series C Preferred Stock or Series D Preferred Stock regardless of the passage of any Redemption Date therefor until the corporation has satisfied its obligations under Section 5(a) to redeem all shares of Series E Preferred Stock and Series E-1 Preferred Stock covered by any applicable Redemption Notice (and not otherwise converted into Common Stock within the time provided in Section 5(h)). The shares of Series C Preferred Stock and Series D Preferred Stock or Series E Preferred Stock and Series E-1 Preferred Stock covered by the Redemption Notice but not redeemed shall remain outstanding and be entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of shares of Preferred Stock covered by a prior Redemption Notice and not redeemed, such funds will immediately be set aside for the redemption of the balance of the shares which the corporation was obligated to redeem on any Redemption Date but which it -16- 17 has not redeemed and if it is economically reasonable to do so given the expense of payment and the amounts of additional funds which have become legally available for redemption of such shares, the corporation shall send a Redemption Notice with regard to such shares in the manner provided in Section 5(d) or 5(e); provided that the holders of such Series C Preferred Stock, Series D Preferred Stocks, Series E Preferred Stock and Series E-1 Preferred Stock, as applicable, shall receive at least 10 days notice of such redemption, and provided further, that the corporation shall not redeem any shares of Series C Preferred Stock or Series D Preferred Stock regardless of the passage of any Redemption Date therefor until the corporation has satisfied its obligations under Section 5(a) to redeem all shares of Series E Preferred Stock and Series E-1 Preferred Stock covered by an applicable Redemption Notice (and not otherwise converted into Common Stock within the time provided in Section 5(h)). (h) Redemption Funding. On or prior to a Redemption Date, the corporation shall deposit the Redemption Price of all shares of Series C Preferred Stock and Series D Preferred Stock or Series E Preferred Stock and Series E-1 Preferred Stock, as the case may be, designated for redemption in the Redemption Notice (or if the amount of funds which are legally available for the redemption of shares of Series C Preferred Stock and Series D Preferred Stock or Series E Preferred Stock and Series E-1 Preferred Stock is insufficient for such redemption, then as provide in Section 5(h), such lesser amount as is available for such redemption), with a bank or trust company located in the State of California having aggregate capital and surplus in excess of $50,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed. Simultaneously, the corporation shall deposit irrevocable instructions and authority to such bank or trust company to pay, on and after the date fixed for redemption or prior thereto, the Redemption Price of the shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and/or Series E-1 Preferred Stock to the holders thereof, respectively, to be redeemed in accordance with the Redemption Notice upon surrender of their certificates. Any money deposited by the corporation pursuant to this Section 5(h) for the redemption of shares of Preferred Stock on a particular Redemption Date which shares are thereafter converted into shares of Common Stock no later than the close of business on the last business day prior to such Redemption Date shall be returned to the corporation forthwith upon such conversion. The balance of any money deposited by the corporation pursuant to this Section 5(h) remaining unclaimed at the expiration of six months following a Redemption Date shall thereafter be returned to the corporation (unless they shall have been set aside as provided in Section 5(g) with regard to a prior partial redemption), provided that each stockholder to which such money would have been payable from such deposit, had the stockholder timely complied with the redemption procedures in Section 5(h) and the Redemption Notice, shall be entitled, upon proof of ownership of the Preferred Stock, to receive the redemption price for such stockholder's redeemed shares of Preferred Stock but without interest from the relevant Redemption Date. 6. Protective Provisions. In addition to any other class vote that may be required by law, (a) so long as at least an aggregate of 3,000,000 shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are outstanding, without first obtaining the approval therefor (by vote or written consent, as provided by law) of the -17- 18 holders of at least a two-thirds of such then outstanding shares of such Preferred Stock (voting as a single class on an as converted basis), and (b) so long as at least an aggregate of 1,000,000 shares of Series E Preferred Stock and Series E-1 Preferred Stock are outstanding, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least fifty-one percent of such then outstanding shares of such Preferred Stock (voting as a single class on an as converted basis), this corporation shall not undertake any of the actions: (i) effect a Change of Control in the corporation or sell all or substantially all of its assets, (ii) change the rights, preferences or privileges of any series of Preferred Stock, (iii) increase or decrease the authorized shares of Preferred Stock or the designated shares of any series of Preferred Stock, (iv) create a new series or class of shares having rights on a parity with or superior to any outstanding class or series of shares, (v) except as set forth in this certificate, do any act which would result in taxation under Section 305 of the Internal Revenue Code, (vi) divide the securities of any class into series having different rights, (vii) effect an exchange, reclassification or cancellation of all or any part of a class of securities, including a reverse stock split, (viii) effect an exchange or create a right of exchange of all or part of the shares of a class, (ix) dissolve, liquidate or windup the corporation, (x) declare or pay any dividends on the Common Stock, (xi) increase the number of members of the corporation's Board of Directors to more than seven (7) members, (xii) except as set forth in this certificate or with regard to repurchases of such stock from employees, directors, or consultants, redeem or repurchase any shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or establish a sinking fund to effect any such redemption or refund; or -18- 19 (xiii) incur any additional indebtedness in the aggregate in excess of $20 million or convertible into equity with rights senior to or on parity with the Series E Preferred Stock and Series E-1 Preferred Stock. 7. Residual Rights. All rights accruing to the outstanding shares of capital stock not expressly provided for to the contrary herein shall be vested in the Common Stock. SIX The following is applicable to the Common Stock: 1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed as provided in Section 2 of Article Five hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. SEVEN The corporation is to have perpetual existence. EIGHT In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. NINE For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: 1. The conduct of the affairs of the corporation shall be managed under the direction of the Board of Directors. 2. Each director shall hold office until such director's successor is elected and qualified, or until such director's earlier death, resignation or removal. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director. -19- 20 3. Subject to the rights of the holders of any series of Preferred Stock and the Common Stock as provided in Section 4(c) of Article Five, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless (i) the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, or (ii) as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred. 4. Subject to the rights of the holders of any series of Preferred Stock and Common Stock set forth in Section 4(c) of Article Five, any director or the entire Board of Directors may be removed by the holders of at least sixty-six and two-thirds percent (66-2/3%) of the shares then entitled to vote at an election of directors. 5. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the corporation's initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the "INITIAL PUBLIC OFFERING"), the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors, with the number of directors in each class to be divided as equally as reasonably possible. The term of office of the Class I directors shall expire at the corporation's first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II directors shall expire at the corporation's second annual meeting of stockholders following the closing of the Initial Public Offering, and the term of office of the Class III directors shall expire at the corporation's third annual meeting of stockholders following the closing of the Initial Public Offering. At each annual meeting of stockholders commencing with the first annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Prior to the closing of the Initial Public Offering, or in the event the corporation is prohibited from dividing its board of directors through the operation of Section 2115 of the California General Corporation Law following the record date of the corporation's first annual meeting of stockholders following the closing of the Initial Public Offering, each director shall hold office until the next annual meeting of stockholders and until such director's successor is elected and qualified, or until such director's earlier death, resignation or removal. 5. Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. 6. Following the closing of the Initial Public Offering, no action shall be taken by the stockholders of the corporation except at an annual or special meeting of -20- 21 stockholders called in accordance with the Bylaws of the corporation, and no action shall be taken by the stockholders by written consent. 7. Advance notice of stockholder nominations for the election of directors of the corporation and of business to be brought by stockholders before any meeting of stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation. Business transacted at special meetings of stockholders shall be confined to the purpose or purposes stated in the notice of meeting. 8. Subject to Article IX of the Bylaws of the corporation, following the closing of the Initial Public Offering, stockholders of the corporation holding at least sixty-six and two-thirds percent (66-2/3%) of the corporation's outstanding voting stock then entitled to vote at an election of directors shall have the power to adopt, amend or repeal Bylaws of the corporation. 9. Following the closing of the Initial Public Offering, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the corporation's outstanding voting stock then entitled to vote at an election of directors, voting together as a single class, shall be required to alter, change, amend, repeal or adopt any provision inconsistent with this Article Nine. TEN To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The corporation shall indemnify to the fullest extent permitted by law, any person made or threatened to be made a party, to any action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact the he or she, or his or her testator or intestate, is or was a director or officer of the corporation or any predecessor of the corporation, or serves or served at any other enterprise as a director or officer at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ELEVEN The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -21- 22 IN WITNESS WHEREOF, the corporation has caused this Amended and Restated Certificate to be signed by its Chief Financial Officer and Secretary, this ___ day of October, 1999. --------------------------------------- Frederick J. Ruegsegger, Chief Financial Officer and Secretary EX-3.03 4 BYLAWS OF NEOFORMA.COM, INC. 1 EXHIBIT 3.03 BYLAWS OF NEOFORMA.COM, INC. 2 TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES.............................................................1 1.1 REGISTERED OFFICE.............................................................1 1.2 OTHER OFFICES.................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS......................................................1 2.1 PLACE OF MEETINGS.............................................................1 2.2 ANNUAL MEETING................................................................1 2.3 SPECIAL MEETING...............................................................2 2.4 NOTICE OF STOCKHOLDERS' MEETINGS..............................................2 2.5 MANNER OF GIVING NOTICE AFFIDAVIT OF NOTICE...................................2 2.6 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...............2 2.7 QUORUM........................................................................3 2.8 ADJOURNED MEETING; NOTICE.....................................................4 2.9 CONDUCT OF BUSINESS...........................................................4 2.10 VOTING........................................................................4 2.11 WAIVER OF NOTICE..............................................................5 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......................5 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS...................5 2.14 PROXIES.......................................................................6 2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.........................................6 ARTICLE III DIRECTORS.....................................................................7 3.1 POWERS........................................................................7 3.2 NUMBER OF DIRECTORS...........................................................7 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.......................7 3.4 RESIGNATION AND VACANCIES.....................................................8 3.5 PLACE OF MEETINGS: MEETINGS BY TELEPHONE......................................8 3.6 REGULAR MEETINGS..............................................................9 3.7 SPECIAL MEETINGS; NOTICE......................................................9 3.8 QUORUM........................................................................9 3.9 WAIVER OF NOTICE..............................................................9 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT AM A MEETING.........................10 3.11 FEES AND COMPENSATION OF DIRECTORS...........................................10 3.12 APPROVAL OF LOANS TO OFFICERS................................................10 3.13 REMOVAL OF DIRECTORS.........................................................10
3 TABLE OF CONTENTS (continued)
Page ---- ARTICLE IV COMMITTEES...................................................................11 4.1 COMMITTEES OF DIRECTORS......................................................11 4.2 COMMITTEE MINUTES............................................................11 4.3 MEETINGS AND ACTION OF COMMITTEES............................................11 ARTICLE V OFFICERS.....................................................................12 5.1 OFFICERS.....................................................................12 5.2 APPOINTMENT OF OFFICERS......................................................12 5.3 SUBORDINATE OFFICERS.........................................................12 5.4 REMOVAL AND RESIGNATION OF OFFICERS: FILLING VACANCIES.......................12 5.5 CHAIRMAN OF THE BOARD........................................................13 5.6 CHIEF EXECUTIVE OFFICE.......................................................13 5.7 PRESIDENT....................................................................13 5.8 VICE PRESIDENTS..............................................................13 5.9 SECRETARY....................................................................14 5.10 CHIEF FINANCIAL OFFICER......................................................14 5.11 ASSISTANT SECRETARY..........................................................15 5.12 ASSISTANT TREASURER..........................................................15 5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...............................15 5.14 AUTHORITY AND DUTIES OF OFFICERS.............................................15 ARTICLE VI INDEMNITY....................................................................15 6.1 THIRD PARTY ACTIONS..........................................................15 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION................................16 6.3 SUCCESSFUL DEFENSE...........................................................16 6.4 DETERMINATION OF CONDUCT.....................................................17 6.5 PAYMENT OF EXPENSES IN ADVANCE...............................................17 6.6 INDEMNITY NOT EXCLUSIVE......................................................17 6.7 INSURANCE INDEMNIFICATION....................................................17 6.8 THE CORPORATION..............................................................18 6.9 EMPLOYEE BENEFIT PLANS.......................................................18 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES..................19 ARTICLE VII RECORDS AND REPORTS..........................................................19 7.1 MAINTENANCE AND INSPECTION OF RECORDS........................................19 7.2 INSPECTION BY DIRECTORS......................................................19 7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................................20 ARTICLE VIII GENERAL MATTERS..............................................................20 8.1 CHECKS.......................................................................20 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.............................20 8.3 STOCK CERTIFICATES: PARTLY PAID SHARES.......................................20 8.4 SPECIAL DESIGNATION ON CERTIFICATES..........................................21
- ii - 4 TABLE OF CONTENTS (continued)
Page ---- 8.5 LOST CERTIFICATES............................................................21 8.6 CONSTRUCTION: DEFINITIONS....................................................22 8.7 DIVIDENDS....................................................................22 8.8 FISCAL YEAR..................................................................22 8.9 SEAL.........................................................................22 8.10 TRANSFER OF STOCK............................................................22 8.11 STOCK TRANSFER AGREEMENTS....................................................22 8.12 REGISTERED STOCKHOLDERS......................................................23 ARTICLE IX AMENDMENTS......................................................................23
- iii - 5 BYLAWS OF NEOFORMA.COM, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, either within or without the State of Delaware, as may be designated by the board of directors or in the manner provided in these bylaws. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation in the State of Delaware. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the second Tuesday of May of each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding business day. At the meeting, directors shall be elected and any other proper business may be transacted. 6 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than ten (10) nor more than sixty (60) days after the receipt of the request. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, (i) nominations for the election of directors, and (ii) business proposed to be brought before any stockholder meeting 2 7 may be made by the board of directors or proxy committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally if such nomination or business proposed is otherwise proper business before such meeting. However, any such stockholder may nominate one or more persons for election as directors at a meeting or propose business to be brought before a meeting, or both, only if such stockholder has given timely notice in proper written form of their intent to make such nomination or nominations or to propose such business. To be timely, such stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of (i) the date specified in the corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders, if applicable, or (ii) the date of such annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. To be in proper form, a stockholder's notice to the secretary shall set forth: (a) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, of the person or persons to be nominated or of the business to be proposed; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (e) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting shall refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the 3 8 stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the Chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 CONDUCT OF BUSINESS The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. 2.10 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of the Delaware General Corporation Law (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.9, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. At a stockholders' meeting at which directors are to be elected, each stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) if the candidates' names have been properly placed in nomination (in accordance with these bylaws) prior to commencement of the voting and the stockholder requesting cumulative voting or any other stockholder voting at the meeting in person or by proxy has given notice prior to commencement of the voting of the stockholder's intention to cumulate votes. If cumulative voting is properly requested, each holder of stock, or of any class or classes or of a series or series thereof, who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) such person would be entitled to cast for the election of directors with 4 9 respect to his shares of stock multiplied by the number of directors to be elected by such person, and that such person may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as such person may see fit. 2.11 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of a corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the Delaware General Corporation Law if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the Delaware General Corporation Law. 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less 5 10 than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the first date on which a signed written consent is delivered to the corporation. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.14 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by a written proxy, signed by such stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if such stockholder's name is placed on the proxy by any reasonable means including, but not limited to, by facsimile signature, manual signature, typewriting, telegraphic transmission or otherwise, by such stockholder or such stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General Corporation Law. 2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall 6 11 also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Delaware General Corporation Law and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be seven (7) until changed by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the stockholders. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors shall resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these bylaws: 7 12 (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the Delaware General Corporation Law. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the Delaware General Corporation Law as far as applicable. 3.5 PLACE OF MEETINGS: MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of such board of directors, or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this section shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 8 13 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation, or these bylaws. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the Delaware General Corporation Law, the certificate of incorporation, or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 9 14 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT AM A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.11 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.12 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors or, if there be classes of directors, at an election of the class of directors of which such director is a part. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the 10 15 directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority (i) approving or adopting or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending, or repealing any bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of 11 16 the board, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS: FILLING VACANCIES Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.5 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to the chairman of the board by the board of directors or as may be prescribed by these bylaws. If there is no president and no one has been appointed chief executive officer, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.6 of these bylaws. 12 17 5.6 CHIEF EXECUTIVE OFFICE The board of directors shall select a chief executive officer of the corporation who shall be subject to the control of the board of directors and have general supervision, direction and control of the business and the officers of the corporation. The chief executive officer shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. 5.7 PRESIDENT The president shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. In addition and subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if no one has been appointed chief executive officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have the powers and duties described in Section 5.6. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. 13 18 The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. The chief financial officer shall be the treasurer of the corporation. 5.11 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.12 ASSISTANT TREASURER The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the 14 19 board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 5.14 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 THIRD PARTY ACTIONS The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) and amounts paid in 15 20 settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. 6.3 SUCCESSFUL DEFENSE To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. 6.4 DETERMINATION OF CONDUCT Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. Notwithstanding the foregoing, a director, officer, employee or agent of the Corporation shall be entitled to contest any determination that the director, officer, employee or agent has not met the applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction. 6.5 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article VI. 16 21 6.6 INDEMNITY NOT EXCLUSIVE The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. 6.7 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article VI. 6.8 THE CORPORATION For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. 6.9 EMPLOYEE BENEFIT PLANS For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 17 22 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive officer or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the 18 23 corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be 19 24 such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION: DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 20 25 8.7 DIVIDENDS The directors of the corporation, subject to any restrictions contained in (i) the Delaware General Corporation Law or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law. 8.12 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 21 26 ARTICLE IX AMENDMENTS The bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. 22 EX-4.04 5 QUICKSTART WARRANT TO PURCHASE STOCK 1 EXHIBIT 4.04 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. QUICKSTART WARRANT TO PURCHASE STOCK Corporation: Neoforma, Inc., a California corporation Number of Shares: 45,000 Class of Stock: Series C Preferred / Other: [strike descriptions that do not apply] Initial Exercise Price: $.77 per share Issue Date: 6/25/1998 Expiration Date: 6/25/2003 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. ARTICLE 1. EXERCISE. 1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix I to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.4. 1.3 Intentionally Omitted 1 2 1.4 Fair Market Value. If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. 1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.7 Repurchase on Sale, Merger, or Consolidation of the Company. 1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.7.2. Assumption of Warrant. Upon the closing of any Acquisition the successor entity may, at its option, assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. If the successor entity does not assume the obligations of the Company under this Warrant, then this Warrant shall be deemed to have been automatically converted pursuant to Section 1.2 and thereafter Holder shall participate in the Acquisition as a holder of the Shares (or other securities issuable upon exercise of this Warrant) on the same terms as other holders of the same class of securities of the Company. ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are 2 3 convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2.4 Adjustments for Diluting Issuances. The Shares shall be afforded the protections (if any) against diluting issuances of stock as are prescribed for the class of stock of the Shares under the Company's Articles of Incorporation, as amended from time to time. 2.5 No Impairment. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the 3 4 Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share. 2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder promptly upon Holder's reasonable 4 5 request, copies of all notices or other written communications to the shareholders of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and the Company's quarterly, unaudited financial statements. ARTICLE 4. MISCELLANEOUS. 4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole or in part, at any tine and from time to time on or before the Expiration Date set forth above. 4.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder s notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.3 Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); provided, however, that Holder may transfer all or part of this Warrant to Silicon Valley Bancshares and The Silicon Valley Bank Foundation, at any time without notice to the Company. The terms and conditions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective permitted successors and assigns. Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the 5 6 Company shall have the right to refuse to transfer any portion of this Warrant to any party who directly competes with the Company. 4.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or the Holder from time to time. 4.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 Attorneys' Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. "COMPANY" Neoforma, Inc. By: /s/ JEFF KLECK ----------------------------------------- Name: Jeff Kleck --------------------------------------- (Print) Title: Chairman of the Board, President or Vice President By: ----------------------------------------- Name: --------------------------------------- (Print) Title: Chief Financial Officer, Secretary, Assistant Treasurer or Assistant Secretary 6 7 APPENDIX I NOTICE OF EXERCISE 1. The undersigned hereby elects; to purchase __________ shares of the Common/Series __________ Preferred [strike one] Stock of ______________________ ________________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised with respect to _______________________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------------------ (Name) ------------------------------------ ------------------------------------ (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. ------------------------------------ (Signature) - ---------------------- (Date) 7 8 AMENDMENT TO WARRANT AGREEMENT This Amendment to Warrant Agreement (the "Agreement") is made as of March 5, 1999 by and between Silicon Valley Bank ("Holder) and Neoforma, Inc. ("Company") RECITALS A. Company and Holder are parties to, among other documents, a QuickStart Warrant to Purchase Stock, dated June 25, 1998, each together with all schedules and exhibits thereto (the "Warrant Agreement"). B. Company has agreed to amend the Class of Stock to reflect the Series C Preferred Shares. NOW, THEREFORE, the parties agree as follows: 1. The Class of Stock as provided in the Warrant Agreement is hereby amended to mean Series C Preferred Shares. 2. LEGAL EFFECT; INTERPRETATION. This Agreement amends certain terms of the Warrant Agreement. Company confirms that, except as amended by this Agreement, the Warrant Agreement remain in full force and effect. Unless otherwise defined, all terms capitalized in this Agreement shall have the meanings assigned in the Warrant Agreement. This Agreement, together with the Warrant Agreement, constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior agreements and negotiations. 3. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 4. TIME OF ESSENCE. Time is of the essence for the performance of all obligations set forth in this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. COMPANY: HOLDER: NEOFORMA, INC. SILICON VALLEY BANK By: __________________________ By: ________________________________ Name: ________________________ Name: ______________________________ Title: _______________________ Title: _____________________________ 8 EX-4.05 6 WARRANT TO PURCHASE SERIES D MAY 12, 1999 1 EXHIBIT 4.05 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT TO PURCHASE SHARES OF THE SERIES D PREFERRED STOCK OF NEOFORMA, INC. DATED AS OF MAY 12, 1999 (THE "EFFECTIVE DATE") WHEREAS, Neoforma, Inc., a Delaware corporation (the "Company") has entered into a Subordinated Loan and Security Agreement dated as of May 12, 1999, and related Subordinated Promissory Note(s) (collectively, the "Loans") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Loans, the right to purchase shares of its Series D Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Loans and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 228,813 fully paid and non-assessable shares of the Company's Series D Preferred Stock ("Preferred Stock") at a purchase price of $1.18 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) seven (7) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is longer. Notwithstanding the term of this Warrant Agreement as set forth above, the right to purchase Preferred Stock as granted shall expire, if not previously exercised, immediately upon the closing of the issuance and sale of shares of Common Stock of the Company in the Company's first public offering of securities for its own account pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Initial Public Offering"), provided that the underwriters so request that the Warrantholder exercise at that time. The Company shall notify the Warrantholder if the Initial Public Offering is proposed within a reasonable period of time prior to the filing of a registration statement and if the Company fails to deliver such written notice within a reasonable period of time, anything to the contrary in this Warrant Agreement notwithstanding, the rights to purchase will not expire until ten (10) business days after the Company delivers such notice to the Warrantholder. Such notice shall also contain such details of the proposed Initial Public Offering as are reasonable in the circumstances and notice that this Warrant Agreement is expected to expire upon closing thereof. If such closing does not take place, the Company shall promptly notify the Warrantholder that such proposed transaction has been terminated. Anything to the contrary in this Warrant Agreement notwithstanding, the Warrantholder may rescind any exercise of its purchase rights promptly after such notice of termination of the proposed transaction if the exercise of warrants occurred after the Company notified the Warrantholder that the Initial Public Offering was -1- 2 proposed or if the exercise were otherwise precipitated by such proposed Initial Public Offering. In the event of such rescission, the Warrants will continue to be exercisable on the same terms and conditions. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) business days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) ------ A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised for payment under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless -2- 3 the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS STOCKHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of Preferred S-stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under -3- 4 this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock deemed outstanding pursuant to its Certificate of Incorporation in effect immediately prior to such issuance immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock deemed outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share with one half being rounded down) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right to Purchase Additional Stock. If the Company has not paid any Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its entirety by the Maturity Date (as defined in the applicable Subordinated Promissory Note(s)), then for each additional month, or portion thereof, thereafter that the outstanding principal is not paid, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares of Preferred Stock which number shall be determined by (i) multiplying the outstanding principal amount which due but unpaid by 1% and (ii) dividing the product thereof by the Exercise Price. (f) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit ___ (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. (g) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. -4- 5 (h) Timely Notice. Failure to timely provide such notice required by subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Loans and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Loans and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 40,000,000 shares of Common Stock, of which 1,216,000 shares are issued and outstanding, and (B) 9,000,000 shares of Series A Preferred Stock, of which 9,000,000 shares are issued and outstanding and are convertible into 9,000,000 shares of Common Stock; (C) 2,860,000 shares of Series B Preferred Stock, of which 2,860,000 shares are issued and outstanding and are convertible into 2,860,000 shares of Common Stock; (D) 5,109,937 shares of Series C Preferred Stock, of which 5,064,937 shares are issued and outstanding and are convertible into 5,064,937 shares of Common Stock; (D) 10,455,085 shares of Series D Preferred Stock, of which 10,162,381 shares are issued and outstanding and are convertible into 10,162,381 shares of Common Stock. (ii) The Company has reserved (A) 7,156,078 shares of Common Stock for issuance under its 1997 Stock Option Plan and (B) one warrant to purchase 45,000 shares of Series C Preferred Stock. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) In accordance with the Company's Certificate of Incorporation, no stockholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock. (e) Insurance. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are -5- 6 customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) Other Commitments to Register Securities. Except as set forth in the Investors Rights Agreement the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. -6- 7 (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease Administration, cc: Legal Department, attn.: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847)518-5088 and (ii) to the Company at 3255 Scott Blvd., Bldg. 6, Santa Clara, CA 95050, Attention: Chief Financial Officer (and/or if by facsimile, (408) 549-6299) or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. -7- 8 (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase price for the Loans referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion from the Company's counsel with respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. COMPANY: NEOFORMA, INC. By: /s/ JEFFREY KLECK -------------------------------- Title: CEO ----------------------------- WARRANTHOLDER: COMDISCO, INC. By: /s/ JAMES LABE --------------------------------- Title: President, Comdisco Ventures Division ------------------------------ -8- 9 EXHIBIT I TO EXHIBIT 4.05 EXHIBIT I NOTICE OF EXERCISE TO: ____________________________ (1) The undersigned Warrantholder hereby elects to purchase _______ shares of the Series ____ Preferred Stock of _________________, pursuant to the terms of the Warrant Agreement dated the ______ day of ________________________, 19__ (the "Warrant Agreement") between _____________________________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Series ____ Preferred Stock of ________________________________________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Series ____ Preferred Stock in the name of the undersigned or in such other name as is specified below. _________________________________ (Name) _________________________________ (Address) WARRANTHOLDER: COMDISCO, INC. By: _________________________ Title: _________________________ Date: _________________________ -9- 10 EXHIBIT II TO EXHIBIT 4.05 EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned ____________________________________, hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares of the Series ____ Preferred Stock of _________________, pursuant to the terms of the Warrant Agreement, and further acknowledges that ______ shares remain subject to purchase under the terms of the Warrant Agreement. COMPANY: By: _________________________ Title: _________________________ Date: _________________________ -10- 11 EXHIBIT III TO EXHIBIT 4.05 EXHIBIT III TRANSFER NOTICE (TO TRANSFER OR ASSIGN THE FOREGOING WARRANT AGREEMENT EXECUTE THIS FORM AND SUPPLY REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to ___________________________________________________________ (Please Print) whose address is___________________________________________ ___________________________________________________________ Dated: ______________________________ Holder's Signature: _________________ Holder's Address: ___________________ _____________________________________ Signature Guaranteed: _____________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. -11- 12 EXHIBIT TO EXHIBIT 4.05 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEOFORMA, INC. Neoforma, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Neoforma, Inc. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on August 18, 1998. B. Pursuant to Section 228, 242, and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this corporation. C. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ONE The name of this corporation is Neoforma, Inc. TWO The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Zip Code 19801. The name of its registered agent at such address is The Corporation Trust Company. THREE The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOUR This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is 67,425,022 shares. 40,000,000 shares shall be Common Stock with a par value of $.001. 27,425,022 shares shall be Preferred Stock with a par value of $.001, 9,000,000 of which shall be designated as Series A Preferred Stock, 2,860,000 of which shall be designated as Series B Preferred Stock, 5,109,937 of which shall be designated as Series C Preferred Stock and 10,455,085 of which shall be designated as Series D Preferred Stock. FIVE The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as follows: 1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and 12 13 rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation, at the rate of $.02 per share per annum for the Series A Preferred Stock, $.04 per share per annum for the Series B Preferred Stock, $.062 per share per annum for the Series C Preferred Stock and $.0944 per share per annum for the Series D Preferred Stock, or, if greater (as determined on a per annum basis and on an as converted basis for the Preferred Stock), an amount equal to that paid on any other outstanding shares of this corporation, except that the shares of a given series of Preferred Stock shall not receive any greater dividend as a result of the corporation's payment of a dividend on any such series of Preferred Stock. Such dividends shall be payable when, as and if declared by the Board of Directors, and shall not be cumulative, and no right shall accrue to holders of Common Stock or Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior period. 2. Liquidation Preference. (a) Preferred Preference. In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to $.25, $.50, $.77, and $1.18, respectively, for each outstanding share of such Preferred Stock held, plus an amount equal to any declared but unpaid dividends on such share of Preferred Stock up to the date fixed for distribution. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, the entire assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in accordance with the aggregate preference payment to which they are entitled. (b) After the payment or setting aside of payment set forth in (a) above, the remaining assets of the corporation shall be distributed on a pro-rata basis to the holders of the Preferred Stock, on an as converted basis, and the holders of the Common Stock until the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have received an additional $.25, $.50, $.77 and $1.18 per share, respectively. After the distributions to the stockholders pursuant to Sections 2(a) and (b) above have been made, the remaining assets of the corporation available for distribution to stockholders shall be distributed pro-rata among the holders of Common Stock. (c) Mergers. A merger, reorganization, or sale of all or substantially all of the assets of this corporation, or other transactions or series of related transactions in which the stockholders of this corporation immediately prior to the transaction or series of related transactions possess less than 50% of the voting power of the surviving entity (or its parent) immediately after the transaction (a "Change of Control") shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 2; provided that the holders of Preferred Stock and Common 13 14 Stock shall be paid in cash or in securities received or in a combination thereof (which combination shall be in the same proportions as the consideration received in the transaction). Any securities to be delivered to the holders of the Preferred Stock and Common Stock upon merger, reorganization, sale of substantially all the assets of the corporation, or transaction or related series of transactions resulting in a Change of Control shall be valued as follows: (i) if traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing sale prices of the securities on such exchange over the 30-day period ending three (3) business days prior to the closing; (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices (or closing sales prices, whichever is applicable) over the 30-day period ending three (3) business days prior to the closing; and (iii) if there is no active public market, the value shall be the fair market value thereof as determined in good faith by the board of directors of the corporation, but if challenged by the holders of more than 50% of the outstanding shares of Preferred Stock, then as determined by an independent appraiser selected by the board of directors of the corporation, the cost of such appraisal to be borne by the challenging parties. 3. Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be convertible into share(s) of Common Stock without the payment of any additional consideration by the holder thereof and, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred Stock. Each share of Preferred Stock shall be convertible into the number of fully paid and nonassessable shares of Common Stock which results from dividing the Conversion Price (as hereinafter defined) per share in effect for the Preferred Stock at the time of conversion into the per share Conversion Value (as hereinafter defined) of such series. The initial Conversion Price per share of the Series A Preferred Stock shall be $.25; and the Conversion Value per share of the Series A Preferred Stock shall be $.25; the initial Conversion Price per share of the Series B Preferred Stock shall be $.50; and the Conversion Value per share of the Series B Preferred Stock shall be $.50; the initial Conversion Price per share of the Series C Preferred Stock shall be $.77; the Conversion Value per share of the Series C Preferred Stock shall be $.77; the initial Conversion Price per share of the Series D Preferred Stock shall be $1.18; and the Conversion Value per share of the Series D Preferred Stock shall be $1.18. The initial Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as provided below. The number of shares of Common Stock into which a share of Preferred Stock is convertible is hereinafter referred to as the "Conversion Rate" of such series. (b) Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at its then effective Conversion Rate immediately prior to 14 15 the closing of an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock in which (a) the public offering price equals or exceeds $4.72 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and (b) the aggregate proceeds raised equals or exceeds $20,000,000. (c) Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Preferred Stock and shall give written notice to the corporation at such office that such holder elects to convert the same (except that no such written notice of election to convert shall be necessary in the event of an automatic conversion pursuant to Section 3(b) hereof). The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted (except that in the case of an automatic conversion pursuant to Section 3(b) hereof such conversion shall be deemed to have been made immediately prior to the closing of the offering referred to in Section 3(b)) and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Fractional Shares. In lieu of any fractional shares to which the holder of Preferred Stock would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the fair market value of one share of such series of Preferred Stock as determined by the board of directors of the corporation. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock of each holder to be converted at such time into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (e) Adjustment of Conversion Price. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: (i) If the corporation shall issue, after the date on which any shares of Series D Preferred Stock were first issued, any Common Stock other than "Excluded Stock," as defined below, for a consideration per share less than the Conversion Price for a series of Preferred Stock in effect immediately prior to the issuance of such Common Stock (excluding stock dividends, subdivisions, split-ups, combinations, dividends or recapitalizations which are covered by Section 3(e)(iii), (iv), (v) and (vi)), the Conversion Price for such series in effect immediately after each such issuance shall forthwith (except as provided in this Section 3(e)) be adjusted to a price equal to the quotient obtained by dividing: (A) an amount equal to the sum of 15 16 (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock, or deemed to have been issued pursuant to subdivision (B)(3) of this clause (i) and to clause (ii) below) immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance, plus (y) the consideration received by the corporation upon such issuance, by (B) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock or deemed to have been issued pursuant to subdivision (B)(3) of this clause (i) and to clause (ii) below) immediately prior to such issuance plus the additional shares of Common Stock issued in such issuance (but not including any additional shares of Common Stock deemed to be issued as a result of any adjustment in the Conversion Price resulting from such issuance). For purposes of any adjustment of the Conversion Price pursuant to this clause (i), the following provisions shall be applicable: (1) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor after deducting any discounts or commissions paid or incurred by the corporation in connection with the issuance and sale thereof. (2) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the board of directors of the corporation, in accordance with generally accepted accounting treatment; provided, however, that if, at the time of such determination, the corporation's Common Stock is traded in the over-the-counter market or on a national or regional securities exchange, such fair market value as determined by the board of directors of the corporation shall not exceed the aggregate "Current Market Price" (as defined below) of the shares of Common Stock being issued. (3) In the case of the issuance of (i) options to purchase or rights to subscribe for Common Stock (other than Excluded Stock), (ii) securities by their terms convertible into or exchangeable for Common Stock (other than Excluded Stock), or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in 16 17 subdivisions (1) and (2) above), if any, received by the corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subdivisions (1) and (2) above); (C) on any change in the number of shares of Common Stock deliverable upon exercise of any such options or rights or conversion of or exchange for such convertible or exchangeable securities, or on any change in the minimum purchase price of such options, rights or securities, other than a change resulting from the antidilution provisions of such options, rights or securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon (x) the issuance of such options, rights or securities not exercised, converted or exchanged prior to such change, as the case may be, been made upon the basis of such change or (y) the options or rights related to such securities not converted or exchanged prior to such change, as the case may be, been made upon the basis of such change; and (D) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, convertible or exchangeable securities or options or rights related to such convertible or exchangeable securities, as the case may be, been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such convertible or exchangeable securities or upon the exercise of the options or rights related to such convertible or exchangeable securities, as the case may be. (ii) "Excluded Stock" shall mean: (1) all shares of Common Stock issued and outstanding on the date this document is filed with the Delaware Secretary of State; 17 18 (2) all shares of Preferred Stock issued and outstanding on the date this document is filed with the Delaware Secretary of State and the Common Stock into which such shares of Preferred Stock are convertible; (3) all shares of Common Stock, warrants or options to purchase Common Stock or other securities issued to officers, directors, consultants or employees of the corporation pursuant to any plan or arrangement approved by the board of directors of the corporation; and (4) all shares of Common Stock, warrants or options to purchase Common Stock or other securities issued to lending or leasing institutions pursuant to any plan or arrangement approved by the board of directors of the corporation. All outstanding shares of Excluded Stock (including any shares issuable upon conversion of the Preferred Stock) shall be deemed to be outstanding for all purposes of the computations of Section 3(e)(i) above. (iii) If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, on the date such payment is made or such change is effective, the Conversion Price of each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of such series of Preferred Stock shall be increased in proportion to such increase of outstanding shares. (iv) If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, on the effective date of such combination, the Conversion Price of each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of any shares of a series of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (v) In case the corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the corporation convertible into or exchangeable for Common Stock), then, in each such case, the holders of shares of Preferred Stock shall, concurrent with the distribution to holders of Common Stock, receive a like distribution based upon the number of shares of Common Stock into which such shares of Preferred Stock are convertible. (vi) In case, at any time after the date hereof, of any capital reorganization, or any reclassification of the stock of the corporation (other than as a result of a stock dividend or 18 19 subdivision, split-up or combination of shares), or the consolidation or merger of the corporation with or into another person (other than a consolidation or merger in which the corporation is the continuing entity and which does not result in any change in the Common Stock), or of the sale or other disposition of all or substantially all the properties and assets of the corporation, the shares of Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the corporation or otherwise to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition he had converted his shares of Preferred Stock into Common Stock. The provisions of this clause (vi) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. (vii) All calculations under this Section 3 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. (viii) For the purpose of any computation pursuant to this Section 3(e), the "Current Market Price" at any date of one share of Common Stock, shall be deemed to be the average of the highest reported bid and the lowest reported offer prices on the preceding business day as furnished by the National Quotation Bureau, Incorporated (or equivalent recognized source of quotations); provided, however, that if the Common Stock is not traded in such manner that the quotations referred to in this clause (viii) are available for the period required hereunder, Current Market Price shall be determined in good faith by the board of directors of the corporation, but if challenged by the holders of more than 50% of the outstanding shares of Preferred Stock, then as determined by an independent appraiser selected by the board of directors of the corporation, the cost of such appraisal to be borne by the challenging parties. (f) Minimal Adjustments. No adjustment in the Conversion Price need be made if such adjustment would result in a change in the Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in the Conversion Price. (g) No Impairment. Without the consent of the majority of the outstanding shares of Preferred Stock, the corporation will not through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. (h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to this Section 3, the corporation at its expense shall 19 20 promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Rate of such series at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversions of such holder's shares of Preferred Stock. (i) Notices of Record Date. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property or to receive any other right, the corporation shall mail to each holder of Preferred Stock at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (k) Notices. Any notice required by the provisions of this Section 3 to be given to the holder of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the corporation. (l) Reissuance of Converted Shares. No shares of Preferred Stock which have been converted into Common Stock after the original issuance thereof shall ever again be reissued and all such shares so converted shall upon such conversion cease to be a part of the authorized shares of the corporation. 4. Voting Rights. (a) Preferred Stock. The holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which each share of Preferred Stock could be converted on the record date for the vote or consent of shareholders written 20 21 consent and, except as otherwise required by law, shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the corporation and shall vote with holders of the Common Stock upon the election of directors and upon any other matter submitted to a vote of shareholders, except those matters required by law to be submitted to a class vote. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares of Common Stock into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half rounded upward to one). (b) Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share held. (c) Board of Directors. The Board of Directors of the corporation shall consist of six (6) members. The holders of the Series D Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation. The holders of the Series C Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation. The holders of the Series A Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation. The holders of the Common Stock, voting together as a separate class, shall be entitled to elect one (1) director of the corporation. All remaining directors of the corporation shall be elected by the holders of the Common Stock and Preferred Stock voting together as a single class in accordance with the provision set forth in Section 4(a) above. Vacancies on the board of directors may be filled by a majority of the remaining directors originally elected by the same series, class or classes of shares who could elect an individual to fill such vacancy on the board of directors, though less than a quorum, except that a vacancy created by the removal of a director or directors by the vote or written consent of the shareholders, such shareholders being those who hold a majority of the outstanding shares of the series, class or classes entitled to elect such director or directors, or by court order may be filled by only the vote of a majority of the outstanding shares entitled to vote thereon. The shareholders entitled to vote thereon may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. This Section 4(c) shall not apply unless 1,000,000 shares of the Series C Preferred Stock and 1,500,000 shares of the Series D Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations and the like) are outstanding. 5. Redemption Rights of the Series C and Series D Preferred Stock. (a) Redemption on Demand. Subject to applicable law, at any time following the seventh anniversary of the closing of the purchase and sale of Series D Preferred Stock and upon the affirmative vote of the holders of the majority of the Series C Preferred Stock and Series D Preferred Stock, voting together as a single class on an as converted basis, the corporation shall redeem, in accordance with this Section 5, all shares of Series C Preferred Stock and Series D Preferred Stock outstanding as of the date of such demand, which date shall hereinafter be referred to as the "Redemption Date." 21 22 (b) Redemption Price. The Redemption Price for Series C Preferred Stock shall be $.77 per share (appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events). The Redemption Price for the Series D Preferred Stock shall be $1.18 per share (appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events). (c) Redemption Procedure. Beginning with the first year anniversary of the Redemption Date, the corporation shall be required to redeem annually no more than that number of shares of Series C Preferred Stock and Series D Preferred Stock equal to twenty-five (25) percent of the shares of Series C Preferred Stock and Series D Preferred Stock outstanding as of the Redemption Date. Annually thereafter, each holder of Series C Preferred Stock and Series D Preferred Stock shall surrender to the corporation for redemption no more than that number of shares equal to twenty-five (25) percent of the shares held by such holder on the Redemption Date (with one-half being rounded upwards). At least 20 days prior to the yearly anniversary of the Redemption Date, written notice (the "Redemption Notice") shall be mailed first class, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series C Preferred Stock and Series D Preferred Stock, at the address last shown on the records of the corporation for such holder or given by the holder to the corporation for the purpose of notice or if no such address appears or is given, at the place where the principal executive office of the corporation is located, notifying such holder of the redemption to be effected, specifying the amount to be redeemed by such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and the date on which such holder's right to convert Series C Preferred Stock or Series D Preferred Stock into Common Stock, as to such shares, terminates and calling upon such holder to surrender to the corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed. Except as provided in paragraph 5(d), on or after the Redemption Date, each holder of Series C Preferred Stock or Series D Preferred Stock to be redeemed shall surrender to the corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon, the aggregate Redemption Price of such shares shall be payable in cash to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (d) Effect of Redemption. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of such shares designated for redemption (as holders of the Series C Preferred Stock or Series D Preferred Stock, as the case may be, except the right to receive their respective Redemption Price without interest upon surrender of their certificate of certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of shares of the Series C Preferred Stock and Series D Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of the Series C Preferred Stock and Series D Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares on a pro rata basis 22 23 among the holders of the Series C Preferred Stock and Series D Preferred Stock based upon each holder's share of the total redemption price. The shares of Series C Preferred Stock and Series D Preferred Stock not redeemed shall remain outstanding and be entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of shares of Series C Preferred Stock and Series D Preferred Stock, such finds will immediately be set aside for the redemption of the balance of the shares which the corporation was obligated to redeem on any Redemption Date but which it has not redeemed; provided that the holders of such Series C Preferred Stock and Series D Preferred Stock shall receive at least 10 days notice of such redemption. (e) Redemption Funding. On or prior to the Redemption Date, the corporation shall deposit the Redemption Price of all shares of Series C Preferred Stock and Series D Preferred Stock designated for redemption in the Redemption Notice, with a bank or trust company located in the State of California having aggregate capital and surplus in excess of $50,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed. Simultaneously, the corporation shall deposit irrevocable instructions and authority to such bank or trust company to pay, on and after the date fixed for redemption or prior thereto, the Redemption Price of the Series C Preferred Stock and Series D Preferred Stock to the holders thereof, respectively, upon surrender of their certificates. Any money or notes deposited by the corporation pursuant to this paragraph 5(e) for the redemption of shares which are thereafter converted into shares of Common Stock pursuant to paragraph 5(c) hereof no later than the close of business on the last business day prior to the Redemption Date shall be returned to the corporation forthwith upon such conversion. The balance of any money or notes deposited by the corporation pursuant to this subsection remaining unclaimed at the expiration of six months following the Redemption Date shall thereafter be returned to the corporation, provided that the shareholder to which such money would be payable hereunder shall be entitled, upon proof of its ownership of the Preferred Stock and payment of any bond requested by the corporation, to receive such monies but without interest from the Redemption Date. 6. Protective Provisions. In addition to any other class vote that may be required by law, so long as at least 4,000,000 shares of Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a two-thirds of the then outstanding shares of Preferred Stock (voting as a class on an as converted basis) undertake any of the following: (i) effect a Change of Control in the corporation or sell all or substantially all of its assets, (ii) change the rights, preferences or privileges of any series of Preferred Stock, (iii) increase or decrease the authorized shares of Preferred Stock or the designated shares of any series of Preferred Stock, 23 24 (iv) create a new series or class of shares having rights on a parity with or superior to any outstanding class or series of shares, (v) except as set forth in this certificate, do any act which would result in taxation under Section 305 of the Internal Revenue Code, (vi) divide the securities of any class into series having different rights, (vii) effect an exchange, reclassification or cancellation of all or any part of a class of securities, including a reverse stock split, (viii) effect an exchange or create a right of exchange of all or part of the shares of a class, (ix) dissolve, liquidate or windup the corporation, (x) declare or pay any dividends on the Common Stock, (xi) increase the number of members of the corporation's Board of Directors to more than six (6) members, or (xii) redeem or repurchase any shares of Series A or Series B Preferred Stock. 7. Residual Rights. All rights accruing to the outstanding shares of capital stock not expressly provided for to the contrary herein shall be vested in the Common Stock. SIX The following is applicable to the Common Stock: 1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed as provided in Section 2 of Article Five hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws 24 25 of the corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. SEVEN The corporation is to have perpetual existence. EIGHT In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. NINE The election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. TEN To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The corporation shall indemnify to the fullest extent permitted by the law, any person made or threatened to be made a party, to any action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact the he or she, or his or her testator or intestate, is or was a director or officer of the corporation or any predecessor of the corporation, or serves or served at any other enterprise as a director or officer at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ELEVEN The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 25 26 IN WITNESS WHEREOF, the corporation has caused this Amended and Restated Certificate to be signed by its Chief Executive Officer and attested by its Secretary, this 18th day of February, 1999. /s/ JEFFREY KLECK, Chief Executive Officer /s/ J. CASEY MCGLYNN, Secretary 26 EX-4.06 7 WARRANT TO PURCHASE SERIES D JULY 20, 1999 1 EXHIBIT 4.06 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. QUICKSTART WARRANT TO PURCHASE STOCK Corporation: Neoforma, Inc., a Delaware corporation Number of Shares: 10,000 Class of Stock: Series D Preferred Initial Exercise Price: $1.18 per share Issue Date: July 20, 1999 Expiration Date: July 20, 2004 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. ARTICLE 1. EXERCISE. 1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.4. 1.3 Intentionally Omitted 1.4 Fair Market Value. If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. 1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1 2 1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.7 Repurchase on Sale, Merger, or Consolidation of the Company. 1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.7.2. Assumption of Warrant. Upon the closing of any Acquisition the successor entity may, at its option, assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. If the successor entity does not assume the obligations of the Company under this Warrant, then this Warrant shall be deemed to have been automatically converted pursuant to Section 1.2 and thereafter Holder shall participate in the Acquisition as a holder of the Shares (or other securities issuable upon exercise of this Warrant) on the same terms as other holders of the same class of securities of the Company. ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Certificate of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 2 3 2.4 Adjustments for Diluting Issuances. The Shares shall be afforded the protections (if any) against diluting issuances of stock as are prescribed for the class of stock of the Shares under the Company's Certificate of Incorporation, as amended from time to time. 2.5 No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. Provided, however, that this Section 2.5 shall not prevent the Company from amending its Certificate of Incorporation upon the consent of its stockholders. 2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share. 2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, famish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of 3 4 common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Information Rights. So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder promptly upon Holder's reasonable request, copies of all notices or other written communications to the shareholders of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and the Company's quarterly, unaudited financial statements. 3.4 Registration Under Securities Act of 1933, as amended. The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth on Exhibit B, if attached. ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder hereby represents and warrants to the Company as follows: 4.1 Purchase for Own Account. Except for transfers to Holder's affiliates, this Warrant and the securities to be acquired upon exercise of this Warrant by the Holder hereunder will be acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the 1933 Act, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. If not an individual, the Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares. 4.2 Disclosure of Information. The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. The Holder further has had an opportunity to ask questions and receive answers from, the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access. 4.3 Investment Experience. The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. The Holder: (i) has experience as an investor in securities of companies in the development stage and acknowledges that the Holder is able to fend for itself, can bear the economic risk of such Holder's investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or (ii) has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons. 4.4 Accredited Investor Status. The Holder is an "accredited investor" within the meaning of Regulation D promulgated under the 1933 Act. 4.5 "Market Stand-Off" Agreement. Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise transfer or dispose of any common stock (or other securities) of the Company held by such Holder during a period of time determined by the Company and its underwriters (not to exceed 180 days in the event of the Company's initial public offering and 90 days in the event of any other public offering) following the effective date of a registration statement of the Company filed under the Securities act of 1933, as amended, provided that all officers and directors of the Company who then hold common stock (or other securities) of the Company enter into similar 4 5 agreements. Holder further agrees, if so requested by the Company or its underwriters, to enter into an agreement in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the common stock (or securities) subject to the foregoing restriction until the end of said period. ARTICLE 5. MISCELLANEOUS. 5.1 Term: Notice of Expiration. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 5.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with, Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder s notice of proposed sale. 5.4 Transfer Procedure. Subject to the provisions of Section 4.3 Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); provided, however, that Holder may transfer all or part of this Warrant to Silicon Valley Bancshares and The Silicon Valley Bank Foundation, at any time without notice to the Company. The terms and conditions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective permitted successors and assigns. Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any party who directly competes with the Company. 5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or the Holder from time to time. 5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 5 6 5.7 Attorneys' Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 5.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. "COMPANY" NEOFORMA, INC. By: /s/ ROBERT ZOLLARS --------------------------------------------- Name: Robert Zollars --------------------------------------------- (Print) Title: Chairman of the Board, President or Vice President By: /s/ FREDRICK RUEGSEGGER --------------------------------------------- Name: Fredrick Ruegsegger --------------------------------------------- (Print) Title: Chief Financial Officer, Secretary, Assistant Treasurer or Assistant Secretary 6 7 APPENDIX I NOTICE OF EXERCISE 1. The undersigned hereby elects; to purchase __________ shares of the Common/Series __________ Preferred [strike one] Stock of ______________________ ________________________ pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised with respect to _______________________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------------------ (Name) ------------------------------------ ------------------------------------ (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. ------------------------------------ (Signature) - ---------------------- (Date) 7 EX-4.07 8 WARRANT AGREEMENT TO PURCHASE SHARES DATED 7/7/99 1 EXHIBIT 4.07 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT TO PURCHASE SHARES OF THE SERIES D PREFERRED STOCK OF NEOFORMA, INC. DATED AS OF JULY 7, 1999 (THE "EFFECTIVE DATE") WHEREAS, Neoforma, Inc., a Delaware corporation (the "Company") has entered into a Loan and Security Agreement and Master Lease Agreement dated as of July 7, 1999, Equipment Schedules VL-1 and VL-2 and related Promissory Notes and Summary Equipment Schedules (collectively, the "Loans and Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Loans and Leases, the right to purchase shares of its Series D Preferred Stock; NOW THEREFORE, in consideration of the Warrantholder executing and delivering such Loans and Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 137,711 fully paid and non-assessable shares of the Company's Series D Preferred Stock ("Preferred Stock") at a purchase price of $1.18 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) seven (7) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is longer. Notwithstanding the term of this Warrant Agreement as set forth above, the right to purchase Preferred Stock as granted shall expire, if not previously exercised, immediately upon the closing of the issuance and sale of shares of Common Stock of the Company in the Company's first public offering of securities for its own account pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Initial Public Offering"), provided that the underwriters so request that the Warrantholder exercise at that time. The Company shall notify the Warrantholder if the Initial Public Offering is proposed within a reasonable period of time prior to the filing of a registration statement and if the Company fails to deliver such written notice within a reasonable period of time, anything to the contrary in this Warrant Agreement notwithstanding, the rights to purchase will not expire until ten (10) business days after the Company delivers such notice to the Warrantholder. Such notice shall also contain such details of the proposed Initial Public Offering as are reasonable in the circumstances and notice that this Warrant Agreement is expected to expire upon closing thereof. If such closing does not take place, the Company shall promptly notify the Warrantholder that such proposed transaction has been terminated. Anything to the contrary in this Warrant Agreement notwithstanding, the Warrantholder may rescind any exercise of its purchase rights promptly after such notice of termination of the proposed transaction if the exercise of warrants occurred after the Company notified the Warrantholder that the Initial Public Offering was proposed or if the exercise were otherwise precipitated by such -1- 2 proposed Initial Public Offering. In the event of such rescission, the Warrants will continue to be exercisable on the same terms and conditions. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) business days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A - B) -------- A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised for payment under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering, and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the -2- 3 Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS STOCKHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of Preferred Stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have -3- 4 been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock deemed outstanding pursuant to its Certificate of Incorporation in effect immediately prior to such issuance immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock deemed outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share with one half being rounded down) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right of Purchase Additional Stock. If, the Warrantholder's total cost of equipment pursuant to the Loans and Leases exceeds $2,500,000, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares, which number shall be determined by (i) multiplying the amount by which the Warrantholder's total equipment cost exceeds $2,500,000 by 6.5%, and (ii) dividing the product thereof by the Exercise Price per share referenced above. (f) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. (g) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (h) Timely Notice. Failure to timely provide such notice required by subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. -4- 5 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever, provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect to any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Loans and Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Loans and Leases and this Warrant Agreement constitute legal, valid and binding agreements to the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 75,000,000 shares of Common Stock, of which 1,216,000 shares are issued and outstanding, and (B) 9,000,000 shares of Series A Preferred Stock, of which 9,000,000 shares are issued and outstanding and are convertible into 9,000,000 shares of Common Stock; (C) 2,860,000 shares of Series B Preferred Stock, of which 2,860,000 shares are issued and outstanding and are convertible into 2,860,000 shares of Common Stock; (D) 5,109,937 shares of Series C Preferred Stock, of which 5,064,937 shares are issued and outstanding and are convertible into 5,064,937 shares of Common Stock; (D) 10,455,085 shares of Series D Preferred Stock, of which 10,198,361 shares are issued and outstanding and are convertible into 10,198,361 shares of Common Stock. (ii) The Company has reserved (A) 14,656,078 shares of Common stock for issuance under its 1997 Stock Option Plan (B) one warrant to purchase 45,000 shares of Series C Preferred Stock and (c) one warrant to purchase 228,813 shares of Series D Preferred Stock. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) In accordance with the Company's Certificate of Incorporation, no stockholder of the Company has preemptive rights to purchase new issuance of the Company's capital stock. (e) Insurance. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. (f) Other Commitments to Register Securities. Except as set forth in the Investors Rights Agreement the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to -5- 6 register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, who proposed to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, ti shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable under exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase -6- 7 Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfers shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. LOCKUP. Warrantholder agrees in connection with the Company's Initial Public Offering (1) not to sell, make short of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock of the Company held by Holder (other than those shares included in the registration) without the prior written consent of the Company or the underwriters managing such Initial Public Offering of the Company's securities for one hundred eighty (180) days from the effective date of such registration, and (2) Warrantholder further agrees to execute any agreement reflecting (1) above as may be requested by the underwriters at the time of the public offering. 13. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease Administration, cc: Legal Department, attn.: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088 and (ii) to the Company at 3255 Scott Blvd., Bldg. 6, Santa Clara, CA 95050, Attention: Chief Financial Officer (and/or if by facsimile, (408) 549-6299) or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times -7- 8 in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase price for the Loans and Leases referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion from the Company's counsel with respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. COMPANY: NEOFORMA, INC. By: /s/ ROBERT ZOLLARS ------------------------------------ Title: CEO --------------------------------- WARRANTHOLDER: COMDISCO, INC. By: /s/ JAMES LABE ------------------------------------ Title: James Labe, President Comdisco Ventures Division --------------------------------- -8- 9 EXHIBIT I TO EXHIBIT 4.07 EXHIBIT I NOTICE OF EXERCISE TO: __________________ (1) The undersigned Warrantholder hereby elects to purchase ______ shares of the Series __ Preferred Stock of ______________, pursuant to the terms of the Warrant Agreement dated the ____________ day of _____________, 19__ (the "Warrant Agreement") between _______________________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Series __ Preferred Stock of _____________________, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Series __ Preferred Stock in the name of the undersigned or in such other name as specified below. ______________________________ (Name) ______________________________ (Address) WARRANTHOLDER; COMDISCO, INC. By: _______________________ Title: _______________________ Date: ________________________ -9- 10 EXHIBIT II TO EXHIBIT 4.07 EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned ______________________ hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase _______ shares of the Series __ Preferred Stock of _____________, pursuant to the terms of the Warrant Agreement, and further acknowledges that _______ shares remain subject to purchase under the terms of the Warrant Agreement. Company: By: _____________________________ Title: __________________________ Date: ___________________________ -10- 11 EXHIBIT III TO EXHIBIT 4.07 EXHIBIT III TRANSFER NOTICE (TO TRANSFER OR ASSIGN THE FOREGOING WARRANT AGREEMENT EXECUTE THIS FORM AND SUPPLY REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to ______________________________________________________ (Please Print) whose address is ______________________________________ _______________________________________________________ Dated: ____________________________________ Holder's Signature: _______________________ Holder's Address: _________________________ ___________________________________________ Signature Guaranteed: _________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. -11- 12 EXHIBIT TO EXHIBIT 4.07 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEOFORMA, INC. Neoforma, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Neoforma, Inc. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on August 18, 1998. B. Pursuant to Section 228, 242, and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this corporation. C. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ONE The name of this corporation is Neoforma, Inc. TWO The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Zip Code 19801. The name of its registered agent at such address is The Corporation Trust Company. THREE The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOUR This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is 67,425,022 shares. 40,000,000 shares shall be Common Stock with a par value of $.001. 27,425,022 shares shall be Preferred Stock with a par value of $.001, 9,000,000 of which shall be designated as Series A Preferred Stock, 2,860,000 of which shall be designated as Series B Preferred Stock, 5,109,937 of which shall be designated as Series C Preferred Stock and 10,455,085 of which shall be designated as Series D Preferred Stock. FIVE The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as follows: 1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and 12 13 rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation, at the rate of $.02 per share per annum for the Series A Preferred Stock, $.04 per share per annum for the Series B Preferred Stock, $.062 per share per annum for the Series C Preferred Stock and $.0944 per share per annum for the Series D Preferred Stock, or, if greater (as determined on a per annum basis and on an as converted basis for the Preferred Stock), an amount equal to that paid on any other outstanding shares of this corporation, except that the shares of a given series of Preferred Stock shall not receive any greater dividend as a result of the corporation's payment of a dividend on any such series of Preferred Stock. Such dividends shall be payable when, as and if declared by the Board of Directors, and shall not be cumulative, and no right shall accrue to holders of Common Stock or Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior period. 2. Liquidation Preference. (a) Preferred Preference. In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to $.25, $.50, $.77, and $1.18, respectively, for each outstanding share of such Preferred Stock held, plus an amount equal to any declared but unpaid dividends on such share of Preferred Stock up to the date fixed for distribution. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, the entire assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in accordance with the aggregate preference payment to which they are entitled. (b) After the payment or setting aside of payment set forth in (a) above, the remaining assets of the corporation shall be distributed on a pro-rata basis to the holders of the Preferred Stock, on an as converted basis, and the holders of the Common Stock until the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have received an additional $.25, $.50, $.77 and $1.18 per share, respectively. After the distributions to the stockholders pursuant to Sections 2(a) and (b) above have been made, the remaining assets of the corporation available for distribution to stockholders shall be distributed pro-rata among the holders of Common Stock. (c) Mergers. A merger, reorganization, or sale of all or substantially all of the assets of this corporation, or other transactions or series of related transactions in which the stockholders of this corporation immediately prior to the transaction or series of related transactions possess less than 50% of the voting power of the surviving entity (or its parent) immediately after the transaction (a "Change of Control") shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 2; provided that the holders of Preferred Stock and Common 13 14 Stock shall be paid in cash or in securities received or in a combination thereof (which combination shall be in the same proportions as the consideration received in the transaction). Any securities to be delivered to the holders of the Preferred Stock and Common Stock upon merger, reorganization, sale of substantially all the assets of the corporation, or transaction or related series of transactions resulting in a Change of Control shall be valued as follows: (i) if traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing sale prices of the securities on such exchange over the 30-day period ending three (3) business days prior to the closing; (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices (or closing sales prices, whichever is applicable) over the 30-day period ending three (3) business days prior to the closing; and (iii) if there is no active public market, the value shall be the fair market value thereof as determined in good faith by the board of directors of the corporation, but if challenged by the holders of more than 50% of the outstanding shares of Preferred Stock, then as determined by an independent appraiser selected by the board of directors of the corporation, the cost of such appraisal to be borne by the challenging parties. 3. Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be convertible into share(s) of Common Stock without the payment of any additional consideration by the holder thereof and, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred Stock. Each share of Preferred Stock shall be convertible into the number of fully paid and nonassessable shares of Common Stock which results from dividing the Conversion Price (as hereinafter defined) per share in effect for the Preferred Stock at the time of conversion into the per share Conversion Value (as hereinafter defined) of such series. The initial Conversion Price per share of the Series A Preferred Stock shall be $.25; and the Conversion Value per share of the Series A Preferred Stock shall be $.25; the initial Conversion Price per share of the Series B Preferred Stock shall be $.50; and the Conversion Value per share of the Series B Preferred Stock shall be $.50; the initial Conversion Price per share of the Series C Preferred Stock shall be $.77; the Conversion Value per share of the Series C Preferred Stock shall be $.77; the initial Conversion Price per share of the Series D Preferred Stock shall be $1.18; and the Conversion Value per share of the Series D Preferred Stock shall be $1.18. The initial Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as provided below. The number of shares of Common Stock into which a share of Preferred Stock is convertible is hereinafter referred to as the "Conversion Rate" of such series. (b) Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at its then effective Conversion Rate immediately prior to 14 15 the closing of an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock in which (a) the public offering price equals or exceeds $4.72 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and (b) the aggregate proceeds raised equals or exceeds $20,000,000. (c) Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Preferred Stock and shall give written notice to the corporation at such office that such holder elects to convert the same (except that no such written notice of election to convert shall be necessary in the event of an automatic conversion pursuant to Section 3(b) hereof). The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted (except that in the case of an automatic conversion pursuant to Section 3(b) hereof such conversion shall be deemed to have been made immediately prior to the closing of the offering referred to in Section 3(b)) and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Fractional Shares. In lieu of any fractional shares to which the holder of Preferred Stock would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the fair market value of one share of such series of Preferred Stock as determined by the board of directors of the corporation. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock of each holder to be converted at such time into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (e) Adjustment of Conversion Price. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: (i) If the corporation shall issue, after the date on which any shares of Series D Preferred Stock were first issued, any Common Stock other than "Excluded Stock," as defined below, for a consideration per share less than the Conversion Price for a series of Preferred Stock in effect immediately prior to the issuance of such Common Stock (excluding stock dividends, subdivisions, split-ups, combinations, dividends or recapitalizations which are covered by Section 3(e)(iii), (iv), (v) and (vi)), the Conversion Price for such series in effect immediately after each such issuance shall forthwith (except as provided in this Section 3(e)) be adjusted to a price equal to the quotient obtained by dividing: (A) an amount equal to the sum of 15 16 (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock, or deemed to have been issued pursuant to subdivision (B)(3) of this clause (i) and to clause (ii) below) immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance, plus (y) the consideration received by the corporation upon such issuance, by (B) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock or deemed to have been issued pursuant to subdivision (B)(3) of this clause (i) and to clause (ii) below) immediately prior to such issuance plus the additional shares of Common Stock issued in such issuance (but not including any additional shares of Common Stock deemed to be issued as a result of any adjustment in the Conversion Price resulting from such issuance). For purposes of any adjustment of the Conversion Price pursuant to this clause (i), the following provisions shall be applicable: (1) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor after deducting any discounts or commissions paid or incurred by the corporation in connection with the issuance and sale thereof. (2) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the board of directors of the corporation, in accordance with generally accepted accounting treatment; provided, however, that if, at the time of such determination, the corporation's Common Stock is traded in the over-the-counter market or on a national or regional securities exchange, such fair market value as determined by the board of directors of the corporation shall not exceed the aggregate "Current Market Price" (as defined below) of the shares of Common Stock being issued. (3) In the case of the issuance of (i) options to purchase or rights to subscribe for Common Stock (other than Excluded Stock), (ii) securities by their terms convertible into or exchangeable for Common Stock (other than Excluded Stock), or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in 16 17 subdivisions (1) and (2) above), if any, received by the corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subdivisions (1) and (2) above); (C) on any change in the number of shares of Common Stock deliverable upon exercise of any such options or rights or conversion of or exchange for such convertible or exchangeable securities, or on any change in the minimum purchase price of such options, rights or securities, other than a change resulting from the antidilution provisions of such options, rights or securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon (x) the issuance of such options, rights or securities not exercised, converted or exchanged prior to such change, as the case may be, been made upon the basis of such change or (y) the options or rights related to such securities not converted or exchanged prior to such change, as the case may be, been made upon the basis of such change; and (D) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, convertible or exchangeable securities or options or rights related to such convertible or exchangeable securities, as the case may be, been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such convertible or exchangeable securities or upon the exercise of the options or rights related to such convertible or exchangeable securities, as the case may be. (ii) "Excluded Stock" shall mean: (1) all shares of Common Stock issued and outstanding on the date this document is filed with the Delaware Secretary of State; 17 18 (2) all shares of Preferred Stock issued and outstanding on the date this document is filed with the Delaware Secretary of State and the Common Stock into which such shares of Preferred Stock are convertible; (3) all shares of Common Stock, warrants or options to purchase Common Stock or other securities issued to officers, directors, consultants or employees of the corporation pursuant to any plan or arrangement approved by the board of directors of the corporation; and (4) all shares of Common Stock, warrants or options to purchase Common Stock or other securities issued to lending or leasing institutions pursuant to any plan or arrangement approved by the board of directors of the corporation. All outstanding shares of Excluded Stock (including any shares issuable upon conversion of the Preferred Stock) shall be deemed to be outstanding for all purposes of the computations of Section 3(e)(i) above. (iii) If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, on the date such payment is made or such change is effective, the Conversion Price of each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of such series of Preferred Stock shall be increased in proportion to such increase of outstanding shares. (iv) If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, on the effective date of such combination, the Conversion Price of each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of any shares of a series of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (v) In case the corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the corporation convertible into or exchangeable for Common Stock), then, in each such case, the holders of shares of Preferred Stock shall, concurrent with the distribution to holders of Common Stock, receive a like distribution based upon the number of shares of Common Stock into which such shares of Preferred Stock are convertible. (vi) In case, at any time after the date hereof, of any capital reorganization, or any reclassification of the stock of the corporation (other than as a result of a stock dividend or 18 19 subdivision, split-up or combination of shares), or the consolidation or merger of the corporation with or into another person (other than a consolidation or merger in which the corporation is the continuing entity and which does not result in any change in the Common Stock), or of the sale or other disposition of all or substantially all the properties and assets of the corporation, the shares of Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the corporation or otherwise to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition he had converted his shares of Preferred Stock into Common Stock. The provisions of this clause (vi) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. (vii) All calculations under this Section 3 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. (viii) For the purpose of any computation pursuant to this Section 3(e), the "Current Market Price" at any date of one share of Common Stock, shall be deemed to be the average of the highest reported bid and the lowest reported offer prices on the preceding business day as furnished by the National Quotation Bureau, Incorporated (or equivalent recognized source of quotations); provided, however, that if the Common Stock is not traded in such manner that the quotations referred to in this clause (viii) are available for the period required hereunder, Current Market Price shall be determined in good faith by the board of directors of the corporation, but if challenged by the holders of more than 50% of the outstanding shares of Preferred Stock, then as determined by an independent appraiser selected by the board of directors of the corporation, the cost of such appraisal to be borne by the challenging parties. (f) Minimal Adjustments. No adjustment in the Conversion Price need be made if such adjustment would result in a change in the Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in the Conversion Price. (g) No Impairment. Without the consent of the majority of the outstanding shares of Preferred Stock, the corporation will not through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. (h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to this Section 3, the corporation at its expense shall 19 20 promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Rate of such series at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversions of such holder's shares of Preferred Stock. (i) Notices of Record Date. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property or to receive any other right, the corporation shall mail to each holder of Preferred Stock at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (k) Notices. Any notice required by the provisions of this Section 3 to be given to the holder of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the corporation. (l) Reissuance of Converted Shares. No shares of Preferred Stock which have been converted into Common Stock after the original issuance thereof shall ever again be reissued and all such shares so converted shall upon such conversion cease to be a part of the authorized shares of the corporation. 4. Voting Rights. (a) Preferred Stock. The holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which each share of Preferred Stock could be converted on the record date for the vote or consent of shareholders written 20 21 consent and, except as otherwise required by law, shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the corporation and shall vote with holders of the Common Stock upon the election of directors and upon any other matter submitted to a vote of shareholders, except those matters required by law to be submitted to a class vote. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares of Common Stock into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half rounded upward to one). (b) Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share held. (c) Board of Directors. The Board of Directors of the corporation shall consist of six (6) members. The holders of the Series D Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation. The holders of the Series C Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation. The holders of the Series A Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the corporation. The holders of the Common Stock, voting together as a separate class, shall be entitled to elect one (1) director of the corporation. All remaining directors of the corporation shall be elected by the holders of the Common Stock and Preferred Stock voting together as a single class in accordance with the provision set forth in Section 4(a) above. Vacancies on the board of directors may be filled by a majority of the remaining directors originally elected by the same series, class or classes of shares who could elect an individual to fill such vacancy on the board of directors, though less than a quorum, except that a vacancy created by the removal of a director or directors by the vote or written consent of the shareholders, such shareholders being those who hold a majority of the outstanding shares of the series, class or classes entitled to elect such director or directors, or by court order may be filled by only the vote of a majority of the outstanding shares entitled to vote thereon. The shareholders entitled to vote thereon may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. This Section 4(c) shall not apply unless 1,000,000 shares of the Series C Preferred Stock and 1,500,000 shares of the Series D Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations and the like) are outstanding. 5. Redemption Rights of the Series C and Series D Preferred Stock. (a) Redemption on Demand. Subject to applicable law, at any time following the seventh anniversary of the closing of the purchase and sale of Series D Preferred Stock and upon the affirmative vote of the holders of the majority of the Series C Preferred Stock and Series D Preferred Stock, voting together as a single class on an as converted basis, the corporation shall redeem, in accordance with this Section 5, all shares of Series C Preferred Stock and Series D Preferred Stock outstanding as of the date of such demand, which date shall hereinafter be referred to as the "Redemption Date." 21 22 (b) Redemption Price. The Redemption Price for Series C Preferred Stock shall be $.77 per share (appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events). The Redemption Price for the Series D Preferred Stock shall be $1.18 per share (appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events). (c) Redemption Procedure. Beginning with the first year anniversary of the Redemption Date, the corporation shall be required to redeem annually no more than that number of shares of Series C Preferred Stock and Series D Preferred Stock equal to twenty-five (25) percent of the shares of Series C Preferred Stock and Series D Preferred Stock outstanding as of the Redemption Date. Annually thereafter, each holder of Series C Preferred Stock and Series D Preferred Stock shall surrender to the corporation for redemption no more than that number of shares equal to twenty-five (25) percent of the shares held by such holder on the Redemption Date (with one-half being rounded upwards). At least 20 days prior to the yearly anniversary of the Redemption Date, written notice (the "Redemption Notice") shall be mailed first class, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series C Preferred Stock and Series D Preferred Stock, at the address last shown on the records of the corporation for such holder or given by the holder to the corporation for the purpose of notice or if no such address appears or is given, at the place where the principal executive office of the corporation is located, notifying such holder of the redemption to be effected, specifying the amount to be redeemed by such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and the date on which such holder's right to convert Series C Preferred Stock or Series D Preferred Stock into Common Stock, as to such shares, terminates and calling upon such holder to surrender to the corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed. Except as provided in paragraph 5(d), on or after the Redemption Date, each holder of Series C Preferred Stock or Series D Preferred Stock to be redeemed shall surrender to the corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon, the aggregate Redemption Price of such shares shall be payable in cash to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (d) Effect of Redemption. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of such shares designated for redemption (as holders of the Series C Preferred Stock or Series D Preferred Stock, as the case may be, except the right to receive their respective Redemption Price without interest upon surrender of their certificate of certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of shares of the Series C Preferred Stock and Series D Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of the Series C Preferred Stock and Series D Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares on a pro rata basis 22 23 among the holders of the Series C Preferred Stock and Series D Preferred Stock based upon each holder's share of the total redemption price. The shares of Series C Preferred Stock and Series D Preferred Stock not redeemed shall remain outstanding and be entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of shares of Series C Preferred Stock and Series D Preferred Stock, such finds will immediately be set aside for the redemption of the balance of the shares which the corporation was obligated to redeem on any Redemption Date but which it has not redeemed; provided that the holders of such Series C Preferred Stock and Series D Preferred Stock shall receive at least 10 days notice of such redemption. (e) Redemption Funding. On or prior to the Redemption Date, the corporation shall deposit the Redemption Price of all shares of Series C Preferred Stock and Series D Preferred Stock designated for redemption in the Redemption Notice, with a bank or trust company located in the State of California having aggregate capital and surplus in excess of $50,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed. Simultaneously, the corporation shall deposit irrevocable instructions and authority to such bank or trust company to pay, on and after the date fixed for redemption or prior thereto, the Redemption Price of the Series C Preferred Stock and Series D Preferred Stock to the holders thereof, respectively, upon surrender of their certificates. Any money or notes deposited by the corporation pursuant to this paragraph 5(e) for the redemption of shares which are thereafter converted into shares of Common Stock pursuant to paragraph 5(c) hereof no later than the close of business on the last business day prior to the Redemption Date shall be returned to the corporation forthwith upon such conversion. The balance of any money or notes deposited by the corporation pursuant to this subsection remaining unclaimed at the expiration of six months following the Redemption Date shall thereafter be returned to the corporation, provided that the shareholder to which such money would be payable hereunder shall be entitled, upon proof of its ownership of the Preferred Stock and payment of any bond requested by the corporation, to receive such monies but without interest from the Redemption Date. 6. Protective Provisions. In addition to any other class vote that may be required by law, so long as at least 4,000,000 shares of Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a two-thirds of the then outstanding shares of Preferred Stock (voting as a class on an as converted basis) undertake any of the following: (i) effect a Change of Control in the corporation or sell all or substantially all of its assets, (ii) change the rights, preferences or privileges of any series of Preferred Stock, (iii) increase or decrease the authorized shares of Preferred Stock or the designated shares of any series of Preferred Stock, 23 24 (iv) create a new series or class of shares having rights on a parity with or superior to any outstanding class or series of shares, (v) except as set forth in this certificate, do any act which would result in taxation under Section 305 of the Internal Revenue Code, (vi) divide the securities of any class into series having different rights, (vii) effect an exchange, reclassification or cancellation of all or any part of a class of securities, including a reverse stock split, (viii) effect an exchange or create a right of exchange of all or part of the shares of a class, (ix) dissolve, liquidate or windup the corporation, (x) declare or pay any dividends on the Common Stock, (xi) increase the number of members of the corporation's Board of Directors to more than six (6) members, or (xii) redeem or repurchase any shares of Series A or Series B Preferred Stock. 7. Residual Rights. All rights accruing to the outstanding shares of capital stock not expressly provided for to the contrary herein shall be vested in the Common Stock. SIX The following is applicable to the Common Stock: 1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed as provided in Section 2 of Article Five hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws 24 25 of the corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. SEVEN The corporation is to have perpetual existence. EIGHT In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. NINE The election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. TEN To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The corporation shall indemnify to the fullest extent permitted by the law, any person made or threatened to be made a party, to any action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact the he or she, or his or her testator or intestate, is or was a director or officer of the corporation or any predecessor of the corporation, or serves or served at any other enterprise as a director or officer at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ELEVEN The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 25 26 IN WITNESS WHEREOF, the corporation has caused this Amended and Restated Certificate to be signed by its Chief Executive Officer and attested by its Secretary, this 18th day of February, 1999. /s/ JEFFREY KLECK, Chief Executive Officer /s/ J. CASEY MCGLYNN, Secretary 26 EX-10.01 9 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.01 INDEMNITY AGREEMENT This Indemnity Agreement (this "AGREEMENT"), is entered into as of _________, ____ by and between Neoforma.com, Inc., a Delaware corporation (the "COMPANY"), and [the undersigned] [INSERT NAME], a director and/or officer of the Company (the "INDEMNITEE"). RECITALS A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers; B. Based upon their experience as business managers, the Board of Directors of the Company (the "BOARD") has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company, and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company contractually to indemnify officers and directors and to assume for itself maximum liability for expenses and damages in connection with claims against such officers and directors in connection with their service to the Company; C. Section 145 of the General Corporation Law of Delaware, under which the Company is organized (the "LAW"), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by the Law is not exclusive; and D. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. 1.1 Agent. For the purposes of this Agreement, "AGENT" of the Company means any person who is or was a director or officer of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; 1 2 or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such predecessor corporation. The term "ENTERPRISE" includes any employee benefit plan of the Company, its subsidiaries, affiliates and predecessor corporations. 1.2 Expenses. For purposes of this Agreement, "EXPENSES" includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements and other out-of-pocket costs) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement, Section 145 or otherwise; provided, however, that expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a proceeding. 1.3 Proceeding. For the purposes of this Agreement, "PROCEEDING" means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever. 1.4 Subsidiary. For purposes of this Agreement, "SUBSIDIARY" means any corporation of which more than fifty percent (50%) of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more of the Company's subsidiaries. 2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any subsidiary of the Company; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement), and the Company or any subsidiary shall have no obligation under this Agreement to continue the Indemnitee in any such position. 3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent that the Board determines it to be economically reasonable, maintain a policy of directors' and officers' liability insurance ("D&O INSURANCE"), on such terms and conditions as may be approved by the Board. 4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company shall indemnify the Indemnitee: 4.1 Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all expenses and 2 3 liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and 4.2 Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery or the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the Court of Chancery or such other court shall deem proper; and 4.3 Exception for Amounts Covered by Insurance. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to the Indemnitee by D&O Insurance. 5. PARTIAL INDEMNIFICATION AND CONTRIBUTION. 5.1 Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification. 5.2 Contribution. If the Indemnitee is not entitled to the indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Law, then in respect of any threatened, pending or completed proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Company shall 3 4 contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 6. MANDATORY ADVANCEMENT OF EXPENSES. 6.1 Advancement. Subject to Section 9 below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes to promptly repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation or Bylaws of the Company, the Law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company. 6.2 Exception. Notwithstanding the foregoing provisions of this Section 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee's request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being deemed to refer to "advancement of expenses," and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least twenty (20) percentage points without advance Board approval. 4 5 7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES. 7.1 Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. 7.2 If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Insurance policies. 7.3 In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that: (a) the Indemnitee shall have the right to employ his own counsel in any such proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right to employ his own counsel in connection with any such proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; and (c) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company. 8. DETERMINATION OF RIGHT TO INDEMNIFICATION. 8.1 To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be. 8.2 In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the 5 6 Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification. 8.3 The Indemnitee shall be entitled to select the forum in which the validity of the Company's claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification will be heard from among the following, except that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company: (a) A quorum of the Board consisting of directors who are not parties to the proceeding for which indemnification is being sought; (b) The stockholders of the Company; (c) Legal counsel mutually agreed upon by the Indemnitee and the Board, which counsel shall make such determination in a written opinion; (d) A panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected; or (e) The Court of Chancery of Delaware or other court having jurisdiction of subject matter and the parties. 8.4 As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim. 8.5 If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, the court in which the proceeding giving rise to the Indemnitee's claim for indemnification is or was pending or any other court of competent jurisdiction, for the purpose of appealing the decision of such forum, provided that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the applicable laws and rules governing appeals of the decision of such court. 8.6 Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the 6 7 material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: 9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to proceedings specifically authorized by the Board or brought to establish or enforce a right to indemnification and/or advancement of expenses arising under this Agreement, the charter documents of the Company or any subsidiary or any statute or law or otherwise, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or 9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or 9.3 Securities Law Actions. To indemnify the Indemnitee on account of any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section l6(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication. 10. NON-EXCLUSIVITY. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or Bylaws, the vote of the Company's stockholders or disinterested directors, other agreements or otherwise, both as to action in the Indemnitee's official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 11. GENERAL PROVISIONS. 11.1 Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as 7 8 expressly limited herein. 11.2 Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, then: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 11.1 hereof. 11.3 Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 11.4 Subrogation. In the event of full payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 11.5 Counterparts. This Agreement may be executed in one or more counter-parts, which shall together constitute one agreement. 11.6 Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto. 11.7 Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given: (a) if delivered by hand and signed for by the party addressee; or (b) if mailed by certified or registered mail, with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. 11.8 Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California. 11.9 Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement. 8 9 11.10 Attorneys' Fees. In the event Indemnitee is required to bring any action to enforce rights under this Agreement (including, without limitation, the expenses of any Proceeding described in Section 3), the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith. IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity Agreement effective as of the date first written above. NEOFORMA.COM, INC.: INDEMNITEE: By: [Name] Name: Title: Address: Neoforma.com, Inc. 3255-7 Scott Blvd. Santa Clara, CA 95054 Attn: President 9 EX-10.02 10 1997 STOCK PLAN 1 EXHIBIT 10.02 NEOFORMA, INC. 1997 STOCK PLAN 1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of NEOFORMA, INC. and its Subsidiaries (collectively the "Company") and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options as determined by the Administrator at the time of grant of an Option and subject to applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986 as amended. (d) "Committee" means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan. (e) "Common Stock" means the Common Stock of the Company. (f) "Company" means Neoforma, Inc. Delaware corporation. (g) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any Director of the Company whether compensated for such services or not. If the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include Directors who are not compensated for their services or are paid only a Director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Leaves of absence approved by Company include sick, military, or other approved personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. 1 2 (i) "Director" means a member of the Board of Directors of the Company. (j) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i)If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination and reported in the Wall Street Journal or such other source as the Administrator deems reliable: (ii) If the Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or, (iii) In the absence of an established market for the Common Stock the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (o) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "Option" means a stock option granted pursuant to the Plan. (q) "Optioned Stock" means the Common Stock subject to an Option or a Stock Purchase Right. (r) "Optionee" means an Employee or Consultant who receives an Option or Stock Purchase Right. (s) "Parent" means a "parent corporation," whether now or hereafter existing as defined in Section 424(e) of the Code. (t) "Plan" means this Neoforma, Inc. 1997 Stock Plan. -2- 3 (u) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (v) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (w) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (x) "Stock Purchase Right" means a right to purchase Common Stock pursuant to Section 12 below. (y) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 14,656,078 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. (a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board. (b) Plan Procedure After the Date. If any, upon which the Company becomes Subject to the Exchange Act: (i) Multiple Administrative Bodies. If permitted by Rule l6b-3, the Plan may be administered by different bodies with respect to Directors, Officers and Employees who are neither Directors nor Officers. (ii) Administration With Respect to Directors and Officers. With respect to grants of Options and Stock Purchase Rights to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the disinterested administration of employee benefit -3- 4 plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule l6b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (iii) Administration With Respect to Other Employees and Consultants. With respect to grants of Options and Stock Purchase Rights to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution, therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder; (iv) to determine the number of Shares to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; -4- 5 (vii) to determine whether and under what circumstances an Option may be settled in cash under subsections 9(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights. 5. Eligibility. (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Rights may, if otherwise eligible, be granted, additional Options or Stock Purchase Rights. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuation of his or her employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term often (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) -5- 6 years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option: (A) granted to a person who, at the time of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any other person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which, in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and a broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the -6- 7 Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan, but in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted. (i) An Option may not be exercised for a fraction of a Share. (ii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote, receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in section 12 thereof. (iii) Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent the Optionee was not -7- 8 entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant) by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option on the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after the Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Rule 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule l6b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (f) Buyout Provisions. The Administrator may at any time offer to buy out, on terms reasonably acceptable to the Optionee and to the Company, for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the parties shall reasonably establish and the parties agree that the dispute resolution procedures of Section 20 shall finally resolve any disputes or disagreements arising the foregoing including without limitation what constitutes a reasonable payment of cash or Shares or other reasonable terms and conditions for any buyout requested by the Company. 10. Non-Transferability of Options and Stock Purchase Rights. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator makes the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." -8- 9 (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine, but in no case at a rate of less than 20% per year over five years from the date of purchase. (c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each Purchaser. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization or Merger. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right shall terminate immediately prior to the consummation of such proposed action. -9- 10 (c) Merger. In the event of a merger of the Company with or into another corporation, each outstanding Option or Stock Purchase Right may be assumed or an equivalent option or right may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, an Option or Stock Purchase Right is not assumed or substituted, the Option or Stock Purchase Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger, the Option or Stock Purchase Right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger, the consideration (whether stock cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if the holders are offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Rights to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. 13. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options or Stock Purchase Rights already granted, and such Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant -10- 11 provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options and Stock Purchase Rights shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 18. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. 19. Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. 20. BINDING EXPEDITED ALTERNATIVE DISPUTE RESOLUTION. ANY CHALLENGE TO THE GOOD FAITH OF THE FINAL DETERMINATION OF THE BOARD SHALL BE RESOLVED BY FINAL, BINDING, CONFIDENTIAL, EXPEDITED ARBITRATION IN PALO ALTO, CALIFORNIA BEFORE A NEUTRAL RETIRED JUDGE APPOINTED BY THE JUDICIAL ARBITRATION AND MEDIATION SERVICE (JAMS) OF SAN JOSE, CALIFORNIA; THE ARBITRATION HEARING SHALL BE EXPEDITED AND SHALL OCCUR WITHIN TEN (10) DAYS OF THE DEMAND THEREOF BY EITHER PARTY AND SHALL BE LIMITED TO ONE EIGHT (8) HOUR HEARING IN WHICH EACH PARTY IS ALLOTTED FOUR (4) HOURS TO PRESENT THAT PARTY'S POSITION, TESTIMONY, EXHIBITS AND OTHER EVIDENCE. THE ARBITRATOR SHALL ISSUE A FINAL AND BINDING WRITTEN AWARD WITHIN TEN (10) DAYS OF THE CLOSE OF THE HEARING AND EACH PARTY SHALL HAVE TEN (10) DAYS FOLLOWING SUCH AWARD TO -11- 12 COMPLY THEREWITH. THE PARTIES AGREE THAT THEY ARE EACH WAIVING A RIGHT TO TRIAL BY JURY, COURT TRIAL, APPEAL AND OTHER COURT PROCEDURES IN FAVOR OF AN EXPEDITED RESOLUTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS HEREOF. -12- EX-10.03 11 FORM OF 1999 EQUITY INCENTIVE PLAN 1 EXHIBIT 10.03 NEOFORMA, INC. 1999 EQUITY INCENTIVE PLAN As Adopted _______________, 1999 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be ______________ Shares plus Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. In addition, any authorized shares not issued or subject to outstanding grants under the Neoforma, Inc.'s _____________ Plan and the ______________ Plan (the "PRIOR PLANS") on the Effective Date (as defined below) and any shares issued under the Prior Plans that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plans that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plans, but will be available for grant and issuance under this Plan. In addition, on each January 1, the aggregate number of Shares reserved and available for grant and issuance pursuant to this Plan will be increased automatically by a number of Shares equal to ___________% of the total outstanding shares of the Company as of the immediately preceding December 31, provided that no more than __________________ shares shall qualify as ISOs (as defined in Section 5 below). At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No person will be eligible to receive more than ____________ Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company), who are eligible to receive up to a maximum of ________________ Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. 1 2 Neoforma, Inc. 1999 Equity Incentive Plan 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required by the terms of Section 9 hereof, will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 2 3 Neoforma, Inc. 1999 Equity Incentive Plan 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or Disability, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. 3 4 Neoforma, Inc. 1999 Equity Incentive Plan (c) Notwithstanding the provisions in paragraph 5.6(a) above, if a Participant is terminated for Cause, neither the Participant, the Participant's estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or Subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is 4 5 Neoforma, Inc. 1999 Equity Incentive Plan delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee will determine the number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the 5 6 Neoforma, Inc. 1999 Equity Incentive Plan Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS. 6 7 Neoforma, Inc. 1999 Equity Incentive Plan 9.1 Types of Options and Shares. Options granted under this Plan and subject to this Section 9 shall be NQSOs. 9.2 Eligibility. Options subject to this Section 9 shall be granted only to Outside Directors. 9.3 Initial Grant. Each Outside Director who first becomes a member of the Board on or after the Effective Date will automatically be granted an Option for _____________ Shares (an "INITIAL GRANT") on the date such Optionee first becomes a member of the Board, unless such Outside Director received a grant of Options before the Effective Date. Each Optionee who became a member of the Board prior to the Effective Date will receive an Initial Grant immediately following the Effective Date. 9.4 Succeeding Grants. Immediately following each Annual Meeting of stockholders, each Outside Director will automatically be granted an Option for ___________ Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member of the Board on such date and has served continuously as a member of the Board for a period of at least one year since the date of such Outside Director's Initial Grant. 9.5 Vesting. The date an Outside Director receives an Initial Grant or a Succeeding Grant is referred to in this Plan as the "START DATE" for such Option. (a) Initial Grants. Each Initial Grant will vest as to _______________% of the Shares on the first anniversary of the Start Date for such Initial Grant, and as to _________% of the Shares on each subsequent monthly anniversary of the Start Date, so long as the Outside Director continuously remains a director or a consultant of the Company. (b) Succeeding Grants. Each Succeeding Grant will vest as to ____________% of the Shares on the first anniversary of the Start Date for such Succeeding Grant, and as to ____________% of the Shares on each subsequent monthly anniversary of the Start Date, so long as the Outside Director continuously remains a director or a consultant of the Company. Notwithstanding any provision to the contrary, in the event of a corporate transaction described in Section 18.1, the vesting of all options granted to Outside Directors pursuant to this Section 9 will accelerate and such options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and must be exercised, if at all, within three months of the consummation of said event. Any options not exercised within such three-month period shall expire. 9.6 Exercise Price. The exercise price of an Option pursuant to an Initial Grant shall be the Fair Market Value of the Shares, at the time that the Option is granted. 10. WITHHOLDING TAXES. 10.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 10.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a 7 8 Neoforma, Inc. 1999 Equity Incentive Plan Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee. 11. TRANSFERABILITY. 11.1 Except as otherwise provided in this Section 11, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. 11.2 All Awards other than NQSO's. All Awards other than NQSO's shall be exercisable: (i) during the Participant's lifetime, only by (A) the Participant, or (B) the Participant's guardian or legal representative; and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. 11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the Participant, (B) the Participant's guardian or legal representative, (C) a Family Member of the Participant who has acquired the NQSO by "permitted transfer;" and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. "Permitted transfer" means, as authorized by this Plan and the Committee in an NQSO, any transfer effected by the Participant during the Participant's lifetime of an interest in such NQSO but only such transfers which are by gift or domestic relations order. A permitted transfer does not include any transfer for value and neither of the following are transfers for value: (a) a transfer of under a domestic relations order in settlement of marital property rights or (b) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members or the Participant in exchange for an interest in that entity. 12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.. 12.1 Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's Purchase Price or Exercise Price pursuant to Section 12. 12.2 Financial Statements. The Company will provide financial statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 12.3 Restrictions on Shares. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of or all Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price or Purchase Price, as the case may be. 13. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regula- 8 9 Neoforma, Inc. 1999 Equity Incentive Plan tions and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, in the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any 9 10 Neoforma, Inc. 1999 Equity Incentive Plan stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participants, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a transaction described in this Subsection 18.1, such Awards will expire on such transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a transaction described in this Section 18. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate at such time as determined by the Committee. 18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on the date on which the registration statement filed by the Company with the SEC under the Securities Act registering the initial public offering of the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded; and (d) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase of Shares pursuant to such increase will be rescinded. 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder 10 11 Neoforma, Inc. 1999 Equity Incentive Plan approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have the following meanings: "AWARD" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the Compensation Committee of the Board. "COMPANY" means Neoforma, Inc. or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; 11 12 Neoforma, Inc. 1999 Equity Incentive Plan (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (e) if none of the foregoing is applicable, by the Committee in good faith. "FAMILY MEMBER" includes any of the following: (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption; (b) any person (other than a tenant or employee) sharing the Participant's household; (c) a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial interest; (d) a foundation in which the persons in (a) and (b) or the Participant control the management of assets; or (e) any other entity in which the persons in (a) and (b) or the Participant own more than fifty percent of the voting interest. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "OUTSIDE DIRECTOR" means a member of the Board who is not an employee of the Company or any Parent, Subsidiary or Affiliate of the Company. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. "PERFORMANCE FACTORS" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; 12 13 Neoforma, Inc. 1999 Equity Incentive Plan (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total stockholder return and/or total stockholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and (k) Individual confidential business objectives. "PERFORMANCE PERIOD" means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "PLAN" means this Neoforma, Inc. 1999 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). 13 14 Neoforma, Inc. 1999 Equity Incentive Plan "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 14 EX-10.04 12 FORM OF 1999 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.04 NEOFORMA, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN As Adopted ___________________, 1999 1. ESTABLISHMENT OF PLAN. Neoforma, Inc. (the "COMPANY") proposes to grant options for purchase of the Company's Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "BOARD") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of ______________ shares of the Company's Common Stock is reserved for issuance under this Plan. In addition, on each January 1, the aggregate number of shares of the Company's Common Stock reserved for issuance under the Plan shall be increased automatically by a number of shares equal to _________% of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31; provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year; and, provided further, that the aggregate number of shares issued over the term of this Plan shall not exceed _______________ shares. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. PURPOSE. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. ELIGIBILITY. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or a Participating Subsidiary (10) days before the beginning of such Offering Period, except that employees who are employed on the Effective Date of the Registration Statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the initial public offering of the Company's Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five 1 2 Neoforma, Inc. 1999 Employee Stock Purchase Plan percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes. 5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on ________________ and _________________ of each year and ending on ___________________ and _________________ of each year; provided, however, that notwithstanding the foregoing, the first such Offering Period shall commence on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall end on ______________________. Except for the first Offering Period, each Offering Period shall consist of four (4) six month purchase periods (individually, a "PURCHASE PERIOD") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no more than five and no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "OFFERING DATE". The last business day of each Purchase Period is referred to as the "PURCHASE DATE". The Committee shall have the power to change the duration of Offering Periods with respect to offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company not later than five (5) days before such Offering Date. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Company by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Company not later than five (5) days preceding a subsequent Offering Date. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Common Stock), provided, however, that the number of shares of the Company's Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 8 below. 8. PURCHASE PRICE. The purchase price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of: 2 3 Neoforma, Inc. 1999 Employee Stock Purchase Plan (a) The fair market value on the Offering Date; or (b) The fair market value on the Purchase Date. For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; or (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than ____________ percent (_________%), nor greater than ___________ percent (______%) or such lower limit set by the Committee. Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing more than fifteen (15) days after the Company's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions not later than fifteen (15) days before the beginning of such Offering Period. (c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period commencing more than fifteen (15) days after the Company's receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the participant's account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero. 3 4 Neoforma, Inc. 1999 Employee Stock Purchase Plan (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (e) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (g) During a participant's lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. LIMITATIONS ON SHARES TO BE PURCHASED. (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension. (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Not less than thirty (30) days prior to the commencement of any Offering Period, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no Maximum Share Amount. In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the 4 5 Neoforma, Inc. 1999 Employee Stock Purchase Plan Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. WITHDRAWAL. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Company a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time at least fifteen (15) days prior to the end of an Offering Period. (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan. (c) If the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any. 12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. CAPITAL CHANGES. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "RESERVES"), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no 5 6 Neoforma, Inc. 1999 Employee Stock Purchase Plan adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan will continue with regard to Offering Periods that commenced prior to the closing of the proposed transaction and shares will be purchased based on the Fair Market Value of the surviving corporation's stock on each Purchase Date, unless otherwise provided by the Committee consistent with pooling of interests accounting treatment. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. REPORTS. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. 17. NOTICE OF DISPOSITION. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. 19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the 6 7 Neoforma, Inc. 1999 Employee Stock Purchase Plan Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board, this Plan will become effective on the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board. 22. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. 7 8 Neoforma, Inc. 1999 Employee Stock Purchase Plan Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board. 8 EX-10.08 13 CONSULTING AGREEMENT 1 EXHIBIT 10.08 CONSULTING AGREEMENT This Agreement (the "Agreement") is made by and between Neoforma, Inc., a California corporation (the "Company") and Madhavan Rangaswami (the "Consultant") as of July 1, 1999. 1. Services. The Consultant shall provide to the Company the services set forth in paragraph 1 of Exhibit A in accordance with the terms and conditions contained in this Agreement. 2. Term. Unless terminated in accordance with the provisions of paragraph 7 hereof, the services provided by the Consultant to the Company shall be performed during the period set forth in paragraph 2 of Exhibit A. The Consultant shall coordinate his work efforts and report his progress regularly to the individual set forth in paragraph 3 of Exhibit A. 3. Payment for Service Rendered. For providing the consulting services as defined herein, the Company shall deliver to the Consultant the consideration described in paragraph 4 of Exhibit A. The Company shall reimburse the Consultant for all reasonable expenses provided the Company has approved expenses above $500.00 per month in advance and in writing. 4. Nature of Relationship. The Consultant is an independent contractor. The Consultant will not act as an agent nor shall he be deemed an employee of the Company for the purposes of any employee benefit program, income tax withholding, FICA taxes, unemployment benefits or otherwise. The Consultant shall not enter into any agreement or incur any obligations on the Company's behalf, or commit the Company in any manner without the Company's prior written consent. 5. Confidentiality. (a) The Consultant agrees that he shall not use (except for the Company's benefit) or divulge to anyone either during the term of this Agreement or thereafter any of the Company's trade secrets or other proprietary data or information of any kind whatsoever acquired by the Consultant. The Consultant further agrees that upon completion or termination of this Agreement, he will turn over to the Company any notebook, data, information or other material acquired or compiled by the Consultant in carrying out the terms of the Agreement. However, the Consultant may keep one copy of such material for archival purposes. (b) The Consultant represents that his performance of the terms of the Agreement does not and will not conflict with the terms of any agreement to keep in confidence proprietary information and trade secrets acquired in confidence or in trust prior to his consulting relationship with the Company. The Consultant will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any third party. (c) The Consultant represents that he is not presently retained by any entity that manufactures or sells products competitive with those of the Company and he agrees that he will not 1 2 accept such retention during the term of this Agreement without prior written approval of the Company. 6. Inventions. The Consultant shall promptly and fully disclose to the Company any and all inventions, improvements, discoveries, developments, original works of authorship, software, trade secrets or other intellectual property conceived, developed or reduced to practice by the Consultant during the term of this Agreement and in any way relating to (a) the current research and development of the Company, and (b) the services performed by the Consultant under this Agreement (collectively, the "Information"). The Consultant shall treat all of the Information as the proprietary property of the Company. The Consultant agrees to assign, and does hereby assign, to the Company and its successors and assigns, without further consideration, the Consultant's entire right, title and interest in and to the Information whether or not patentable or copyrightable. The Consultant further agrees to execute all applications for patents and/or copyrights, domestic or foreign, assignments and other papers necessary to secure and enforce rights related to the Information. 7. Indemnification. The Company will defend at its expense, any legal proceeding brought against the Consultant, to the extent that it is based on a claim that any services performed by the Consultant have resulted in a product that is defectively designed or directly infringes a copyright or U.S. patent, and will pay all settlements approved by the Company (which such approval shall not be unreasonably withheld) and damages and court costs awarded by a court of final appeal attributable to such a claim; provided that the Consultant: (a) provides notice of the claim promptly to the Company; (b) gives to the Company initial control of the defense of the same; (c) provides to the Company all available information, assistance and authority to defend; and (d) has not compromised or settled such proceeding without the prior written consent of the Company. 8. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of California. The federal and state courts within the State of California shall have exclusive jurisdiction to adjudicate any dispute arising out of this Agreement. The parties consent to personal jurisdiction of the federal and state courts within California and service of process being effected by registered mail sent to the address set forth at the end of this Agreement. (b) This Agreement may not be and shall not be deemed or construed to have been modified, amended, rescinded, canceled or waived in whole or in part, except by written instruments signed by the parties hereto. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. -2- 3 (c) This Agreement, including the exhibit attached hereto and made a part hereof, constitutes and expresses the entire agreement and understanding between the parties with respect to the services to be provided by the Consultant. All previous discussions, promises, representations and understandings between the parties relative to this Agreement, if any, have been merged into this document. The provisions of paragraphs 5 and 6 shall survive the termination of this Agreement. The terms and provisions of this Agreement shall be binding on and inure to the benefit of the parties, their heirs, legal representatives, successors and assigns. (d) The Consultant may not subcontract all or any part of the services to be provided hereunder without the prior written consent of the Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. NEOFORMA, INC. CONSULTANT a Delaware Corporation By: ____________________ ____________________ Name: Robert Zollars Madhavan Rangaswami Title: President and CEO -3- 4 EXHIBIT A TO EXHIBIT 10.08 EXHIBIT A NAME OF CONSULTANT: Madhavan Rangaswami 1. Description of consulting services: Consultant shall perform the following functions, including but not limited to: o Consulting regarding marketing activities. o Consulting regarding executive recruiting. o Consulting regarding investment bankers. 2. Term of Agreement: The initial term of this Agreement shall be three (3) months; provided that at the end of such initial term the Company and Consultant may extend the term of this Agreement for additional periods as determined by the Company, upon the mutual agreement of the parties for additional consideration. 3. The Consultant shall report to: The Consultant shall report to the Company's Chief Executive Officer, who is currently Robert J. Zollars. 4. Consideration for services: As consideration for services, the Consultant shall receive the following consideration: (i) Subject to the discretion of the Board of Directors, Consultant shall receive a stock option for 95,325 shares of the Company's Common Stock which 50% vests immediately and the remaining 50% is to vest monthly over the three months following the date of this Agreement. The shares shall be subject to the terms and conditions of such option agreement. -4- EX-10.10 14 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT This Employment Agreement (the "EMPLOYMENT AGREEMENT") is made this _____ day of August, 1999, by and between Neoforma GAR, Inc., a Delaware corporation, (the "COMPANY"), Neoforma, Inc., a Delaware corporation, ("NEOFORMA"), and Erik Tivin of Buffalo Grove, Illinois (the "EMPLOYEE"). RECITALS The Company has acquired all of the issued and outstanding securities (the "SECURITIES PURCHASE") of General Asset Recovery, LLC, ("GAR") pursuant to the terms of a certain Securities Purchase Agreement dated July 16th, 1999, which provided for the employment of the Employee by the Company. The Company and the Employee acknowledge that the Employee's abilities and services are essential to the prospects of the Company, the Company desires to hire the Employee as its President, and the Employee desires to accept such employment. The parties hereto desire to enter into a comprehensive agreement to set forth the terms and conditions pursuant to which the Employee shall be employed by the Company. NOW, THEREFORE, in consideration of Employee's employment by the Company, the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee, intending to be legally bound, agree as follows: 1. Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment, all upon the terms, conditions and covenants set forth in this Employment Agreement which the Company and Employee agree are reasonable. 2. Duties. The Employee shall serve on a full-time basis as the Company's President, with all powers and duties customarily associated with such title and as are otherwise set forth herein, and shall: (a) faithfully and diligently perform the duties of President of the Company, and Vice President of Neoforma, the Company's parent company; (b) comply with the overall reasonable business policies established by the Chief Executive Officer (the "CHIEF EXECUTIVE OFFICER") of Neoforma, or by the Board of Directors (the "BOARD OF DIRECTORS") of Neoforma; and (c) do all things reasonably within his power to promote, develop, operate and expand the "business of the Company" in a manner designed to meet with the projections set forth on Schedule A hereto. For the purposes of setting forth the duties of the Employee in 1 2 this Section 2, the "business of the Company" shall include, (i) the business operated as GAR prior to its acquisition by the Company, which the Employee agrees to operate in substantially the same manner as it was operated by him prior to such acquisition; (ii) a medical equipment auction business, which may include Neoforma Trade, over which the Employee is given oversight, whether such business is operated directly through the Company or otherwise; and (iii) the asset management business operated by Neoforma prior to the acquisition of GAR by the Company, whether operated through the Company or otherwise. The Employee agrees to perform such other related duties as may be delegated to the Employee from time to time by the Chief Executive Officer or by the Board of Directors. The Employee shall devote his full time and reasonable business efforts in the performance of his duties and shall not have any outside employment while employed on a full-time basis by the Company. The Employee shall report directly to the Chief Executive Officer or a similar level executive officer of Neoforma appointed by the Board of Directors, and shall be required to submit a monthly operations report to such Chief Executive Officer or such other officer on or before the fifteenth day of each month with respect to the Company's operations for the prior month. The Employee shall not be required to relocate his base of employment outside of the State of Illinois. 3. Term. The term of this Employment Agreement shall begin on the date hereof (the "EFFECTIVE DATE") and shall continue until the earlier of December 31, 2001 or the date of any termination hereunder (the "TERM"). 4. Compensation. All compensation paid or payable hereunder shall be deemed to be paid or payable by the Company in accordance with the Company's general policy, as set forth in the Company's written manuals, unless this Employment Agreement specifically states otherwise. (a) Salary. During the Term of this Employment Agreement, the Company shall pay to the Employee, in consideration for the services provided by him hereunder, an annual base salary in the minimum of One Hundred Thousand Dollars ($100,000) per year (the "ANNUAL SALARY"), which amount shall be payable in accordance with Neoforma's customary payroll practices and shall be prorated for any partial years of employment hereunder. The Board of Directors shall have the right but not the obligation to increase the amount of the Annual Salary based upon the performance of the Company and the Employee. (b) Bonus. As further compensation, provided Employee remains employed by the Company, Employee shall be entitled to receive an annual bonus payable following the completion of each year during the Term, based on the level of sales attained by the Company, which bonus shall be calculated in the manner set forth on Schedule B attached hereto but which shall not be less than Fifty Thousand Dollars ($50,000) per year. (c) Stock Options. In consideration of his continued employment hereunder, the Employee shall be granted options to purchase up to Five Hundred Fifty 2 3 Thousand (550,000) shares of the common stock, $0.001 par value, of Neoforma, which options shall be exercisable at a price of $0.10 per share. The options shall vest (i) at a rate of Thirty Three Thousand Three Hundred Thirty Three (33,333) shares per month during each of months one through twelve following the closing date of the Securities Purchase (the "CLOSING Date") (on the same date of each month as the Closing Date), and (ii) at the rate of Four Thousand One Hundred Sixty Seven (4,167) shares per month during each of months thirteen through forty-seven, with the balance of the remaining options to vest in month forty-eight, following the Closing Date (on the same day of each month as the Closing Date). Notwithstanding the foregoing, in the event Employee ceases to be employed by the Company during the term of this Employment Agreement, other than if Employee is terminated by the Company without cause as defined in Section 9, Employee shall forfeit the right to exercise any options which have not yet vested. The options being issued hereunder shall be exercisable for a period of seven years and shall be issued pursuant to Neoforma's 19__ Employee Stock Option Plan. 5. Benefits. All benefits paid or payable hereunder shall be deemed to be paid or payable by the Company in accordance with the Company's general policy, as set forth in the Company's written manuals, unless this Employment Agreement specifically states otherwise. (a) Vacation, Paid Holidays. During the Term, the Employee shall be entitled to take twenty-two (22) days of paid time off, unless otherwise agreed upon by the Employee and the Company. The Employee shall also be entitled to paid absence for all holidays provided by the Company to its other employees plus any other holiday upon which the Company is closed for business. Nothing herein shall prohibit the Company from changing the holidays which it observes hereafter. (b) Other Benefits. During the Term, the Employee shall be entitled to participate (to the extent that he is eligible) in all other employee benefits, if any, provided by the Company under the same terms and conditions as provided for its other executive officers including but not limited to: (i) health and disability insurance under such policies or plans as the Company may adopt; (ii) participation in such 401(k) plan as the Company may establish; and (iii) term life insurance coverage in such amounts and under such policies or plans as the Company may adopt. (c) Automobile Allowance. The Employee shall be entitled each month to an automobile allowance in the amount of One Thousand Four Hundred Dollars ($1,400) which shall be used for automobile related expenses incurred by the Employee in the performance of his duties hereunder. 6. Reimbursement for Expenses. Upon the submission of appropriate invoices or vouchers, the Employee shall be entitled to reimbursement for all reasonable expenses that he incurs in the performance of his duties under this Employment Agreement in furthering the 3 4 business and policies of the Company, such reimbursement to be paid in accordance with Neoforma's customary expense reimbursement practices. 7. Key Person Life Insurance. The Company shall have the right but not the obligation to maintain and pay for a key person life insurance policy on the life of the Employee, as to which the Company shall be the sole beneficiary and owner. The Employee agrees upon the execution of this Employment Agreement to cooperate fully with the Company and to provide the Company with all necessary documents in order for the Company to obtain such policy. 8. Withholding. The Company shall withhold or deduct from the Employee's cash compensation any amounts required by law to be so withheld or deducted. 9. Termination by The Company. (a) This Employment Agreement may be terminated by the Company upon the occurrence of any of the following: (i) the Employee's death. If the Employee dies during the Term, the Company's obligations under this Employment Agreement shall terminate immediately and the Employee's estate shall be entitled to all arrearages of salary and expenses but shall not be entitled to further compensation unless otherwise specifically provided for under this Employment Agreement. (ii) the action by the Board of Directors following the Employee's "disability". For this purpose, "disability" means a physical or mental illness or other incapacity which renders the Employee unable to perform substantially all of his duties for a period of six (6) months. For purposes of this Employment Agreement, disability shall be deemed a continuation of any prior disability if the disability is related to the prior disability and commences within twelve (12) months of the termination of the prior disability. Disability, and any relation to any prior disability, shall be determined by a physician acceptable to the Company and the Employee provided that if the Company and the Employee fail to agree on a mutually acceptable physician, a third physician shall be chosen by each party's physician and any determination by such third physician shall be binding. If the Employee becomes disabled during the Term, the Employee may pursue his rights under any disability plan maintained by the Company. (iii) the action of Neoforma's Board of Directors for Cause. "Cause" is defined as the occurrence of any of the following events: (A) fraud, misappropriation, embezzlement or intentional misconduct on the part of the Employee, (B) the Employee's willful failure to substantially perform his duties for the Company when, and to the extent, requested by the Board of Directors, or its lawfully designated representative, to do so and failure to correct same within five (5) business days after notice from the Board of Directors or its lawfully designated representative requesting the Employee to do so, which has a materially 4 5 adverse effect upon the Company, or (C) the Employee's willful breach of any material provision of this Employment Agreement and such breach continues for a period of five (5) business days after notice from the Board of Directors or its lawfully designated representative of such breach. Termination by the Company for cause will be effective immediately upon receipt by the Employee of notice of such termination. (b) Termination of Benefits. In the event of any termination by the Company for "cause" pursuant to Section 9 (a) hereof, or any voluntary termination by the Employee, in addition to the termination of the various benefits and compensation payable to the Employee hereunder generally, the benefits provided for pursuant to Section 4 of this Employment Agreement shall, to the extent not yet accrued or vested, automatically cease and terminate, and any and all unvested stock options held by Employee in Neoforma shall automatically expire. (c) Survival. Notwithstanding anything else in this Employment Agreement, the provisions of Section 10 (Confidentiality), Section 11 (Non-Competition and Non-Solicitation), Section 12 (Developments), Section 13 (Representations and Warranties) and Section 23 (Equitable Remedies) shall survive the termination of the Employee's employment with the Company, if by the Company, for "cause" or by the Employee. In the event the Employee's employment hereunder is terminated by the Company without cause, or due to the bankruptcy or insolvency of the Company, or due to any material breach of this Employment Agreement by the Company, the only provision of this Employment Agreement which shall survive shall be Section 10 (Confidentiality) to the extent that it deals with Confidential Information of the Company which existed prior to the date of this Employment Agreement. 10. Confidentiality. During the Term of this Employment Agreement and thereafter, the Employee hereby covenants and agrees that he shall not other than for the benefit of the Company publish, disclose to any third party or in any way use for his own benefit any confidential information ("Confidential Information"), including without limitation, any balance sheet or income statement information (including but not limited to the value, amount or condition of capital assets and/or inventory, sales figures, profitability, etc.), or any other financial data, banking information, credit information, trade secrets, financial statements or related data, customer lists or information pertaining to customers or any unique distribution, manufacturing, marketing and research methods of the Company or its parent or affiliates (or formerly of General Asset Recovery, LLC), and any other Confidential Information concerning the Company's or its parent or affiliate's, business, structure or affairs, (or the business, structure or affairs formerly of General Asset Recovery, LLC). All Confidential Information and copies thereof are the sole property of the Company and Employee shall deliver promptly to the Company at the termination of his employment or at any time as the Board of Directors may request, without retaining copies, any Confidential Information made, compiled, delivered, made available or otherwise obtained by Employee. Employee shall also use his best efforts and exercise utmost diligence to protect and safeguard the Confidential Information of the Company's customers, contractors and others with whom 5 6 the Company has a business relationship, whether learned or acquired by Employee during the course of his employment by the Company. The nondisclosure obligations of this Section 10 shall not apply to: (a) information that may be disclosed generally or is in the public domain through no fault of the Employee; (b) information received from a third party outside the Company that was disclosed without a breach of any confidentiality obligation; (c) information approved for release by written authorization of the Company; or (d) information that may be required by law or an order of any court, agency or proceeding to be disclosed. This Section 10 shall remain in effect notwithstanding any termination of this Employment Agreement. 11. Non-Competition and Non-Solicitation. (a) During the time Employee is employed by the Company, Employee shall devote his full time and efforts to the business of the Company and shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company. For a period of eighteen (18) months after the termination of employment with the Company for any reason: (i) Employee shall not hire or attempt to hire any employee of the Company, or assist in such hiring by anyone else, or encourage any employee to terminate his or her employment with the Company; (ii) Employee shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company in the medical equipment re-sale industry, medical facility planning industry or in any other business in which the Company is engaged, in any state in which the Company does business; and (iii) Employee shall not cause or assist to cause any of the customers of the Company with whom Employee communicated, dealt with or became acquainted during his term of employment with the Company to enter into contractual arrangements with himself or any other person, firm, partnership, corporation or other company in any business or activity that is in competition with the Company. (b) "Blue Pencil" Rule. The Employee and the Company desire that the provisions of this Section 11 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If a court of competent jurisdiction, however, determines that any restrictions imposed on the Employee in this Section are unreasonable or unenforceable because of duration, area of restriction, or otherwise, the Employee and the Company agree and intend that the court shall enforce this Section 11 to whatever extent the court deems reasonable to effect the intent of this Section 11. (c) Legitimate Purpose. The Employee has read carefully all of the terms and conditions of this Section 11 and agrees that the restraints set forth herein (i) are reasonable and necessary to support the legitimate business interests and goodwill of the Company, and (ii) will not preclude the Employee from earning a livelihood during the life of this Section 11. 6 7 12. Developments. All Confidential Information and all other discoveries, inventions, processes, methods, and improvements conceived, developed, or otherwise made by Employee at any time, alone or with others, and in any way relating to the Company's present or future business or products, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice, during the Term of employment ("DEVELOPMENTS"), shall be the sole property of the Company. Employee agrees to and hereby does assign to the Company all right, title, and interest throughout the world in and to all Developments and agrees to promptly disclose such Developments to the Company and take all such actions reasonably requested by the Company to establish and confirm the Company's ownership of such Developments. Employee agrees that all such Developments shall constitute works made for hire under the copyright laws of the United States and hereby assigns to the Company all copyrights, patents, trademarks and other proprietary rights the Employee may have in such Developments. 13. Representations and Warranties. Prior to the execution and delivery of this Employment Agreement, the Employee represents and warrants that he has terminated all of his obligations under any other employment agreement or other similar agreement, whether written or oral, with any other party. The Employee has delivered copies of all such employment or other agreements and evidence satisfactory to the Company of the termination of such agreements. The Employee represents and warrants that the execution of this Employment Agreement will not result in a breach of any written agreement to which the Employee is a party or by which the Employee is bound. The Employee covenants and agrees to defend, indemnify and hold harmless the Company, its affiliates and its successors and assigns against any and all claims, damages, liabilities, suits, actions, costs, charges and expenses, including, without limitation, attorneys' fees, resulting from a breach of this Section 13. 14. Notice. All necessary notices, payments, demands and requests shall be in writing and shall be deemed duly given three (3) days after being mailed by certified mail, postage prepaid, return receipt requested, or when actually received if sent by facsimile, overnight delivery or other means, and addressed as follows: Company: c/o Neoforma, Inc. 3255-7 Scott Boulevard Santa Clara, California 95054 Attn: Wm. Samuel Veazey, Controller Facsimile: (408) 549-6299 With a Copy to: John A. Kostrubanic, Esq. Pepe & Hazard, LLP 150 Federal Street, 28th Floor Boston, Massachusetts 02110 Facsimile: (617) 695-9255 7 8 Employee: Erik Tivin 430 Newtown Drive Buffalo Grove, Illinois 60089 Facsimile: (847) 255-2922 With a copy to: Spencer J. Marks, Esq. Marks, Marks and Kaplan, Ltd. 120 North La Salle Street, Suite 3200 Chicago, Illinois 60602 Facsimile: (312) 332-2952 Each addressee may change its address or facsimile number for notice by giving notice of change of address or facsimile number in the manner set forth above. 15. Assignment. This Employment Agreement shall be freely assignable by the Company to, and shall inure to the benefit of and be binding upon, any other entity which shall succeed to the business presently being operated by the Company, but, being a contract for personal services, neither this Employment Agreement nor any rights hereunder shall be assignable by the Employee. 16. Further Execution. The parties agree to execute all documents necessary to further effectuate the terms of this Employment Agreement. 17. Litigation. In the event of any dispute respecting this agreement, such dispute shall be resolved in a court of competent jurisdiction in the State of Illinois, and the parties hereto consent to such venue and jurisdiction. Each party shall bear the cost of its own fees and expenses. 18. Authority. Each party represents that its undersigned representative or corporate officer has all requisite power and authority to enter into this Employment Agreement and to execute any and all instruments and documents on its behalf necessary to and in performance of their respective obligations hereunder. 19. Counterparts. This Employment Agreement may be executed in separate counterparts, each of which shall be deemed original and all of which together shall constitute one and the same instrument. 20. Waivers. No waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Employment Agreement, nor any waiver on the part of any party of any provisions or conditions of this Employment Agreement, shall be valid unless made in writing and signed by the party to be charged therewith, and shall be effective only to the extent specifically set forth in such writing. No delay or omission to exercise any right, 8 9 power or remedy inuring to any party, upon any breach or default of any party under this Employment Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Employment Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 21. Severability. If any provisions of this Employment Agreement shall be held to be invalid or unenforceable to any extent or in any application, then the remainder of this Employment Agreement and such terms and conditions, except to such extent or in such application, shall not be affected thereby, and each and every term and condition of this Employment Agreement shall be valid and enforced to the fullest extent and in the broadest application permitted by law. 22. Headings. The paragraph headings contained herein are for convenience and reference only, and shall be given no effect in the interpretation of any term or condition of this Employment Agreement. 23. Equitable Remedies. Each party hereto hereby confirms that damages at law may be an inadequate remedy for the breach or threatened breach of this Employment Agreement and agrees that, in the event of a breach or threatened breach by a party of any provision hereof, the other party's rights and obligations hereunder shall be enforceable by specific performance, injunction, or other equitable remedy, in addition to and not in lieu of any rights to damages at law or other rights provided by statute or otherwise for a breach or threatened breach of any provision hereof. Accordingly, each party hereto hereby waives and agrees not to assert any objection to such equitable relief based upon the purported existence of an adequate remedy at law, notwithstanding that another party may also assert claims for damages at law or other claims as an alternative to, or in addition to, such equitable relief. 24. Miscellaneous. This Employment Agreement is entered into and shall be construed under the laws of the State of Illinois applicable to contracts made and to be entirely performed within that State. This Employment Agreement shall be amended, modified or terminated only by an instrument in writing, signed by the party or parties to be charged. This Employment Agreement is the entire agreement of the parties relating to the employment of the Employee by the Company and supersedes all previous written or oral agreements. 9 10 IN WITNESS WHEREOF the parties have executed or caused to be executed this Employment Agreement under seal as of the day and year first above written. NEOFORMA GAR, INC. NEOFORMA, INC. By:_______________________________ By:_______________________________ Wayne McVicker, President Robert J. Zollars, President and Chief Executive Officer EMPLOYEE: __________________________________ Erik Tivin 10 11 SCHEDULE A TO EMPLOYMENT AGREEMENT BETWEEN NEOFORMA GAR, INC. AND ERIK TIVIN PERFORMANCE STANDARDS PURSUANT TO SECTION 2(C) OF THE EMPLOYMENT AGREEMENT The measurement of Employee's performance of his duties as the President of Neoforma GAR, Inc. ("the Company"), and Vice President of Neoforma, Inc., is to do all things reasonably within his power to promote, develop, operate and expand the business of the Company to meet, at a minimum, Net Sales of $2,000,000 for the year ending December 31, 2000, and $2,500,000 for the year ending December 31, 2001. Net Sales is defined as the total amount of sales received by the Company including without limitation any Buyer's Premium, less payments made to the Consignees. Failure to achieve the aforestated minimums will constitute a wilful failure to substantially perform Employee's duties for the Company pursuant to Section 9(a)(iii)(B) of Employee's Employment Agreement to which this Schedule A is attached and incorporated, and the Company will have the option, at its sole discretion, to terminate Employee. 11 12 SCHEDULE B TO EMPLOYMENT AGREEMENT BETWEEN NEOFORMA GAR, INC. AND ERIK TIVIN BONUS CALCULATIONS PURSUANT TO SECTION 4(B) OF THE EMPLOYMENT AGREEMENT Employee shall be paid a bonus based upon the total Net Sales achieved by the Company. Net Sales is defined as the total amount of sales received by Neoforma GAR, Inc. including without limitation any Buyer's Premium, less the payments made to the Consignees. Notwithstanding anything else contained in the Employment Agreement of Erik Tivin to which this Schedule B is attached and incorporated, bonus to Employee shall be paid at the end of each quarter during each calendar year based upon the total Net Sales the Company has received by the end of the each said quarter. Employee's bonus shall be based upon the following schedule of achieved total Net Sales: Year 1999 Bonus - Employee shall be paid, at a minimum, his prorata share of the guaranteed bonus of $50,000. Year 2000 Bonus - 1.3% of $0.00 to $15,000,000 with a minimum bonus paid of $50,000. 2% of $15,000,001 to $20,000,000 3% of Net Sales in excess of $20,000,000 Year 2001 Bonus - 1.33% of $0.00 to $18,000,000 with a minimum bonus paid of $50,000 2% of $18,000,001 to $24,000,000 3% of Net Sales in excess of $24,000,000 12 EX-10.11 15 OFFER LETTER WITH BHAGWAN D GOEL 1 EXHIBIT 10.11 September 17,1999 Baghwan D. Goel 1155 Viscaino Avenue Sunnyvale, CA 94086 Dear B.D., On behalf of Neoforma, Inc. (the "Company"), I am pleased to offer you a position with the Company based upon the following terms: 1. Position. Upon acceptance of this offer, you will become an Executive Vice President of Products and Services, reporting to Bob Zollars, our CEO. You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. This offer is contingent upon your background clearing without incident. 2. Effective Date. The effective date of employment shall be October 1, 1999. 3. AT-WILL EMPLOYMENT. YOU SHOULD BE AWARE THAT YOUR EMPLOYMENT WITH THE COMPANY IS FOR NO SPECIFIED PERIOD AND CONSTITUTES "AT-WILL" EMPLOYMENT. AS A RESULT, YOU ARE FREE TO TERMINATE YOUR EMPLOYMENT AT ANY TIME, FOR ANY REASON OR FOR NO REASON. SIMILARLY, THE COMPANY IS FREE TO TERMINATE YOUR EMPLOYMENT, AT ANY TIME, FOR ANY REASON OR FOR NO REASON AND THAT THE TERMS OF YOUR EMPLOYMENT, INCLUDING BUT NOT LIMITED TO PROMOTION, DEMOTION, TRANSFER, COMPENSATION, BENEFITS, DUTIES AND LOCATION OF WORK MAY BE CHANGED AT ANY TIME, FOR ANY REASON OR FOR NO REASON IN THE EVENT OF TERMINATION OF YOUR EMPLOYMENT, YOU WILL NOT BE ENTITLED TO ANY PAYMENTS, BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY'S ESTABLISHED EMPLOYEE PLANS AND POLICIES AT THE TIME OF TERMINATION. 1 2 4. Compensation. The Company will pay you a salary of $225,000 per annum, which is equivalent to $9375.00 semi-monthly, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. Your salary and performance may be reviewed at least annually by the President and or the Company's board of directors. You will receive a bonus of $50,000.00 guaranteed payable in the first year. Additionally, you will receive a sign-on bonus of $50,000.00 payable on the first pay period following employment. However, should your employment with the Company cease prior to the completion of one year, the sign-on bonus will be due and payable in full. 5. Vacation and Benefits. Upon the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.67 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 6. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase 550,000 shares of the Company's Common Stock pursuant to the Company's 1997 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest in equal monthly installments on the last day of each month over the 48-month period beginning with October 1, 1999, provided that the Executive remains an employee of the Company on each such vesting date. In addition, in the event of a Change of Control (as defined as below), 50% of the unvested portion of the Option shall immediately accelerate as to all shares so that the Company's right to repurchase such shares shall lapse as of the Change of Control (as defined below). At the Executive's election, the form of payment for the Option Shares may be in a promissory note. Any such note and associated security agreement shall be made in the form specified by the Company, and shall bear interest at the then Applicable Federal Rate determined under the Internal Revenue Code. 6a. Change of Control. For purposes of this Agreement, the term "Change of Control," shall mean the occurrence of any of the following events subsequent to the company's current series E financing: 2 3 (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the total voting power represented by the Company's then outstanding voting securities; provided, however, that a Change in Control shall be deemed to occur in the event any one individual becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy percent (70%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 7. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 8. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 9. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are 3 4 currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 10. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. 11. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 12. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreements made and to be performed entirely within such State. 13. Severance. Notwithstanding Paragraph 3 above, if the Company terminates your employment other than for justifiable cause (as defined below) or there is a substantial change in your responsibilities, or you no longer report to the President or CEO, the company shall pay to you a lump-sum amount equal to twelve (12) months of your annual base salary at the time of termination, less applicable withholdings. "Justifiable Cause" shall include the commission of a felony, acts of moral turpitude, your refusal to obey a lawful order of the board of directors, or the misuse of corporate funds or opportunities. We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA, INC. By:_______________________________ Fred Ruegsegger, CFO AGREED AND ACCEPTED: - ----------------------------- 4 EX-10.12 16 OFFER LETTER WITH BOB FLURY 1 EXHIBIT 10.12 [LETTERHEAD] [NEOFORMA LOGO] December 19, 1998 Bob Flury 545 Kearny Street Alpharetta, GA 30022 Dear Bob, On behalf of Neoforma, Inc. (the "Company"), I am pleased to offer you a position with the Company based upon the following terms: 1. Position. Upon acceptance of this offer, you will become a Vice President of Enterprise Sales for the Company reporting directly to Jeff Kleck, CEO. You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. 2. Effective Date. The effective date of employment shall be January 18, 1998. 3. AT-WILL EMPLOYMENT. YOU SHOULD BE AWARE THAT YOUR EMPLOYMENT WITH THE COMPANY IS FOR NO SPECIFIED PERIOD AND CONSTITUTES "AT-WILL" EMPLOYMENT. AS A RESULT, YOU ARE FREE TO TERMINATE YOUR EMPLOYMENT AT ANY TIME, FOR ANY REASON OR FOR NO REASON. SIMILARLY, THE COMPANY IS FREE TO TERMINATE YOUR EMPLOYMENT, AT ANY TIME, FOR ANY REASON OR FOR NO REASON AND THAT THE TERMS OF YOUR EMPLOYMENT, INCLUDING BUT NOT LIMITED TO PROMOTION, DEMOTION, TRANSFER, COMPENSATION, BENEFITS, DUTIES AND LOCATION OF WORK MAY BE CHANGED AT ANY TIME, FOR ANY REASON OR FOR NO REASON IN THE EVENT OF TERMINATION OF YOUR EMPLOYMENT, YOU WILL NOT BE ENTITLED TO ANY PAYMENTS, BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY'S ESTABLISHED EMPLOYEE PLANS AND POLICIES AT THE TM OF TERMINATION. 1 2 4. Compensation. The Company will pay you a salary of $175,000.00 per annum, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. In addition, your salary and performance may be reviewed at least annually by the President and or the Company's board of directors. In addition to the above stated salary, you will be able to earn a bonus of up to $25,000 each quarter. The milestones for each such quarterly bonus will be set by the President at least ten (10) days prior to the start of each quarter, and, within thirty (30) days after the end of each quarter, the Board of Directors, in its sole discretion, will assess the completion of such milestones and determine the amount of such bonus. 5. Vacation and Benefits. Thirty (30) days after the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.25 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 6. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase 340,000 sham of the Company's Common Stock pursuant to the Company's 1997 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest over four (4) years with one quarter (1/4) of the shares vesting at the end of one full year following your effective date of employment with the Company and an additional one forty-eighth (1/48) of the shares will vest each full month thereafter until all of the shares are exercisable, subject to all provisions of the Plan and your continued employment with the Company. 7. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 8. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 9. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing 2 3 with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 10. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. 11. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 12. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreements made and to be performed entirely within such State. We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA, INC. By: /s/ JEFFREY H. KLECK -------------------------------------- Jeffrey H. Kleck, CEO AGREED AND ACCEPTED: /s/ BOB FLURY - ----------------------------- 3 4 [NEOFORMA LETTERHEAD] January 5, 1999 Dear Bob, This letter is in response to our recent conversations regarding the terms of the offer letter (the "Offer Letter"), dated December 19, 1998, offering you the position of Vice President of Sales for Neoforma, Inc. (the "Company"). This letter is intended to amend the Offer Letter as set forth below. Paragraph 4 of the Offer Letter shall be amended and restated to read as follows: "Compensation/Severance. (a) The Company will pay you a salary of $175,000.00 per annum, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. In addition, your salary and performance may be reviewed at least annually by the President and or the Company's board of directors. In addition to the above stated salary, you will be able to earn a of up to $25,000 each quarter. The milestones for each such quarterly bonus will be set by the President at least ten (10) days prior to the start of each quarter, and, within thirty (30) days after the end of each quarter, the Board of Directors, in its sole discretion, will assess the completion of such milestones and determine the amount of such bonus. Notwithstanding the foregoing, during the first calendar year of your employment with the Company, the Company will pay to you the quarterly, $25,000.00 bonus set forth above, or portion thereof to reflect a partial quarter of employment, if you are employed by the Company in the position set forth above in Paragraph 1 at the end of each quarter during such year, regardless of milestone completion. 4 5 (b) Notwithstanding Paragraph 3 above, if the Company terminates your employment other than for justifiable cause (as defined below), the Company shall pay to you a lump-sum amount equal to three months of your annual base salary at the time of termination, less applicable withholdings. "Justifiable Cause" shall include the commission of a felony, acts of moral turpitude, your refusal to obey a lawful order of the board of directors, or the misuse of corporate funds or opportunities." Except as expressly modified by this letter, the terms of the Offer Letter shall remain in full force and effect. If the foregoing amendment is agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three (3) days. Sincerely, NEOFORMA, INC. By: /a/ JEFFREY H. KLECK ------------------------------------ Jeffrey H. Kleck, CEO AGREED AND ACCEPTED: /s/ ROBERT FLURY - ---------------------------------- Robert Flury 5 EX-10.13 17 OFFER LETTER WITH FRED RUEGSEGGER 1 EXHIBIT 10.13 [LETTERHEAD] [NEOFORMA LOGO] June 29, 1999 Fred Ruegsegger Dear Fred, On behalf of NeoForma, Inc. (the "Company"), I am pleased to offer you a position with the Company based upon the following terms: 1. Position. Upon acceptance of this offer, you will become the Chief Financial Officer, reporting to Bob Zollars, President and CEO. You will be expected to devote at least forty (40) hours per week to the performance of your duties and to give your best efforts to such duties. Your position may require that you travel from time to time as the Company may reasonably request and as shall be appropriate and necessary in the performance of your duties. 2. Effective Date. The effective date of employment shall be July 12, 1999.(1) 3. AT WILL EMPLOYMENT. YOU SHOULD BE AWARE THAT YOUR EMPLOYMENT WITH THE COMPANY IS FOR NO SPECIFIED PERIOD AND CONSTITUTES "AT WILL" EMPLOYMENT. AS A RESULT, YOU ARE FREE TO TERMINATE YOUR EMPLOYMENT AT ANY TIME, FOR ANY REASON OR FOR NO REASON. SIMILARLY, THE COMPANY IS FREE TO TERMINATE YOUR EMPLOYMENT, AT ANY TIME, FOR ANY REASON OR FOR NO REASON AND THAT THE TERMS OF YOUR EMPLOYMENT, INCLUDING BUT NOT LIMITED TO PROMOTION, DEMOTION, TRANSFER, COMPENSATION, BENEFITS, DUTIES AND LOCATION OF WORK MAY BE CHANGED AT ANY TIME, FOR ANY REASON FOR OR NO REASON IN THE EVENT OF TERMINATION OF YOUR EMPLOYMENT, YOU WILL NOT BE ENTITLED TO ANY PAYMENTS, BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY'S ESTABLISHED EMPLOYEE PLANS AND POLICIES AT THE TIME OF TERMINATION. 1 2 4. Compensation. The Company will pay you a salary of $200,000 per annum, less applicable withholdings, payable in accordance with the Company's standard payroll policies. Your salary will begin as of the effective date of employment. The first and last payment by the Company to you will be prorated, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. Your salary and performance may be reviewed at least annually by the President and or the Company's board of directors. In addition to the above stated salary, you will be able to earn a bonus of up to $12,500 each quarter. The milestones for each such quarterly bonus will be set by the President at least ten (10) days prior to the start of each quarter, and, within thirty (30) days after the end of each quarter, the Board of Directors, in its sole discretion, will assess the completion of such milestones and determine the amount of such bonus. The Company also agrees to repay the outstanding relocation loan on your behalf in the amount of $25,000. The payment of this loan shall be grossed up to encompass any tax obligations for you. 5. Vacation and Benefits. Upon the Effective Date of your employment and then for so long as you are employed by the Company you will accrue 1.25 days of paid time off ("PTO") for each full month you are employed by the Company. Vacation days and sick leave shall both be deducted from your accrued PTO. You will also be entitled to standard fringe benefits in accordance with the Company's practices covering employees, as such benefits may be in effect from time to time. Please contact Human Resources if you would like additional information regarding benefits. 6. Stock Option. Subject to action by the Company's board of directors and compliance with applicable state and federal securities laws, the Company will grant to you an option (the "Option") to purchase 604,013 shares of the Company Common Stock pursuant to the Company's 1998 Incentive Stock Plan (the "Plan") adopted by the board of directors and stockholders of the Company. The exercise price of the Option will be the fair market value of the Company's Common Stock on the date of grant as determined by the Company's board of directors. The Option will vest over four (4) years with one quarter (1/4) of the shares vesting at the end of one full year following your effective date of employment with the Company and an additional one forty-eighth (1/48) of the shares will vest each full month thereafter until all of the shares are exercisable, subject to all provisions of the Plan and your continued employment with the Company. You will be allowed to purchase your shares against a secured promissory note, to include a 4-year loan with the Company's standard terms of repayment and a provision for the Company to buy back your options. 7. Employment, Confidential Information, Invention Assignment and Arbitration Agreement. As a condition of accepting this offer of employment, you will be required to complete, sign and return the Company's standard form of Employment, Confidential Information, Invention Assignment and Arbitration Agreement. 2 3 8. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated. 9. Conflicting Employment. During the period that you render services to the Company, you will not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. You represent that your signing of this offer letter, agreement(s) representing stock options granted to you, if any, under the Plan and the Company's Employment, Confidential Information, Invention Assignment and Arbitration Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers. 10. Entire Agreement. This offer letter, the Employment, Confidential Information, Invention Assignment and Arbitration Agreement and the agreement(s) representing stock options granted to you, if any, under the Plan, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. 11. Amendment. This agreement can only be amended in writing signed by you and an officer of the Company. Any waiver of a right under this agreement must be in writing. 12. Governing Law. This agreement will be governed under the laws of the State of California applicable to such agreement s made and to be performed entirely within such State. 13. Severance. Notwithstanding Paragraph 3 above, if the Company terminates your employment other than for justifiable cause (as defined below), the Company shall pay to you a lump-sum amount equal to three (3) months of your annual base salary at the time of termination, less applicable withholdings. "Justifiable Cause" shall include the commission of a felony, acts of moral turpitude, your refusal to obey a lawful order of the board of directors, or the misuse of corporate funds or opportunities. 3 4 We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing the enclosed copy of this letter in the space provided below and returning it to me within three days. Sincerely, NEOFORMA, INC. By: /s/ WAYNE MCVICKER ----------------------------------------- Wayne McVicker, VP and Company-Founder AGREED AND ACCEPTED: /s/ FRED RUEGSEGGER - ---------------------------- - -------- (1) With the condition that the effective date remains to be finally determined, it being understood that Fred Ruegsegger will make a best effort to ensure the earliest possible effective date. 4 EX-10.14 18 CONSULTING AGREEMENT 1 EXHIBIT 10.14 CONSULTING AGREEMENT This Consulting Agreement (the "Agreement") is made this ____ day of August, 1999, by and between Neoforma GAR, Inc., a Delaware corporation (the "COMPANY"), and Fred Tivin of Highland Park, Illinois (the "CONSULTANT"). RECITALS The Company is a wholly-owned subsidiary of Neoforma, Inc. ("NEOFORMA"), a Delaware corporation, and has acquired all of the issued and outstanding securities (the "SECURITIES PURCHASE") of General Asset Recovery, LLC, ("GAR") pursuant to the terms of a certain Securities Purchase Agreement dated July 16th, 1999, which provided for the Consultant's acting as a consultant to the Company. The Company wishes to hire the Consultant as an independent contractor to perform the services set forth herein, for the period of time, and upon the terms and subject to the conditions, which are more particularly set forth below; and The Consultant desires to perform such services, for such period of time and upon such terms and subject to such conditions; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consulting Period. The Consultant is hereby retained by the Company to perform, and the Consultant hereby agrees to perform, the services provided for herein, as an independent contractor, for a period commencing on the date hereof and ending on the two (2) year anniversary of the date hereof unless terminated earlier as provided for herein (the "CONSULTING PERIOD"). 2. Services and Duties. The Consultant agrees that during the Consulting Period, he will provide certain services to the Company, consisting of support and assistance in connection with the operation of the business previously operated by General Asset Recovery, LLC, as well as such other tasks and responsibilities which may be delegated to the Consultant by or under the authority of the President of the Company and/or the Chief Executive Officer of Neoforma, from time to time (the "CONSULTING SERVICES"). The Consultant shall report directly to the President of the Company and to the Chief Executive Officer of Neoforma or to any officer of Neoforma designated by the Board of Directors of Neoforma. -1- 2 The Consultant agrees that he will conduct himself in a professional and ethical manner at all times during the term of this Agreement and will take no action that might cause injury to the business or goodwill of the Company. The Consultant shall not perform consulting or other services for any entity or person which is directly competitive with Neoforma or the Company during the Consulting Period without the prior written consent of the Board of Directors of Neoforma, which shall not be unreasonably withheld. However, Consultant shall be permitted to perform consulting services for and be employed by other non-competing businesses. It is the intention of the parties that Consultant shall not be required to devote his full time and efforts to his duties under this Consulting Agreement. 3. Compensation/Reimbursement for Expenses. All compensation paid or payable hereunder shall be deemed to be paid or payable by the Company unless this Agreement specifically states otherwise. (a) Consulting Fees. In consideration for the Consulting Services and subject to the due performance thereof, the Company shall pay to the Consultant during the Consulting Period a fee of One Hundred Fifty Thousand Dollars ($150,000) per year (the "CONSULTING FEE") which Consulting Fee shall be payable during the term of this Agreement in equal semi-monthly installments in accordance with the Company's customary practices. The Consulting Fee shall be pro-rated for any partial year during which the Consultant provides Consulting Services. (b) Reimbursement for Expenses. At the end of each month during the Consulting Period, the Company shall reimburse the Consultant for reasonable items of miscellaneous and travel expenses incurred in furtherance of the business of the Company, but payment shall be made only against a signed itemized list of such expenditures. (c) Automobile Allowance. The Consultant shall be entitled each month to an automobile allowance in an amount equal to his actual automobile related expenses, up to the amount of One Thousand Four Hundred Dollars ($1,400) which shall be used for automobile related expenses incurred by the Consultant in the performance of his duties hereunder. 4. Key Person Life Insurance. The Company shall have the right but not the obligation to maintain and pay for a key person life insurance policy on the life of the Consultant throughout the duration of this Agreement, as to which the Company shall be the sole beneficiary and owner. The Consultant agrees upon the execution of this Agreement to -2- 3 cooperate fully with the Company and to provide the Company with all necessary documents in order for the Company to obtain such policy. 5. Status as Independent Consultant. It is the intent and purpose of this Agreement to create a legal relationship of independent contractor, and not employment, as between the Company and the Consultant. The Consultant will not be treated as an employee of the Company for purposes of the Federal Insurance Contributions Act, the Social Security Act, the Federal Unemployment Tax Act, income tax withholding at source, or workmen's compensation laws, and will not be eligible for any employee benefits whatsoever, other than those set forth herein. The Consultant shall be responsible for the payment of self-employment and federal income taxes due on all payments hereunder. In the event that any governmental or administrative agency, whether federal, state or local, shall subsequently determine that for their purposes, the relationship is one of employment as between said parties, then in such event Consultant shall bear any and all loss, costs and expenses of the Company in connection with or arising out of such determination, whether in the nature of past or future FICA contributions, Social Security taxes, unemployment taxes or income taxes. The Consultant shall indemnify the Company and hold it harmless from any liability to any former Company or to any other party in connection with or arising out of any such governmental or administrative determination, or otherwise as a consequence of Consultant's status as an independent contractor rather than an employee of the Company. 6. Termination. (a) This Agreement may be terminated upon any of the following: (i) the Consultant's death; (ii) the action by the Board of Directors of Neoforma following the Consultant's "disability". For this purpose, "disability" means a physical or mental illness or other incapacity which renders the Consultant unable to perform substantially all of his duties for a period of two (2) months. For purposes of this Agreement, disability shall be deemed a continuation of any prior disability if the disability is related to the prior disability and commences within eight (8) months of the termination of the prior disability. Disability, and any relation to any prior disability, shall be determined by a physician acceptable to the Company; or (iii) the action of the Board of Directors or Chief Executive Officer of Neoforma or the President of the Company for Cause. "Cause" is defined as the occurrence of any of the following events: (A) fraud, misappropriation, embezzlement or intentional misconduct on the part of the Consultant, (B) the Consultant's willful failure to substantially -3- 4 perform his duties for the Company when, and to the extent, requested by the Board of Directors, or its lawfully designated representative, to do so and failure to correct same within five (5) business days after notice from the Board of Directors or its lawfully designated representative requesting the Consultant to do so, which has a materially adverse effect upon the Company, or (C) the Consultant's willful breach of any material provision of this Agreement and such breach continues for a period of five (5) business days after notice from the Board of Directors or its lawfully designated representative of such breach. Termination by the Company for cause will be effective immediately upon receipt by the Consultant of notice of such termination. (b) Termination of Benefits. In the event of any termination pursuant to this Section during the term of this Agreement, in addition to the termination of the various benefits and compensation payable to the Consultant hereunder generally, the benefits provided for pursuant to Section 3 of this Agreement shall, to the extent not yet accrued, automatically cease and terminate. (c) Survival. Notwithstanding anything else in this Agreement, the provisions of Section 7 (Confidentiality), Section 8 (Non-Competition and Non-Solicitation), Section 9 (Developments), and Section 20 (Equitable Remedies) shall survive the termination of this Agreement, if by the Company, for "cause" or by the Consultant. In the event this Agreement is terminated by the Company without cause, or due to the bankruptcy or insolvency of the Company, or due to any material breach of this Agreement by the Company, the only provision of this Agreement which shall survive shall be Section 7 (Confidentiality) to the extent that it deals with Confidential Information of the Company which existed prior to the date of this Agreement. 7. Confidentiality. During the Consulting Period and thereafter, the Consultant hereby covenants and agrees that he shall not other than for the benefit of the Company publish, disclose to any third party or in any way use for his own benefit any confidential information ("Confidential Information"), including without limitation, any balance sheet or income statement information (including but not limited to the value, amount or condition of capital assets and/or inventory, sales figures, profitability, etc.), or any other financial data, banking information, credit information, trade secrets, financial statements or related data, customer lists or information pertaining to customers or any unique distribution, manufacturing, marketing and research methods of the Company or its parent or affiliates (or formerly of General Asset Recovery, LLC), and any other Confidential Information concerning the Company's or its parent or affiliate's, business, structure or affairs, (or the business, structure or affairs formerly of General Asset Recovery, LLC). All Confidential Information and copies thereof are the sole property of the Company and Consultant shall deliver promptly to the Company at the termination of his Consulting Period or at any time as -4- 5 Neoforma's Board of Directors may request, without retaining copies, any Confidential Information made, compiled, delivered, made available or otherwise obtained by Consultant. Consultant shall also use his best efforts and exercise utmost diligence to protect and safeguard the Confidential Information of the Company's customers, contractors and others with whom the Company has a business relationship, whether learned or acquired by Consultant during the course of his Consulting Period. The nondisclosure obligations of this Section 7 shall not apply to: (a) information that may be disclosed generally or is in the public domain through no fault of the Consultant; (b) information received from a third party outside the Company that was disclosed without a breach of any confidentiality obligation; (c) information approved for release by written authorization of the Company; or (d) information that may be required by law or an order of any court, agency or proceeding to be disclosed. This Section 7 shall remain in effect notwithstanding any termination of this Agreement. 8. Non-Competition and Non-Solicitation. (a) During the time the Consultant is consulting for the Company, Consultant shall devote his full time and efforts to the business of the Company and shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company. For a period of eighteen (18) months after the termination of the Consulting Period with the Company for any reason: (i) Consultant shall not hire or attempt to hire any employee of the Company, or assist in such hiring by anyone else, or encourage any employee to terminate his or her employment with the Company; (ii) Consultant shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Company in the medical equipment re-sale industry, medical facility planning industry or in any other business in which the Company is engaged, in any state in which the Company does business; and (iii) Consultant shall not cause or assist to cause any of the customers of the Company with whom Consultant communicated, dealt with or became acquainted during his term of consulting for the Company to enter into contractual arrangements with himself or any other person, firm, partnership, corporation or other company in any business or activity that is in competition with the Company. (b) "Blue Pencil" Rule. The Consultant and the Company desire that the provisions of this Section 8 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If a court of competent jurisdiction, however, determines that any restrictions imposed on the Consultant in this Section are unreasonable or unenforceable because of duration, area of restriction, or otherwise, the Consultant and the Company agree and intend that the court shall enforce this Section 8 to whatever extent the court deems reasonable to effect the intent of this Section 8. -5- 6 (c) Legitimate Purpose. The Consultant has read carefully all of the terms and conditions of this Section 8 and agrees that the restraints set forth herein (i) are reasonable and necessary to support the legitimate business interests and goodwill of the Company, and (ii) will not preclude the Consultant from earning a livelihood during the life of this Section 8. 9. Developments. All Confidential Information and all other discoveries, inventions, processes, methods, and improvements conceived, developed, or otherwise made by Consultant at any time, alone or with others, and in any way relating to the Company's present or future business or products, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice, during the term of this agreement and for six months thereafter ("Developments"), shall be the sole property of the Company. Consultant agrees to and hereby does assign to the Company all right, title, and interest throughout the world in and to all Developments and agrees to promptly disclose such Developments to the Company and take all such actions reasonably requested by the Company to establish and confirm the Company's ownership of such Developments. Consultant agrees that all such Developments shall constitute works made for hire under the copyright laws of the United States and hereby assigns to the Company all copyrights, patents, trademarks and other proprietary rights the Consultant may have in such Developments. 10. Notices. All necessary notices, payments, demands and requests shall be in writing and shall be deemed duly given three (3) days after being mailed by certified mail, postage prepaid, return receipt requested, or when actually received if sent by facsimile, overnight delivery or other means, and addressed as follows: Company: c/o Neoforma, Inc. 3255-7 Scott Boulevard Santa Clara, California 95054 Attn: Wm. Samuel Veazey, Controller Facsimile: (408) 549-6299 With a Copy to: John A. Kostrubanic, Esq. Pepe & Hazard, LLP 150 Federal Street, 28th Floor Boston, Massachusetts 02110 Facsimile: (617) 695-9255 Consultant: Fred Tivin 747 Sumac Drive Highland Park, Illinois 60035 -6- 7 With a Copy to: Marks, Marks and Kaplan Ltd. 120 North La Salle Street, Suite 3200 Chicago, Illinois 60602 Attn: Spencer J. Marks, Esq. Facsimile No.: (312) 332-2952 Each addressee may change its address or facsimile number for notice by giving notice of change of address or facsimile number in the manner set forth above. 11. Assignment. This Agreement shall be freely assignable by the Company to, and shall inure to the benefit of and be binding upon, any other entity which shall succeed to the business presently being operated by the Company, but, being a contract for personal services, neither this Agreement nor any rights hereunder shall be assignable by the Consultant. 12. Further Execution. The parties agree to execute all documents necessary to further effectuate the terms of this Agreement. 13. Litigation. In the event of any dispute respecting this agreement, such dispute shall be resolved in a court of competent jurisdiction in the State of Illinois, and the parties hereto consent to such venue and jurisdiction. Each party shall bear the cost of its own fees and expenses. 14. Authority. Each party represents that its undersigned representative or corporate officer has all requisite power and authority to enter into this Agreement and to execute any and all instruments and documents on its behalf necessary to and in performance of their respective obligations hereunder. 15. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 16. Waivers. No waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, nor any waiver on the part of any party of any provisions or conditions of this Agreement, shall be valid unless made in writing and signed by the party to be charged therewith, and shall be effective only to the extent specifically set forth in such writing. No delay or omission to exercise any right, power or remedy inuring to any party, upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or -7- 8 default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 17. Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, such provision shall be reformed to the extent necessary to permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 18. Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 19. Equitable Remedies. Each party hereto hereby confirms that damages at law may be an inadequate remedy for the breach or threatened breach of this Agreement and agrees that, in the event of a breach or threatened breach by a party of any provision hereof, the other party's rights and obligations hereunder shall be enforceable by specific performance, injunction, or other equitable remedy, in addition to and not in lieu of any rights to damages at law or other rights provided by statute or otherwise for a breach or threatened breach of any provision hereof. Accordingly, each party hereto hereby waives and agrees not to assert any objection to such equitable relief based upon the purported existence of an adequate remedy at law, notwithstanding that another party may also assert claims for damages at law or other claims as an alternative to, or in addition to, such equitable relief. 20. Miscellaneous. This Agreement is entered into and shall be construed under the laws of the State of Illinois applicable to contracts made and to be entirely performed within that state. This Agreement shall be amended, modified or terminated only by an instrument in writing, signed by the party or parties to be charged. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof, and supersedes all previous oral or written agreements, correspondence and understandings with regard to such subject matter. -8- 9 IN WITNESS WHEREOF the parties have executed or caused to be executed this Agreement under seal as of the day and year first above written. CONSULTANT: NEOFORMA GAR, INC. __________________________________ By:________________________________ Fred Tivin -9- EX-10.15 19 PROMISSORY NOTE 1 EXHIBIT 10.15 PROMISSORY NOTE $7,800,000 August _______, 1999 FOR VALUE RECEIVED, the undersigned, Neoforma GAR, Inc., a Delaware corporation, with an address c/o Neoforma, Inc., 3255-7 Scott Boulevard, Santa Clara, California 95054 (the "MAKER"), promises to pay Erik Tivin of 430 Newtown Drive, Buffalo Grove, Illinois 60089 ("TIVIN") the principal sum of Seven Million Eight Hundred Thousand Dollars ($7,800,000) with interest on the unpaid balance from the date hereof at the rate of Seven Percent (7%) per annum. This Note is entered into pursuant to the terms of a Securities Purchase Agreement dated July 16th, 1999 by and among Neoforma, Inc. (the maker's parent company), Tivin and General Asset Management, LLC pursuant to which the maker has acquired all of the issued and outstanding securities of General Asset Management, LLC (the "SECURITIES PURCHASE") and shall be subject to the terms and conditions thereof, including without limitation, (i) the right of the maker to set off against any amounts of principal and interest due hereunder the amount of any indemnification which is determined to be payable by Tivin under Section 7 of said Securities Purchase Agreement, and (ii) the partial acceleration of this Note pursuant to Section 1.2 of said Securities Purchase Agreement as set forth in Section 4 below. This Note shall have the following additional terms and provisions: 1. Payment. Principal and interest shall be due and payable as follows: (a) During the first twelve months following the closing date of the Securities Purchase (the "CLOSING DATE"), the maker shall make payments beginning on the first day of the month following the Closing Date and on the first day of each month thereafter in an amount equal to the amount of interest accrued on the outstanding balance under this Note during the preceding month plus a principal payment of One Hundred Eighty Three Thousand Three Hundred Thirty Three Dollars ($183,333); (b) During the thirteenth through the forty-eighth month following the Closing Date, the maker shall make payments on the first day of each month in an amount equal to the amount of interest accrued on the outstanding balance under this Note during the preceding month plus a principal payment of One Hundred Thirty Seven Thousand Five Hundred Dollars ($137,500); -1- 2 (c) During the forty-ninth through the sixtieth month following the Closing Date, the maker shall make payments on the first day of each month in an amount equal to the amount of interest accrued on the outstanding balance under this Note during the preceding month plus a principal payment of Fifty Four Thousand One Hundred Sixty Seven Dollars ($54,167). 2. Prepayment/Conversion. This Note may be prepaid in whole or in part at any time and from time to time without premium or penalty and without prior notice to Tivin, and any such prepayments may not be directed to be applied to any subsequent installments of principal. This Note shall not be convertible into shares of the maker or of any endorser hereon or guarantor hereof. 3. Full Acceleration. This Note shall, at the option of Tivin, become immediately due and payable without notice or demand by Tivin to the maker upon the occurrence of any of the following events (each being an "EVENT OF DEFAULT"): (a) Failure of the maker to pay within ten (10) days after notice thereof by Tivin to the maker that any payment of principal or interest herein required shall have become due and not paid in a timely manner; (b) Dissolution or termination of existence of the maker or of any endorser hereon or guarantor hereof; or (c) The making of an assignment for the benefit of creditors, insolvency, appointment of a receiver (not discharged within sixty (60) days) of any part of the property of, or the filing of a petition in bankruptcy, or the commencement of any proceedings under any bankruptcy or insolvency law or any law relating to the relief of debtors, readjustment or indebtedness, reorganization, composition or extension, by or (if not discharged within sixty (60) days) against, the maker or any endorser hereon or guarantor hereof. 4. Partial Acceleration. In the event of the termination of the Employment Agreement dated August _____, 1999 between the maker of this Note and Tivin without "cause" as defined in said Employment Agreement, an amount equal to fifty percent (50%) of the unpaid portion of this Note shall become immediately payable, with the balance of this Note continuing to be payable in the same manner and over the same time period over the balance of the term of this Note, except that each monthly principal payment shall be reduced to an amount equal to fifty percent (50%) of the payments set forth in Section 1. 5. Notices. Any notice, request or instruction to be given hereunder shall be in writing and shall be delivered in person or transmitted by facsimile (with confirmation in writing to be made available upon request) or mailed by certified mail, return receipt -2- 3 requested, postage prepaid, and delivered to the appropriate party and address as shown above. Either of the addresses specified above may be changed by notice given as herein provided. All communications will be deemed effective upon receipt. 6. No Assignment. This Note shall inure solely to the benefit of Tivin and shall not be assignable. 7. Waiver. (a) The maker and all endorsers and guarantors of this Note hereby waive presentment, demand, protest and all other demands in connection with the delivery and enforcement of this Note. (b) Tivin shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver be in writing and signed by Tivin, and then only to the extent expressly set forth therein. A waiver on any one occasion shall not constitute or be construed as a bar to or a waiver of any such right or remedy on any future occasion. 8. Choice of Law. The execution, delivery and performance of this Note shall be governed by and construed in accordance with the laws of the State of Delaware. 9. Legal Fees. Maker shall be liable for any and all fees and expenses incurred by Tivin, including legal fees, in connection with his enforcing this Note. This Note has been executed under seal on the day and year first above written. NEOFORMA GAR, INC. _____________________________ By:_____________________________ Witness -3- EX-10.16 20 SILICON VALLEY BANK 1 EXHIBIT 10.16 SILICON VALLEY BANK QUICKSTART LOAN AND SECURITY AGREEMENT BORROWER: NEOFORMA, INC. ADDRESS: 800 EL CAMINO REAL WEST, SUITE 180 MOUNTAIN VIEW, CA 94040 DATE: 6/25/98 SILICON'S OFFER TO EXTEND FINANCING ON THE TERMS SET FORTH HEREIN SHALL EXPIRE IF THIS AGREEMENT IS NOT EXECUTED BY BORROWER AND RETURNED TO SILICON WITHIN 30 DAYS OF THE ABOVE DATE. THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the borrower named above (jointly and severally, the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). 1. LOANS. Silicon will make loans to Borrower (the "Loans") in amounts determined by Silicon in its reasonable business judgment up to the amount (the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule"), provided no Event of Default and no event which, with notice or passage of time or both, would constitute an Event of Default has occurred. All Loans and other monetary Obligations will bear interest at the rate shown on the Schedule. Interest will be payable monthly, on the date shown on the monthly billing from Silicon. Silicon may, in its discretion, charge interest to Borrower's deposit accounts maintained with Silicon. 2. SECURITY INTEREST. As security for all present and future indebtedness, guarantees, liabilities, and other obligations, of Borrower to Silicon (collectively, the "Obligations"), Borrower hereby grants Silicon a continuing security interest in all of Borrower's interest in the following types of property, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): All "accounts," "general intangibles," "contract rights," "chattel paper," "documents" "letters of credit," "instruments," "deposit accounts," "inventory," "farm products," investment property," "fixtures" and "equipment," as such terms are defined in Division 9 of the California Uniform Commercial Code in effect on the date hereof, and all products, proceeds and insurance proceeds of the foregoing. 3. REPRESENTATIONS AND AGREEMENTS OF BORROWER. Borrower represents to Silicon as follows, and Borrower agrees that the following representations will continue to be true, and that Borrower will comply with all of the following agreements throughout the term of this Agreement: 3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will continue to be, duly authorized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized, and do not violate any law or any provision of, and are not grounds for acceleration under, any agreement or instrument which is binding upon Borrower. 3.2 NAME; PLACES OF BUSINESS. The name of Borrower set forth in this Agreement is its correct name. Borrower shall give Silicon 15 days' prior written notice before changing its name. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Silicon at least 15 days prior written notice before changing its chief executive office or locating the Collateral at any other location. 3.3 COLLATERAL. Silicon has and will at all times continue to have a first-priority perfected security interest in all of the Collateral other than specific equipment. Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral. 3.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with generally accepted accounting principles. Since the last date covered by any such statement, there has been no material adverse change in the financial condition or business of Borrower. Borrower will provide Silicon: (i) within 30 days after the end of each month, a monthly financial statement prepared by Borrower, and such other information as Silicon shall reasonably request; (ii) within 120 days following the end of Borrower's fiscal year, complete annual financial statements, certified by independent certified public accountants acceptable to Silicon and accompanied by the unqualified report 1 2 thereon by said independent certified public accountants; and (iii) other financial information reasonably requested by Silicon from time to time. 3.5 TAXES; COMPLIANCE WITH LAW. Borrower has filed, and will file, when due, all tax returns and reports required by applicable law, and Borrower has paid, and will pay, when due, all taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower has complied, and will comply, in all material respects, with all applicable laws, rules and regulations. 3.6 INSURANCE. Borrower shall at all times insure all of the tangible personal property Collateral and carry such other business insurance as is customary in Borrower's industry. 3.7 ACCESS TO COLLATERAL AND BOOKS AND RECORDS. At reasonable times, on one business day notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. 3.8 OPERATING ACCOUNTS. Borrower shall maintain its primary operating accounts with Bank. 3.9 ADDITIONAL AGREEMENTS. Borrower shall not, without Silicon's prior written consent, do any of the following: (i) enter into any transaction outside the ordinary course of business except for the sale of capital stock to venture investors, provided that Borrower promptly delivers written notification to Silicon of any such sale; (ii) sell or transfer any Collateral, except in the ordinary course of business; (iii) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); or (iv) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock other than the repurchase of up to five percent (5%) of Borrower's then issued stock in any fiscal year from Borrower's employees or directors pursuant to written agreement with Borrower. 4. TERM. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"). This Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (i) by Borrower, effective three business days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay all Obligations in full, whether or not such Obligations are otherwise then due and payable. No termination shall in any way affect or impair any security interest or other right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. 5. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement: (a) Any representation, statement, report or certificate given to Silicon by Borrower or any of its officers, employees or agents, now or in the future, is untrue or misleading in a material respect; or (b) Borrower fails to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Obligations outstanding at any time exceed the Credit Limit; or (d) Borrower fails to perform any other non-monetary Obligation, which failure is not cured within 5 business days after the date due; or (e) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (f) a material adverse change in the business, operations, or financial or other condition of Borrower. If an Event of Default occurs, Silicon, shall have the right to accelerate and declare all of the Obligations to be immediately due and payable, increase the interest rate by an additional four percent per annum, and exercise all rights and remedies accorded it by applicable law. 6. GENERAL. If any provision of this Agreement is held to be unenforceable, the remainder of this Agreement shall still continue in full force and effect. This Agreement and any other written agreements, documents and instruments executed in connection herewith are the complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not in this Agreement or in other written agreements signed by the parties in connection this Agreement. The failure of Silicon at any time to require Borrower to comply strictly with any of the provisions of this Agreement shall not waive Silicon's right later to demand and receive strict compliance. Any waiver of a default shall not waive any other default. None of the provisions of this Agreement may be waived except by a specific written waiver signed by an officer of Silicon and delivered to Borrower. The provisions of this Agreement may not be amended, except in a writing signed by Borrower and Silicon. Borrower shall reimburse Silicon for all reasonable attorneys' fees and all other reasonable costs incurred by Silicon, in connection with this Agreement (whether or not a lawsuit is filed). If Silicon or Borrower files any lawsuit against the other predicated on ' a breach of this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorneys' fees from the non-prevailing party. Borrower may not assign any rights under this Agreement without Silicon's prior written consent. This Agreement shall be governed by the laws of the State of California. 2 3 7. MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR AFFILIATES. BORROWER: NEOFORMA, INC. ---------------------------------- By: /s/ JEFF KLECK ---------------------------------- PRESIDENT OR VICE PRESIDENT CEO SILICON: ---------------------------------- By: ---------------------------------- Title: -------------------------------- 3 4 SILICON VALLEY BANK SCHEDULE TO QUICKSTART LOAN AND SECURITY AGREEMENT (EQUIPMENT ADVANCES) BORROWER: Neoforma, Inc. DATE: 6/25/98 This Schedule is an integral part of the Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower") of even date. CREDIT LIMIT (EQUIPMENT) $ 750,000.00 (such amount to be funded under (Section 1): the aggregate Credit Limit).Equipment Advances will be made only on or prior to 12/25/98 (the "Last Advance Date") and only for the purpose of purchasing equipment reasonably acceptable to Silicon. Borrower must provide invoices for the equipment to Silicon on or before the Last Advance Date. INTEREST RATE (Section 1): A rate equal to the "Prime Rate" in effect from time to time, plus 0% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate;" it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. MATURITY DATE (Section 4): After the Last Advance Date, the unpaid principal balance of the Equipment Advances shall be repaid in 36 equal monthly installments of principal, plus interest, commencing on 1/25/99 and continuing on the same day of each month thereafter until the entire unpaid principal balance of the Equipment Advances and all accrued unpaid interest have been paid (subject to Silicon's right to accelerate the Equipment Advances on an Event of Default). BORROWER: SILICON: Neoforma, Inc. SILICON VALLEY BANK - ------------------------------------ By ---------------------------------- By PRESIDENT OR VICE PRESIDENT --------------------------- CEO Title ------------------------- 4 5 SILICON VALLEY BANK SCHEDULE TO QUICKSTART LOAN AND SECURITY AGREEMENT (MASTER) BORROWER: Neoforma, Inc. DATE: 6/25/98 This Schedule is an integral part of the Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower") of even date. CREDIT LIMIT (AGGREGATE) $ 750,000.00 includes, without limitation, (Section 1): Equipment Advances and the Merchant Services and Business Visa Reserve, if any) INTEREST RATE (SECTION 1): A rate equal to the "Prime Rate" in effect from time to time, plus 0% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate;" it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. MATURITY DATE (Section 4): 12/25/99 OTHER LOCATIONS AND ADDRESSES (Section 3.2): _____________________ OTHER AGREEMENTS: Borrower also agrees as follows: 1. LOAN FEE. Borrower shall concurrently pay Silicon a non-refundable Loan Fee in the amount of $ 2,000.00 2. BANKING RELATIONSHIP. Borrower shall at all times maintain its primary banking relationship with Silicon. BORROWER: SILICON: __________________________________ Neoforma, Inc. SILICON VALLEY BANK By ______________________________ By __________________________ PRESIDENT OR VICE PRESIDENT CEO Title _______________________ 5 6 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of July 20, 1999, by and between Neoforma, Inc. ("Borrower") and Silicon Valley Bank ("Silicon"). 1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant to, among other documents, a QuickStart Loan and Security Agreement (and Schedule thereto), dated June 25, 1998, as may be amended from time to time, (the "Loan Agreement"). The Loan Agreement provided for, among other things, a Credit Limit in the original principal amount of Seven Hundred Fifty Thousand Dollars ($750,000). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement. As of this date, the balance of outstanding Equipment Advances is Four Hundred Thirty-Three Thousand Five Dollars and 39/100 ($433,005.39). Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred to as the "Indebtedness." 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is secured by the Collateral as described in the Loan Agreement and that certain Intellectual Property Security Agreement. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents." Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents." 3. DESCRIPTION OF CHANGE IN TERMS. A. Modification(s) to Loan Agreement (and Schedule thereto) 1. The paragraph entitled "Maturity Date" (Section 4) is hereby amended, in its entirety, to read as follows: Borrower will pay in one payment all outstanding Equipment Advances plus all accrued unpaid interest on July 20, 2000. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date beginning July 20, 1999, and all subsequent interest payments are due on the same day of each month thereafter (subject to Silicon's right to accelerate the Equipment Advances on an Event of Default). 2. Section 3.10 entitled "Financial Covenants" is hereby incorporated in to the Loan Agreement to read as follows: 6 7 Borrower shall comply with the following covenant, as of the end of each month, except as otherwise provided: Liquidity: Borrower shall maintain a minimum Liquidity ratio of 1.50 to 1.00. Liquidity shall be defined as unrestricted cash and cash equivalents plus accounts receivable divided by all Obligations owing to Silicon. This covenant shall be monitored in accordance with cash held by Silicon. B. Modification(s) to Subordination Agreement. 1. The reference to the August 7, 1998 date of the QuickStart Loan and Security Agreement between Borrower and Bank is hereby deleted and replaced with June 25, 1998. 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 5. PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of Two Thousand Dollars ($2,000) (the "Loan Fee"), plus all out-of-pocket expenses. 6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing below) agrees that, as of the date hereof, it has no defenses against the obligations to pay any amounts under the Indebtedness. 7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below) understands and agrees that in modifying the existing Indebtedness, Silicon is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Silicon's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Silicon to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Silicon and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Silicon in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. 8. CONDITION. The effectiveness of this Loan Modification Agreement is conditioned upon payment of the Loan Fee and execution of the QuickStart Warrant to Purchase Stock agreement. 7 8 This Loan Modification Agreement is executed as of the date first written above. BORROWER: SILICON: NEOFORMA, INC. SILICON VALLEY BANK By: /s/ FREDERICK RUEGSEGGER By: /s/ PELE L. LOPEZ ------------------------------ ----------------------------- Name: Frederick Ruegsegger Name: Pele L. Lopez ------------------------------ ----------------------------- Title: CFO Title: AVP ------------------------------ ----------------------------- The undersigned hereby consent to (i) the modification to the Subordination Agreement pursuant to this Loan Modification Agreement, and (ii) hereby ratifies all the provisions of the Subordination Agreement and confirms that all provisions of that document are in full force and effect. CREDITOR: COMDISCO, INC. By: ------------------------- Date: ------------------------- Name: ------------------------- Title: ------------------------- 8 EX-10.18 21 SUBORDINATED PROMISSORY NOTE 1 EXHIBIT 10.18 SUBORDINATED PROMISSORY NOTE $2,000,000 Date: May 27, 1999 Due: June 1, 2002 FOR VALUE RECEIVED, Neoforma, Inc., a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of Two Million and 00/100 Dollars ($2,000,000.00) together with interest at twelve and one half percent (12.5%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid in 36 equal monthly installments of $66,999.22 each, commencing July 1, 1999 and on the same day of each month thereafter to and including June 1, 2002, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Subordinated Loan and Security Agreement dated May 12, 1999 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. -1- 2 This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law, rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NEOFORMA, INC. 3255 Scott Blvd. Santa Clara, CA 95054 Signature: /s/ Wayne McVicker --------------------------- Print Name: Wayne McVicker -------------------------- Title: Vice President ------------------------------- -2- 3 NEOFORMA, INC. Prepared by V. Tonga Loan Amount: 2,000,000.00 ============ Interest Rate 12.500% ============ Payment 66,999.22
Payment Number Date Principal Interest Payment Balance - ------------------------------------------------------------------------------- 05/27/99 2,000,000.00 1 07/01/99 43,338.11 23,611.11 66,999.22 1,956,611.89 2 08/01/99 46,617.85 20,381.37 66,999.22 1,909,994.05 3 09/01/99 47,103.45 19,895.77 66,999.22 1,862,890.60 4 10/01/99 47,594.11 19,405.11 66,999.22 1,815,296.49 5 11/01/99 48,089.88 18,909.34 66,999.22 1,767,206.61 6 12/01/99 48,590.82 18,408.40 66,999.22 1,718,615.79 7 01/01/00 49,096.97 17,902.25 66,999.22 1,669,518.82 8 02/01/00 49,608.40 17,390.82 66,999.22 1,619,910.42 9 03/01/00 50,125.15 16,874.07 66,999.22 1,569,785.26 10 04/01/00 50,647.29 16,351.93 66,999.22 1,519,137.97 11 05/01/00 51,174.87 15,824.35 66,999.22 1,467,963.11 12 06/01/00 51,707.94 15,291.28 66,999.22 1,416,255.17 13 07/01/00 52,246.56 14,752.66 66,999.22 1,364,008.61 14 08/01/00 52,790.80 14,208.42 66,999.22 1,311,217.81 15 09/01/00 53,340.70 13,658.52 66,999.22 1,257,877.11 16 10/01/00 53,896.33 13,102.89 66,999.22 1,203,980.78 17 11/01/00 54,457.75 12,541.47 66,999.22 1,149,523.02 18 12/01/00 55,025.02 11,974.20 66,999.22 1,094,498.00 19 01/01/01 55,598.20 11,401.02 66,999.22 1,038,899.80 20 02/01/01 56,177.35 10,821.87 66,999.22 982,722.46 21 03/01/01 56,762.53 10,236.69 66,999.22 925,959.93 22 04/01/01 57,353.80 9,645.42 66,999.22 868,606.12 23 05/01/01 57,951.24 9,047.98 66,999.22 810,654.89 24 06/01/01 58,554.90 8,444.32 66,999.22 752,099.99 25 07/01/01 59,164.85 7,834.37 66,999.22 692,935.14 26 08/01/01 59,781.15 7,218.07 66,999.22 633,154.00 27 09/01/01 60,403.87 6,595.35 66,999.22 572,750.13 28 10/01/01 61,033.07 5,966.15 66,999.22 511,717.06 29 11/01/01 61,668.83 5,330.39 66,999.22 450,048.22 30 12/01/01 62,311.22 4,688.00 66,999.22 387,737.01 31 01/01/02 62,960.29 4,038.93 66,999.22 324,776.71 32 02/01/02 63,616.13 3,383.09 66,999.22 261,160.58 33 03/01/02 64,278.80 2,720.42 66,999.22 196,881.79 34 04/01/02 64,948.37 2,050.85 66,999.22 131,933.42 35 05/01/02 65,624.91 1,374.31 66,999.22 66,308.51 36 06/01/02 66,308.51 690.71 66,999.22 0.00
3 EX-10.19 22 LOAN AND SECURITY AGREEMENT DATED JULY 7, 1999 1 EXHIBIT 10.19 LOAN AND SECURITY AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of July 7, 1999 is entered into by and between Neoforma, Inc. a Delaware corporation having a principal place of business at 3255 Scott Blvd., Santa Clara, CA 95054 (the "Borrower") and Comdisco, Inc., a Delaware corporation having a principal place of business at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" ). In consideration of the mutual agreements contained herein, the parties hereto agree as follows: WHEREAS, Borrower desires to borrow from the Lender hereunder the amount of Two Million Forty Two Thousand Seven Hundred Ninety Two ($2,042,792)and Lender is willing to lend said amount to Borrower on or before August 7, 1999 (the "Funding Date") for the purchase of computers, workstations, peripherals, instrumentation, electronic test, semiconductor, production, manufacturing and test equipment ("Part I") and software and tenant improvements (not to exceed Three Hundred Sixty Six Thousand Two Hundred Nine Dollars ($366,209)) ("Part II"); NOW, THEREFORE, it is agreed: SECTION 1. THE LOAN 1. Subject to the terms and conditions set forth herein, Lender shall lend to Borrower the aggregate original principal amount of Two Million Forty Two Thousand Seven Hundred Ninety Two ($2,042,792) (the "Loan") with interest at the rate of: (a) Nine percent (9%) per annum for Part I payable in 48 monthly installments of principal and interest, each payable in monthly payments as set forth in the promissory note (the "Note A-1") in the form attached hereto and made a part hereof as Exhibit A-1; and (b) Eight percent (8%) per annum for Part II payable in 30 monthly installments of principal and interest, each payable in monthly payments as set forth in the promissory note (the "Note A-2") in the form attached hereto and made a part hereof as Exhibit A-2. Hereinafter Note A-1 and Note A-2 shall be referred to as "Note(s)" 1.2 Upon the occurrence of and during an Event of Default (as defined herein), interest shall thereafter be calculated at a rate of five percent (5%) in excess of the rate that would otherwise be applicable ("Default Rate"). All such interest shall be due and payable in arrears, on the first day of the following month. 1.3 Notwithstanding any provision in this Agreement, the Note(s), or any other "Loan Document" (as defined herein), it is not the parties' intent to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law which a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of interest, chargeable on the total aggregate principal Secured Obligations of Borrower under this Agreement and the Note(s) (as said rate is calculated over a period of time that is the longer of (i) the time from the date of this Agreement through the maturity time as set forth on the Note(s), or (ii) the entire period of time that any principal is outstanding on the Note(s)), which -1- 2 amount of interest exceeds interest calculated at the Maximum Rate on said principal chargeable over said period of time, then such excess interest actually paid by Borrower shall be applied first, to the payment of principal outstanding on the Note(s); second, after all principal is repaid, to the payment of Lender's out of pocket costs, expenses, and professional fees which are owed by Borrower to Lender under this Agreement or the Loan Documents; and third, after all principal, costs, expenses, and professional fees owed by Borrower to Lender are repaid, the excess (if any) shall be refunded to Borrower. 1.4 In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 1.1. 1.5 Upon and during the continuation of an Event of Default hereunder (as defined herein), all Secured Obligations, including principal, interest, compounded interest, and reasonable professional fees, shall bear interest at a rate per annum equal to the Default Rate. 1.6 Borrower shall have the option to prepay the Note(s), in whole or in part, at any time after the date hereof by paying the principal amount together with all accrued and unpaid interest with respect to such principal amount, as of the date of such prepayment [and the Balloon Payment as described in the Note(s)] together with a prepayment premium equal to the difference, if any, between (x) the amount being prepaid and (y) the present value, discounted at the Treasury Rate, of each installment of principal and interest being prepaid discounted to the date of prepayment. If the amount in (x) is greater than the amount in (y), no prepayment premium shall be due. The "Treasury Rate" shall mean the then prevailing yield on US Treasury Constant Maturities for the most recent business day, as quoted in the Federal Reserve Statistical Release H15, as of the date of prepayment for an obligation of comparable maturity to the maturity date of the Note(s). SECTION 2. SECURITY INTEREST As security for the payment of all indebtedness ("Indebtedness") of the Borrower to the Lender hereunder and under the Note(s), as the same may be renewed, extended for any period or rearranged, and the performance by the Borrower of its other obligations hereunder (the Indebtedness and such other obligations being hereinafter sometimes collectively referred to as the "Secured Obligations"), the Borrower hereby assigns to the Lender, and grants to the Lender a first priority security interest in, all the Borrower's right, title, and interest in and to the following property ("Collateral"): (i) the equipment and other property (the "Equipment") described in Exhibit B attached hereto; and (ii) all proceeds, products, replacements, additions to, substitutions for and accessions to any and all Equipment including, without limitation, the proceeds applicable to the insurance referred to in Section 4 hereof. SECTION 3. REPRESENTATIONS AND WARRANTIES OF BORROWER The Borrower represents, warrants and agrees that: 3.1 it has good title in and to the Equipment, free of all liens, security interests, encumbrances and claims whatsoever, except for the interest of the Lender therein; -2- 3 3.2 it has the full power and authority to, and does hereby grant and convey to the Lender, a valid first priority perfected security interest in the Collateral as security for the Secured Obligations, free of all liens, security interests, encumbrances and claims, and shall execute such Uniform Commercial Code ("UCC") financing statements in connection herewith as the Lender may reasonably request. No other lien, security interest, adverse claim or encumbrance has been created by Borrower or is known by Borrower to exist with respect to any Collateral; 3.3 it is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions where the failure to so qualify would have a material adverse effect on the Collateral or the business of the Borrower taken as a whole; 3.4 the execution, delivery and performance of the Note(s), this Agreement, the Warrant Agreement dated July 7, 1999 pursuant to which Borrower granted to Lender the right to purchase the number of shares of preferred stock as set forth therein ("Warrant Agreement"), and all financing statements, certificates and other documents required to be delivered or executed in connection herewith (collectively, the "Loan Documents") have been duly authorized by all necessary corporate action of Borrower, the individual or individuals executing the Loan Documents were duly authorized to do so, the Equipment is personal property and as used by the Borrower will not be or become fixtures under applicable law, and the Loan Documents constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors; 3.5 the Loan Documents do not and will not violate any provisions of its Certificate of Incorporation, bylaws or any material contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which the Borrower is subject, or result in the creation or imposition of any lien, security interest or other encumbrance upon the Collateral, other than those created by this Agreement; 3.6 the execution, delivery and performance of the Loan Documents do not require the consent or approval of any other person or entity including, without limitation, any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof except the filing of state or federal securities filings pursuant to relevant "Blue Sky" laws. 3.7 as of the date hereof no fact or condition exists that would (or could, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any of the Loan Documents and no event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. For purposes of this Agreement, "Material Adverse Effect" means a material adverse effect upon (i) the business, operations, properties, assets or financial condition of Borrower; or (ii) except as otherwise disclosed herein, the ability of Borrower to perform the Secured Obligations. SECTION 4. INSURANCE AND RISK OF LOSS 4.1 Risk of loss of, damage to or destruction of the Collateral shall be borne by the Borrower and effective from the date of this Agreement and until the payment and -3- 4 performance in full of all Secured Obligations, Borrower shall at its own expense cause to be carried and maintained all risk casualty insurance (covering risk of fire, theft and other such risks as the Lender may require, including standard and extended coverage) with respect to each item of Collateral in an amount no less than the replacement costs applicable to such item of Collateral during the term of this Agreement. All policies evidencing such casualty insurance shall contain a standard mortgagee's endorsement and shall provide for at least thirty days prior written notice by the underwriter or insurance company to the Lender in the event of cancellation or expiration. Borrower shall provide Lender with insurance certificates evidencing the foregoing at time of closing. 4.2 If any item of Collateral is lost or rendered unusable as a result of any physical damage to or destruction of such item of Equipment during the period from the date hereof to and including the maturity date under the Note(s) or the date all Secured Obligations hereunder have been fully satisfied, whichever is earlier, Borrower shall give to Lender prompt notice thereof. Borrower shall determine, within fifteen (15) days after the date of occurrence of such loss, damage or destruction, whether such item of Equipment can be repaired and restored to the condition in which such item of Collateral was required to be maintained as of the date immediately preceding such damage. If Borrower determines that such item of Collateral can be repaired, Borrower, at its expense, shall cause such item of Collateral to be promptly repaired. If Borrower determines that such item of Collateral is lost or cannot be repaired, Borrower shall promptly notify the Lender and such item of Collateral shall be deemed to have suffered a "Casualty Loss" for purposes of this Section as of the date of the occurrence of such loss. Within fifteen (15) days following the occurrence of any such loss, damage or destruction, Borrower shall notify the Lender of the item(s) of Collateral which has suffered such Casualty Loss ("Loss Item"), and within thirty (30) days thereafter (the "Settlement Date"), Borrower shall either (a) replace such item(s) of Collateral with equipment of the substantially similar model, type and feature configuration, in an operating condition and repair no less than that required hereunder of the damaged or lost equipment immediately prior to the date of such damage or loss, and having a fair market value no less than the Casualty Value (as defined herein) applicable to such item of Collateral as of the date immediately prior to such damage, in which case such replacement equipment shall for all purposes hereunder become part of the Collateral and (without limiting the preceding provisions) Borrower shall grant to Lender a first lien and security interest in respect of such replacement equipment pursuant to the terms of this Agreement, and Borrower shall provide the Lender evidence satisfactory to the Lender of Borrower's good and marketable title to such replacement equipment (free of any liens, security interests or encumbrances other than those created by this Agreement) and Borrower shall be entitled to receive the amount of any insurance or other recovery received by Lender as the case may be up to cost of obtaining the replacement equipment; or (b) so long as no Event of Default or event which with the giving of notice or passage of time, or both, would constitute an Event of Default, has occurred and is continuing, Borrower may provide substitute equipment satisfactory to Lender to become part of the Collateral and Borrower shall grant to Lender a first lien and security interest in respect of such substitute equipment pursuant to the terms of this Agreement, and Borrower shall provide the Lender evidence satisfactory to Lender of Borrower's good and marketable title to such substitute equipment (free of any liens, security interests or encumbrances other than created by this Agreement) and Lender shall provide any required endorsements in connection with any insurance proceeds received by Borrower pursuant to such insurance policies; or (c) Borrower shall pay Lender the insurance proceeds payable pursuant to such insurance policies ("Insurance Proceeds") with respect to such Loss Item(s) and the principal amount of the Note(s) (and interest accrued on the principal amount so prepayable) shall become due and payable on the -4- 5 Settlement Date to the extent of the replacement cost for all such Loss Item(s). For purposes of this Section 4.2, Casualty Value shall mean an amount equal to the greater of the fair market value of the Equipment as of the date of the Casualty Loss or the outstanding principal and accrued interest on the Loan. Moneys so received shall be applied, on the date of such receipt, as follows: first, to pay any accrued interest on the outstanding principal amount of the Note(s) on such date; second, to prepay, the outstanding principal amount of the Note(s) (to the extent of the fair market value attributable to such Loss Item(s)); third, to pay any other Indebtedness of amounts then due and owing to the Lender hereunder; and fourth, so long as there has occurred no Event of Default under Section 8 hereof and no event which with the giving of notice or passage of time or both would constitute an Event of Default, has occurred and is continuing, Borrower and Lender hereby agree that the balance of any such Insurance Proceeds shall be paid promptly to the Borrower. 4.3 Effective upon the date hereof under the Note(s) and while there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained comprehensive general liability insurance with regard to the Collateral against risks customarily insured against in the Borrower's business. Such risks shall include, without limitation, the risks of death, bodily injury and property damage associated with the Collateral. All policies evidencing such insurance shall provide for at least thirty (30) days prior written notice by the underwriter or insurance company to the Lender in the event of cancellation or expiration. 4.4 Borrower shall and does hereby indemnify and hold Lender, its agents and shareholders harmless from and against any and all claims, costs, expenses, damages and liabilities (including without limitation such claims, costs, expenses, damages and liabilities based on liability in tort including without limitation strict liability in tort) including reasonable attorneys' fees, arising out of Borrower's ownership, possession, operation, control, use, maintenance, delivery, or other disposition of the Collateral. Notwithstanding the foregoing, Borrower shall not be responsible under the terms of this Section 4.4 to a party indemnified hereunder for any claims, costs, expenses, damages and liabilities occasioned by the negligence or willful misconduct of such indemnified party. SECTION 5. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of the Secured Obligations remain outstanding: 5.1 Borrower shall maintain the Equipment in good operating order, repair, condition and appearance and protect the Equipment from deterioration, other than normal wear and tear. Borrower shall not use the Equipment or permit its use for any purpose other than for which it was designed. Borrower's obligation regarding the maintenance of the Equipment shall include, without limitation, all maintenance, repair, refurbishment and replacement recommended or advised either by the manufacturer, or that commonly performed by prudent business and/or professional practice. Any exceptions or qualifications expressed in this Agreement relating to normal or ordinary wear and tear shall not be deemed to limit Borrower's obligations pursuant to the preceding sentence. 5.2 Borrower shall only relocate any item of the Collateral provided that: (a) it shall have caused to be filed and/or delivered to the Lender all UCC financing statements, certificates or other documents or instruments necessary to continue in effect the first prior -5- 6 perfected security interest of the Lender in the Collateral, and (b) it shall have given the Lender no less than fifteen (15) days prior written notice of such relocation. 5.3 Upon the request of Lender, Borrower shall, during business hours, make the Equipment available to Lender for inspection at the place where it is normally located and shall make Borrower's log and maintenance records pertaining to the Equipment available to Lender for inspection. Borrower shall take all action necessary to maintain such logs and maintenance records in a correct and complete fashion. 5.4 Upon the request of Lender, Borrower shall cause the Equipment to be plainly, permanently and conspicuously marked, by stenciling or by metal tag or plate affixed thereto, indicating Lender's security interest in the Equipment. Borrower shall replace any such stenciling, tag or plate which may be removed or destroyed or become illegible. Borrower shall keep all Equipment free from any marking or labeling which might be interpreted as a claim of ownership adverse to Borrower's. 5.5 Borrower covenants and agrees to pay when due, all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Lender (except taxes imposed on Lender's net income) or the Collateral or upon Borrower's ownership, possession, use, operation or disposition thereof or upon Borrower's rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. 5.6 Borrower shall furnish to Lender the financial statements listed hereinafter, prepared in accordance with generally accepted accounting principles consistently applied (the "Financial Statements"): (a) as soon as practicable (and in any event within thirty (30) days) after the end of each month: an internally prepared income statement, balance sheet, and cash flow statement, (including the commencement of any material litigation by or against Borrower), each certified by Borrower's Chief Executive or Financial Officer to be true and correct; (b) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, audited Financial Statements, setting forth in comparative form the corresponding figures for the preceding fiscal year, and accompanied by any audit report and opinion of the independent certified public accountants selected by Borrower; and (c) promptly any additional information (including but not limited to tax returns, income statements, balance sheets, and names of principal creditors) as Lender reasonably believes necessary to evaluate Borrower's continuing ability to meet financial obligations. 5.7 Notwithstanding the foregoing, after the effective date of the initial registration statement covering a public offering of Borrower's securities, the term "Financial Statements" shall be deemed to refer to only those statements required by the Securities and Exchange Commission, to be provided no less frequently than quarterly. Borrower will from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements or other documents; and take all further action that may be necessary, or that Lender may -6- 7 reasonably request, to confirm, perfect, preserve and protect the security interests intended to be granted hereby, and in addition, and for such purposes only, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, security agreement and other documents without the signature of Borrower either in Lender's name or in the name of Borrower as agent and attorney-in-fact for Borrower. 5.8 Borrower shall protect and defend Borrower's title as well as the interest of the Lender granted herein against all persons claiming any interest adverse to Borrower or Lender and shall at all times keep the Collateral free and clear from any attachment or levy, liens or encumbrances whatsoever (except any placed thereon by Lender, or any liens arising by operation of law with respect to any obligations not yet overdue or any other liens consented to in writing by Lender) and shall give Lender immediate written notice thereof. 5.9 Borrower shall not sell, transfer, assign, hypothecate or otherwise encumber its Intellectual Property without Lender's prior written consent. SECTION 6. CONDITIONS PRECEDENT TO LOAN On or prior to the Funding Date, Borrower will provide to Lender the following, in form and substance satisfactory to Lender: 6.1 Such documentation, including without limitation, a Bill of Sale, and other documents as shall reasonably evidence Borrower's right, title and interest in and to the Equipment; 6.2 A certified resolution or other certificate of corporate authority for the execution and the delivery of, and the performance of all Secured Obligations under the Loan Documents and all related documentation; 6.3 Incumbency certificate evidencing the authority and facsimile signatures of the individuals executing the Loan Documents; 6.4 UCC financing statements as deemed appropriate by Lender to perfect its security interest in the Collateral; 6.5 Certified copies of the Certificate of Incorporation of Borrower; 6.6 Certificate of good standing for Borrower from its state of incorporation and similar certificates from all jurisdictions in which it does business and where the failure to be qualified would have a material adverse effect on Borrower's business; and 6.7 Insurance certificates as required by Section 4 hereof. SECTION 7. ASSIGNMENT BY LENDER 7.1 Borrower acknowledges and understands that Lender may sell and assign all or a part of its interest hereunder and under the Note(s) and Loan Documents to any person or entity (an "Assignee"). After such assignment the term Lender shall mean such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, the -7- 8 Lender shall retain all rights, powers and remedies hereby given. No such assignment by Lender shall relieve Borrower of any of its obligations hereunder. Borrower shall acknowledge such assignment or assignments as shall be designated by written notice given by Lender to Borrower. The Lender agrees that in the event of any transfer by it of the Note(s), it will endorse thereon a notation as to the portion of the principal of the Note(s) which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon. SECTION 8. DEFAULT The occurrence of any one or more of the following events (herein called "Events of Default") shall constitute a default hereunder and under the Note(s): 8.1 The Borrower defaults in the payment of any principal or interest payable under this Agreement, the Note(s) or any of the other Loan Documents and such default continues for more than five (5) days after Lender provides written notice to Borrower; 8.2 The Borrower defaults in the payment or performance of any other covenant or obligation of the Borrower hereunder or under the Note(s) or any other Loan Documents for more than ten (10) business days after the Lender has given notice of such default to the Borrower; 8.3 As of the closing, any representation or warranty made herein by the Borrower shall prove to have been false or misleading in any material respect; 8.4 The making of an assignment by Borrower for the benefit of its creditors or the admission by Borrower in writing of its inability to pay its debts as they become due, or the insolvency of Borrower, or the filing by Borrower of a voluntary petition in bankruptcy, or the adjudication of Borrower as a bankrupt, or the filing by Borrower of any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future statute, law or regulation, or the filing of any answer by Borrower admitting, or the failure by Borrower to deny, the material allegations of a petition filed against it for any such relief, or the seeking or consenting by Borrower to, or acquiescence by Borrower in, the appointment of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower, or the inability of Borrower to pay its debts when due, or the commission by Borrower of any act of bankruptcy as defined in the Federal Bankruptcy Act, as amended; 8.5 The failure by Borrower, within sixty (60) days after the commencement of any proceeding against Borrower seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, to obtain the dismissal of such proceeding or, within sixty (60) days after the appointment, without the written consent or acquiescence of Lender, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower, to vacate such appointment; or 8.6 The default by Borrower under any other notes or other agreement for borrowed money, lease or other agreement between Borrower and Lender. -8- 9 SECTION 9. REMEDIES Upon the occurrence hereof of any one or more Events of Default, Lender, at its option, may declare the Note(s) to be accelerated and immediately due and payable, (provided, that upon the occurrence of an Event of Default of the type described in 8.4 or 8.5, the Note(s) and all other Secured Obligations shall automatically be accelerated and made due and payable without any further act) whereupon the unpaid principal of and accrued interest on such Note(s) shall become immediately due and payable, and shall thereafter bear interest at the Default Rate and calculated in accordance with Section 1.2. Lender may exercise all rights and remedies with respect to the Collateral granted pursuant hereto for such Note(s), or otherwise available to it under applicable law, including the right to release, hold or otherwise dispose of all or any part of the Collateral and the right to utilize, process and commingle the Collateral. Upon the happening and during the continuance of any Event of Default, Lender may then, or at any time thereafter and from time to time, apply, collect, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonably preparation or processing, in such order as Lender may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon five (5) business day's notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender which is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the collateral shall be distributed by Lender in the following order of priorities: First, to Lender in an amount sufficient to pay in full Lender's reasonable costs and professionals' and advisors' fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. The Lender shall return to the Borrower any surplus Collateral remaining after payment of all Secured Obligations. SECTION 10. MISCELLANEOUS 10.1 Borrower shall remain liable to Lender for any unpaid Secured Obligations, advances, costs, charges and expenses, together with interest thereon and shall pay the same immediately to Lender at Lender's offices. 10.2 The powers conferred upon Lender by this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. 10.3 This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Lender hereunder shall continue to exist until the Secured Obligations are paid in full as the same become due and payable. When Borrower has paid in full all Secured Obligations, Lender will, -9- 10 promptly upon request of Borrower, execute a written termination statement, reassigning to Borrower, without recourse, the Collateral and all rights conveyed hereby and return possession (if Lender has possession) of the Collateral to Borrower. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of any other rights, powers and remedies of Lender. Furthermore, regardless of whether or not the UCC is in effect in the jurisdiction where such rights, powers and remedies are asserted, Lender shall have the rights, powers and remedies of a secured party under the UCC. 10.4 Upon payment in full of all Secured Obligations, the Lender shall cancel the Note(s), this Agreement and all UCC financing statements, if any, and shall promptly deliver all such canceled documents to the Borrower. 10.5 GOVERNING LAW. This Agreement, the Note(s) and the other Loan Documents have been negotiated and delivered to Lender in the State of Illinois and shall not become effective until accepted by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the State of Illinois. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of Illinois excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 10.6 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising in or under or related to this Agreement, the Note(s) or any of the other Loan Documents may be brought in any state or federal court of competent jurisdiction located in the State of Illinois. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Cook County, State of Illinois; (b) waives any objection as to jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Note(s) and the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 10.8 below and shall be deemed effective and received as set forth in Section 10.8 below. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. 10.7 Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 10.8 Any notice required or given hereunder shall be deemed properly given upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) or three (3) days after mailed, postage prepaid, in each case, addressed to the designated recipient at its address set forth herein or such other address as such party may advise the other party by notice given in accordance with this provision. -10- 11 10.9 Lender and Borrower acknowledge that there are no agreements or understandings, written or oral, between Lender and Borrower with respect to the Loan, other than as set forth herein, in the Note(s) and the other Loan Documents and that this Agreement, the Note(s) and the other Loan Documents contain the entire agreement between Lender and Borrower with respect thereto. None of the terms of this Agreement, the Note(s) and the other Loan Documents may be amended except by an instrument executed by each of the parties hereto. 10.10 No omission, or delay, by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter. 10.11 All agreements, representations and warranties contained in this Agreement or the Note(s), or in any Loan Documents delivered pursuant hereto or in connection herewith shall be for the benefit of Lender and any Assignee and shall survive the execution and delivery of this Agreement or the Note(s) and the expiration or other termination of this Agreement or the Note(s). 10.12 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10.13 This Agreement shall be binding upon, and shall inure to the benefit of, Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Note(s) or any of the other Loan Documents without Lender's express written consent and any such attempted assignment shall be void and of no effect. Any assignment by Borrower in connection with a "Merger" (as defined below) shall be subject to Lender's prior consent which shall not be unreasonably withheld. Any consent granted by Lender shall be conditioned upon such surviving entity or transferee assuming Borrower's Secured Obligations hereunder pursuant to assignment documents reasonably acceptable to Lender. If Lender reasonably withholds its consent to such assignment in connection with a Merger, the outstanding principal and accrued and unpaid interest shall be prepaid in whole. For purposes of this Agreement, a "Merger" shall mean any consolidation or merger of the Borrower with or into any other corporation or entity, any sale or conveyance of all or substantially all of the assets or stock of the Borrower by or to any other person or entity in which Borrower is not the surviving entity. IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered this Agreement as of the day and year first above written. BORROWER: NEOFORMA , INC. By: /s/ ROBERT ZOLLARS ---------------------------- Title: CEO ---------------------------- Date: 7/13/99 ---------------------------- -11- 12 ACCEPTED IN ROSEMONT, ILLINOIS: LENDER: COMDISCO, INC. By: /s/ JAMES LABE ------------------------------------- Title: President, Comdisco Ventures Division ------------------------------------- Date: 7/15/99 ------------------------------------- -12- 13 EXHIBIT A-1 TO EXHIBIT 10.19 HARDWARE SECURED PROMISSORY NOTE $1,032,001.98 DATE: SEPTEMBER 3, 1999 DUE: SEPTEMBER 1, 2003 FOR VALUE RECEIVED, Neoforma, Inc. a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of One Million Thirty Two Thousand One and 98/100 Dollars ($1,032,001.98) together with interest at Nine percent (9%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid 48 equal monthly installments consisting of 1 payment of $22,676.7 (.75%) each, commencing October 1, 1999, followed by 8 payments of $7,712.67 each, commencing November 1, 1999 and on the same day of each month hereafter, followed by 39 payments of $30,382.14 (2.945%) each, commencing July 1, 2000 and on the same day of each month thereafter to and including September 1, 2003 and an additional installment in the amount of $165,120.32 (16%) ("Balloon Payment") to be paid on September 1, 2003, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated July 7, 1999 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. 13 14 This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NEOFORMA, INC. 3255 Scott Blvd. Santa Clara, CA 95054 Signature: ------------------------------ Print Name: ------------------------------ Title: ------------------------------ 14 15 EXHIBIT A-2 TO EXHIBIT 10.19 SOFT COST SECURED PROMISSORY NOTE 240,363.61 Date:September 3, 1999 Due: March 1, 2002 FOR VALUE RECEIVED, Neoforma, Inc. a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of Two Hundred Forty Thousand Three Hundred Sixty Three and 61/100 Dollars ($240,363.61) together with interest at Nine percent (8%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid 30 equal monthly installments consisting of 1 payments of $4,708.46 (.67%) each, commencing October 1, 1999, followed by 3 payments of $1,610.44 (.67%) each commencing November 1, 1999 and on the same day of each month thereafter to and including January 1, 2000, followed by 26 payments of $10,029.76 (4.17%) each, commencing February 1, 2000 and on the same day of each month thereafter to and including March 1, 2002 and an additional installment in the amount of $38,458.18 (16%) ("Balloon Payment") to be paid on March 1, 2002, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated July 7, 1999 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. 15 16 This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NEOFORMA, INC. 3255 Scott Blvd. Santa Clara, CA 95054 Signature: ------------------------------ Print Name: ------------------------------ Title: ------------------------------ 16 17 EXHIBIT B TO EXHIBIT 10.19 EQUIPMENT DESCRIPTION 17 EX-10.20 23 HARDWARE SECURED PROMISSORY NOTE 1 EXHIBIT 10.20 HARDWARE SECURED PROMISSORY NOTE $1,032,001.98 DATE: SEPTEMBER 3, 1999 DUE: SEPTEMBER 1, 2003 FOR VALUE RECEIVED, Neoforma, Inc. a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of One Million Thirty Two Thousand One and 98/100 Dollars ($1,032,001.98) together with interest at Nine percent (9%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid 48 equal monthly installments consisting of 1 payment of $22,676.7 (.75%) each, commencing October 1, 1999, followed by 8 payments of $7,712.67 each, commencing November 1, 1999 and on the same day of each month hereafter, followed by 39 payments of $30,382.14 (2.945%) each, commencing July 1, 2000 and on the same day of each month thereafter to and including September 1, 2003 and an additional installment in the amount of $165,120.32 (16%) ("Balloon Payment") to be paid on September 1, 2003, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated July 7, 1999 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. -1- 2 This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NEOFORMA, INC. 3255 Scott Blvd. Santa Clara, CA 95054 Signature: /s/ WAYNE MCVICKER ------------------------------ Print Name: Wayne McVicker ------------------------------ Title: VP and Founder ------------------------------ -2- EX-10.21 24 SOFTCOST SECURED PROMISSORY NOTE 1 EXHIBIT 10.21 SOFTCOST SECURED PROMISSORY NOTE 240,363.61 Date:September 3, 1999 Due: March 1, 2002 FOR VALUE RECEIVED, Neoforma, Inc. a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of Two Hundred Forty Thousand Three Hundred Sixty Three and 61/100 Dollars ($240,363.61) together with interest at Nine percent (8%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid 30 equal monthly installments consisting of 1 payments of $4,708.46 (.67%) each, commencing October 1, 1999, followed by 3 payments of $1,610.44 (.67%) each commencing November 1, 1999 and on the same day of each month thereafter to and including January 1, 2000, followed by 26 payments of $10,029.76 (4.17%) each, commencing February 1, 2000 and on the same day of each month thereafter to and including March 1, 2002 and an additional installment in the amount of $38,458.18 (16%) ("Balloon Payment") to be paid on March 1, 2002, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated July 7, 1999 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. -1- 2 This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NEOFORMA, INC. 3255 Scott Blvd. Santa Clara, CA 95054 Signature: /s/ WAYNE MCVICKER ------------------------------ Print Name: Wayne McVicker ------------------------------ Title: VP and Founder ------------------------------ -2- EX-10.22 25 LEASE AGREEMENT DATED JULY 30, 1999 1 EXHIBIT 10.22 LEASE AGREEMENT BLDG: Park Square I-6 OWNER: 500 PROP: 316 UNIT: 101 TENANT: 31609 THIS LEASE, made this 30th day of July, 1998 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord, and NEOFORMA, INC., a California corporation, hereinafter called Tenant. WITNESSETH; Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A", attached hereto and incorporated herein by this reference thereto more particularly described as follows: A portion of that certain 22,500 (plus or minus) square foot, one-story building located at 3255-6 Scott Blvd., Suite 101, Santa Clara, California 95054, consisting of approximately 10,878 (plus or minus) square feet of space. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto. The entire parcel, of which the Premises is a part, is shown within the area outlined in Green on Exhibit A attached. The Premises shall be improved by landlord as shown on Exhibit B attached hereto, and is leased on an "as-is" basis, in its present condition, and in the configuration as shown in Red on Exhibit B attached hereto. As used herein the Complex shall mean and include all of the land outlined in Green and described in Exhibit "A", attached hereto, and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances and for no other purpose. Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Complex or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex which will in any way obstruct or interfere with the rights of other tenants or occupants of the Complex or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon the floors, walls, or ceiling, which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of common area of the Complex. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, attorneys' fees, or liability arising out of failure of Tenant to comply with any applicable law. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Complex. 2. TERM* A. The term of this Lease shall be for a period of FIVE (5) years (unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2(B) and 3, shall commence on the 1st day of September, 1998 and end on the 31st day August of 2003. B. Possession of the Premises shall be deemed tendered and the term of this Lease shall commence when the first of the following occurs: (a) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue certificates of occupancy, then the same number of days after certification by Landlord's architect or contractor that Landlord's construction work has been completed; or (b) Upon the occupancy of the Premises by any of Tenant's operating personnel; or (c) When the Tenant Improvements have been substantially completed for Tenant's use and occupancy, in accordance and compliance with Exhibit B of this Lease Agreement; or (d) As otherwise agreed in writing. 3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2(b), above. The above is, however, subject to the provision that the period of delay, of delivery of the premises shall not exceed 30 days from the commencement date herein (except those delays caused by Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. * It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent scheduled for the projected commencement date as shown in Paragraph 43. 1 2 4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of ONE MILLION SEVEN HUNDRED SIXTY TWO THOUSAND TWO HUNDRED THIRTY SIX AND NO/100 ($1,762,236.00) Dollars in lawful money of the United States of America, payable as follows: B. Time for Payment. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30). C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten (10%) percent of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as Additional Rent the following: (a) Tenant's proportionate share of all Taxes relating to the Complex as set forth in Paragraph 12, and (b) Tenant's proportionate share of all insurance premiums relating to the Complex, as set forth in Paragraph 15, and (c) Tenant's proportionate share of expenses for the operation, management, maintenance and repair of the Building (including common areas of the Building) and Common Areas of the Complex in which the Premises are located as set forth in Paragraph 7, and (d) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including attorneys' fees and legal expenses, that may accrue thereto in the event of Tenant's failure to pay such amounts, and all damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of the end of each calender year or more frequently if Landlord so elects to do so at Landlord's sole and absolute discretion, as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord crediting to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. Within thirty (30) days after receipt of Landlord's reconciliation, Tenant shall have the right, at Tenant's sole expense, to audit, at a mutually convenient time at Landlord's office, Landlord's records relating to the foregoing expenses. Such audit must be conducted by Tenant or an independent nationally recognized accounting firm that is not being compensated by Tenant or other third party on a contingency fee basis. Landlord shall be provided a complete copy of said audit at no expense to Landlord. If such audit reveals that Landlord has overcharged Tenant and the audit is not challenged by Landlord, the amount overcharged shall be credited to Tenant's account within thirty (30) days after the audit is concluded. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar preceding such expiration or termination bears to 365. E. Fixed Management Fee. Beginning with the Commencement Date of the Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee ("Management Fee") equal to 3% of the Basic Rent due for each month during the Lease Term. F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San Francisco, CA 94160 or to such other person or to such other place as Landlord may from time to time designate in writing. G. Security Deposit. Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of SIXTY THREE THOUSAND NINETY TWO AND 40/100 ($63,092.40) Dollars. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage with Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) at the expiration of the Lease term and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. 5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions of this Lease and such Rules and Regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Complex in which the Premises are located, and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex in which the Premises are located, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interests of the occupants of the Complex. The Rules and Regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such Rules and Regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Complex of any of said Rules and Regulations. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord. 2 3 6. PARKING Tenant shall have the right to use with other tenants or occupants of the Complex 32 parking spaces in the common parking areas of the Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use parking spaces in excess of said 32 spaces allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion, to specifically designate the location of Tenant's parking spaces within the common parking areas of the Complex in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenant's use. Said parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time, and from time to time. Landlord reserves the right, at Landlord's sole discretion, to rescind any specific designation of parking spaces, thereby returning Tenant's parking spaces to the common parking area. Landlord shall give Tenant written notice of any change in Tenant's parking spaces. Tenant shall not, at any time, park, or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park, or permit the parking of Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or others, in any portion of the common area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common parking area or other common areas of the Complex. Tenant agrees to assume responsibility for compliance by its employees with the parking provision contained herein. If Tenant or its employees park in other than such designated parking areas, then Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for each day or partial day each such vehicle is parked in any area other than that designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow away from the Complex any vehicle belonging to Tenant or Tenant's employees parked in violation of these provisions, or to attach violation stickers or notices to such vehicles. Tenant shall use the parking areas for the vehicle parking only, and shall not use the parking areas for storage. 7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, parking lots and paved areas (including repairs, replacement, resealing and restriping), sidewalks, driveways; maintenance, repair and replacement of all fixtures and electrical, mechanical, and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. "Additional Rent" as used herein shall not include Landlord's debt repayments; interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries. As Additional Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of operation (including common utilities), management, maintenance, and repair of the building (including common areas such as lobbies, restrooms, janitor's closets, hallways, elevators, mechanical and telephone rooms, stairwells, entrances, spaces above the ceilings and janitorization of said common areas) in which the Premises are located. The maintenance items herein referred to include, but are not limited to, all windows, window frames, plate glass, glazing, truck doors, main plumbing systems of the building (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), main electrical systems (such as panels and conduits), heating and airconditioning systems (such as compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building common area interiors (such as wall coverings, window coverings, floor coverings and partitioning), ceilings, building exterior doors, skylights (if any), automatic fire extinguishing systems, and elevators; license, permit and inspection fees; security; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. Tenant hereby waives all rights under, and benefits of, subsection 1 of section 1932 and sections 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. 8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition of such building or as to the use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted, or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and heating equipment serviced by a reputable and licensed service firm and in good operating condition (provided the maintenance of such equipment has been Tenant's responsibility during the term of this Lease) together with all alterations, additions, and improvements which may have been made in, to, or on the Premises (except movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or substenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. 9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant, but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall retain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of the work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense,a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Complex for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. 10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, plumbing systems within the non-common areas of the Premises (such as water and drain lines, sinks), electrical systems within the non-common areas of the Premises (such as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and airconditioning controls within the non-common areas of the Premises (such as mixing boxes, thermostats, time clocks, supply and return grills), all interior improvements within the premises including but not limited to: wall coverings, window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors (both interior and exterior, including closing mechanisms, latches, locks), and all other interior improvements of any nature whatsoever. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. 3 4 11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional Rent and in accordance with paragraph 4 D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of all utility charges such as water, gas, electricity, telephone, telex and other electronic communications service, sewer service, waste-pick-up and any other utilities, materials or services furnished directly to the building in which the Premises are located, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Provided that Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this Lease to be performed or observed by it, Landlord shall furnish to the Premises between the hours of 8:00AM and 6:00PM, Mondays through Fridays (holidays excepted) and subject to the rules and regulations of the Complex hereinbefore referred to, reasonable quantities of water, gas and electricity suitable for the intended use of the Premises and heat and airconditioning required in Landlord's judgment for the comfortable use and occupation of the Premises for such purposes. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the building heating, ventilating and airconditioning systems. Whenever heat generating machines, equipment, or any other devices (including exhaust fans) are used in the Premises by Tenant which affect the temperature or otherwise maintained by the airconditioning system, Landlord shall have the right to install supplementary airconditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operations and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation), electronic data processing machines or machines using current in excess of 110 Volts which will in any way increase the amount of electricity, gas, water or airconditioning usually furnished or supplied to premises being used as general office space, or connect with electric current (except through existing electrical outlets in the Premises), or with gas or water pipes any apparatus or device for the purposes of using electric current, gas, or water. If Tenant shall require water, gas, or electric current in excess of that usually furnished or supplied to premises being used as general office space, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas, or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for such excess water, gas and electric current consumed (as shown by such meters and at the rates then charged by the furnishing public utility); and any additional expense incurred by Landlord in keeping account of electric current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. 12. TAXES A. As Additional Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real Property Taxes, which prorata share shall be allocated to the leased Premises by square footage or other equitable basis, as calculated by Landlord. The term "Real Property Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Complex) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Complex (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein; any improvements located within the Complex regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Complex; or parking areas, public utilities, or energy within the Complex; (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Complex; and (iii) all costs and fees (including attorneys' fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Complex prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex, on Landlord's business of leasing the Complex, or computed in any manner with respect to the operation of the Complex, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Complex, then only that part of such Real Property Tax that is fairly allocable to the Complex shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. B. Taxes on Tenant's Property (a) Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures place by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amount so recovered shall belong to Tenant. (b) if the Tenant improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the real property taxes and assessments levied against Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of 12Ba, above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant improvements are assessed at a higher valuation than standard office improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used. 13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with a combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for injuries to or death of persons occurring in, on or about the Premises of the Complex, and property damage. The policy or policies affecting such insurance, certificates of insurance of which shall be furnished to Landlord, shall name Landlord as additional insureds, and shall insure any liability of Landlord, contingent or otherwise, as respects act or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder; shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days' prior written notice to Landlord. If, during the term of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this paragraph 13 is not adequate, Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate. 14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. Tenant shall also maintain a policy of workman's compensation insurance ant any other employee benefit insurance sufficient to comply with all laws. 15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the deductibles on insurance claims and the cost of policy or policies of insurance covering loss or damage to the Premises and Complex in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex. Landlord and Tenant do each hereby respectively release the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies, irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. 4 5 16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex but excluding, however, the willful misconduct or negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to persons or damage to property to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees, or contractors, Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys' fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, or for about the Premises, or any part thereof, from any cause whatsoever. 17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This paragraph shall not be interpreted as requiring Tenant to make structural changes or improvements, except to the extent such changes or improvements are required as a result of Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises. 18. LIENS Tenant shall keep the Premises and the Complex free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment, transfer, or subletting, Landlord shall require Tenant to pay to Landlord, as Additional Rent, all rents and/or additional consideration due Tenant from its assignees, transferees, or subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the assigned, transferred, and/or subleased space. Tenant shall, by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate; however, in the event Tenant's request to assign is related to a merger and/or acquisition and Landlord elects to terminate, Tenant shall have the right to rescind its request to assign, provided Tenant so notifies Landlord in writing within five (5) days following Landlord's notice to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptance sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 19. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written consent of Landlord, no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by other person shall not release Tenant from any of Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord shall require Tenant to apply all expenses in connection with the assignment, and Landlord shall require Tenant's assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. Notwithstanding the above, in no event will Landlord consent to a sub-sublease. 20. SUBORDINATION AND MORTGAGES In the event Landlord's title of leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender" ) to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination, Tenant's possession under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder; to submit the Premises to prospective purchasers, mortgagees or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Complex, all without abatement of rent; and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed; provided, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. For each of the foregoing purposes, any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Complex and to change the name, number or designation by which the Complex is commonly known, and none of the foregoing shall be deemed and actual or constructive eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder. 22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation make under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default in the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (a). The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select a third licensed real estate 5 6 broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of the Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b). The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession; acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c). The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d). To the extent permitted by law the right and power, to enter the Premises and remove therefrom all persons and property, and to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the cost of such subletting, including, but not limited to reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as rent for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder. Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. For all purposes set forth in this subparagraph (d). No taking possession of the Premises by Landlord, shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e). The right to have a receiver appointed for Tenant upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d. above. 23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease and if Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 24. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental damage and destruction caused from vandalism and accidents for which Tenant is responsible for under Paragraph 10. Landlord may, at its option: (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease (providing that the Premises is damaged to the extent of 33 1/3% of the replacement cost). If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code. In the event that the building in which the Premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. Notwithstanding anything to the contrary herein, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds are insufficient to cover 100% of the rebuilding costs net of the deductible. 25. EMINENT DOMAIN If all or any part of the Premises shall be taken by an public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant. If (i) any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, or (ii) any of the foregoing events occur with respect to the taking of any space in the Complex not leased hereby, or if any such spaces so taken or conveyed in lieu of such taking and Landlord shall decide to discontinue the use and operation of the Complex, or decide to demolish, alter or rebuild the Complex, then, in any of such events Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof with sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment of Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. 26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the Complex or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Complex and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. 27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale, Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender to Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other items, conditions and covenants herein contained. 28. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term. 6 7 29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord: that there are no uncured defaults in Landlord's performance, and that not more than one month's rent has been paid in advance. 30. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes, or any changes in plans for any other portions of the Complex shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder and such failure shall continue for five (5) days after written notice by Landlord, or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for thirty (30) days after written notice thereof by Landlord, Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obligated to, make any such payment or perform any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment or performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 32. ATTORNEYS' FEES. (A) In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgement. (B) Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 33. WAIVER The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 34. NOTICES All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advices or designation by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises or if sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices demands, requests, advices or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. 35. EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by-laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (i) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (ii) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (iii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (iv) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (v) no judgment will be taken against any partner of Landlord; (vi) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing; (vii) no writ of execution will ever be levied against the assets of any partner of Landlord; (viii) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. 7 8 40. MISCELLANEOUS AND GENERAL PROVISIONS a. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. b. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. c. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. d. Time is of the essence of this Lease and of each and all of its provisions. e. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. f. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. g. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. h. Tenant further agrees to execute any amendments required by a lender to enable Landlord to obtain financing, so long as Tenant's rights hereunder are not substantially affected. i. Paragraphs 43 through 56 are added hereto and are included as a part of this lease. j. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. k. Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 41. BROKERS Tenant warrants that it had dealings with only the following real estate brokers or agents in connection with the negotiation of this Lease: none - -------------------------------------------------------------------------------- and that it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 42. SIGNS No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease, Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S TRUST NEOFORMA, INC. a California corporation By /s/ JOHN ARRILLAGA By /s/ JEFFREY H. KLECK -------------------------------- -------------------------------------- John Arrillaga, Trustee Date: 8/12/98 Title: CEO ----------------------------- ---------------------------------- RICHARD T. PEERY SEPARATE PROPERTY Type or Print Name Jeffrey H. Kleck TRUST ---------------------- Date: August 7, 1998 ----------------------------------- By /s/ RICHARD T. PEERY -------------------------------- Richard T. Peery, Trustee Date: 8/11/98 ----------------------------- 8 9 Paragraphs 43 through 56 to Lease Agreement dated July 30, 1998, By and Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate Property Trust, as Landlord, and NEOFORMA, INC., a California corporation, as Tenant for 10,878 +/- Square Feet of Space Located at 3255-6 Scott Blvd., Suite 101, Santa Clara, California. 43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum of ONE MILLION SEVEN HUNDRED SIXTY TWO THOUSAND TWO HUNDRED THIRTY SIX AND NO/100 DOLLARS ($1,762,236.00), shall be payable as follows: On September 1, 1998, the sum of TWENTY SEVEN THOUSAND ONE HUNDRED NINETY FIVE AND NO/100 DOLLARS ($27,195.00), shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 1999. On September 1, 1999 the sum of TWENTY EIGHT THOUSAND TWO HUNDRED EIGHTY TWO AND 80/100 DOLLARS ($28,282.80) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2000. On September 1, 2000, the sum of TWENTY NINE THOUSAND THREE HUNDRED SEVENTY AND 60/100 DOLLARS ($29,370.60) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2001. On September 1, 2001, the sum of THIRTY THOUSAND FOUR HUNDRED FIFTY EIGHT AND 40/100 DOLLARS ($30,458.40) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2002. On September 1, 2002, the sum of THIRTY ONE THOUSAND FIVE HUNDRED FORTY SIX AND 20/100 DOLLARS ($31,546.20) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2003; or until the entire aggregate sum of ONE MILLION SEVEN HUNDRED SIXTY TWO THOUSAND TWO HUNDRED THIRTY SIX AND NO/100 DOLLARS ($1,762,236.00) has been paid. 44. "AS-IS" BASIS: Landlord shall, at its sole cost and expense, prior to the Lease Commencement Date, construct certain interior improvements in the Premises as shown in Yellow and Blue on Exhibit B and as detailed on Exhibit B-1 (the "Tenant Improvements"). Subject only to Paragraph 55 ("Compliance") and to Landlord constructing the Tenant Improvements, it is hereby agreed that the Premises leased hereunder is leased strictly on an "as-is" basis and in its present condition, and in the configuration as shown on Exhibit B attached hereto, and by reference made a part hereof. Except as noted herein, it is specifically agreed between the parties that after Landlord constructs the Tenant Improvements as shown on Exhibit B, Landlord shall not be required to make, nor be responsible for any cost, in connection with any repair, restoration, and/or improvement to the Premises in order for this Lease to commence, or thereafter, throughout the Term of this Lease. Notwithstanding anything to the contrary within this Lease, Landlord makes no warranty or representation of any kind or nature whatsoever as to the condition or repair of the Premises, nor as to the use or occupancy which may be made thereof. In addition to and notwithstanding anything to the contrary in Paragraphs 8 and this Paragraph 44 of this Lease, Tenant shall have thirty (30) days after the Commencement Date to provide Landlord with a written "punch list" pertaining to defects in the interior improvements constructed by Landlord for Tenant. As soon as reasonably possible thereafter, Landlord, or one of Landlord's representatives (if so approved by Landlord), and Tenant shall conduct a joint walk-through of the Premises (if Landlord so requires), and inspect such Tenant Improvements, using their best efforts to agree on the incomplete or defective construction related to the Tenant Improvements installed for Tenant by Landlord. After such inspection has been completed, Landlord shall prepare, and both parties shall sign, a list of all "punch list" items which the parties reasonably agree are (i) to be corrected by Landlord (but which shall exclude any damage or defects caused by Tenant, its employees, agents or parties Tenant has contracted with to work on the Premises) or (ii) if said defects and/or damaged item(s) are not material, Landlord may elect, in its sole and absolute discretion, not to repair such item(s), but to acknowledge in written form the defect and/or damaged item(s); in which case, notwithstanding anything to the contrary in said Lease Paragraph 8 ("Acceptance and Surrender"), Tenant shall not be responsible upon Lease Termination to repair said item(s) so noted by Landlord. Landlord shall have thirty (30) days thereafter (or longer if necessary, provided Landlord is diligently pursuing the completion of the same) to complete, at 9 10 Landlord's expense, the "punch list" items without the Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder being affected. Notwithstanding the foregoing, a crack in the foundation, or exterior walls or any other defect in the structure or Building that does not endanger the structural integrity of the building, or which is not life-threatening, shall not be considered material, nor shall Landlord be responsible for repair of same. This Paragraph shall be of no force and effect if Tenant shall fail to give any such notice to Landlord within thirty (30) days after the Commencement Date of this Lease. 45. CONSENT: Whatever the consent of one party to the other is required hereunder, such consent shall not be unreasonably withheld. 46. CHOICE OF LAW; SEVERABILITY: This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provisions of this Lease shall be invalid, unenforceable, or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 47. AUTHORITY TO EXECUTE: The parties executing this Lease Agreement hereby warrant and represent that they are properly authorized to execute this Lease Agreement and bind the parties on behalf of whom they execute this Lease Agreement and to all of the terms, covenants and conditions of this Lease Agreement as they relate to the respective parties hereto. 48. ASSESSMENT CREDITS: The demised property herein may be subject to a special assessment levied by the City of Santa Clara as part of an Improvement District. As part of said special assessment proceedings (if any), additional bonds were or may be sold and assessments were or may be levied to provide for construction contingencies and reserve funds. Interest shall be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited. For example: if (i) the property is subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's assessment which reduces the assessment amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as Additional Rent. 49. ASSIGNMENT AND SUBLETTING (CONTINUED): A. Notwithstanding the foregoing, Landlord and Tenant agree that it shall not be unreasonable for Landlord to refuse to consent to a proposed assignment, sublease or other transfer ("Proposed Transfer") if the Premises or any other portion of the Property would become subject to additional or different Government Requirements as a direct or indirect consequence of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. However, Landlord may, in its sole discretion, consent to such a Proposed Transfer where Landlord is indemnified by Tenant and (i) Subtenant or (ii) Assignee, in form and substance satisfactory to Landlord's counsel, by Tenant and/or the Proposed Transferee from and against any and all costs, expenses, obligations and liability arising out of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. B. Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord, pursuant to the requirements of this Lease) shall contain the following language: "If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and 10 11 (2) Subtenant hereby waives any all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may by given by Section 1542 of the California Civil Code which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor. The term of this Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgment that, in determining the net benefits to be derived by Subtenant under the terms of this Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above. Initials: __________ Initials: _________" Subtenant Tenant 50. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with the respect to non-monetary defaults not involving Tenant's failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commence cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion. 51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent, (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated and maintained to the extent necessary to prevent damage to the Premises or its systems. 52. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of "Hazardous Materials" (as defined herein) on, in, under or about the Premises and real property located beneath said Premises and the common areas of the Complex (hereinafter collectively referred to as the "Property"): A. As used herein, the term "Hazardous Materials" shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated, or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental Laws" shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety. B. Tenant shall obtain Landlord's written consent, which may be withheld in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous Materials Activities (defined below); provided, however, that Landlord's consent shall not be required for normal use in compliance with applicable Environmental Laws of customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. As used herein, the term "Tenant's Hazardous Materials Activities" shall mean any and all 11 12 use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to from, at or about the Property, in connection with Tenant's use of the Property, or by Tenant or by any of Tenant's agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees. Tenant agrees that any and all Tenant's Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant's expense, and shall not result in any contamination of the Property or the environment. Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant's Hazardous Materials Activities of which Tenant becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant's findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections. C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant's Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant's Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities. D. If Landlord, in its sole discretion, believes that the Property has become contaminated as a result of Tenant's Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys' fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Notwithstanding the above, Landlord may, at its option and in its sole and absolute discretion, choose to perform remediation and obtain reimbursement for cleanup costs as set forth herein from Tenant. Any cleanup costs incurred by Landlord as the result of Tenant's Hazardous Materials Activities shall be reimbursed by Tenant within thirty (30) days of presentation of written documentation of the expense to Tenant by Landlord. Such reimbursable costs shall include, but not be limited to, any reasonable consultant and attorney fees incurred by Landlord. Tenant shall take all actions necessary to preserve any claims it has against third parties, including, but not limited to, its insurers, for claims related to its operation, management of Hazardous Materials or contamination of the Property. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord's prior written consent which may be withheld in Landlord's discretion. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence. E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, 12 13 fines, penalties, expenses, costs (including but not limited to reasonable attorneys', consultants' and other experts' fees and costs), and damages, which arise from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 52 (collectively, "Tenant's Environmental Indemnification"). Tenant's Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for loses in or reductions to rental income, and diminution in fair market value of the Property. Tenant's Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant's expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, "Response Actions"). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions. It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the expiration or termination of this Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 52. 53. ADDITIONAL RENT CONTINUED: The following items shall be excluded from "Additional Rent": A. Leasing commissions, attorney's fees, costs, disbursements, and other expenses incurred in connection with negotiations with other tenants, or disputes between Landlord and other third party tenant not related to Tenant (herein after referred to as "Third Party Tenant"), or in connection with marketing, leasing, renovating, or improving space for other current or prospective tenants or other current or prospective occupants of the Complex; notwithstanding anything to the contrary herein, any costs and expenses Landlord is entitled to be reimbursed for as stated under Paragraph 22 ("Bankruptcy and Default") are not excluded Additional Rent items as reflected in this Paragraph 53. B. The cost of any service sold to any other Third Party Tenant or other occupant whose leased premises are not part of the Premises leased herein and for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and additional rent payable under the lease agreement with said other tenant (including, without limitation, after-hours HVAC costs or over-standard electrical consumption costs incurred by other tenants). C. Any costs for which Landlord is entitled to be reimbursed by any other Third Party Tenant or other occupant whose leased premises are not part of the Premises leased herein. D. Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, provided Tenant is not responsible under the Lease for such costs, fines and/or penalties, and/or provided Tenant's actions or inactions did not cause, in whole or in part, such costs, fines and/or penalties. E. Wages, salaries, or other compensation paid to executive employees above the grade of Property Manager. F. Repairs or other work occasioned by fire, windstorm, or other insured peril, to the extent that Landlord shall receive proceeds of such insurance or would have received such proceeds had Landlord maintained the insurance coverage required under this Lease providing said insurance coverage was available and Tenant paid its share of the premium as required under the Lease and any insurance deductible(s) which Tenant is responsible for paying and provided Tenant is not responsible for the damage to the Premises. G. Except as otherwise noted in this Lease, any mortgage debt, or ground rents or any other amounts payable under any ground lease for the Property. H. Any amounts paid to any person, firm, or corporation related or otherwise affiliated with Landlord or any general partner, officer, or director of Landlord or any general partners, to the extent same exceeds arms-length competitive prices paid in the Santa Clara, California metropolitan area for the services or goods provided. 54. TAXES CONTINUED: Notwithstanding anything within Paragraph 12, (i) the amount of Real Property Taxes payable by Tenant hereunder shall be prorated to reflect the dates of Lease Commencement 13 14 and Lease Termination, and (ii) it is agreed that if any special assessments for capital improvements are assessed, and if Landlord has the option to either pay the entire assessment in cash or go to bond, and if Landlord elects to pay the entire assessment in cash in lieu of going to bond, the entire portion of the assessment assigned to Tenant's Leased Premises will be prorated over the same period that the assessment would have been prorated had the assessment gone to bond. 55. COMPLIANCE CONTINUED: Any non-conformance of the Tenant Improvements installed and paid for by Landlord as set forth on Exhibit B, required to be corrected by the governing agency, shall be corrected at the cost and expense of Landlord if such non-conformance exists as of the Commencement Date of the Lease and further provided that such governing agency's requirement and notice to Landlord to correct the non-conformance is not initiated as a result of: (i) Tenant's particular use of the Premises; (ii) any future improvements made by or for Tenant; or (iii) any permit request made to a governing agency by or for Tenant. Any non-conformance of the Premises occurring after the Commencement Date of this Lease Agreement shall be the responsibility of Tenant to correct at Tenant's cost and expense. 56. NOTICES: Any notice required under the Lease that is sent by mail shall be deemed received, if properly addressed, no later than five (5) business days after any such notice is stamped by the U.S. Post Office as deposited in the United States mail certified, postage prepaid, return receipt requested. 14 15 EXHIBIT A TO EXHIBIT 10.22 [SITE PLAN] PARK SQUARE - PHASE 1 3255 SCOTT BLVD. BUILDINGS 1-7 SANTA CLARA, CALIFORNIA 95054 PSI-6 15 16 EXHIBIT B TO EXHIBIT 10.22 [FIRST FLOOR PLAN] PARK SQUARE - PHASE 1 3255-6 SCOTT BLVD. BUILDING 6 SANTA CLARA, CALIFORNIA 95054 PSI-6 16 17 EXHIBIT B-1 TO EXHIBIT 10.22 EXHIBIT B-1 TENANT IMPROVEMENTS TO BE PROVIDED BY LANDLORD 1) Demolition of (i) all interior walls and doors and (ii) the roll-up exterior door as shown in Blue on Exhibit B. 2) Construction of (i) all interior walls and doors and (ii) exterior glass as shown in Yellow on Exhibit B. All offices and conference rooms within the Premises shall have full height glass facing the interior with the exception of the server and storage rooms. Walls between perimeter offices shall be centered on the window mullions. 3) The new office of the southwest corner of the building shall have fully height glass facing the exterior similar to the southeast corner office (shown in Yellow on Exhibit B). 4) The west exterior wall shall be of full height glass to the extent allowed by existing utilities. 5) All paintable surfaces shall be freshly painted with Landlord's standard white paint. 6) All discolored, damaged and/or non-conforming ceiling tiles shall be replaced. 7) A floor to ceiling closet with a small access door shall be constructed around the phone/trunk line embedded in the floor. 8) The electrical outlets and wiring shall be flush with the walls and contained within the partition walls wherever possible. Existing electrical outlets along the exterior windows shall be removed. 9) The outside of the building shall be cleaned. 10) The air-conditioning system shall be serviced prior to Lease Commencement and maintained by Landlord as provided in Lease Paragraph 7 ("Expenses of Operation, Management and Maintenance of the Common Areas of the Complex and Building in Which the Premises are Located). 11) The lighting fixtures in the ceiling shall be coordinated with Tenant's cubicle layout. 17 EX-10.23 26 AMENDMENT NO. 1 DATED MARCH 1, 1999 1 EXHIBIT 10.23 AMENDMENT NO. 1 TO LEASE THIS AMENDMENT NO. 1 is made and entered into this 1st day of March, 1999, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) )(previously known as the "John Arrillaga Separate Property Trust") as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA date 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and NEOFORMA, INC., a Delaware corporation, as TENANT. RECITALS A. WHEREAS, by Lease Agreement dated July 30, 1998 Landlord leased to Tenant approximately 10,878+ square feet of that certain 22,500+ square foot building located at 3255-6 Scott Blvd., Suite 101, Santa Clara, California, the details of which are more particularly set forth in said July 30, 1998 Lease Agreement, and B. WHEREAS, said Lease was amended by the Commencement Letter dated September 15, 1998 which confirmed the September 1, 1998 Lease Commencement Date and the August 31, 2003 Lease Termination Date, and, C. WHEREAS, it is now the desire of the parties hereto to amend the Lease by terminating said Lease effective April 30, 1999 and amending the Aggregate Rent of said Lease Agreement as hereinafter set forth. AGREEMENT NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows: 1. TERMINATION OF LEASE: Subject to Paragraph 2 below, Landlord has agreed to the early termination of said Lease Agreement effective April 30, 1999, subject to the terms and conditions stated herein. Tenant shall be responsible for relinquishing the Premises in the condition required under Lease Paragraph 8 ("Acceptance and Surrender of Premises") and Lease Paragraph 9 ("Alterations and Additions") with the exception that Tenant shall not be responsible for removing any alterations made to the Premises which were officially consented to by Landlord. Prior to Lease Termination, Landlord and Tenant shall conduct a joint inspection of the Premises to determine the extent of the work required by Tenant to comply with the provisions of said Paragraphs 8 and 9 ("Restoration Work"). In lieu of Tenant completing the required Restoration Work, Tenant agrees to pay to Landlord a fee equal to the total of the estimates received from Landlord's contractors for the Restoration Work ("Restoration Fee"). Said Restoration Fee shall be paid by Tenant to Landlord within ten days after Tenant receives Landlord's statement of said Restoration Fee. Tenant shall be responsible for paying all Basic Rent and Additional Rent and fulfilling all Lease obligations as contained in said Lease through the date of termination. Notwithstanding the above, Tenant's obligations as stated in Lease Paragraphs ("Compliance") and ("Hazardous Materials") shall survive the Termination Date of this Lease. 2. EARLY TERMINATION OF LEASE CONTINGENT UPON LANDLORD OBTAINING AN AGREEMENT WITH TENANT TO LEASE OTHER PREMISES: Landlord's agreement to allow the early termination of Tenant's Lease is subject to and conditional upon Landlord obtaining an executed agreement from Tenant to lease space located at 3255-7 Scott Blvd., Santa Clara, California (the "New Premises Lease") commencing the day following the early Termination Date of Tenant's Lease. In the event Landlord is unable to obtain the executed New Premises Lease with Tenant on or before April 30, 1999 and/or in the event said New Premises Lease does not commence on May 1, 1999, the Termination Date of this Lease shall be modified to reflect the date Landlord so obtains the executed New Premises Lease and said lease commences. In the event the Landlord does not obtain the executed New Premises Lease from Tenant, this Lease shall continue in full force and effect through the scheduled Lease Termination Date of August 31, 2003 and this Amendment No. 1 shall be automatically rescinded. In no event, shall Tenant's termination date exceed the original Termination Date of August 31, 2003 (provided Tenant fully 1 2 complies with the terms and conditions in Paragraph 8, "Acceptance and Surrender of Premises", of the Lease Agreement). 3. AGGREGATE RENT: The Aggregate Basic Rent for the Lease shall be decreased by $1,544,676.00 or from $1,762,236.00 to $217,560.00. EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said July 30, 1998 Lease Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year last written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S TRUST NEOFORMA, INC. a Delaware corporation By /s/ JOHN ARRILLAGA By /s/ JEFFREY H. KLECK -------------------------------- ----------------------------------- John Arrillaga, Trustee Jeffrey H. Kleck Date: 3/25/99 ------------------------------------- ---------------------------- Print or Type Name RICHARD T. PEERY SEPARATE Title: CEO PROPERTY TRUST ------------------------------- By /s/ RICHARD T. PEERY Date: 4/14/99 -------------------------------- -------------------------------- Richard T. Peery, Trustee Date: 3/26/99 ----------------------------- 2 EX-10.24 27 LEASE AGREEMENT DATED MARCH 1, 1999 1 EXHIBIT 10.24 LEASE AGREEMENT BLDG: PSI-7 OWNER: EOC PROP: 317 UNIT: 101 TENANT: 31709 THIS LEASE, made this 1st day of March, 1999 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord, and NEOFORMA, INC., a Delaware corporation, hereinafter called Tenant. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A" attached hereto and incorporated herein by this reference thereto more particularly described as follows: All of that certain 22,500 (plus or minus) square foot, one-story building located at 3255-7 Scott Blvd., Santa Clara, California 95054. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto. The entire parcel, of which the Premises is a part, is shown within the area outlined in Green on Exhibit A attached. The Premises shall be improved by Landlord as shown on Exhibit B attached hereto, and is leased on an "as-is" basis, in its present condition, and in the configuration as shown in Red on Exhibit B attached hereto. As used herein the Complex shall mean and include all of the land outlined in Green and described in Exhibit "A", attached hereto, and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances and for no other purpose. Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering any insurance covering the Complex or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex which will in any way obstruct or interfere with the rights of other tenants or occupants of the Complex or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon the floors, walls, or ceiling, which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of common area of the Complex. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, attorneys' fees, or liability arising out of failure of Tenant to comply with any applicable law. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Complex. 2. TERM * A. The term of this Lease shall be for a period of FIVE (5) years (unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2(B) and 3, shall commence on the 1st day of May, 1999 and end on the 30th day April of 2004. B. Possession of the Premises shall be deemed tendered and the term of this Lease shall commence when the first of the following occurs: (a) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue certificates of occupancy, then the same number of days after certification by Landlord's architect or contractor that Landlord's construction work has been completed; or (b) Upon the occupancy of the Premises by any of Tenant's operating personnel; or (c) When the Tenant Improvements have been substantially completed for Tenant's use and occupancy, in accordance and compliance with Exhibit B of this Lease Agreement; or (d) As otherwise agreed in writing. 3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby, nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2(b), above. The above is, however, subject to the provision that the period of delay of delivery of the premises shall not exceed 30 days from the commencement date herein (except those delays caused by Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. * It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent scheduled for the projected commencement date as shown in Paragraph 43. 1 2 4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of THREE MILLION SIX HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED FIFTY AND NO/100 ($3,678,750.00) Dollars in lawful money of the United States of America, payable as follows: B. Time for Payment. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of the said last calendar month and the last day of the term hereof bears to thirty (30). C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten (10%) percent of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as Additional Rent the following: (a) Tenant's proportionate share of all Taxes relating to the Complex as set forth in Paragraph 12, and (b) Tenant's proportionate share of all insurance premiums relating to the Complex, as set forth in Paragraph 15, and (c) Tenants proportionate share of expenses for the operation, management, maintenance and repair of the Building (including common areas of the Building) and Common Areas of the Complex in which the Premises as located as set forth in Paragraph 7, and (d) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including attorney's fees and legal expenses, that may accrue thereto in the event of Tenant's failure to pay such amounts, and all damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of the end of each calendar year or more frequently if Landlord so elects to do so at Landlord's sole and absolute discretion, as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord crediting to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. Within thirty (30) days after receipt of Landlord's reconciliation, Tenant shall have the right, at Tenant's sole expense, to audit, at a mutually convenient time at Landlord's office, Landlord's records relating to the foregoing expenses. Such audit must be conducted by Tenant or an independent nationally recognized accounting firm that is not being compensated by Tenant or other third party on a contingency fee basis. Landlord shall be provided a complete copy of said audit at no expense to Landlord. If such audit reveals that Landlord has overcharged Tenant and the audit is not challenged by Landlord, the amount overcharged shall be credited to Tenant's account within thirty (30) days after the audit is concluded. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365. E. Fixed Management Fee. Beginning with the Commencement Date of the Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee equal to 2% of the Basic Rent due for each month during the Lease Term ("Management Fee"). F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San Francisco, CA 94160 or to such other person or to such other place as Landlord may from time to time designate in writing. G. Security Deposit. Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of ONE HUNDRED THIRTY FIVE THOUSAND AND NO/100 ($135,000.00) Dollars. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) at the expiration of the Lease term and after Tenant has vacated the Premises, in the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. 5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and conditions of this Lease and such Rules and Regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Complex in which the Premises are located, and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex in which the Premises are located, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interests of the occupants of the Complex. The Rules and Regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such Rules and Regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenants for the non-performance by any other tenant or occupant of the Complex of any of said Rules and Regulations. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord. 2 3 6. PARKING. Tenant shall have the right to use with other tenants or occupants of the Complex 67 parking spaces in the executive parking area of the Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use parking spaces in excess of said 67 spaces allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion, to specifically designate the location of Tenant's parking spaces within the common parking areas of the Complex in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenant's use. Said parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time, and from time to time, Landlord reserves the right, at Landlord's sole discretion, to rescind any specific designation of parking spaces, thereby returning Tenant's parking spaces to the common parking area. Landlord shall give Tenant written notice of any change in Tenant's parking spaces. Tenant shall not, at any time, park, or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park, or permit the parking of Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or others, in any portion of the common area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common parking area or other common areas of the Complex. Tenant agrees to assume responsibility for compliance by its employees with the parking provision contained herein. If Tenant or its employees park in other than such designated parking areas, then Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for each day or partial day each such vehicle is parked in any area other than that designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow away from the Complex any vehicle belonging to Tenant or Tenant's employees parked in violation of these provisions, or to attach violation stickers or notices to such vehicles. Tenant shall use the parking areas for vehicle parking only, and shall not use the parking areas for storage. 7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX. As Additional Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, parking lots and paved areas (including repairs, replacement, resealing and restriping), sidewalks, driveways; maintenance, repair and replacement of all fixtures and electrical, mechanical, and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. "Additional Rent" as used herein shall not include Landlord's debt repayments; interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries. 8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition of such building or as to the use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted, or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and heating equipment serviced by a reputable and licensed service firm and in good operating condition (provided the maintenance of such equipment has been Tenant's responsibility during the term of this Lease) together with all alterations, additions, and improvements which may have been made in, to, or on the Premises (except movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. 9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant, but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall retain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Complex for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. 10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, all windows, window frames, plate glass, glazing, truck doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), electrical systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and air-conditioning systems (such as compressors, fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and return grills), store fronts, roofs, downspouts, all interior improvements within the premises including but not limited to wall coverings, window coverings, carpet, floor coverings, partitioning, ceilings, doors (both interior and exterior, including closing mechanisms, latches, locks, skylights (if any), automatic fire extinguishing systems, and elevators and all other interior improvements of any nature whatsoever. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. Tenant hereby waives all rights under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. 11. UTILITIES. Tenant shall pay promptly, as the same become due, all charges for water, gas, electricity, telephone, telex and other electronic communications service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the term of this Lease, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. 12. TAXES. A. As Additional Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real Property Taxes, which prorata share shall be allocated to the leased Premises by square footage or other equitable basis, as calculated by Landlord. The term "Real Property Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including in installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by 3 4 any change in ownership of the Complex) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the ??? power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Complex as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein, any improvements located within the Complex (regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Complex; or parking areas, public utilities, or energy within the Complex; (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Complex, and (iii) all costs and fees (including attorneys' fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Complex prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex on Landlord's business of leasing the Complex, or computed in any manner with respect to the operation of the Complex, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Complex, then only that part of such real Property Tax that is fairly allocable to the Complex shall be included within the meaning of the item "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. B. Taxation Tenant's Property (a) Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant. Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amount so recovered shall belong to Tenant. (b) if the Tenant improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the real property taxes and assessments levied against Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of 12Ba, above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant improvements are assessed at a higher valuation than standard office improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used. 13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with a combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for injuries to or death of persons occurring in, on or about the Premises or the Complex, and property damage insurance with limits of $500,000. The policy or policies affecting such insurance, certificates of insurance of which shall be furnished to Landlord, shall name Landlord as additional insureds, and shall insure any liability of Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder; shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days' prior to written notice to Landlord. If during the term of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this paragraph 13 is not adequate. Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate. 14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement ensuring the personal property, inventory, trade fixtures, and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. Tenant shall also maintain a policy or policies of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws. 15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as Additional Rent and in accordance with Paragraph 4D of this Lease. Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the deductibles on insurance claims and the cost of policy or policies of insurance covering loss or damage to the Premises and Complex in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as Additional Rent and any deductibles related thereto. If such insurance cost is increased due to Tenant's use of the Premises or the Complex. Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex. Landlord and Tenant do each hereby respectively release the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies, irrespective of the cause of such fire or casualty; provided, however, that the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. 16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex but excluding, however, the willful misconduct or negligence of Landlord its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to persons or damage to property to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees, or contractors. Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorney's fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever. 17. COMPLIANCE Tenant, at its sole cost and expense shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This paragraph shall not be interpreted as requiring Tenant to make structural changes or improvements, except to the extent such changes or improvements are required as a result of Tenant's use of the Premises. Tenant shall at its sole cost and expense, comply with any and all requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises. 18. LIENS Tenant shall keep the Premises and the Complex free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 4 5 19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest herein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or allow any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment, transfer, or subletting, Landlord shall require Tenant to pay Landlord, as Additional Rent, all rents and/or additional consideration due Tenant from its assignees, transferees, or subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the assigned, transferred and/or subleased space. Tenant shall, by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptable sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 19. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written consent of Landlord, no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any of Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The Leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord shall require Tenant to pay all expenses in connection with the assignment, and Landlord shall require Tenant's assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. Notwithstanding the above, in no event will Landlord consent to a sub-sublease. 20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination, Tenant's possession under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder; to submit the Premises to prospective purchasers, mortgagers or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Complex, all without abatement of rent; and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed; provided, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Complex and to change the name, number or designation by which the Complex is commonly known, and none of the foregoing shall be deemed an actual or constructive eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder. 22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord, in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default in the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease; provided, however, that if the nature of Tenant's failure is such that more than thirty (30) days is reasonably required to cure the same, Tenant shall not be in default so long as Tenant commences performance within such thirty (30) day period and thereafter prosecutes the same to completion. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (a). The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner. Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select a third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b). The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession; acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c). The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d). To the extent permitted by law the right and power to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law, Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations, and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the cost of such subletting, including, but not limited to, reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as rent for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s) or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such 5 6 intention be given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e) The right to have a receiver appointed for Tenant upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord (except that Tenant may vacate so long as it pays rent, provides an on-site security guard during normal business hours from Monday through Friday, and otherwise performs its obligations hereunder) pursuant to subparagraph d above. 23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease and if Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 24. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental damage and destruction caused from vandalism and accidents for which Tenant is responsible for under Paragraph 10. Landlord may, at its option: (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease. (providing that the Premises is damaged to the extent of 33 1/3% of the replacement cost) If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code. In the event that the building in which the premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. Notwithstanding anything to the contrary herein, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds are insufficient to cover one hundred percent of the rebuilding costs net of the deductible. 25. EMINENT DOMAIN If all or any part of the Premises shall be taken by an public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant. If (i) any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, or (ii) any of the foregoing events occur with respect to the taking of any space in the Complex not leased hereby, or if any such spaces so taken or conveyed in lieu of such taking and Landlord shall decide to discontinue the use and operation of the Complex, or decide to demolish, alter or rebuild the Complex, then, in any of such events Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof with sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment of Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. 26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the Complex or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Complex and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. 27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale. Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender to Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other items, conditions and covenants herein contained. 28. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term. 29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10) days' prior written notice to Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord; that there are no uncured defaults in Landlord's performance, and that not more than one month's rent has been paid in advance. 30. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes, or any changes in plans for any other portions of the Complex shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder and such failure shall continue for five (5) days after written notice thereof by Landlord, or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for thirty (30) days after written notice thereof by Landlord. Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obligated to, make any such payment or perform 6 7 any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment or performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 32. ATTORNEYS' FEES (A) In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgement. (B) Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 33. WAIVER The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 34. NOTICES All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advices or designations by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises or if sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices, demands, requests, advices or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College Blvd., #101, Santa Clara, CA 95054. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. 35. EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by-laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 38. 39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (i) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (ii) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (iii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (iv) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (v) no judgment will be taken against any partner of Landlord; (vi) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing; (vii) no writ of execution will ever be levied against the assets of any partner of Landlord; (viii) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. 40. MISCELLANEOUS AND GENERAL PROVISIONS a. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. b. This Lease shall in all respects by governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. c. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. d. Time is of the essence of this Lease and of each and all of its provisions. 7 8 e. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after [illegible] Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to [illegible] or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. f. This instrument along with any exhibits and attachments, hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and any agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. g. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. h. Tenant further agrees to execute any amendments required by a lender to enable Landlord to obtain financing, so long as Tenant's rights hereunder are not substantially affected. i. Paragraphs 43 through 57 are added hereto and are included as a part of this lease. j. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. k. Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 41. BROKERS Tenant warrants that it had dealings with only the following real estate brokers or agents in connection with the negotiation of this Lease: none and that it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 42. SIGNS No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease. Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. IN WITNESS WHEREOF. Landlord and Tenant have executed and delivered this Lease as of the day and year last written below. LANDLORD: TENANT JOHN ARRILLAGA SURVIVOR'S TRUST NEOFORMA, INC. a Delaware corporation By /s/ JOHN ARRILLAGA By /s/ JEFFREY H. KLECK ------------------------------- ---------------------------- John Arrillaga, Trustee Jeffrey H. Kleck, CEO Date: 3/20/99 Date: 3/19/99 ---------------------------- ------------------------- RICHARD T. PEERY SEPARATE PROPERTY TRUST By /s/ RICHARD T. PEERY ------------------------------- Richard T. Peery, Trustee Date: 3/26/99 ---------------------------- 8 9 Paragraphs 43 through 57 to Lease Agreement dated March 1, 1999, By and Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate Property Trust, as Landlord, and NEOFORMA, INC., a Delaware corporation, as Tenant for 22,500 +/- Square Feet of Space Located at 3255-7 Scott Blvd., Santa Clara, California. 43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum of THREE MILLION SIX HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($3,678,750.00), shall be payable as follows: On May 1, 1999, the sum of FORTY TWO THOUSAND ONE HUNDRED EIGHTY SEVEN AND 50/100 DOLLARS ($42,187.50) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 1999. On September 1, 1999, the sum of FIFTY EIGHT THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($58,500.00) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2000. On September 1, 2000, the sum of SIXTY THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($60,750.00) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2001. On September 1, 2001, the sum of SIXTY THREE THOUSAND AND NO/100 DOLLARS ($63,000.00) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 2002. On September 1, 2002, the sum of SIXTY FIVE THOUSAND TWO HUNDRED FIFTY AND NO/100 DOLLARS ($65,250.00) shall be due, and a like sum due on the first day of each month thereafter, through and including August 1, 200?. On September 1, 2003, the sum of SIXTY SEVEN THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($67,500.00) shall be due, and a like sum due on the first day of each month thereafter, through and including April 1, 2004; or until the entire aggregate sum of THREE MILLION SIX HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($3,678,750.00) has been paid. 44. "AS-IS" BASIS: Subject only to Paragraph 55 ("Compliance") and to Landlord constructing the improvements shown on Exhibit B attached hereto, it is hereby agreed that the Premises leased hereunder is leased strictly on an "as-is" basis and in its present condition, and in the configuration as shown on Exhibit B attached hereto, and by reference made a part hereof. Except as noted herein, it is specifically agreed between the parties that after Landlord constructs the interior improvements as shown on Exhibit B, Landlord shall not be required to make, nor be responsible for any cost, in connection with any repair, restoration, and/or improvement to the Premises in order for this Lease to commence, or thereafter, throughout the Term of this Lease. Notwithstanding anything to the contrary within this Lease, Landlord makes no warranty or representation of any kind or nature whatsoever as to the condition or repair of the Premises, nor as to the use or occupancy which may be made thereof. In addition to and notwithstanding anything to the contrary in Paragraphs 8 and this Paragraph 44 of this Lease, Tenant shall have thirty (30) days after the Commencement Date to provide Landlord with a written "punch list" pertaining to defects in the interior improvements constructed by Landlord for Tenant. As soon as reasonably possible thereafter, Landlord, or one of Landlord's representatives (if so approved by Landlord), and Tenant shall conduct a joint walk-through of the Premises (if Landlord so requires), and inspect such Tenant Improvements, using their best efforts to agree on the incomplete or defective construction related to the Tenant Improvements installed for Tenant by Landlord. After such inspection has been completed, Landlord shall prepare, and both parties shall sign, a list of all "punch list" items which the parties reasonably agree are (i) to be corrected by Landlord (but which shall exclude any damage or defects caused by Tenant, its employees, agents or parties Tenant has contracted with to work on the Premises) or (ii) if said defects and/or damaged item(s) are not material, Landlord may elect, in its sole and absolute discretion, not to repair such item(s), but to acknowledge in written form the defect and/or damaged item(s); in which case, notwithstanding anything to the contrary in said Lease Paragraph 8 ("Acceptance and Surrender"), Tenant shall not be responsible upon Lease Termination to repair said item(s) so noted by Landlord, Landlord shall have thirty (30) days thereafter (or longer if necessary, provided Landlord is diligently pursuing the completion of the same) to complete, at Landlord's expense, the "punch list" items 9 10 without the Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder being affected. Notwithstanding the foregoing, a crack in the foundation, or exterior walls or any other defect in the structure or Building that does not endanger the structural integrity of the building, or which is not life-threatening, shall not be considered material, nor shall Landlord be responsible for repair of same. This Paragraph shall be of no force and effect if Tenant shall fail to give any such notice to Landlord within thirty (30) days of the Commencement Date of this Lease. 45. CONSENT: Whenever the consent of one party to the other is required hereunder, such consent shall not be unreasonably withheld. 46. CHOICE OF LAW; SEVERABILITY: This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provisions of this Lease shall be invalid, unenforceable, or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 47. AUTHORITY TO EXECUTE: The parties executing this Lease Agreement hereby warrant and represent that they are properly authorized to execute this Lease Agreement and bind the parties on behalf of whom they execute this Lease Agreement and to all of the terms, covenants and conditions of this Lease Agreement as they relate to the respective parties hereto. 48. ASSESSMENT CREDITS: The demised property herein may be subject to a special assessment levied by the City of as part of an Improvement District. As a part of said special assessment proceedings (if any), additional bonds were or may be sold and assessments were or may be levied to provide for construction contingencies and reserve funds. Interest shall be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited. For example: if (i) the property is subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's assessment which reduces the assessment amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as Additional Rent. 49. ASSIGNMENT AND SUBLETTING (CONTINUED): A. Notwithstanding the foregoing, Landlord and Tenant agree that it shall not be unreasonable for Landlord to refuse to consent to a proposed assignment, sublease or other transfer ("Proposed Transfer") if the Premises or any other portion of the Property would become subject to additional or different Government Requirements as a direct or indirect consequence of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. However, Landlord may, in its sole discretion, consent to such a Proposed Transfer where Landlord is indemnified by Tenant and (i) Subtenant or (ii) Assignee, in form and substance satisfactory to Landlord's counsel, by Tenant and/or the Proposed Transferee from and against any and all costs, expenses, obligations and liability arising out of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. B. Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord, pursuant to the requirements of this Lease) shall contain the following language: "If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which 10 11 Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may be given by Section 1542 of the California Civil Code which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor. The term of this Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgment that, in determining the net benefits to be derived by Subtenant under the terms of this Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above. Initials: __________ Initials: __________" Subtenant Tenant 50. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with respect to non-monetary defaults not involving Tenant's failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion. 51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated and maintained to the extent necessary to prevent damage to the Premises or its systems. 52. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of "Hazardous Materials" (as defined herein) on, in, under or about the Premises and real property located beneath said Premises and the common areas of the Complex (hereinafter collectively referred to as the "Property"): A. As used herein, the term "Hazardous Materials" shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental Laws" shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety. B. Tenant shall obtain Landlord's written consent, which may be withheld in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous Materials Activities (defined below); provided, however, that Landlord's consent shall not be required for normal use in compliance with applicable Environmental Law of customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. As used herein, the term "Tenant's Hazardous Materials Activities" shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant's use of the Property, or by Tenant or by any of Tenant's agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees. Tenant agrees that any and all Tenant's Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant's expense, and shall not result in any 11 12 contamination of the Property or the environment. Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant's Hazardous Materials Activities of which Tenant becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant's findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections. C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant's Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant's Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities. D. If Landlord, in its sole discretion, believes that the Property has become contaminated as a result of Tenant's Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys' fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Notwithstanding the above, Landlord may, at its option and in its sole and absolute discretion, choose to perform remediation and obtain reimbursement for cleanup costs as set forth herein from Tenant. Any cleanup costs incurred by Landlord as the result of Tenant's Hazardous Materials Activities shall be reimbursed by Tenant within thirty (30) days of presentation of written documentation of the expense to Tenant by Landlord. Such reimbursable costs shall include, but not be limited to, any reasonable consultant and attorney fees incurred by Landlord. Tenant shall take all actions necessary to preserve any claims it has against third parties, including, but not limited to, its insurers, for claims related to its operation, management of Hazardous Materials or contamination of the Property. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord's prior written consent which may be withheld in Landlord's discretion. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence. E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys', consultants' and other experts' fees and costs), and damages, which arise from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph (collectively, "Tenant's Environmental indemnification"). Tenant's Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant's Environmental Indemnification shall further include but is not limited to the 12 13 obligation to diligently and properly implement to completion, at Tenant's expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, "Response Actions"). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions. It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the expiration or termination of this Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 52. 53. ADDITIONAL RENT CONTINUED: The following items shall be excluded from "Additional Rent": A. Leasing commissions, attorney's fees, costs, disbursements, and other expenses incurred in connection with negotiations with other tenants, or disputes between Landlord and other third party tenant not related to Tenant (hereinafter referred to as "Third Party Tenant"), or in connection with marketing, leasing, renovating, or improving space for other current or prospective tenants or other current or prospective occupants of the Complex; notwithstanding anything to the contrary herein, any costs and expenses Landlord is entitled to be reimbursed for as stated under Paragraph 22 ("Bankruptcy and Default") ARE NOT excluded Additional Rent items as reflected in this Paragraph 53. B. The cost of any service sold to any other Third Party Tenant or other occupant whose leased premises are not part of the Premises leased herein and for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and additional rent payable under the lease agreement with said other tenant (including, without limitation, after-hours HVAC costs or over-standard electrical consumption costs incurred by other tenants). C. Any costs for which Landlord is entitled to be reimbursed by any other Third Party Tenant or other occupant whose leased premises are not part of the Premises leased herein. D. Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, provided Tenant is not responsible under the Lease for such costs, fines and/or penalties, and/or provided Tenant's actions or inactions did not cause, in whole or in part, such costs, fines and/or penalties. E. Wages, salaries, or other compensation paid to executive employees above the grade of Property Manager. F. Repairs or other work occasioned by fire, windstorm, or other insured peril, to the extent that Landlord shall receive proceeds of such insurance or would have received such proceeds had Landlord maintained the insurance coverage required under this Lease providing said insurance coverage was available and Tenant paid its share of the premium as required under the Lease and any insurance deductible(s) which Tenant is responsible for paying and provided Tenant is not responsible for the damage to the Premises. G. Except as otherwise noted in this Lease, any mortgage debt, or ground rents or any other amounts payable under any ground lease for the Property. H. Any amounts paid to any person, firm, or corporation related or otherwise affiliated with Landlord or any general partner, officer, or director of Landlord or any general partners, to the extent same exceeds arms-length competitive prices paid in the Santa Clara, California metropolitan area for the services or goods provided. 54. TAXES CONTINUED: Notwithstanding anything within Paragraph 12, (i) the amount of Real Property Taxes payable by Tenant hereunder shall be prorated to reflect the dates of Lease Commencement and Lease Termination, and (ii) it is agreed that if any special assessments for capital improvements are assessed, and if Landlord has the option to either pay the entire assessment in cash or go to bond, and if Landlord elects to pay the entire assessment in cash in lieu of going to bond, the entire portion of the assessment assigned to Tenant's Leased Premises will be prorated over the same period that the assessment would have been prorated had the assessment gone to bond. 55. COMPLIANCE CONTINUED: Any non-conformance of the Tenant Improvements installed and paid for by Landlord as set forth on Exhibit B, required to be corrected by the governing 13 14 agency, shall be corrected at the cost and expense of Landlord if such non- conformance exists as of the Commencement Date of the Lease and further provided that such governing agency's requirement and notice to Landlord to correct the non-conformance is not initiated as a result of: (i) Tenant's particular use of the Premises; (ii) any future improvements made by or for Tenant; or (iii) any permit request made to a governing agency by or for Tenant. Any non-conformance of the Premises occurring after the Commencement Date of this Lease Agreement shall be the responsibility of Tenant to correct at Tenant's cost and expense. 56. NOTICES: Any notice required under the Lease that is sent by mail shall be deemed received, if properly addressed, no later than five (5) business days after any such notice is stamped by the U.S. Post Office as deposited in the United States mail certified, postage prepaid, return receipt requested. 57. TERMINATION OF PREVIOUS LEASE UPON COMMENCEMENT OF THIS LEASE: A. It is understood that Tenant is currently occupying approximately 10,878 square feet of space located at 3255-6 Scott Blvd., Suite 101, Santa Clara, California, leased under separate Lease Agreement dated July 30, 1998 between Landlord and Tenant ("Existing Lease"). It is therefore agreed that upon commencement of this Lease Agreement, said Lease Agreement shall terminate subject to Paragraph 57(B) herein, and this Lease Agreement shall be considered the only Lease Agreement between the parties for the Premises leased hereunder. B. Tenant, as a material consideration for the termination of said Lease dated July 30, 1998, agrees to indemnify Landlord and hold Landlord harmless from and against any and all claims or liabilities of any nature whatsoever incurred by Tenant during and arising out of (i) Tenant's tenancy, (ii) arising out of the cancellation of the Lease and surrender of the Premises, and (iii) from any and all claims or obligations owing to third parties. C. Tenant also agrees that, upon termination of said 10,878 square feet of space, Tenant shall comply with the provisions of Amendment No. 1 to the Existing Lease. 14 15 EXHIBIT A TO EXHIBIT 10.24 [SITE PLAN] 3255 SCOTT BLVD., BUILDING 1-7 SANTA CLARA, CALIFORNIA 95054 PSI-7 15 16 EXHIBIT B TO EXHIBIT 10.24 Neoforma 3255 #7 Scott Blvd. Santa Clara [FACILITY LAYOUT DIAGRAM] PSI-7 16 EX-10.25 28 LEASE AGREEMENT DATED AUGUST 16, 1999 1 EXHIBIT 10.25 BLDG: PSI-6 LEASE AGREEMENT OWNER: 500 PROP: 316 UNIT: 101 TENANT: 31610 THIS LEASE, made this 16th day of August, 1999 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord, and NEOFORMA, INC., a Delaware corporation, hereinafter called Tenant. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A", attached hereto and incorporated herein by this reference thereto more particularly described as follows: A portion of that certain 22,500(plus/minus sign) square foot, one-story building located at 3255-6 Scott Blvd., Suite 101, Santa Clara, California 95054, consisting of approximately 10,878(plus/minus sign) square feet of space. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto. The entire parcel, of which the Premises is a part, is shown within the area outlined in Green on Exhibit A attached. The Premises is leased on an "as-is" basis, in its present condition, and in the configuration as shown in Red on Exhibit B attached hereto. As used herein the Complex shall mean and include all of the land outlined in Green and described in Exhibit "A", attached hereto, and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE. Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances and for no other purpose. Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Complex or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex which will in any way obstruct of interfere with the rights of other tenants or occupants of the Complex or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon the floors, walls, or ceiling, which endanger the structure or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of common area of the Complex. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, attorneys' fees, or liability arising out of failure of Tenant to comply with any applicable law. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Complex. 2. TERM * A. The term of this Lease shall be for a period of SEVEN (7) years (unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2(B) and 3, shall commence on the 1st day of October, 1999 and end on the 30th day of September of 2006. B. Possession of the Premises shall be deemed tendered and the term of this Lease shall commence on October 1, 1999, or (d) As otherwise agreed to in writing. 3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2(b), above. The above is, however, subject to the provision that the period of delay, of delivery of the premises shall not exceed 30 days from the commencement date herein (except those delays caused by Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. * It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent scheduled for the projected commencement date as shown in Paragraph 43. 1 2 4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of TWO MILLION SIX HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY AND 80/100 ($2,649,880.80) Dollars in lawful money of the United States of America, payable as follows: SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE. B. Time for Payment. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30). C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten (10%) percent of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as Additional Rent the following: (a) Tenant's proportionate share of all Taxes relating to the Complex as set forth in Paragraph 12, and (b) Tenant's proportionate share of all insurance premiums and deductibles relating to the Complex, as set forth in Paragraph 15, and (c) Tenant's proportionate share of expenses for the operation, management, maintenance and repair of the Building (including common areas of the Building) and Common Areas of the Complex in which the Premises are located as set forth in Paragraph 7, and (d) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including attorneys' fees and legal expenses, that may accrue thereto in the event of Tenant's failure to pay such amounts, and all damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of the end of each calendar year or more frequently if Landlord so elects to do so at Landlord's sole and absolute discretion, as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord crediting to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. Within thirty (30) days after receipt of Landlord's reconciliation, Tenant shall have the right, at Tenant's sole expense, to audit, at a mutually convenient time at Landlord's office, Landlord's records relating to the foregoing expenses. Such audit must be conducted by Tenant or an independent nationally recognized accounting firm that is not being compensated by Tenant or other third party on a contingency fee basis. Landlord shall be provided a complete copy of said audit at no expense to Landlord. If such audit reveals that Landlord has overcharged Tenant and the audit is not challenged by Landlord, the amount overcharged shall be credited to Tenant's account within thirty (30) days after the audit is concluded. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365. E. Fixed Management Fee. Beginning with the Commencement Date of the Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee ("Management Fee") equal to 3% of the Basic Rent due for each month during the Lease Term. F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San Francisco, CA 94160 or to such other person or to such other place as Landlord may from time to time designate in writing. G. Security Deposit. Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of SIXTY NINE THOUSAND SIX HUNDRED NINETEEN AND 20/100 ($69,619.20) Dollars. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) at the expiration of the Lease term and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. 5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions of this Lease and such Rules and Regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Complex in which the Premises are located, and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex in which the Premises are located, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interests of the occupants of the Complex. The Rules and Regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such Rules and Regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Complex of any of said Rules and Regulations. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord. 2 3 6. PARKING Tenant shall have the right to use with other tenants or occupants of the Complex 32 parking spaces in the common parking areas of the Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use parking spaces in excess of said 32 spaces allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion, to specifically designate the location of Tenant's parking spaces within the common parking areas of the Complex in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenant's use. Said parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time, and from time to time. Landlord reserves the right, at the Landlord's sole discretion, to rescind any specific designation of parking spaces, thereby returning Tenant's parking spaces to the common parking area. Landlord shall give Tenant written notice of any change in Tenant's parking spaces. Tenant shall not, at any time, park, or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park, or permit the parking of Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or others, in any portion of the common area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common parking area or other common areas of the Complex. Tenant agrees to assume responsibility for compliance by its employees with the parking provision contained herein. If Tenant or its employees park in other than such designated parking areas, then Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for each day or partial day each such vehicle is parked in any area other than that designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow away from the Complex any vehicle belonging to Tenant or Tenant's employees parked in violation of these provisions, or to attach violation stickers or notices to such vehicles. Tenant shall use the parking areas for the vehicle parking only, and shall not use the parking areas for storage. 7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX AND BUILDINGS IN WHICH THE PREMISES ARE LOCATED. As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, parking lots and paved areas (including repairs, replacement, resealing and restriping), sidewalks; driveways; maintenance, repair and replacement of all fixtures and electrical, mechanical, and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not a rate greater than the anticipated savings in the operating expenses. "Additional Rent" as used herein shall not include Landlord's debt repayments; interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries. As additional Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of operation (including common utilities), management, maintenance, and repair of the building (including common areas such as lobbies, restrooms, janitor's closets, hallways, elevators, mechanical and telephone rooms, stairwells, entrances, spaces above the ceilings and janitorization of said common areas) in which the Premises are located. The maintenance items herein referred to include, but are not limited to, all windows, window frames, plate glass, glazing, truck doors, main plumbing systems of the building (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), main electrical systems (such as panels and conduits), heating and airconditioning systems (such as compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building common area interiors (such as wall coverings, window coverings, floor coverings, and partitioning), ceilings, building exterior doors, skylights (if any), automatic fire extinguishing systems, and elevators; license, permit and inspection fees; security; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. Tenant hereby waives all rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. 8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition os such building or as to the use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted, or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and heating equipment serviced by a reputable and licensed service firm and in good operating condition (provided the maintenance of such equipment has been Tenant's responsibility during the term of this Lease) together with all alterations, additions, and improvements which may have been made in, to or on the Premises (except movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. 9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant, but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall retain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of the work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Complex for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. 10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to janitorization, plumbing systems within the non-common areas of the Premises (such as water and drain lines, sinks), electrical systems within the non-common areas of the Premises (such as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and airconditioning controls within the non-common areas of the Premises (such as mixing boxes, thermostats, time clocks, supply and return grills), all interior improvements within the Premises including but not limited to: wall coverings, window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors (both interior and exterior, including closing mechanisms, latches, locks), and all other interior improvements of any nature whatsoever. Tenant agrees to provide carper shields under all rolling chain or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. 3 4 11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED. As Additional Rent and in accordance with paragraph 4 D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of all utility charges such as water, gas, electricity, telephone, telex and other electronic communications service, sewer service, waste-pick-up and any other utilities, materials or services furnished directly to the building in which the Premises are located, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Provided that Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this Lease to be performed or observed by it, Landlord shall furnish to the Premises between the hours of 8:00AM and 6:00PM, Mondays through Fridays (holidays excepted) and subject to the rules and regulations of the Complex hereinbefore referred to, reasonable quantities of water, gas and electricity suitable for the intended use of the Premises and heat and airconditioning required in Landlord's judgment for the comfortable use and occupation of the Premises for such purposes. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the building heating, ventilating and airconditioning systems. Whenever heat generating machines, equipment, or any other devices (including exhaust fans) are used in the Premises by Tenant which affect the temperature or otherwise maintained by the airconditioning system, Landlord shall have the right to install supplementary airconditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation), electronic data processing machines or machines using current in excess of 110 Volts which will in any way increase the amount of electricity, gas, water or airconditioning usually furnished or supplied to premises being used as general office space, or connect with electric current (except through existing electrical outlets in the Premises), or with gas or water pipes any apparatus or device for the purposes of using electric current, gas, or water. If Tenant shall require water, gas, or electric current in excess of that usually furnished or supplied to premises being used as general office space, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas, or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for such excess water, gas and electric current consumed (as shown by such meters and at the rates then charged by the furnishing public utility); and any additional expense incurred by Landlord in keeping account of electric current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. 12. TAXES A. As Additional Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real Property Taxes, which prorata share shall be allocated to the leased Premises by square footage or other equitable basis, as calculated by Landlord. The term "Real Property Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Complex) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Complex (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein; any improvements located within the Complex regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Complex; or parking areas, public utilities, or energy within the Complex; (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Complex; and (iii) all costs and fees (including attorneys' fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Complex prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex, on Landlord's business of leasing the Complex, or computed in any manner with respect to the operation of the Complex, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Complex, then only that part of such Real Property Tax that is fairly allocable to the Complex shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. The term "Real Estate Taxes: shall also include supplemental taxes related to the period of Tenant's Lease Term whenever levied, including any such taxes that may be levied after the Lease Term has expired. B. Taxes on Tenant's Property (a) Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant. Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amount so recovered shall belong to Tenant. (b) if the Tenant improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the real property taxes and assessments levied against Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of 12Ba, above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant improvements are assessed at a higher valuation than standard office improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used. 13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with a combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for injuries to or death of persons occurring in, on or about the Premises of the Complex, and property damage. The policy or policies affecting such insurance, certificates of insurance of which shall be furnished to Landlord, shall name Landlord as additional insureds, and shall insure any liability of Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder, shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days' prior written notice to Landlord. If, during the terms of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this paragraph 13 is not adequate, Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate. 14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. Tenant shall also maintain a policy of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws. 15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of policy or policies of insurance covering loss or damage to the Premises and Complex in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex. Landlord and Tenant do each hereby respectively release the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. 4 5 16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex but excluding, however, the willful misconduct or negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to persons or damage to property to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees, or contractors, Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys' fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on, or about the Premises, or any part thereof, from any cause whatsoever. 17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This paragraph shall not be interpreted as requiring Tenant to make structural changes or improvements, except to the extent such changes or improvements are required as a result of Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises. 18. LIENS Tenants shall keep the Premises and the Complex free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment, transfer, or subletting, Landlord shall require Tenant to pay to Landlord, as Additional Rent, all rents and/or additional consideration due Tenant from its assignees, transferees, or subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the assigned, transferred, and/or subleased space. Tenant shall, by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptance sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 19. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written consent of Landlord, no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any of Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord shall require Tenant to pay all expenses in connection with the assignment, and Landlord shall require Tenant's assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. Not withstanding the above, in no event will Landlord consent to a sub-sublease. 20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination, Tenant's possession under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder; to submit the Premises to prospective purchasers, mortgagees or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Complex, all without abatement of rent; and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed, provided, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. For each of the foregoing purposes, any entry to the Premises obtained by Landlord by any of said means, or otherwise shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Complex and to change the name, number or designation by which the Complex is commonly known, and none of the foregoing shall be deemed an actual or constructive eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder. 22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default in the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (a). The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select a third licensed real estate 5 6 broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b). The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession, acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c). The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d). To the extent permitted by law the right power to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the cost of such subletting, including, but not limited to, reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as rent for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder. Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. For all purposes set forth in this subparagraph d. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e). The right to have a receiver appointed for Tenant upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d. above. 23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease and if Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 24. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental damage and destruction caused from vandalism and accidents for which Tenant is responsible for under Paragraph 10, Landlord may, at its option: (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease. (providing that the Premises is damaged to the extent of 33 1/3% of the replacement cost) If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction, Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code. In the event that the building in which the premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. Notwithstanding anything to the contrary herein, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds are insufficient to cover 100% of the rebuilding costs net of the deductible. 25. EMINENT DOMAIN If all or any part of the Premises shall be taken by an public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant. If (i) any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, or (ii) any of the foregoing events occur with respect to the taking of any space in the Complex not leased hereby, or if any such spaces so taken or conveyed in lieu of such taking and Landlord shall decide to discontinue the use and operation of the Complex, or decide to demolish, alter or rebuild the Complex, then, in any of such events Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. 26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the Complex or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Complex and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. 27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale, Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender to Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained. 28. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term. 6 7 29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon performance, and that not more than one month's rent has been paid in advance. 30. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes, or any changes in plans for any other portions of the Complex shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 31. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder and such failure shall continue for five (5) days after written notice by Landlord, or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for thirty (30) days after written notice thereof by Landlord. Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obligated to, make any such payment or perform any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment or performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 32. ATTORNEYS' FEES. (A) In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the party of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgement. (B) Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenants' occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 33. WAIVER. The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 34. NOTICES. All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advices or designation by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises or if sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices demands, requests, advices or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College Blvd., #101, Santa Clara, CA 95054. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. 35. EXAMINATION OF LEASE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 36. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 37. CORPORATE AUTHORITY. If Tenant is a corporation, (or a partnership) each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by-laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 39. LIMITATION OF LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (i) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (ii) no partner of Landlord shall be sued or named as a party in any suite or action (except as may be necessary to secure jurisdiction of the partnership); (iii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (iv) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (v) no judgment will be taken against any partner of Landlord; (vi) any judgement taken against any partner of Landlord may be vacated and set aside at any time without hearing; (vii) no writ of execution will ever be levied against the assets of any partner of Landlord; (viii)these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. 7 8 40. MISCELLANEOUS AND GENERAL PROVISIONS a. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. b. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. c. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. d. Time is of the essence of this Lease and of each and all of its provisions. e. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. f. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. g. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. h. Tenant further agrees to execute any amendments required by a lender to enable Landlord to obtain financing, so long as Tenant's rights hereunder are not substantially affected. i. Paragraphs 43 through 56 are added hereto and are included as a part of this Lease. j. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. k. Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 41. BROKERS Tenant warrants that it had dealings with only the following real estate brokers or agents in connection with the negotiation of this Lease: none - -------------------------------------------------------------------------------- and that it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 42. SIGNS No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allows to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease. Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S TRUST NEOFORMA, INC. a Delaware corporation By: By: ------------------------------- ------------------------------------- John Arrillaga, Trustee Date: Title: ----------------------------- ---------------------------------- RICHARD T. PEERY SEPARATE PROPERTY Type or Print Name TRUST ---------------------- Date: ----------------------------------- By: ------------------------------- Richard T. Peery, Trustee Date: ----------------------------- 8 9 Paragraph 43 through 56 to Lease Agreement dated August 16, 1999, By and Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate Property Trust, as Landlord, and Neoforma, Inc., a Delaware corporation, as Tenant for 10,878+ Square Feet of Space Located at 3255-6 Scott Blvd., Suite 101, Santa Clara, California. 43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum of TWO MILLION SIX HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY AND 80/100 DOLLARS ($2,649,880.80), shall be payable as follows: On October 1, 1999, the sum of TWENTY EIGHT THOUSAND TWO HUNDRED EIGHTY TWO AND 80/100 DOLLARS ($28,282.80) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2000. On October 1, 2000, the sum of TWENTY NINE THOUSAND THREE HUNDRED SEVENTY AND 60/100 DOLLARS ($29,370.60) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2001. On October 1, 2001, the sum of THIRTY THOUSAND FOUR HUNDRED FIFTY EIGHT AND 40/100 DOLLARS ($30,458.40) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2002. On October 1, 2002, the sum of THIRTY ONE THOUSAND FIVE HUNDRED FORTY SIX AND 20/100 DOLLARS ($31,546.20) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2003. On October 1, 2003, the sum of THIRTY TWO THOUSAND SIX HUNDRED THIRTY FOUR AND NO/100 DOLLARS ($32,634.00) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2004. On October 1, 2004, the sum of THIRTY THREE THOUSAND SEVEN HUNDRED TWENTY ONE AND 80/100 DOLLARS ($33,721.80) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2005. On October 1, 2005, the sum of THIRTY FOUR THOUSAND EIGHT HUNDRED NINE AND 60/100 DOLLARS ($34,809.60) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2006; or until the entire aggregate sum of TWO MILLION SIX HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY AND 80/100 DOLLARS ($2,649,880.80) has been paid. 44. "AS-IS" BASIS: It is hereby agreed that the Premises leased hereunder is leased strictly on an "as-is" basis and in its present condition, and in the configuration as shown on Exhibit B to be attached hereto, and by reference made a part hereof. It is specifically agreed between the parties that Landlord shall not be required to make, nor be responsible for any cost, in connection with any repair, restoration, and/or improvement to the Premises in order for this Lease to commence, or thereafter, throughout the Term of this Lease. Notwithstanding anything to the contrary within this Lease, Landlord makes no warranty or representation of any kind or nature whatsoever as to the condition or repair of the Premises, nor as to the use or occupancy which may be made thereof. 45. CONSENT: Whenever the consent of one party to the other is required hereunder, such consent shall not be unreasonably withheld. 46. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provisions of this Lease shall be invalid, unenforceable, or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 9 10 47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby warrant and represent that they are properly authorized to execute this Lease Agreement and bind the parties on behalf of whom they execute this Lease Agreement and to all of the terms, covenants and conditions of this Lease Agreement as they relate to the respective parties hereto. 48. ASSESSMENT CREDITS: The demised property herein may be subject to a special assessment levied by the City of Santa Clara as part of an Improvement District. As a part of said special assessment proceedings (if any), additional bonds were or may be sold and assessments were or may be levied to provide for construction contingencies and reserve funds. Interest shall be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited. For example: if (i) the property is subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's assessment which reduces the assessment amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as Additional Rent. 49. ASSIGNMENT AND SUBLETTING (Continued): A. Notwithstanding the foregoing, Landlord and Tenant agree that it shall not be unreasonable for Landlord to refuse to consent to a proposed assignment, sublease or other transfer ("Proposed Transfer") if the Premises or any other portion of the Property would become subject to additional or different Government Requirements as a direct or indirect consequence of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. However, Landlord may, in its sole discretion, consent to such a Proposed Transfer where Landlord is indemnified by Tenant and (i) Subtenant or (ii) Assignee, in form and substance satisfactory to Landlord's counsel, by Tenant and/or the Proposed Transferee from and against any and all costs, expenses, obligations and liability arising out of the Proposed Transfer and/or the Proposed Transferee's use and occupancy of the Premises and the Property. B. Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord, pursuant to the requirements of this Lease) shall contain the following language: "If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may be given by Section 1542 of the California Civil Code which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor. The term of this Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgement that, in determining the net benefits to be derived by Subtenant under the terms of this 10 11 Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above. Initials: _________ Initials: _______" Subtenant Tenant 50. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with respect to non-monetary defaults not involving Tenant's failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion. 51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated and maintained to the extent necessary to prevent damage to the Premises or its systems. 52. HAZARDOUS MATERIALS: Landlord and Tenant agrees as follows with respect to the existence or use of "Hazardous Materials" (as defined herein) on, in, under or about the Premises and real property located beneath said Premises and the common areas of the Complex (hereinafter collectively referred to as the "Property"): A. As used herein, the term "Hazardous Materials" shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental Law" shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety. B. Tenant shall obtain Landlord's written consent, which may be withheld in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous Materials Activities (defined below); provided, however, that Landlord's consent shall not be required for normal use in compliance with applicable Environmental Laws of customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. As used herein, the term "Tenant's Hazardous Materials Activities" shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant's use of the Property, or by Tenant or by any of Tenant's agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees. Tenant agrees that any and all Tenant's Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant's expense, and shall not result in any contamination of the Property or the environment. Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant's Hazardous Materials Activities of which Tenant becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to 11 12 evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant's findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections. C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant's Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant's Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities. D. If Landlord, in its sole discretion, believes that the Property has become contaminated as a result of Tenant's Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys' fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Notwithstanding the above, Landlord may, at its option and in its sole and absolute discretion, choose to perform remediation and obtain reimbursement for cleanup costs as set forth herein from Tenant. Any cleanup costs incurred by Landlord as the result of Tenant's Hazardous Materials Activities shall be reimbursed by Tenant within thirty (30) days of presentation of written documentation of the expense to Tenant by Landlord. Such reimbursable costs shall include, but not be limited to, any reasonable consultant and attorney fees incurred by Landlord. Tenant shall take all actions necessary to preserve any claims it has against third parties, including, but not limited to, its insurers, for claims related to its operation, management of Hazardous Materials or contamination of the Property. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord's prior written consent which may be withheld in Landlord's discretion. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence. E. Tenant shall indemnify, defend (with legal counsel to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonably attorneys', consultants' and other experts' fees and costs), and damages, which arise from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 52 (collectively, "Tenant's Environmental Indemnification"). Tenant's Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant's Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant's expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, "Response Actions"). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions. It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the 12 13 expiration or termination of this Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 52. 53. ADDITIONAL RENT CONTINUED: The following items shall be excluded from "Additional Rent": A. Leasing commissions, attorney's fees, costs, disbursements, and other expenses incurred in connection with negotiations with other tenants, or disputes between Landlord and other third party tenant not related to Tenant (hereinafter referred to as "Third Party Tenant"), or in connection with marketing, leasing, renovating, or improving space for other current or prospective tenants or other current or prospective occupants of the Complex; notwithstanding anything to the contrary herein, any costs and expenses Landlord is entitled to be reimbursed for as stated under Paragraph 22 ("Bankruptcy and Default") ARE NOT excluded Additional Rent items as reflected in this Paragraph 53. B. The cost of any service sold to any other Third Party Tenant or other occupant whose leased premises are not part of the Premises leased herein and for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and additional rent payable under the lease agreement with said other tenant (including, without limitation, after-hours HVAC costs or over-standard electrical consumption costs incurred by other tenants). C. Any costs for which Landlord is entitled to be reimbursed by any other Third Party Tenant or other occupant whose leased premises are not part of the Premises leased herein. D. Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, provided Tenant is not responsible under the Lease for such costs, fines and/or penalties, and/or provided Tenant's actions or inactions did not cause, in whole or in part, such costs, fines and/or penalties. E. Wages, salaries, or other compensation paid to executive employees above the grade of Property Manager. F. Repairs or other work occasioned by fire, windstorm, or other insured peril, to the extent that Landlord shall receive proceeds of such insurance or would have received such proceeds had Landlord maintained the insurance coverage required under this Lease provided said insurance coverage was available and Tenant paid its share of the premium as required under the Lease and any insurance deductible(s) which Tenant is responsible for paying and provided Tenant is not responsible for the damage to the Premises. G. Except as otherwise noted in this Lease, any mortgage debt, or ground rents or any other amounts payable under any ground lease for the Property. H. Any amounts paid to any person, firm, or corporation related or otherwise affiliated with Landlord or any general partner, officer, or director of Landlord or any general partners, to the extent same exceeds arms-length competitive prices paid in the Santa Clara, California metropolitan area for the services or goods provided. 54. TAXES CONTINUED: Notwithstanding anything within Paragraph 12, (i) the amount of Real Property Taxes payable by Tenant hereunder shall be prorated to reflect the dates of Lease Commencement and Lease Termination, and (ii) it is agreed that if any special assessments for capital improvements are assessed, and if Landlord has the option to either pay the entire assessment in cash or go to bond, and if Landlord elects to pay the entire assessment in cash in lieu of going to bond, the entire portion of the assessment assigned to Tenant's Leased Premises will be prorated over the same period that the assessment would have been prorated had the assessment gone to bond. 55. NOTICES: Any notice required under this Lease that is sent by mail shall be deemed received, if properly addressed, no later than five (5) business days after any such notice is stamped by the U.S. Post Office as deposited in the United States mail certified, postage prepaid, return receipt requested. 13 14 56. CROSS DEFAULT: It is understood that Landlord and Tenant have previously entered into another lease dated March 1, 1999 for premises located at 3255-7 Scott Blvd., Santa Clara, California (the "Existing Lease"). As a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under said Existing Lease may, at the option of Landlord, be considered a default under both leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to both leases including, but not limited to, the right to terminate one or both of said leases by reason of a default under said Existing Lease or hereunder. 14 15 EXHIBIT A TO EXHIBIT 10.25 [SITE PLAN] PARK SQUARE - PHASE 1 3255 SCOTT BLVD. BUILDINGS 1-7 SANTA CLARA, CALIFORNIA 95054 PSI-6 15 16 EXHIBIT B TO EXHIBIT 10.25 [FIRST FLOOR PLAN] PARK SQUARE - PHASE 1 3255-6 SCOTT BLVD. BUILDING 6 SANTA CLARA, CALIFORNIA 95054 PSI-6 16 EX-21.01 29 SUBSIDIARY OF THE REGISTRANT 1 EXHIBIT 21.01 SUBSIDIARY OF THE REGISTRANT Neoforma GAR, Inc., a Delaware corporation, is a wholly owned subsidiary of the Registrant. EX-23.02 30 CONSENT OF ARTHUR ANDERSON 1 EXHIBIT 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report dated [ ], 1999 on our audits of the financial statements and financial statement schedule of Neoforma.com, Inc. We also consent to the references to our firm under the captions "Experts" and "Selected Financial Data." However, it should be noted that Arthur Andersen has not prepared or certified such "Selected Financial Data." /s/ ARTHUR ANDERSEN LLP , California October , 1999 EX-27.01 31 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEOFORMA.COM, INC.'S PROSPECTUS ON FORM S-1 FOR THE YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 6-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 JUN-30-1999 812 7,063 0 0 0 0 0 0 0 0 868 7,410 741 2,011 98 332 1,672 9,759 654 2,541 279 1,624 3,884 15,870 12 12 1 1 (3,142) (10,942) (3,155) (10,955) 0 0 0 7 0 0 4,563 8,127 66 128 0 0 22 95 (4,563) (8,127) 0 0 (4,563) (8,127) 0 0 0 0 0 0 (4,563) (8,127) (1.65) (7.95) (1.65) (7.95)
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