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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
-------------------------------
Commission File Number 0-26816
IDX SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
VERMONT 03-0222230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 SHELBURNE ROAD
SOUTH BURLINGTON, VT 05403
(Address of principal executive offices)
Registrant's telephone number, including area code: (802-862-1022)
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports).
Yes X No
----- -----
Indicate by check mark whether the registrant has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the registrant's common
stock as of May 8, 2000 was 28,019,989.
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[Exhibit index begins on Page 24]
IDX SYSTEMS CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. INTERIM FINANCIAL STATEMENTS..................................3
Condensed Consolidated Balance Sheets................................3
Consolidated Statements of Operations................................4
Condensed Consolidated Statements of Cash Flows......................5
Notes to Condensed Consolidated Financial Statements.................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................22
ITEM 2. CHANGES IN SECURITIES..........................................22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............22
ITEM 5. OTHER INFORMATION..............................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................22
SIGNATURES.................................................................23
EXHIBIT INDEX..............................................................24
Page 2 of 24
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
----------------- ----------------
(UNAUDITED) (AUDITED)
ASSETS
Cash and marketable securities $ 95,216 $ 68,359
Accounts receivable, net 100,960 110,759
Income taxes receivable 3,610 -
Other current assets 7,295 5,352
Deferred tax asset 7,795 7,691
----------------- ----------------
Total current assets 214,876 192,161
Property and equipment, net 60,920 58,265
Other assets 12,778 17,521
Deferred tax asset 3,173 3,200
----------------- ----------------
Total assets $ 291,747 $ 271,147
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses
and other liabilities $ 32,059 $ 37,970
Deferred revenue 17,765 17,459
----------------- ----------------
Total current liabilities 49,824 55,429
Minority interest 9,050 9,204
Stockholders' equity 232,873 206,514
----------------- ----------------
Total liabilities and stockholders'
equity $ 291,747 $ 271,147
================= ================
See Notes to the Condensed Consolidated Financial Statements
Restated for Comparison Purposes - See Note 1
Page 3 of 24
IDX SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------------------------
REVENUES
Systems sales $ 21,650 $ 22,851
Maintenance and service fees 55,072 46,799
------------- ------------
TOTAL REVENUES 76,722 69,650
OPERATING EXPENSES
Cost of sales 55,160 48,803
Selling, general and administrative 18,345 19,989
Research and development 12,186 13,765
Write off of goodwill 5,810 -
------------- ------------
TOTAL OPERATING EXPENSES 91,501 82,557
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OPERATING LOSS (14,779) (12,907)
Other income (1,123) (471)
Loss on impairment of investment - 1,642
------------- ------------
Loss before taxes (13,656) (14,078)
Income tax benefit (3,157) (5,500)
------------- ------------
NET LOSS $ (10,499) $ (8,578)
============== ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.38) $ (0.31)
============== ============
Basic and diluted weighted average
shares outstanding 27,957 27,654
============== ============
See Notes to the Condensed Consolidated Financial Statements
Restated for Comparison Purposes - See Note 1
Page 4 of 24
IDX SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
------- -------
OPERATING ACTIVITIES
Net loss $ (10,499) $ (8,578)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,734 3,285
Amortization 137 65
Deferred tax benefit, net of business
acquisitions (77) -
Increase in allowance for doubtful accounts 328 356
Write-off of goodwill 5,810 -
Minority interest 246 271
Loss on impairment of investment - 1,642
Changes in operating assets and liabilities,
net of business acquisitions:
Accounts receivable 9,471 11,951
Prepaid expenses and other assets (2,143) (4,990)
Accounts payable and accrued expenses (6,075) (888)
Federal and state taxes payable (3,411) (5,429)
Deferred revenue 306 (2,181)
--------- ---------
Net cash used in operating activities (2,173) (4,496)
INVESTING ACTIVITIES
Purchase of property and equipment, net (6,440) (7,351)
Purchase of securities available-for-sale (5,095) (59,179)
Sale of securities available-for-sale 6,668 78,659
Other assets (916) (4,200)
--------- ---------
Net cash (used in) provided by
investing activities (5,783) 7,929
FINANCING ACTIVITIES
Proceeds from sale of common stock 4,667 2,327
Proceeds from debt issuances - 3,501
Distribution from affiliates, net (400) -
Principal repayments of debt - 374
Proceeds from sale of preferred stock 32,089 -
--------- ---------
Net cash provided by financing
activities 36,356 6,202
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Increase in cash and cash equivalents 28,400 9,635
Cash and cash equivalents at beginning of period 18,487 11,558
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Cash and cash equivalents at end of period 46,887 21,193
Short term investments at end of period 48,329 94,036
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Cash and short term investments at end of period $ 95,216 $115,229
========= =========
See Notes to the Condensed Consolidated Financial Statements
Restated for Comparison Purposes - See Note 1
Page 5 of 24
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
All financial information for previously reported periods included in the
accompanying interim unaudited condensed consolidated financial statements of
IDX Systems Corporation ("Company" or "IDX") has been restated to reflect the
combined operations of IDX and EDiX Corporation ("EDiX") as a result of the
merger, more fully described in Note 3, which was accounted for as a pooling of
interests during the quarter ended June 30, 1999. No adjustments were required
to conform the financial reporting policies of IDX and EDiX for periods
presented.
The interim unaudited consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with accounting principles generally accepted in
the United States. Accordingly, certain information and footnote disclosures
normally included in annual financial statements have been omitted or condensed.
In the opinion of management, all necessary adjustments have been made to
provide a fair presentation. The operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes included in the Company's
latest annual report on Form 10-K.
Note 2 - New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133") as amended
by SFAS No. 137, which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company is presently analyzing the impact, if any, that
the adoption of SFAS No. 133 will have on its financial condition or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements." The SAB
formalizes positions the staff has expressed in speeches and comment letters.
SAB 101 is effective no later than the second fiscal quarter of the fiscal year
beginning after December 15, 1999. The Company is presently analyzing the
impact, if any, that the adherence to the SAB will have on its financial
condition or results of operations.
Note 3 - Business Acquisitions and Related Matters
On April 23, 1999, the Company completed a Merger with EDiX, a provider of
medical transcription services, which became a wholly owned subsidiary of the
Company. The transaction was accounted for as a pooling-of-interests and
accordingly, the accompanying financial statements include the accounts of EDiX
for all periods presented. In connection with the merger, the Company incurred
approximately $4.0 million of merger and related costs consisting principally of
transaction costs of $2.4 million, write-offs and adjustments of long-lived
assets, principally noncompatible computer equipment of $1.4 million and other
merger related costs of $0.2 million, principally related to integration costs
incurred during the period, and the termination of leases and other contractual
obligations.
Page 6 of 24
On April 1, 1999, the Company acquired an 80% interest in Channelhealth, Inc., a
Massachusetts corporation, for $6.5 million. The acquisition was accounted for
under the purchase method.
On June 23, 1999, the Company acquired all of the assets of DietSite.com, Inc.
for $1.5 million. DietSite.com is a website that includes disease-oriented
dietary information with extensive proprietary content on diets,
vitamins,herbals and nutritionals. Channelhealth, Inc. and DietSite.com will be
managed and operated with the Company's other web technology initiatives in a
separate majority-owned subsidiary. Channelhealth will offer three Internet
channels that integrate the core practice management systems with extensive
Internet-based services and clinically valid content.
Channelhealth Incorporated has determined that there has been an asset
impairment related to goodwill acquired in the purchase of a Massachusetts
corporation Channelhealth Inc. in April, 1999. In January 2000, the Company made
the decision to seek a primary provider of content and transactions for
ChannelHealth, and no longer utilize certain assets acquired with the purchase
of Channelhealth The Company recognizes impairment losses on long-lived assets
when indicators of impairment are present and future undiscounted cash flows are
insufficient to support the assets' recovery. The amount of the impairment loss
is recognized based on an analysis of discounted cash flows estimated to be
derived from the impaired asset. This asset impairment has been written off
during the first quarter of 2000 and is reflected as a pre-tax one-time loss on
impairment of assets of approximately $5.8 million.
Note 4 - Income Taxes
The tax benefit in 2000 is lower than that expected based on the statutory rate
principally due to the non-deductible nature of the write off of goodwill
related to ChannelHealth. The 1999 tax benefit is slightly lower than that
expected based on the statutory rate due to the inclusion in the financial
statements, of the net loss of EDiX Corporation, for which no tax benefit was
recognized.
Note 5- Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company adopted SFAS No. 131 effective with the fiscal year ended December 31,
1998. SFAS No. 131 establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. SFAS No. 131 also establishes standards for related
disclosures about major customers, products and services, and geographic areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. Up to and including the first quarter
of 1999, the Company viewed its operations and managed its business as
principally one segment, healthcare information solutions that include software,
hardware and related services. During the second quarter of 1999, the Company
acquired two companies that have separate and distinct financial information and
operating characteristics. When applicable, the information for the reportable
segments has been restated for the prior year in order to conform to the 2000
presentation.
The Company's three business units have separate management teams and
infrastructures that offer different products and services. Accordingly, these
business units have been classified as three reportable segments (information
systems and services, Internet services and content, and medical transcription
services).
Page 7 of 24
Information Systems and Services: This reportable segment consists of IDX
Systems Corporation's healthcare information solutions that include software,
hardware and related services. IDX solutions enable healthcare organizations to
redesign patient care and other workflow processes in order to improve
efficiency and quality.The principal markets for this segment include physician
groups, management service organizations, hospitals, and integrated delivery
networks primarily located in the United States.
Internet Services and Content: Channelhealth Incorporated, a majority owned
subsidiary, will offer three Internet channels that integrate IDX's core
practice management systems with extensive Internet-based services and
clinically valid content. ChannelHealth services are available to physicians
through group practices, hospitals, integrated delivery networks and managed
care organizations.
Medical Dictation and Transcription Services: This reportable segment contains
EDiX, a provider of medical transcription outsourcing services. The principal
markets for this segment include hospitals and large physician group practices
primarily located in the United States.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements included
in the company's annual report. The Company evaluates the performance of its
operating segments based on revenue and operating income. Intersegment revenues
are immaterial. No one customer accounts for greater than 10% of revenue for any
reportable segment, with the exception of EDiX. EDiX's revenues from one major
customer amounted to 10.0% and 0.0% of EDiX's total revenue during the three
months ended March 31, 2000 and March 31, 1999, respectively.
Summarized financial information concerning the Company's reportable segments is
shown in the following table (in thousands):
IDX
HEALTHCARE
INFORMATION
SYSTEMS AND CHANNELHEALTH
SERVICES INCORPORATED EDIX TOTAL
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FOR THE THREE MONTHS
ENDED MARCH 31, 2000
Net operating revenues $ 58,825 $ 1,219 $ 16,678 $ 76,722
Operating income (loss) (4,836) (10,793) 850 (14,779)
Identifiable operating assets 234,200 37,374 20,173 291,747
FOR THE THREE MONTHS
ENDED MARCH 31, 1999
Net operating revenues $ 60,181 - $ 9,469 $ 69,650
Operating loss (11,866) - (1,041) (12,907)
Identifiable operating assets 267,600 - 10,962 278,562
Corporate headquarters assets are included in IDX Healthcare Information Systems
and Services. Substantially all of the Company's operations are in the United
States. The financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segments.
Page 8 of 24
Note 6 - Earnings Per Share Information
The following sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------------------------
Numerator:
Net loss $ (10,499) $ (8,578)
---------- ----------
Numerator for basic and diluted loss per share $ (10,499) $ (8,578)
Denominator:
Denominator for basic loss per share
Weighted-average shares 27,957 27,654
Effect of employee stock options - -
---------- ----------
Denominator for diluted loss per share 27,957 27,654
---------- ----------
Basic and diluted loss per share $ (0.38) $ (0.31)
========== ==========
Page 9 of 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company reported a net loss of $10.5 million, or ($0.38) per diluted share,
for the first quarter of 2000 as compared to a net loss of $8.6 million or
($0.31) per diluted share, for the first quarter of 1999.
Excluding nonrecurring expenses for the write-off of goodwill associated with
Channelhealth, Inc., the Company reported a net loss of $4.9 million, or ($0.17)
per share, for the first three months of 2000. Excluding nonrecurring expenses
in the prior year related to the impairment of an investment of $1.6 million,
the net loss for the three months ended March 31, 1999 was $7.7 million or
($0.28) per diluted share.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES
The Company's total revenues increased to $76.7 million during the three months
ended March 31, 2000 from $69.6 million in the corresponding period in 1999, an
increase of $7.1 million or 10.2%. Revenues from systems sales decreased to
$21.7 million during the three months ended March 31, 2000 (28.2% of total
revenues) compared to $22.9 million (32.8% of total revenues) in the
corresponding period in 1999, a decrease of $1.2 million or (5.3%). The decrease
was primarily due to a reduction in hardware sales related to IDX systems.
Revenues from maintenance and service fees increased to $55.1 million during the
three months ended March 31, 2000 (71.8% of total revenues) from $46.8 million
(67.2% of total revenues) in the corresponding period in 1999, an increase of
$8.3 million or 17.7%. The increase in revenues from maintenance and service
fees is primarily due to increased transcription service fee revenue from EDiX
combined with an increase due to maintenance revenue resulting from price
increases and annualization of 1998 growth in the Company's IDX systems
installed client base.
During 1999, certain of the Company's customers delayed making purchasing
decisions with respect to certain of the Company's software systems comprised of
multiple products resulting in longer sales cycles for such systems. Management
believes such delays are due to a number of factors, including customer
organizational changes, government approvals, pressures to reduce expenses,
product complexity, competition, and customer preoccupation with internal Year
2000 issues. In February 2000, the Company announced that weakness in system
sales experienced in the fourth quarter of 1999 was expected to continue through
the first half of 2000. The Company expects that the factors described above and
especially the healthcare industry's Year 2000 focus will cause reductions or
delays in spending for new systems and services in the first half of 2000.
Accordingly, the Company expects that it will experience deferrals or delays in
sales of software and related services, professional services, and hardware
during the first half of 2000.
COST OF SALES
The cost of sales and services increased to $55.2 million during the three
months ended March 31, 2000 from $48.8 million in the corresponding period in
1999, an increase of $6.4 million or 13.0%. The increase in cost of sales and
services resulted from growth in client services expenses, including medical
transcription costs, maintenance, installation, and consulting staff. The gross
Page 10 of 24
profit margin on systems sales and services decreased to 28.1% in during the
first quarter of 2000 from 29.9% in the same period in 1999. The decrease in
gross profit margin as a percentage of sales was due to the decrease in software
license revenues, which provide a higher gross profit margin, offset by an
increase in maintenance and service revenue which provide a lower gross profit
margin. IDX's core business, information systems and services, gross profit
margin as a percentage of sales declined to 32.3% in 2000 from 33.6% for the
same period in1999 due to the effect of the revenue mix described above. The
gross profit margin for the Company's medical dictation and transcription
business segment (EDiX) increased as a percentage of sales to 18.0% in 2000 from
6.7% in 1999 due to an increase in utilization of a new transcription processing
system, which provides a higher margin, as compared to the prior year, combined
with other efficiencies in editing and telecommunications. Channelhealth
experienced a negative gross margin of 34.6% during the first quarter of 2000
primarily due to higher fixed costs relative to sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $18.3 million during
the three months ended March 31, 2000 from $20.0 million during the
corresponding period in 1999, a decrease of $1.6 million or 8.2%. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 23.9% during the three months ended March 31, 2000 from 28.7% for
the same period in 1999. The decrease in total selling, general and
administrative expenses during the three months ended March 31, 2000 was
primarily due to a reduction in outside consulting services expense. IDX's core
business selling, general and administrative expenses decreased $5.1 million
primarily due to the transfer of expenses to the new subsidiary Channelhealth of
approximately $3.1 million. EDiX's selling, general and administrative expenses
increased $414,000 or 28.6% during the first quarter of 2000 as compared to the
same period in the prior year primarily due to increased costs to support sales
growth. Channelhealth's selling, general and administrative expenses were $3.1
million during the first quarter of 2000 which includes sales and marketing
expenses and administrative start up expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased to $12.2 million during the three
months ended March 31, 2000 from $13.8 million in the corresponding period in
1999, a decrease of $1.6 million or 11.5%. The decrease is primarily due to a
reduction in the costs of efforts to address Year 2000 issues. As a percentage
of total revenues, research and development expenses decreased to 15.9% of
revenue for the first quarter of 2000 compared to 19.8% for the comparable
period in 1999. IDX's core business research and development expenses decreased
$3.2 million due to the transfer of approximately $1.5 million of research and
development costs to the Internet services and content business segment
(ChannelHealth), combined with the reduction in costs to address Year 2000
issues. Research and development costs in the medical dictation and
transcription business segment (EDiX) increased from $217 thousand in 1999 to
$277 thousand in 2000.
WRITE-OFF OF GOODWILL
Channelhealth Incorporated has determined that there has been an asset
impairment related to goodwill acquired in the purchase of a Massachusetts
corporation Channelhealth Inc. in April, 1999. In January 2000, the Company made
the decision to seek a primary provider of content and transactions for
ChannelHealth, and no longer utilize certain assets acquired with the purchase
of Channelhealth. This asset impairment has been written off during the first
quarter of 2000 and is reflected as a pre-tax one-time loss on impairment of
assets of approximately $5.8 million.
Page 11 of 24
INTEREST AND OTHER INCOME
Interest income was approximately $1.4 million during the first quarter of 2000
and 1999. Interest expense decreased approximately $637,000 during the first
quarter of 2000 as compared to the same period in the prior year due to the
payment of all outstanding debt of EDiX during the second quarter of 1999.
LOSS ON IMPAIRMENT OF INVESTMENT
Other expense included the write-off of an investment of $1.6 million in the
quarter ended March 31, 1999 due to the investee's inability to raise additional
equity and a decision to dissolve the business.
INCOME TAXES
Income taxes for the quarter ended March 31, 2000 were benefited at 23.2% The
tax benefit in 2000 is lower than that expected based on the statutory rate
principally due to the non-deductible nature of the write off of goodwill
related to ChannelHealth. Income taxes for the quarter ended March 31, 1999 were
benefited at 39.1% The 1999 tax benefit is lower than the expected statutory
rate due to the inclusion in the financial statements, of the net loss of EDiX
Corporation, for which no tax benefit was recognized. Excluding the impact of
the write-off of goodwill that is non-deductible for income tax purposes, the
Company anticipates an effective tax rate of approximately 38.0% for the
remainder of the year ending December 31, 2000. Net deferred tax assets of
approximately $11 million are expected to be realized principally by reducing
future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1969, the Company principally has funded its operations,
working capital needs and capital expenditures primarily from operations. The
proceeds from its initial public offering were (i) distributed to stockholders
of the Company in connection with the Company's prior status as an S corporation
under the Internal Revenue Code of 1986, as amended, and (ii) used for general
corporate purposes, including working capital purposes as needed and strategic
transactions, including acquisitions of businesses, products and technologies.
Cash flows from operations are principally comprised of net income (loss) and
depreciation and are primarily affected by the net effect of the change in
accounts receivable, accounts payable and accrued expenses. Due to the nature of
the Company's business, accounts receivable, deferred revenue and accounts
payable fluctuate considerably due to, among other things, the length of the
sales cycle and installation efforts which are dependent upon the size of the
transaction, the changing business plans of the customer, the effectiveness of
customers' management and general economic conditions. During the first three
months of 2000 accounts receivable from customers were collected on average
within 120 days which is consistent with the 1999 average of 119 days. The 1999
average represented an increase of 13 days from the prior year in terms of
average days to collect receivables from customers. The increase is partially
attributable to unbilled receivables related to contracts accounted for using
long term contract accounting combined with a lengthening of customer payment
patterns.
Cash flows related to investing activities have historically been related to the
purchase of computer and office equipment, leasehold improvements, and the
purchase and sale of investment grade marketable securities. The Company expects
these activities to continue. Investing activities may also include purchases of
interests in, loans to and acquisitions of complementary products, technologies
and businesses. There can be no assurance that the Company will be able to
successfully complete any such purchases or acquisitions in the future.
Cash flows from financing activities historically relate to purchases of common
stock through the exercise of employee stock options and in connection with the
employee stock purchase plan. During 1999, all outstanding debt of EDiX
Corporation was paid.
Page 12 of 24
Cash, cash equivalents and marketable securities at March 31, 2000 were $95.2
million, an increase of $26.9 million from December 31, 1999. The increase was
primarily due to the issuance of preferred stock of Channelhealth Incorporated,
a majority owned subsidiary incorporated in Delaware to Pequot Private Equity
for $30 million for an equity interest in Channelhealth of approximately 9%. The
Company has a revolving line of credit with a bank allowing the Company to
borrow up to $5.0 million bearing interest at the prime rate that will expire on
June 30, 2000. There were no borrowings as of March 31, 2000.
The Company expects that its requirements for office facilities and other office
equipment will grow as staffing requirements dictate. The Company's operating
lease commitments consist primarily of office leasing for the Company's
operating facilities. In April 2000, the Company entered into a new operating
lease for office space in Seattle Washington commencing in 2003 for a period of
12 years. The Company plans to continue increasing the number of its
professional staff during 2000 to meet anticipated sales volume and to support
research and development efforts. To the extent necessary to support increases
in staffing, the Company may obtain additional office space.
The Company is currently negotiating to acquire the Company's headquarters in
South Burlington, Vermont for approximately $15 million from BDP Realty, a
related entity which is included in the Company's consolidated financial
statements. The Company started construction on an expansion of its corporate
headquarters facility in South Burlington, Vermont, in November 1999, and is
considering various options for financing including a construction loan, sale
lease-back arrangement or funding from operations. The Company anticipates that
it will spend approximately $16 million on construction to expand its Corporate
Headquarters facility. From time to time, based on the Company's requirements,
the Company may consider other purchases of additional land or the construction
of additional office space.
The Company believes that current operating funds will be sufficient to finance
its operating requirements at least through the next twelve months. To date,
inflation has not had a material impact on the Company's revenues or income.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of its internal use systems (both information technology related and
non-information technology related) and its products (including third party
products included in its products) and also completed and implemented
contingency planning. As a result of those efforts, the Company experienced no
significant disruptions in its products (including third party products included
in its products), internal use information technology systems, and internal use
non-information technology systems, and the Company believes all of those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
In the first quarter to this year, the Company expensed most of its total
remaining project costs of approximately $2.1 million, which related primarily
to contingency plans and remediation efforts for internal systems. The Company
will continue to monitor its products (including third party products included
in its products), mission critical computer applications, and those of its
suppliers and vendors throughout the Year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE
This Management Discussion and Analysis of Financial Condition and Results of
Operations contains "forward-looking statements" as defined in Section 21E of
the Securities and Exchange Commission Act of 1934. For this
Page 13 of 24
purpose, any statements contained in this Quarterly Report that are not
statements of historical fact may be deemed to be forward-looking statements.
Words such as "believes," "anticipates," "plans," "expects," "will" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of IDX Systems
Corporation to differ materially from those indicated by these forward-looking
statements including among others, the factors set forth below. If any risk or
uncertainty identified in the following factors actually occurs, IDX's business,
financial condition and operating results would likely suffer. In that event,
the market price of IDX's common stock could decline and you could lose all or
part of the money you paid to buy IDX's common stock.
The following important factors affect IDX's business and operations generally
or affect more than one segment of our business and operations:
IDX STOCK PRICES MAY CONTINUE TO BE VOLATILE. IDX has experienced, and expects
to continue to experience fluctuations in its stock price due to a variety of
factors including:
o delay in customers purchasing decisions due to a variety of factors
such as consolidation, management changes and regulatory
developments;
o market prices of competitors;
o announcements of technological innovations, including Internet delivery
of information and use of application service
provider technology;
o new product introductions by IDX or its competitors;
o market conditions particularly in the computer software and Internet
industries; and
o healthcare reform measures and healthcare regulation.
These fluctuations have had a significant impact on the market price of our
common stock, and may have a significant impact on the future market price of
our common stock.
THESE FLUCTUATIONS MAY AFFECT OPERATING RESULTS AS FOLLOWS:
o ability to transact stock acquisitions ; and
o ability to retain and incent key employees.
ADVERSE FINANCIAL TRENDS INCLUDING DECLINING NET INCOME AND CASH FROM OPERATIONS
HAVE AND MAY CONTINUE. Year over year net income and cash from operations have
generally declined since 1998. In 1999, and the first quarter of 2000 IDX
generated a net loss of approximately $7.9 million and $10.5 million,
respectively. If these negative trends continue, IDX may have difficulty
financing future growth and funding operating initiatives, including future
acquisitions.
IDX EXPECTS ITS QUARTERLY OPERATING RESULTS TO FLUCTUATE AND ITS CUSTOMER SALES
AND INSTALLATION REQUIREMENTS TO CHANGE. IDX expects its quarterly results of
operations to continue to fluctuate. Because a significant percentage of IDX's
expenses are relatively fixed, the following factors could cause these
fluctuations:
o delay in customers purchasing decisions due to a variety of factors such as
consolidation and management changes; o delay in customers' purchasing decisions
due to customers' year 2000 problems; o the volume and timing of systems sales
and installations; o recognizing revenue at various points during the
installation process; o the timing of new product and service introductions and
product upgrade releases; and o the sales and implementation cycles of IDX's
customers.
Page 14 of 24
In light of the above, IDX believes that its results of operations for any
particular quarter or fiscal year are not necessarily meaningful or reliable
indicators of future performance.
IDX MAY NOT BE SUCCESSFUL IN IMPLEMENTING ITS ACQUISITION STRATEGY. IDX intends
to continue to grow in part through either acquisitions of complementary
products, technologies and businesses or alliances with complementary
businesses. IDX may not be successful in these acquisitions or alliances, or in
integrating any such acquired or aligned products, technologies or businesses
into its current business and operations. Factors which may affect IDX's ability
to expand successfully include:
o the generation of sufficient financing to fund potential acquisitions and
alliances;
o the successful identification and acquisition of products, technologies
or businesses;
o effective integration and operation of the acquired or aligned products,
technologies or businesses despite technical difficulties, geographic
limitations and personnel issues; and
o overcoming significant competition for acquisition and alliance
opportunities from companies that have s ignificantly greater financial and
management resources.
IDX'S SUCCESS DEPENDS ON NEW PRODUCT DEVELOPMENT AND ITS ABILITY TO RESPOND TO
RAPIDLY CHANGING TECHNOLOGY. To be successful, IDX must enhance its existing
products, respond effectively to technology changes and help its clients adopt
new technologies. In addition, IDX must introduce new products and technologies
to meet the evolving needs of its clients in the healthcare information systems
market. IDX may have difficulty in accomplishing this because of:
o the continuing evolution of industry standards, for example,
transaction standards pursuant to the Health Insurance
Portability and Accountability Act of 1996 (HIPAA); and
o the creation of new technological developments, for example, Internet
and application service provider technology.
IDX is currently devoting significant resources toward the development of
enhancements to its existing products, particularly in the area of
Internet-based functionality and the migration of existing products to new
hardware and software platforms, including relational database technology,
object-oriented programming and application service provider technology.
However, IDX may not successfully complete these product developments or the
adaptation in a timely fashion, and IDX's current or future products may not
satisfy the needs of the healthcare information systems market. Any of these
developments may adversely affect IDX's competitive position or render its
products or technologies noncompetitive or obsolete.
POLITICAL, ECONOMIC AND REGULATORY CHANGES AND CONSOLIDATION IN THE HEALTHCARE
INDUSTRY MAY CAUSE IDX TO SUFFER FINANCIALLY. IDX currently derives
substantially all of its revenues from sales of financial, administrative and
clinical healthcare information systems and related services within the
healthcare industry. As a result, the success of IDX is dependent in part on the
political and economic conditions in the healthcare industry.
Virtually all of IDX's customers and the other entities with which IDX has a
business relationship operate in the healthcare industry and, as a result, are
subject to governmental regulation, including Medicare and Medicaid regulation.
Accordingly, IDX's customers and the other entities with which IDX has a
business relationship are affected by changes in such regulations and
limitations in governmental spending for Medicare and Medicaid programs. Recent
actions by Congress have limited governmental spending for the Medicare and
Medicaid programs, limited payments to hospitals and other providers under such
programs, and increased emphasis on competition and other programs that
potentially could have an adverse effect on IDX's customers and the other
entities with which IDX has a business relationship. In addition, Federal and
state legislatures have considered
Page 15 of 24
proposals to reform the U.S. healthcare system at both the federal and state
level. If enacted, these proposals could increase government involvement in
healthcare, lower reimbursement rates and otherwise change the business
environment of IDX's customers and the other entities with which IDX has a
business relationship. IDX's customers and the other entities with which IDX has
a business relationship could react to these proposals and the uncertainty
surrounding these proposals by curtailing or deferring investments, including
those for IDX's products and services.
In addition, many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater market power. These providers may try
to use their market power to negotiate price reductions for IDX's products and
services. If IDX were forced to reduce its prices, its operating margins would
decrease. As the healthcare industry consolidates, competition for customers
will become more intense and the importance of acquiring each customer will
become greater.
THERE IS INTENSE COMPETITION IN THE MARKET FOR HEALTHCARE INFORMATION SYSTEMS
AND IF IDX FAILS TO COMPETE SUCCESSFULLY, IT WILL SUFFER FINANCIALLY. The market
for healthcare information systems is intensely competitive, rapidly evolving
and subject to rapid technological change. IDX believes that the principal
competitive factors in this market include the breadth and quality of system and
product offerings, the features and capabilities of the systems, the price of
system and product offerings, the ongoing support for the systems, and the
potential for enhancements and future compatible products.
Some of the IDX's competitors have greater financial, technical, product
development, marketing and other resources than IDX, and some of its competitors
offer products that it does not offer. The Company's principal existing
competitors include Cerner Corporation, Eclipsys Corporation, McKesson HBOC,
Inc. and Shared Medical Systems Corporation, each of which offers a suite of
products that compete with many of IDX's products. There are other competitors
that offer a more limited number of competing products. Many of IDX's
competitors have also announced or introduced Internet strategies that will
compete with IDX's Internet applications and services. IDX may be unable to
compete successfully against these organizations. In addition, IDX expects that
major software information systems companies, large information technology
consulting service providers and system integrators, Internet-based start-up
companies and others specializing in the healthcare industry may offer
competitive products or services.
IDX MAY BE FACED WITH PRODUCT LIABILITY CLAIMS EXCEEDING ITS INSURANCE COVERAGE.
Any failure by IDX's products that provide applications relating to patient
medical histories and treatment plans could expose IDX to product liability
claims. These potential claims may exceed IDX's current insurance coverage.
Unsuccessful claims could be costly to defend and divert management time and
resources. In addition, IDX cannot assure you that it will continue to have
appropriate insurance available to it in the future at commercially reasonable
rates.
IDX'S SUCCESS IS SIGNIFICANTLY DEPENDENT ON KEY PERSONNEL. The success of IDX is
dependent to a significant degree on its key management, sales, marketing, and
technical personnel. To be successful IDX must attract, motivate and retain
highly skilled managerial, sales, marketing, consulting and technical personnel,
including programmers, consultants, systems architects skilled in the technical
environments in which IDX's products operate. Competition for such personnel in
the software and information services industries is intense. IDX does not
maintain "key man" life insurance policies on any of its executives. Not all IDX
personnel have executed noncompetition agreements.
GOVERNMENT REGULATION MAY IMPOSE BURDENS AND COSTS ON IDX'S OPERATIONS.
Virtually all of IDX's customers and the other entities with which IDX has a
business relationship operate in the healthcare industry and, as a result, are
subject to governmental regulation. Because IDX's products and services are
designed to function within the structure of the healthcare financing and
reimbursement systems currently in place in the
Page 16 of 24
United States, and because IDX is pursuing a strategy of developing and
marketing products and services that support its customers' regulatory and
compliance efforts, IDX may become subject to the reach of, and liability under,
these regulations.
The Federal Anti-Kickback Law, among other things, prohibits the direct or
indirect payment or receipt of any remuneration for Medicare, Medicaid and
certain other Federal or state healthcare program patient referrals, or
arranging for or recommending referrals or other business paid for in whole or
in part by the federal health care programs. Violations of the Federal
Anti-Kickback Law may result in civil and criminal sanction and liability,
including the temporary or permanent exclusion of the violator from government
health programs, treble damages and imprisonment for up to five years for each
violation. If the activities of a customer of IDX or other entity with which IDX
has a business relationship were found to constitute a violation of the Federal
Anti-Kickback Law and IDX, as a result of the provision of products or services
to such customer or entity, was found to have knowingly participated in such
activities, IDX could be subject to sanction or liability under such laws,
including the exclusion of IDX from government health programs. As a result of
exclusion from government health programs, IDX customers would not be permitted
to make any payments to IDX.
The Federal Civil False Claims Act and the Medicare/Medicaid Civil Money
Penalties regulations prohibit, among other things, the filing of claims for
services that were not provided as claimed, which were for services that were
not medically necessary, or which were otherwise false or fraudulent. Violations
of these laws may result in civil damages, including treble and civil penalties
up to $11,000 for each false claim filed. In addition the Medicare/Medicaid and
other Federal statutes provide for criminal penalties for such false claims,
including fines of up to $25,000 and imprisonment up to five years for each
offense. If, as a result of the provision by IDX of products or services to its
customers or other entities with which IDX has a business relationship, IDX
provides assistance with the provision of inaccurate financial reports to the
government under these regulations, or IDX is found to have knowingly recorded
or reported data relating to inappropriate payments made to a healthcare
provider, IDX could be subject to liability under these laws.
HIPAA contains provisions regarding standardization, privacy, security, and
administrative simplification in healthcare. As a result of regulations now
proposed under HIPAA, IDX will make investments to support customer operations
in areas, such as:
o electronic data transactions;
o computer system security; and
o patient privacy.
Although it is not possible to anticipate the final form of regulations under
HIPAA, IDX has made and expects to continue to make investments in product
enhancements to support customer operations that are regulated by HIPAA.
Responding to HIPAA's impact may require IDX to make investments in new products
or charge higher prices. It may be expensive to implement security or other
measures designed to comply with any new legislation or regulation.
The United States Food and Drug Administration has promulgated a draft policy
for the regulation of computer software products as medical devices under the
1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To
the extent that computer software is a medical device under the policy, IDX, as
a manufacturer of such products, could be required, depending on the product,
to:
o register and list its products with the FDA;
o notify the FDA and demonstrate substantial equivalence to other
products on the market before marketing such products; or
o obtain FDA approval by demonstrating safety and effectiveness before
marketing a product.
Page 17 of 24
Depending on the intended use of a device, the FDA could require IDX to obtain
extensive data from clinical studies to demonstrate safety or effectiveness, or
substantial equivalence. If the FDA requires this data, IDX would be required to
obtain approval of an investigational device exemption before undertaking
clinical trials. Clinical trials can take extended periods of time to complete.
IDX cannot provide assurances that the FDA will approve or clear a device after
the completion of such trials. In addition, these products would be subject to
the Federal Food, Drug and Cosmetic Act's general controls, including those
relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA's policy
with regard to computer software, IDX expects that the FDA is likely to become
increasingly active in regulating computer software intended for use in
healthcare settings regardless of whether the draft is finalized or changed. The
FDA can impose extensive requirements governing pre- and post-market conditions
like service investigation, approval, labeling and manufacturing. In addition,
the FDA can impose extensive requirements governing development controls and
quality assurance processes.
SYSTEM ERRORS IN IDX'S HEALTHCARE INFORMATION SYSTEMS COULD CAUSE UNFORESEEN
LIABILITIES. IDX's healthcare information systems are very complex. As with
complex systems offered by others, IDX's healthcare information systems may
contain errors, especially when first introduced. IDX's healthcare information
systems are intended to provide information to healthcare providers for use in
the diagnosis and treatment of patients. Therefore, users of IDX's products may
have a greater sensitivity to system errors than the market for software
products generally. Failure of an IDX customer's system to perform in accordance
with its documentation could constitute a breach of warranty and require IDX to
incur additional expense in order to make the system comply with the
documentation. If such failure is not timely remedied, it could constitute a
material breach under a contract allowing the client to cancel the contract and
subject IDX to liability.
CLAIMS BY OTHER COMPANIES THAT IDX'S PRODUCTS INFRINGE THEIR PROPRIETARY RIGHTS
COULD HINDER OR BLOCK IDX'S ABILITY TO SELL ITS PRODUCTS, SUBJECT IDX TO
SIGNIFICANT MONETARY LIABILITY AND DIVERT THE TIME AND ATTENTION OF ITS
MANAGEMENT. If any of IDX's products violate third party proprietary rights, IDX
may be required to reengineer its products or seek to obtain licenses from third
parties to continue offering its products without substantial reengineering. Any
efforts to reengineer IDX's products or obtain licenses from third parties may
not be successful, in which case IDX may be forced to stop selling the
infringing product or remove the infringing functionality or feature. IDX may
also become subject to damage awards as a result of infringing the proprietary
rights of others, which could cause IDX to incur additional losses and have an
adverse impact on its financial position. IDX does not conduct comprehensive
patent searches to determine whether the technologies used in its products
infringe patents held by others. In addition, product development is inherently
uncertain in a rapidly evolving technological environment in which there may be
numerous patent applications pending, many of which are confidential when filed,
with regard to similar technologies.
IDX'S COMPETITIVE POSITION WOULD BE ADVERSELY AFFECTED IF IT WERE UNABLE TO
PROTECT ITS PROPRIETARY TECHNOLOGY. IDX's success and competitiveness are
dependent to a significant degree on the protection of its proprietary
technology. IDX relies primarily on a combination of copyrights, trade secret
laws and restrictions on disclosure to protect its proprietary technology.
Despite these precautions, others may be able to copy or reverse engineer
aspects of IDX's products, to obtain and use information that IDX regards as
proprietary or to independently develop similar technology. Litigation may be
necessary in the future to enforce or defend IDX's proprietary technology or to
determine the validity and scope of the proprietary rights of others. This
litigation, whether successful or unsuccessful, could result in substantial
costs and diversion of management and technical resources.
IDX MAY HAVE CONFLICTS OF INTERESTS WITH SOME OF ITS EXECUTIVES. Richard E.
Tarrant, President, Chief Executive Officer and Director, and Robert H. Hoehl,
Chairman of the Board of Directors, indirectly own, through various entities,
real estate which IDX leases in connection with its operations. During 1999, IDX
paid an
Page 18 of 24
aggregate of approximately $2.1 million in connection with these leases. IDX is
currently negotiating to contract to purchase its headquarters facilities in
South Burlington, Vermont from a real estate entity owned by Richard E. Tarrant
and Robert H. Hoehl for a purchase price of approximately $15.0 million. IDX has
commenced a $16 million construction project to expand its office facilities at
that location. In connection with these arrangements, the economic interests of
these executives and directors and IDX may diverge.
The following important factors affect our Internet services and content
business segment or "ChannelHealth" business:
CHANNELHEALTH'S LIMITED OPERATING HISTORY MAY MAKE IT DIFFICULT TO VALUE AND
EVALUATE ITS BUSINESS AND FUTURE PROSPECTS. ChannelHealth commenced operations
October 1999 and only recently commercially released its first product. An
evaluation of the risks and uncertainties of ChannelHealth's business will be
difficult because of ChannelHealth's limited operating history. In addition,
ChannelHealth's limited operating history means that it has less insight into
how technological and market trends may affect its business as evidenced by the
writeoff of goodwill of $5.8 million in the first quarter of 2000 due to a
change in its content strategy. The revenue and income potential of
ChannelHealth's business and market are unproven, and its business model is
emerging and unproven. ChannelHealth's business and prospects must be considered
in light of the risks and difficulties typically encountered by businesses in
their early stages of development, particularly those in new and rapidly
evolving markets such as the Internet healthcare information industry.
CHANNELHEALTH HAS INCURRED SUBSTANTIAL LOSSES TO DATE AND MAY NOT BE ABLE TO
ACHIEVE OR MAINTAIN PROFITABILITY. ChannelHealth has incurred losses since it
began operations. ChannelHealth incurred a net loss of $8.7 million in the first
quarter of 2000 and a net loss of $5.5 million for the year ended December 31,
1999, and its accumulated deficit through December 31, 1999 was $5.5 million.
ChannelHealth cannot be certain if or when it will become profitable.
ChannelHealth's failure to become profitable within the timeframe expected by
IDX investors or at all may adversely affect the market price of IDX Common
Stock. ChannelHealth expects to continue to increase its expenses in an effort
to develop its business and, as a result, will need to generate significant
revenue to achieve profitability. Even if ChannelHealth does achieve
profitability, there can be no assurance that ChannelHealth can sustain or
increase profitability on a quarterly or annual basis in the future.
CURRENTLY, CHANNELHEALTH'S BUSINESS DEPENDS ON INTEGRATING INTERNET-RELATED
TECHNOLOGY INTO ITS CUSTOMERS' BUSINESSES, AND, AS A RESULT, ITS BUSINESS WILL
SUFFER IF USE OF THE INTERNET AS A MEANS FOR COMMERCE DECLINES. If commerce on
the Internet does not continue to grow or grows slower than expected, the need
for ChannelHealth's Internet healthcare information products and services could
decline, resulting in fewer projects and reduced revenues. Consumers and
businesses may reject the Internet as a viable commercial medium for a number of
reasons, including:
o actual or perceived lack of security of information;
o lack of access and ease of use;
o congestion of Internet traffic or other usage delays;
o inconsistent quality of service;
o increase in access costs to the Internet;
o evolving government regulation;
o uncertainty regarding intellectual property ownership;
o costs associated with the obsolescence of existing infrastructure; and
o economic viability of the Internet commerce model.
Page 19 of 24
Because of these and other factors, past financial performance should not be
considered an indicator of future performance. Investors should not use
historical trends to anticipate future results.
The adoption of Internet solutions by healthcare participants will require the
acceptance of a new way of conducting business and exchanging information. The
healthcare industry, in particular, relies on legacy systems that may be unable
to benefit from ChannelHealth's Internet healthcare information services. To
maximize the benefits of ChannelHealth's services, healthcare participants must
be willing to allow sensitive information to be stored in ChannelHealth's
databases. ChannelHealth can process transactions for healthcare participants
that maintain information on their own proprietary databases. However, the
benefits of ChannelHealth's connectivity and sophisticated services are limited
under these circumstances. Customers using legacy and client-server systems may
refuse to adopt new systems when they have made extensive investment in
hardware, software and training for older systems.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT CHANNELHEALTH'S BUSINESS.
ChannelHealth's business will be subject to government regulation. Existing as
well as new laws and regulations could adversely affect its business. Laws and
regulations may be adopted with respect to the Internet or other on-line
services covering issues such as:
o user privacy;
o system security;
o pricing;
o content;
o copyrights;
o distribution; and
o characteristics and quality of products and services.
The applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Demand for
ChannelHealth's applications and services may be adversely affected by
additional regulation of the Internet.
IF CHANNELHEALTH SYSTEMS EXPERIENCE SECURITY BREACHES OR ARE OTHERWISE PERCEIVED
TO BE INSECURE, CHANNELHEALTH'S REPUTATION AND BUSINESS WILL SUFFER. A material
security breach could damage ChannelHealth's reputation, cause users to lose
confidence in ChannelHealth's systems or result in liability. ChannelHealth will
retain confidential customer and patient information in its processing centers.
ChannelHealth may be required to spend significant capital and other resources
to protect against security breaches or to alleviate problems caused by
breaches. Any well-publicized compromise of Internet security could deter people
from using the Internet or from conducting transactions that involve
transmitting confidential information, including confidential healthcare
information. Therefore, it is critical that these facilities and infrastructure
remain secure and are perceived by the marketplace to be secure. Despite the
implementation of security measures, this infrastructure may be vulnerable to
physical break-ins, computer viruses, programming errors, attacks by third
parties or similar disruptive problems. Any damage to ChannelHealth's reputation
or loss of user confidence as a result of a security breach could reduce the
willingness of patients and physicians to use ChannelHealth's products and
services and as a result, adversely affect ChannelHealth's business.
CHANNELHEALTH DEPENDS UPON A SINGLE TRANSACTION SERVICE PROVIDER TO PROVIDE MOST
OF CHANNELHEALTH'S TRANSACTION SERVICES AND IF THAT PROVIDER IS UNABLE OR
UNWILLING TO PROVIDE SUCH SERVICES, CHANNELHEALTH MAY NOT BE ABLE TO PROVIDE
SERVICE TO ITS CUSTOMERS. ChannelHealth currently relies on ProxyMed for most of
its electronic transaction services. ChannelHealth's reliance on a single
provider of these services exposes ChannelHealth, and IDX as a reseller of
ChannelHealth's products and services, to a number of risks, including the
Page 20 of 24
loss of customer goodwill and possible liability, if ProxyMed fails to provide
transaction services. If ProxyMed is unable or unwilling to provide such
services to ChannelHealth on a timely basis, ChannelHealth may be forced to
engage additional or replacement providers, which could result in additional
expenses and delays and disruptions in ChannelHealth's service.
PERFORMANCE PROBLEMS WITH THE SYSTEMS OF CHANNELHEALTH'S TRANSACTION, SERVICE
AND CONTENT PROVIDERS COULD HARM CHANNELHEALTH'S BUSINESS. ChannelHealth will
depend on service and content providers to provide transactions and information
on a timely basis. ChannelHealth's Web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, ChannelHealth's customers will depend
on Internet service providers, online service providers and other Web site
operators for access to our Web sites. All of these providers have experienced
significant outages in the past and could experience outages, delays and other
difficulties in the future due to system failures unrelated to ChannelHealth's
systems. Any significant interruptions in ChannelHealth's services or increases
in response time could result in a loss of potential or existing customers,
strategic partners, advertisers or sponsors and, if sustained or repeated, would
likely reduce the attractiveness of ChannelHealth's services.
Page 21 of 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes that no
such currently pending routine litigation to which it is party will
have a material adverse effect on its financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits filed as part of this Form 10-Q are listed on the Exhibit
Index immediately preceding such exhibits, which Exhibit Index is
incorporated herein by reference.
Page 22 of 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IDX SYSTEMS CORPORATION
Date: May 15, 2000 By: /S/ JOHN A. KANE
____________________________
John A. Kane,
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
Page 23 of 24
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
Exhibit No. Description Page
- ----------- ----------- ----
10 Series A Convertible Preferred Stock Purchase 25
Agreement by and between Channelhealth
Incorporated , IDX Systems Corporation and Purchasers
named on Schedule I dated as of January 10, 2000.
27 Financial Data Schedule 151
Page 24 of 24
EXHIBIT 10
Draft of 01/06/99
CHANNELHEALTH INCORPORATED
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
Dated as of January 10, 2000
TABLE OF CONTENTS
Page
SECTION 1 AUTHORIZATION AND SALE OF THE SECURITIES........................5
1.1 Authorization..................................................5
1.2. Amended and Restated Certificate of Incorporation..............5
1.3. Sale of Securities.............................................5
1.4. Use of cash Proceeds...........................................5
SECTION 2 CLOSING DATES; DELIVERIES.......................................5
2.1. Closing........................................................5
2.2. Deliveries.....................................................6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................7
3.1. Organization and Qualification.................................7
3.2. Certificate of Incorporation and Bylaws........................7
3.3. Corporate Power................................................7
3.4. Subsidiaries...................................................7
3.5. Capitalization.................................................7
3.6. Authorization..................................................8
3.7. Financial Statements...........................................8
3.8. Title to Properties and Assets; Insurance......................8
3.9. Related-Party Transactions.....................................8
3.10. Permits; Compliance and with Applicable law....................8
3.11. Proprietary Rights.............................................9
3.12. Contracts......................................................9
3.13. [Reserved].....................................................10
3.14. Absence of Conflicts...........................................10
3.15. Litigation.....................................................10
3.16. Governmental Consent...........................................10
3.17. Employees......................................................10
3.18. Tax Returns, Payments, and Elections...........................10
3.19. Brokers or Finders.............................................10
3.20. Employee Benefit Plans; Labor..................................10
3.21. Company Status.................................................11
3.22. Offering Exemption.............................................11
3.23. Use of Proceeds................................................11
3.24. Environmental Matters..........................................11
3.25. [Reserved].....................................................12
3.26. Y2K Compliance.................................................12
3.27. Disclosure.....................................................12
SECTION 4 REPRESENTATIOINS AND WARRANTIES OF IDX..........................12
4.1. Organization and Qualification.................................12
4.2. Corporate Power; Authorization; Enforceability.................12
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................12
5.1. Experience.....................................................13
5.2. Investment.....................................................13
5.3. Rule 144.......................................................13
5.4. No Public Market...............................................13
5.5. Access to Data.................................................13
5.6. Authorization..................................................13
5.7. Brokers or Finders.............................................13
5.8. Investor Qualification.........................................13
2
SECTION 6 RESERVED........................................................14
SECTION 7 RESERVED........................................................14
SECTION 8 POST CLOSING COVENANTS..........................................14
8.1. Basic Information Rights.......................................14
8.2. Access and Additional Information Rights.......................14
8.3. Director and Officer Insurance.................................14
8.4. Agreements with Employees......................................14
8.5. Board Meetings.................................................14
8.6. Use of Proceeds................................................15
8.7. Books and Records..............................................15
8.8 Reservation of Common Stock....................................15
8.9. Board of Directors.............................................15
8.10. ERISA Covenant.................................................15
8.11. Pequot's Put to IDX............................................15
8.12. Covenant to Cooperate in Providing Financial Statements........16
8.13. Opening Balance Sheet..........................................16
8.14. Documentation of Asset and other Transfers.....................16
8.15. Settlement and Release of Patent Infringement Suit.............16
8.16. Termination of Covenants.......................................16
SECTION 9 GENERAL PROVISIONS..............................................16
9.1. Governing Law..................................................16
9.2. Successors and Assigns; Third Party Beneficiaries..............16
9.3. Entire Agreement; Amendment and Waiver.........................16
9.4. Survival of Representations, Warranties and Agreements.........16
9.5. Notices, etc...................................................17
9.6. Delays or Omissions............................................17
9.7. References.....................................................17
9.8. Severability...................................................17
9.9. Pronouns.......................................................17
9.10. Counterparts; Facsimile Execution..............................17
9.11. Remedies.......................................................17
9.12. Certain Definitions............................................17
9.13. Restrictive Legends............................................18
9.14 Expenses.......................................................18
3
SCHEDULES
Schedule I - Schedule of Purchasers
Disclosure Schedule
EXHIBITS
Exhibit A - Amended and Restated Certificate of Incorporation
Exhibit B - Stockholders' Agreement
Exhibit C - Registration Rights Agreement
Exhibit D - Employment, Non-Competition and Non-Disclosure Agreement
Exhibit E - Cross-License and Software Maintenance Agreement
Exhibit F - Administrative Services Agreement
Exhibit G - Marketing, Development and Service Agreement
Exhibit H - Opinion of Corporate Counsel to the Company
4
CHANNELHEALTH INCORPORATED
SERIES A CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
January 10, 2000, by and between CHANNELHEALTH INCORPORATED, a Delaware
corporation (the "Company"), IDX SYSTEMS CORPORATION ("IDX") and the Purchasers
named on Schedule I hereto (the "Purchasers").
WHEREAS, the Company is a wholly owned subsidiary of IDX; and
WHEREAS, the Company desires to sell to the Purchasers, and the
Purchasers desire to buy from the Company the number of shares of Series A
Convertible Preferred Stock of the Company set forth opposite such Purchasers'
name on Schedule I hereto for a purchase price per share as set forth herein.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
SECTION 1
AUTHORIZATION AND SALE OF THE SECURITIES
----------------------------------------
1.1 Authorization.
-------------
The Company has authorized the issuance and sale hereunder of up to 3,000,000
shares of its Series A Convertible Preferred Stock, $.001 par value per share
("Series A Preferred Stock"), at the Closing (the "Shares").
1.2 Amended and Restated Certificate of Incorporation.
--------------------------------------------------
The Company shall adoptand file with the Secretary of State of the State of
Delaware on or before the Closing (as defined below) Amended and Restated
Certificate of Incorporation in the form attached hereto as EXHIBIT A (the
"Restated Certificate").
1.3 Sale of the Securities.
-----------------------
At the Closing, and subject to the terms and conditions hereof, the Company
shall sell and issue to each Purchaser, and such Purchaser shall purchase from
the Company, the number of Shares specified opposite such Purchaser's name on
Schedule I attached hereto (the "Schedule of Purchasers"), at the purchase price
of Eleven Dollars and Eighty Cents ($11.80) per share, payable as set forth in
Section 2.2 of this Agreement.
1.4 Use of Cash Proceeds.
---------------------
The Company shall use the net proceeds from the sale of the Shares for (a)
funding of the development of the Company's organizational infrastructure, (b)
working capital for the Company's current businesses and (c) acquisitions by the
Company (collectively, the "Permitted Purposes").
SECTION 2
CLOSING DATES; DELIVERIES
-------------------------
2.1 Closing.
-------
(a) The initial closing of the purchase and sale of the Shares hereunder (the
"Closing") is taking place at the offices of Dewey Ballantine LLP at 1301 Avenue
of the Americas, New York, New York, at 10:00 a.m. on the date hereof or at such
other place and time as the parties may mutually agree. The date of the Closing
is referred to as the "Closing Date."
(b) To the extent that any of the authorized Shares are not issued and sold at
the Closing, the Company may sell some or all of such Shares to the Purchasers
listed on the Schedule of Purchasers; provided, however, that (i) any such sales
hereunder shall take place on or before January 31, 2000, (ii) such Shares are
issued and sold at a price equal to $11.80 per share and otherwise in accordance
with the provisions of this Agreement, (iii) the aggregate number of Shares
5
issued pursuant to this Agreement shall not exceed 3,000,000 and (iv) at terms
no more favorable that those at any previous closing of Series A Preferred
Stock. In the event of any such sales: (x) the Schedule of Purchasers shall be
supplemented to add the address of each such Purchaser, the number of Shares to
be purchased by each such Purchaser and the purchase price to be paid by each
such Purchaser and the Company shall provide each Purchaser with a copy of the
Schedule of Purchasers as so supplemented, (y) each such Purchaser shall execute
and deliver this Agreement by executing and delivering to the Company and each
other Purchaser counterpart signature pages hereto and (z) the sale of such
Shares shall not be subject to the pre-emptive rights of Section 8 of the
Stockholders' Agreement (as hereinafter defined).
2.2 Deliveries.
----------
At the Closing, the parties are making the following deliveries:
(a) Certificates and Purchase Price.
-------------------------------
The Company is delivering to each Purchaser the appropriate certificate(s)
representing the number of Shares set forth opposite such Purchasers' name on
the Schedule of Purchasers, which shall be delivered against payment of the
purchase price therefor in the amount specified on the Schedule of Purchasers,
by certified check payable to the order of the Company, or wire transfer of same
day funds to an account designated at least one business day prior to the
Closing by the Company (or any combination thereof) in the respective amounts
specified on the Schedule of Purchasers.
(b) Restated Certificate.
--------------------
The Company is delivering to the Purchasers a certified copy of the Restated
Certificate, certified by the Secretary of State of the State of Delaware.
(c) Stockholders' Agreement.
-----------------------
The Company and IDX are executing and delivering a Stockholders' Agreement in
substantially the form of EXHIBIT B hereto (the "Stockholders' Agreement").
(d) Registration Rights Agreement.
-----------------------------
The Company and IDX are executing and delivering a Registration Rights Agreement
in substantially the form of EXHIBIT C hereto (the "Registration Rights
Agreement").
(e) Employment Agreements.
---------------------
The Company is delivering as attached to Section 3.12 of the disclosure schedule
to each Purchaser a copy of the employment agreements with substantially all of
the employees of the Company and attached hereto as EXHIBIT D is a copy of the
form of Employment, Noncompetition and Nondisclosure Agreement that the Company
requires each new employee to execute.
(f) Cross License; Service Agreement and Marketing Agreement.
-----------------------------------------------------------
The Company is delivering to each Purchaser a copy of each of the Cross License
and Software Maintenance Agreement, the Administrative Services Agreement and
the Marketing, Development and Service Agreement, in substantially the forms of
EXHIBIT E, EXHIBIT F, and EXHIBIT G, respectively, hereto executed by the
Company and IDX (collectively, the "Service Agreement").
g) Opinion of Company Counsel.
--------------------------
Robert W. Baker, Jr., corporate counsel to the Company, is delivering to the
Pequot Private Equity Fund II, L.P. ("Pequot") his opinion in substantially the
form of EXHIBIT H hereto.
(h) Board of Directors of the Company.
------------------------------------
The Company is delivering to each Purchaser evidence that the number of
directors comprising the Company's board of directors has been initially set at
five and that Gerald A. Poch has been elected to the board of directors of the
Company.
(i) Secretary's Certificate.
------------------------
The Company is delivering to each Purchaser a certificate executed by the
Secretary of the Company, certifying (i) resolutions adopted by the Board of
Directors of the Company authorizing the transactions contemplated by this
Agreement, (ii) the Restated Certificate, (iii) the Bylaws of the Company, (iv)
incumbency matters and (v) such other proceedings relating to the authorization,
execution and delivery of this Agreement and the Restated Certificate, the
Stockholders' Agreement, the Registration Rights Agreement and the Service
Agreement (together, the "Ancillary Agreements") as may be reasonably requested
by the Purchasers.
(j) Employees.
---------
The Company is delivering to each Purchaser a list of the employees of the
Company as of the Closing Date.
(k) Consents and Approvals.
----------------------
The Company is delivering to each Purchaser copies of all consents required to
6
effect the transactions contemplated hereby, including, without limitation, any
consents or notices required to by filed by applicable federal or state
securities laws on or before the Closing Date.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to each Purchaser that, except as set
forth on the Disclosure Schedule attached hereto (the "Disclosure Schedule"),
specifically identifying the relevant Sections hereof, which Disclosure Schedule
shall be deemed to be part of the representations and warranties as if made
hereunder:
3.1 Organization and Qualification.
------------------------------
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power and authority to own, lease and operate its assets, properties and
business and to carry on its business as it is now being conducted or proposed
to be conducted. The Company is duly qualified as a foreign corporation to
transact business, and is in good standing, in each jurisdiction where it owns
or leases real property or maintains employees or where the nature of its
activities make such qualification necessary.
3.2 Certificate of Incorporation and Bylaws.
-----------------------------------------
The Company has delivered to the Purchasers true, correct, and complete copies
of the Restated certificate and the Company's Bylaws, as amended through the
date hereof.
3.3 Corporate Power.
---------------
The Company has all requisite legal and corporate power and authority to execute
and deliver this Agreement and the Ancillary Agreements, to sell and issue the
Shares hereunder, and to carry out and perform its obligations under the terms
of this Agreement and each of the Ancillary Agreements.
3.4 Subsidiaries.
------------
The Company has no direct or indirect Subsidiaries (as defined in Section 9.12).
The Company does not, directly or indirectly, own or control or have any capital
or other equity interest or participation in (or any interest convertible into
or exchangeable or exercisable for, any capital or other equity interest or
participation in) any Person (as defined in Section 9.12) nor is the Company,
directly or indirectly, subject to any obligation or requirement to provide
funds to or invest in any Person.
3.5 Capitalization.
--------------
(a) General.
-------
The authorized capital stock of the Company consists, or will consist
immediately prior to the Closing, of 103,000,000 shares, of which 100,000,000
are designated as Common Stock, $.001 par value per share ("Common Stock"), and
of which 3,000,000 are designated as Series A Preferred Stock. Upon consummation
of the transactions contemplated by this Agreement, the capitalization of the
Company shall be as set forth in Section 3.5 of the Disclosure Schedule. Three
Million (3,000,000) shares of the authorized Common Stock have been reserved for
issuance upon conversion of the Series A Preferred Stock. As of the Closing, all
issued and outstanding shares of the Company's capital stock will have been duly
authorized and validly issued, will be fully paid and nonassessable and will be
owned of record, and to the Company's knowledge, beneficially, by the
stockholders and in the amounts set forth in Section 3.5 of the Disclosure
Schedule. As of the Closing, the Shares will be free of any liens, claims or
encumbrances of the Company and free of restrictions on transfer other than as
set forth in this Agreement, the Bylaws, the stock option agreements issued
pursuant to the Option Plan (if applicable) and the Ancillary Agreements and
under applicable state and federal securities laws. All issued and outstanding
Shares of the Company's capital stock and all other securities issued by the
Company have been issued in accordance with the applicable securities laws and
regulations. Except as set forth in Section 3.5 of the Disclosure Schedule or as
provided in the Ancillary Agreements, there are no options, warrants, conversion
privileges, or preemptive or other rights or agreements presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the capital
stock or other securities of the Company. Except as aforesaid and as
contemplated herein, the Company is not a party or subject to any agreement or
understanding that affects or relates to the voting or giving of written
consents with respect to any security, or the voting by a director, of the
Company. Except as aforesaid and as set forth in Section 3.5 of the Disclosure
Schedule, the Company is not subject to any obligation (contingent or otherwise)
to repurchase or otherwise to acquire or retire any shares of its capital stock.
The Company has not declared or paid any dividend or made any other distribution
of cash, stock or other property to its stockholders.
7
(b) Common Stock.
------------
Immediately prior to the consummation of the transactions contemplated hereby,
25,422,425 shares of Common Stock are issued and outstanding as of the date
hereof.
3.6 Authorization.
-------------
All corporate action on the part of the Company, its officers, directors, and
its stockholders necessary for the authorization, execution, delivery and
performance of this Agreement and all other agreements executed in connection
with the transactions contemplated hereby by the Company, the authorization,
sale, issuance and delivery of the Shares and the performance of all of the
Company's obligations hereunder and under the Ancillary Agreements have been
taken or will be taken prior to the Closing. This Agreement and each of the
Ancillary Agreements, when executed and delivered by the Company, will
constitute a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its respective terms, subject to (i) laws
of general application relating to bankruptcy, insolvency, and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief, or other equitable remedies.
3.7 Financial Statements.
--------------------
Attached to Section 3.7 of the Disclosure Schedule is a complete and correct
copy of the unaudited pro forma statement of assets and liabilities of the
Company as at December 31, 1999 ( the "Financial Statement"). Such Financial
Statement has been prepared in accordance with generally accepted accounting
principles consistently applied (except for the omission of any notes thereto)
and fairly presents the assets and liabilities of the Company for such period.
Since December 31, 1999, there has not been any material adverse change to the
assets, properties, prospects, operating results, business or financial
condition of the Company as set forth in the Financial Statement. There are no
material liabilities not disclosed in the Financial Statement, other than those
incurred in the ordinary course of business since December 31, 1999 and as set
forth in the Disclosure Schedule.
3.8 Title to Properties and Assets; Insurance.
-----------------------------------------
(a) Except as set forth in Section 3.8 of the Disclosure Schedule, the Company
currently owns no real property, and since its inception it has never owned any
real property. The Company has good title to or a valid leasehold interest in
all of the property or assets used by it or located on its premises that are
material to the business or operations of the Company, free and clear of all
liens, restrictions and encumbrances other than liens for current taxes not yet
due and payable, and liens and encumbrances which have arisen in the ordinary
course of business and which do not, individually or in the aggregate, detract
in any material respect from the value of the property subject thereto or impair
in any material respect the operations of the Company.
(b) Except as set forth in Section 3.8 of the Disclosure Schedule, the assets of
the Company include all leases, contracts, furniture, fixtures, inventory and
equipment (for purposes of this clause (b), the "Equipment") necessary for the
Company to conduct its business as presently conducted.
(c) The Company is a named insured under IDX's insurance policies which are
maintained in such amounts (to the extent available in the public market),
including (as applicable) self-insurance, retainage and deductible arrangements,
and of such a character as is reasonable for companies engaged in the same or
similar business similarly situated. Section 3.8 of the Disclosure Schedule sets
forth a list of all insurance coverage carried by IDX that name the Company as
an insured, identifying the carrier and the amount of coverage.
3.9 Related-Party Transactions.
---------------------------
Except as set forth in Section 3.9 of the Disclosure Schedule, no employee,
officer, stockholder, director or consultant of the Company or member of his or
her immediate family (defined as parents, spouse, siblings or lineal
descendants) is indebted to the Company, and the Company is not indebted (or
committed to make loans or extend or guarantee credit) to any of them. To the
knowledge of the Company, no employee, officer, stockholder, director or
consultant of the Company has any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except stock ownership by employees, officers, stockholders or
directors of the Company and members of their immediate families in publicly
traded companies. No officer, stockholder or director or any member of their
immediate families is, directly or indirectly, interested in any contract (other
than this Agreement or the Ancillary Agreements) with the Company.
3.10 Permits; Compliance with Applicable Law.
-------------------------------------------
The Company has all material franchises, permits, licenses, authorizations,
approvals and any similar authority ("Permits") necessary for the conduct of its
business as now being conducted by it. The Company is not in violation in any
material respect of, or default in any material respect under, any such Permits.
8
All such Permits are in full force and effect, and to the Company's knowledge,
no violations have been recorded in respect of any such permits; no proceeding
is pending or, to the knowledge of the Company, threatened to revoke or limit
any such Permit; and no such Permit will be suspended, cancelled or adversely
modified as a result of the execution and delivery of this Agreement or the
Ancillary Agreements and the consummation of the transactions contemplated
hereby or thereby.
3.11 Proprietary Rights.
------------------
(a) Except as set forth in Section 3.11 of the Disclosure Schedule: (i) the
Company is the owner, free and clear of any lien or encumbrance, of, or has a
valid license, without the payment of any royalty except with respect to
off-the-shelf software and otherwise on commercially reasonable terms, to, all
U.S. and foreign trademarks, service marks, logos, designs, trade names,
internet domain names and corporate names, and the goodwill of the business
connected therewith and symbolized thereby, patents, registered designs,
copyrights, computer software and databases, whether or not registered, web
sites and web pages and related items (and all intellectual property and
proprietary rights incorporated therein) and all other trade secrets, research
and development, formulae, know-how, proprietary and intellectual property
rights and information, including all grants, registrations and applications
relating thereto which are material to the business or operations of the Company
(collectively, the "Proprietary Rights") and necessary for the conduct of its
business as now conducted or as contemplated to be conducted (such Proprietary
Rights owned by or licensed to the Company, collectively, the "Company Rights");
(ii) the Company has taken all actions which are necessary in order to protect
the Company Rights, and to acquire Proprietary Rights, consistent with prudent
commercial practices in the Company's industry; (iii) to the best of its
knowledge, the Company's rights in the Company Rights are valid and enforceable;
(iv) the Company has received no demand, claim, notice or inquiry from any
Person in respect of the Company Rights which challenges, threatens to challenge
or inquires as to whether there is any basis to challenge, the validity of, or
the rights of the Company in, any such Company Rights, and the Company knows of
no basis for any such challenge; (v) the Company is not in violation or
infringement of, and has not violated or infringed, any Proprietary Rights of
any other Person; (vi) to the knowledge of the Company, no Person is infringing
any Company Rights; and (vii) except on an arm's-length basis for value and
other commercially reasonable terms, the Company has not granted any license
with respect to any Company Rights to any Person.
(b) Section 3.11 of the Disclosure Schedule contains a complete and accurate
list of the Company Rights and all license and other agreements relating
thereto, in each case which are material to the business or operations of the
Company.
3.12 Contracts.
---------
Set forth in Section 3.12 of the Disclosure Schedule is a list
of all agreements to which the Company is a party or agreements by which the
Company is bound which are material to the business or operations of the
Company, including without limitation (a) any employment and consulting
agreements, employee benefit, bonus, pension, profit-sharing, stock option,
stock purchase and similar plans and arrangements, (b) any agreement with any
current or former stockholder, officer or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act of 1933, as amended
(the "Securities Act")), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity and (c) any agreement relating to the intellectual property rights
necessary for the conduct of the Company's business as presently conducted or as
contemplated to be conducted on the Closing Date.
(b) Assuming the due execution and delivery by the other parties thereto, each
of such Contracts is as of the date hereof legal, valid and binding, and in full
force and effect, and enforceable in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency, and the relief
of debtors, and (ii) rules of law governing specific performance, injunctive
relief, or other equitable remedies. Except as set forth in Section 3.12 of the
Disclosure Schedule, there is no breach, violation or default by the Company
(or, to the knowledge of the Company, any other party) under any such Contract,
and no event (including, without limitation, the transactions contemplated by
this Agreement) has occurred which, with notice or lapse of time or both, would
(A) constitute a breach, violation or default by the Company (or, to the
knowledge of the Company, any other party) under any such Contract, or (B) give
rise to any lien or right of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration against the
Company under any such Contract. Except us set forth in Section 3.12 of the
Disclosure Schedule, the Company is not and, to the knowledge of the Company, no
other party to any of such Contracts is in arrears in respect of the performance
or satisfaction of any material terms or conditions on its part to be performed
or satisfied under any of such Contracts, and the Company has not and, to the
knowledge of the Company, no other party thereto has granted or been granted any
waiver or indulgence under any of such Contracts or repudiated any provision
thereof.
9
3.13 [Reserved].
--------
3.14 Absence of Conflicts.
--------------------
The execution, delivery, and performance of, and compliance with this Agreement
and the Ancillary Agreements, the issuance of the Shares and the consummation of
the transactions contemplated hereby and thereby, have not and will not: (i)
violate, conflict with or result in a breach of any provision of or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien upon any of the
assets, properties or business of the Company under, any of the terms,
conditions or provisions of (x) the Restated Certificate or the Bylaws of the
Company, or (y) any indenture, mortgage, guaranty, lease, license or other
contract, agreement or understanding to which the Company is a party or by which
any of its assets or properties are bound, which would have a Material Adverse
Effect (as defined below); or (ii) violate any judgment, ruling, order, writ,
injunction, award, decree, or any law or regulation of any court or federal,
state, county or local government or any other governmental, regulatory or
administrative agency or authority which is applicable to the Company or any of
its assets, properties or businesses, which would have a Material Adverse
Effect.
3.15 Litigation.
----------
Except as set forth in Section 3.15 of the Disclosure Schedule, there is no
action, suit or proceeding, or governmental inquiry or investigation, pending,
or, to the Company's knowledge, any threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it, or which might result in a material adverse effect on the business
assets, properties, operations, results of operations or financial condition of
the Company (a "Material Adverse Effect"), either individually or in the
aggregate, nor is there any litigation pending, or, to the Company's knowledge,
any threat thereof, against the Company by reason of the proposed activities of
the Company or negotiations by the Company with possible investors in the
Company. The Company is not subject to any outstanding judgment, order or
decree.
3.16 Governmental Consent.
---------------------
No consent, approval, or authorization of, or designation, declaration,
notification, or filing with any governmental authority on the part of the
Company is required in connection with the valid execution, delivery and
performance of this Agreement or any of the Ancillary Agreements, the offer,
sale, or issuance of the Shares or the consummation of any other transaction
contemplated hereby or by the Ancillary Agreements (other than such
notifications or filings required under applicable federal or state securities
laws, if any, and the filing required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act")).
3.17 Employees.
---------
Set forth in Section 3.17 of the Disclosure Schedule is a list of substantially
all of the employees who are employed by the Company on the Closing Date.
3.18 Tax Returns, Payments, and Elections.
-------------------------------------
The Company has not been required to file any federal, state, county, local or
foreign tax returns, and any returns prepared by it or on its behalf are true
and correct and all taxes have been timely paid. Neither the Company nor any of
its stockholders has ever filed (a) an election pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), that the Company be
taxed as an S Corporation or (b) consent pursuant to Section 341(f) of the Code
relating to collapsible corporations. With respect to any tax periods or
portions thereof ending on or prior to the Closing Date, the Company is, and at
all times has been, a member of the IDX affiliated group (the "Affiliated
Group") for Federal income tax purposes, and the Company has no liability for
any Federal, state or other tax liability asserted by the Internal Revenue
Service or any other competent taxing authority or jurisdiction resulting from
membership in the Affiliated Group or the preparation of the Affiliated Group's
consolidated Federal income tax returns or otherwise.
3.19 Brokers or Finders.
-------------------
The Company has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by the Company, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or the Ancillary Agreements or any transaction contemplated
hereby or thereby.
3.20 Employee Benefit Plans; Labor.
-----------------------------
(a) Section 3.20 of the Disclosure Schedule contains a true and complete list of
all material employee benefit, savings, retirement, pension, fringe benefit,
severance, compensation and similar plans which are currently maintained by the
Company or its ERISA Affiliates, and which currently covers any present or
former employees, officers, or directors of the Company with respect to their
10
employment with the Company ("Company Personnel") and to which the Company
contributes or is required to contribute or for which the Company has any
liability for Company Personnel as of the Closing, including, but not limited
to, "employee benefit plans" within the meaning of Section 3(3) of ERISA,
pension, savings, stock purchase, stock option, restricted stock, phantom stock,
stock appreciation rights, severance, employment, change in control, fringe
benefit, bonus, incentive, cost of living and deferred compensation plans,
agreement, programs and policies (collectively, the "Employee Plans"). All
contributions or payments owed by the Company, with respect to employment of
Company Personnel, for any periods prior to the Closing under any Employee Plan
have been made or appropriately accrued. Any government agency filings that are
required to be filed by the Company for any Employee Plan prior to the Closing
have been made on a timely basis.
(b) All Employee Plans comply in all material respects with applicable laws
(including, but not limited to, ERISA, the Code, and the Age Discrimination in
Employment Act of 1967, as amended) and comply in form and in operation in all
material respects with the applicable requirements of ERISA, the Code, the
regulations and published authorities thereunder and other applicable laws as of
the Closing.
(c) Neither the Company nor any of its ERISA Affiliates has at any time
maintained prior to the closing, contributed to or been required to contribute
to, or had any liability with respect to, any plan which is subject to Title IV
of ERISA or Section 412 of the Code (including, without limitation, any
multiemployer plan (within the meaning of Section 3(37) of ERISA)). Neither the
Company nor any other "disqualified person" or "party-in-interest" with respect
to an Employee Plan has engaged in any "prohibited transaction" (as those terms
are defined in Section 4975 of the Code or Sections 3(14) and 406 of ERISA),
which could subject the Company, or any person who the Company has an obligation
to indemnify, to any material tax or penalty imposed under Section 4975 of the
Code or Section 502 of ERISA. The events contemplated by this Agreement (either
alone or together with any other event) will not (w) entitle any Company
Personnel to severance pay, unemployment compensation, or other similar payments
under any Employee Plan or law, (x) accelerate the time of payment or vesting or
increase the amount of compensation or benefits due under any Employee Plan, (y)
result in any payments (including parachute payments within the meaning of
Section 280G of the Code) under any Employee Plan.
(d) The Company and each of its subsidiaries is in compliance in all material
respects with all laws and orders relating to the employment of labor and
classification of persons as employees, including, without limitation, all such
laws and orders relating to wages, hours, discrimination, civil rights, safety
and the collection and payment of withholding and/or Social Security taxes and
similar taxes and provision of employee benefits as of the Closing.
3.21 Company Status.
--------------
The Company is not (i) a "public utility holding company" or a "holding company"
as defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a
"public utility" as defined in the Federal Power Act, as amended, or (iii) an
"investment company" as defined in the Investment Company Act of 1940, as
amended.
3.22 Offering Exemption.
------------------
Assuming the truth and accuracy of the representations and warranties contained
in Section 5, the offer and sale of the Series A Preferred Stock as contemplated
hereby and the issuance and delivery to the Purchasers of the Shares and the
shares of Common Stock issuable upon the conversion of the Shares are exempt
from registration under the Securities Act, and under applicable state
securities and "blue sky" laws, as currently in effect.
3.23 Use of Proceeds.
---------------
The Company shall use the cash proceeds of the sale of the Shares for the
Permitted Purposes.
3.24 Environmental Matters.
---------------------
(a) To the Company's knowledge, there are, with respect to the Company, or any
predecessor thereof, no past or present violations of Environmental Law (as
defined below), nor any actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any liability
pursuant to any Environmental Law, and the Company has not received any written
notice with respect to any of the foregoing. There is no is any civil, criminal
or administrative action, suit, claim, notice, hearing, inquiry, proceeding or
investigation at law or in equity by or before any court, arbitrator or similar
panel, governmental instrumentality or other agency now pending or, to the
knowledge of the Company, threatened against the Company or the assets of the
Company in connection with any of the foregoing.
(b) For purposes of this Section 3.24, capitalized terms used herein shall have
the following meanings:
11
"Environmental Laws" shall mean, at any date, all provisions of
federal, state, local or foreign law (including applicable principles of common
and civil law), statutes, ordinances, rules, regulations, published standards
and directives that have the force and effect of law, permits, licenses,
judgments, writs, injunctions, decrees and orders enacted, promulgated or issued
by any Public Authority, and all indemnity agreements and other contractual
obligations, as in effect at such date, relating to (i) the protection of the
environment, including the air, surface and subsurface soils, surface waters,
groundwaters and natural resources, and (ii) occupational health and safety and
exposure of persons to Hazardous Materials. Environmental Laws shall include the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss.9601 et seq., and any other laws imposing or creating liability with
respect to Hazardous Materials.
"Hazardous Material" shall mean any substance regulated by any
Environmental Law.
"Public Authority" shall mean any supranational, national, regional,
state or local government court, governmental agency, authority, board, bureau,
instrumentality or regulatory body.
3.25 [Reserved].
----------
3.26 Y2K Compliance.
--------------
All information technology used by the Company, including without limitation, in
all products and services (i) provided by the Company to third parties, (ii)
used by the Company internally or (iii) to the best of the Company's knowledge,
used in combination with any information technology of its clients, customers,
suppliers or vendors, accurately processes or will process date and time data
(including, but not limited to calculating, comparing and sequencing) from, into
and between the years 1999 and 2000 and the twentieth century and the
twenty-first century, including leap year calculations and neither performance
nor functionality of such technology will be affected by dates prior to, during
and after the year 2000.
3.27 Disclosure.
----------
Neither this Agreement nor any certificate, instrument or written statement
furnished or made to the Purchasers by or on behalf of the Company pursuant to
this Agreement or the Ancillary Agreements contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein in light of the circumstances under
which they were made not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF IDX
-------------------------------------
IDX hereby represents and warrants to the Purchasers as follows:
4.1 Organization and Qualification.
------------------------------
IDX is a corporation duly organized, validly existing and in good standing under
the laws of the State of Vermont and has the requisite corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as it is now being conducted or proposed to be conducted.
IDX is duly qualified as a foreign corporation to transact business, and is in
good standing, in each jurisdiction where it owns or leases real property or
maintains employees or where the nature of its activities make such
qualification necessary.
4.2 Corporate Power; Authorization; Enforceablity.
----------------------------------------------
IDX has all requisite legal and corporate power and authority to execute and
deliver this Agreement and to carry out and perform its obligations under the
terms of this Agreement. This Agreement has been duly authorized, executed and
delivered by IDX and constitutes the valid and binding obligation of IDX and is
enforceable against IDX in accordance with its terms.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each Purchaser, severally as to itself and not jointly and severally,
hereby represents and warrants to the Company with respect to the purchase of
the Shares and the shares of Common Stock issuable upon conversion of the Shares
(the "Conversion Shares") as follows:
12
5.1 Experience.
----------
Such Purchaser has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so that
such Purchaser is capable of evaluating the merits and risks of such Purchaser's
investment in the Company and has the capacity to protect such Purchaser's own
interests. Such Purchaser represents and warrants to the Company that it is
aware that its purchase of Shares and any Conversion Shares hereunder involves
substantial risk and that its financial condition and investments are such that
it is in a financial position to hold the Shares and any Conversion Shares for
an indefinite period of time and to bear the economic risk of and withstand a
complete loss of such investment.
5.2 Investment.
----------
Such Purchaser is acquiring the Shares and any Conversion Shares for investment
for such Purchaser's own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof. Such
Purchaser understands that the Shares and any Conversion Shares have not been,
and will not be (except as otherwise provided in the Registration Rights
Agreement), registered under the Securities Act or the securities laws of any
state by reason of exemptions from the registration provisions of the Securities
Act and such laws which depend upon, among other things, the bona fide nature of
the investment intent and the truth and accuracy of such Purchaser's
representations as expressed herein.
5.3 Rule 144.
--------
Such Purchaser acknowledges that the Shares and any Conversion Shares must be
held indefinitely unless subsequently registered under the Securities Act and
any applicable state securities laws or an exemption from such registration is
available. Such Purchaser is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit the limited resale of shares purchased in
a private placement subject to the satisfaction of certain conditions,
including, among other things, (i) the existence of a public market for the
shares, (ii) the availability of certain current public information about the
Company, (iii) the resale occurring not less than a certain period of time after
a party has purchased and fully paid for the shares to be sold, (iv) the sale
being effected through a "broker's transaction" or in transactions directly with
a "market maker" (as provided by Rule 144(f)) and (v) the number of shares being
sold during any three-month period not exceeding specified limitations.
5.4 No Public Market.
-----------------
Such Purchaser understands that no public market now exists for any of the
securities issued by the Company and that there is no assurance that a public
market will ever exist for the Shares or the Conversion Shares.
5.5 Access to Data.
--------------
Such Purchaser has had an opportunity to discuss the Company's business,
management, and financial affairs with the Company's management and the
opportunity to review the Company's facilities and the Financial Statements.
Such Purchaser has also had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. Such Purchaser
acknowledges that it has had an opportunity to conduct its own independent due
diligence investigation of the Company.
5.6 Authorization.
-------------
This Agreement and the Ancillary Agreements to which such Purchaser is a party,
when executed and delivered by such Purchaser, will constitute valid and legally
binding obligations of such Purchaser, enforceable in accordance with their
respective terms, subject to (i) laws of general application relating to
bankruptcy, insolvency, and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief, or other equitable remedies.
Such Purchaser, if not a natural person, has full power and authority to enter
into and to perform its obligations under this Agreement and the Ancillary
Agreements to which it is a party in accordance with their respective terms.
Such Purchaser represents that it has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company.
5.7 Brokers or Finders.
------------------
Such Purchaser has not incurred, and will not incur, directly or indirectly, as
a result of any action taken by such Purchaser, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
5.8 Investor Qualification.
-----------------------
Such Purchaser (i) is an "accredited investor" as defined in Rule 501 of
Regulation D adopted under the Securities Act, (ii) has adequate means of
providing for its current needs, (iii) has no need for liquidity in its
investment in the Shares or any Conversion Shares, and (iv) is able to bear the
economic risk of losing its entire investment in Shares and any Conversion
Shares. Such Purchaser has its principal office or residence, as applicable, in
the state set forth on the Schedule of Purchasers.
13
SECTION 6
[RESERVED]
----------
SECTION 7
[RESERVED]
----------
SECTION 8
POST CLOSING COVENANTS
----------------------
The parties hereto agree as follows with respect to the period
following the Closing:
8.1 Basic Information Rights.
------------------------
The Company shall furnish to the Purchasers:
(a) within ninety (90) days after the end of each fiscal year of the Company an
audited balance sheet of the Company as of the end of such fiscal year and the
related audited statements of income, stockholders' equity and cash flows for
the fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a nationally recognized firm of
independent public accountants selected by the Board of Directors of the
Company;
(b) within forty-five (45) days after the end of each fiscal quarter of the
Company an unaudited balance sheet of the Company as of the end of such fiscal
quarter and the related unaudited statements of income, stockholders' equity and
cash flows for the fiscal quarter then ended, prepared in accordance with
generally accepted accounting principles and certified by the President of the
Company;
(c) thirty (30) days after the end of each month in each fiscal year monthly
financial statements of the Company in the form prepared for the Board of
Directors of the Company; and no later than thirty (30) days prior to the start
of each fiscal year, an annual budget for the Company in respect of such fiscal
year.
8.2 Access and Additional Information Rights.
-------------------------------------------
The Company will permit the Purchasers, its employees, counsel and other
authorized representatives, to visit and inspect any of the properties of the
Company, including its books of account and other records (and make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with the Company's officers and its independent public accountants, all
at such reasonable times during normal business hours and as often as such
Person may reasonably request, upon reasonable notice to the Company.
8.3 Director and Officer Insurance.
-------------------------------
On or prior to the date 60 days following the Closing Date, the Company shall
procure and shall thereafter maintain liability insurance coverage for the
directors and officers of the Company with respect to any liabilities reasonably
incurred in connection with their services for or on behalf of the Company,
including (in the case of directors) liabilities for monetary damages to the
Company or its stockholders arising out of breaches of such directors' fiduciary
duties, except where such liabilities arise because such directors violated
their duty of loyalty to the Company and its stockholders, acted in bad faith,
knowingly or intentionally violated the law, authorized illegal dividends or
redemptions or derived an improper personal benefit from their action as
directors.
8.4 Agreements with Employees.
---------------------------
The Company shall use reasonable efforts to require all persons now employed and
shall require all persons hereafter employed by the Company to enter into an
Employment, Noncompetition and Nondisclosure Agreement in substantially the form
attached hereto as Exhibit D, or such other forms as may be approved by the
Board of Directors of the Company.
8.5 Board Meetings.
--------------
A meeting of the Company's Board of Directors shall be held at least once per
month, unless otherwise agreed by a majority of directors who are not employees
of the Company.
14
8.6 Use of Proceeds.
---------------
The Company shall use the cash proceeds of the sale of the Shares for the
Permitted Purposes.
8.7 Books and Records.
-----------------
The books of account and other financial and corporate records of the Company
shall be maintained in accordance with good business and accounting practices.
8.8 Reservation of Common Stock.
----------------------------
From and after the Closing Date, the Company shall at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issue or delivery upon conversion of the Series A Preferred Stock,
the maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion. Such shares of Common Stock are or will be duly authorized
and, when issued or delivered in accordance with the Restated Certificate and
against payment therefor, shall be validly issued, fully paid and
non-assessable. The Company shall issue such shares of Common Stock in
accordance with the terms of the Restated Certificate and otherwise comply with
the terms hereof and thereof.
8.9 Board of Directors.
------------------
The Company agrees that Pequot shall have the right to designate one member
of the Company's Board of Directors. If the size of its Board of Directors shall
be increased, Pequot shall be entitled to designate one additional member of the
Board. In no event shall the size of the Board be increased to more than nine
members without the prior written consent of Pequot.
8.10 ERISA Covenant.
--------------
(a) The Company and each subsidiary shall maintain each Employee Plan and
employment agreement to which it is a party in accordance with its terms and in
compliance with all applicable, laws, statutes, orders, rules and regulations,
including but not limited to ERISA and the Code. With respect to each Employee
Plan, the Company and each subsidiary will make all contributions and filings on
a timely basis. Without the written consent of the Pequot, the Company shall
not, and shall assure that any ERISA Affiliate does not, maintain, contribute,
or incur any liability with respect to any plan which is subject to Title IV of
ERISA or Section 412 of the Code.
(b) Except as provided below, on and after the Closing, with respect to each
Employee Plan that is sponsored and controlled by IDX ("IDX Employee Plans"),
the Company shall continue its participation in the IDX Employee Plans for the
benefit of Company Personnel and all of its other employees, subject to the
right of the Company to withdraw from and terminate participation in any
Employee Plan at any time.
(c) Notwithstanding the foregoing, IDX shall be under no obligation to provide
or offer continued participation by the Company in any IDX Employee Plan after
the Closing Date, and IDX may, in its sole discretion, amend or terminate any
IDX Employee Plan, in whole or in part, and may modify any provision thereof for
all or any designated portion of employees participating in such plans,
including any provision dealing with eligibility, levels or types of benefits,
deductibles or co-payment obligations, or any other right, feature or
characteristic; provided however, that IDX shall give the Company six months
prior written notice of any such amendment, termination, or modification.
(d) Notwithstanding any provision of this Section 8.10, this Agreement will not,
in any way or at any time, create any third party beneficiary rights for or on
behalf of any individual, including any employee or former employee of either
IDX or the Company.
8.11 Pequot's Put to IDX.
-------------------
If the Company shall have the opportunity to complete a firm commitment
underwritten initial public offering with a nationally recognized investment
banking firm as a result of which the market capitalization of the Company would
be not less than $750,000,000 and (a) any members of the Board of Directors of
the Company that are employees or designees of IDX do not vote in favor of such
initial public offering in their capacity as members of the pricing committee of
the Board of Directors after the registration statement relating to such initial
public offering has become effective and (b) the Company or its shareholders do
not simultaneously approve an alternative transaction such as a disposition,
merger or similar transaction with respect to the Company, then the Pequot shall
have the option to sell all, but not less than all, of the Shares to IDX for a
purchase price equal to $29,998,467.40 plus an annualized internal rate of
return on such amount equal to 100%. Pequot shall exercise such option by giving
written notice of such exercise to IDX within 60 days following the events
described in clause (a) and (b) above. If Pequot shall fail to give such notice
within such period, Pequot shall be deemed to have waived such option. If Pequot
exercises such option, IDX shall pay such purchase price to Pequot in
immediately available funds within 10 business days following the date of such
notice.
15
8.12 Covenant to Cooperate in Providing Financial Statements.
----------------------------------------------------------
IDX agrees to cooperate with the Company in connection with the preparation of
any and all financial statements necessary in connection with the initial public
offering of the equity securities of the Company. In such connection, IDX will
make available to the Company such books, records, work papers and personnel,
including IDX's independent accountants, as may be necessary to prepare such
financial statements in a timely manner.
8.13 Opening Balance Sheet.
---------------------
Within 30 days following the Closing Date, the Company will deliver to the
Purchasers an opening balance of the Company as at the time immediately
following the Closing.
8.14 Documentation of Asset and other Transfers.
--------------------------------------------
IDX will cooperate with the Company to take any and all such further actions as
may be necessary or desirable to transfer and assign to the Company, by
instrument of assignment, bill of sale or other appropriate means all of the
assets used by the Company on the Closing Date and owned by IDX or its agents
and contractors, including, without limitation, all of the furniture, fixtures,
office equipment, contracts, agreements and Proprietary Rights used by the
Company. Within 60 days following the Closing Date, IDX will sublease to the
Company, at cost, all of the office and other space used by the Company on the
Closing Date.
8.15 Settlement and Release of Patent Infringement Suit.
---------------------------------------------------
Provided IDX controls the Company within the meaning of Rule 12b-2 promulgated
under the Securities and Exchange Act of 1934, (i) IDX shall not enter into a
settlement and release in connection with the litigation entitled Allcare Health
Management System, Inc. v. Cerner Corporation, et. al unless such settlement and
release also releases the Company from patent infringement prior to the date of
such release, and (ii) if in connection with any such settlement IDX shall
obtain a license from Allcare Health Management System, Inc. to the patent
claimed by it in such litigation, IDX shall exercise its best efforts to obtain
terms of license applicable to the Company that are reasonably equivalent to the
terms applicable to IDX.
8.16 Termination of Covenants.
--------------------------
The covenants of the Company contained in Sections 8.1 through 8.10 and 8.12
shall terminate, and be of no further force or effect, upon the closing of the
Company's first public offering of Common Stock in a firm commitment
underwriting pursuant to an effective registration statement under the
Securities Act, resulting in net proceeds to the Company of at least $35,000,000
and a market capitalization of the Company of at least $500,000,000 (the
"Qualified Initial Public Offering").
SECTION 9
GENERAL PROVISIONS
------------------
9.1 Governing Law.
-------------
This Agreement shall be governed by and construed according to the laws of the
State of New York without regard to the conflicts of law principles thereof.
9.2 Successors and Assigns; Third Party Beneficiaries.
-----------------------------------------------------
Except as otherwise expressly limited herein, the provisions hereof shall inure
to the benefit of, and be binding upon, the successors (including successor
trustees, in the case of a trustee), assigns, heirs, executors, and
administrators of the parties hereto. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party other than the parties hereto and
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.3 Entire Agreement; Amendment and Waiver.
----------------------------------------
This Agreement and the Ancillary Agreements constitute the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and thereof and supersede all prior agreements among the parties
with respect thereto. Any term of this Agreement may be amended, and the
observance of any term hereof may be waived (either generally or in a particular
instance), only with the written consent of a majority in interest of the
Purchasers and the written consent of the Company. Any amendment or waiver
effected in accordance with this Section 9.3 shall be binding upon each of the
parties hereto.
9.4 Survival of Representations, Warranties and Agreements.
------------------------------------------------------
The representations, warranties and agreements contained in this Agreement shall
survive the closing hereunder and any investigation made by Pequot, but in no
16
event later than December 31, 2001 or following any transfer of the shares by
Pequot except transfers to affiliates of Pequot.
9.5 Notices, etc.
-------------
All notices and other communications required or permitted hereunder shall be in
writing and shall be (i) mailed by registered or certified mail, postage
prepaid, (ii) delivered by reliable overnight courier service, or (iii)
otherwise delivered by hand or by messenger, addressed (A) if to a Purchaser, to
such Purchaser's address set forth on the Schedule of Purchasers, or at such
other address as such Purchaser shall have furnished to the Company in writing,
or (B) if to the Company, to Channelhealth Incorporated, Attention: President,
25 Green Mountain Drive, South Burlington, Vermont 05403, or at such other
address as the Company shall have furnished to the Purchasers in writing. All
such notices and communications shall be effective upon receipt.
9.6 Delays or Omissions.
-------------------
No delay or omission to exercise any right, power, or remedy accruing to any
party upon any breach or default under this Agreement, shall be deemed a waiver
of any other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent, or approval of any kind or character on the part of any party
of any breach or default under this Agreement, or any waiver on the part of any
party of any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
of the parties, shall be cumulative and not alternative.
9.7 References.
----------
Unless the context otherwise requires, any reference to a "Section" refers to a
section of this Agreement. Any reference to "this Section" refers to the whole
number section in which such reference is contained.
9.8 Severability.
------------
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, in whole or in part, such invalidity will not affect any
otherwise valid provision, and all other valid provisions will remain in full
force and effect and this Agreement shall be enforced to the greatest extent
possible to carry out the intentions of the parties hereto.
9.9 Pronouns.
--------
All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or persons may
require.
9.10 Counterparts; Facsimile Execution.
-----------------------------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and enforceable against the parties actually
executing such counterpart, and all of which, when taken together, shall
constitute one instrument. Facsimile execution and delivery of this Agreement
shall be legal, valid and binding execution and delivery for all purposes.
9.11 Remedies.
--------
The parties to this Agreement acknowledge and agree that a breach of any of the
covenants of the Company or the Purchasers set forth in this Agreement may not
be compensable by payment of money damages and, therefore, that the covenants of
the foregoing parties set forth in this Agreement may be enforced in equity by a
decree requiring specific performance.
9.12 Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following meanings
unless the context otherwise required:
(i) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(ii) "ERISA Affiliates" means with respect to the Company, each other trade or
business (whether or not incorporated) that is a member of the "controlled
group" of which the Company is a member or under "common control" with the
Company within the meaning of Section 414(b), (c), (m) and (o) of the Code or
Section 4001 of ERISA.
(iii) "IDX Employee Plans" has the meaning set forth in Section 8.10.
(iv) "Pequot" means Pequot Private Equity Fund II, L.P.
(v) "Person" means any individual, corporation, general or limited partnership,
limited liability company, limited liability partnership, firm, joint venture,
association, enterprise, joint stock company, trust, business trust,
unincorporated organization or other entity.
17
(vi) "Subsidiary" means any Person as to which the Company, directly or
indirectly, owns or has the power to vote, or to exercise a controlling
influence with respect to, fifty percent (50%) or more of the securities of any
class of such Person, the holders of which class are entitled to vote for the
election of directors (or persons performing similar functions) of such Person.
9.13 Restrictive Legends.
-------------------
(a) Each certificate representing (i) Shares, (ii) any Conversion Shares and
(iii) any other securities issued or issuable, directly or indirectly, in
respect of any of the Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation, share exchange or similar event, shall
(unless otherwise permitted by the provisions of this Section 9.13) be stamped
or otherwise imprinted with legends in substantially the following form to the
extent applicable (in addition to any legend(s) required under any Ancillary
Agreements or applicable state securities laws):
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED,
SOLD, PLEDGED, OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE ACT
IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS
IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION
OR (II) THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE, IN EITHER CASE,
SATISFACTORY TO THE CORPORATION, THAT AN EXEMPTION THEREFROM IS AVAILABLE AND
THAT SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE
SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE ARE ENTITLED TO CERTAIN RIGHTS AND SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SERIES A PREFERRED STOCK PURCHASE AGREEMENT, DATED
AS OF THE DATE THAT THIS CERTIFICATE WAS ORIGINALLY ISSUED, AMONG THE COMPANY
AND THE PURCHASERS WHO ARE PARTIES THERETO. THE COMPANY SHALL FURNISH WITHOUT
CHARGE TO EACH SECURITY HOLDER WHO SO REQUESTS A COPY OF SUCH PURCHASE
AGREEMENT.
Each Purchaser and any subsequent holder of the Shares or Conversion
Shares consents to the Company's making a notation on its records and giving
instructions to any transfer agent of the Shares or Conversion Shares in order
to implement the restrictions on transfer described in this Section 9.13.
(b) The Company shall be obligated to reissue promptly certificates without the
foregoing legend at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend. Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate state or blue sky authority authorizing such removal or an
opinion of counsel reasonably satisfactory to the Company to the effect that any
such applicable state securities legends or stop-transfer instructions are not
required and may be removed.
9.14 Expenses.
--------
The Company shall pay the legal fees and expenses of Dewey Ballantine LLP,
counsel to Pequot, in an aggregate amount not to exceed $35,000, in connection
with the preparation of this Agreement and the other agreements contemplated
hereby and the closing of the transactions contemplated hereby.
[signature page follows]
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized
officers, as of the date first set forth above.
CHANNELHEALTH INCORPORATED
By:/S/ RICHARD E. TARRANT
_________________________
Name: Richard E. Tarrant,
President
IDX Systems Corporation executes this
Agreement for the sole purpose of
making the representations in Section 4
confirming the representations in
Section 3.8(a) and becoming obligated
to perform the covenants set forth in
Sections 8.11, 8.12, 8.14 and 8.15.
IDX SYSTEMS CORPORATION
By:/s/ ROBERT W. BAKER, JR.
__________________________
Name: Robert W. Baker, Jr.,
Vice President
PEQUOT PRIVATE EQUITY FUND II, L.P.
By: Pequot Capital Management, Inc.,
as Investment Manager
By:/S/ DAVID J. MALAT
_____________________________
David J. Malat,
Chief Financial Officer
19
SCHEDULE I
SCHEDULE OF PURCHASERS
================================================================================
Number of Shares to Purchase price for
Name and Address of Purchaser be Purchased shares to be purchased
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pequot Private Equity Fund II, 2,542,243 Shares $29,998,467.40
L.P.
500 Nyala Farm Road
Westport, CT 06880
Attention: David J. Malat
Tel: (203) 429-2284
Fax: (203) 429-2420
- --------------------------------------------------------------------------------
Henry M. Tufo 15,000 $ 177,000
- --------------------------------------------------------------------------------
Frank T. Sample 1,000 $ 11,800
- --------------------------------------------------------------------------------
Mark Wheeler 20,000 $ 236,000
- --------------------------------------------------------------------------------
Allen Martin 21,186 $ 249,994.80
- --------------------------------------------------------------------------------
Stuart H. Altman 10,000 $ 118,000
- --------------------------------------------------------------------------------
Robert H. Hoehl 105,000 $ 1,239,000
- --------------------------------------------------------------------------------
Steven M. Lash and Cia 5,000 $ 59,000
Colobella Lash, Trustees of
the Lash Family Trust U/A
dated 12/15/99
================================================================================
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CHANNELHEALTH INCORPORATED
Channelhealth Incorporated (hereinafter called the
"Corporation"), organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
1. The Corporation filed its original Certificate of
Incorporation with the Secretary of the State of Delaware on September 24, 1999.
2. By unanimous written consent of the Board of Directors of
the Corporation, a resolution was duly adopted, pursuant to Sections 141(f), 242
and 245 of the General Corporation Law of the State of Delaware, setting forth
an Amended and Restated Certificate of Incorporation of the Corporation and
declaring said Amended and Restated Certificate of Incorporation advisable. The
stockholders of the Corporation duly approved said proposed Amended and Restated
Certificate of Incorporation by written consent in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware. The
resolution setting forth the Amended and Restated Certificate of Incorporation
is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
hereby is amended and restated in its entirety so that the same shall read as
follows:
FIRST. The name of the Corporation is:
Channelhealth Incorporated
SECOND. The address of its registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Service Company.
THIRD. The nature of the business or purposes to be conducted
or promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is (i) 100,000,000 shares of
Common Stock, $.001 par value per share ("Common Stock"), and (ii) 3,000,000
shares of Series A Convertible Preferred Stock, $.001 par value per share
("Series A Preferred Stock").
The following is a statement of the designations and the
powers, privileges and rights, and the qualifications, limitations or
restrictions thereof in respect of each class of capital stock of the
Corporation.
1. COMMON STOCK.
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1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the
Board of Directors upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
3. Number. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware.
4. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
5. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will
be entitled to receive all assets of the Corporation available for distribution
to its stockholders, subject to any preferential and participation rights of
any then outstanding Preferred Stock.
2. SERIES A CONVERTIBLE PREFERRED STOCK.
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1. Dividends. The Corporation shall not declare or pay any cash
dividends or other distributions on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding shall have first received, or
simultaneously receive, a cash dividend on each outstanding share of Series A
Preferred Stock in an amount at least equal to the product of (i) the per share
amount, if any, of the dividends or other distributions to be declared, paid or
set aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series A Preferred Stock is then
convertible.
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2. Voting.
(a) Each holder of outstanding shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 below), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of subsections 2(b)
and (c) below or by the provisions establishing any other series of Preferred
Stock, holders of Series A Preferred Stock and of any other outstanding series
of Preferred Stock shall vote together with the holders of Common Stock as a
single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock, and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall also be deemed
to affect adversely the Series A Preferred Stock.
(c) At any time when at least 50% of the original number of
Series A Preferred shares of Series A Preferred Stock are outstanding (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), except where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the Certificate of
Incorporation of the Corporation, and in addition to any other vote required by
law or the Certificate of Incorporation of the Corporation, without the approval
of the holders of two-thirds of the then outstanding shares of Series A
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately from any other class of the Corporation's
capital stock, but together as a single group, the Corporation will not:
(i) Effect any sale, lease, assignment, transfer,
or other conveyance of all or substantially all of the assets of the
Corporation or any of its subsidiaries, or any consolidation or merger involving
the Corporation or any of its subsidiaries;
(ii) Amend the Certificate of Incorporation of
the Corporation to authorize additional shares of the Corporation's capital
stock senior in rights or preferences to the Series A Preferred Stock;
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(iii) Issue or sell shares of the capital stock of
the Corporation to any of the employees, officers, directors or consultants
of the Corporation, or its parents, subsidiaries, or affiliates other than
pursuant to the exercise of stock options granted under the Corporation's
existing stock option plan or such other stock option plan as may be approved by
a majority of the non-employee members of the Board of Directors of the
Corporation or pursuant to rights under any stock purchase plan as may be
approved by a majority of the non-employee members of the Board of Directors;
(iv) Pay any dividend or make any distribution on
any shares of stock other than the Series A Preferred Stock, except in
connection with the purchase of shares of Common Stock from former employees of
the Corporation who acquired such shares directly from the Corporation, if each
such purchase is made pursuant to contractual rights held by the Corporation
relating to the termination of employment of such former employee; (v) Consent
to any liquidation, dissolution or winding up of the Corporation;
(vi) Consent to termination of the Corporation's
corporate existence.
3. Liquidation Preference.
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The holders of Series A Preferred Stock shall have the following rights upon
liquidation:
(a) Generally. In the event of a liquidation,
dissolution, or winding up of the Corporation, the holders of the Series A
Preferred Stock shall be entitled to receive prior and in preference to any
distribution of any assets or surplus funds of the Corporation to the Common
Stock, out of the assets of the Corporation available for distribution to its
stockholders (whether from capital or surplus), at the option of each such
holder, either (i) a sum equal to the consideration paid per share of Series A
Preferred Stock plus all dividends which have been declared on such shares and
have theretofore accrued but not been paid (the "Series A Liquidation
Preference") prior to any payment to the holders of the Common Stock or (ii)
participation in the entire remaining assets of the Corporation, and any assets
available for distribution shall be distributed to the holders of the Common
Stock and such holders of Series A Preferred Stock in proportion to the number
of shares of Common Stock then held by them and the number of shares of Common
Stock which they then have the right to acquire upon conversion of the shares of
Series A Preferred Stock then held by them.
(b) Non-Cash Distributions. For purposes of this
Section 3, if any assets distributed to stockholders upon liquidation of
the Corporation consist of property other than cash, the amount of such
distribution shall be deemed to be the fair market value thereof at the time of
such distribution, as determined in good faith by the Board of Directors of the
Corporation.
4. Conversion.
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The holders of Series A Preferred Stock shall have conversion rights as follows:
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(a) Right to Convert. The holder of any share or
shares of Series A Preferred Stock shall have the right, at its option, at
any time and from time to time, and without the payment of additional
consideration by the holder thereof, to convert any such shares of Series A
Preferred Stock into such number of fully paid and nonassessable shares of
Common Stock as obtained by (i) multiplying the number of shares of Series A
Preferred Stock so to be converted by Eleven Dollars and Eighty Cents ($11.80)
and (ii) dividing the result by the conversion price of Eleven Dollars and
Eighty Cents ($11.80) per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of this subsection 4, then by the
conversion price as last adjusted and in effect at the date any share or shares
of Series A Preferred Stock are surrendered for conversion (such price, or such
price as last adjusted, being referred to as the "Conversion Price").
(b) Mechanics of Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into full
shares of Common Stock, the holder shall surrender the certificate or
certificates therefor, duly endorsed for transfer, at the office of the
Corporation or any transfer agent of the Corporation and shall give written
notice to the Corporation at such office that he elects to convert the same,
such notice to state the name or names in which certificates for Common Stock
will be issued and the addresses to which such certificates should be sent. No
fractional shares of Common Stock shall be issued upon conversion of Series A
Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the original purchase price for such stock, subject to adjustment
as provided below. The Corporation shall, as soon as practicable after receipt
of any written notice of conversion, issue and deliver at such office to such
holder of Series A Preferred Stock, or to a third party such holder may
designate in writing, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid, and a check payable to
the holder in the amount of any cash amounts payable as the result of conversion
into fractional shares of Common Stock and any declared but unpaid dividends,
and if less than all the shares of the Series A Preferred Stock represented by
such certificates are converted, a certificate representing the shares of Series
A Preferred Stock not converted. 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 Series A Preferred Stock to be converted, 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. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), the conversion may,
at the option of any holder surrendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock or other property issuable upon such conversion of the
Series A Preferred Stock shall not be deemed to have converted into such Series
A Preferred Stock until immediately prior to the closing of such sale of
securities. Notice of such conversion in connection with an underwritten
offering of securities shall be given by the Corporation by mail, postage
pre-paid, to the holders of the Series A Preferred Stock at their addresses
shown in the Corporation's records, at least ten (10) days prior to the closing
date of the sale of such securities. On or after the closing date as specified
in such notice, each holder of Series A Preferred Stock shall surrender his
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certificate or certificates representing such Series A Preferred Stock for the
number of shares of Common Stock to which he is entitled at the office of the
Corporation or any transfer agent for the Common Stock. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Series A Preferred Stock, a certificate or certificates for the number
of shares of Common Stock to which he shall be entitled as aforesaid, and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock and any declared
but unpaid dividends. The conversion shall be deemed to have occurred as of the
close of business on the actual closing date with respect to the sale of such
securities, and, notwithstanding that any certificate representing the Series A
Preferred Stock to be converted shall not have been surrendered, each holder of
such Series A Preferred Stock shall thereafter be treated for all purposes as
the record holder of the number of shares of Common Stock issuable to such
holder upon such conversion.
(c) Adjustments to Conversion Ratio.
(i) Adjustments of Conversion Price Upon
Issuance of Common Stock. Except as provided in subsection 4(c)(ii) below,
if and whenever the Corporation shall issue or sell, or is, in accordance with
subsections 4(c)(i)(A) through (G) below, deemed to have issued or sold, any
shares of Common Stock for a consideration per share less than the Conversion
Price in effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the Conversion Price shall be reduced to the
price determined by dividing (x) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing Conversion Price and (b) the consideration, if
any, received by the Corporation upon such issue or sale, by (y) the total
number of shares of Common Stock outstanding immediately after such issue or
sale. For purposes of determining the number of shares of Common Stock
outstanding as provided in clauses (x) and (y) above, the number of shares of
Common Stock issuable upon conversion of all outstanding shares of Preferred
Stock shall be deemed to be outstanding.
For purposes of this subsection 4(c)(i), the
following subsections 4(c)(i)(A) to (G) shall also be applicable:
(A) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible Securities") whether
or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
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issue or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options and thereafter shall be deemed
to be outstanding. Except as otherwise provided in subsection 4(c)(i)(C), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. In case
the Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the conversion
or exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of the issue
or sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in subsection
4(c)(i)(C), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this subsection 4(c)(i), no further adjustment
of the Conversion Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Conversion Rate. Upon
the happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subsection 4(c)(i)(A), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsection 4(c)(i)(A) or (B), or the rate
at which Convertible Securities referred to in subsection 4(c)(i)(A) or (B) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at the
time of such event shall forthwith be readjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
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additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such adjustment
the Conversion Price then in effect hereunder is thereby reduced; and on the
termination of any such Option or any such right to convert or exchange such
Convertible Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have been in effect
at the time of such termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such termination, never been issued.
(D) Stock Dividends. In case the Corporation shall
declare a dividend or make any other distribution upon any stock of the
Corporation (other than Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(E) Consideration for Stock. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
(F) Record Date. In case the Corporation shall
take a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(G) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares owned
or held by or for the account of the Corporation, and the disposition of any
such shares shall be considered an issue or sale of Common Stock for the purpose
of this subsection 4(c)(i).
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(ii) Certain Issues of Common Stock Excepted.
Anything herein to the contrary notwithstanding, the Corporation shall not
be required to make any adjustment of the Conversion Price in the case of the
issuance from and after the date of filing of these terms of the Series A
Preferred Stock of (a) shares not exceeding in the aggregate ten percent (10%)
of the issued and outstanding shares of common stock, on a fully-diluted basis,
to employees, directors or consultants of the Corporation or its parents,
subsidiaries and affiliates pursuant to employee stock plans approved on or
before the date hereof or hereafter approved by a majority of the non-employee
members of the Board of Directors of the Corporation; (b) any shares of Common
Stock upon the conversion of shares of Series A Preferred Stock; (c) any shares
of Common Stock pursuant to which the Conversion Price is adjusted under
subsection 4(c)(iii), (iv) or (v); or (d) any shares of Common Stock issued
pursuant to the exchange, conversion or exercise of any Options or Convertible
Securities that have previously been incorporated into computations hereunder on
the date when such Options or Convertible Securities were issued; or (e) any
shares issued as a dividend on the Series A Preferred Stock.
(iii) Adjustments for Subdivisions, Common Stock
Dividends, Combinations or Consolidations of Common Stock. In the event the
outstanding shares of Common Stock shall be subdivided or increased, by stock
split or stock dividend, into a greater number of shares of Common Stock, the
number of shares of Common Stock into which such Series A Preferred Stock is
convertible shall concurrently with the effectiveness of such subdivision or
payment of such stock dividend, be proportionately increased. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the number of shares of Common Stock into which such Series A Preferred Stock is
convertible shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately decreased.
(iv) Adjustments for Reclassification, Exchange
and Substitution. If the Common Stock issuable upon conversion of the
Series A Preferred Stock shall be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), the number of shares of Common Stock
into which such Series A Preferred Stock is convertible shall, concurrently with
the effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Series A Preferred Stock shall be convertible into, in
lieu of the number of shares of Common Stock which the holders would otherwise
have been entitled to receive, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series A Preferred
Stock immediately before that change.
(v) Adjustments for Merger, Sale, Lease or
Conveyance. In case of any consolidation with or merger of the Corporation
with or into another corporation, or in case of any sale, lease or conveyance to
another Corporation of the assets of the Corporation as an entirety or
substantially as an entirety, the Series A Preferred Stock shall after the date
of such consolidation, merger, sale, lease or conveyance be convertible into the
number of shares of stock or other securities or property (including cash) to
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which the Common Stock issuable (at the time of such consolidation, merger,
sale, lease or conveyance) upon conversion of the Series A Preferred Stock would
have been entitled upon such consolidation, merger, sale, lease or conveyance;
and in any such case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the Series A Preferred
Stock shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of Series A Preferred Stock.
(d) Mandatory Conversion.
(i) Initial Public Offering. Each share of Series A
Preferred Stock shall automatically be converted into one (1) fully paid
and nonassessable share of Common Stock (subject to adjustment as provided in
subsection 4(c) above) upon the occurrence of the closing of the sale of shares
of Common Stock in a firm commitment underwriting pursuant to an effective
registration statement under the Securities Act resulting in at least
$35,000,000 of net proceeds to the Corporation and a market capitalization of
the Corporation of at least $500,000,000.
(ii) Procedures. All holders of record of shares
of Series A Preferred Stock will be given at least twenty (20) days' prior
written notice of the date fixed and place designated for mandatory conversion
of the Series A Preferred Stock and the event which resulted in the mandatory
conversion of the Series A Preferred Stock into Common Stock. Such notice shall
be sent by first class mail, postage prepaid, to each holder of record of the
Series A Preferred Stock at such holder's address as shown in the records of the
Corporation. On or before the date so fixed for conversion, each holder of
shares of the Series A Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled. The mechanics for conversion
and other provisions relating to conversion of Series A Preferred Stock into
Common Stock set forth elsewhere in this Amended and Restated Certificate of
Incorporation shall apply to the mandatory conversion of the Series A Preferred
Stock.
(e) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the conversion ratio
pursuant to this subsection 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment in accordance with the terms hereof and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments and (ii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Series A Preferred Stock.
(f) Notices of Record Date. In the event that the
Corporation shall propose at any time:
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(i) to declare any dividend or distribution (other
than by purchase of Common Stock of employees, officers and directors
pursuant to the termination of such persons or pursuant to the Corporation's
exercise of rights of first refusal with respect to Common Stock held by such
persons) upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out of
earnings or earned surplus;
(ii) to effect any reclassification or
recapitalization of its Common Stock shares outstanding involving a change
in the Common Stock; or
(iii) to merge or consolidate with or into any
other Corporation, or sell, lease or convey all or substantially all its
property or business, or to liquidate, dissolve or wind up; then, in connection
with each such event, the Corporation shall send to the holders of the Series A
Preferred Stock:
(1) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such dividend or
distribution (and specifying the date on which the holders of Common Stock shall
be entitled thereto) or for determining rights to vote in respect of the matters
referred to in (i) and (ii) above; and
(2) in the case of the matters referred to in (ii)
and (iii) above, 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 Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon the occurrence of such
event).
Each such written notice shall be given by first
class mail, postage prepaid, addressed to the holders of Series A Preferred
Stock at the address for each such holder as shown on the books of the
Corporation.
(g) No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action (other than actions taken in
good faith), 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 carrying out all the provisions of this Article and in taking
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
(h) Reservation of Common Stock. The Corporation
shall, at all times when the Series A Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued stock, for the
purpose of effecting the conversion of the Series A Preferred Stock, such number
of its duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series A Preferred Stock.
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(i) No Adjustment. Except as otherwise provided
herein, upon any voluntary conversion of the Series A Preferred Stock, no
adjustment to the conversion rights shall be made for declared but unpaid
dividends on the Series A Preferred Stock surrendered for conversion or on the
Common Stock delivered.
(j) Cancellation of Series A Preferred Stock. All
shares of the Series A Preferred Stock which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall forthwith cease and terminate except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and to receive payment of any declared but unpaid dividends thereon.
Any shares of the Series A Preferred Stock so converted shall be retired and
canceled and shall not be reissued, and the Corporation may from time to time
take such appropriate action as may be necessary to reduce the authorized Series
A Preferred Stock.
5. Redemption. The Series A Preferred Stock shall be redeemed by
the Corporation as follows:
(a) At the individual option of each holder of
shares of the Series A Preferred Stock exercisable commencing on the fifth
(5th) anniversary of the date of issuance thereof and continuing annually on
each anniversary of the date of issuance thereafter (each a "Redemption Date"),
the Corporation shall redeem, from any source of funds legally available
therefor, the number of shares of Series A Preferred Stock held by such holder
that is specified in a written request for redemption delivered to the
Corporation by such holder at least thirty (30) days prior to a Redemption Date
at a redemption price (the "Redemption Price") equal to $11.80 per share, plus
any declared but unpaid dividends, payable in three (3) equal installments over
three (3) years.
(b) Redemption Notice. At least fifteen (15), but
no more than thirty (30) days prior to each Redemption Date written 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 A Preferred Stock which may be redeemed, at the address
last shown on the records of the Corporation for such holder, notifying such
holder of the redemption which may be effected, specifying the maximum number of
shares which may be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder, at such holders option, to surrender to the Corporation, in the
manner and at the place designated, the certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
subsection (c) below, on or after the Redemption Date, each holder of Series A
Preferred Stock who elects to have shares 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
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. If less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
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(c) Rights of Holder of Series A Preferred Stock
After the Redemption Date. From and after the applicable Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of each holder of shares of Series A Preferred Stock surrendered for
redemption as holders of Series A Preferred Stock (except the right to receive
the Redemption Price without interest upon surrender of their certificate or
certificates), for that number of shares that would be redeemed based on the
amount of the Redemption Price paid to such holder, shall cease, 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 Series A Preferred Stock on any
Redemption Date are insufficient to redeem the total number of shares of Series
A Preferred Stock requested to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon their
holdings of Series A Preferred Stock. The shares of Series A Preferred Stock not
redeemed shall remain outstanding and 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 Series A Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on any Redemption Date, but which it
has not redeemed.
6. Amendments. No provision of these terms of the Series A
Preferred Stock may be amended, modified or waived without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Preferred Stock.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written
ballot, except as and to the extent provided in the By-laws of the Corporation.
2. The Board of Directors is expressly
authorized to adopt, amend or repeal the By-laws of the Corporation, except
as and to the extent provided in the By-laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
EIGHTH.
1. Actions, Suits and Proceedings Other than by
or in the Right of the Corporation. The Corporation shall indemnify each
13
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 he is or was, or has
agreed to become, a director or officer of the Corporation, or is or was
serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, 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 Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his 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 he 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 reasonable cause to believe that his conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 7 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation. Notwithstanding anything to the
contrary in this Article, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in
the event the Corporation makes any indemnification payments to an Indemnitee
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
2. Actions or Suits by or in the Right of the
Corporation. The Corporation shall indemnify any Indemnitee 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 he is or was, or has agreed to
become, a director or officer of the Corporation, or is or was serving, or has
agreed to serve, at the request of the Corporation, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit plan),
or by reason of any action alleged to have been taken or omitted in such
capacity, against all expenses (including attorneys' fees) and, to the extent
permitted by law, amounts paid in settlement actually and reasonably incurred by
him or on his behalf in connection with such action, suit or proceeding and any
appeal therefrom, 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 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 Court of Chancery of Delaware
shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
14
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful
Party. Notwithstanding the other provisions of this Article, to the extent
that an Indemnitee has been successful, on the merits or otherwise, in defense
of any action, suit or proceeding referred to in Sections 1 and 2 of this
Article, or in defense of any claim, issue or matter therein, or on appeal from
any such action, suit or proceeding, he shall be indemnified against all
expenses (including attorneys' fees) actually and reasonably incurred by him or
on his behalf in connection therewith. Without limiting the foregoing, if any
action, suit or proceeding is disposed of, on the merits or otherwise (including
a disposition without prejudice), without (i) the disposition being adverse to
the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his conduct was unlawful,
the Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.
4. Notification and Defense of Claim. As a
condition precedent to his right to be indemnified, the Indemnitee must
notify the Corporation in writing as soon as practicable of any action, suit,
proceeding or investigation involving him for which indemnity will or could be
sought. With respect to any action, suit, proceeding or investigation of which
the Corporation is so notified, the Corporation will be entitled to participate
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the Corporation to the Indemnitee of its election so to assume such
defense, the Corporation shall not be liable to the Indemnitee for any legal or
other expenses subsequently incurred by the Indemnitee in connection with such
claim, other than as provided below in this Section 4. The Indemnitee shall have
the right to employ his own counsel in connection with such claim, but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the
provisions of Section 6 below, in the event that the Corporation does not
assume the defense pursuant to Section 4 of this Article of any action, suit,
proceeding or investigation of which the Corporation receives notice under this
Article, any expenses (including attorneys' fees) incurred by an Indemnitee in
15
defending a civil or criminal action, suit, proceeding or investigation or any
appeal therefrom shall be paid by the Corporation in advance of the final
disposition of such matter; provided, however, that the payment of such expenses
incurred by an Indemnitee in advance of the final disposition of such matter
shall be made only upon receipt of an undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article. Such undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment.
6. Procedure for Indemnification. In order to
obtain indemnification or advancement of expenses pursuant to Section 1, 2,
3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written
request, including in such request such documentation and information as is
reasonably available to the Indemnitee and is reasonably necessary to determine
whether and to what extent the Indemnitee is entitled to indemnification or
advancement of expenses. Any such indemnification or advancement of expenses
shall be made promptly, and in any event within 60 days after receipt by the
Corporation of the written request of the Indemnitee, unless with respect to
requests under Section 1, 2 or 5 the Corporation determines within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made,
with respect to a person who is a director or officer at the time of such
determination, (a) by a majority vote of the directors of the Corporation
consisting of persons who are not at that time parties to the action, suit or
proceeding in question ("disinterested directors"), whether or not a quorum, (b)
by a committee of disinterested directors designated by a majority vote of such
disinterested directors, whether or not a quorum, (c) by a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(d) if there are no disinterested directors, or if such disinterested directors
so direct, by independent legal counsel (who may, to the extent permitted by
law, be regular legal counsel to the Corporation), or (e) a court of competent
jurisdiction.
7. Remedies. The right to indemnification or
advances as granted by this Article shall be enforceable by the Indemnitee
in any court of competent jurisdiction if the Corporation denies such request,
in whole or in part, or if no disposition thereof is made within the 60-day
period referred to above in Section 6. Unless otherwise required by law, the
burden of proving that the Indemnitee is not entitled to indemnification or
advancement of expenses under this Article shall be on the Corporation. Neither
the failure of the Corporation to have made a determination prior to the
commencement of such action that indemnification is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
16
8. Subsequent Amendment. No amendment,
termination or repeal of this Article or of the relevant provisions of the
General Corporation Law of Delaware or any other applicable laws shall affect or
diminish in any way the rights of any Indemnitee to indemnification under the
provisions hereof with respect to any action, suit, proceeding or investigation
arising out of or relating to any actions, transactions or facts occurring prior
to the final adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and
advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which an Indemnitee seeking indemnification or
advancement of expenses may be entitled under any law (common or statutory),
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in any other capacity
while holding office for the Corporation, and shall continue as to an Indemnitee
who has ceased to be a director or officer, and shall inure to the benefit of
the estate, heirs, executors and administrators of the Indemnitee. Nothing
contained in this Article shall be deemed to prohibit, and the Corporation is
specifically authorized to enter into, agreements with officers and directors
providing indemnification rights and procedures different from those set forth
in this Article. In addition, the Corporation may, to the extent authorized from
time to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. Partial Indemnification. If an Indemnitee
is entitled under any provision of this Article to indemnification by the
Corporation for some or a portion of the expenses (including attorneys' fees),
judgments, fines or amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with any action, suit, proceeding or
investigation and any appeal therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement to which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and
maintain insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise (including any employee
benefit plan) against any expense, liability or loss incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
12. Merger or Consolidation. If the Corporation
is merged into or consolidated with another corporation and the Corporation
is not the surviving corporation, the surviving corporation shall assume the
obligations of the Corporation under this Article with respect to any action,
suit, proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring prior to the date of such merger or
consolidation.
13. Savings Clause. If this Article or any
17
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee
as to any expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with any action, suit, proceeding or
investigation, whether civil, criminal or administrative, including an action by
or in the right of the Corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the fullest extent permitted by applicable law.
14. Definitions. Terms used herein and defined in
Section 145(h) and Section 145(i) of the General Corporation Law of the
State of Delaware shall have the respective meanings assigned to such terms in
such Section 145(h) and Section 145(i).
15. Subsequent Legislation. If the General
Corporation Law of the State of Delaware is amended after adoption of this
Article to expand further the indemnification permitted to Indemnitees, then the
Corporation shall indemnify such persons to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended.
NINTH. 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 this Certificate of
Incorporation.
[Remainder of page intentionally left blank.]
18
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its Vice President this
7th day of January, 2000.
CHANNELHEALTH INCORPORATED
By:/S/ ROBERT W. BAKER, JR.
___________________________
Robert W. Baker, Jr.,
Vice President
STATE OF VERMONT )
COUNTY OF CHITTENDEN SS. )
At South Burlington, in said County, on this 7th day of January, 2000,
personally appeared Robert W. Baker, Jr., Vice President of Channelhealth
Incorporated, and he acknowledged the foregoing instrument to be true and
accurate and his execution therefo to be his free act and deed and the free act
and deed of Channelhealth Incorporated.
Before me,
/S/ JEFFREY MCMAHAN
-----------------------------------
Notary Public
EXHIBIT B
CHANNNELHEALTH INCORPORATED
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of January 10, 2000 (this
"Agreement"), by and among CHANNELHEALTH INCORPORATED, a Delaware corporation
with its principal place of business at 25 Green Mountain Drive, So. Burlington,
VT 05403 (the "Corporation") and the stockholders of the Corporation who are
executing this Agreement on the date hereof and who have the respective
addresses set forth on the signature page hereto.
BACKGROUND
Pursuant to a Series A Preferred Stock Purchase Agreement,
dated as of even date herewith (the "Stock Purchase Agreement"), among the
Corporation and Pequot (both as defined below), the Corporation is issuing and
selling to Pequot shares of its Series A Convertible Preferred Stock, $.001 par
value per share (the "Series A Preferred Stock").
The Corporation, IDX Systems Corporation ("IDX") and Pequot
desire to promote their mutual interests by imposing certain restrictions and
obligations on the Corporation, IDX, Pequot and future Stockholders (as defined
below) with respect to the Stock (as defined below).
NOW, THEREFORE, in consideration of the mutual agreements and
covenants contained herein, the parties hereby agree as follows:
1. Definitions
For the purposes of this Agreement, the terms listed below
shall be defined as follows:
"Affiliate" means, as to any Person, any entity which
controls, is controlled by, or is under common control with, such Person or any
entity formed as a result of a reorganization of such Person.
"Board" has the meaning set forth in Section 6(a) hereof.
"Board Designees" has the meaning set forth in Section
6(b)(iv) hereof.
"Common Stock" means the common stock, $.001 par value per
share, of the Corporation.
"Employee" means an employee of the Corporation.
"Immediate Family" means any spouse, parent or descendant
(adopted or natural) or sibling of a Stockholder, or any custodian or trustee
for the account or benefit of such person.
"Notice of Acceptance" has the meaning set forth in Section
8(a) hereof.
"Offer" has the meaning set forth in Section 8(a) hereof.
"Offered Securities" has the meaning set forth in Section 8(a)
hereof.
"Offered Stock" means the shares of Stock that are the subject
of a proposed transfer, whether as a result of death or other circumstances
described in this Agreement.
"Pequot" means Pequot Private Equity Fund II, L.P. and each of
its transferees that execute and deliver this Agreement.
"Pequot Designee" has the meaning set forth in Section
6(b)(ii) hereof.
"Person" means any corporation, partnership (including,
without limitation, a limited partnership), limited liability company, limited
liability partnership, business trust, individual, trust, estate, legal
representative or other entity.
"Plan" has the meaning set forth in Section 7 hereof.
"Reserve Option Pool" has the meaning set forth in Section 7
hereof.
"Rightholder" means Pequot.
"Series A Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Significant Issuer Transaction" means any (i) sale of all or
substantially all of the assets of the Corporation, or (ii) merger of the
Corporation with or into any other Person (other than a mere re-incorporation
transaction) in which outstanding shares of the capital stock of the Corporation
are exchanged for securities or other consideration, or (iii) a transaction in
which the Corporation is the surviving entity but the shares of the
Corporation's capital stock outstanding immediately prior to the transaction are
changed or converted by virtue of the transaction into other property, whether
in the form of securities, cash, a combination thereof or otherwise.
"Stock" means the authorized, issued and outstanding (i)
common stock, $.001 par value per share, of the Corporation and (ii) Series A
Convertible Preferred Stock, $.001 par value per share, of the Corporation.
"Stockholder" means any Person which owns any Stock and which
is a party to this Agreement, including without limitation, IDX and Pequot.
"Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.
"Transfer" means the transfer, sale, gift, bequest, exchange,
assignment, mortgage, pledge, encumbrance or any other disposition, whether
voluntary or involuntary, of any nature whatsoever, affecting title to the Stock
or any interest therein.
2
"Transfer Notice" has the meaning set forth in Section 3
hereof.
"Transferring Stockholder" means the Stockholder (or, where
applicable, such Stockholder's estate or legal representative) initiating a
Transfer, whether as a result of death or other circumstances described in this
Agreement.
"Unrestricted Transfer" has the meaning set forth in Section 5
hereof.
2. Transfers of Stock - General
(a) No Transfer of any shares of Stock made in violation of
this Agreement shall be effective, and no such Transfer shall be recorded on the
stock record books of the Corporation.
(b) Any Transfer by a Stockholder of shares of Stock to a
Person who is not a party to this Agreement shall be made only pursuant to the
terms of this Agreement and on the condition that such Person shall become a
party to this Agreement, agreeing in writing to be bound by all of its terms.
(c) Any Stockholder making a Transfer shall promptly notify
the Corporation, and the Corporation shall promptly notify the other
Stockholders, if any, of the name of each transferee and the date of such
Transfer.
3. Right of First Refusal on Sales of Shares of Stock
(a) Except in the case of an Unrestricted Transfer, if IDX
shall desire or shall be ordered by a court of competent jurisdiction to
Transfer any of its shares of Stock, IDX shall give the Corporation and Pequot
notice of the terms of the proposed bona fide transaction, including (i) the
number of shares that are proposed to be Transferred, (ii) the anticipated date
of the proposed Transfer, (iii) the name and address of each Person to whom the
Transfer is proposed to be made and (iv) the material terms of the proposed
Transfer, including the cash and/or other consideration to be received in
respect of such Transfer, at least twenty-five (25) days prior to any proposed
Transfer (a "Transfer Notice"). Such Transfer Notice shall be deemed an
irrevocable bona fide offer to sell such shares on such terms as hereinafter set
forth.
(b) Upon the receipt of any such Transfer Notice, the
Corporation shall have the first option to purchase all or any portion of such
shares of Offered Stock, at a purchase price equal to the price quoted in said
Transfer Notice. The Corporation may exercise its option by giving written
notice to the Transferring Stockholder and Pequot not more than fifteen (15)
days after receipt by the Corporation of the Transfer Notice.
(c) Any shares of Offered Stock not purchased by the
Corporation pursuant to subparagraph (b) above shall be offered in writing by
the Transferring Stockholder to Pequot, at the price set forth in the Transfer
Notice. Pequot (or its designee) shall have the right and option, for a period
of ten (10) days after receipt of the written offer of the Transferring
Stockholder, (i) to accept all or any of its pro rata share (on a fully diluted
basis) of the Offered Stock at the purchase price and on the terms stated in the
Transfer Notice and (ii) to offer, in any written notice of acceptance, to
purchase any Offered Stock not accepted by the other offeree, in which case the
3
Offered Stock not accepted by the other offeree shall be deemed on the same
terms and conditions to be reoffered from time to time during such 10-day period
to and accepted by the offeree who exercised its option under this clause (ii).
(d) If all the Offered Stock is not so purchased, the
Transferring Stockholder shall be free for a period of thirty (30) days after
expiration of the ten (10) day period referred to in subparagraph (c) above to
consummate the proposed transaction upon the terms set forth in the Transfer
Notice. Promptly upon the consummation of any such transaction, the Transferring
Stockholder shall confirm in writing to the Corporation and Pequot the terms of
the transaction as so consummated, including the number of shares involved, the
consideration received, and the name of the party with whom the transaction was
made. After the expiration of said thirty (30) day sale period, if such
Transferring Stockholder again wishes to Transfer any shares of Stock, such
Transferring Stockholder shall again offer the shares in accordance with the
provisions of this Section 3.
4. Co-Sale Rights
Except with respect to an Unrestricted Transfer, at least
twenty-five (25) days prior to any proposed Transfer by IDX, IDX shall give a
Transfer Notice to Pequot (which Transfer Notice may be the same Transfer Notice
as that described in Section 3 above). Upon receipt of a Transfer Notice, if
Pequot (or its designee) has not exercised its rights of first refusal pursuant
to Section 3(a) hereof, Pequot may elect to participate in the proposed Transfer
by delivering written notice to the Transferring Stockholder(s) within
twenty-five (25) days of the date of receipt of such Transfer Notice. Pequot
shall have the right to sell to the proposed transferee(s), as a condition to
such Transfer by the Transferring Stockholder(s), at the same price per share of
Stock and on the same terms and conditions as are specified in the Transfer
Notice, one share of Stock (on a fully diluted basis) owned by Pequot for each
share of Stock of the Corporation transferred by the Transferring Stockholder.
The Transferring Stockholder will be entitled to sell in the proposed Transfer
the balance of the Offered Stock proposed to be so sold. If Pequot elects to
participate in such Transfer, the Transferring Stockholder shall use his, her or
its commercially reasonable efforts to obtain the agreement of the prospective
transferee(s) to the participation of Pequot in any proposed Transfer and shall
not Transfer any shares of the capital stock of the Corporation to such
prospective transferee(s) unless such prospective transferee(s) allow(s) the
participation of Pequot on the terms specified in the Transfer Notice. Subject
to the foregoing, the Transferring Stockholder(s) may, within thirty (30) days
after the expiration of the twenty-five (25) day period referred to above,
Transfer the Offered Stock (reduced by the number of shares of Stock with
respect to which Pequot has elected to participate, if any) to the transferee(s)
identified in the Transfer Notice at a price and on the terms no more favorable
to the Transferring Stockholder(s) than specified in the Transfer Notice;
provided, that, prior to any Transfer such transferee(s) shall first execute and
deliver to the Corporation a written agreement to be bound by all of the
provisions of this Agreement applicable to the transferor(s). However, if such
Transfer is not consummated within such thirty (30) day period, the Transferring
Stockholder(s) shall not Transfer any shares of the Offered Stock as have not
been purchased within such period without again complying with all of the
provisions of Sections 3 and 4 hereof. Any attempt by a Transferring Stockholder
to Transfer shares of Stock in violation of Section 3 or 4 hereof shall be void
4
and the Corporation agrees that it will not effect such a Transfer nor will it
treat any alleged transferee as the holder of such shares of Stock without the
consent of Pequot.
5. Unrestricted Transfers
The following Transfers ("Unrestricted Transfers") are
excepted from the operation of the restrictions provided for in Sections 3 and 4
of this Agreement; provided that in the event of such Transfer all references to
the shares of Stock of a Stockholder in this Agreement shall be deemed to
include all shares of Stock so Transferred and all references to a Stockholder
in this Agreement shall be deemed to include any and all Persons to whom such
shares of Stock are transferred:
(a) Transfers to the Corporation and
(b) Transfers by Pequot.
(c) Transfers to affiliates of the Corporation who agree
to be bound by this Agreement.
6. Election of Directors
(a) Pursuant to the By-Laws of the Corporation, the number of
directors comprising the Corporation's Board of Directors (the "Board") has been
initially set by resolution of the Board at five (5) and the affirmative vote
required for action by the Board has been fixed at a majority of the members of
the Board. In no event shall the size of the Board exceed nine members.
(b) During the term of this Agreement, subject to subsection
(c) below, all of the Stock held by the Stockholders, whether now owned or
hereafter acquired, shall be voted to elect to the Board, one member designated
by Pequot and if the size of the Board is increased, two members designated by
Pequot (the "Pequot Designees"). Pequot shall notify the Secretary of the
Corporation of their designee within five (5) business days of receipt of notice
of the meeting. The initial Pequot Designee is Gerald A. Poch. Such Pequot
Designees may be removed only upon being designated for removal by Pequot, and
the Board shall act promptly to remove any such Pequot Designee so designated.
If any such Pequot Designee dies, resigns, is removed, or otherwise ceases to
serve as a member of the Board, the Corporation shall give notice to Pequot, and
Pequot shall promptly designate a successor in accordance with this subparagraph
and notify the Board of their selection, and the Board shall act promptly to
fill the vacancy with such designee.
(c) Each Stockholder agrees (A) to be present in person or by
proxy at any meeting of Stockholders to elect directors, for purposes of
establishing a quorum, (B) to vote his, her or its shares of Stock for, or to
give his, her or its written consent to the election of the Pequot Designee and
(C) to vote his, her or its shares of Stock for, or to give his, her or its
written consent to the removal of any Pequot Designee designated for removal in
accordance with the provisions of this Section 6.
5
(d) The Board shall hold regular meetings no less frequently
than monthly unless otherwise approved by a majority of the members of the Board
who are not employees of the Corporation.
7. Allocation of Employee Stock Option Pool
The Corporation shall reserve ten percent (10%) of the shares
of its Common Stock, on a fully diluted basis (the "Reserve Option Pool") for
issuance to its employees, officers, directors and consultants of the
Corporation, or its parents, subsidiaries or affiliates in the form of stock
options granted pursuant to the Corporation's Stock Option Plan (the "Plan");
provided, however, that the shares that constitute the Reserve Option Pool shall
not be issued at a pre-money valuation of less than $250,000,000.
8. Pre-emptive Rights
(a) Subject to Section 8(e), the Corporation shall not issue,
sell or exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange, (i) any shares of its Stock, (ii) any other equity
securities of the Corporation, (iii) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any equity securities of the
Corporation, or (iv) any debt securities convertible into capital stock of the
Corporation (collectively, the "Offered Securities"), unless in each such case
the Corporation shall have first complied with this Section 8. The Corporation
shall deliver to the Rightholder a written notice of any proposed or intended
issuance, sale or exchange of Offered Securities (the "Offer"), which Offer
shall (A) identify and describe the Offered Securities, (B) describe the price
and other terms upon which the Offered Securities are to be offered, issued,
sold or exchanged, and (C) offer to issue and sell to or exchange with the
Rightholder up to their respective pro rata portion of such Offered Securities.
The Rightholder's pro rata portion of the Offered Securities shall be determined
by multiplying the aggregate amount of the Offered Securities by a fraction, the
numerator of which is the number of shares of Common Stock then held by such
Rightholder on a fully-diluted basis and the denominator of which is the number
of shares of Common Stock then outstanding, determined on a fully-diluted basis.
The Rightholder shall have the right, for a period of twenty (20) days following
delivery of the Offer, to purchase or acquire such Rightholder's pro rata
portion of the Offered Securities at the price and upon the other terms
specified in the Offer. The Offer, by its terms, shall remain open and
irrevocable for such twenty (20) day period. To accept an Offer, in whole or in
part (provided, however, that the Rightholder may only elect to purchase part of
the Offered Securities if the Offer is not contingent on the sale of all of the
Offered Securities), such Rightholder must deliver a written notice ("Notice of
Acceptance") to the Corporation prior to the end of the twenty (20) day period
of the Offer, setting forth the portion (or all, if the Offer is contingent upon
the sale of all of the Offered Securities) of such Rightholder's pro rata
portion of the Offered Securities that such Rightholder elects to purchase.
(b) If a Notice of Acceptance is not given by the Rightholder
in respect of such Rightholder's pro rata portion of the Offered Securities, the
Corporation shall have ninety (90) days from the expiration of the twenty (20)
day period to issue, sell or exchange all or any part of such Offered Securities
as to which a Notice of Acceptance has not been given, but only to the offerees
or purchasers described in the Offer and only upon terms and conditions
6
(including, without limitation, price per share) which are not more favorable,
in the aggregate, to the acquiring Person or Persons or less favorable to the
Corporation than those set forth in the Offer.
(c) Upon the closing of the issuance, sale or exchange of the
Offered Securities that are not subject to a Notice of Acceptance, the
Rightholders shall acquire from the Corporation, and the Corporation shall issue
to the Rightholder, the number of Offered Securities specified in the Notice of
Acceptance, upon the terms and conditions specified in the Offer. The purchase
by the Rightholder of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Corporation and the Rightholder of a
purchase agreement relating to such Offered Securities that is reasonably
satisfactory in form and substance to the Rightholder and their counsel and in
compliance with all applicable securities laws.
(d) Any Offered Securities that are not acquired by the
Rightholder or the offerees or purchasers described in the Offer in accordance
with this Section 8 may not be issued, sold or exchanged until they are again
offered to the Rightholder under the procedures specified in this Section 8.
(e) Notwithstanding the foregoing, the pre-emptive rights of
the Rightholder arising under this Section 8 shall not apply to (A) the issuance
by the Corporation of Offered Securities (i) to employees, officers, directors
or consultants of the Corporation or its parents, subsidiaries or affiliates
pursuant to the Corporation's employee benefit, option or other equity incentive
plans, in connection with an employment or consulting agreement or arrangement
with the Corporation or its parent or subsidiaries, or in exchange for other
securities of the Corporation (including, without limitation, options) held by
any such employees, directors or consultants, provided, however, that any such
plan, agreement or arrangement or exchange shall have been approved on or prior
to the date hereof or is hereafter approved by a majority of the members of the
Board who are not employees of the Corporation, or (ii) in connection with the
acquisition of the business of another entity, whether by the purchase of equity
securities, assets or otherwise; or (B) Offered Securities issued as a stock
dividend to holders of capital stock of the Corporation or upon any subdivision
or combination of shares of Stock; or (C) Offered Securities issued pursuant to
the Stock Purchase Agreement or any Ancillary Agreement (as defined in the Stock
Purchase Agreement); or (D) Offered Securities sold by the Corporation in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended; or (E) any shares of Common Stock
issued upon exercise of options outstanding on the date hereof; or (F) any
performance-based equity issued in connection with strategic relationships,
provided, however, that any such issuance shall have been approved by a majority
of the members of the Board who are not employees of the Corporation.
(f) The failure of any Rightholder to exercise its rights
under this Section 8 shall not be deemed to be a waiver of its rights hereunder
in connection with any subsequent issuance, sale or exchange, or agreement to
issue, sell or exchange, or reservation or setting aside for issuance, sale or
exchange, of Offered Securities.
9. [Reserved]
7
10. Notation on Certificates
The certificates which have been issued for shares of Stock
held by the Stockholder(s) shall be endorsed with appropriate legends referring
to the federal securities laws and any applicable state securities laws and they
shall also be endorsed with a legend that is to read substantially as follows:
"THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH
THE PROVISIONS AND TRANSFER RESTRICTIONS OF A STOCKHOLDERS'
AGREEMENT, BETWEEN THE ISSUER OF THIS CERTIFICATE AND ITS
STOCKHOLDERS, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE
SECRETARY OF THE ISSUER OF THIS CERTIFICATE. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO SIGNIFICANT
RESTRICTIONS, INCLUDING, WITHOUT LIMITATION, CERTAIN RIGHTS OF
FIRST REFUSAL AND CO-SALE RIGHTS THAT ARE SET FORTH IN SUCH
STOCKHOLDERS' AGREEMENT."
11. Waiver and Modification
The Corporation by majority vote of its directors, or any
Stockholder by written consent, may waive its respective rights hereunder either
generally or with respect to one or more specific Transfers which have been
proposed, attempted or made. This Agreement may be modified or terminated by
majority vote of the directors of the Corporation and the written consent of
Pequot and a majority in interest of the other Stockholders; provided that any
such change shall become effective only when reduced to writing, signed by such
Stockholders, Pequot and the Corporation.
12. Additional Stock
This Agreement shall include and apply to any additional
shares of capital stock of the Corporation hereafter acquired by any Stockholder
or any subsequent party to this Agreement.
13. Binding Effect; Further Assurances
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors, permitted assigns and other transferees, including
Persons who purchase or receive shares of Stock from a Stockholder, and the
parties hereto agree for themselves and their respective heirs, executors,
administrators, successors, permitted assigns and other transferees to execute
any instruments which may be necessary or proper to carry out the purposes and
intent of this Agreement. Without limiting the generality of the foregoing, this
Agreement and the rights and obligations of Pequot hereunder may be assigned, in
whole or in part, to (i) any partner or stockholder of Pequot or (ii) any
venture capital fund, investment entity or investment account for which Pequot
8
Capital Management, Inc. or its successors or assigns is the investment manager
or investment advisor, and such assignee shall become subject to all of the
rights and obligations of Pequot hereunder.
14. Notices
All notices hereunder shall be in writing and shall be hand
delivered or sent by express, registered or certified mail, postage prepaid,
return receipt requested, or reputable overnight courier service, to the
Corporation at its address at 25 Green Mountain Drive, So. Burlington, VT 05403,
Attn: President, to Pequot, at its address specified on the signature page
hereto, with a copy to E. Ann Gill, Esq. at Dewey Ballantine LLP, 1301 Avenue of
the Americas, New York, New York 10019, or such other address as may be given by
Pequot by notice to the Corporation and the other Stockholders party hereto, and
to the other Stockholders at their last addresses shown on the records of the
Corporation. All such notices shall be deemed to have been duly given (i) if
delivered by hand, when delivered, (ii) if delivered by express mail or
reputable overnight courier service, when delivered, and (iii) if sent by
registered or certified mail, five (5) days after being deposited in the mail.
15. Term
Unless earlier terminated pursuant to the provisions hereof,
this Agreement shall terminate on the date of the closing of a firm commitment
underwritten initial public offering with a nationally recognized investment
banking firm resulting in net proceeds to the Corporation equal to or greater
than $35,000,000 and as a result of which the Corporation has a market
capitalization of at least $500,000,000.
16. Governing Law
This Agreement shall be construed under and governed by the
laws of the State of New York, without giving effect to its conflicts of laws
principles.
17. Entire Agreement; Severability
This Agreement constitutes the entire agreement among the
parties and supersedes any prior agreements among the parties, whether written
or oral, relating to the subject matter hereof. If any provision of this
Agreement is held to be invalid, illegal or unenforceable, in whole or in part,
such invalidity will not affect any otherwise valid provision, and all other
valid provisions will remain in full force and effect and this Agreement shall
be enforced to the greatest extent possible to carry out the intentions of the
parties hereto.
18. Counterparts; Facsimile Execution
This Agreement may be executed in one or more counterparts
each of which shall be deemed an original and all of which together shall
constitute a single instrument. Facsimile execution and delivery of this
Agreement shall be legal, valid and binding execution and delivery for all
purposes.
9
19. Specific Performance
Each of the parties acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter,
in addition to any other remedy to which they may be entitled, at law or in
equity.
[signature page follows]
10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CHANNELHEALTH INCORPORATED
By:/S/ RICHARD E. TARRANT
_______________________________
Richard E. Tarrant, President
STOCKHOLDERS:
IDX SYSTEMS CORPORATION
By:/S/ ROBERT W. BAKER, JR.
________________________________
Name: Robert W. Baker, Jr.
Title:Vice President
PEQUOT PRIVATE EQUITY FUND II, L.P.
By: PEQUOT CAPITAL MANAGEMENT, INC.,
as Investment Manager
By:/S/ DAVID J. MALAT
_______________________________________
David J. Malat, Chief Financial Officer
500 Nyala Farm Road
Westport, CT 06880
11
EXHIBIT C
CHANNELHEALTH INCORPORATED
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of January 10,
2000, by and among Channelhealth Incorporated, a Delaware corporation (the
"Company"), IDX Systems Corporation, a Vermont corporation ("IDX") and Pequot
Private Equity Fund II, L.P., a Delaware limited partnership ("Pequot").
Preliminary Statement
The Company and Pequot have entered into a Series A Convertible
Preferred Stock Purchase Agreement dated as of even date herewith (the "Purchase
Agreement"). The Company and Pequot desire to provide for certain arrangements
with respect the registration of capital stock of the Company under the
Securities Act of 1933.
Terms and Conditions
In consideration of the mutual covenants and agreements contained in
this Agreement and the Purchase Agreement, and intending to be legally bound,
the parties hereto agree as follows:
Section 1. Definitions.
--------- -----------
As used in this Agreement, the following terms have the meanings indicated
below or in the referenced sections of this Agreement:
"Common Stock." The Company's Common Stock, $.001 par value per share,
as the same may be constituted from time to time.
"Conversion Shares." The shares of Common Stock that each party has the
right to acquire, or does acquire, pursuant to conversion of: (a) the shares of
Series A Preferred Stock of the Company which are issued to them pursuant to the
Purchase Agreement; (b) any shares of Series A Preferred Stock issued to the
parties in connection with a stock split or similar issuance of shares of Series
A Preferred Stock; and (c) any shares of Series A Preferred Stock issued to the
parties in replacement of or upon partial exercise of any of the shares of
Series A Preferred Stock described in the preceding clauses (a) and (b).
"Demand Registration." As defined in Section 3(a) hereof.
"Exchange Act." The Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Initial Public Offering." The initial firm commitment underwritten
public offering of shares of Common Stock pursuant to an effective Registration
Statement under the Securities Act which results in net proceeds to the Company
of at least $35,000,000 and resulting in a market capitalization of the Company
of at least $500,000,000.
"NASD." The National Association of Securities Dealers, Inc.
"Person." An individual, a partnership, a corporation, a limited
liability company or partnership, an association, a joint stock company, a
trust, a business trust, a joint venture, an unincorporated organization or a
government entity or any department, agency, or political subdivision thereof.
"Piggyback Registration." As defined in Section 4(a) hereof.
"Registrable Securities." The Conversion Shares and any shares of
Common Stock of the Company held by IDX or Pequot; provided, that a Registrable
Security ceases to be a Registrable Security when (i) it is registered under the
Securities Act and disposed of in accordance with the registration statement
covering it or (ii) it is sold or transferred in accordance with the
requirements of Rule 144 (or similar provisions then in effect) promulgated by
the SEC under the Securities Act ("Rule 144").
"Registration Expenses." As defined in Section 7(a) hereof.
"SEC." The United States Securities and Exchange Commission.
"Securities Act." The Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Series A Preferred Stock." The Company's Series A Convertible
Preferred Stock, $.001 par value per share, as the same may be constituted from
time to time.
Section 2. Securities Subject to this Agreement.
--------- ------------------------------------
(a) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever that Person owns, directly or
beneficially, or has the right to acquire Registrable Securities, disregarding
any legal restrictions upon the exercise of that right.
(b) Majority of Registrable Securities. As used in this Agreement, the
term "majority of the Registrable Securities" means 51% or more of the
Registrable Securities being registered unless the context indicates that it is
51% or more of the Registrable Securities then issued and outstanding.
Section 3. Demand Registration.
--------- -------------------
(a) Request for Registration. Subject to the provisions of Section
3(b), at any time after the closing of the Initial Public Offering, Pequot or
IDX may demand that the Company register all or part of its Registrable
Securities under the Securities Act (a "Demand Registration") on Forms S-1 or
S-3, as applicable (or similar forms then in effect or such other form as the
Company and the holder requesting the Demand Registration shall agree)
2
promulgated by the SEC under the Securities Act. Within ten (10) business days
after receipt of a demand, the Company will notify in writing all holders of
Registrable Securities of the demand. Any holder who wants to include his or its
Registrable Securities in the Demand Registration must notify the Company within
ten (10) business days of receiving the notice of the Demand Registration.
Except as provided in this Section 3, the Company will include in all Demand
Registrations all Registrable Securities for which the Company receives the
timely written demands for inclusion. All demands made pursuant to this Section
3(a) must specify the number of Registrable Securities to be registered and the
intended method of disposing of the Registrable Securities.
(b) Form of Registration. The Demand Registration will be on Form S-3
whenever the Company is permitted to use such form, unless the holder requesting
the Demand Registration or the underwriter reasonably request registration on an
expanded form. The Company will use commercially reasonable efforts to qualify
for registration on Form S-3. Notwithstanding the foregoing provisions of this
Section 3, each of Pequot and IDX shall have the right to (i) two (2) Demand
Registrations on Form S-1 (or a similar form then in effect) in each 12 month
period; and (ii) two (2) Demand Registrations on Form S-3 (or a similar form
then in effect) in each 12 month period.
(c) [Reserved]
--------
(d) Selection of Underwriters. The Company shall select the investment
banker(s) and manager(s) that will administer the offering; provided, that the
holder requesting the Demand Registration shall have given its prior written
consent to such selection which consent shall not be unreasonably withheld. The
Company and the holders of Registrable Securities whose shares are being
registered shall enter into a customary underwriting agreement with such
investment banker(s) and manager(s).
(e) Priority on Demand Restrictions. If the managing underwriter gives
the Company and the holders of the Registrable Securities being registered a
written opinion that the number of Registrable Securities requested to be
included in the Demand Registration exceeds the number of securities that can be
sold, the Company will include in the registration only the number of
Registrable Securities that the managing underwriter believes can be sold. The
number of securities registered shall be allocated, first to Pequot and IDX in
equal amounts, and then pro rata among the other holders of Registrable
Securities, if any, in each case, on the basis of the total number of
Registrable Securities requested to be included in the registration. In
addition, if the managing underwriter shall advise the Company, in writing or
otherwise, that an underwriters' over-allotment option, not in excess of 15% of
the total offering to be so effected, is necessary or desirable for the
marketing of such offering, all Registrable Securities which are to be included
in such offering pursuant to this Section 3(e) shall be allocated pro rata to
the primary portion of such offering and the underwriters' over-allotment
portion on the basis of the total number of Registrable Securities requested to
be included in the registration.
(f) Delay in Filing. Notwithstanding the foregoing, the Company may
delay in filing a registration statement in connection with a Demand
3
Registration and may withhold efforts to cause the registration statement to
become effective, if the Company determines in good faith that such registration
might (1) interfere with or affect the negotiation or completion of any
transaction that is being contemplated by the Company (whether or not a final
decision has been made to undertake such transaction) at the time the right to
delay is exercised, or (2) involve initial or continuing disclosure obligations
that might not be in the best interest of the Company's stockholders. The
Company may exercise such right to delay or withhold efforts not more than twice
in any twelve (12) month period and for not more than ninety (90) days at a
time. If, after a registration statement becomes effective, the Company advises
the holders of registered shares that the Company considers it appropriate for
the registration statement to be amended, the holders of such shares shall
suspend any further sales of their registered shares until the Company advises
them that the registration statement has been amended. The 180-day time period
referred to in Section 6(a)(3) during which the registration statement must be
kept current after its effective date shall be extended for an additional number
of business days equal to the number of business days during which the right to
sell shares was suspended pursuant to the preceding sentence.
(g) Effective Demand Registration. A registration shall not constitute
a Demand Registration until it has become effective and remains continuously
effective for the lesser of (i) the period during which all Registrable
Securities registered in the Demand Registration are sold or (ii) 180 days;
provided, however, that a registration shall not constitute a Demand
Registration if (x) after such Demand Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not attributable to Pequot and such interference is not thereafter
eliminated, or (y) the conditions specified in the underwriting agreement, if
any, entered into in connection with such Demand Registration are not satisfied
or waived, other than by reason of a failure of Pequot, or (z) the number of
Registrable Securities sold by Pequot in such Demand Registration is less than
fifty percent (50%) of the number of Registrable Securities requested to be
included in such Demand Registration by Pequot.
Section 4. Piggyback Registrations.
--------- -----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (except for the registration of
securities to be offered pursuant to an employee benefit plan on Form S-8,
pursuant to a registration made on Form S-4 or any successor forms then in
effect) at any time other than pursuant to a Demand Registration and the
registration form to be used may be used for the registration of the Registrable
Securities (a "Piggyback Registration"), it will so notify in writing all
holders of Registrable Securities no later than the earlier to occur of (i) the
tenth (10th) business day following the Company's receipt of notice of exercise
of other demand registration rights, or (ii) forty-five (45) days prior to the
anticipated filing date. Subject to the provisions of Section 4(c), the Company
will include in the Piggyback Registration all Registrable Securities, on a pro
rata basis based upon the total number of Registrable Securities with respect to
which the Company has received written requests for inclusion within fifteen
(15) business days after the applicable holder's receipt of the Company's
notice. Such Registrable Securities may be made subject to an underwriters'
4
over-allotment option, if so requested by the managing underwriter. The holders
of Registrable Securities may withdraw all or any part of the Registrable
Securities from a Piggyback Registration at any time before ten (10) business
days prior to the effective date of the Piggyback Registration. The Company, the
holders of Registrable Securities and any Person who hereafter become entitled
to register its securities in a registration initiated by the Company must sell
their securities on the same terms and conditions. A registration of Registrable
Securities pursuant to this Section 4 shall not be counted as a Demand
Registration under Section 3.
(b) [Reserved]
--------
(c) Priority on Piggyback Registrations. If the managing underwriter
gives the Company its written opinion that the total number or dollar amount of
securities requested to be included in the registration exceeds the number or
dollar amount of securities that can be sold, the Company will include the
securities in the registration in the following order of priority: (i) first,
all securities the Company proposes to sell; (ii) second, up to the full number
or dollar amount of Registrable Securities requested to be included in the
registration by Pequot and (iii) third, pro rata among the holders of
Registrable Securities other than Pequot, if any, in each case, on the basis of
the dollar amount or number of Registrable Securities requested to be included,
as the case may be. In the event that the managing underwriter advises the
Company that an underwriters' over-allotment option is necessary or advisable,
the preceding priority shall apply to the determination of which securities are
to be included in the primary portion of such registration.
(d) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company will select the investment banker(s) and
manager(s) that will administer the offering, which shall be a nationally
recognized investment banker(s) and manager(s) with demonstrable
industry-specific expertise and experience. The Company and the holders of
Registrable Securities whose shares are being registered shall enter into a
customary underwriting agreement with such investment banker(s) and manager(s).
(e) Other Registrations. The Company agrees that after filing a
registration statement with respect to Registrable Securities pursuant to
Section 3 or this Section 4 that has not been withdrawn or abandoned, the
Company will not register any of its equity securities or securities convertible
or exchangeable into or exercisable for its equity securities under the
Securities Act, whether on its own behalf or at the request of any holder of
those securities until at least three (3) months have elapsed from the effective
date of the previous registration, and the parties hereto agree that the Company
will not be required to effect any such registration notwithstanding the other
provisions of this Agreement. This three-month hiatus does not apply to
registrations of securities (i) to be issued in connection with employee benefit
plans, (ii) to permit exercise or conversions of previously issued options,
warrants, or other convertible securities, (iii) in connection with a Demand
Registration or (iv) made on Form S-4 (or any successor form).
Section 5. Holdback Agreements.
--------- -------------------
(a) Restrictions on Public Sale by Securities Holders. Each holder of
Registrable Securities whose securities are included in a registration statement
5
agrees not to make any public sale or distribution of equity securities of the
Company (except as part of the underwritten registration or pursuant to
registration on Form S-8 or any successor form), including a sale pursuant to
Rule 144, during the seven (7) days prior to and the 180 days after the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration unless the managing underwriter(s) agrees otherwise;
provided, however, that all officers and directors of the Company, all holders
of at least 2.5% of the Company's equity securities purchased from the Company
(other than securities purchased from the Company at any time after the date of
this Agreement in a registered public offering) and all other persons with
registration rights (whether or not pursuant to this Agreement) are bound by and
have entered into a similar agreement and the restrictions on transfer have not
been waived with respect to any such officers, directors, holders or persons.
(b) Restrictions on Public Sale by the Company and Others. The Company
agrees not to make any public sale or distribution of its equity securities, or
any securities convertible into or exchangeable or exercisable for its equity
securities, including a sale under Regulation D under the Securities Act or
under any other exemption of the Securities Act (except as part of the
underwritten registration or pursuant to registrations on Forms S-8 or S-4 or
any successor form), during the seven (7) days prior to and the 180 days after
the effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration unless the managing underwriter(s) agrees otherwise, and
the parties hereto agree that the Company will not be required to effect any
such registration or sale notwithstanding the other provisions of this
Agreement. The Company also agrees to use reasonable efforts to cause each
holder of at least 2.5% (on a fully-diluted basis) of its equity securities
(other than Registrable Securities) or any securities convertible into or
exchangeable or exercisable for its equity securities (other than Registrable
Securities), purchased from the Company at any time on or after the date of this
Agreement (other than in a registered public offering), to agree not to make any
public sale or distribution of those securities, including a sale pursuant to
Rule 144 (except as part of the underwritten registration, if permitted), during
the seven (7) days prior to and the 180 days after the effective date of the
registration unless the managing underwriter(s) agrees otherwise.
Section 6. Registration Procedures.
--------- -----------------------
(a) Obligations of the Company. Whenever the holders of Registrable
Securities request the registration of any Registrable Securities pursuant to
this Agreement, the Company shall use its best efforts to register and to permit
the sale of the Registrable Securities in accordance with the intended method of
disposition. To carry out this obligation, the Company shall as expeditiously as
practicable:
(1) prepare and file with the SEC a registration statement on
the appropriate form and use commercially reasonable efforts to cause the
registration statement to become effective. At least ten (10) days before filing
a registration statement or prospectus or at least three (3) business days
before filing any amendments or supplements thereto, the Company will furnish to
the counsel of the holders of a majority of the Registrable Securities being
registered copies of all documents proposed to be filed for that counsel's
6
review and approval, which approval shall not be unreasonably withheld or
delayed;
(2) immediately notify each seller of Registrable Securities
of any stop order threatened or issued by the SEC and take all actions
reasonably required to prevent the entry of a stop order or if entered to have
it rescinded or otherwise removed;
(3) prepare and file with the SEC such amendments and
supplements to the registration statement and the corresponding prospectus
necessary to keep the registration statement effective for 180 days or such
shorter period as may be required to sell all Registrable Securities covered by
the registration statement; and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by the registration
statement during each period in accordance with the sellers' intended methods of
disposition as set forth in the registration statement;
(4) furnish to each seller of Registrable Securities a
sufficient number of copies of the registration statement, each amendment and
supplement thereto (in each case including all exhibits), the corresponding
prospectus (including each preliminary prospectus), and such other documents as
a seller may reasonably request to facilitate the disposition of the seller's
Registrable Securities;
(5) use its best efforts to register or qualify the
Registrable Securities under securities or blue sky laws of jurisdictions in the
United States of America as any seller requests and do any and all other
reasonable acts and things that may be necessary or advisable to enable the
seller to consummate the disposition of the seller's Registrable Securities in
such jurisdiction; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified or to file any general consent to
service of process;
(6) notify each seller of Registrable Securities, at any time
when a prospectus is required to be delivered under the Securities Act, of any
event as a result of which the prospectus or any document incorporated therein
by reference contains an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances under which such statements were made, and prepare a
supplement or amendment to the prospectus or any such document incorporated
therein so that thereafter the prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which such
statements were made;
(7) cause all registered Registrable Securities to be listed
on each securities exchange, if any, on which similar securities issued by the
Company are then listed;
(8) provide an institutional transfer agent and registrar
and a CUSIP number for all Registrable Securities on or before the effective
date of the registration statement;
7
(9) enter into such customary agreements (including an
underwriting agreement in customary form) and take all other actions in
connection with those agreements as the holders of the Registrable Securities
being registered or the underwriters, if any, reasonably request to expedite or
facilitate the disposition of the Registrable Securities;
(10) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to the registration statement, and any attorney, accountant, or other
agent of any seller or underwriter, all financial and other records, pertinent
corporate documents, and properties of the Company, and cause the Company's
officers, directors and employees to supply all information requested by any
seller, underwriter, attorney, accountant, or other agent in connection with the
registration statement; provided that an appropriate confidentiality agreement
is executed by any such seller, underwriter, attorney, accountant or other
agent;
(11) in connection with any underwritten offering, obtain a
"comfort" letter from the Company's independent public accountants in customary
form and covering those matters customarily covered by "comfort" letters as the
holders of Registrable Securities being registered or the managing underwriter
reasonably requests (and, if the Company is able after using commercially
reasonable efforts, the letter shall be addressed to holders of the Registrable
Securities, the Company and the underwriters);
(12) in connection with any underwritten offering, furnish, at
the request of any holder of Registrable Securities being registered or
underwriter(s) of the offering, an opinion of counsel representing the Company
for the purposes of the registration, in the form and substance customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to counsel representing the holders of Registrable Securities being
registered and the underwriter(s) of the offering, addressed to the underwriters
and to the holders of the Registrable Securities being registered;
(13) use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earnings statement complying with the provisions
of Section 11(a) of the Securities Act and covering the period of at least
twelve (12) months, but not more than eighteen (18) months, beginning with the
first month after the effective date of the Registration Statement;
(14) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the NASD; and
(15) take all other steps reasonably necessary to effect
the registration of the Registrable Securities contemplated hereby.
(b) Seller Information. In the event of any registration by the
Company, from time to time, the Company may require each seller of Registrable
8
Securities subject to the registration to furnish to the Company information
regarding such seller and the distribution of the securities subject to the
registration, and such seller shall furnish all such information requested by
the Company.
(c) Notice to Discontinue. Each holder of Registrable Securities agrees
by acquisition of such securities that, upon receipt of any notice from the
Company of any event of the kind described in Section 6(a)(6), the holder will
discontinue disposition of Registrable Securities until the holder receives
copies of the supplemented or amended prospectus contemplated by Section
6(a)(6). In addition, if the Company requests, the holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in the holder's possession, of the prospectus covering the Registrable
Securities current at the time of receipt of the notice. If the Company gives
any such notice, the time period mentioned in Section 6(a)(3) shall be extended
by the number of days elapsing between the date of notice and the date that each
seller receives the copies of the supplemented or amended prospectus
contemplated in Section 6(a)(6).
(d) Notice by Holders. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
Agreement, those holders shall notify the Company, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event, which as to any holder of Registrable Securities is (i)
to his or its respective knowledge, (ii) solely within his or its respective
knowledge and (iii) solely as to matters concerning that holder of the
Registrable Securities, as a result of which the prospectus included in the
registration statement contains an untrue statement of a material fact or omits
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 7. Registration Expenses.
--------- ---------------------
(a) Generally. The Company shall pay all Registration Expenses for the
first four demand registrations on Form S-1 or Form S-3 and for all
registrations pursuant to Section 4. The term "Registration Expenses" includes
without limitation all registration filing fees, reasonable professional fees
and other reasonable expenses of the Company's compliance with federal, state
and other securities laws (including fees and disbursements of counsel for the
underwriters in connection with state or other securities law qualifications and
registrations), printing expenses, messenger, telephone and delivery expenses;
reasonable fees and disbursements of counsel for the Company and for one counsel
for the sellers of the Registrable Securities (subject to the provisions of
Section 7(b)); reasonable fees and disbursement of all independent certified
public accountants (including the expenses of any audit or "comfort" letters
required by or incidental to performance of the obligations contemplated by this
Agreement); fees and expenses of the underwriters (other than discounts and
commissions with respect to the Registrable Securities which shall be paid by
the holder requesting registration thereof); fees and expenses of any special
experts retained by the Company at the request of the managing underwriters in
connection with the registration; and applicable stock exchange and NASD
registration and filing fees.
9
(b) Counsel for Holders. In connection with each registration for which
the Company is required to pay the Registration Expenses of the holders of
Registrable Securities, the Company will promptly reimburse those holders for
the reasonable fees and disbursements of one law firm, selected by the holders
of a majority of the Registrable Securities included in such registration, to
serve as counsel to all the holders.
Section 8. Indemnification.
--------- ---------------
(a) Indemnification by Company. In the event of any registration of
Registrable Securities under the Securities Act pursuant to this Agreement, to
the full extent permitted by law, the Company agrees to indemnify each holder of
Registrable Securities so registered, its officers, directors, trustees,
partners, employees, advisors and agents, and each Person who controls the
holder (within the meaning of the Securities Act and the Exchange Act) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
allegedly untrue statement of material fact contained in any registration
statement under which such Registrable Securities were registered under the
Securities Act, any prospectus or preliminary prospectus contained therein or
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which such statements were made, except to the extent
the untrue statement or omission resulted from information that the holder
furnished in writing to the Company expressly for use therein. In connection
with a firm or best efforts underwritten offering, to the extent customarily
required by the managing underwriter, the Company will indemnify the
underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act), to
the extent customary in such agreements.
(b) Indemnification by Holders of Securities. In connection with any
registration statement, each participating holder of Registrable Securities will
furnish to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any registration statement or
prospectus and each holder agrees to indemnify, to the extent permitted by law,
the Company, its directors, officers, trustees, partners, employees, advisors
and agents, and each Person who controls the Company (within the meaning of the
Securities Act and the Exchange Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or allegedly untrue statement
of a material fact or any omission or alleged omission to state a material fact
required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto necessary to make the statements therein
not misleading in light of the circumstances under which such statements were
made, but only to the extent that the untrue statement or omission is contained
in or omitted from any information or affidavit the holder furnished in writing
to the Company expressly for use therein and only in an amount not exceeding the
net proceeds received by the holder with respect to securities sold pursuant to
such registration statement. In connection with a firm or best efforts
underwritten offering, to the extent customarily required by the managing
underwriter, each participating holder of Registrable Securities will indemnify
the underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act), to
the extent customary in such agreements.
10
(c) Indemnification Proceedings. Any Person entitled to indemnification
under this Agreement will (i) give prompt notice to the indemnifying party of
any claim with respect to which it seeks indemnification and (ii) unless in the
indemnified party's reasonable judgment a conflict of interest may exist between
the indemnified and indemnifying parties with respect to the claim, permit the
indemnifying party to assume the defense of the claim with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party does not assume
the defense, the indemnifying party will not be liable for any settlement made
without its consent (but that consent may not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or will enter into any
settlement that does not include as an unconditional term thereof the claimant's
or plaintiff's release of the indemnified party from all liability concerning
the claim or litigation. An indemnifying party who is not entitled to or elects
not to assume the defense of a claim will not be under an obligation to pay the
fees and expenses of more than one counsel for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between the
indemnified party and any other indemnified party with respect to the claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of no more than one additional counsel for the indemnified parties.
(d) Contribution. If the indemnification provided for in Section 8(a)
or (b) is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each indemnifying
party thereunder shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company and the participating holders of Registrable Securities in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and the
participating holders of Registrable Securities shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the participating holders
of Registrable Securities and the parties' relative intent and knowledge.
The parties hereto agree that it would not be just and equitable if
contribution pursuant this Section 8(d) were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding anything herein to the contrary, no participating holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the net proceeds of the offering (before deducting expenses,
if any) received by such participating holder exceeds the amount of any damages
that such participating holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
Section 9. Rule 144 and Rule 144A.
--------- ----------------------
If the Company files a registration statement pursuant to the requirements
of the Securities Act or Section 12 or Exchange Act, the Company covenants that
11
it will file the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the SEC thereunder,
and it will take such further action as any holder of Registrable Securities
reasonably may request, all to the extent required from time to time, to enable
such holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, or (ii) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any holder of Registrable Securities,
the Company will deliver to such holder a written statement as to whether it has
complied with Rule 144's or any successor rule's requirements. The Company also
covenants that in such event it will provide all such information and it will
take such further action as any holder of Registrable Securities reasonably may
request to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of Rule 144A under
the Securities Act or any successor rule requirements.
Section 10. Participation in Underwritten Registration.
---------- -------------------------------------------
No Person may participate in any underwritten registration without (a)
agreeing to sell securities on the basis provided in underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements (the
holders of the Registrable Securities in a Demand Registration pursuant to
Section 3(d) and the Company in a piggyback registration pursuant to Section
4(d)), and (b) completing and executing all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required by the
underwriting arrangements.
Section 11. Termination.
---------- -----------
This Agreement shall terminate three (3) years after the date of the Initial
Public Offering.
Section 12. Miscellaneous.
---------- -------------
(a) Recapitalizations, Exchanges, etc. The provisions of this Agreement
shall apply to the full extent set forth herein with respect to (i) the
Conversion Shares and the shares of Common Stock, (ii) any and all shares of
voting common stock of the Company into which the Conversion Shares and/or the
shares of Common Stock are converted, exchanged or substituted in any
recapitalization or other capital reorganization by the Company and (iii) any
and all equity securities of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in conversion of, in exchange for or in
substitution of, the Conversion Shares and/or the shares of Common Stock and
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
The Company shall use its best efforts to cause any successor or assign (whether
by sale, merger or otherwise) to enter into a new registration rights agreement
with Pequot on terms substantially the same as this Agreement as a condition of
any such transaction.
(b) Amendment. This Agreement may be amended or modified only by
a written agreement executed by the Company and Pequot.
(c) Attorneys' Fees. In any legal action or proceeding brought to
enforce any provision of this Agreement, the prevailing party shall be entitled
12
to recover all reasonable expenses, charges, court costs and attorneys' fees in
addition to any other available remedy at law or in equity.
(d) Benefit of Parties; Assignment. All of the terms and provisions of
this Agreement shall be binding on and inure to the benefit of the parties and
their respective successors and assigns, including without limitation all
subsequent holders of securities entitled to the benefits of this Agreement who
agree in writing to become bound by the terms of this Agreement.
(e) Captions. The captions of the sections and subsections of this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any provision of this Agreement.
(f) Cooperation. The parties agree that after execution of this
Agreement they will from time to time, upon the request of any other party and
without further consideration, execute, acknowledge and deliver in proper form
any further instruments and take such other action as any other party may
reasonably require to carry out effectively the intent of this Agreement.
(g) Counterparts; Facsimile Execution. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
Facsimile execution and delivery of this Agreement shall be legal, valid and
binding execution and delivery for all purposes.
(h) Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings between the parties with
respect thereto. There are no promises, covenants or undertakings other than
those expressly set forth or provided for in this Agreement.
(i) Governing Law. The internal law of the State of New York will
govern the interpretation, construction, and enforcement of this Agreement and
all transactions and agreements contemplated hereby, notwithstanding any state's
choice of law rules to the contrary.
(j) No Inconsistent Agreements. The Company represents and warrants
that it has not granted to any Person the right to request or require the
Company to register any securities issued by the Company other than the rights
contained herein. Except with the prior written consent of Pequot, the Company
will not enter into any agreement with respect to its securities that shall
grant to any Person registration rights that in any way conflict with or are
prior in right to the rights provided under this Agreement.
(k) Notices. All notices, requests, demands, or other communications
that are required or may be given pursuant to the terms of this Agreement shall
be in writing and delivery shall be deemed sufficient in all respects and to
have been duly given on the date of service if delivered personally to the party
to whom notice is to be given, or upon receipt if mailed by first class mail,
return receipt requested, postage prepaid, and properly addressed to the
addresses of the parties set forth in the Purchase Agreement or to such other
address(es) as the respective parties hereto shall from time to time designate
to the other(s) in writing.
13
(l) Specific Performance. Each of the parties agrees that damages for a
breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity that the parties
and their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach of
this Agreement.
(m) Entire Agreement; Severability. This Agreement constitutes the
entire agreement among the parties and supersedes any prior agreements among the
parties, whether written or oral, relating to the subject matter hereof. If any
provision of this Agreement is held to be invalid, illegal or unenforceable, in
whole or in part, such invalidity will not affect any otherwise valid provision,
and all other valid provisions will remain in full force and effect and this
Agreement shall be enforced to the greatest extent possible to carry out the
intentions of the parties hereto.
[signature page follows]
14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CHANNELHEALTH INCORPORATED
By:/S/ RICHARD E. TARRANT
______________________________________
Richard E. Tarrant, President
PEQUOT PRIVATE EQUITY FUND II, L.P.,
By: PEQUOT CAPITAL MANAGEMENT, INC., as
Investment Manager
By:/S/ DAVID J. MALAT
______________________________________
David J. Malat, Chief Financial Officer
IDX SYSTEMS CORPORATION
By:/S/ ROBERT W. BAKER, JR.
_____________________________________
Name:Robert W. Baker, Jr.,
Vice President
15
EXHIBIT D
EMPLOYMENT, NONCOMPETITION AND NONDISCLOSURE AGREEMENT
THIS AGREEMENT is made by and between Channelhealth Incorporated, a
subsidiary of IDX Systems Corporation, ("the Company"), and the undersigned (the
"Employee") as of the date of acceptance hereof by the Company, and it shall be
effective as of the first date of Employee's employment by the Company, unless
the context requires otherwise. References to the Employee using the masculine
gender in this Agreement shall be deemed to include the feminine gender and vice
versa.
BACKGROUND
The Employee is employed by or desires to become
employed by the Company. The Company desires to employ the
Employee, and the Employee is willing to accept such
employment, upon the terms and conditions hereinafter set
forth.
The Employee acknowledges that in the course of
rendering services to the Company, he/she may have and will
become acquainted with information about the business and
financial affairs of the Company, and may have contributed or
may in the future contribute to such information. The Employee
recognizes that in order to protect the legitimate interests
of the Company it is necessary for the Company to protect all
such information by keeping it secret or confidential.
IN CONSIDERATION of the premises, the mutual covenants and conditions set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT
----------
1.1 Employment at Will.
------------------
The Company hereby offers the Employee, and Employee hereby accepts, employment
or continued employment upon the terms and conditions hereinafter set forth.
Employment by the Company is terminable at any time, for any reason, at the will
of either the Employee or the Company. No statement of policy or procedure,
whether written or oral, or set forth in any manual or guide, shall be a promise
by the Company to continue employment for any definite term, nor shall any such
statement, policy or procedure require the Company to follow any special
procedure, such as progressive discipline, before terminating employment.
Employee expressly acknowledges that Employee is not accepting employment with
the Company based on any prior or contemporaneous representations, statements,
or promises by the Company or by any other person, business or entity affiliated
with the Company, oral or written, including without any limitation any promise
to grant or pay to Employee an equity interest in the Company or any other
company or business affiliated with the Company or options to receive any such
equity interest.
1.2 Exclusive Employment.
---------------------
The Employee shall devote his/her full-time efforts exclusively for the benefit
of the Company as required hereunder, and shall perform no services for, and
shall not become employed or engaged by any other person, firm or entity while
employed by the Company. The foregoing shall not prevent Employee from
participating in activities in association with professional associations as
approved by the Company.
1.3 Duties.
------
The Employee's duties shall be as assigned by the Company in its discretion, and
at all times he/she shall be subject to the direction and control of the
Page 1 of 7
officers and the Board of Directors of the Company. The duties of the Employee
as of the date of this Agreement shall be as set forth on the official job
description for the position indicated below the Employee's signature line at
the end of this Agreement.
2. COMPENSATION
------------
As the only and the full compensation for all of the services to be provided by
the Employee to the Company, the Company agrees to pay, and the Employee agrees
to and does accept, the following:
2.1 Salary.
------
If the Agreement is for initial employment of the Employee by the Company,
salary shall be paid at the annual rate offered to Employee in the written
letter addressed to Employee prior to the commencement of work for the Company.
If this Agreement is for continued employment of the Employee by the Company,
salary shall be paid at the rate in effect as of the time of execution hereof by
the Employee. Salary may be increased or decreased by the Company prospectively,
at any time and for any reason. Salary shall be paid semi-monthly on the
fifteenth (15th) and last days of each month, in arrears, or on such other legal
basis as the Company shall generally follow from time to time, net of all taxes
and other legally permissible withholdings. In this regard, the Employee hereby
authorizes the Company to withhold from salary payments any amounts owed to the
Company by Employee hereunder or any other amounts as may be agreed to
subsequently, including but not limited to over payments, 401(k) contributions,
and loan payments.
2.2 Benefits.
--------
The Employee shall be entitled to the benefits, such as health, insurance,
vacation, paid and unpaid leave as the Company may from time to time offer to
employees as a standard benefit. Benefits are subject to change at any time with
such notice to employees as may be required by applicable employee benefit plans
and laws governing them. No special or different terms shall apply to Employee
unless set forth in writing and signed by an authorized executive officer of the
Company.
2.3 Bonuses.
-------
The Employee shall not be entitled to receive any bonus or other
compensation other than standard benefits and salary, unless set forth in
writing and signed by an authorized executive officer of the Company. Bonuses of
any kind or nature are not payable unless the Employee is actually employed by
the Company, is in good standing, and is not on leave, on the date of actual
distribution.
2.4 Authorization to Deduct from Wages.
-----------------------------------
If at separation of employment (a) the Company has advanced paid leave to
the Employee before the Employee has accrued such leave, (b) the Employee has
failed to repay any money the Company has loaned to the Employee during the
course of employment, or (c) the Employee is required pursuant to a written
agreement to reimburse the Company for relocation and moving costs, the Employee
authorizes the Company to deduct from the Employee's wages sufficient funds to
repay such advances, loans, or relocation/moving costs, subject to applicable
federal and state wage laws.
3. DEFINITION OF PROPRIETARY INFORMATION
-------------------------------------
For purposes of this Agreement the term "Proprietary Information" means all
of the following materials and information in whatever form or medium (even if
not patentable, or not protectable or protected by copyright laws) which the
Employee receives access to, creates, authors or develops, in whole or in part,
in the course of and within the scope of his/her employment with the Company or
through the use of any of the Company's facilities or resources:
3.1 Computer Software.
-----------------
Computer programs, in any form, and all elements thereof, including all
source and object codes, flow charts, algorithms, coding sheets, compilers,
assemblers, programmer notes, design documents, and routines.
Page 2 of 7
3.2 Research.
--------
Discoveries, concepts and ideas, whether or not patentable or protectable
by copyright, including, without limitation, the nature and results of research
and development activities, technical information on product or program
performance and reliability, processes, formulas, techniques, and "know-how."
3.3 Marketing and Customer Information.
------------------------------------
Price lists, pricing policies, quoting procedures, financial information,
customer and prospect names and requirements, customer data, customer site
information, prospect and call lists, telephone directories and calendars.
3.4 Business Information.
---------------------
Production development processes, marketing techniques, mailing lists,
purchasing information, financial statements, management reports and business
plans.
3.5 Other.
-----
Any other materials or information related to the business or activities of
the Company which are not generally known to others engaged in similar business
or activities.
Failure to mark any of the Proprietary Information as confidential shall not
affect its status as part of the Proprietary Information under the terms of this
Agreement.
4. DISCLOSURE OF INFORMATION, WORKS AND MATERIALS
----------------------------------------------
The Employee recognizes that he/she will be exposed to the Company's
confidential information including without limitation the Company's trade
secrets, and confidential business information. The Employee is hereby notified
that such information includes all computer programs developed by the Company
and the documentation for them. Further, this includes business information,
such as price lists, customer lists and data bases, business plans, sales
projections and product development plans. The Employee further acknowledges
that any information and materials received by the Company and from third
parties in confidence must be treated confidentially. This includes patient
information. Employee covenants and agrees that he/she shall not, except with
the prior written consent of the Company, or unless the Employee is acting as an
employee of the Company solely for the benefit of the Company in connection with
the Company's business and in accordance with the Company's business practices
and employee policies, at any time during or following the term of his/her
employment with the Company, directly or indirectly divulge, reveal, report,
publish, transfer or disclose, for any purpose whatsoever, any of such
confidential information which has been obtained by or disclosed to him/her as a
result of his/her employment with the Company, including, without limitation,
any Proprietary Information, as defined in Section 3 hereof.
5. OWNERSHIP OF INFORMATION, WORKS AND RIGHTS THEREIN
--------------------------------------------------
5.1 Title.
-----
The Employee hereby assigns and transfers to the Company and agrees that
the Company shall be the owner of all inventions, discoveries, work, computer
software program or other computer-related equipment or technology, conceived,
developed, or made by the Employee, either alone or with others, in whole or in
part, during the Employee's employment by the Company, which are useful in, or
directly or indirectly related to the Company's business or which relate to, or
are conceived, developed, or made in the course of, the Employee's employment or
which are developed or made from, or by reason of knowledge gained from, such
employment . If any one or more of the aforementioned are deemed to fall within
the definition of "work made for hire," within the meaning of the Copyright Act
of 1976, as amended, such work shall be considered "work made for hire," the
copyright of which shall be exclusively owned by and vested in the Company. If
any of the aforementioned are considered to be work not included in the
categories of work covered by the "work made for hire" definition contained in
the Copyright Act, such work shall be, and it hereby is, assigned or transferred
completely and exclusively to the Company. The Employee agrees to execute any
instruments and to do all other things reasonably requested by the Company (both
during and after the Employee's employment with the Company) in order to fully
vest and perfect in the Company all ownership rights in those items hereby
Page 3 of 7
transferred by the Employee to the Company. The Employee further agrees to
disclose immediately to the Company all Proprietary Information conceived or
developed in whole or in part by him/her during the term of his/her employment
with the Company and to assign to the Company any right, title or interest
he/she may have in such Proprietary Information.
5.2 Employee's Works.
-----------------
The Employee hereby represents and warrants that the Employee has fully
disclosed to the Company and attached hereto a description of any computer
program or other computer-related technology not covered in Section 5.1 above
which, prior to his/her employment with the Company, the Employee conceived of
or developed, wholly or in part, but which has not been published or filed with
the United States Patent or Copyright Offices.
5.3 Works and Interests of Others.
-----------------------------
Employee hereby represents and warrants that employment by the Company will
not violate any agreement or promise of employee to any other person, and that
Employee will not use any property or confidential information of others in
his/her work for the Company.
6. RECORDS AND TANGIBLE MATERIALS
------------------------------
All notes, data, tapes, reference materials, sketches, drawings, memoranda
and records in any way relating to any of the information referred to in Section
3, 4 and 5 hereof (including, without limitation, any Proprietary Information)
or otherwise prepared by Employee in the course of his/her employment, and all
copies thereof, shall belong exclusively to the Company, and the Employee agrees
to deliver to the Company on request all copies of such materials in his/her
possession or then under his/her control. In the absence of such a request,
Employee shall deliver such items to the Company upon the termination for any
reason of the Employee's employment with the Company.
7. PROTECTION OF INFORMATION AND GOODWILL
--------------------------------------
7.1 Nature of Business.
------------------
Employee and the Company recognize that Employee will acquire knowledge as
a result of working for the Company, and that such knowledge will include
specific knowledge of the Company's business, secrets, products and customers,
including Confidential Information. Employee and the Company recognize that upon
termination of employment by the Company, Employee could use such specific
knowledge and information to the detriment of the Company by disclosing it to
competitors, customers and prospects, and using it to obtain or win business.
Employee and the Company recognize that proof of such disclosure would be
difficult, yet the harm caused thereby could be significant to the Company.
Therefore, Employee and the Company are willing to agree that Confidential
Information will be disclosed to Employee, and, to protect the Company, its
relationship with its customers, its competitive position, and its goodwill,
Employee will not engage in a competitive venture for a reasonable time after
employment by the Company, as set forth below.
7.2 Competitive Ventures.
--------------------
The Company is engaged throughout the United States and the rest of the world
in providing internet-based communication and services for healthcare providers,
pharmacies, and patients, including but not limited to providing internet-based
software applications for physician desktops that incorporate practice
management, patient communication, medical reference, and clinical transactions
information for use by physicians and patients and providing internet-based
software applications that facilitate healthcare information between pharmacies,
provider groups and patients (such activities and services being referred to
herein as the "Internet-Based Healthcare Information Business"). In the event of
the termination of Employee's employment hereunder for any reason, the Employee
agrees that for a period of twelve (12) months from the date of such termination
(the "Prohibition Period"), he/she will not:
7.2.1 Engage directly for himself/herself, or jointly with or on behalf of any
person, entity or venture involved in the Internet-Based Healthcare
Information Business, or any other business in which the Company was engaged at
the time of such termination of employment, and
7.2.2 Work for or become employed by or associated with any person, entity
Page 4 of 7
or venture engaged in the Internet-Based Healthcare Information Business where
either (i) the Employee's duties will be substantially similar to those he/she
has performed for the Company hereunder, or (ii) the Employee's duties would be
likely to involve, or require, or would involve or require, disclosure or use of
Proprietary Information. For example, and without limiting the generality of the
foregoing, if Employee is employed by the Company as a computer programmer
working on internet-based medical information communications, he/she shall not,
during the Prohibition Period, work as a computer programmer on internet-based
medical information communications.
7.3 Geographical Limitations.
-------------------------
The Employee's obligations under this Section 7 shall extend to all
geographical areas in which the Company, or any of its related companies, is
offering its products' services, either directly or indirectly through licenses
or otherwise, during the Prohibition Period.
7.4 Non-Solicitation.
----------------
The Employee further agrees that for a period of twelve (12) months from
the date of termination of his/her employment, he/she will not, on behalf of
himself/herself or any person or entity of the Company, (i) compete for, or
engage in competitive solicitation of, any customer of the Company, or any
person or entity that he/she has, during the twelve (12) months immediately
preceding such termination, solicited or serviced on behalf of the Company or
that has been so solicited or serviced, during such period, by any person under
the Employee's supervision, or (ii) hire or engage or attempt to hire or engage
any individual who was an employee of the Company at any time during the twelve
(12) months immediately prior to such termination.
THE EMPLOYEE REPRESENTS AND WARRANTS THAT THE KNOWLEDGE, SKILLS AND
ABILITIES HE/SHE POSSESSES ARE SUFFICIENT TO PERMIT HIM/HER, IN THE EVENT OF
TERMINATION OF HIS/HER EMPLOYMENT HEREUNDER FOR ANY REASON, TO EARN A LIVELIHOOD
SATISFACTORY TO HIM/HER WITHOUT VIOLATING ANY PROVISION OF SECTION 7 HEREOF.
8. INJUNCTIVE RELIEF
-----------------
The Employee understands and agrees that the Company will probably suffer
irreparable harm if Proprietary Information is disclosed, and that monetary
damages will be inadequate as compensation for such breach. Accordingly, the
Employee agrees that, in the event of a breach or threatened breach by the
Employee of any of the provisions of this Agreement, the Company, in addition to
and not in limitation of any other rights, remedies or damages available to the
Company at law or in equity, will be entitled to, and Employee hereby consents
to, a permanent injunction in order to prevent or to restrain any such breach by
the Employee, or by the Employee's partners, agents, representatives, servants,
employers, employees and/or any and all persons directly or indirectly acting
for or with him/her.
9. ACCOUNTING FOR PROFITS
----------------------
The Employee covenants and agrees that, if he/she shall violate any of
his/her covenants or agreements under this Agreement, the Company shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, enumerations or benefits which the Employee directly or indirectly
has realized and/or may realize as a result of, growing out of or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which the
Company is or may be entitled at law, in equity or under this Agreement.
10. REASONABLENESS OF RESTRICTIONS
------------------------------
The Employee has carefully read and considered the provisions of Sections 1
through 9 hereof and, having done so, agrees that the restrictions set forth
therein are fair and reasonable and are reasonably required for the protection
Page 5 of 7
of the interests of the Company, its officers, directors, stockholders and
employees.
11. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall inure to the benefit of and be binding upon the
Employee, his/her legal representative or representatives and testate or
intestate distributees, and this Agreement shall inure to the benefit of and be
binding upon the Company, and their successors and assigns. The term "Company"
as used herein shall include such successors and assigns and also shall include
any corporation which is at any time the parent or a subsidiary of the Company,
or any corporation or entity which is an affiliate of the Company by virtue of
common (although not identical) ownership, and for which the Employee is
providing services in any form during his/her employment with the Company or any
such other corporation or entity. The term successors and assigns as used herein
shall include a corporation or other entity acquiring all or substantially all
of the assets and business of the Company (including this Agreement) whether by
operation of law or otherwise.
12. NOTICES
-------
Any notice required or permitted by this Agreement shall be given by
registered or certified mail, return receipt requested, addressed to the Company
at its then principal office, or to the Employee at his/her then current address
set forth in the payroll records of the Company, or to either party hereto at
such other address or addresses as he/she or it may from time to time specify
for the purpose in a notice similarly given.
13. ENFORCEABILITY AND SCOPE
------------------------
If any provision of this Agreement is subsequently determined by a court of
competent jurisdiction to be void or unenforceable for any reason, that
provision shall be deemed stricken and the remainder of the Agreement shall not
be affected thereby and shall be binding upon the parties hereto insofar as it
remains a workable instrument to accomplish the intent and purposes of the
parties. The parties shall negotiate the severed provision to bring the same
within the applicable legal requirements to the extent possible. Employee agrees
to take any and all actions, including without limitation, execution and
delivery of any and all instruments and documents necessary or advisable to
complete, perfect, evidence or otherwise confirm any of the matters set forth
herein.
14. TERM AND OTHER CONDITIONS
-------------------------
This Agreement shall remain in full force and effect until the Employee's
employment by the Company terminates, or until superseded by another written
employment agreement based upon good and proper consideration and executed by
the Employee and the Company, whichever first occurs. Notwithstanding the
foregoing, in the event of the termination of this Agreement by reason of the
termination of the Employee's employment, those provisions hereof which by their
terms extend in accordance with such terms shall survive. No amendment or
modification of the terms and conditions hereof shall be effective unless set
forth in a written document signed by the Employee and the Company. As used in
the Agreement, words of the masculine shall, as the context required, include
the feminine.
15. ARBITRATION
-----------
Any dispute between the Company and the Employee arising out of or in any manner
connected with employment or employment practices, including but not limited to
claims of discrimination of any kind and wrongful discharge, under state,
federal or local law, shall be submitted to binding arbitration in accordance
with the rules of the American Arbitration Association, to be conducted in
Burlington, Vermont, except however, any dispute arising under Sections 4, 5, 6
and 7 of the Agreement, which, at the Company's option, may be litigated as set
forth in Section 16 below.
Page 6 of 7
16. GOVERNING LAW AND FORUM; LEGAL FEES
-----------------------------------
Employee acknowledges that the Company has employees located in various states,
and that it is important to have consistent policies and laws apply to them
insofar as matters relating to employment are concerned. Employee acknowledges
that consistency in employment policy is beneficial because results will be
predictable and all employees will be treated equally. Therefore, Employee and
the Company agree that this Agreement shall be governed by and construed in
accordance with the internal laws of the State of Vermont, and any legal
proceeding regarding the interpretation or enforcement of this Agreement shall
be instituted in a court of competent jurisdiction located within the State of
Vermont. In the event of any litigation to enforce the terms of this Agreement,
the non-prevailing party shall pay, as additional damages, all reasonable
attorney's fees of the prevailing party.
17. ENTIRE AGREEMENT
----------------
This instrument contains the entire agreement of the parties relating to the
subject matter hereof, and it supersedes any prior or contemporaneous oral or
written understandings of any kind or nature. Employee represents that he/she is
not relying on any agreement, representation or warranty pertaining to the
subject matter hereof that is not expressly set forth herein. The waiver or
breach of any term or condition of this Agreement shall not be deemed to
constitute a waiver of any subsequent breach of the same or any other term or
condition.
EXECUTED on the date(s) indicated below.
WITNESS/ATTEST: CHANNELHEALTH INCORPORATED
By:
- ------------------------ -------------------------------
(SEAL)
Date:
-----------------------------
By:
- ------------------------ --------------------------------
[EMPLOYEE NAME]
Date:------------------------------
EMPLOYEE'S JOB TITLE:
Page 7 of 7
EXHIBIT E
CROSS LICENSE
AND
SOFTWARE MAINTENANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the first day of January
2000, by and between IDX SYSTEMS CORPORATION, a Vermont corporation, with
offices at 1400 Shelburne Road, South Burlington, Vermont 05403 ("IDX"), and
CHANNELHEALTH INCORPORATED, a Delaware corporation with offices at 25 Green
Mountain Drive, South Burlington, Vermont 05403 ("ChannelHealth").
WHEREAS, concurrently herewith IDX and ChannelHealth have entered into
agreements entitled "Marketing Agreement" and "Administrative Service
Agreement," and
WHEREAS, the execution and delivery of this Agreement by ChannelHealth
and IDX are conditioned upon the execution and delivery by IDX and ChannelHealth
of the, the Administrative Service Agreement and the Marketing Agreement; and
WHEREAS, ChannelHealth was formed as a corporation to engage in certain
healthcare communications, information systems, and publication business
activities, and IDX is a developer and supplier of certain information
technology that ChannelHealth intends to incorporate into, and make an integral
part of products and services of ChannelHealth; and
WHEREAS, certain activities to be carried on by ChannelHealth were
carried on by a division within IDX known as its ChannelHealth Division; and
WHEREAS, ChannelHealth intends to improve, enhance, and maintain
certain information technology of IDX and license to IDX the right to use and
market such technology and any improvements, enhancements and resulting
products; and
WHEREAS, the obligations of the Marketing Agreement with respect to
development and support of the enhanced and improved technology and resulting
products and services shall be in addition to the obligations to license and
maintain such technology, products and services set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein, the execution and delivery of the Marketing Agreement and the
Administrative Service Agreement and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, ChannelHealth and
IDX hereby agree as follows:
1
1. DEFINITIONS The capitalized terms used in this Agreement shall have the
meanings ascribed to them on Schedule 1 attached hereto.
2. IDX LICENSE GRANTS. Subject to and conditioned upon the performance
and observance of all of the terms and conditions of this Agreement, IDX grants
to ChannelHealth licenses as set forth in this Section 2.
2.1 In General. IDX hereby grants to ChannelHealth a perpetual (except as
set forth in Section 2.3), non-exclusive, non-cancellable, fully
paid-up license: (i) to copy, use, display, perform, adapt, modify,
create derivative works of, and maintain the IDX Software, in whole or
in part, solely for the purpose of Merging the IDX Software into
ChannelHealth Products, (ii) to market and sublicense (including
through one or more Distribution Partners), and in connection therewith
to copy, use, transmit, perform, and display the IDX Software, in whole
or in part, only as the IDX Software may be Merged into ChannelHealth
Products, and (iii) to use and practice the IDX Licensed Technology to
accomplish the purposes set forth in clauses (i) and (ii).
2.2 CMS. In addition to the rights granted under Section 2.1, IDX hereby
grants to ChannelHealth a perpetual, non-exclusive, non-cancellable,
fully paid-up license to copy, use, display, perform, adapt, modify,
and create derivative works of, maintain, market, sublicense, transmit,
and distribute (including through one or more Distribution Partners)
all or any portion of CMS as a stand alone product (i.e., not as Merged
into another ChannelHealth Product). Subject to Section 2.4.3, IDX
shall not grant a license to CMS to any Person not a party to this
Agreement. Such restriction shall not limit IDX from making any use of
any part of, or any technology contained in, CMS.
2.3 New Enabling Technologies. Upon the termination of IDX's exclusive
marketing rights under Section 3.2 of the Marketing Agreement, or if
IDX markets ChannelHealth Products nonexclusively pursuant to Section
3.3 of the Marketing Agreement, the license herein granted to
ChannelHealth shall terminate with respect to all New Enabling
Technologies, except for New Enabling Technologies embodied in the Web
FrameWork and ConnectR, but ChannelHealth shall not use such New
Enabling Technologies for any purpose other than to create or maintain
compatibility or connectivity between ChannelHealth Products and other
products.
24. Ownership.
2.4.1 Except for the rights expressly granted herein to
ChannelHealth, IDX reserves and retains all right, title and
interest (including without limitation patents and copyrights)
and shall be the exclusive owner of the IDX Licensed
Technology and all customizations, additions, modifications,
changes, enhancements, improvements, or derivative works made
2
by IDX or on behalf of IDX, with the exception of derivative
works created by ChannelHealth under Sections 2.1 and 2.2.
2.4.2 To the extent ChannelHealth shall have any interest in any
items owned by IDX pursuant to the foregoing Section,
including without limitation any joint works, ChannelHealth
hereby conveys and shall convey good title and ownership
thereof to IDX. ChannelHealth shall execute an assignment in
the form attached hereto as Exhibit 2.4.2 to effectuate and
confirm such assignment.
2.4.3 IDX reserves and retains all right, title and interest to any
and all patentable inventions made, conceived, or reduced
to practice by IDX, including without limitation by IDX
personnel, employees or contractors, whether in whole or in
part, both before and after the Effective Date.
ChannelHealth agrees to cooperate in every reasonable way
with IDX, at IDX's cost, to prosecute patent applications
for such inventions and to perfect IDX's right, title and
interest in and to such inventions and patent applications.
The parties agree and acknowledge that certain
ChannelHealth personnel were IDX employees, or were
otherwise associated with IDX, before the Effective Date, and
ChannelHealth agrees to cooperate in every reasonable way
with IDX to prosecute patent applications for such
inventions and to perfect IDX's right, title and interest
in and to such inventions and patent applications.
2.4.4 Subject to Section 2.4.3, IDX shall make no claim to any
derivative works developed by or on behalf of ChannelHealth
pursuant to Sections 2.1 and 2.2.
2.5 Limitations, Restrictions, and Conditions. The licenses granted to
ChannelHealth hereunder are subject to all of the terms and conditions
of this Agreement, including without limitation the following
limitations, restrictions, and conditions:
2.5.1 Distribution Pursuant to Marketing Agreement. During the
Initial Term of the Marketing Agreement, ChannelHealth shall
not market or distribute the IDX Licensed Technology or any
part thereof, including as Merged into ChannelHealth Products,
through the use of any Distribution Partner that is a Direct
Competitor of IDX. This restriction shall not apply to any
ChannelHealth Products that IDX does not distribute and shall
not apply following the Initial Term or the termination of the
Marketing Agreement.
2.5.2 ChannelHealth shall not use the IDX Licensed Technology to
develop any products that compete with the Web FrameWork,
ConnectR, orEnterprise Index, as marketed by IDX from time to
time.
2.5.3 ChannelHealth shall have the right to use internally IDX
Database Information only in connection with the Integration
Methods, so long as such use does not induce disclosure of IDX
Database Information to any Person not a party to this
3
Agreement. At no time shall ChannelHealth license or
authorize any Person to use any Integration Method or to use
any IDX Database Information to exchange data between any IDX
products and any products of any Person not a party to this
Agreement. The foregoing shall not prohibit or restrict
ChannelHealth from (i) providing any ChannelHealth Product to
any ChannelHealth Customer using any Integration Method to
provide installation services with respect to such
ChannelHealth Customer or using IDX Database Information, in
each case solely for the benefit of such Customer in using
ChannelHealth Products, or (ii) using contractors as set forth
in Section 2.5.4.
2.5.4 ChannelHealth may permit third parties to provide to
ChannelHealth or ChannelHealth Customers maintenance, disaster
recovery, facilities management, outsourcing or other services
involving access to the IDX Licensed Technology only if such
third parties in each instance shall execute written
nondisclosure and non-use agreements with ChannelHealth, in
form and substance reasonably satisfactory to IDX and
ChannelHealth, prior to using or gaining access to the IDX
Licensed Technology.
2.5.5 ChannelHealth may adapt, modify, merge, and maintain the IDX
Licensed Technology as permitted under this Agreement through
its own employees or through independent contractors, provided
each such independent contractor shall in each instance
execute a written nondisclosure and non-use agreement with
ChannelHealth, in form and substance reasonably satisfactory
to IDX and ChannelHealth, prior to gaining access to the
Source Code.
2.5.6 ChannelHealth may not indicate that any portion of the IDX
Licensed Technology originated from IDX, except with IDX's
prior written consent or as set forth in the Marketing
Agreement.
2.5.7 ChannelHealth (i) shall use the IDX Licensed Technology only
in locations physically within the Territory, (ii) must keep
all physical copies (including those stored electronically) in
locations within the Territory and (iii) shall permit third
parties as described in Section 2.5.4 to use and access the
IDX Licensed Technology only in locations within the
Territory.
2.6 Certain Terms of Third Party Agreements for IDX Licensed Technology.
ChannelHealth shall not allow the use of or access to the IDX Licensed
Technology by any third party (including a Distribution Partner) unless
such party has signed and delivered to ChannelHealth an agreement
restricting use of such IDX Licensed Technology in a manner consistent
with this Agreement, and ChannelHealth shall use reasonable efforts to
include language substantially similar to the following in any such
third party agreements:
4
IN NO EVENT SHALL COMPANY'S [ChannelHealth's] SUPPLIERS AND LICENSORS
BE LIABLE FOR ANY DAMAGES OF ANY KIND OR NATURE, INCLUDING DIRECT,
INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL,
ARISING OUT OF THE USE OF ANY SOFTWARE SUPPLIED BY COMPANY, ITS
SUPPLIERS OR LICENSORS. THE LICENSEE UNDERSTANDS AND AGREES THAT THE
SOFTWARE PROVIDED BY COMPANY [ChannelHealth] TO LICENSEE CONTAINS
SOFTWARE THAT IS THE COPYRIGHTED PRODUCT AND A TRADE SECRET OF COMPANY
[ChannelHealth] OR ITS SUPPLIERS AND LICENSORS, AND THAT LICENSEE WILL
NOT USE ANY SUCH SOFTWARE IN VIOLATION OF THE RESTRICTIONS CONTAINED IN
THIS AGREEMENT AND WILL NOT DISCLOSE THE SOFTWARE TO ANYONE OTHER THAN
ITS EMPLOYEES OR AGENTS AS REASONABLY NECESSARY FOR THE PURPOSE OF THIS
AGREEMENT AND ON THE CONDITION THAT IT ACCEPTS FULL RESPONSIBILITY FOR
ANY BREACH HEREOF BY ANY SUCH INDIVIDUAL. THE FOREGOING AGREEMENTS ARE
FOR THE EXPRESS BENEFIT OF COMPANY [ChannelHealth], ITS SUPPLIERS AND
LICENSORS, AND MAY BE ENFORCED BY COMPANY [ChannelHealth], AND ITS
SUPPLIERS AND LICENSORS.
2.7 Delivery. As of the Effective Date, IDX has delivered one copy (in
both object code and Source Code forms) of each component of the IDX
Licensed Technology.
2.8 Additional Countries. ChannelHealth shall have the right to notify IDX
in writing of its intent to expand the Territory to Additional
Countries. Within thirty (30) business days of receipt of such notice,
IDX shall respond in writing indicating either that (a) the Territory
has been deemed to be expanded to include the Additional Country or (b)
the inclusion of such Additional Country in the Territory at the time
of such request would cause IDX to be in breach of pre-existing
contractual commitments (and subject to applicable confidentiality
restrictions, IDX shall inform ChannelHealth as to the nature of such
commitments). If IDX fails to give such response, the Additional
Country shall be deemed to be added to the Territory. If the Territory
is expanded to include Additional Countries, IDX shall have the option
to eliminate any Additional Country from the Territory twenty-four (24)
months from the date such Additional Country was included in the
Territory if ChannelHealth fails to enter into a written agreement with
another party to deliver IDX Licensed Technology in such Additional
Country during such twenty-four (24) month period.
5
2.9 IDX Names and Marks. ChannelHealth may not use any IDX Names or Marks
in connection with ChannelHealth's Business or otherwise, except as set
forth in the Marketing Agreement.
2.10 Section 365(n). All rights and licenses granted under or pursuant to
this Agreement by IDX to ChannelHealth are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the United States
Bankruptcy Code (the "Code"), licenses to rights to "intellectual
property" as defined in the Code. The parties agree that ChannelHealth,
as licensee of such rights under this Agreement, shall retain and may
fully exercise all of its rights and elections under the Code. The
parties further agree that, in the event of the commencement of
bankruptcy proceeding by or against IDX under the Code, ChannelHealth
shall be entitled to retain all of its rights under this Agreement.
3. LIMITED WARRANTIES OF IDX. This Section 3 contains all of and the only
warranties of IDX made in connection with the subject matter of this Agreement,
and except for such warranties, there are NO WARRANTIES made by IDX in
connection with the subject matter of this Agreement. The warranties of IDX set
forth below are made only to ChannelHealth and shall be true as of the Effective
Date.
3.1 Performance. IDX makes NO WARRANTIES as to the nature or quality of
performance or reliability of the IDX Licensed Technology in any
respect whatsoever, and ChannelHealth acknowledges that, except for the
express warranties set forth in this Section 3, it has accepted the
license and delivery of the IDX Licensed Technology and shall accept
all IDX Software Updates and all services "AS IS" and "WITH ALL
FAULTS."
3.2 Encumbrances. The IDX Licensed Technology is and shall be free and
clear of all liens, restrictions, claims, charges, security interests,
or other encumbrances of any nature whatsoever which might affect or
adversely impact on ChannelHealth's use of the IDX Licensed Technology.
3.3 Ownership; Right to License. Except as referred to on Schedule 3.3
attached hereto, IDX owns or otherwise has adequate rights to make the
grants of the licenses to the IDX Licensed Technology to ChannelHealth
hereunder and possesses all rights and interests in the IDX Licensed
Technology necessary to enter into this Agreement.
3.4 Required Consents/No Conflicts. No approval, authorization, consent,
permission, or waiver to or from, or notice, filing, or recording to or
with, any person, entity or governmental authority is necessary for the
execution and delivery of this Agreement, and neither the execution and
delivery of this Agreement, nor the grant of licenses hereunder will
conflict with or violate any other license, instrument, contract,
agreement, or other commitment or arrangement to which IDX is a party
or by which IDX is bound.
6
3.5 No Infringement. Except as referred to on Schedule 3.3 the IDX Licensed
Technology and all components thereof do not infringe upon the
intellectual property rights, including without limitation the patent,
copyright, trademark or trade secret rights, of any third parties. The
sole and exclusive remedy for breach of this warranty shall be as set
forth in Section 7.1.
3.6 Litigation. Except as referred to on Schedule 3.3 attached hereto, no
claim, action, suit, proceeding, inquiry, hearing, arbitration,
administrative proceeding, or investigation (collectively,
"Litigation") is pending or threatened against IDX, its present or
former directors, officers, or employees, affecting, involving, or
relating to the IDX Licensed Technology, which if resolved against IDX
would, individually or in the aggregate, materially and adversely
affect IDX's ability to perform this Agreement or the rights granted to
ChannelHealth under this Agreement.
4. CHANNELHEALTH LICENSE GRANTS. Subject to and conditioned upon the
performance and observance of all of the terms and conditions of this
Agreement, ChannelHealth grants to IDX licenses as set forth in this
Section 4.
4.1 In General. ChannelHealth hereby grants to IDX a perpetual,
non-exclusive, non-cancellable, fully paid-up license: (i) to copy,
use, display, perform, adapt, modify, create derivative works of, and
maintain the ChannelHealth Products, in whole or in part, (ii) to Merge
all or any portion of the ChannelHealth Products into IDX Products, and
(iii) to market, sublicense (including through one or more Distribution
Partners), and in connection therewith to copy, use, transmit, perform
and display the ChannelHealth Products, in whole or in part, as Merged
into IDX Products, (iv) to use and practice the ChannelHealth Licensed
Technology to accomplish the purposes set forth in clauses (i) and
(ii). For the purposes of this Section 4.1, the term "ChannelHealth
Products" shall only include such ChannelHealth Products that have been
delivered as of the Effective Date and subsequently during the
ChannelHealth Support Term, whether pursuant to this Agreement or the
Marketing Agreement. During the Initial Term of the Marketing
Agreement, IDX shall not use the ChannelHealth Licensed Technology to
develop products that compete with ChannelHealth Products distributed
by IDX under the Marketing Agreement. The foregoing shall not in any
way limit or restrict IDX from using the IDX Licensed Technology.
4.2 Ownership.
4.2.1 Except for the rights expressly granted herein to IDX,
ChannelHealth reserves and retains all right, title and
interest (including without limitation patents and copyrights)
and shall be the exclusive owner of the ChannelHealth Products
and all customizations, additions, modifications, changes,
enhancements, improvements, or derivative works made by or on
behalf of ChannelHealth, with the exception of derivative
works created by IDX under Section 4.1.
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4.2.2 To the extent IDX shall have any interest in any items
described in the foregoing Section, including without
limitation any joint works, IDX hereby conveys and shall
convey good title and ownership thereof to ChannelHealth. IDX
shall execute an assignment in the form attached hereto as
Exhibit 2.4.2 to effectuate and confirm such assignment.
4.2.3 ChannelHealth reserves and retains all right, title and
interest to any and all patentable inventions conceived by
ChannelHealth, including without limitation by ChannelHealth
personnel, employees or contractors, whether in whole or in
part, after the Effective Date. IDX agrees to cooperate in
every reasonable way with ChannelHealth to prosecute patent
applications for such inventions and to perfect
ChannelHealth's right, title and interest in and to such
inventions and patent applications. ChannelHealth agrees and
acknowledges that certain patentable inventions may have been
conceived before the Effective Date by persons who are now
ChannelHealth employees or are otherwise associated with
ChannelHealth, and that nothing herein is to be construed to
limit in any way IDX's ownership of, or other interest in,
such inventions and patents for the same.
4.2.4 Subject to Section 4.2.3, ChannelHealth shall make no claim to
any derivative works developed by or on behalf of IDX pursuant
to Section 4.1.
4.3 Limitations, Restrictions, and Conditions. The licenses granted
hereunder are subject to all of the terms and conditions of
this Agreement, including without limitation the following limitations,
restrictions, and conditions:
4.3.1 Distribution Pursuant to Marketing Agreement. During the
Initial Term of the Marketing Agreement, IDX shall be
entitled to market and distribute ChannelHealth Products
pursuant to the license granted in this Agreement, and shall
not do so except in a manner consistent with the Marketing
Agreement. This section shall not apply following the Initial
Term of the Marketing Agreement.
4.3.2 IDX may not indicate that any portion of the ChannelHealth
Products originated from ChannelHealth, nor shall IDX use any
of ChannelHealth's Names and Marks, except with
ChannelHealth's prior written consent or except as set forth
in the Marketing Agreement.
4.3.3 IDX may permit third parties to provide to IDX or its
customers maintenance, disaster recovery, facilities
management, outsourcing or other services involving access to
the ChannelHealth Products only if such third parties shall in
each instance execute written nondisclosure and non-use
agreements with IDX, in form and substance reasonably
satisfactory to ChannelHealth, prior to using or gaining
access to the ChannelHealth Products.
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4.3.4 IDX may adapt, modify, merge, and maintain the ChannelHealth
Products as permitted under this Agreement through its own
employees or through independent contractors, provided each
such independent contractor shall in each instance execute a
written nondisclosure and non-use agreement with IDX, in form
and substance reasonably satisfactory to ChannelHealth, prior
to gaining access to the Source Code.
4.3.5 IDX (i) shall use the ChannelHealth Products only in locations
physically within the Territory, (ii) must keep all physical
copies (including those stored electronically) in locations
within the Territory and (iii) shall permit third parties as
described in Section 4.3.4 to use and access the ChannelHealth
Products only in locations within the Territory.
4.3.6 Certain Terms of Third Party Agreements for ChannelHealth
Products. IDX shall not allow the use of or access to the
ChannelHealth Products by any third party (including a
Distribution Partner) unless such party has in each instance
signed and delivered to IDX a written agreement restricting
use of such ChannelHealth Products in a manner consistent with
this Agreement, and IDX shall use reasonable efforts to
include language substantially similar to the following in any
such third party agreements:
IN NO EVENT SHALL COMPANY'S [IDX's] SUPPLIERS AND LICENSORS,
BE LIABLE FOR ANY DAMAGES OF ANY KIND OR NATURE, INCLUDING
DIRECT, INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL, ARISING OUT OF THE USE OF ANY SOFTWARE SUPPLIED
BY COMPANY [IDX], ITS SUPPLIERS OR LICENSORS. THE LICENSEE
UNDERSTANDS AND AGREES THAT THE SOFTWARE PROVIDED BY IDX TO
LICENSEE CONTAINS SOFTWARE THAT IS THE COPYRIGHTED PRODUCT AND
A TRADE SECRET OF COMPANY [IDX] AND ITS SUPPLIERS AND
LICENSORS, AND THAT LICENSEE WILL NOT USE ANY SUCH SOFTWARE IN
VIOLATION OF THE RESTRICTIONS CONTAINED IN THIS AGREEMENT AND
WILL NOT DISCLOSE THE SOFTWARE TO ANYONE OTHER THAN ITS
EMPLOYEES OR AGENTS AS REASONABLY NECESSARY FOR THE PURPOSE OF
THIS AGREEMENT AND ON THE CONDITION THAT IT ACCEPTS FULL
RESPONSIBILITY FOR ANY BREACH HEREOF BY ANY SUCH INDIVIDUAL.
THE FOREGOING AGREEMENTS ARE FOR THE EXPRESS BENEFIT OF
COMPANY [IDX], ITS SUPPLIERS AND LICENSORS, AND MAY BE
ENFORCED BY COMPANY [IDX], AND ITS SUPPLIERS AND LICENSORS.
4.4 Additional Countries. IDX shall have the right to notify ChannelHealth
in writing of its intent to expand the Territory to Additional
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Countries. Within thirty (30) business days of receipt of such notice,
ChannelHealth shall respond in writing indicating either that (a) the
Territory has been deemed to be expanded to include the Additional
Country or (b) the inclusion of such Additional Country in the
Territory at the time of such request would cause ChannelHealth to be
in breach of pre-existing contractual commitments (and subject to
applicable confidentiality restrictions, ChannelHealth shall inform IDX
as to the nature of such commitments). If ChannelHealth fails to give
such response, the Additional Country shall be deemed to be added to
the Territory. If the Territory is expanded to include Additional
Countries, ChannelHealth shall have the option to eliminate any
Additional Country from the Territory twenty-four (24) months from the
date such Additional Country was included in the Territory if IDX fails
to enter into a written agreement with another party to deliver
ChannelHealth Products in such Additional Country during such
twenty-four (24) month period.
4.5 Section 365(n). All rights and licenses granted under or pursuant to
this Agreement by ChannelHealth to IDX are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the United States
Bankruptcy Code (the "Code"), licenses to rights to "intellectual
property" as defined in the Code. The parties agree that IDX, as
licensee of such rights under this Agreement, shall retain and may
fully exercise all of its rights and elections under the Code. The
parties further agree that, in the event of the commencement of
bankruptcy proceeding by or against ChannelHealth under the Code, IDX
shall be entitled to retain all of its rights under this Agreement.
5. LIMITED WARRANTIES OF CHANNELHEALTH. This Section 5 contains all of and the
only warranties of ChannelHealth made in or in connection with the subject
matter of this Agreement. Such warranties are made to IDX and shall be true as
of the Effective Date and as of each and every delivery of ChannelHealth
Products thereafter, including without limitation ChannelHealth Updates and
ChannelHealth Development Updates (as defined in the Marketing Agreement).
Except for the warranties set forth in this Section 5 of this Agreement and as
set forth in the Marketing Agreement, there are NO WARRANTIES made by
ChannelHealth in connection with the ChannelHealth Products and the
ChannelHealth Products.
5.1 Performance. During the ChannelHealth Support Term, all ChannelHealth
Products shall perform substantially as set forth in the standard,
published editions of textual and graphical works, in whatever form,
intended to instruct users in the use of ChannelHealth Products, and
published by ChannelHealth from time to time during the term of this
Agreement and all published statements made by ChannelHealth from time
to time, unless a failure to so perform is attributable to a failure of
the IDX Software and IDX Software Updates to perform substantially as
set forth in the standard, published editions of textual and graphical
works, in whatever form, intended to instruct users in the use of the
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IDX Software and IDX Software Updates, and published by IDX from time
to time during the term of this Agreement
5.2 Regulatory Compliance. During the ChannelHealth Support Term, all
ChannelHealth Products shall comply with and support all applicable
Regulatory Requirements.
5.3 Virus Warranty. To ChannelHealth's knowledge, the ChannelHealth
Products do not contain any program routine, device, or other
undisclosed feature, including, without limitation, a time bomb, virus,
software lock, drop-dead device, malicious logic, worm, Trojan horse,
bug, error, defect or trap door, that is capable of deleting,
disabling, or otherwise harming the ChannelHealth Products, or any
hardware, data, or computer programs or codes, or that is capable of
providing access or producing modifications not authorized by IDX.
5.4 Year 2000. The ChannelHealth Products shall provide all of the
following functions: (a) consistently handles date information before,
during, and after January 1, 2000, including but not limited to
accepting date input, providing date output, and performing
calculations on dates or portions of dates; (b) function accurately as
set forth in the standard, published editions of textual and graphical
works, in whatever form, intended to instruct users in the use of
ChannelHealth Products, and published by ChannelHealth from time to
time during the term of this Agreement and all published statements
made by ChannelHealth from time to time, and without interruption
before, during, and after January 1, 2000, without any change in
operations associated with the advent of the new century; (c) respond
to two-digit year-date input in a predefined and consistent manner; and
(d) store and provide output of date information in ways that are
unambiguous as to century. The foregoing does not apply to any failures
of the IDX Software or IDX Software Updates to so perform.
5.5 Remedies for Breach of Certain Warranties. In the event of breach of
any of the foregoing warranties, ChannelHealth shall provide, promptly
and at no cost to IDX, and at IDX's discretion any of IDX's Customers,
the necessary corrections to meet the warranty. Such remedy shall be
IDX's sole and exclusive remedy in the event of any breach of warranty
and shall be conditioned upon written notice to ChannelHealth of any
claimed breach within one (1) year of the delivery of the item causing
the breach. If ChannelHealth fails to provide the necessary corrections
within sixty (60) days of such written notice, IDX shall have the right
to make such correction itself, and ChannelHealth shall reimburse IDX
for all reasonable fees, costs and expenses in connection therewith.
5.6 Ownership; Right to License. ChannelHealth owns or otherwise has
adequate rights to make the grants of the licenses to the ChannelHealth
Products to IDX hereunder and possesses all rights and interests in the
ChannelHealth Products necessary to enter into this Agreement.
5.7 Encumbrances. The ChannelHealth Products are and shall be free and
clear of all liens, restrictions, claims, charges, security interests,
or other encumbrances of any nature whatsoever which might affect or
adversely impact on IDX's use of the ChannelHealth Products.
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5.8 Required Consents/No Conflicts. No approval, authorization, consent,
permission, or waiver to or from, or notice, filing, or recording to or
with, any person, entity or governmental authority is necessary for the
execution and delivery of this Agreement, and neither the execution and
delivery of this Agreement, nor the grant of licenses hereunder will
conflict with or violate any other license, instrument, contract,
agreement, or other commitment or arrangement to which ChannelHealth is
a party or by which ChannelHealth is bound.
5.9 Litigation. No claim, action, suit, proceeding, inquiry, hearing,
arbitration, administrative proceeding, or investigation (collectively,
"Litigation") is pending or threatened against ChannelHealth, its
present or former directors, officers, or employees, affecting,
involving, or relating to the ChannelHealth Products, which if resolved
against ChannelHealth would materially and adversely affect
ChannelHealth's ability to perform this Agreement or the rights granted
to IDX under this Agreement.
5.10 No Infringement. With the exception of the IDX Licensed Technology as
to which IDX makes certain warranties to ChannelHealth under Section 3,
the ChannelHealth Products and all components thereof do not infringe
upon the intellectual property rights, including without limitation the
patent, copyright, trademark or trade secret rights, of any third
parties, nor will the use of the ChannelHealth Products or any
component thereof by IDX subject any third party to such an
infringement claim. The sole and exclusive remedy for breach of this
warranty shall be as set forth in Section 7.2.
6. SUPPORT
6.1 During the IDX Support Term, IDX shall provide to ChannelHealth IDX
Software Maintenance and IDX Software Updates on a timely basis. IDX
shall have no obligation to provide any services to support, maintain
or update CMS or OutReach.
6.2 During the ChannelHealth Support Term, ChannelHealth shall provide
ChannelHealth Maintenance and ChannelHealth Updates on a timely basis.
7. INDEMNIFICATION
7.1 IDX Indemnity.
7.1.1 Indemnification Obligations. IDX, at its own expense, shall
defend, hold harmless and indemnify ChannelHealth, its
officers, directors, employees, agents, successors,
affiliates, and assigns, from and against any and all
liability, loss, damages, expenses (including attorneys' fees)
arising from claims of third parties: (a) that the IDX
Licensed Technology or the IDX Software, or any component
thereof, infringes or violates any patents, copyrights,
trademarks, trade secrets, licenses, or other proprietary
rights of any third party, but not including any claim arising
out of or related to the matters described in Schedule 3.3, or
12
(b) for personal or bodily injury or damage to tangible
property arising out of the negligent or intentional acts of
IDX, its employees or agents. ChannelHealth may, at its own
expense, assist in such defense if it so chooses, provided
that IDX shall control such defense and all negotiations
relative to the settlement of any such claim. IDX shall not
settle any claim that adversely affects any
rights of ChannelHealth without ChannelHealth's prior written
consent. ChannelHealth shall promptly provide IDX with
written notice of any claim that ChannelHealth believes falls
within the scope of this Section. At any time after
IDX becomes aware of any such claim under subsection (a)
herein, or in the event that the IDX Licensed Technology,
the IDX Software, or any portion thereof, is held to
constitute an infringement or its use is enjoined, IDX shall
have the option at its own expense to: (i) modify the
infringing item without impairing in any material respect the
functionality or performance, so that it is non-infringing;
(ii) procure for ChannelHealth the right to continue to
use the infringing item; or (iii) replace the infringing item
with an equally suitable, non-infringing item.
7.1.2 Exceptions. IDX's obligations to indemnify as set forth in
this Section shall not apply to any claim to the extent
that it arises from (i) any modifications, changes, additions,
or enhancements to the IDX Licensed Technology that have not
been made directly by IDX or have not been made at its express
direction or under its direct oversight, control or
supervision, (ii) any such modifications made by IDX at the
request or to the specification of ChannelHealth,
ChannelHealth's Customers, or any of their agents, or (iii)
the use of the IDX Licensed Technology in combination with any
other item, or in any system or method adopted, permitted,
induced, contributed to, or otherwise used by ChannelHealth or
any ChannelHealth Customers that is not expressly described in
the IDX Licensed Technology.
7.2 ChannelHealth Indemnity.
7.2.1 Indemnification Obligations. ChannelHealth, at its own
expense, shall defend, hold harmless and indemnify IDX, its
officers, directors, employees, agents, successors,
affiliates, and assigns, from and against any and all loss,
damages, expenses (including attorneys' fees) arising from
claims of third parties: (a) that the ChannelHealth
Products, or any component thereof, whether used alone or in
combination with any other item as intended, designed,
suggested or induced by ChannelHealth or its agents, infringes
or violates any patents, copyrights, trademarks, trade
secrets, licenses, or other proprietary rights of any third
party, but not including any claim that the IDX Technology
alone infringes or violates any patents, copyrights,
trademarks, trade secrets, licenses, or other proprietary
rights of any third party, (b) that any modifications or
derivative works of the IDX Licensed Technology or any
component thereof (i) not made by IDX or not made under IDX's
express direction or under its direct oversight, control or
supervision, or (ii) made at the direction of ChannelHealth,
13
any ChannelHealth Customers or their agents or affiliates,
infringes or violates any patents, copyrights, trademarks,
trade secrets, licenses, or other proprietary rights of any
third party, (c) that any use by ChannelHealth Customers of
the IDX Licensed Technology or any component thereof outside
the scope of license set forth herein infringes or violates
any patents, copyrights, trademarks, trade secrets, licenses,
or other proprietary rights of any third party, (d) that the
use of the ChannelHealth Products in combination with any
other item, or in any system or method adopted, permitted,
induced, contributed to or otherwise used by ChannelHealth or
its agents, infringes or violates any patents, copyrights,
trademarks, trade secrets, licenses, or other proprietary
rights of any third party, (e) for personal or bodily injury
or damage to property (tangible and intangible) arising out of
the negligent or intentional acts of ChannelHealth,
ChannelHealth's Customers, or their agents, and (f) that
involve a breach of ChannelHealth's representations,
warranties or obligations hereunder. IDX may, at its own
expense, assist in such defense if it so chooses, provided
that ChannelHealth shall control such defense and all
negotiations relative to the settlement of any such claim.
ChannelHealth shall not settle any claim that adversely
affects any rights of IDX without IDX's prior written consent.
IDX shall promptly provide ChannelHealth with written notice
of any claim that IDX believes falls within the scope of this
Section. At any time after ChannelHealth becomes aware of any
such claim under subsections (a), (b), or (d) herein, or in
the event that the ChannelHealth Products or any portion
thereof is held to constitute an infringement or its use is
enjoined, ChannelHealth shall have the option at its own
expense to: (i) modify the infringing item without impairing
in any material respect the functionality or performance, so
that it is non-infringing; (ii) procure for IDX the right to
continue to use the infringing item; or (iii) replace the
infringing item with an equally suitable, non-infringing item.
7.2.2 Exceptions. ChannelHealth's obligations to indemnify as set
forth in this Section shall not apply to any claim to
the extent that it arises from (i) any modifications, changes,
additions, or enhancements to the ChannelHealth Licensed
Technology that have not been made directly by ChannelHealth
or have not been made at its express direction or under its
direct oversight, control or supervision, (ii) any such
modifications made by ChannelHealth at the request or to the
specification of IDX or any of its agents, or (iii) the use of
the ChannelHealth Licensed Technology in combination with any
other item, or in any system or method adopted, permitted,
induced, contributed to, or otherwise used by IDX or IDX
Customers that is not marketed, recommended, enabled,
contributed to, or otherwise directly or indirectly suggested
by ChannelHealth.
8.LIMITATION OF LIABILITY. IN NO EVENT SHALL IDX BE LIABLE TO CHANNELHEALTH FOR
ANY MONETARY DAMAGES UNDER THIS AGREEMENT. THE LIMITATIONS SET FORTH IN THIS
SECTION 8 SHALL NOT APPLY TO INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTION 7
14
OF THIS AGREEMENT, TO THIRD PARTY CLAIMS FOR PROPERTY DAMAGE, PERSONAL INJURY OR
DEATH AND OTHER CLAIMS FOR WHICH CHANNELHEALTH MAY BE ENTITLED TO
INDEMNIFICATION OR CONTRIBUTION FROM IDX PURSUANT TO THIS AGREEMENT OR AS A
MATTER OF LAW, OR TO ANY MATERIAL BREACH BY IDX OF ANY WARRANTY SET FORTH IN
SECTION 3 OF THIS AGREEMENT.
9. TERMINATION. Either party shall have the right to terminate this Agreement at
its option if the other party has committed a material breach of any of the
terms and conditions hereof. Such termination shall be deemed effective ninety
(90) days after receipt of written notice from the party so electing to
terminate, provided the party receiving such notice has not cured the breach
within such ninety (90) day period.
10. CONFIDENTIALITY.
10.1 Confidentiality. IDX will receive or learn from ChannelHealth, and
ChannelHealth's parents, subsidiaries and affiliates, and ChannelHealth
will learn from IDX, and IDX's parents, subsidiaries and affiliates,
information, both orally and in writing, concerning the business of
ChannelHealth or IDX, respectively, including, without limitation,
financial, technical and marketing information, data, and information
related to the development of technology and services relating to
ChannelHealth's and IDX's business, as the case may be, and the IDX
Licensed Technology and ChannelHealth Products, which information is
deemed, in the case of ChannelHealth, proprietary to ChannelHealth and,
in the case of IDX, proprietary to IDX. Both parties hereby agree, as
set forth below, to protect such information, whether furnished before,
on or after the date of this Agreement, as it protects its own similar
confidential information, but never less than commercially reasonable
efforts, and not to disclose such information to anyone except as
otherwise provided for in this Agreement. Such information, in whole or
in part, together with analyses, compilations, programs, reports,
proposals, studies or any other documentation prepared by the parties,
as the case may be, which contain or otherwise reflect or make
reference to such information, is hereinafter referred to as
"Confidential Information". Both parties hereby agree that the
Confidential Information will be used solely for the purpose of this
Agreement and not for any other purpose. Both parties further agree
that any Confidential Information pertaining to the other party is the
sole and exclusive property of such other party, and that the receiving
party shall not have any right, title, or interest in or to such
Confidential Information except as expressly provided in this
Agreement. Both parties further agree to protect and not to disclose to
anyone (except as provided in this Agreement) for any reason
Confidential Information pertaining to the other party; provided,
however, that: (a) such Confidential Information may be disclosed to
the receiving party's respective officers, directors, employees,
agents, or representatives (collectively, our "Representatives") on a
"need to know" basis for the purpose of this Agreement on the condition
that (i) each such Representative will be informed by the receiving
party of the confidential nature of such Confidential Information and
15
will agree to be bound by the terms of this Agreement and not to
disclose the Confidential Information to any other person and (ii) both
parties agree to accept full responsibility for any breach of this
Section 9 by its respective Representatives; and (b) Confidential
Information pertaining to the other party may be disclosed upon the
prior written consent of the other party. Both parties hereby agree,
upon the request of the other party, to promptly deliver to the other
party at its cost the Confidential Information pertaining to such other
party, without retaining any copies thereof. Specifically and without
limitation, ChannelHealth agree to (i) reproduce (and refrain from
removing or destroying) copyright and proprietary rights notices which
are placed on the IDX Licensed Technology or the ChannelHealth
Products, (ii) erase or otherwise destroy, prior to disposing of media,
all portions of IDX Licensed Technology or the ChannelHealth Products
contained on such media, and (iii) notify the other party promptly in
writing upon any officer or director learning of any unauthorized
disclosure or use of the IDX Licensed Technology or the ChannelHealth
Products, and reasonably cooperate with the other party to cure any
unauthorized disclosure or use of the IDX Licensed Technology or the
ChannelHealth Products. IDX agrees that ChannelHealth's use and
distribution of the IDX Licensed Technology pursuant to and in
accordance with the terms of this Agreement shall not be a violation of
this Section 10.1.
10.2 Non-Confidential Information. The term "Confidential Information" shall
not include any information: (i) which at the time of disclosure or
thereafter is generally available to or known by the public (other than
as a result of a disclosure directly or indirectly by the receiving
party); (ii) is independently developed by the receiving party, without
reference to or use of, the Confidential Information of the other
party; (iii) was known by the receiving party as of the time of
disclosure without a breach of confidentiality; (iv) is lawfully
learned from a third party not under obligation to the disclosing
party; or (v) is required to be disclosed pursuant to a subpoena, court
order or other legal process, whereupon the receiving party shall
provide prompt written notice to the other party prior to such
disclosure.
11. GENERAL
11.1 Force Majeure. Except as expressly provided to the contrary in this
Agreement, neither party shall be liable to the other for any delay or
failure to perform due to causes beyond its reasonable control.
Performance times shall be considered extended for a period of time
equivalent to the time lost because of any such delay.
11.2 Non-revocation. The licenses, immunities, authorities and agreements
set forth in Sections 2 and 4 hereof are not terminable, cancelable, or
revocable.
11.3 Notices. Wherever under this Agreement one party is required or
permitted to give notice to the other, such notice shall be deemed
given when delivered in hand, when telecopied or faxed and receipt
confirmed, when sent by overnight courier service to the address
specified below, or when mailed by United States mail, registered or
certified mail, return receipt requested, postage prepaid, and
16
addressed as follows: Either party hereto may from time to time change
its address for notification purposes by giving the other written
notice of the new address and the date upon which it will become
effective.
11.4 Governing Law. This Agreement shall be governed by, subject to, and
interpreted in accordance with the laws of the State of New York,
without regard to its conflicts of laws principles.
11.5 Severability. In the event any provision hereof shall be deemed invalid
or unenforceable by any court or governmental agency, such provision
shall be deemed severed from this Agreement and replaced by a valid
provision which approximates as closely as possible the intent of the
parties. All remaining provisions shall be afforded full force and
effect.
11.6 No Waiver. No delay or omission by either party hereto to exercise any
right or power hereunder shall impair such right or power or be
construed to be a waiver thereof. A waiver by either of the parties
hereto of any of the covenants to be performed by the other or any
breach thereof shall not be construed to be a waiver of any succeeding
breach thereof or of any other covenant herein contained.
11.7 Further Assurances and Documents. IDX and ChannelHealth shall take all
actions and do all things, including without limitation the execution
and delivery of instruments and documents, necessary to effectuate the
purposes and intent of this Agreement.
11.8 Independent Contractor. In performance of this Agreement, each party is
acting as an independent contractor. Personnel supplied by a party
hereunder are not the other party's personnel or agents, and each party
assumes full responsibility for their acts. Each party shall be solely
responsible for the payment of compensation to its employees and
subcontractors assigned to perform services hereunder, and such
employees and subcontractors shall be informed that they are not
entitled to the provision of any employee benefits of the other party.
Neither party shall be responsible for payment of workers'
compensation, disability benefits, unemployment insurance or for
withholding income taxes and social security for any employee or
subcontractor of the other.
11.9 Personnel Rules and Regulations. The personnel and subcontractors of
each party hereto shall comply with the other party's security
regulations particular to each work location, including any procedures
which such party's personnel and other consultants are normally asked
to follow. Personnel and subcontractors, when deemed appropriate by a
party, shall be issued visitor identification cards. Each such card
will be surrendered by such personnel and subcontractors upon demand of
a party. Unless otherwise agreed to by the parties, the personnel and
subcontractors of a party shall observe the working hours, working
rules and holiday schedules of the other party while working on the
other party's premises.
11.10 Assignment. This Agreement shall be binding upon the parties and their
respective successors, representatives and permitted assigns. Neither
party may assign this Agreement without the prior written consent of
the other party, except that either party hereto may assign its rights
17
hereunder to an Affiliate of such party and either party may, without
the consent of the other party, assign and delegate this Agreement and
its rights and obligations hereunder in connection with a merger,
consolidation or sale of substantially all of its assets (which sale
shall include the assignment and assumption of all rights and
obligations under the Marketing Agreement); provided, however, that
such assignee or transferee shall assume all obligations of the
assigning or transferring party and any such assignment shall not
relieve the assigning or transferring party of its obligations
hereunder.
11.11 Availability of Records. IDX and ChannelHealth agree that the Secretary
of the Department of Health and Human Services (the "Secretary") and
the Comptroller General of the United States, or the designee or duly
authorized representative of either of them, shall have access to all
books and records of each party pertaining to the subject matter of
this Agreement and the provisions of services under it, in accordance
with the criteria presently or hereafter developed by the Department of
Health and Human Services as provided in Section 952 of the Omnibus
Reconciliation Act of 1980 (the "Act"). Upon request of the Secretary,
the Comptroller General, or the designee or authorized representative
of either of them, IDX and ChannelHealth shall make available (at
reasonable times and places during normal business hours) this
Agreement, and all books, documents and records of IDX and
ChannelHealth that are necessary to verify the nature and extent of the
costs of the services provided by IDX or ChannelHealth furnished in
connection with this Agreement. Notwithstanding the foregoing
provisions, the access to the books, records and documents of IDX and
ChannelHealth and any related organization provided for herein shall be
discontinued and become null and void upon a finding by a court or
quasi-judicial body of competent jurisdiction that this Agreement is
outside the scope of the regulatory or statutory definition of those
contracts and agreements included within the purview of Section 952 of
the Act or the rules and regulations promulgated thereunder.
11.12 Survival. Sections 1, 2, 3, 4, 5, 7, 8, 10 and 11 shall survive the
termination of this Agreement.
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11.13 Entire Agreement. Each party acknowledges that this Agreement,
including the Schedules attached hereto and the documents incorporated
by reference herein constitute the complete and exclusive statement of
the terms and conditions between the parties, which supersedes all
prior proposals, understandings and all other agreements, oral and
written, between the parties relating to the subject matter of this
Agreement. This Agreement may not be modified or altered except by a
written instrument duly executed by both parties.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the date and
year first written above by their fully authorized representatives.
IDX SYSTEMS CORPORATION CHANNELHEALTH INCORPORATED
By:/S/ ROBERT W. BAKER, JR. By:/S/ RICHARD E. TARRANT
_______________________________ ________________________________
[Signature of Authorized Agent] [Signature of Authorized Agent]
Print Name and Title: Print Name and Title:
Robert W. Baker, Jr. Richard E. Tarrant
Vice President President
Schedule 1
To
Cross License and Software Maintenance Agreement
Definitions
"Administrative Service Agreement" means the administrative service agreement by
and between ChannelHealth and IDX executed or intended to be executed
concurrently with the License Agreement and the Marketing Agreement.
"Affiliate" means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Agreement" means this Agreement, including all schedules, exhibits another
items attached hereto and incorporated by reference herein.
"ChannelHealth Customer" means any Person that has entered into a written
agreement with pursuant to which ChannelHealth provides any ChannelHealth
Products, all Affiliates of such Person, and all Persons receiving the benefit
of any ChannelHealth Products by or through such Person or Affiliates of such
Person.
"ChannelHealth Division Works" means all (i) computer software and (ii)
computerized or automated products, services, processes, systems, and methods of
any kind or nature developed or in the processes of development by IDX's
ChannelHealth Division prior to the Effective Date.
"ChannelHealth Licensed Technology" means (i) the object and Source Code for the
ChannelHealth Products, (ii) ChannelHealth Updates, (iii) the standard,
published editions of textual and graphical works, in whatever form, intended to
instruct users in the use of ChannelHealth Products, and published by
ChannelHealth from time to time during the ChannelHealth Support Term, and (iv)
the intellectual property rights of ChannelHealth, including without limitation
patent rights, copyrights, embodied or contained in the items named in clauses
(i) through (iii).
"ChannelHealth Maintenance" means services to correct errors found in the
ChannelHealth Products and delivered during the ChannelHealth Support Term.
"ChannelHealth Products" means all products and services offered by
ChannelHealth from time to time during the term of this Agreement, whether or
not described in the License Agreement or the Marketing Agreement, including
without limitation all (i) computer software and (ii) computerized or automated
products, services, processes, systems, and methods of any kind or nature.
"ChannelHealth Support Term" means the period commencing with the Effective Date
and ending on the expiration of the Initial Term of the Marketing Agreement or
later if renewed as set forth in this Agreement.
"ChannelHealth Updates" means all additions, corrections, and modifications to
the ChannelHealth Products provided as part of ChannelHealth Maintenance and all
standard new releases, new versions, and updates to the ChannelHealth Products
delivered by ChannelHealth to its customers generally as part of the
ChannelHealth Products during the ChannelHealth Support Term.
"Clinical Management Suite" or "CMS" means the product currently marketed by IDX
under the trademark of "CMS" or "Clinical Management Suite," Including its
predecessor product known as "CRS."
"ConnectR" means the product currently marketed by IDX under the trademark
"ConnectR."
"Core Application" means any software application expressly designed to automate
the business processes of physician billing, physician scheduling, managed care
contract administration, hospital clinical practice, hospital patient
administration, or hospital billing, including by way of example and not in
limitation, as embodied in the products currently marketed by IDX under the
trademarks "IDXtendR," "IDXSite" and "LastWord."
"Direct Competitor of IDX" means any Person that develops or markets any Core
Application.
"Distribution Partner" means any Person that has the right to distribute,
resell, sublicense, license, sell or otherwise provide a party's products or
services, including by way of example and not in limitation, any reseller,
distributor, licensee, customer, contractor, service provider, outsourcing
vendor or other information technology company.
"Effective Date" means January 1, 2000
"Enterprise Index" means the product currently marketed by IDX under the
trademark of "Enterprise Index."
"IDX Customer" means any Person that has entered into a written agreement with
IDX pursuant to which IDX provides any of its Core Products, all Affiliates of
such Person, and all Persons receiving the benefit of any of IDX's Core Products
by or through such Person or Affiliates of such Person. IDX will provide to
ChannelHealth a list of customers and update it from time to time.
"IDX Database Information" means information concerning the file structure or
definition of any IDX Products that would be necessary or useful in using
Integration Methods.
"IDX Licensed Technology" means (i) the IDX Software, including the object and
Source Code therefor, as of the Effective Date, (ii) the object and Source Code
for the ChannelHealth Division Works as of the Effective Date, (iii) IDX
Software Updates, (iv) Integration Methods as of the Effective Date, and (v) the
intellectual property rights of IDX, including without limitation patent rights,
copyrights, and trade secrets embodied or contained in the items named in
clauses (i) through (iv).
"IDX Names and Marks" means trade names, trademarks, service names and service
marks used by IDX in marketing any of its products and services.
"IDX Products" means all products and services offered by IDX from time to time
during the term of this Agreement, whether or not described in the License
Agreement or the Marketing Agreement, including without limitation all (i)
computer software and (ii) computerized or automated products, services,
processes, systems, and methods of any kind or nature. "IDX Software" means (i)
the Web FrameWork, (ii) ConnectR, (iii) OutReach, (v) CMS, (v) Enterprise Index,
and (vi) the standard, published editions of textual and graphical works, in
whatever form, intended to instruct users in the use of the software products
named in clauses (i) through (vi) and published by IDX from time to time during
the IDX Support Term.
"IDX Software" means (i) the Web FrameWork, (ii) ConnectR, (iii) OutReach, (iv)
CMS, (v) Enterprise Index, and (vi) the standard, published editions of textual
and graphical works, in whatever form, intended to instruct users in the use of
the software products named in clauses (i) through (vi) and published by IDX
from time to time during the IDX Support Term.
"IDX Software Maintenance" means services to correct errors found in the IDX
Software, except CMS and OutReach, and delivered during the IDX Support Term as
set forth in this Agreement.
"IDX Software Updates" means all additions, corrections, and modifications to
the IDX Software provided as part of IDX Software Maintenance and all standard
new releases, new versions, and updates to the IDX Software delivered by IDX to
its customers generally as part of the IDX Software during the IDX Support Term.
IDX Software Updates include New Enabling Technologies only to the extent
necessary to achieve compatibility between IDX Products and ChannelHealth
Products.
"IDX Support Term" means the period commencing with the Effective Date and
ending on the expiration of the Initial Term of the Marketing Agreement or later
if renewed as set forth in this Agreement.
"Initial Term" means a period of five (5) years commencing on the Effective
Date.
"Integration Method" means any method using any programmatic or computerized
means, such as a program or data interface (including without limitation
OutReach and ConnectR), for extracting or adding to any databases included in
any IDX Product or exchanging any data between any IDX Product and any
ChannelHealth Product.
"License Agreement" means the license agreement by and between ChannelHealth and
IDX executed or intended to be executed concurrently with the Marketing
Agreement and the Administrative Service Agreement.
"Marketing Agreement" means the marketing, development, and support agreement by
and between IDX and ChannelHealth executed or intended to be executed
concurrently with the License Agreement and the Administrative Services
Agreement.
"Merge" means the process of merging all or a portion of existing software or
documentation into other software or documentation or adding to existing
software or documentation so that the resulting software or documentation
contains functionality that is substantially more or different from that of the
existing software or documentation. For purposes of illustration, the IDX
Software shall be deemed to have been Merged into the ChannelHealth Division
Works.
"New Enabling Technologies" means tools and other means for building products
and integration methods (similar to the Integration Methods) developed by IDX
and incorporated by IDX into IDX Software Updates after the Effective Date.
Examples of New Enabling Technologies that may at IDX's election be embodied in
IDX Software Updates are the items currently referred to by IDX as "IDX
Objects," "IDXml," and "Tabasco."
"OutReach" means the product currently marketed by IDX under the trademark
"OutReach."
"Person" means any individual, partnership, firm, corporation, association,
trust, limited liability company, limited liability partnership, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
"Regulatory Requirements" means all Federal and state laws and regulatory
requirements applicable to the use by IDX, IDX Customers, ChannelHealth, and
ChannelHealth Customers of the ChannelHealth Products from time to time during
the term of this Agreement, including without limitation those applicable to
billing and claims submittal, managed care, prescriptions, EDI transactions,
data transmission, security and privacy, and program requirements generally
applicable to healthcare organizations, such as those involving accreditation.
"Source Code" means the human readable programming statements comprising
software, together with such available programmer notes, specifications,
schematics, file definitions (including without limitation IDX Database
Information) and other documentation that would be necessary for a programmer of
ordinary skill to understand, use and Merge the IDX Software.
"Territory" means (a) the United States and its territories and military bases;
(b) Canada; (c) Mexico; and (d) any additional countries (each, an "Additional
Country") included in the Territory as provided in herein.
"Web FrameWork" means the product currently marketed by IDX under the trademark
"IDX Web FrameWork".
Schedule 3.3 to Cross License and Software Maintenance Agreement
On June 11, 1999, a lawsuit was served on the IDX. The lawsuit was brought in
the United States District Court for the Northern District of Texas Forth Worth
Division and is entitled Allcare Health Management System, Inc. v. Cerner
Corporation, et al., and claims damages against the IDX for patent infringement
allegedly caused by the sale, marketing, practice and use of products, systems,
and services of IDX, including the IDX Licensed Technology. Copies of the
lawsuit have been provided to ChannelHealth.
Exhibit 2.4.2 to Cross License and Software Maintenance Agreement
CONFIRMATORY ASSIGNMENT
For good and valuable consideration, receipt of which is hereby
acknowledged, the below-named Assignor has assigned and does hereby assign and
transfer to [IDX SYSTEMS CORPORATION] [CHANNELHEALTH INCORPORATED], a _____
corporation with offices at __________________ ("Assignee", herein), Assignor's
entire right, title and interest in and to any and all Proprietary Information
in that certain software products known as _____________________, and any and
all modules, portions, or other works contained therein or related thereto (the
"Work").
For purposes herein, "Proprietary Information" includes without limitation
inventions, discoveries, improvements, works of authorship, formulas, processes,
compositions of matter, computer programs, code, databases, mask works, trade
secrets, designs, notes, drawings, marketing plans, product plans, business
strategies, financial information, forecasts, copyrights, patent rights, Moral
Rights, other intellectual property rights, and the right to bring suit
thereunder. For purposes herein, the term "Moral Rights" includes, without
limitation, the right to be known as the author, the right to object to any
alterations to a work, the right to prevent others from being named as the
author of a work, the right to prevent others from falsely attributing to one
the authorship of work that one has not in fact written, the right to prevent
others from making deforming changes in a work, the right to withdraw a
published work from distribution if it no longer represents the views of the
author, and the right to prevent others from distribution if it no longer
represents the views of the author, and the right to prevent others from using a
work or the author's name in such a way as to reflect on the author's
professional standing. Assignor furthermore waives and agrees never to assert
any Moral Rights Assignor may have in the Work.
Assignor agrees that on request and without further consideration, but at the
expense of Assignee, Assignor will communicate to the Assignee or its
representatives or nominees any facts known to the Assignor respecting said
Proprietary Information, and will testify in any legal proceeding, sign all
lawful papers, execute all applications and confirmations, make all rightful
oaths and generally do everything possible to aid the Assignee, its successors,
assigns and nominees to obtain, maintain, perfect, and enforce rights in the
Proprietary Information.
Signed and sealed this ____ day of _________________, 2000.
Print or type Assignor's name and address:
SIGNATURE (NOTARIZED)
____________________________ By ______________________________
___________________________ If Assignor is an entity other
than an individual,
____________________________________ provide name and title of
person signing:
____________________________________ NAME: ___________________________
____________________________________ TITLE: __________________________
STATE OF ______________________________
COUNTY OF ____________________________
On this _________ day of _________, 1994, before me personally appeared
__________________________ personally know to me proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
the instrument, and acknowledged to me that he executed the same of his own free
will for the purposes therein set forth.
Notary Public
(Notary's Seal)
EXHIBIT F
IDX SYSTEMS CORPORATION
ADMINISTRATIVE SERVICES AGREEMENT
WITH
CHANNELHEALTH INCORPORATED
This Administrative Services Agreement is made as of the 1st day of
October, 1999, by and between IDX Systems Corporation ("IDX"), a Vermont
corporation with a principal place of business at 1400 Shelburne Road, South
Burlington, VT 05403, and Channelhealth Incorporated ("CHI"), a Delaware
corporation with a principal place of business at 25 Green Mountain Drive, South
Burlington, VT 05403.
INTRODUCTION
IDX is engaged in the business of developing and distributing healthcare
products and services. CHI is a subsidiary of IDX. Pursuant to this Agreement,
IDX shall provide, and CHI shall pay IDX for, certain administrative and
corporate services.
I. SERVICES TO BE PERFORMED
As requested from time to time by CHI, IDX shall perform the following
services:
A. PURCHASING
1. IDX shall act as a purchasing agent for CHI, and shall
have express authority to purchase materials, equipment,
and supplies, to engage vendors, and to procure or
contract for all other items and services that are
routinely utilized in the ordinary course of CHI's
business.
2. IDX shall tender payment directly to any vendor from which it
purchases goods or services on behalf of CHI, and such amounts,
together with the cost of providing such purchasing services shall
be included in calculating the Service Charge under the Price and
Payment terms of this Agreement.
3. IDX shall be primarily responsible for satisfying purchase
prices as between IDX and vendors, but CHI shall be liable
to IDX for the amount tendered by IDX for any goods or
services purchased on behalf of CHI, whether or not such
goods or services are ultimately utilized by CHI.
B. ACCOUNTING SERVICES
IDX shall perform the following financial and accounting services:
Such financial planning, reporting and analysis, billing and
accounts receivable, accounts payable and expense report processing,
payroll, sales tax processing, contract management and revenue
recognition, audit assistance and financial systems support services as
requested by CHI.
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C. CASH MANAGEMENT SERVICES
1. IDX shall maintain a central concentration account through
which all of CHI's funds will flow and all of CHI's
receivables and payables of any kind shall be collected or
tendered by IDX on CHI's behalf and according to CHI's
requests. All such collections or payments shall be recorded
as journal entries in accordance with generally accepted
accounting principles. IDX shall notify CHI in writing upon
closing any account used or established under this Agreement.
2. IDX shall open any other account, including, without
limitation, a payroll, petty cash, or zero balance account
upon CHI's request. Any additional accounts opened by IDX
shall receive deposits consisting only of funds, which have
cleared the central concentration account.
3. IDX shall provide monthly financial statements to CHI for each
account under management.
4. IDX shall perform the following additional cash management
services:
a. Reconcile all bank accounts used to carry out cash
management functions for CHI.
b. Provide CHI with cash flow projections upon
reasonable request.
c. Subject to the prior approval of CHI, make certain
investments for CHI.
d. Maintain the general ledger accounts of all bank
accounts under management.
e. Perform such other cash management services upon
which the parties may from time to time agree.
D. MIS SERVICES
IDX shall provide such MIS Services as requested by CHI, including
without limitation, the procurement and provision of telecommunications
services, internet services, computer network and hardware equipment
and maintenance, and information systems support.
E. PROPERTY MANAGEMENT SERVICES
IDX shall provide property management and maintenance, cleaning
and janitorial services and such other facilities services as requested
by CHI.
2
F. HUMAN RESOURCES MANAGEMENT
IDX shall provide such human resources management services as
requested by CHI, including without limitation, employee benefits
management, assistance with the development of employment practices
and policies, and such other human resources functions as requested by
CHI.
G. LEGAL SERVICES
Attorneys employed by IDX shall provide such legal services as
requested by CHI, including without limitation, the provision of legal
services directly to CHI and the engagement and oversight of outside
counsel for CHI.
II. PROVISIONS GOVERNING PERFORMANCE OF SERVICES
The following terms and conditions shall govern the parties'
performance of services:
A. IDX shall exercise due care in the performance of all services,
and meet any applicable federal, state, or local legal
requirements or professional, or industry standards.
B. IDX shall coordinate and consult with the appropriate employees of
CHI from time to time, and establish periodic evaluations of the
services it provides to CHI.
C. IDX shall provide all necessary professional and administrative
personnel and all facilities needed to perform the
services for CHI.
D. IDX shall permit the independent auditors of CHI to have access to
its pertinent books and records to verify the accuracy of the
service charges under this agreement.
E. Notwithstanding the foregoing, unless granted express, written
authorization from CHI, IDX is not granted the power to:
1. Borrow or lend money on behalf of CHI.
2. Incur debt, other than common bank charges, on behalf of CHI.
3. Invest the cash under management.
4. Engage in any activity that would compromise the fiscal health
or integrity of CHI, or that would fall outside the scope of
IDX's cash management responsibilities.
F. IDX shall not be liable for any failure or omission in the
performance of its duties or services resulting in any obligation
or liability related thereto except in the event of fraud,
reckless misconduct, willful disregard for CHI's interests, or any
deliberate act or omission leading to such obligation or loss.
3
G. The foregoing services to be performed by IDX shall be at
arm's-length, and the legal relationship of IDX to CHI shall be
that of an independent contractor. CHI and IDX shall maintain
separate records at all times, and in such a manner as to confirm
that the parties hereunder are separate legal entities with
independent rights and obligations.
H. CHI shall provide IDX access to any records or other information
necessary to provide the services under this Agreement. Such
information shall be considered confidential unless otherwise
stated.
III. RIGHT TO USE OFFICE SPACE
IDX grants CHI a license to use office space, as designated from time
to time by mutual agreement of IDX and CHI, at one or more of IDX's
offices; provided that IDX and CHI shall enter into a formal license
agreement on or before February 15, 2000.
V. PRICE AND PAYMENT TERMS
A. The service charges for services performed for CHI by IDX and the
charges for CHI's license to use office space of IDX shall be
equal to actual costs incurred by IDX, and allocated to CHI in the
same manner that IDX allocates costs among its business units,
plus, for costs after January 1, 2000, a reasonable mark-up (in
the aggregate, the "Service Charges").
B. The Service Charges may be reviewed and adjusted from time to time
by mutual agreement of IDX and CHI and at least annually prior to
November 30 of each year. If IDX and CHI fail to agree to the
adjustment to the Service Charges prior to November 30, the
Service Charges for the following year shall automatically
increase by a percentage equal to the overall percentage of
increase of IDX's compensation budget for the next year.
C. IDX shall invoice CHI for the Service Charges on a quarterly
basis. CHI agrees to pay each invoice in full within
thirty days of issue.
D. Any unpaid balances between CHI and IDX under this Agreement
outstanding for more than thirty (30) days will accrue interest at a
rate of 9%.
VI. RECORDS
A. IDX shall maintain, in accordance with generally accepted accounting
principles and practices, such records as may be necessary to
adequately reflect the accuracy of the Service Charges under this
Agreement. IDX will make and maintain such other and additional records
as CHI may from time to time reasonably require in connection with this
Agreement.
4
B. Each of the parties shall adopt separate records of account and such
other methodologies as their auditors and accountants may deem
reasonable and appropriate pertaining to all expenses, cots, and fees
earned and incurred hereunder.
C. Upon prior reasonable notice, IDX will permit CHI or its independent
auditors access to IDX's premises and pertinent books and records
during normal business hours to verify the accuracy of the records
which support the Service Charges imposed under this Agreement.
VII. TERM AND TERMINATION
The initial term of this Agreement shall be for fifteen (15) months
commencing on October 1, 1999, and terminating on December 31, 2000, provided
however, that the Agreement shall automatically renew for successive one (1)
year terms, unless terminated by either party by written notice delivered prior
to August 30 of the previous year.
VIII. MISCELLANEOUS
A. SURVIVAL
This Agreement shall continue in force and existence after the
merger, restructuring, name change, transfer, sale, assignment,
conveyance, or other reorganization of either party. The successors,
assigns, or transferees of either party shall succeed to all rights and
obligations of the assigning or transferring party.
B. FORCE MAJEURE
Except as expressly provided in this Agreement, neither party to
this Agreement shall be liable to the other party for any failure to
perform, or any delay in the performance of, any obligation under this
Agreement, if such failure or delay is caused by circumstances beyond
the control of that party. For purposes of interpreting this provision,
"circumstances beyond the control" shall include, without limitation,
any act of God, war, sabotage, embargo, accident, labor strike,
lockout, fire, flood, casualty, earthquake, governmental action, riot,
war or revolution. The party experiencing circumstances beyond its
control shall immediately notify the other party of the existence of
such circumstances. The party experiencing circumstances beyond its
control shall use every reasonable effort to mitigate the effects of
such circumstances as soon as possible.
C. CONFIDENTIALITY
1. In connection with the performance by IDX of the provisions of
this Agreement, CHI has agreed to provide IDX with the necessary
information and data relating to the administrative services
(hereinafter "Confidential Information"). In addition, IDX may provide
CHI with IDX's Confidential Information. In connection with the
foregoing, IDX and CHI each agree to treat all Confidential Information
received from the other as follows:
5
a. Each party recognizes and acknowledges that the
Confidential Information is disclosed in confidence solely in
connection with this Agreement.
b. Each party agrees that it (including its shareholders,
directors, officers, employees, and agents) (i) will not disclose
to any third party any of the Confidential Information, except to
the extent required by law, without the disclosing party's prior
written consent, (ii) will limit the availability of the
Confidential Information to those of its respective shareholders,
directors, officers, employees, and agents who need to know such
Confidential Information, and (iii) will not use any of the
Confidential Information for any purpose other than the foregoing.
c. The term "Confidential Information" does not include any
information which (i) at the time of disclosure or thereafter is
generally available to the public other than as a result of a
disclosure by the receiving party, (ii) was within the receiving
party's possession prior to its being furnished pursuant hereto,
provided that the source of such information as not known by the
receiving party to be bound by a confidentiality agreement with,
or other contractual, legal, or fiduciary obligation of
confidentially with respect to such information, (iii) becomes
available to the receiving party on a non-confidential basis from
a source other than the disclosing party, or (iv) has been
independently acquired or developed by the receiving party without
violating any provision hereunder.
d. Upon the termination of this Agreement for any reason, upon the
request of the disclosing party, all Confidential Information
heretofore or hereafter received or obtained by the receiving
party from the disclosing party shall be promptly returned to the
disclosing party, and any analyses or other documents prepared by
or for the receiving party which incorporate any part of the
Confidential Information, and all copies, summaries, and notes
shall be promptly destroyed.
D. ASSIGNMENT AND DELEGATION
Neither party to this Agreement shall in any way assign, delegate or
otherwise dispose of this Agreement or any of the rights, privileges, duties or
obligations granted or imposed upon it under this Agreement without the prior
written consent of the other party. No such consent shall be required, however,
to assign, delegate, or otherwise dispose of any rights or obligations under
this Agreement if made to a wholly-owned subsidiary of IDX. Any assignment,
delegation or disposal, in whole or in part, of this Agreement without requisite
consent will be void and have no effect, but such consent shall not be
unreasonably withheld.
E. EFFECT ON OTHER AGREEMENTS
Nothing contained herein shall create any legal liability or obligation
on the part of either party to this Agreement for any third party contracts,
agreements, obligations, or liabilities of the other party, unless a party to
this Agreement expressly assumes such liability or obligation in a signed
writing.
6
F. APPLICABLE LAW
This agreement shall be governed by the laws of the State of Vermont
and may not be amended or modified except by an instrument in writing signed by
both parties.
G. ENTIRE AGREEMENT
This Agreement shall constitute the entire agreement between the
parties, and supersedes and cancels all previous negotiations or understandings
between the parties on the subject matter hereof except as expressly provided
herein. No conditions, use of trade, course of dealing, understanding or
agreement purporting to vary, explain or supplement the terms of this Agreement
shall be binding unless hereafter made in writing and signed by CHI and IDX. No
modification may be effected by the acknowledgment or acceptance of any purchase
order or shipping forms containing terms at variance with those set forth
herein. Waiver by either party of any term, provision, or condition of this
Agreement shall not be construed to be a waiver of any other term, provision, or
condition nor shall such waiver be deemed a waiver of any subsequent term of the
same provision.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
IDX Systems Corporation Channelhealth Incorporated
By:/S/ ROBERT W. BAKER, JR. By:/S/ RICHARD E. TARRANT
_______________________________ ________________________________
Title: Vice President Title: President
Date:_____________________________ Date: :____________________________
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EXHIBIT G
Marketing, Development and Service Agreement
MARKETING, DEVELOPMENT AND SERVICE AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of January 1,
2000 by and between CHANNELHEALTH INCORPORATED, a Delaware corporation ("CHI" or
"ChannelHealth") and IDX SYSTEMS CORPORATION, a Vermont corporation ("IDX").
WHEREAS, concurrently herewith ChannelHealth and IDX have entered into a
written agreement entitled "Cross License and Software Maintenance Agreement"
(the "License Agreement"), pursuant to which IDX and ChannelHealth have agreed
to certain licensing and support transactions and terms; and
WHEREAS, the obligations of this Marketing Agreement with respect to
development and support of enhanced and improved technology and resulting
products and services shall be in addition to the obligations to license and
support such technology, products and services set forth in the License
Agreement.
WHEREAS, concurrently herewith ChannelHealth and IDX have entered into a
written agreement entitled "Administrative Service Agreement" (the
"Administrative Service Agreement"), pursuant to which IDX and ChannelHealth
have agreed to certain services to be provided by IDX to ChannelHealth; and
WHEREAS, the execution and delivery of this Agreement by ChannelHealth and
IDX are conditioned upon the execution and delivery by IDX and ChannelHealth of
the Administrative Service Agreement and the License Agreement.
NOW, THEREFORE, in consideration of the premises, 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 agree
as follows:
1. DEFINITIONS
The capitalized terms used in this Agreement shall have the meanings ascribed to
them on Schedule 1 attached hereto.
2. DEVELOPMENT AND INSTALLATION SERVICES
The parties shall cooperate with respect to, and coordinate, their respective
product development processes for the purpose of creating and maintaining
functional integration and data exchange between the ChannelHealth Products and
the IDX Products. In addition, the parties shall continue to cooperate with
respect to, and coordinate, such processes for the purpose of developing
additional functional integration and data exchange among other IDX Products and
other ChannelHealth Products for the purpose of creating work flows and
processes that benefit IDX Customers in general. The parties shall cultivate
business processes designed to maximize cooperation and coordination of
development activities for such purpose. In addition, the parties agree to the
following:
2.1 Product Development in General. The following obligations shall be in
effect during the Initial Term of this Agreement.
1
2.1.1 Development Plans. ChannelHealth and IDX shall regularly create
and update written development plans for their respective products
and services and deliver them regularly to each other. IDX and
ChannelHealth shall regularly solicit suggestions and
specifications for improvement of their respective products and
services based on the needs and requirements of IDX Customers and
ChannelHealth Customers.
2.1.2 Technologies and Architectures. All ChannelHealth Products to be
sold to IDX Customers shall conform to and incorporate all of the
technical, architectural, communication, design and programming
standards employed by IDX and embodied in IDX Products from time
to time, including without limitation the technical standards,
protocols, conventions and platforms incorporated in the IDX Web
FrameWork. IDX shall regularly keep ChannelHealth informed of such
standards.
2.1.3 Database. ChannelHealth shall not create the capability in its
products and services or permit the use of its products and
services to write to any IDX databases except in conformance with
written standards and procedures approved by IDX in advance. IDX
shall regularly keep ChannelHealth informed of such standards and
procedures. The database update approach employed by OutReach
shall not be considered a standard for updating IDX databases.
2.1.4 Market Requirements. ChannelHealth shall regularly develop updates
and enhancements of ChannelHealth Products to timely address the
needs and requirements of IDX Customers in general, as may change
from time to time, including without limitation Regulatory
Requirements, as determined by IDX and ChannelHealth jointly.
2.1.5 Early Releases. IDX and ChannelHealth shall cooperate in the
development of ChannelHealth Updates and shall deliver to each
other for testing purposes one copy of the earliest test releases
of both the Source Code and object code versions of all software
updates described in Section 2.1.4 prior to delivery to any other
customers or distribution partners and one complete copy of the
general releases of Source Code and object code for all Updates
prior to delivery to any of their respective customers.
2.1.6 Synchronization. ChannelHealth shall keep its products compatible
with new versions and updates of IDX products as and when such
versions and updates are released.
2.2 Enhancement of ChannelHealth Division Works.
2.2.1 Enhancement of ChannelHealth Division Works. ChannelHealth shall
make appropriate investments to enhance and improve the
ChannelHealth Division Works and other ChannelHealth Products.
2.2.2 Participation in Development and Testing. IDX shall have first
priority to participate in development and testing of the
ChannelHealth Products and all enhancements and updates thereto.
2.3 Installation Services. On a time and materials basis, ChannelHealth shall
provide at IDX's option either as a contractor to IDX or directly to IDX
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Customers, services necessary to install ChannelHealth Products as more
particularly described below:
2.4 Customer Support Services. ChannelHealth shall provide at IDX's option
either as a contractor to IDX or directly to IDX Customers, customer
support services for ChannelHealth Products as more particularly described
below:
2.4.1 CMS. ChannelHealth shall provide support for all existing CMS
customers of IDX in a manner consistent with support provided by
IDX to its customers generally and to the level necessary to
fulfill all existing support and development commitments of IDX to
its customers for CMS. As the sole compensation to ChannelHealth
for such services, IDX shall pay to ChannelHealth all support fees
for CMS it receives from such customers.
2.4.2 Other Products. At its own expense and cost, ChannelHealth shall
provide ChannelHealth Maintenance and ChannelHealth
Updates for all IDX customers of ChannelHealth Products.
2.5 Service Quality. All services provided by ChannelHealth under this
agreement shall be performed in a good and workmanlike manner and
consistent with high standards generally applicable in the healthcare
clinical information systems industry and consistent with the support
standards maintained by the IDX business unit most closely associated with
the IDX Customer using the affiliated ChannelHealth Products.
2.6 Ownership. Ownership of software developments shall be governed by the
License Agreement.
3. MARKETING
Unless a longer term is expressly provided in this Agreement, during the Initial
Term and any renewal term of this Agreement, the parties shall closely align
their marketing processes for the purpose of rapidly distributing ChannelHealth
Products to IDX Customers and shall cultivate business processes to maximize
cooperation and coordination of marketing activities. In addition, the parties
agree to the following:
3.1 Business Plan. IDX and ChannelHealth shall mutually create and agree to a
business plan for sales of ChannelHealth Products by IDX.
3.2 Exclusive Marketing Rights. During the Initial Term of this Agreement
and any renewal term of this Agreement:
3.2.1 IDX shall have the exclusive right to market, sell, license and
otherwise distribute the ChannelHealth Products to IDX Customers.
3.2.2 ChannelHealth shall not license or authorize any vendor of any
Core Application to market, sell, license, or otherwise distribute
any ChannelHealth Products.
3.2.3 Unless IDX has provided prior written authorization, ChannelHealth
shall not market any ChannelHealth Products to any IDX Customers,
and ChannelHealth shall not make any sales of any ChannelHealth
Products to any IDX Customers.
3.2.4 ChannelHealth shall not become a Direct Competitor of IDX.
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3.2.5 Except as set forth in Sections 3.2.6, 3.2.7 and 3.2.8, IDX shall
not market any products or services of any third party that are
similar to ChannelHealth Products.
3.2.6 IDX may cooperate with any vendor of products and services similar
to the ChannelHealth Products to provide products and services of
such vendor to a particular IDX Customer if such IDX Customer
expresses a preference for such other products or services.
3.2.7 ChannelHealth shall have no right to limit or prevent IDX in any
way from entering into and carrying out a cooperative development
or marketing relationship with any vendor of products or services
similar to ChannelHealth Products, including without limitation a
distribution, co-marketing or resale relationship, if such similar
products or services are, in IDX's reasonable good faith
determination, not competitive in functionality, technology, or
price.
3.2.8 ChannelHealth shall have no right to limit or prevent IDX in any
way from entering into and carrying out a cooperative marketing
relationship with any vendor or supplier of products or services,
including without limitation a distribution, co-marketing or
resale relationship, to the extent that such vendor or supplier
markets products or services that are not similar to ChannelHealth
Products or services pursuant to such relationship.
3.2.9 The sole and exclusive remedy for breach by IDX of any of the
provisions of this Section 3.2 shall be that Section 3.2.3 shall,
upon written notice from ChannelHealth to IDX, cease to be of any
force and effect.
3.3 Nonexclusive Marketing Rights.
3.3.1 Notwithstanding any termination or non-renewal of this Agreement,
including without limitation any termination under Section 4 of
this Agreement, for so long as ChannelHealth shall offer for sale,
license, resale, relicense, or other distribution any
ChannelHealth Products, or any derivatives, enhancements, or
improvements thereof, or ChannelHealth shall offer to support or
maintain any ChannelHealth Products, or any derivatives,
enhancements, or improvements thereto, IDX shall be entitled to
distribute such ChannelHealth Products, derivatives, enhancements,
and improvements,and the support or maintenance services with
respect thereto, upon the best terms and conditions offered by
ChannelHealth which, if ChannelHealth has no other distributor,
shall be equal to the retail price less a commercially
reasonable discount.
3.3.2 If ChannelHealth shall at any time offer prices or terms for sale,
resale, license or other distribution, or the support or
maintenance of, any ChannelHealth Products or any derivatives,
enhancements, or improvements that are more favorable than the
prices or terms set forth in this Agreement or otherwise offered
to IDX, then ChannelHealth must, within thirty (30) days of such
agreement provide IDX with notice of such offer, terms and prices.
Regardless of whether such notice is provided, IDX shall
automatically become entitled to such more favorable prices and
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terms without further response from IDX, and IDX may elect to
obtain a refund of any corresponding consideration paid by IDX to
ChannelHealth or received by ChannelHealth on account of
distribution of any affected ChannelHealth Products, derivatives,
enhancements, or improvements.
3.4 Marketing Responsibilities of ChannelHealth. ChannelHealth shall market the
ChannelHealth Products as described in the Marketing Plan and shall provide
additional services to support IDX's marketing of ChannelHealth Products to
IDX Customers as set forth below:
3.4.1 At its own expense, ChannelHealth shall develop and produce
product marketing documentation and collateral similar in kind and
quality to that provided by IDX to IDX Customers and prospects
from time to time with respect to IDX Products and Services.
ChannelHealth shall deliver such documentation and collateral in
quantities and at the times and places reasonably specified by
IDX. Such documentation shall be targeted to IDX Customers and IDX
shall have the right to reasonably approve the design and
specifications thereof.
3.4.2 ChannelHealth shall maintain a qualified sales and marketing
support staff in numbers reasonably sufficient to support IDX
sales activities.
3.4.3 ChannelHealth shall provide training to the IDX sales staff in the
ChannelHealth Products and ChannelHealth's business strategy.
3.4.4 ChannelHealth shall develop sales tools such as demonstration
systems for use by IDX sales staff.
3.4.5 ChannelHealth shall appropriately compensate and incent its sales
personnel to assist IDX in selling ChannelHealth Products.
3.4.6 ChannelHealth shall provide sales support services with respect to
the ChannelHealth Products as generally and customarily employed
by IDX in support of sales of its products, including without
limitation assisting in making sales calls, providing product
demonstrations, facilitating site visits and responding to
inquiries from prospects and customers, such as requests for
proposal, requests for information and requests for quotations.
3.5 Marketing Responsibilities of IDX. IDX shall market the ChannelHealth
Products and shall have the responsibilities as set forth below:
3.5.1 IDX shall educate and train its sales and sales support personnel
so as to be able to present the ChannelHealth Products to IDX
Customers and prospects as necessary to appropriately
commercialize the ChannelHealth Products.
3.5.2 IDX shall appropriately compensate and incent its sales personnel
to sell ChannelHealth Products.
3.5.3 IDX shall provide ChannelHealth with current sales projections.
3.5.4 IDX shall include appropriate descriptions of ChannelHealth
Products and its business strategy in sales proposals for new
business as necessary to appropriately commercialize the
ChannelHealth Products.
5
3.5.5 IDX shall respond to requests for information, quotations,
proposals and the like for ChannelHealth Products as necessary to
appropriately commercialize the ChannelHealth Products.
3.6 Use of IDX Name.
3.6.1 For a period of two years, ChannelHealth may indicate that IDX
Licensed Technology is included in CMS.
3.6.2 ChannelHealth may use the trademark "IDX" and the trademarks of
IDX pertaining to IDX Products in connection with customer
communications pertaining to the co-marketing relationship between
IDX and ChannelHealth as defined in this Agreement and pursuant to
IDX's reasonable branding standards in effect from time to time.
3.7 Marketing and Administrative Responsibilities of IDX. IDX shall have the
authority to market and sell ChannelHealth Products pursuant to IDX's own
terms and conditions and shall also have the authority as ChannelHealth's
agent to collect the sales price for all ChannelHealth Products marketed by
IDX. In addition, IDX shall have authority as ChannelHealth's agent to bind
ChannelHealth to perform for IDX Customers all of ChannelHealth' standard
sales terms and conditions. ChannelHealth shall confirm such authority to
any IDX Customer or prospective customer on request of IDX.
4. COMPENSATION
4.1 Compensation; Payment. IDX shall be entitled to reasonable and fair
compensation for its sales and marketing services provided under this
Agreement. IDX shall remit to ChannelHealth the full amount received from
the IDX Customer, and ChannelHealth shall pay to IDX sales compensation
including minimum compensation payable at least quarterly. The minimum
compensation shall cover all of IDX's sales expenses attributable to
marketing ChannelHealth Products during the first two years of the Initial
Term.
4.2 Failure to Agree on Compensation. IDX and ChannelHealth intend that the
compensation of IDX for the distribution of ChannelHealth Products under
this Agreement shall reflect, insofar as feasible, fair market value for
the services provided by IDX from time to time. At any time and from time
to time after the expiration of six (6) months from the Effective Date, but
not more frequently than one (1) time during any six (6) month period, IDX
or ChannelHealth may by written request demand determination of IDX's
compensation under this Agreement, whether in the form of a percentage rate
or otherwise, and IDX and ChannelHealth shall promptly negotiate in good
faith compensation for the services of IDX under this Agreement. If IDX and
ChannelHealth are unable or unwilling to agree to new compensation within
sixty (60) days after written demand for negotiation, then IDX or
ChannelHealth may submit the issue of fair market compensation for final
determination by any public accounting firm with a national practice that
may be selected mutually by IDX and ChannelHealth (the "Accountant"). The
parties shall cooperate at their own expense with the Accountant so as to
facilitate a prompt determination by the Accountant within twenty (20) days
of the date of appointment of the Accountant. The determination of the
6
Accountant as to the fair market compensation for the services of IDX under
this Agreement shall be final. Upon such determination, the compensation of
IDX shall be the discount rate or other compensation for the sales services
of IDX under this Agreement until or unless such compensation may be
further renegotiated or changed as set forth in this Agreement.
5. TERM AND TERMINATION
5.1 Term. Upon the expiration of the Initial Term, this Agreement shall
automatically renew for additional, successive one (1) year terms unless
terminated earlier or either IDX or ChannelHealth elects not to renew this
Agreement by giving written notice of such election not later than three
(3) months prior to the expiration of the Initial Term or any then current
renewal term.
5.2 Termination. Notwithstanding Section 5.1, this Agreement may be terminated:
5.2.1 by ChannelHealth, at any time, not less than sixty (60) days after
delivery of notice to IDX, in the event that IDX shall have
defaulted on or breached any material term of this Agreement and
shall not have cured such breach within sixty (60) days after
receiving such notice from ChannelHealth specifying the nature of
such default or breach; or
5.2.2 by IDX, at any time, not less than sixty (60) days after delivery
of notice to ChannelHealth in the event that ChannelHealth shall
have defaulted on or breached any material term of this Agreement
and shall not have cured such breach within sixty (60) days after
receiving notice from IDX specifying the nature of such default or
breach; or
5.2.3 by any party, immediately upon delivery of notice to the relevant
party, in the event that such other party (i) requires a
composition or other similar arrangement with creditors, files for
bankruptcy or is declared bankrupt or (ii) shall have assigned or
transferred to any third party any of its rights or obligations
hereunder except in accordance with Section 6.9; or
5.2.4 by either party upon termination of the License Agreement.
5.3 Effect of Termination; Survival. No termination of this Agreement shall
terminate the rights of IDX set forth in Section 3.3. Sections 3.3 and 6
shall survive any termination of this Agreement.
6. MISCELLANEOUS
6.1 Indemnification. Each party (the "Indemnifying Party") will indemnify each
other party, its officers, employees, and agents (collectively "Indemnified
Parties") against, and hold each Indemnified Party harmless from, all
claims, suits, judgments, losses, damages, fines or costs (including
reasonable legal fees and expenses) ("Losses") resulting from any claim,
suit, or demand by any third party ("Third Party Claim") for injuries to or
deaths of persons or loss of or damage to property arising out of: (i) the
Indemnifying Party's products or services as marketed by the Indemnified
Parties, unless the Indemnified Parties shall have acted outside the scope
of their rights under this Agreement; and (ii) the Indemnifying Party's
performance or willful misconduct of the Indemnifying Party, its employees,
officers, or agents in connection with the Indemnifying Party's performance
of this Agreement, except to the extent caused by the negligence of any
Indemnified Party.
7
6.1.1 The Indemnifying Party's obligations under this Section 6 will
survive the termination of this Agreement.
6.1.2 Each Indemnified Party shall give an Indemnifying Party prompt
written notice of any Third Party Claim of which such
Indemnified Party has knowledge concerning any Losses as to which
such Indemnified Party may request indemnification hereunder. If
the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any Losses that
may result from such Third Party Claim, then the Indemnifying
Party shall be entitled to assume and control the defense of such
Third Party Claim at its expense and through counsel of its choice
if it gives notice of its intention to do so to the Indemnified
Party within five (5) days of the receipt of such notice from the
Indemnified Party; provided, however, that if there exists or is
reasonably likely to exist a conflict of interest that would make
it inappropriate in the judgment of the Indemnified Party, in its
sole and absolute discretion, for the same counsel to represent
both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own counsel, at
the expense of the Indemnifying Party. In the event the
Indemnifying Party exercises the right to undertake any such
defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the Indemnifying Party in
such defense and make available to the Indemnifying Party, at the
Indemnifying Party's expense, all witnesses, pertinent records,
materials and information in the Indemnified Party's possession or
under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the
event the Indemnified Party is, directly or indirectly, conducting
the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense
and make available to the Indemnified Party, at the Indemnified
Party's expense, all such witnesses, records, materials and
information in the Indemnifying Party's possession or under the
Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may
be settled by the Indemnifying Party without the prior written
consent of the Indemnified Party.
6.1.3 In no event shall the Indemnifying Party be liable to an
Indemnified Party for any indirect, incidental, special, punitive,
exemplary or consequential damages arising out of or otherwise
relating to this Agreement, even if the Indemnifying Party has
been advised or the possibility or likelihood of such damages.
6.1.4 Notwithstanding the foregoing, with respect to any claim that
would otherwise be subject to indemnification by a party pursuant
to this Agreement, if indemnification with respect to such claim
is governed by the License Agreement, then no indemnification
shall be available under this Agreement.
6.2 Expenses. Except as otherwise specified in this Agreement, all costs and
expenses, including, without limitation, fees and disbursements of counsel,
8
financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses, whether or not the Closing shall
have occurred.
6.3 Further Assurances and Documents. IDX and ChannelHealth shall take all
actions and do all things, including without limitation the execution and
delivery of instruments and documents, necessary to effectuate the purposes
and intent of this Agreement.
6.4 Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given or made (and shall be
deemed to have been duly given or made upon receipt) by delivery in person,
by courier service, by telecopy or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 5.03):
(a) if to ChannelHealth:
Channelhealth Incorporated
25 Green Mountain Drive
South Burlington, Vermont 05403
Attention: President
With a copy to General Counsel at the same address
(b) if to IDX:
IDX Systems Corporation
1400 Shelburne Road
South Burlington, Vermont 05402
Attention: President
With a copy to: General Counsel at the same address
6.5 Public Announcements. Except as required by law, governmental regulation or
by the requirements of any securities exchange on which the securities of a
party hereto are listed, no party to this Agreement shall make, or cause to
be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated hereby or otherwise communicate
with any news media without the prior written consent of the other party,
and the parties shall cooperate as to the timing and contents of any such
press release or public announcement.
6.6 Headings. The descriptive headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning
or interpretation of this Agreement.
6.7 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any law, governmental regulation
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
9
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the
greatest extent possible.
6.8 Entire Agreement. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and undertakings, both written and oral, with respect to
the subject matter hereof.
6.9 Assignment. This Agreement shall be binding upon the parties and their
respective successors, representatives and permitted assigns. Neither party
may assign this Agreement without the prior written consent of the other
party, except that either party hereto may assign its rights hereunder to
an Affiliate of such party and either party may, without the consent of the
other party, assign and delegate this Agreement and its rights and
obligations hereunder in connection with a merger, consolidation or sale of
substantially all of its assets (which sale shall include the assignment
and assumption of all rights and obligations under the License Agreement;
provided, however, that such assignee or transferee shall assume all
obligations of the assigning or transferring party and any such assignment
shall not relieve the assigning or transferring party of its obligations
hereunder.
6.10 No Third Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their permitted
assigns and successors and nothing herein, express or implied, is intended
to or shall confer upon any other person or entity, any legal or equitable
right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
6.11 Amendment. This Agreement may not be amended or modified except by an
instrument in writing signed by, or on behalf of, each of the parties.
6.12 Governing Law. This Agreement shall be governed by the laws of the State of
New York without regard to its conflict of laws provisions.
6.13 Counterparts. This Agreement may be executed in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which
when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
6.14 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed
in accordance with the terms hereof and that the parties shall be entitled
to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
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6.15 Waiver of Jury Trial. Each of the parties hereto irrevocably and
unconditionally waives trial by jury in any legal action or proceeding
relating to this Agreement, the Ancillary Agreements or the transactions
contemplated hereby and thereby and for any counterclaim therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
IDX SYSTEMS CORPORATION CHANNELHEALTH INCORPORATED
By:/S/ ROBERT W. BAKER, JR. By:/S/ RICHARD E. TARRANT
__________________________________ _______________________________
[Signature of Authorized Agent] [Signature of Authorized Agent]
Print Name and Title: Print Name and Title:
Robert W. Baker, Jr. Richard E. Tarrant
Vice President President
Schedule 1
to Marketing, Development and Service Agreement
Definitions
"Administrative Service Agreement" means the administrative service agreement by
and between ChannelHealth and IDX executed or intended to be executed
concurrently with the License Agreement and the Marketing Agreement.
"Affiliate" means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Agreement" means this Agreement, including all schedules, exhibits another
items attached hereto and incorporated by reference herein.
"ChannelHealth Customer" means any Person that has entered into a written
agreement with pursuant to which ChannelHealth provides any ChannelHealth
Products, all Affiliates of such Person, and all Persons receiving the benefit
of any ChannelHealth Products by or through such Person or Affiliates of such
Person.
"ChannelHealth Division Works" means all (i) computer software and (ii)
computerized or automated products, services, processes, systems, and methods of
any kind or nature developed or in the processes of development by IDX's
ChannelHealth Division prior to the Effective Date.
"ChannelHealth Licensed Technology" means (i) the object and Source Code for the
ChannelHealth Products, (ii) ChannelHealth Updates, (iii) the standard,
published editions of textual and graphical works, in whatever form, intended to
instruct users in the use of ChannelHealth Products, and published by
ChannelHealth from time to time during the ChannelHealth Support Term, and (iv)
the intellectual property rights of ChannelHealth, including without limitation
patent rights, copyrights, embodied or contained in the items named in clauses
(i) through (iii).
"ChannelHealth Maintenance" means services to correct errors found in the
ChannelHealth Products and delivered during the ChannelHealth Support Term.
"ChannelHealth Products" means all products and services offered by
ChannelHealth from time to time during the term of this Agreement, whether or
not described in the License Agreement or the Marketing Agreement, including
without limitation all (i) computer software and (ii) computerized or automated
products, services, processes, systems, and methods of any kind or nature.
"ChannelHealth Support Term" means the period commencing with the Effective Date
and ending on the expiration of the Initial Term of the Marketing Agreement or
later if renewed as set forth in this Agreement.
"ChannelHealth Updates" means all additions, corrections, and modifications to
the ChannelHealth Products provided as part of ChannelHealth Maintenance and all
standard new releases, new versions, and updates to the ChannelHealth Products
delivered by ChannelHealth to its customers generally as part of the
ChannelHealth Products during the ChannelHealth Support Term.
"Clinical Management Suite" or "CMS" means the product currently marketed by IDX
under the trademark of "CMS" or "Clinical Management Suite," Including its
predecessor product known as "CRS."
"ConnectR" means the product currently marketed by IDX under the trademark
"ConnectR."
"Core Application" means any software application expressly designed to automate
the business processes of physician billing, physician scheduling, managed care
contract administration, hospital clinical practice, hospital patient
administration, or hospital billing, including by way of example and not in
limitation, as embodied in the products currently marketed by IDX under the
trademarks "IDXtendR," "IDXSite" and "LastWord."
"Direct Competitor of IDX" means any Person that develops or markets any Core
Application.
"Distribution Partner" means any Person that has the right to distribute,
resell, sublicense, license, sell or otherwise provide a party's products or
services, including by way of example and not in limitation, any reseller,
distributor, licensee, customer, contractor, service provider, outsourcing
vendor or other information technology company.
"Effective Date" means January 1, 2000
"Enterprise Index" means the product currently marketed by IDX under the
trademark of "Enterprise Index."
"IDX Customer" means any Person that has entered into a written agreement with
IDX pursuant to which IDX provides any of its Core Products, all Affiliates of
such Person, and all Persons receiving the benefit of any of IDX's Core Products
by or through such Person or Affiliates of such Person. IDX will provide to
ChannelHealth a list of customers and update it from time to time.
"IDX Database Information" means information concerning the file structure or
definition of any IDX Products that would be necessary or useful in using
Integration Methods.
"IDX Licensed Technology" means (i) the IDX Software, including the object and
Source Code therefor, as of the Effective Date, (ii) the object and Source Code
for the ChannelHealth Division Works as of the Effective Date, (iii) IDX
Software Updates, (iv) Integration Methods as of the Effective Date, and (v) the
intellectual property rights of IDX, including without limitation patent rights,
copyrights, and trade secrets embodied or contained in the items named in
clauses (i) through (iv).
"IDX Names and Marks" means trade names, trademarks, service names and service
marks used by IDX in marketing any of its products and services.
"IDX Products" means all products and services offered by IDX from time to time
during the term of this Agreement, whether or not described in the License
Agreement or the Marketing Agreement, including without limitation all (i)
computer software and (ii) computerized or automated products, services,
processes, systems, and methods of any kind or nature.
"IDX Software" means (i) the Web FrameWork, (ii) ConnectR, (iii) OutReach, (v)
CMS, (v) Enterprise Index, and (vi) the standard, published editions of textual
and graphical works, in whatever form, intended to instruct users in the use of
the software products named in clauses (i) through (vi) and published by IDX
from time to time during the IDX Support Term.
"IDX Software Maintenance" means services to correct errors found in the IDX
Software, except CMS and OutReach, and delivered during the IDX Support Term as
set forth in this Agreement.
"IDX Software Updates" means all additions, corrections, and modifications to
the IDX Software provided as part of IDX Software Maintenance and all standard
new releases, new versions, and updates to the IDX Software delivered by IDX to
its customers generally as part of the IDX Software during the IDX Support Term.
IDX Software Updates include New Enabling Technologies only to the extent
necessary to achieve compatibility between IDX Products and ChannelHealth
Products.
"IDX Support Term" means the period commencing with the Effective Date and
ending on the expiration of the Initial Term of the Marketing Agreement or later
if renewed as set forth in this Agreement.
"Initial Term" means a period of five (5) years commencing on the Effective
Date.
"Integration Method" means any method using any programmatic or computerized
means, such as a program or data interface (including without limitation
OutReach and ConnectR), for extracting or adding to any databases included in
any IDX Product or exchanging any data between any IDX Product and any
ChannelHealth Product.
"License Agreement" means the license agreement by and between ChannelHealth and
IDX executed or intended to be executed concurrently with the Marketing
Agreement and the Administrative Service Agreement.
"Marketing Agreement" means the marketing, development, and support agreement by
and between IDX and ChannelHealth executed or intended to be executed
concurrently with the License Agreement and the Administrative Services
Agreement.
"Merge" means the process of merging all or a portion of existing
software or documentation into other software or documentation or adding to
existing software or documentation so that the resulting software or
documentation contains functionality that is substantially more or different
from that of the existing software or documentation. For purposes of
illustration, the IDX Software shall be deemed to have been Merged into the
ChannelHealth Division Works.
"New Enabling Technologies" means tools and other means for building products
and integration methods (similar to the Integration Methods) developed by IDX
and incorporated by IDX into IDX Software Updates after the Effective Date.
Examples of New Enabling Technologies that may at IDX's election be embodied in
IDX Software Updates are the items currently referred to by IDX as "IDX
Objects," "IDXml," and "Tabasco."
"OutReach" means the product currently marketed by IDX under the trademark
"OutReach."
"Person" means any individual, partnership, firm, corporation, association,
trust, limited liability company, limited liability partnership, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
"Regulatory Requirements" means all Federal and state laws and regulatory
requirements applicable to the use by IDX, IDX Customers, ChannelHealth, and
ChannelHealth Customers of the ChannelHealth Products from time to time during
the term of this Agreement, including without limitation those applicable to
billing and claims submittal, managed care, prescriptions, EDI transactions,
data transmission, security and privacy, and program requirements generally
applicable to healthcare organizations, such as those involving accreditation.
"Source Code" means the human readable programming statements comprising
software, together with such available programmer notes, specifications,
schematics, file definitions (including without limitation IDX Database
Information) and other documentation that would be necessary for a programmer of
ordinary skill to understand, use and Merge the IDX Software.
"Territory" means (a) the United States and its territories and military bases;
(b) Canada; (c) Mexico; and (d) any additional countries (each, an "Additional
Country") included in the Territory as provided in herein.
"Web FrameWork" means the product currently marketed by IDX under the trademark
"IDX Web FrameWork".
EXHIBIT H
Opinion of Corporate Counsel to the Company