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<SEC-DOCUMENT>0000950131-01-500484.txt : 20010409
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ACCESSION NUMBER: 0000950131-01-500484
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010402
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLSCRIPTS HEALTHCARE SOLUTIONS INC
CENTRAL INDEX KEY: 0001124804
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122]
IRS NUMBER: 364372754
STATE OF INCORPORATION: DE
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-32085
FILM NUMBER: 1590423
BUSINESS ADDRESS:
STREET 1: 2401 COMMERCE DRIVE
CITY: LIBERTYVILLE
STATE: IL
ZIP: 60048
BUSINESS PHONE: 8476808515
MAIL ADDRESS:
STREET 1: 2401 COMMERCE DRIVE
CITY: LIBERTYVILLE
STATE: IL
ZIP: 60048
FORMER COMPANY:
FORMER CONFORMED NAME: ALLSCRIPTS HOLDING INC
DATE OF NAME CHANGE: 20000925
</SEC-HEADER>
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<FILENAME>d10k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-32085
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
36-3444974
Delaware (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
2401 Commerce Drive, Libertyville, Illinois 60048
(Address of principal executive offices and zip code)
(847) 680-3515
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of March 23, 2001 was approximately
$107,294,565. The number of outstanding shares of the registrant's Common Stock
as of that date was 37,988,218.
Documents Incorporated by Reference: Portions of the Proxy Statement for the
2001 annual stockholders meeting are incorporated by reference into Part III.
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<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
TABLE OF CONTENTS TO
2000 ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Item Page
---- ----
PART I
<C> <S> <C>
1. Business........................................................... 1
2. Properties......................................................... 7
3. Legal Proceedings.................................................. 7
4. Submission of Matters to a Vote of Security Holders................ 8
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................ 9
6. Selected Financial Data............................................ 10
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations.............................................. 11
7A. Quantitative and Qualitative Disclosures About Market Risk......... 33
8. Financial Statements and Supplementary Data........................ 34
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 65
PART III
10. Directors and Executive Officers of the Registrant................. 66
11. Executive Compensation............................................. 66
12. Security Ownership of Certain Beneficial Owners and Management..... 66
13. Certain Relationships and Related Transactions..................... 66
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 67
Signatures......................................................... 71
</TABLE>
Effective January 8, 2001, Allscripts, Inc. acquired Channelhealth
Incorporated, and each became a wholly owned subsidiary of a new holding
company, Allscripts Healthcare Solutions, Inc., which was originally
incorporated in Delaware as Allscripts Holding, Inc. on July 11, 2000. As a
result of the merger transaction, each outstanding share of Allscripts, Inc.
common stock was converted into one share of Allscripts Healthcare Solutions,
Inc. common stock. Allscripts, Inc. no longer files reports with the Securities
and Exchange Commission, and its common stock is no longer listed on the Nasdaq
National Market; however, Allscripts Healthcare Solutions, Inc. does file
reports with the Securities and Exchange Commission, and its common stock is
listed on the Nasdaq National Market under the symbol "MDRX". In this report,
"we", "us", "our" and "Allscripts", when referring to events prior to January
8, 2001, refer to our wholly owned subsidiary and predecessor, Allscripts,
Inc., and, when referring to subsequent time periods, refer to Allscripts
Healthcare Solutions, Inc. and its wholly owned subsidiaries, Allscripts, Inc.
and Channelhealth Incorporated, unless the context indicates otherwise.
TouchScript(R) and TeleMed(R) are registered trademarks of Allscripts, Inc.,
Channelhealth(R) is a registered trademark of Channelhealth Incorporated, and
PATIENT ED(R) is a registered trademark of Medifor, Inc. Trademarks of
Allscripts Healthcare Solutions, Inc. or one of its wholly owned subsidiaries
used in this report include: Allscripts(TM), Clinical Works Modules(TM), e-
Detailing(TM), FirstFill(TM), HealthFrame(TM), Integration Professional(TM),
Physician Channel(TM), Physician Homebase(TM), Physicians Interactive(TM),
Pocket Library(TM), TouchWorks(TM), TouchWorks Enterprise(TM) and TouchWorks
Professional(TM). All other trademarks, brand marks, trade names and registered
marks used in this report are trademarks, brand marks, trade names or
registered marks of their respective owners. Allscripts Healthcare Solutions,
Inc. and its wholly owned subsidiaries own a number of additional trademarks,
including registered trademarks, that are not referenced in this report.
<PAGE>
PART I
Item 1. Business
General
We provide decision support solutions for physicians that are designed to
improve the quality and cost effectiveness of healthcare. Our technology-based
approach focuses on the point of care, where prescriptions and many other
healthcare transactions originate, and creates an electronic dialogue between
physicians and other participants in the healthcare delivery process, including
patients, pharmacies, managed care organizations and pharmaceutical
manufacturers. We believe physicians find our solutions attractive because
incorporating these solutions into their office work flow can increase
efficiency and profitability, reduce errors and improve the quality of patient
care.
Our products are designed to provide real time information to enable better
clinical decisions, streamline the care process to improve physician
productivity, enhance the physician-patient relationship, and provide a
measurable return on investment. We currently offer products in four
categories: point-of-care decision support solutions, physician education,
information products and prepackaged medications. Our TouchWorks software
enables physicians to automate the most common clinical activities, including
prescribing, dictation, charge capture, lab orders and results, patient
education, and clinical notes. Our Physicians Interactive e-Detailing product
enables healthcare professionals to learn about new healthcare products through
the Internet and other multimedia technology. We also sell our prepackaged
medications to physicians so they can offer their patients the convenience of
receiving prescription medications in the physician's office.
Recent Developments
Since January 2000, we have made three acquisitions and signed three
strategic agreements that have advanced our business.
. IMS Health Incorporated, a leading provider of information solutions to
the pharmaceutical and healthcare industries, and Allscripts signed a
strategic alliance agreement on February 16, 2000. In December of 2000,
we terminated the initial agreement and entered into a new agreement
focused primarily on development and marketing of new Internet-based
information solutions for the pharmaceutical industry.
. Express Scripts, the nation's third largest pharmacy benefit manager,
signed a strategic agreement with Allscripts on April 26, 2000. The
agreement enables physicians who use Allscripts' TouchScript electronic
prescribing software product to have real-time access to current
formulary and clinical information at the point-of-care and provides
funding for system installation.
. Masterchart, a software developer of digital dictation, document
management and integration technology products, was acquired on May 9,
2000.
. Medifor, a leading provider of clinical software designed to help
physicians more effectively communicate with patients, both at the point
of care and via the Internet, was acquired on May 17, 2000.
. Child Health Corporation of America (CHCA) and Allscripts signed an
exclusive marketing agreement on October 26, 2000 designed to provide
access to and advance sales of TouchScript to CHCA's customer base of 38
leading children's medical centers nationwide.
. On January 8, 2001, Allscripts acquired Channelhealth, a business unit of
IDX Systems. In addition to the acquisition, Allscripts and IDX entered
into a 10-year strategic alliance whereby Allscripts became the exclusive
provider of Internet and point-of-care clinical applications sold by IDX
to physician practices, providing Allscripts access to IDX's current
118,000 physician practice management customers.
1
<PAGE>
The Allscripts Solution
Through our own internal development efforts and acquisitions, we have
developed a variety of point-of-care solutions that enable physicians to
provide higher quality healthcare and deliver it more cost effectively. Our
TouchWorks software seamlessly integrates technology into the entire care
process. The TouchWorks modules are accessed using wireless handheld or desktop
workstation devices to automate prescribing, dictation, charge capture,
documentation, orders and results, patient education and structured notes. The
modules can be combined with a comprehensive tasking tool that helps physicians
organize their practice flow.
The prescribing component of this physician-centered solution redesigns the
pharmaceutical management process to benefit each participant. By providing
access to real time information such as potential drug interactions and prior
adverse reactions during the prescribing process, physicians reduce the amount
of time spent clarifying and changing prescriptions. In addition, our system
enables physicians to better manage financial risk and to increase practice
revenue by providing the first fill of their most commonly prescribed
medications to their patients at the point of care and can also reduce
medication errors. Patients benefit from the convenience, immediacy and
confidentiality of receiving prescription medications in the physician's
office. Patients also gain access to valuable information that enables them to
play a more active role in managing their healthcare. Managed care
organizations benefit from higher physician compliance with their pharmacy
guidelines, resulting in lower overall costs. Pharmacies benefit from improved
communication with physicians, which enhances efficiency and reduces the
likelihood of errors. We also believe that the new products and services that
we intend to offer in the future will benefit additional participants in the
healthcare delivery process.
We currently have products that enable physicians to learn more about the
latest medications and new indications whenever it is convenient for them,
seven days a week, 24 hours a day. Physicians can also acquire and access via
our wireless handheld device clinical reference books that contain important
medication data. Using our products, our clients can now also set up personal,
secure webpages for their patients, through which they can communicate
additional information on medical condition and engage in an electronic dialog.
We intend to continue to enhance our current offerings by integrating new
products and services that address other aspects of the physician's daily work
flow.
We believe that the best way to improve the care management process is by
focusing and automating the most labor intensive, time consuming aspects of
care delivery--writing prescriptions, dictating notes and capturing charges.
Having these modules available on a handheld, wireless device that offers real
time connectivity, combined with our FirstFill option, enables us to provide an
attractive set of benefits to our customers:
. Ease of Use. TouchWorks is easy to use, enabling a physician to complete
a prescription, dictate a note or document a charge very rapidly.
. Accessibility. Physicians can instantly access TouchWorks from a variety
of locations, including the exam room, hospital or home. They can also
perform such important tasks as dictation and charge capture in an
offline mode and immediately transfer those files once they reconnect to
the network.
. Information. TouchWorks provides valuable, objective information prior
to, during and after the care process, enabling physicians to provide
higher quality care and deliver it more cost effectively.
. Financial Opportunity. TouchWorks streamlines a very complicated and
cumbersome paper based process that reduces overall costs and provides
physicians with a significant financial opportunity.
Competitive Advantage
We believe that we have several advantages over our current and potential
competitors:
. Breadth of product offering. Our suite of decision support solutions,
featuring a handheld wireless product that includes electronic
prescibing, digital dictation, charge capture, and a collection of
clinical
2
<PAGE>
reference material, encompasses virtually all of the administrative
functions that a physician performs at the point of care.
. Installed Base. Over 15,000 physicians purchase one or more of our
products or solutions, including physicians associated with some of the
country's most prestigious healthcare institutions.
. Return on investment. Based on documented increase in productivity,
quality of care improvement, and greater practice revenue opportunities,
we believe we can provide our customers immediate and measurable value.
. Strategic alliance with IDX Systems. Allscripts is the exclusive provider
of point-of-care clinical applications to IDX's installed base of large
physician practices nationwide, representing over 118,000 physician
prospects for the TouchWorks solution. We also have a 10-year agreement
with IDX that includes integration into IDX practice management systems
and joint product development.
. Managed Care Experience. Approximately 100 managed care payers and
pharmacy benefit managers, including many of the country's largest,
currently reimburse our physician customers for prescription medications
dispensed in their offices.
. Regulatory Experience. We have a thorough understanding of, and operating
experience in, the dynamic and complex federal and state healthcare
regulatory environment.
. Management. Our management team has substantial experience in managing
rapidly growing public companies that use technology to change business
processes.
Current and Future Products and Services
Touchworks Professional is our point-of-care clinical productivity solution
for smaller to mid-size physician practices. TouchWorks Professional provides
electronic prescribing that reduces medication errors and routes transactions
to local retail and mail order pharmacies, dictation that walks the physician
through a template to properly chart a patient's visit, and charge capture
that provides guidance to assist the physician in properly capturing the
charges for the visit. The TouchWorks Professional solution is delivered on a
wireless handheld personal digital assistant, or PDA, that will help
physicians save time and improve the financial performance of their practice.
TouchWorks Enterprise is our point-of-care clinical productivity solution
for larger physician groups. An evolution of the ChannelHealth Clinical Works
Modules, TouchWorks Enterprise modules address a critical set of clinical
functions within the physician office--from task management and triage
routing, dictation, transcription and documentation management, to
prescription management and dispensing, ambulatory orders and results review.
3
<PAGE>
<TABLE>
<CAPTION>
Products/Modules Description Features
---------------- ----------- --------
<S> <C> <C>
TouchWorks Professional
TouchScript Electronic prescribing Drug utilization review
Formulary checking
Generic substitution
SCRIPT standard prescription
routing
Dictate Digital dictation Templates for documentation
assistance
Charge Automated encounter form Easy to use template design
Pocket Library Electronic clinical reference Framework to add content easily
TouchWorks Enterprise
Physician Homebase Internet portal providing real Links to clinically relevant
time access to practice content and continuing medical
management and clinical functions education
Workflow Office automation and work-flow Task lists for the physicians and
integration tools their support teams
Charge Automated encounter form Easy to use template design
Document Electronic dictation and document On-line tracking, viewing and
management printing capabilities
Prescribe Medication management and Drug utilization review and plan-
prescription communication for specific formulary checking
ambulatory patients
Results Display of clinical results and Online result retrieval
text documents
Orders Ordering of diagnostic tests, Online ordering
supplies and other items for
ambulatory patients
Notes* Structured clinical note creation Note creation and management
and editing
Allscripts FirstFill Medication fullfillment at the Inventory management
point of care Online adjudication
e-Detailing Internet-based drug education for Interactive education sessions
physicians
PATIENT ED Personalized patient care plans Private patient web page creation
Over 900 preloaded templates
HealthFrame Client/server and Internet-based Electronic document management
inpatient document management and Electronic document routing
clinical data repository Electronic signature
Integration Professional Interface engine Template driven
</TABLE>
- --------
<TABLE>
<S> <C> <C>
*Not yet available.
</TABLE>
4
<PAGE>
Competition
Our industry is intensely competitive, rapidly evolving and subject to rapid
technological change. A number of the companies that offer products or services
that compete with one or more of our products or services have greater
financial, technical, product development, marketing and other resources than
we have. These organizations may be better known and may have more customers
than we have. We may be unable to compete successfully against these
organizations. We believe that we must gain significant market share with our
products and services before our competitors introduce alternative products and
services with features similar to ours.
We believe that there are no competitors in providing decision support
solutions to physicians that offer a comprehensive solution with ease of use,
accessibility, information content and financial opportunity for physicians
comparable to ours. However, several organizations offer components that
overlap with certain components of our solutions and may become increasingly
competitive with us in the future.
We face competition from several types of organizations, including the
following:
. electronic prescribing product providers;
. physician practice management systems suppliers;
. electronic medical records providers;
. healthcare electronic data interchange providers;
. point-of-care dispensing providers; and
. Internet information providers.
While many of these types of organizations are potential competitors, we
believe that there are opportunities to establish strategic relationships,
alliances or distribution agreements with some of them, and we intend to pursue
these opportunities selectively. In addition, we expect that major software
information systems companies and others specializing in the healthcare
industry may offer products or services that are competitive with components of
our solutions.
Governmental Regulation
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities.
The use of our TouchScript software by physicians to perform electronic
prescribing, electronic routing of prescriptions to pharmacies and dispensing
is governed by state and federal law. States have differing prescription format
requirements, which we have programmed into TouchScript. Many existing laws and
regulations, when enacted, did not anticipate methods of e-commerce now being
developed. Federal law and the laws of several states neither specifically
permit nor specifically prohibit electronic transmission of prescription
orders. Given the rapid growth of e-commerce in healthcare, and particularly
the growth of the Internet, we expect many states, as well as the federal
government, to directly address these areas with regulation in the near future.
Physician dispensing of medications for profit is allowed in all states
except Utah and is prohibited, subject to extremely limited exceptions, in
Massachusetts, Montana and Texas. In addition, New York and New Jersey allow
physician dispensing of medications for profit, but limit the number of days'
supply of all medications, subject to limited exceptions, that a physician can
dispense; several other states limit the number of days' supply of controlled
substances that a physician may dispense. Many of the states allowing physician
dispensing for profit have regulations relating to licensure, storage,
labeling, record keeping and the degree of supervision required by the
physician over support personnel who assist in the non-judgmental tasks
associated with physician dispensing, like retrieving medication bottles and
affixing labels. We regularly monitor these
5
<PAGE>
laws and regulations, in consultation with the governing agencies, to assist
our customers in understanding them so that they can materially comply.
Congress enacted significant prohibitions against physician self-referrals
in the Omnibus Budget Reconciliation Act of 1993. This law, commonly referred
to as "Stark II," applies to physician dispensing of outpatient prescription
drugs that are reimbursable by Medicare or Medicaid. Stark II, however,
includes an exception for the provision of in-office ancillary services,
including a physician's dispensing of outpatient prescription drugs, provided
that the physician meets the requirements of the exception. We believe that the
physicians who use our TouchScript system or dispense drugs distributed by us
are doing so in material compliance with Stark II, either pursuant to the in-
office ancillary services exception or another applicable exception.
As a repackager and distributor of drugs, we are subject to regulation by
and licensure with the FDA, the DEA and various state agencies that regulate
wholesalers or distributors. Among the regulations applicable to our
repackaging operation are the FDA's "good manufacturing practices." We are
subject to periodic inspections by regulatory authorities of our facilities,
policies and procedures for compliance with applicable legal requirements.
Because the FDA's good manufacturing practices were designed to govern the
manufacture, rather than the repackaging, of drugs, we face legal uncertainty
concerning the application of some aspects of these regulations and of the
standards that the FDA will enforce.
As a distributor of prescription drugs to physicians, we and our customers
are also subject to the federal anti-kickback statute, which applies to
Medicare, Medicaid and other state and federal programs. The statute prohibits
the solicitation, offer, payment or receipt of remuneration in return for
referrals or the purchase of goods, including drugs, covered by the programs.
The anti-kickback law provides a number of exceptions or "safe harbors" for
particular types of transactions. We believe that our arrangements with our
customers are in material compliance with the anti-kickback statute and
relevant safe harbors. Many states have similar fraud and abuse laws, and we
believe that we are in material compliance with those laws.
As part of our services provided to physicians, our system will
electronically transmit claims for prescription medications dispensed by a
physician to many patients' payers for immediate approval and reimbursement.
Federal law provides that it is both a civil and a criminal violation for any
person to submit a claim to any payer, including, for example, Medicare,
Medicaid and all private health plans and managed care plans, seeking payment
for any services or products that overbills or bills for items that have not
been provided to the patient. We believe that we have in place policies and
procedures to assure that all claims that are transmitted by our system are
accurate and complete, provided that the information given to us by our
customers is also accurate and complete.
Existing federal and state laws and regulations regulate the disclosure of
confidential medical information, including information regarding conditions
like AIDS, substance abuse and mental illness. In addition, the U.S. Department
of Health and Human Services recently published rules regarding the disclosure
of confidential medical information. The effective date of those regulations is
uncertain. As part of the operation of our business, our customers do provide
to us patient-identifiable medical information related to the prescription
drugs that they prescribe and other aspects of patient treatment. We believe
that we have policies and procedures to assure that any confidential medical
information we receive is handled in a manner that complies with all federal
and state confidentiality requirements.
History
Allscripts was initially organized to repackage and sell pharmaceuticals to
physicians for dispensing to their patients. When the current management team
arrived at Allscripts in late 1997, it recognized the need for a new set of
medication management solutions. The communication capabilities offered by the
Internet, paired with our existing relationships with managed care
organizations and with physicians, enabled us to create a new set of tools for
the physician with a first-to-market advantage. Management immediately
refocused Allscripts
6
<PAGE>
on information technology products rather than solely dispensing repackaged
pharmaceuticals. In recent years, we have invested heavily in Internet and
client/server software development to capture and leverage the value of
electronic information to all parties in the healthcare equation: patients,
physicians, managed care organizations, pharmacies and pharmaceutical
manufacturers.
Employees
As of February 28, 2001, we employed 491 persons on a full-time basis,
including 195 in customer service and support, 98 in general and
administrative, 82 in sales and marketing, 55 in production and warehousing and
61 in product development. None of our employees is a member of a labor union
or is covered by a collective bargaining agreement. We believe we have
excellent relations with our employees.
Item 2. Properties
Our executive offices and state-of-the-art repackaging facilities are
located in Libertyville, Illinois, in approximately 80,000 square feet of space
under a lease that expires in June 2004. We lease space for a separate, smaller
repackaging facility in Grayslake, Illinois, under a lease that expires in June
2002. We also maintain two other offices for sales, marketing, operations and
development efforts in Port Townsend, Washington, with approximately 4,600
square feet combined under separate leases expiring in March 2001, with respect
to which we are currently in discussions with the landlord to renew, and July
2002, respectively, and in Burlington, Vermont, with approximately 15,000
square feet under a lease that expires in January 2006. We believe that our
facilities are adequate for our current operations.
Item 3. Legal Proceedings
Allscripts is a defendant in over 2,000 multi-defendant lawsuits brought by
over 3,000 claimants involving the manufacture and sale of dexfenfluramine,
fenfluramine and phentermine. The majority of these suits were filed in state
courts in Texas beginning in August 1999. The plaintiffs in these cases claim
injury as a result of ingesting a combination of these weight-loss drugs. In
each of these suits, Allscripts is one of many defendants, including
manufacturers and other distributors of these drugs. Allscripts does not
believe it has any significant liability incident to the distribution or
repackaging of these drugs, and it has tendered defense of these lawsuits to
its insurance carrier for handling. In addition, while Allscripts has not yet
conducted a review of all of the Texas suits, physician dispensing is generally
prohibited in Texas and Allscripts has never distributed these drugs in Texas.
Allscripts believes that it is unlikely that it is responsible for the
distribution of the drugs at issue in many of these cases. The lawsuits are in
various stages of litigation, and it is too early to determine what, if any,
liability Allscripts will have with respect to the claims made in these
lawsuits. If Allscripts' insurance coverage in the amount of $16,000,000 per
occurrence and $17,000,000 per year in the aggregate is inadequate to satisfy
any resulting liability, Allscripts will have to defend these lawsuits and be
responsible for the damages, if any, that Allscripts suffers as a result of
these lawsuits. Allscripts does not believe that the outcome of these lawsuits
will have a material adverse effect on its financial condition, results of
operations or cash flows.
Between October 2000 and December 2000, four complaints were filed in the
United States District Court for the Northern District of Illinois against
Allscripts and its President and Chief Financial Officer, David B. Mullen. The
complaints purported to be brought on behalf of a class of individuals who
purchased the common stock of Allscripts during the period of July 27, 2000
through and including October 26, 2000 (the "Class Period"), and alleged
violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934
based on the restatement of our financial results for the second quarter of
2000. The four complaints were deemed related, and the cases were reassigned
and consolidated for all purposes before Judge Charles Kocoras, before whom the
first filed case was pending. The consolidated action is entitled In re
Allscripts, Inc. Securities
7
<PAGE>
Litigation, No. 00C6796 (N.D. Ill.) and includes all consolidated cases:
Bredeson v. Allscripts, Inc. and David B. Mullen, Civ. No. 00C-6796 (N.D. Ill.,
filed on October 31, 2000), Karmazin v. Allscripts, Inc. and David B. Mullen,
Civ. No. 00C-6864 (N.D. Ill., filed on November 2, 2000), Mohr v. Allscripts,
Inc. and David B. Mullen, Civ. No. 00C-6992 (N.D. Ill., filed on November 6,
2000), Nadav v. Allscripts, Inc. and David B. Mullen, Civ. No. 00C-8126 (N.D.
Ill., filed on December 26, 2000).
In January 2001, Lead Plaintiff and Lead Counsel were appointed in the
consolidated case. On March 12, 2001, plaintiffs filed a Consolidated and
Amended Class Action Complaint (the "Amended Complaint"). The Amended Complaint
continues to name Allscripts and David B. Mullen as defendants and alleges
violations of Section 10(b) and 20(a) of the Securities Exchange Act. Three
additional defendants are named in the Amended Complaint: Glen E. Tullman, our
Chairman of the Board and Chief Executive Officer, J. Peter Geerlofs, our Chief
Medical Officer, and Philip J. Langley, formerly our Senior Vice President of
Business Development/Field Services. The Amended Complaint purports to expand
the Class Period in the consolidated case to include all individuals who
purchased the common stock of Allscripts during the period from March 6, 2000
through and including February 27, 2001. The Amended Complaint is based on the
previous allegations about the restatement of our financial results for the
second quarter of 2000 and new allegations relating to, inter alia, the
prospects for our TouchScript product.
We intend to move to dismiss the Amended Complaint, and Judge Kocoras has
set June 2001 as the prospective ruling date. At this time, management is
unable to determine the likely outcome of this matter or to reasonably estimate
the amount of any potential loss with respect to this matter.
In addition, we are involved in litigation incidental to our business from
time to time. We are not currently involved in any litigation in which we
believe an adverse outcome would have a material adverse effect on our
business, financial condition, results of operations or prospects.
Item 4. Submission of Matters to a Vote of Security Holders
None.
8
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Public Market for Common Stock
Our common stock has been quoted on the Nasdaq National Market under the
symbol "MDRX" since January 9, 2001. From July 23, 1999 until that time, the
stock of Allscripts, Inc. traded on the Nasdaq National Market under the same
symbol. Prior to July 23, 1999, there was no public market for the common
stock. The following table sets forth, for the periods indicated, the high and
low closing prices per share of the common stock of Allscripts Healthcare
Solutions, Inc. and Allscripts, Inc. for the applicable periods as reported on
the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1999
Third Quarter (since July 23, 1999)......................... $19.75 $12.38
Fourth Quarter.............................................. 49.50 10.88
Year Ended December 31, 2000
First Quarter............................................... 86.00 44.63
Second Quarter.............................................. 50.00 21.88
Third Quarter............................................... 29.31 13.13
Fourth Quarter.............................................. 18.13 6.00
Year Ended December 31, 2001
First Quarter (through March 23, 2001)...................... 11.66 4.63
</TABLE>
On March 23, 2001, we had 517 holders of record of common stock. We have
never declared or paid cash dividends on our common stock. We currently intend
to retain all available funds and any future earnings for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
Recent Unregistered Issuances of Common Stock
In the three months ended December 31, 2000, we issued 9,253 unregistered
shares of common stock upon exercise of warrants for an aggregate exercise
price of $11,520. Exemption from registration is claimed pursuant to Sections
3(a)(9) and 4(2) of the Securities Act.
9
<PAGE>
Item 6. Selected Financial Data
You should read the selected consolidated financial data shown below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes
included elsewhere in this report. The consolidated statement of operations
data for the year ended December 31, 2000 and the consolidated balance sheet
data at December 31, 2000 are derived from the consolidated financial
statements audited by KPMG LLP that are included elsewhere in this report. The
consolidated statements of operations data for the years ended December 31,
1998 and 1999 and the consolidated balance sheet data at December 31, 1999 are
derived from the consolidated financial statements audited by
PricewaterhouseCoopers LLP that are included elsewhere in this report. The
consolidated statements of operations data for the years ended December 31,
1996 and 1997 and the balance sheet data at December 31, 1996, 1997 and 1998
are derived from audited financial statements that are not included in this
report. The historical results are not necessarily indicative of results to be
expected for any future period. The statements of operations data below reflect
the pharmacy benefit management business that we sold in March 1999 as a
discontinued operation.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1997 1998 1999 2000
------- -------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue....................... $33,462 $ 30,593 $23,682 $ 27,586 $ 54,983
Cost of revenue............... 23,390 21,117 17,320 21,909 42,518
------- -------- ------- -------- --------
Gross profit.................. 10,072 9,476 6,362 5,677 12,465
Operating expenses:
Selling, general and
administrative expenses..... 11,599 13,869 12,658 20,656 42,733
Amortization of intangibles.. 529 409 372 1,351 24,062
Write-off of acquired in-
process research and
development................. -- -- -- -- 13,729
Other operating expenses..... 1,034 2,568 430 319 450
------- -------- ------- -------- --------
Loss from operations.......... (3,090) (7,370) (7,098) (16,649) (68,509)
Interest income (expense),
net.......................... (1,301) (1,621) (596) 1,216 7,706
Other expense................. (39) -- -- -- (1,000)
------- -------- ------- -------- --------
Loss from continuing
operations................... (4,430) (8,991) (7,694) (15,433) (61,803)
Income (loss) from
discontinued operations...... 1,489 (1,808) 970 642 83
Gain from sale of discontinued
operations................... -- -- -- 3,547 4,353
------- -------- ------- -------- --------
Loss before extraordinary
items........................ (2,941) (10,799) (6,724) (11,244) (57,367)
Extraordinary loss from early
extinguishment of debt....... -- -- (790) -- --
------- -------- ------- -------- --------
Net loss...................... (2,941) (10,799) (7,514) (11,244) (57,367)
Accretion on mandatory
redeemable preferred stock
and accrued dividends on
preferred stock.............. (923) (923) (2,415) (2,198) --
------- -------- ------- -------- --------
Net loss attributable to
common stockholders.......... $(3,864) $(11,722) $(9,929) $(13,442) $(57,367)
======= ======== ======= ======== ========
Basic and diluted net loss
from continuing operations
per share, including
accretion on mandatory
redeemable preferred stock
and accrued dividends on
preferred stock.............. $ (1.87) $ (3.35) $ (1.66) $ (1.20) $ (2.22)
======= ======== ======= ======== ========
Weighted average shares used
in computing basic and
diluted per share
calculation.................. 2,854 2,956 6,076 14,718 27,900
======= ======== ======= ======== ========
</TABLE>
Balance Sheet Data (at period
end):
Cash, cash equivalents and
marketable securities........ $ 665 $ 205 $ 718 $ 55,610 $119,837
Working capital............... 5,443 (3,023) 271 58,856 105,114
Intangible assets, net........ 11,043 4,578 3,702 3,575 149,690
Total assets.................. 26,713 19,387 18,920 74,014 305,420
Long-term debt................ 15,093 11,276 59 59 --
Redeemable preferred stock.... 9,796 10,719 32,547 -- --
Total stockholders' equity
(deficit).................... (6,700) (18,356) (26,792) 67,364 290,975
Other Operating Data:
Traditional revenue (1)....... $33,462 $ 30,593 $22,338 $ 17,892 $ 20,184
E-commerce revenue (2)........ -- -- 1,344 9,694 34,799
------- -------- ------- -------- --------
Revenue....................... $33,462 $ 30,593 $23,682 $ 27,586 $ 54,983
======= ======== ======= ======== ========
10
<PAGE>
- --------
(1) Traditional revenue includes all non-e-commerce revenue and is derived from
the sale through non-Internet channels of prescription medications and
other medical products to physicians who do not use our software.
(2) E-commerce revenue is derived primarily from the sale of prescription
medications over the Internet to physicians who use our software or who
order products from us primarily over the Internet. E-commerce revenue also
includes revenue from software license fees, computer hardware sales and
leases, and related services.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion and analysis together with
"Selected Financial Data" and our consolidated financial statements and related
notes included elsewhere in this report. This discussion contains certain
forward-looking statements that involve risks, uncertainties and assumptions.
You should read the cautionary statements made in this report as applying to
related forward-looking statements wherever they appear in this report. Our
actual results may be materially different from the results we discuss in the
forward-looking statements due to certain factors, including those discussed in
"Risk Factors" and other sections of this report.
Overview
We provide point-of-care medication management and physician decision
support solutions that focus on addressing the needs of physicians, managed
care payers and plans.
From our inception in 1986 through 1996, we focused almost exclusively on
the sale of prepackaged medications to physicians, in particular those with a
high percentage of fee-for-service patients. The advent of managed prescription
benefit programs required providers to obtain reimbursement for medications
dispensed from managed care organizations rather than directly from their
patients. This new reimbursement methodology made it more difficult for our
physician customers to dispense medications to their patient base.
In 1997, under the direction of our new executive management team, we
focused our efforts on the information aspects of medication management,
including the development of technology tools necessary for electronic
prescribing, routing of prescription information and submission of medication
claims for managed care reimbursement. In January 1998, we introduced the first
version of TouchScript that fully incorporated these features. At the same
time, we redirected our sales and marketing efforts away from our traditional
fee-for-service customer base to physicians who have a large percentage of
managed care patients. We recognized that there is a larger market opportunity
among physicians whose patients are covered by managed care plans because the
portion of prescriptions covered by managed care plans is increasing relative
to the portion of fee-for-service prescriptions. Further, we believe that our
technology can give us a competitive advantage where more patients'
prescriptions are covered by managed care plans because our products streamline
the process by which physicians, managed care organizations and patients
interact. In addition, we believe that the managed care market provides us with
the opportunity to realize higher margins on our software products.
We currently derive our revenue from the sale of prepackaged medications,
software licenses, computer hardware, electronic information and education
products and related services. In the years ended December 31, 1998, 1999 and
2000, sales of prepackaged medications represented 97.8%, 92.3% and 71.1%,
respectively, of total revenue.
11
<PAGE>
Our shift in focus to physicians who desire technology-based services to
operate successfully in a managed care environment and away from physicians
with a high percentage of fee-for-service patients is reflected in the
composition of our revenue, as depicted in the following table:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
1999 2000
----------------------------- --------------------------------
June Sept. Dec. Sept.
March 31 30 30 31 March 31 June 30 30 Dec. 31
-------- ------ ------ ------ -------- ------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Traditional revenue..... $5,235 $4,537 $4,035 $4,085 $4,443 $ 4,993 $ 5,134 $ 5,614
E-commerce revenue...... 793 1,855 2,940 4,106 5,204 7,123 9,704 12,768
------ ------ ------ ------ ------ ------- ------- -------
Total revenue....... $6,028 $6,392 $6,975 $8,191 $9,647 $12,116 $14,838 $18,382
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
Traditional revenue includes all non-e-commerce revenue and is derived from
the sale, through non-Internet channels, of prescription medications and other
medical products to physicians who do not use our software. We expect
traditional revenue to represent a decreasing percentage of total revenue in
the future. E-commerce revenue is derived from the sale of prescription
medications over the Internet to physicians who use our software or who order
products from us primarily over the Internet. E-commerce revenue also includes
technology related revenue for software subscriptions, licenses and related
professional services, computer hardware sales and leases, transaction fees, e-
detailing and related services. For the year ended December 31, 2000, sales of
prepackaged medications represented 60.3% of e-commerce revenue. For the year
ended December 31, 2000, 22.7% of e-commerce revenue represented medication
sales over the Internet without the use of TouchScript ordering. While we
expect a portion of future e-commerce revenue to continue to represent a
shifting of traditional revenue, we anticipate that most of the future growth
in e-commerce revenue will be generated by physician practice groups that are
not currently our customers. Factors that we expect will attract future
customers include an interest in physician dispensing, a desire to minimize
financial risk imposed by managed care payers with respect to medications that
they prescribe and concern about the potential liability associated with
medication errors.
We believe that managed care prescription programs will continue to cover an
increasing percentage of patients in the foreseeable future. This trend will
have the effect of reducing the dispensing opportunities of our traditional
dispensing customers because of their inability to submit claims electronically
for reimbursement by managed care payers. This reduction in dispensing
opportunities will reduce the revenue that we have historically recognized from
these customers. Additionally, managed care programs impose reduced
reimbursement rates for the medications dispensed to their plan participants,
thus providing us with a dollar margin per prescription dispensed that is lower
than we have historically experienced. Because TouchScript enables physicians
to submit claims electronically for reimbursement by managed care payers, a
large portion of the medications dispensed by our TouchScript customers is
dispensed to managed care patients. Accordingly, we expect that the fastest
growing portion of our business will provide margins with respect to the sale
of prepackaged medications that are lower than we have historically
experienced. In addition, we expect that seasonal variances in demand for our
products and services will continue. Historically, all other factors aside, our
sales of prepackaged medications have been highest in the fall and winter
months.
To maintain our position in a rapidly changing and increasingly competitive
marketplace, we expect to continue to increase the number of our sales, sales
support, product development and customer service personnel significantly, and,
accordingly, we expect our operating expenses to continue to increase. In
addition, we expect to amortize unearned compensation expense totaling
approximately $1,097,000 through December 31, 2003.
In addition to medication management, we believe that there are other
aspects of the physician's daily work flow that can be effectively addressed
through technology-focused solutions. We have enhanced and intend to continue
to enhance our current offerings by integrating new products and services that
address these needs. In furtherance of this strategy, in May 2000, we acquired
MasterChart, Inc., a software developer providing dictation, integration and
patient record technology, and Medifor, Inc., a provider of Internet-
12
<PAGE>
delivered patient education. In connection with these acquisitions, we recorded
goodwill and other intangible assets of approximately $160,500,000, $4,600,000
of which will be amortized over two years, and the balance of which will be
amortized over five years. In 2000, we completed another acquisition that
resulted in additional goodwill of approximately $10,800,000, which is being
amortized over two years.
In addition, on January 8, 2001, we acquired Channelhealth Incorporated in
exchange for approximately 8,600,000 shares of our common stock with a fair
value of approximately $218,400,000 and approximately 493,000 common stock
options with a fair value of approximately $7,600,000 in replacement of
outstanding Channelhealth common stock options. This acquisition will be
accounted for as a purchase and we expect to record goodwill and other
intangible assets equal to a substantial portion of the purchase price. Under
current accounting rules, these intangible assets will be amortized over their
estimated economic life, which ranges from five to 10 years. Additional stock-
based consideration will be granted to the sellers of Channelhealth if certain
revenue targets are achieved during 2002. Those revenue targets, if achieved,
will result in the recording of additional purchase price at the time that the
targets are met. We also anticipate that there will be additional cash required
to fund the ongoing operations of Channelhealth.
We do not believe that inflation has had a material effect on our results of
operations.
In the years ended December 31, 1998, 1999 and 2000, we recorded total
unearned stock compensation of approximately $407,000, $1,850,000 and $0,
respectively, in connection with stock options granted during the period. These
amounts represent the difference between the exercise price of stock option
grants and the deemed fair market value of our common stock at the time of the
grants. These amounts are being amortized over the vesting periods of the
applicable options, resulting in approximately $176,000, $449,000 and $535,000
in selling, general and administrative expenses for the years ended December
31, 1998, 1999 and 2000, respectively. Amortization of unearned compensation
expense for each of the next three fiscal years is expected to be as follows:
<TABLE>
<CAPTION>
Amount
Year Ended (In thousands)
---------- --------------
<S> <C>
December 31, 2001.......................................... $496
December 31, 2002.......................................... 485
December 31, 2003.......................................... 116
</TABLE>
In March 1999, in order to focus all of management's attention and resources
on its physician medication management business and due to the significant
resources necessary to remain competitive and sustain profitability in the
pharmacy benefit management business, we sold substantially all of the assets,
excluding cash and accounts receivable, of our pharmacy benefit management
business. The total consideration was approximately $7,500,000 in cash at
closing and a contingent payment based upon achieving certain milestones for
the one-year period following the closing. During the year ended December 31,
2000, we received a contingent payment of $4,353,000, net of related expenses.
This business had net sales of $52,866,000 and $14,292,000 in 1998 and 1999,
respectively, while recording an operating profit of $970,000, $642,000 and
$83,000 in 1998, 1999 and 2000, respectively. The profit in 2000 was due to the
recovery of certain receivables previously fully reserved. Our financial
statements and the discussion in Management's Discussion and Analysis of
Financial Condition and Results of Operations reflect the pharmacy benefit
management business as a discontinued operation. In the years ended December
31, 1999 and 2000, we recognized gains on the sale of this business of
$3,547,000 and $4,353,000, respectively, based upon the consideration received.
In 1999, we completed acquisitions through the issuance of 204,771 shares of
our common stock with a value of approximately $2,572,000 and a promissory note
in the principal amount of $650,000, bearing interest at 6% per year and
payable upon the consummation of our initial public offering. We repaid the
promissory note, including accrued interest of $3,000, in August 1999.
On May 9, 2000, we acquired MasterChart, Inc., a software developer
providing dictation, integration and patient record technology, in exchange for
1,617,873 shares of our common stock with a value of
13
<PAGE>
approximately $127,400,000 and cash of $5,000,000. Approximately $5,000,000 of
the purchase price was allocated to the value of acquired in-process research
and development that had no alternative future use and was charged against
operations during the three months ended June 30, 2000. In addition,
approximately $4,600,000 of the purchase price was allocated to acquired
software and is being amortized on a straight-line basis over two years, the
software's estimated useful life. Trademarks and goodwill, totaling
approximately $125,600,000, are being amortized on a straight-line basis over
five years.
On May 17, 2000, we acquired Medifor, Inc., a provider of Internet-delivered
patient education. In exchange for all of the outstanding common and preferred
A and B stock of Medifor, Allscripts issued 935,858 shares of its common stock
with a fair value of approximately $34,400,000. In addition, Allscripts issued
142,786 common stock options in replacement of Medifor common stock options
with a fair value of approximately $4,200,000. The fair value of the
replacement common stock options was estimated using the Black-Scholes model.
Approximately $8,700,000 of the purchase price was allocated to the value of
acquired in-process research and development that had no alternative future use
and was charged against operations during the three months ended June 30, 2000.
Trademarks and goodwill totaling $30,300,000 are being amortized on a straight-
line basis over five years.
In 2000, we completed another acquisition through the issuance of 87,484
shares of our common stock and a cash payment of $8,000,000. The acquisition
resulted in goodwill of approximately $10,800,000, which is being amortized on
a straight-line basis over two years.
On January 8, 2001, we completed the acquisition of Channelhealth
Incorporated in exchange for 8,592,996 shares of common stock with a fair value
of approximately $218,400,000, the issuance of approximately 493,000 common
stock options as replacement of outstanding Channelhealth common stock options
with a fair value of approximately $7,600,000 and transaction costs totaling
approximately $4,750,000. We will pay additional stock-based consideration if
certain revenue targets are achieved during 2002.
Results of Operations
The following table shows, for the periods indicated, our results of
operations expressed as a percentage of our revenue:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1998 1999 2000
----- ----- ------
<S> <C> <C> <C>
Revenue............................................... 100.0% 100.0% 100.0%
Cost of revenue....................................... 73.1 79.4 77.3
----- ----- ------
Gross profit.......................................... 26.9 20.6 22.7
Operating expenses:
Selling, general and administrative expenses........ 53.5 74.9 77.7
Amortization of intangibles......................... 1.6 4.9 43.8
Write-off of acquired in-process research and
development........................................ -- -- 25.0
Other operating expenses............................ 1.8 1.2 0.8
----- ----- ------
Loss from operations.................................. (30.0) (60.4) (124.6)
Interest income (expense), net........................ (2.5) 4.4 14.0
Other expense, net.................................... -- -- (1.8)
----- ----- ------
Loss from continuing operations....................... (32.5) (56.0) (112.4)
Income from discontinued operations................... 4.1 2.3 0.2
Gain from sale of discontinued operations............. -- 12.9 7.9
----- ----- ------
Loss before extraordinary items....................... (28.4) (40.8) (104.3)
Extraordinary loss from early extinguishment of debt.. (3.3) -- --
----- ----- ------
Net loss.............................................. (31.7)% (40.8)% (104.3)%
===== ===== ======
</TABLE>
14
<PAGE>
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Total revenue increased by 99% or $27,397,000 from $27,586,000 in 1999 to
$54,983,000 in 2000. E-commerce revenue increased by 259% or $25,105,000 from
$9,694,000 in 1999 to $34,799,000 in 2000. Traditional revenue increased by 13%
or $2,292,000 from $17,892,000 in 1999 to $20,184,000 in 2000.
The increase in e-commerce revenue reflects increased installations and
utilization of TouchScript, a conversion of traditional revenue as a result of
traditional customers adopting TouchScript and ordering products over the
Internet, revenue generated from our e-Detailing product, revenue generated by
our Medifor and MasterChart acquisitions, an increase in the percentage of
brand drugs sold, which have a higher average selling price than their generic
counterparts, general price inflation of brand and generic medications and
revenue generated from information services. The increase in traditional
revenue reflects general price inflation of brand and generic medications, and
increased sales of pre-packaged medications to new customers obtained through
internal business generation and acquisition and traditional revenue generated
by a 1999 acquisition, offset partially by a conversion of traditional revenue
to e-commerce, as outlined above.
Cost of revenue increased by 94% or $20,609,000 from $21,909,000 in 1999 to
$42,518,000 in 2000 due to increased revenue, higher depreciation expense due
to an increase in the number of customers deploying Touchscript, increased
amortization of acquired software, general price inflation of both brand and
generic products, and increased operating costs at sites where we manage the
dispensary on behalf of the physician. For the twelve months ended December 31,
2000, cost of revenue as a percentage of total revenue decreased from 79.4% in
the prior year period to 77.3% principally due to higher relative margin
contributions from our e-Detailing products, information services and software
license fees, partially offset by increased depreciation, increased operating
costs at sites where we manage the dispensary on behalf of the physician and a
greater percentage of revenue coming from lower margin brand medications.
Selling, general and administrative expenses for the twelve months ended
December 31, 2000 increased by 107% or $22,077,000 from $20,656,000 in 1999 to
$42,733,000 in 2000 due primarily to additional spending for sales and sales
support personnel and related expenses needed to sell, implement and support
TouchScript installations and our e-Detailing product, expenses related to
MasterChart and Medifor operations that were acquired during May 2000 and
TeleMed operations that were acquired during May 1999, additional spending for
TouchScript and Internet product development personnel and related support
expenses, and an increase in non-cash charges related to stock options issued
to non-employees. As a result, selling, general and administrative expenses as
a percentage of total revenue increased to 77.7% for the twelve months ended
December 31, 2000 from 74.9% of total revenue in the prior year period.
Amortization of intangibles for the twelve months ended December 31, 2000
increased by $22,711,000 from $1,351,000 in 1999 to $24,062,000 in 2000. The
increase in amortization relates to the amortization of goodwill and other
intangibles recorded in connection with acquisitions made during 2000, as well
as the amortization of goodwill and other intangibles recorded in connection
with acquisitions made during 1999. For the twelve months ended December 31,
2000, we recorded an expense for the immediate write-off of acquired in-process
research and development related to the Medifor and MasterChart acquisitions in
the amount of $13,729,000.
Other operating expenses for the twelve months ended December 31, 2000
increased $131,000 from $319,000 to $450,000. The expense in 2000 represents a
special charge, consisting primarily of professional fees, related to our
revision of interim period financial results.
Net interest income for the twelve months ended December 31, 2000 was
$7,706,000 as compared to net interest income of $1,216,000 for the prior year
period. The change relates to interest earned on the investment of net proceeds
from our initial public offering in July 1999 and our public offering in March
2000, as well as the repayment of borrowings under our revolving credit
facility with our commercial bank in July 1999.
15
<PAGE>
Other expenses for the twelve months ended December 31, 2000 of $1,000,000
reflect a non-cash writedown of an investment in an early stage Internet
software company focused on the college healthcare market.
We have recorded no provision or benefit for income taxes during 2000
because we currently anticipate that the annual effective income tax rate will
be minimal or zero and we have fully reserved our net deferred tax assets.
The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and
reported as a separate line item on the Consolidated Statements of Operations
under the caption "Income from discontinued operations." Additionally, the gain
we recognized from the sale of this business has been reported as a separate
line item under the caption "Gain from sale of discontinued operations." The
gain for the twelve months ended December 31, 2000 represents final payment of
contingent consideration related to the sale. See "Discontinued Operations"
section for a discussion of these operations.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenue increased by 17% or $3,904,000 from $23,682,000 in 1998 to
$27,586,000 in 1999. E-commerce revenue increased by 621% or $8,350,000 from
$1,344,000 in 1998 to $9,694,000 in 1999. Traditional revenue decreased by 20%
or $4,446,000 from $22,338,000 in 1998 to $17,892,000 in 1999.
The increase in e-commerce revenue reflects a shifting of traditional
revenue as a result of traditional customers ordering products over the
Internet, as well as additional installations and increased use of TouchScript.
The decrease in traditional revenue reflects a shifting of traditional revenue
to e-commerce as outlined above and the attrition of traditional customers, as
well as reduced levels of prepackaged medication dispensing by our traditional
customers due to the increased penetration of managed care prescription
programs. This decrease was partially offset by general price inflation of
brand medications, an increase in the dispensing percentage of brand drugs,
which have a considerably higher average selling price than their generic
counterparts, and revenue generated by a 1999 acquisition.
Cost of revenue increased by 27% or $4,589,000 from $17,320,000 in 1998 to
$21,909,000 in 1999 due to a greater percentage of revenue coming from sales of
higher cost brand products, increased revenue, increased operating costs at
sites where we manage the dispensary on behalf of the physician and increased
costs of technical support. Cost of revenue as a percentage of total revenue
increased from 73.1% in 1998 to 79.4% in 1999 principally due to a greater
percentage of revenue coming from lower margin brand products and increased
operating costs at sites where we manage the dispensary on behalf of the
physician. This percentage increase was partially offset by higher relative
percentage margin contributions from software and TeleMed revenues.
Selling, general and administrative expenses increased by 63% or $7,998,000
from $12,658,000 in 1998 to $20,656,000 in 1999 due primarily to additional
spending for sales and sales support personnel as well as related expenses
needed to sell, implement and support TouchScript installations, additional
spending for TouchScript and Internet product development personnel and related
support expenses, expenses related to TeleMed operations, increased recruiting
expenses, increased legal costs and additional stock compensation expense. In
1999, we recorded unearned stock compensation of approximately $1,850,000,
representing the difference between the exercise price of stock option grants
and the deemed fair market value of our common stock at the time of the grants.
This amount will be amortized to expense over the vesting periods of the
applicable grants and is expected to be fully amortized by 2003. We also
incurred non-cash compensation expense of $293,000 in 1999 related to stock
options issued to consultants of Allscripts. As a result, selling, general and
administrative expenses as a percentage of total revenue increased from 53.4%
in 1998 to 74.9% in 1999.
Amortization of intangibles increased by 263% or $979,000 from $372,000 in
1998 to $1,351,000 in 1999. The increase in amortization relates to the
amortization of the goodwill recorded in the TeleMed acquisition, which was
completed in May 1999, and the Shopping@Home acquisition, which was completed
in June 1999.
16
<PAGE>
Other operating expenses decreased by 26% or $111,000 from $430,000 in 1998
to $319,000 in 1999. Other operating expenses in 1999 of $319,000 reflect a
non-cash charge related to the issuance of common stock upon the closing of our
initial public offering in accordance with a contingent payment obligation
related to an acquisition we made in 1995. The 1998 expense consisted entirely
of severance costs related to the refocusing of our sales efforts.
Net interest income for 1999 was $1,216,000 as compared to net interest
expense of $596,000 for 1998. This increase relates to interest earned on the
investment of net proceeds from our initial public offering in July 1999, the
exchange of subordinated convertible debentures for redeemable preferred stock
in April 1998, the repayment of the term loan we had with our commercial bank
in April 1998 and the repayment of borrowings on our revolving credit facility
with our commercial bank in July 1999.
We have recorded no provision or benefit for income taxes for the twelve
months ended December 31, 1999 because we anticipate that the annual effective
income tax rate will be minimal or zero, and we have fully reserved all of our
deferred tax assets.
The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and
reported as a separate line item on the Consolidated Statements of Operations
under the caption "Income from discontinued operations." Additionally, the gain
we recognized from the sale of this business has been reported as a separate
line item under the caption "Gain from sale of discontinued operations." See
"Discontinued Operations" section for a discussion of these operations.
17
<PAGE>
Selected Quarterly Operating Results
Our quarterly results of operations have generally been seasonal, with a
greater proportion of our revenue typically occurring in the first and fourth
quarters. This seasonality is primarily attributable to the fact that more
prescriptions are written in the winter months.
The following table shows our quarterly unaudited consolidated financial
information for the eight quarters ended December 31, 2000 and each item as a
percentage of total revenue. We have prepared this information on the same
basis as the annual information presented in other sections of this report. In
management's opinion, this information reflects all adjustments, all of which
are of a normal recurring nature, that are necessary for a fair presentation of
the results for these periods. You should not rely on the operating results for
any quarter to predict the results for any subsequent period or for the entire
fiscal year. You should be aware of possible variances in our future quarterly
results. See "Risk Factors--Risks Related to Our Stock--Our quarterly operating
results may vary."
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
(unaudited)
1999 2000
------------------------------------- -----------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue................. $6,028 $ 6,392 $ 6,975 $ 8,191 $ 9,647 $ 12,116 $ 14,838 $ 18,382
Cost of revenue......... 4,565 5,143 5,686 6,515 7,597 9,492 11,654 13,775
------ ------- ------- ------- ------- -------- -------- --------
Gross profit............ 1,463 1,249 1,289 1,676 2,050 2,624 3,184 4,607
Operating expenses:
Selling, general and
administrative
expenses.............. 3,550 4,554 5,698 6,854 8,945 10,748 11,624 11,416
Amortization of
intangibles........... 93 175 477 606 574 5,443 9,020 9,025
Write-off of acquired
in-process research
and development....... -- -- -- -- -- 13,729 -- --
Other operating
expenses.............. -- -- 319 -- -- -- -- 450
------ ------- ------- ------- ------- -------- -------- --------
Loss from operations.... (2,180) (3,480) (5,205) (5,784) (7,469) (27,296) (17,460) (16,284)
Interest income
(expense), net......... (109) (91) 603 813 1,183 2,272 2,247 2,004
Other expense, net...... -- -- -- -- -- -- -- (1,000)
------ ------- ------- ------- ------- -------- -------- --------
Loss from continuing
operations............. (2,289) (3,571) (4,602) (4,971) (6,286) (25,024) (15,213) (15,280)
Income from discontinued
operations............. 26 -- 616 -- 83 -- -- --
Gain from sale of
discontinued
operations............. 3,547 -- -- -- 4,160 193 -- --
------ ------- ------- ------- ------- -------- -------- --------
Net income (loss)....... $1,284 $(3,571) $(3,986) $(4,971) $(2,043) $(24,831) $(15,213) $(15,280)
====== ======= ======= ======= ======= ======== ======== ========
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
(unaudited)
1999 2000
------------------------------------- -----------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenue:
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 75.7 80.5 81.5 79.5 78.7 78.3 78.6 74.9
------ ------- ------- ------- ------- -------- -------- --------
Gross profit............ 24.3 19.5 18.5 20.5 21.3 21.7 21.4 25.1
Operating expenses:
Selling, general and
administrative
expenses.............. 58.9 71.3 81.6 83.7 92.7 88.8 78.3 62.1
Amortization of
intangibles........... 1.5 2.7 6.8 7.4 6.0 44.9 60.8 49.1
Write-off of acquired
in-process research
and development....... -- -- -- -- -- 113.3 -- --
Other operating
expenses.............. -- -- 4.6 -- -- -- -- 2.5
------ ------- ------- ------- ------- -------- -------- --------
Loss from operations.... (36.1) (54.5) (74.5) (70.6) (77.4) (225.3) (117.7) (88.6)
Interest income
(expense), net......... (1.8) (1.4) 8.6 9.9 12.3 18.8 15.2 10.9
Other expense, net...... -- -- -- -- -- -- -- (5.4)
------ ------- ------- ------- ------- -------- -------- --------
Loss from continuing
operations............. (37.9) (55.9) (65.9) (60.7) (65.1) (206.5) (102.5) (83.1)
Income from discontinued
operations............. 0.4 -- 8.8 -- 0.8 -- -- --
Gain from sale of
discontinued
operations............. 58.8 -- -- -- 43.1 1.5 -- --
------ ------- ------- ------- ------- -------- -------- --------
Net income (loss)....... 21.3% (55.9)% (57.1)% (60.7)% (21.2)% (205.0)% (102.5)% (83.1)%
====== ======= ======= ======= ======= ======== ======== ========
</TABLE>
18
<PAGE>
Discontinued Operations
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income from
discontinued operations." Additionally, we have reclassified our prior
financial statements to present the operating results of the pharmacy benefit
management business as a discontinued operation.
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------- ------- ----
(In thousands)
<S> <C> <C> <C>
Revenue............................................. $52,866 $14,292 $--
Cost of revenue..................................... 49,313 13,378 --
------- ------- ----
Gross profit.................................... 3,553 914 --
Selling, general and administrative expenses........ 2,583 272 (83)
------- ------- ----
Operating income.................................... 970 642 83
------- ------- ----
Income from discontinued operations................. $ 970 $ 642 $ 83
======= ======= ====
</TABLE>
Revenue from discontinued operations decreased by 73.0% or $38,574,000 from
$52,866,000 in 1998 to $14,292,000 in 1999 due to the sale of the pharmacy
benefit management business in March 1999.
Cost of revenue decreased by 72.9% or $35,935,000 from $49,313,000 in 1998
to $13,378,000 in 1999 due to the sale of the pharmacy benefit management
business in 1999 as noted above. Cost of revenue as a percentage of revenue
increased from 93.3% in 1998 to 93.6% in 1999.
Selling, general and administrative expenses decreased by $2,311,000 or
89.5% from $2,583,000 in 1998 to $272,000 in 1999, primarily due to the sale of
the pharmacy benefit management business in March 1999, as noted above.
Selling, general and administrative expenses in 2000 included the recovery of
certain receivables that were previously fully reserved.
Liquidity and Capital Resources
At December 31, 2000, our principal sources of liquidity consisted of
$76,513,000 of cash and cash equivalents and $43,324,000 of marketable
securities. Historically, our principal sources of funds were bank borrowings,
the sale of subordinated debt, redeemable preferred stock and equity
securities, and operating cash flow generated by our pharmacy benefit
management business, which we sold in March 1999. We issued securities for net
cash proceeds totaling $8,930,000 in 1998, $102,709,000 in 1999 and $99,766,000
in 2000. We have used these capital resources to fund operating losses, working
capital, capital expenditures, acquisitions and retirement of debt. At December
31, 2000, we had an accumulated deficit of $119,375,000.
Net cash used in operating activities increased by $12,286,000 from
$12,693,000 for 1999 to $24,979,000 for 2000, of which $4,277,000 relates to an
increase in operating losses and $8,009,000 reflects an increase in cash used
for net working capital. Depreciation and amortization increased by $26,115,000
to $28,632,000 for the twelve months ended December 31, 2000, compared to
$2,517,000 for the twelve months ended December 31, 1999, primarily due to
amortization expenses related to recent acquisitions. Accounts receivable
increased by $8,449,000 in the twelve months ended December 31, 2000, versus a
decrease of $4,828,000 in the same period last year, primarily due to increased
sales volume in 2000 and the sale of the pharmacy benefit management business
in March 1999. Interest receivable increased $951,000 in the twelve months
ended December 31, 2000, due to higher investments in cash equivalents and
marketable securities. Inventories increased by $1,525,000 in the twelve months
ended December 31, 2000, versus an increase of $1,353,000 for the same period
last year due to increased levels of activity. Prepaid expenses and other
assets increased by $604,000 in 1999 to $2,782,000 in 2000 primarily due to the
capitalization of expenses related to the
19
<PAGE>
Channelhealth acquisition, which was closed on January 8, 2001, and increased
prepaid commissions and insurance. Accounts payable increased by $2,366,000 in
the twelve months ended December 31, 2000, versus a decrease of $3,999,000 in
the same period the previous year, primarily due to increased levels of
activity and the sale of the pharmacy benefit management business in March
1999. Accrued expenses and deferred revenue increased by $1,780,000 in the
twelve months ended December 31, 2000, compared to a decrease of $10,000 in the
comparable 1999 period, primarily due to an increase in deferred revenue from
e-detailing, information, dictation and document management products, as well
as an increase in other accrued expenses due to increased sales volume in 2000.
Accrued compensation increased $540,000 in the twelve months ended December 31,
2000, versus an increase of $261,000 in the same period in the prior year,
primarily due to an increase in commissions and incentive payments offset by a
reduction in amounts owed to employees for unused vacation. During 2000,
Allscripts also incurred non-cash charges of $751,000 related to stock options
issued to non-employees, $13,729,000 related to the write-off of in-process
research and development costs and $1,000,000 related to the write-down of an
investment.
Net cash used in investing activities increased to $47,037,000 in the twelve
months ended December 31, 2000 from $11,959,000 in the same period in the prior
year, primarily as a result of net cash used to invest in marketable securities
of $27,816,000 compared to $15,049,000 for the same period in 1999. In
addition, net cash used for acquisitions was $13,223,000 for the twelve months
ended December 31, 2000, compared to $46,000 of net cash provided by
acquisitions for the same period in 1999. Capital expenditures increased to
$9,351,000 for the twelve months ended December 31, 2000, compared to
$4,428,000 for the same period in 1999. The increased level of expenditures in
2000 relates to facilities expansion and improvements, increased purchases of
TouchScript computer systems and an increase in capital outlays to accommodate
new employees. Currently, we have no material commitments for capital
expenditures, although we anticipate ongoing capital expenditures in the
ordinary course of business.
On July 28, 1999, Allscripts completed the initial public offering of its
common stock. Allscripts issued 7,000,000 shares of common stock at an initial
public offering price of $16.00 per share and all outstanding shares of
convertible preferred stock automatically converted into 2,977,483 shares of
common stock. The initial public offering resulted in gross proceeds of
$112,000,000; $7,840,000 of which was applied to the underwriting discount and
approximately $1,451,000 of which was applied to related offering expenses. In
addition, Allscripts used approximately $34,745,000 of the proceeds to redeem
all outstanding shares of its Series H, I and J Redeemable Preferred Stock,
plus accrued dividends thereon, $3,900,000 to repay advances under its
revolving line of credit with its commercial bank and approximately $653,000 to
repay a promissory note, including accrued interest, issued as consideration
for a 1999 acquisition.
On March 10, 2000, we completed a public offering of 1,452,000 shares of our
common stock at an initial price to the public of $73.00 per share, resulting
in gross proceeds of $105,996,000, $5,561,000 of which was applied to the
underwriting discount and approximately $669,000 of which was applied to
related offering expenses. The remaining net proceeds of approximately
$99,766,000 were invested in short-term, interest-bearing, investment grade
securities pending their use for general corporate purposes and working
capital.
Net cash provided by financing activities increased to $107,968,000 for the
twelve months ended December 31, 2000, compared to $64,495,000 for the twelve
months ended December 31, 1999, primarily due to a $34,745,000 payment in
connection with the mandatory redemption of preferred stock, which occurred in
1999, and the receipt of $9,983,000, net of related expenses, related to a
private placement of common stock in March 2000.
At December 31, 2000, we had operating loss carryforwards available for
federal income tax reporting purposes of approximately $56,587,000 and expect
to generate taxable losses in 2001. The operating loss carryforwards expire
from 2002 to 2020. Our ability to use these operating loss carryforwards to
offset future taxable income depends on a variety of factors, including
possible limitations on usage under Internal Revenue Code Section 382. Section
382 imposes an annual limitation on the future utilization of operating loss
carryforwards due to changes in ownership resulting from the issuance of common
shares, stock options, warrants and preferred shares.
20
<PAGE>
We believe that our existing cash, cash equivalents, and marketable
securities will be sufficient to meet the anticipated cash needs of our current
business for the next twelve months. However, any projections of future cash
needs and cash flows are subject to substantial uncertainty. We will, from time
to time, consider the acquisition of, or investment in, complementary
businesses, products, services and technologies, which might affect our
liquidity requirements or cause us to issue additional equity or debt
securities. There can be no assurance that financing will be available in the
amounts or on terms acceptable to us, if at all.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." FAS 133, as amended,
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities, and is effective in the first quarter of 2001. We currently do not
invest in derivative investments nor do we engage in hedging activities. We do
not expect our adoption of FAS No. 133 to have a material effect on our
financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The adoption of SAB 101 during the fourth quarter of 2000
did not have a material effect on our financial position or results of
operations.
Risk Factors
You should carefully consider the risks and uncertainties described below
and other information in this report. These are not the only risks and
uncertainties that we face. Additional risks and uncertainties that we do not
currently know about or that we currently believe are immaterial may also harm
our business operations. If any of these risks or uncertainties occurs, it
could have a material adverse effect on our business.
Risks Related to Allscripts Healthcare Solutions, Inc.
If physicians do not accept our products and services, our growth will be
impaired.
Our business model depends on our ability to sell the TouchScript system and
Physician Channel applications and services to physicians and other healthcare
providers and to generate usage by a large number of physicians. We have not
achieved this goal with previous or currently available versions of the
TouchScript system or the Physician Channel applications and services.
Physician acceptance of our products and services will require physicians to
adopt different behavior patterns and new methods of conducting business and
exchanging information. We cannot assure you that physicians will integrate our
products and services into their office work flow or that participants in the
pharmaceutical healthcare market will accept our products and services as a
replacement for traditional methods of conducting healthcare transactions.
Achieving market acceptance for our products and services will require
substantial marketing efforts and the expenditure of significant financial and
other resources to create awareness and demand by participants in the
pharmaceutical healthcare industry. If we fail to achieve broad acceptance of
our products and services by physicians and other healthcare participants or to
position our services as a preferred method for pharmaceutical healthcare
delivery and information management, our prospects for growth will be
diminished.
We are currently experiencing losses and we may not become profitable in the
future.
We are currently experiencing losses and cannot assure you that we will
become profitable in the foreseeable future, if ever. For the year ended
December 31, 2000, Allscripts, Inc. had a net loss of $57,367,000.
Historically, Channelhealth has also incurred significant net losses, and since
Channelhealth has
21
<PAGE>
only recently implemented its business strategy, we expect Channelhealth to
continue to incur losses at least through 2001. Additionally, Channelhealth has
spent significant amounts on research and development and sales and marketing
efforts, and we expect these costs to continue. We cannot be certain that we
will achieve profitability, and even if we do achieve profitability, we may be
unable to sustain or increase our profitability in the future.
Because our business model is new and unproven, our operating history is not
indicative of our future performance, and our business is difficult to
evaluate.
Because we have not yet successfully implemented our business model, we do
not have an operating history upon which you can evaluate our prospects, and
you should not rely upon our past performance to predict our future
performance. Since its inception as an independent company in September 1999,
Channelhealth's operating activities have consisted largely of developing the
software applications necessary to provide its services, and Channelhealth has
only recently begun to sell its software and services to provider
organizations. In addition, Channelhealth's long-term success will depend
largely on the success of its strategic relationships and the strategic
alliance between us and IDX. Channelhealth is still in the early stages of its
current strategic relationships and we are unable to predict whether the goals
of those relationships will be achieved. Channelhealth's limited operating
history and limited experience with its strategic business partners make it
difficult to evaluate its business and its prospects. Our operating history is
not necessarily indicative of our future performance under our new business
model. In attempting to implement our business model, we are significantly
changing our business operations, sales and implementation practices, customer
service and support operations and management focus. We are also facing new
risks and challenges, including a lack of meaningful historical financial data
upon which to plan future budgets, the need to develop strategic relationships
and other risks described below.
We may face difficulties in integrating the operations and products of
Channelhealth and Allscripts, Inc.
Channelhealth and Allscripts, Inc. operated separately until January 8,
2001. Our management team does not have experience with the combined business.
Integration of product lines will involve consolidation of products with
duplicative functionality, coordination of research and development activities
and convergence of the technologies supporting the various products. We may not
be able to integrate the products, product development, information systems and
operations of Channelhealth and Allscripts, Inc. without a loss of key
officers, employees, customers or suppliers, a loss of revenues or an increase
in net loss, an increase in operating or other costs or other difficulties. In
addition, we may not be able to realize the operating efficiencies, the
material expansion of our customer base to IDX customers or the other benefits
expected from the merger and related transactions such as our strategic
alliance with IDX. Any unexpected costs or delays incurred in connection with
this integration could have an adverse effect on our business, results of
operations or financial condition.
The business separation of Channelhealth from IDX may impair assets.
The separation of Channelhealth from the rest of IDX's businesses, assets
and liabilities pursuant to the asset purchase agreement between IDX and
Channelhealth required the transfer of assets, including intellectual property
rights, between Channelhealth and IDX. Some of these transfers may have
triggered Channelhealth liabilities that are not yet known by Channelhealth.
Generally, IDX will be responsible for these liabilities but IDX would not be
required to indemnify Channelhealth for any losses that are consequential, in
the nature of lost profits, diminution in value, damage to reputation or the
like, special or punitive damages.
If we are unable to maintain existing relationships and create new
relationships with managed care payers, our prospects for growth will suffer.
We rely on managed care organizations to reimburse our physician customers
for prescription medications dispensed in their offices. While many of the
leading managed care payers and pharmacy benefit managers
22
<PAGE>
currently reimburse our physicians for in-office dispensing, none of these
payers is under a long-term obligation to do so. If we are unable to increase
the number of managed care payers that reimburse for in-office dispensing, or
if some or all of the payers who currently reimburse physicians decline to do
so in the future, utilization of our products and, therefore, our growth will
be impaired.
Our growth and revenues could suffer if we are unable to enter into and
maintain relationships with IDX customers.
We seek to increase Channelhealth's subscriber base through targeting
provider organizations that use IDX practice management systems or other IDX
services, and affiliates of these organizations. Channelhealth's services use
the Web FrameWork technology, which it licenses from IDX, and which enables its
software applications and services to be tightly integrated with IDX practice
management systems and provide real-time synchronization of data. If
Channelhealth's relationship with IDX terminates, its services might not be as
attractive to IDX customers and Channelhealth may not have access to this
potential customer base, IDX might enter into arrangements that would allow
Channelhealth's competitors to utilize IDX technology and IDX could compete
against Channelhealth. If any of these situations were to occur, our expected
revenues may be lower, our business may be harmed and our stock price may fall.
Our business will be harmed if we cannot maintain the strategic alliance
agreement and the cross license agreement with IDX.
Upon completion of the mergers, we entered into a 10-year strategic alliance
agreement with IDX pursuant to which we and IDX agreed to coordinate product
development and align our respective marketing processes. Under this agreement
IDX granted us the exclusive right to market, sell, license and distribute
ambulatory point-of-care and clinical application products to IDX customers.
This agreement does not, however, limit IDX's continued development and
distribution of its own "LastWord" or radiology products and services. Our
business strategy includes targeting current and prospective IDX customers and
their affiliates. If we fail to successfully implement that business strategy,
we may not be able to achieve projected results or support the price paid for
Channelhealth. If the strategic alliance agreement is terminated, we would lose
access to an important customer base. After the expiration or termination of
the strategic alliance agreement, we may not be able to align with another
company to market and distribute our products on as favorable a basis as that
represented by the IDX strategic alliance. This would harm our growth and
revenue. In addition, prior to the termination of this agreement, we cannot
allow certain specified IDX direct competitors to market, distribute or sell
our or Channelhealth's services, even if that agreement would benefit our
business.
Also upon completion of the mergers, Channelhealth entered into an amended
and restated cross license and software maintenance agreement with IDX pursuant
to which Channelhealth granted IDX a license to use, market and sublicense its
products combined with IDX products, and IDX granted Channelhealth a license to
use, market and sublicense IDX software for use with Channelhealth products. If
this agreement is terminated, Channelhealth will not have access to IDX
software, which would harm our ability to integrate our services with IDX
systems and provide real-time data synchronization. This would make
Channelhealth's systems less desirable to IDX customers and would harm its
business.
If we are unable to successfully introduce new products, our business prospects
will be impaired.
The successful implementation of our business model depends on our ability
to introduce new products and to introduce these new products on schedule. We
cannot assure you that we will be able to introduce new products or our
products currently under development on schedule, or at all. In addition, early
releases of software often contain errors or defects. We cannot assure you
that, despite our extensive testing, errors will not be found in our new
product releases and services before or after commercial release, which would
result in product redevelopment costs and loss of, or delay in, market
acceptance. A failure by us to introduce planned products or other new products
or to introduce these products on schedule could have a material adverse effect
on our business prospects.
23
<PAGE>
Our business will not be successful unless we establish and maintain strategic
relationships.
To be successful, we must establish and maintain strategic relationships
with leaders in a number of healthcare and Internet industry segments. This is
critical to our success because we believe that these relationships will enable
us to:
. extend the reach of our products and services to a larger number of
physicians and to other participants in the healthcare industry;
. develop and deploy new products;
. further enhance the Allscripts and Channelhealth brands; and
. generate additional revenue.
Entering into strategic relationships is complicated because some of our
current and future strategic partners may decide to compete with us in some or
all of our markets. In addition, we may not be able to establish relationships
with key participants in the healthcare industry if we have relationships with
their competitors. Moreover, many potential strategic partners have resisted,
and may continue to resist, working with us until our products and services
have achieved widespread market acceptance.
Once we have established strategic relationships, we will depend on our
partners' ability to generate increased acceptance and use of our products and
services. To date, we have established only a limited number of strategic
relationships, and many of these relationships, are in the early stages of
development and may not achieve the objectives that we seek. On June 8, 2000,
Channelhealth and IDX entered into agreements with Healtheon/WebMD Corp.
pursuant to which Healtheon/WebMD agreed to provide electronic transaction and
content services to Channelhealth and IDX. Pursuant to the agreement,
Healtheon/WebMD's content is to be integrated into Channelhealth's Physician
Channel and Patient Channel Internet services. Healtheon/WebMD further
committed to a multi-million dollar campaign promoting IDX and Channelhealth
products and services that incorporate Healtheon/WebMD content and
transactions. Healtheon/WebMD has recently informed IDX that it believes
Channelhealth and IDX will be unable to perform their obligations to
Healtheon/WebMD now that a strategic alliance between IDX and us has been
consummated. Healtheon/WebMD also stated that it would seek to terminate the
Channelhealth agreement and would propose a "restructured" relationship with
IDX. We believe that Channelhealth's and IDX's performance will not be impaired
by the strategic alliance with us and that Healtheon/WebMD does not have a
basis for unilaterally terminating the Channelhealth agreement or restructuring
the IDX agreement. In addition, pursuant to the strategic alliance agreement
between IDX and us, we and IDX each agree not to take any action that would
cause a default under or termination of the agreement between Channelhealth and
Healtheon/WebMD.
We have limited experience in establishing and maintaining strategic
relationships with healthcare and Internet industry participants. If we lose
any of these strategic relationships or fail to establish additional
relationships, or if our strategic relationships fail to benefit us as
expected, we may not be able to execute our business plan, and our business
will suffer. In the event the Healtheon/WebMD agreement is terminated, our
expected revenues for 2001 may be significantly lower than currently
anticipated, our business may be harmed and our stock price may fall.
If potential customers take a long time to evaluate the purchase of our
products and services, we could incur additional selling expenses and require
additional working capital.
The length of the sales cycle for our current TouchScript product and
Physician Channel services depend on a number of factors, including the nature
and size of the potential customer and the extent of the commitment being made
by the potential customer, and is difficult to predict. Our marketing efforts
with respect to large healthcare organizations generally involve a lengthy
sales cycle due to these organizations' complex decision-making processes. If
potential customers take longer than we expect to decide whether to purchase
our solutions, our selling expenses could increase, and we may need to raise
additional capital sooner than we would otherwise need to.
24
<PAGE>
If we cannot keep pace with advances in technology, our business could be
harmed.
If we cannot adapt to changing technologies, our products and services may
become obsolete, and our business could suffer. Because the Internet and
healthcare information markets are characterized by rapid technological change,
we may be unable to anticipate changes in our current and potential customers'
requirements that could make our existing technology obsolete. Our success will
depend, in part, on our ability to continue to enhance our existing products
and services, develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers, license leading
technologies and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. The development
of our proprietary technology entails significant technical and business risks.
We may not be successful in using new technologies effectively or adapting our
proprietary technology to evolving customer requirements or emerging industry
standards.
Our future success depends upon our ability to grow, and if we are unable to
manage our growth effectively, we may incur unexpected expenses and be unable
to meet our customers' requirements.
We will need to expand our operations if we successfully achieve market
acceptance for our products and services. We cannot be certain that our
systems, procedures, controls and existing space will be adequate to support
expansion of our operations. Our future operating results will depend on the
ability of our officers and key employees to manage changing business
conditions and to implement and improve our technical, administrative,
financial control and reporting systems. An unexpectedly large increase in the
volume or pace of traffic on our web site or the number of orders placed by
customers may require us to expand and further upgrade our technology. We may
not be able to project the rate or timing of increases in the use of our web
site accurately or to expand and upgrade our systems and infrastructure to
accommodate these increases. Difficulties in managing any future growth could
have a significant negative impact on our business because we may incur
unexpected expenses and be unable to meet our customers' requirements.
If we lose the services of our key personnel, we may be unable to replace them,
and our business could be negatively affected.
Our success depends in large part on the continued service of our management
and other key personnel and our ability to continue to attract, motivate and
retain highly qualified employees. In particular, the services of Glen E.
Tullman, our Chairman and Chief Executive Officer, and David B. Mullen, our
President and Chief Financial Officer, are integral to the execution of our
business strategy. If one or more of our key employees leaves our employment we
will have to find a replacement with the combination of skills and attributes
necessary to execute our strategy. Because competition for skilled employees is
intense, and the process of finding qualified individuals can be lengthy and
expensive, we believe that the loss of the services of key personnel could
negatively affect our business, financial condition and results of operations.
If we are unable to implement our acquisition strategy successfully, our
ability to expand our product and service offerings and our customer base may
be limited.
We regularly evaluate acquisition opportunities. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations,
services, products and personnel of the acquired company, the diversion of
management's attention from other business concerns, entry into markets in
which we have little or no direct prior experience, the potential loss of key
employees of the acquired company and our inability to maintain the goodwill of
the acquired businesses. In order to expand our product and service offerings
and grow our business by reaching new customers, we may continue to acquire
businesses that we believe are complementary. The successful implementation of
this strategy depends on our ability to identify suitable acquisition
candidates, acquire companies on acceptable terms, integrate their operations
and technology successfully with our own and maintain the goodwill of the
acquired business. We are unable to predict whether or when any prospective
acquisition candidate will become available or the likelihood that any
acquisition will be completed. Moreover, in pursuing acquisition opportunities,
we may compete for acquisition
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targets with other companies with similar growth strategies. Some of these
competitors may be larger and have greater financial and other resources than
we have. Competition for these acquisition targets could also result in
increased prices of acquisition targets.
Future acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, the write off of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition, operating results and prospects. We have taken, and in the future
may take, charges against earnings in connection with acquisitions. The costs
and expenses incurred may exceed the estimates upon which we based these
charges.
Our business depends on our intellectual property rights, and if we are unable
to protect them, our competitive position will suffer.
Our business plan is predicated on our proprietary systems and technology,
including TouchScript and the Physician Channel applications and services. We
protect our proprietary rights through a combination of trademark, trade secret
and copyright law, confidentiality agreements and technical measures. We
generally enter into non-disclosure agreements with our employees and
consultants and limit access to our trade secrets and technology. We cannot
assure you that the steps we have taken will prevent misappropriation of
technology. Misappropriation of our intellectual property would have a material
adverse effect on our competitive position. In addition, we may have to engage
in litigation in the future to enforce or protect our intellectual property
rights or to defend against claims of invalidity, and we may incur substantial
costs as a result.
If we are deemed to infringe on the proprietary rights of third parties, we
could incur unanticipated expense and be prevented from providing our products
and services.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the functionality of our applications
overlaps with competitive products. While we do not believe that we have
infringed or are infringing on any valid proprietary rights of third parties,
an infringement claim has been asserted against us, and we cannot assure you
that additional infringement claims will not be asserted against us or that
those claims will be unsuccessful. We could incur substantial costs and
diversion of management resources defending any infringement claims.
Furthermore, a party making a claim against us could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block our ability to provide products or services. In addition, we
cannot assure you that licenses for any intellectual property of third parties
that might be required for our products or services will be available on
commercially reasonable terms, or at all.
Factors beyond our control could cause interruptions in our operations, which
would adversely affect our reputation in the marketplace and our results of
operations.
To succeed, we must be able to operate our systems without interruption.
Certain of our communications and information services are provided through our
service providers. Our operations are vulnerable to interruption by damage from
a variety of sources, many of which are not within our control, including:
. power loss and telecommunications failures;
. software and hardware errors, failures or crashes;
. computer viruses and similar disruptive problems; and
. fire, flood and other natural disasters.
We have no comprehensive plans for these contingencies. Any significant
interruptions in our services would damage our reputation in the marketplace
and have a negative impact on our results of operations.
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We may be liable for use of data we provide.
We provide data for use by healthcare providers in treating patients. Third-
party contractors provide us with most of this data. Although no claims have
been brought against us alleging injuries related to the use of our data,
claims may be made in the future. While we maintain product liability insurance
coverage in an amount that we believe is sufficient for our business, we cannot
assure you that this coverage will prove to be adequate or will continue to be
available on acceptable terms, if at all. A claim brought against us that is
uninsured or under-insured could materially harm our financial condition.
If our security is breached, we could be subject to liability, and people could
be deterred from using our services.
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting e-commerce and engaging
in sensitive communications over the Internet. Our strategy relies on the use
of the Internet to transmit confidential information. We believe that any well-
publicized compromise of Internet security may deter people from using the
Internet for these purposes, and from using our system to conduct transactions
that involve transmitting confidential healthcare information.
It is also possible that third parties could penetrate our network security
or otherwise misappropriate patient information and other data. If this
happens, our operations could be interrupted, and we could be subject to
liability. We may have to devote significant financial and other resources to
protect against security breaches or to alleviate problems caused by breaches.
We could face financial loss, litigation and other liabilities to the extent
that our activities or the activities of third-party contractors involve the
storage and transmission of confidential information like patient records or
credit information. In addition, we could incur additional expenses when and if
the new rules recently published by the U.S. Department of Health and Human
Services regarding the use of personal information become effective.
If we are unable to obtain additional financing for our future needs, our
growth prospects and our ability to respond to competitive pressures will be
impaired.
We cannot be certain that additional financing will be available on
favorable terms, or at all. If adequate financing is not available or is not
available on acceptable terms, our ability to fund our expansion, take
advantage of potential acquisition opportunities, develop or enhance services
or products, or respond to competitive pressures would be significantly
limited.
If our content and service providers fail to perform adequately, our reputation
in the marketplace and results of operations could be adversely affected.
We depend on independent content and service providers for many of the
benefits we provide through our TouchScript system and our Physician Channel
applications and services, including the maintenance of managed care pharmacy
guidelines, drug interaction reviews and the routing of transaction data to
third-party payers. Any problems with our providers that result in
interruptions of our services or a failure of our services to function as
desired could damage our reputation in the marketplace and have a material
adverse effect on our results of operations. We may have no means of replacing
content or services on a timely basis or at all if they are inadequate or in
the event of a service interruption or failure.
We also expect to rely on independent content providers for the majority of
the clinical, educational and other healthcare information that we plan to
provide on our web site. In addition, we will depend on our content providers
to deliver high quality content from reliable sources and to continually
upgrade their content in response to demand and evolving healthcare industry
trends. Any failure by these parties to develop and maintain high quality,
attractive content could impair the value of the Allscripts and Channelhealth
brands and our results of operations.
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If third-party payers force us to reduce our prices, our results of operations
could suffer.
We expect to derive a significant portion of our revenue from the sale,
including over the Internet, of prepackaged medications to physicians. We may
be subject to pricing pressures with respect to our future sales of prepackaged
medications arising from various sources, including practices of managed care
organizations and any governmental action requiring or allowing pharmaceutical
reimbursement under Medicare. If our pricing of prepackaged medications
experiences significant downward pressure, our business will be less
profitable.
If we incur costs exceeding our insurance coverage in lawsuits pending against
us or that are brought against us in the future, it could materially adversely
affect our financial condition.
Allscripts is a defendant in numerous multi-defendant lawsuits involving the
manufacture and sale of dexfenfluramine, fenfluramine and phentermine. In
addition, Allscripts and certain members of management are defendants in
shareholder class action litigation. While we do not believe we or our
management have any significant liability in these lawsuits, in the event we or
members of our management were found liable in these lawsuits or in any other
lawsuits filed against us in the future, and if our insurance coverage were
inadequate to satisfy these liabilities, it could have a material adverse
effect on our financial condition. See "Legal Proceedings".
If our principal supplier fails or is unable to perform its contract with us,
we may be unable to meet our commitments to our customers.
We currently purchase a majority of the medications that we repackage from
McKesson HBOC, Inc. We have an agreement with this supplier that expires in
September 2001. If we do not meet certain minimum purchasing requirements,
McKesson may increase the prices that we pay under this agreement, in which
case we would have the option to terminate the agreement. Although we believe
that there are a number of other sources of supply of medications, if McKesson
fails or is unable to perform under our agreement, particularly at certain
critical times during the year, we may be unable to meet our commitments to our
customers, and our relationships with our customers could suffer.
Because of anti-takeover provisions under Delaware law and in our certificate
of incorporation and by-laws, takeovers may be more difficult, possibly
preventing you from obtaining optimal share price.
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of us. For example, our certificate of incorporation and by-laws provide for a
classified Board of Directors and allow us to issue preferred stock with rights
senior to those of the common stock without any further vote or action by the
stockholders. In addition, we are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which could have the
effect of delaying or preventing a change in control of us.
Risks Related to Our Industry
If the healthcare environment becomes more restrictive, or we do not comply
with healthcare regulations, our existing and future operations may be
curtailed, and we could be subject to liability.
As a participant in the healthcare industry, our operations and
relationships are regulated by a number of federal, state and local
governmental entities. Because our business relationships with physicians are
unique, and the healthcare electronic commerce industry as a whole is
relatively young, the application of many state and federal regulations to our
business operations is uncertain. It is possible that a review of our business
practices or those of our customers by courts or regulatory authorities could
result in a determination that could adversely affect us. In addition, the
healthcare regulatory environment may change in a way that restricts our
existing operations or our growth.
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. Electronic Prescribing. The use of our TouchScript software by physicians
to perform electronic prescribing, electronic routing of prescriptions to
pharmacies and dispensing is governed by state and federal law. The
application of these laws to our business is uncertain because many
existing laws and regulations, when enacted, did not anticipate methods
of e-commerce now being developed. The laws of many jurisdictions neither
specifically permit nor specifically prohibit electronic transmission of
prescription orders. Future regulation of these areas may adversely
affect us.
. Licensure. As a repackager and distributor of drugs, we are subject to
regulation by and licensure with the United States Food and Drug
Administration, the United States Drug Enforcement Administration and
various state agencies that regulate wholesalers or distributors. Among
the regulations applicable to our repackaging operation are the FDA's
"good manufacturing practice" regulations. Because the FDA's good
manufacturing practice regulations were designed to govern the
manufacture, rather than the repackaging, of drugs, we face legal
uncertainty concerning the application of some aspects of these
regulations and of the standards that the FDA will enforce. Both the FDA
and the DEA have the right, at any time, to inspect our facilities and
operations to determine if we are operating in compliance with the
requirements for licensure and all applicable laws and regulations. Along
with many other drug repackagers, we have received an FDA warning letter
alleging violations of FDA regulations, including the good manufacturing
practice regulations. We have implemented procedures intended to address
many of the concerns raised by the FDA in that letter and believe that
our compliance with FDA regulations meets or exceeds the standard in the
drug repackaging industry. We also believe that we possess all licenses
required to operate our business. If, however, we do not maintain all
necessary licenses, or the FDA decides to substantially modify the manner
in which it has historically enforced its good manufacturing practice
regulations against drug repackagers or the FDA or DEA finds any
violations during one of their periodic inspections, we could be subject
to liability, and our operations could be shut down.
. Physician Dispensing. Physician dispensing of medications for profit is
allowed in all states except Utah and is prohibited, subject to extremely
limited exceptions, in Massachusetts, Montana and Texas. In addition, New
Jersey and New York allow physician dispensing of medications for profit,
but limit the number of days' supply of all medications, subject to
limited exceptions, that a physician may dispense; several other states
limit the number of days' supply of controlled substances that a
physician may dispense. Other states may enact legislation or regulations
prohibiting or restricting physician dispensing.
The American Medical Association, through certain of its constituent
bodies, has historically taken inconsistent positions on physician
dispensing, alternately discouraging and supporting it. While the AMA's
Council on Ethical and Judicial Affairs in 1986 discouraged physicians
from regularly dispensing prescription pharmaceuticals, in 1987 the AMA's
House of Delegates adopted the following resolution: "Resolved, that the
American Medical Association support the physician's right to dispense
drugs and devices when it is in the best interest of the patient and
consistent with the AMA's ethical guidelines." This position was
reaffirmed by the AMA House of Delegates in January 1997. The AMA's
ethical guidelines provide in relevant part that "physicians may dispense
drugs within their office practices provided there is no resulting
exploitation of patients." While two recent Reports of the Council on
Ethical and Judicial Affairs oppose the in-office sale of health-related
products by physicians, these reports specifically exclude the sale of
prescription items from their scope, although they do refer to the
Council's 1986 Report.
. Stark II. Congress enacted significant prohibitions against physician
self-referrals in the Omnibus Budget Reconciliation Act of 1993. This
law, commonly referred to as "Stark II," applies to physician dispensing
of outpatient prescription drugs that are reimbursable by Medicare or
Medicaid. We believe that the physicians who use our TouchScript system
or dispense drugs distributed by us are doing so in material compliance
with Stark II, either pursuant to an in-office ancillary services
exception or another applicable exception. While our physician customers
currently do not, to any significant degree, dispense drugs that are
reimbursable by Medicare or Medicaid, if they were to and if it were
determined
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that the physicians who use our system or dispense pharmaceuticals
purchased from us were not in compliance with Stark II, it could have a
material adverse effect on our business, results of operations and
prospects.
. Drug Distribution. As a distributor of prescription drugs to physicians,
we and our customers are also subject to the federal anti-kickback
statute, which applies to Medicare, Medicaid and other state and federal
programs. The statute prohibits the solicitation, offer, payment or
receipt of remuneration in return for referrals or the purchase of goods,
including drugs, covered by the programs. The anti-kickback law provides
a number of exceptions or "safe harbors" for particular types of
transactions. We believe that our arrangements with our customers are in
material compliance with the anti-kickback statute and relevant safe
harbors. Many states have similar fraud and abuse laws, and we believe
that we are in material compliance with those laws. If, however, it were
determined that we were not in compliance with those laws, we could be
subject to liability, and our operations could be curtailed.
. Claims Transmission. As part of our services provided to physicians, our
system will electronically transmit claims for prescription medications
dispensed by a physician to many patients' managed care organizations and
payers for immediate approval and reimbursement. Federal law provides
that it is both a civil and a criminal violation for any person to submit
a claim to any payer, including, for example, Medicare, Medicaid and all
private health plans or managed care plans seeking payment for any
services or products that have not been provided to the patient or
overbilling for services or products provided. We have in place policies
and procedures that we believe assure that all claims that are
transmitted by our system are accurate and complete, provided that the
information given to us by our customer is also accurate and complete.
If, however, we do not follow those procedures and policies, or they are
not sufficient to prevent inaccurate claims from being submitted, we
could be subject to liability.
. Patient Information. Existing federal and state laws and regulations
regulate the disclosure of confidential medical information, including
information regarding conditions like AIDS, substance abuse and mental
illness. In addition, the U.S. Department of Health and Human Services
recently published rules regarding the disclosure of confidential medical
information. There is uncertainty as to when those rules will be
effective and how they will be interpreted. Further, the rules and their
interpretation are subject to change from time to time. In the event that
the rules are interpreted in a way that requires material change to the
way in which Allscripts does business, it could have a material adverse
effect on our business, results of operations and prospects. As part of
the operation of our business, our customers do provide to us patient-
identifiable medical information related to the prescription drugs that
they prescribe and other aspects of patient treatment. We have policies
and procedures that we believe assure compliance with all federal and
state confidentiality requirements for handling of confidential medical
information we receive. If, however, we do not follow those procedures
and policies, or they are not sufficient to prevent the unauthorized
disclosure of confidential medical information, we could be subject to
liability, fines and lawsuits, or our operations could be shut down.
The Bush Administration has announced that it intends to propose broad
Medicare reform legislation that would make available to Medicare recipients a
subsidized prescription drug benefit. While no federal price controls are
included in the current version of the proposed legislation, any legislation
that reduces physician incentives to dispense medications in their offices
could adversely affect physician acceptance of our products. We cannot predict
whether or when future health care reform initiatives at the federal or state
level or other initiatives affecting our business will be proposed, enacted or
implemented or what impact those initiatives may have on our business,
financial condition or results of operations.
If the new and rapidly evolving Internet and electronic healthcare information
markets fail to develop as quickly as expected, our business prospects will be
impaired.
The Internet and electronic healthcare information markets are in the early
stages of development and are rapidly evolving. A number of market entrants
have introduced or developed products and services that are
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competitive with one or more components of the solutions we offer. In addition,
several companies have recently introduced or announced their intention to
introduce electronic prescribing products. We expect that additional companies
will continue to enter these markets. In new and rapidly evolving industries,
there is significant uncertainty and risk as to the demand for, and market
acceptance of, recently introduced products and services. Because the markets
for our products and services are new and evolving, we are not able to predict
the size and growth rate of the markets with any certainty. We cannot assure
you that markets for our products and services will develop or that, if they
do, they will be strong and continue to grow at a sufficient pace. If markets
fail to develop, develop more slowly than expected or become saturated with
competitors, our business prospects will be impaired.
Consolidation in the healthcare industry could adversely affect our business.
Many healthcare industry participants are consolidating to create integrated
healthcare delivery systems with greater market power. As provider networks and
managed care organizations consolidate, competition to provide products and
services like ours will become more intense, and the importance of establishing
relationships with key industry participants will become greater. These
industry participants may try to use their market power to negotiate price
reductions for our products and services. If we were forced to reduce our
prices, our business would become less profitable unless we were able to
achieve corresponding reductions in our expenses.
If the Internet infrastructure does not continue to improve, our ability to use
the Internet on a large scale could be compromised.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it. The Internet may not prove to be
a viable commercial medium because of inadequate development of the necessary
infrastructure, lack of timely development of complementary products like high
speed modems, delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or increased
government regulation. Because our business plan relies heavily on the
viability of the Internet, our business will suffer if growth of the Internet
does not meet our expectations.
Risks Related to Our Stock
The public market for our common stock has been and may continue to be
volatile.
The market price of our common stock is highly volatile and could fluctuate
significantly in response to various factors, including:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new services or products by
us or our competitors;
. changes in financial estimates by securities analysts;
. conditions and trends in the electronic healthcare information, Internet,
e-commerce and pharmaceutical markets; and
. general market conditions and other factors.
In addition, the stock markets, especially the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many technology companies, and Internet-related
companies in particular. These fluctuations have often been unrelated or
disproportionate to operating performance. These broad market factors may
materially affect the trading price of our common stock. General economic,
political and market conditions like recessions and interest rate fluctuations
may also have an adverse effect on the market price of our common stock.
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Volatility in the market price for our common stock may result in the filing
of securities class action litigation. On October 26, 2000, Allscripts, Inc.
announced that its previously reported revenues for the second quarter of 2000
were being revised from $12,616,000 to $12,116,000. Between October 2000 and
December 2000, four complaints were filed in the United States District Court
for the Northern District of Illinois against Allscripts and its President and
Chief Financial Officer, David B. Mullen. The complaints purported to be
brought on behalf of a class of individuals who purchased the common stock of
Allscripts during the period of July 27, 2000 through and including October 26,
2000 (the "Class Period"), and alleged violations of Section 10(b) and 20(a) of
the Securities Exchange Act of 1934 based on the restatement of our financial
results for the second quarter of 2000. The four complaints were deemed
related, and the cases were reassigned and consolidated for all purposes before
Judge Charles Kocoras, before whom the first filed case was pending. The
consolidated action is entitled In re Allscripts, Inc. Securities Litigation,
No. 00C6796 (N.D. Ill.) and includes all consolidated cases: Bredeson v.
Allscripts, Inc. and David B. Mullen, Civ. No. 00C-6796 (N.D. Ill., filed on
October 31, 2000), Karmazin v. Allscripts, Inc. and David B. Mullen, Civ. No.
00C-6864 (N.D. Ill., filed on November 2, 2000), Mohr v. Allscripts, Inc. and
David B. Mullen, Civ. No. 00C-6992 (N.D. Ill., filed on November 6, 2000),
Nadav v. Allscripts, Inc. and David B. Mullen, Civ. No. 00C-8126 (N.D. Ill.,
filed on December 26, 2000).
In January 2001, Lead Plaintiff and Lead Counsel were appointed in the
consolidated case. On March 12, 2001, plaintiffs filed a Consolidated and
Amended Class Action Complaint (the "Amended Complaint"). The Amended Complaint
continues to name Allscripts and David B. Mullen as defendants and alleges
violations of Section 10(b) and 20(a) of the Securities Exchange Act. Three
additional defendants are named in the Amended Complaint: Glen E. Tullman, our
Chairman of the Board and Chief Executive Officer, J. Peter Geerlofs, our Chief
Medical Officer, and Philip J. Langley, formerly our Senior Vice President of
Business Development/Field Services. The Amended Complaint purports to expand
the Class Period in the consolidated case to include all individuals who
purchased the common stock of Allscripts during the period from March 6, 2000
through and including February 27, 2001. The Amended Complaint is based on the
previous allegations about the restatement of our financial results for the
second quarter of 2000, and new allegations relating to, inter alia, the
prospects for our TouchScript product.
We intend to move to dismiss the Amended Complaint, and Judge Kocoras has
set June 2001 as the prospective ruling date. At this time, management is
unable to determine the likely outcome of this matter or to reasonably estimate
the amount of any potential loss with respect to this matter.
Our quarterly operating results may vary.
The quarterly operating results of our subsidiaries have varied in the past,
and we expect that our quarterly operating results will continue to vary in
future periods depending on a number of factors, including seasonal variances
in demand for our products and services, the sales, installation and
implementation cycles for our TouchScript system and Physician Channel
applications and services and other factors described in this "Risk Factors"
section of this report. For example, all other factors aside, sales of our
prepackaged medications have historically been highest in the fall and winter
months. We expect to increase activities and spending in substantially all of
our operational areas. We base our expense levels in part upon our expectations
concerning future revenue, and these expense levels are relatively fixed in the
short term. If we have lower revenue, we may not be able to reduce our spending
in the short term in response. Any shortfall in revenue would have a direct
impact on our results of operations. For these and other reasons, we may not
meet the earnings estimates of securities analysts or investors, and our stock
price could suffer.
We may have substantial sales of our common stock that could cause our stock
price to fall.
Allscripts, Inc.'s common stock began trading on the Nasdaq National Market
on July 23, 1999; however, until recently there have been a limited number of
shares trading in the public market. A substantial number of our shares have
become eligible for public sale, and sales of a substantial number of shares of
our common stock could cause our stock price to fall.
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Because our executive officers and directors have substantial control of our
voting stock, takeovers not supported by them will be more difficult, possibly
preventing you from obtaining optimal share price.
The control of a significant amount of our stock by insiders could adversely
affect the market price of our common stock. Our executive officers and
directors beneficially own or control 18,362,158 shares or 47.5% of the
outstanding common stock. If our executive officers and directors choose to act
or vote together, they will have the power to influence significantly all
matters requiring the approval of our stockholders, including the election of
directors and the approval of significant corporate transactions. Without the
consent of these stockholders, we could be prevented from entering into
transactions that could be beneficial to us.
Safe Harbor for Forward-Looking Statements
This report and statements we make or our representatives make contain
forward-looking statements that involve risks and uncertainties, including
those discussed above and elsewhere in this report. We develop forward-looking
statements by combining currently available information with our beliefs and
assumptions. These statements often contain words like believe, expect,
anticipate, intend, contemplate, seek, plan, estimate or similar expressions.
Forward-looking statements do not guarantee future performance. Recognize these
statements for what they are and do not rely upon them as facts.
Forward-looking statements involve risks, uncertainties and assumptions,
including, but not limited to, those discussed above and elsewhere in this
report. We make these statements under the protection afforded them by Section
21E of the Securities Exchange Act of 1934, as amended. Because we cannot
predict all of the risks and uncertainties that may affect us, or control the
ones we do predict, these risks and uncertainties can cause our results to
differ materially from the results we express in our forward-looking
statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2000, we did not own any derivative financial instruments
but we were exposed to market risks, primarily changes in U.S. interest rates.
As of December 31, 2000, we had cash, cash equivalents and marketable
securities in financial instruments of $119,837,000. Maturities range from less
than one month to approximately 12 years, with the majority being less than one
year. Declines in interest rates over time will reduce our interest income from
our investments. Based upon our balance of cash, cash equivalents and
marketable securities, a decrease in interest rates of 1.0% would cause a
corresponding decrease in our annual interest income by approximately
$1,198,000.
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Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Allscripts Healthcare Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Allscripts
Healthcare Solutions, Inc. and subsidiaries (the Company) as of December 31,
2000, and the related consolidated statements of operations, stockholders'
equity (deficit) and comprehensive income (loss), and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Allscripts
Healthcare Solutions, Inc. and subsidiaries as of December 31, 2000 and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
Chicago, Illinois
February 23, 2001, except for note 14,
as to which the date is March 12, 2001
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Allscripts
Healthcare Solutions, Inc.
In our opinion, the consolidated balance sheet as of December 31, 1999 and
the related consolidated statements of operations, of cash flows and of
stockholders' equity (deficit) and comprehensive income (loss) for each of the
two years in the period ended December 31, 1999 listed in the index appearing
under Item 14(a)(1) on page 67 present fairly, in all material respects, the
financial position, results of operations and cash flows of Allscripts
Healthcare Solutions, Inc. (formerly Allscripts, Inc.) and its subsidiaries at
December 31, 1999 and for each of the two years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. We have not audited the
consolidated financial statements of Allscripts Healthcare Solutions, Inc. and
subsidiaries for any period subsequent to December 31, 1999.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 17, 2000
35
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1999 2000
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 40,561 $ 76,513
Marketable securities................................... 15,049 20,663
Accounts receivable, net of allowances of $3,743 in 1999
and $4,384 in 2000..................................... 5,126 13,850
Interest receivable..................................... 340 1,291
Inventories............................................. 3,585 5,290
Prepaid and other current assets........................ 786 1,724
-------- ---------
Total current assets.................................. 65,447 119,331
Long-term marketable securities........................... -- 22,661
Fixed assets, net......................................... 4,940 11,792
Intangible assets, net.................................... 3,575 149,690
Other assets.............................................. 52 1,946
-------- ---------
Total assets.......................................... $ 74,014 $ 305,420
======== =========
LIABILITIES
Current liabilities:
Accounts payable........................................ $ 4,352 $ 7,269
Accrued expenses........................................ 337 2,546
Accrued compensation.................................... 1,327 2,525
Deferred revenue........................................ 575 1,877
-------- ---------
Total current liabilities............................. 6,591 14,217
Long-term debt............................................ 59 --
Other non-current liabilities............................. -- 228
-------- ---------
Total liabilities..................................... 6,650 14,445
-------- ---------
STOCKHOLDERS' EQUITY
Preferred stock:
Undesignated, $0.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding at
December 31, 1999 and December 31, 2000................ -- --
Common stock:
$0.01 par value, 75,000,000 shares authorized,
24,221,537 shares issued, 24,187,072 shares outstanding
at December 31, 1999; 150,000,000 shares authorized,
29,138,619 shares issued, 29,104,154 shares outstanding
at December 31, 2000................................... 242 291
278,646 shares issued and held pursuant to business
combinations at December 31, 2000...................... -- 3
Additional paid-in capital................................ 130,830 411,081
Unearned compensation..................................... (1,632) (1,097)
Treasury stock at cost: 34,465 common shares at December
31, 1999 and December 31, 2000........................... (68) (68)
Accumulated deficit....................................... (62,008) (119,375)
Accumulated other comprehensive income.................... -- 140
-------- ---------
Total stockholders' equity............................ 67,364 290,975
-------- ---------
Total liabilities and stockholders' equity............ $ 74,014 $ 305,420
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Revenue........................................... $23,682 $ 27,586 $ 54,983
Cost of revenue................................... 17,320 21,909 42,518
------- -------- --------
Gross profit.................................. 6,362 5,677 12,465
Selling, general and administrative expenses...... 12,658 20,656 42,733
Amortization of intangibles....................... 372 1,351 24,062
Write-off of acquired in-process research and
development...................................... -- -- 13,729
Other operating expenses.......................... 430 319 450
------- -------- --------
Loss from operations.......................... (7,098) (16,649) (68,509)
Interest income (expense), net.................... (596) 1,216 7,706
Other expense..................................... -- -- (1,000)
------- -------- --------
Loss from continuing operations................... (7,694) (15,433) (61,803)
Income from discontinued operations............... 970 642 83
Gain from sale of discontinued operations......... -- 3,547 4,353
------- -------- --------
Loss before extraordinary item.................... (6,724) (11,244) (57,367)
Extraordinary loss from early extinguishment of
debt............................................. (790) -- --
------- -------- --------
Net loss.......................................... (7,514) (11,244) (57,367)
Accretion of mandatory redemption value of
preferred shares and accrued dividends on
preferred shares................................. (2,415) (2,198) --
------- -------- --------
Net loss attributable to common stockholders...... $(9,929) $(13,442) $(57,367)
======= ======== ========
Per share data--basic and diluted:
Loss from continuing operations (including
accretion and accrued dividends on preferred
shares)........................................ $ (1.66) $ (1.20) $ (2.22)
Income from discontinued operations............. 0.16 0.04 0.00
Gain from sale of discontinued operations....... -- 0.25 0.16
Extraordinary loss.............................. (0.13) -- --
------- -------- --------
Net loss attributable to common stockholders.... $ (1.63) $ (0.91) $ (2.06)
======= ======== ========
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share............................... 6,076 14,718 27,900
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE
INCOME (LOSS)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accumu-
Treasury lated
Preferred Stock Common Stock Additional Unearned Stock Other
------------------ ---------------- Paid-In Compen- ------------- Accumu- Comprehensive
Shares Amount Shares Amount Capital sation Shares Amount lated Deficit Income Total
---------- ------ --------- ------ ---------- -------- ------ ------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1997............. 8,718,768 $8,719 3,425,052 $35 $16,208 $ -- 34,465 $(68) $(43,250) $-- $(18,356)
Issuance of
4,597,070 common
shares in Series
I Unit Offering. 4,597,070 46 963 1,009
Issuance of
336,532 common
shares under
option
agreements...... 336,532 3 54 57
Issuance of
1,326,652
warrants in
connection with
exchange of
subordinated
convertible
debentures for
Series J
redeemable
preferred stock. 239 239
Unearned
compensation
expense......... 407 (407) --
Compensation
expense......... 176 176
Cumulative
dividends in
arrears on
Series H
redeemable
preferred stock. (704) (704)
Cumulative
dividends in
arrears on
Series I
redeemable
preferred stock. (521) (521)
Cumulative
dividends in
arrears on
Series J
redeemable
preferred stock. (702) (702)
Accretion of
mandatory
redemption value
of preferred
stock........... (323) (323)
Issuance costs
of Series I Unit
Offering........ (153) (153)
Net loss for the
year ended
December 31,
1998............ (7,514) (7,514)
---------- ------ --------- --- ------- ------ ------ ---- -------- --- --------
Balance at
December 31,
1998............. 8,718,768 8,719 8,358,654 84 15,468 (231) 34,465 (68) (50,764) -- (26,792)
Issuance of
204,771 shares
of common stock
in connection
with
acquisition..... 204,771 2 2,570 2,572
Issuance of
961,541 shares
of common stock
under option
agreements...... 961,541 9 797 806
Expense related
to warrants
granted to non-
employee........ 30 30
Issuance of
7,000,000 shares
of common stock
in initial
public offering,
net of offering
expenses........ 7,000,000 70 102,639 102,709
Payment of
fractional
shares in
connection with
reverse stock
split........... (6) (6)
Issuance of
4,699,130 shares
of common stock
under warrant
agreements...... 4,699,130 47 367 414
Issuance of
19,958 shares of
common stock
under a
contingent
payment
obligation...... 19,958 0 319 319
Conversion of
convertible
preferred stock
to common stock
at initial
public offering. (8,718,768) (8,719) 2,977,483 30 8,689 --
Other capital
contribution.... 12 12
Unearned
compensation
expense......... 1,850 (1,850) --
Compensation
expense......... 449 449
Expense related
to options
granted to non-
employees....... 293 293
Cumulative
dividends in
arrears on
Series H
redeemable
preferred stock. (407) (407)
Cumulative
dividends in
arrears on
Series I
redeemable
preferred stock. (425) (425)
Cumulative
dividends in
arrears on
Series J
redeemable
preferred stock. (572) (572)
Accretion of
mandatory
redemption value
of preferred
stock........... (794) (794)
Net loss for the
year ended
December 31,
1999............ (11,244) (11,244)
---------- ------ --------- --- ------- ------ ------ ---- -------- --- --------
<CAPTION>
Comprehensive
Income (Loss)
Total
-------------
<S> <C>
Balance at
December 31,
1997............. $ --
Issuance of
4,597,070 common
shares in Series
I Unit Offering.
Issuance of
336,532 common
shares under
option
agreements......
Issuance of
1,326,652
warrants in
connection with
exchange of
subordinated
convertible
debentures for
Series J
redeemable
preferred stock.
Unearned
compensation
expense.........
Compensation
expense.........
Cumulative
dividends in
arrears on
Series H
redeemable
preferred stock.
Cumulative
dividends in
arrears on
Series I
redeemable
preferred stock.
Cumulative
dividends in
arrears on
Series J
redeemable
preferred stock.
Accretion of
mandatory
redemption value
of preferred
stock...........
Issuance costs
of Series I Unit
Offering........
Net loss for the
year ended
December 31,
1998............ (7,514)
-------------
Balance at
December 31,
1998............. (7,514)
=============
Issuance of
204,771 shares
of common stock
in connection
with
acquisition.....
Issuance of
961,541 shares
of common stock
under option
agreements......
Expense related
to warrants
granted to non-
employee........
Issuance of
7,000,000 shares
of common stock
in initial
public offering,
net of offering
expenses........
Payment of
fractional
shares in
connection with
reverse stock
split...........
Issuance of
4,699,130 shares
of common stock
under warrant
agreements......
Issuance of
19,958 shares of
common stock
under a
contingent
payment
obligation......
Conversion of
convertible
preferred stock
to common stock
at initial
public offering.
Other capital
contribution....
Unearned
compensation
expense.........
Compensation
expense.........
Expense related
to options
granted to non-
employees.......
Cumulative
dividends in
arrears on
Series H
redeemable
preferred stock.
Cumulative
dividends in
arrears on
Series I
redeemable
preferred stock.
Cumulative
dividends in
arrears on
Series J
redeemable
preferred stock.
Accretion of
mandatory
redemption value
of preferred
stock...........
Net loss for the
year ended
December 31,
1999............ (11,244)
-------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Accumu-
Preferred Treasury lated
Stock Common Stock Additional Unearned Stock Accumu- Other
------------- ----------------- Paid-In Compen- ------------- lated Comprehensive
Shares Amount Shares Amount Capital sation Shares Amount Deficit Income Total
------ ------ ---------- ------ ---------- -------- ------ ------ --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1999............. -- -- 24,221,537 242 130,830 (1,632) 34,465 (68) (62,008) -- 67,364
Issuance of
214,794 shares
of common stock
to IMS.......... 214,794 2 9,981 9,983
Issuance of
2,641,215 shares
of common stock
in connection
with
acquisitions and
option
conversions..... 2,641,215 26 169,044 169,070
Issuance of
1,452,000 shares
of common stock
in public
offering, net of
offering
expenses........ 1,452,000 15 99,751 99,766
Issuance of
844,083 shares
of common stock
under option
agreements...... 844,083 8 714 722
Issuance of
43,636 shares of
common stock
under warrant
agreements...... 43,636 1 19 20
Compensation
expense......... 535 535
Compensation
expense--non-
employee........ 751 751
Other, net...... (9) (9)
Comprehensive
income (loss):
Net loss for the
year ended
December 31,
2000............ (57,367) (57,367)
Other
comprehensive
income-
unrealized gain
on marketable
securities, net
of tax of $93... 140 140
--- ---- ---------- ---- -------- ------- ------ ---- --------- ---- --------
Balance at
December 31,
2000............. -- $-- 29,417,265 $294 $411,081 $(1,097) 34,465 $(68) $(119,375) $140 $290,975
=== ==== ========== ==== ======== ======= ====== ==== ========= ==== ========
<CAPTION>
Comprehensive
Income (Loss)
Total
-------------
<S> <C> <C>
Balance at
December 31,
1999............. (11,244)
=============
Issuance of
214,794 shares
of common stock
to IMS..........
Issuance of
2,641,215 shares
of common stock
in connection
with
acquisitions and
option
conversions.....
Issuance of
1,452,000 shares
of common stock
in public
offering, net of
offering
expenses........
Issuance of
844,083 shares
of common stock
under option
agreements......
Issuance of
43,636 shares of
common stock
under warrant
agreements......
Compensation
expense.........
Compensation
expense--non-
employee........
Other, net......
Comprehensive
income (loss):
Net loss for the
year ended
December 31,
2000............ (57,367)
Other
comprehensive
income-
unrealized gain
on marketable
securities, net
of tax of $93... 140
-------------
Balance at
December 31,
2000............. $(57,227)
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(7,514) $(11,244) $(57,367)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,531 2,517 28,632
Gain on sale of discontinued operations....... -- (3,547) (4,353)
Expense from issuance of equity instruments to
non-employees................................ -- 323 751
Write off of in process research and
development.................................. -- -- 13,729
Extraordinary loss............................ 791 -- --
Write-down of investment...................... -- -- 1,000
Non-cash compensation expense................. 176 449 535
Exchange of debentures in satisfaction of
accrued interest............................. 439 -- --
Other non-cash charges........................ -- 319 --
Provision for doubtful accounts............... 1,241 (633) 980
Changes in assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in accounts receivable.. (1,186) 4,828 (8,449)
(Increase) in interest receivable........... -- -- (951)
(Increase) in inventories................... (348) (1,353) (1,525)
(Increase) decrease in prepaids and other
current assets............................. 154 (604) (2,782)
(Decrease) increase in accounts payable..... 1,131 (3,999) 2,366
(Decrease) increase in accrued compensation. (464) 261 540
(Decrease) increase in accrued expenses and
deferred revenue........................... (116) (10) 1,780
Increase in other non-current liabilities... -- -- 135
------- -------- --------
Net cash used in operating activities..... (4,165) (12,693) (24,979)
------- -------- --------
Cash flows from investing activities:
Capital expenditures............................ (884) (4,428) (9,351)
Purchase of marketable securities............... -- (15,049) (61,112)
Maturities of marketable securities............. -- -- 33,296
Proceeds from sale of discontinued operations... -- 7,472 4,353
Cash provided by (used for) acquisitions, net of
acquired cash.................................. -- 46 (13,223)
Purchase of investment.......................... -- -- (1,000)
------- -------- --------
Net cash used in investing activities..... (884) (11,959) (47,037)
------- -------- --------
Cash flows from financing activities:
Proceeds from public offering, net.............. -- 102,709 99,766
Borrowings under line of credit................. 4,000 1,400 --
Payments under line of credit................... (2,500) (5,400) (2,464)
Proceeds from Series I Unit Offering............ 8,930 -- --
Payments for preferred stock redemptions........ -- (34,745) --
Payment of notes payable........................ -- (650) (59)
Proceeds from exercise of common stock warrants. -- 414 20
Repayment of term loan.......................... (4,693) -- --
Proceeds from issuance of common stock to IMS... -- -- 9,983
Proceeds from exercise of common stock options.. 57 806 722
Share and debt issue costs...................... (232) (45) --
Other capital contribution...................... -- 12 --
Payment of fractional shares.................... -- (6) --
------- -------- --------
Net cash provided by financing activities. 5,562 64,495 107,968
------- -------- --------
Net increase in cash and cash equivalents......... 513 39,843 35,952
Cash and cash equivalents, beginning of year...... 205 718 40,561
------- -------- --------
Cash and cash equivalents, end of year............ $ 718 $ 40,561 $ 76,513
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Allscripts Healthcare Solutions, Inc. (formerly Allscripts, Inc.) and its
wholly owned subsidiaries, Allscripts Pharmacy Centers, Inc., Prescription
Management Company, Inc., Physician Dispensing Systems, Inc., TeleMed Corp.,
Compumed, Inc., Masterchart, Inc., Medifor, Inc., Allscripts, Inc. and
Channelhealth Incorporated, which was acquired January 8, 2001, (altogether
referred to as "Allscripts"), provide physicians with decision support systems
designed to improve the quality and cost effectiveness of healthcare.
Allscripts grants uncollateralized credit to its customers. Allscripts operates
in one industry segment. As its product offerings evolve, the manner in which
its activities are internally reported and its decisions are made could change.
Allscripts will continually evaluate its determination of operating segments.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allscripts
Healthcare Solutions, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents balances at December 31, 1999 and December 31,
2000 consist of cash and highly liquid corporate debt securities with
maturities at the time of purchase of less than 90 days. Allscripts' cash, cash
equivalents, short term marketable securities and long-term marketable
securities are invested in overnight repurchase agreements, money market funds
and corporate debt securities. The carrying value of our cash equivalents,
short-term marketable securities and long-term marketable securities is as
follows:
<TABLE>
<CAPTION>
December 31,
----------------
1999 2000
------- --------
(in thousands)
<S> <C> <C>
Cash equivalents:
Overnight repurchase agreements........................ $ 290 $ --
Money market funds..................................... 16,578 15
Corporate debt securities.............................. 22,066 68,620
------- --------
38,934 68,635
Short-term marketable securities:
Corporate debt securities.............................. 15,049 20,663
Long-term marketable securities:
Corporate debt securities (contractual lives ranging
from 1-12 years)...................................... -- 22,661
------- --------
Total cash equivalents and marketable securities..... $53,983 $111,959
======= ========
</TABLE>
Gross unrealized gains were $24,000 and $209,000 under current and long-term
marketable securities, respectively, as of December 31, 2000. Gross unrealized
gains and losses were immaterial at December 31, 1999. Gross realized gains and
losses were immaterial for the years ended December 31, 1999 and 2000.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates the designation at each
balance sheet date. Marketable debt and equity securities are classified as
available-for-sale and are carried at their fair value, with the unrealized
gains and losses reported net-of-tax in a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be other-
than-temporary on available-for-sale securities are included in interest
income. The cost of securities sold is based on specific identification.
Interest and dividends on securities classified as available-for-sale are
included in interest income.
41
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories, which consist primarily of finished goods, are carried at the
lower of cost or market with cost being determined using the specific
identification method.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are computed
on the straight-line method over the estimated useful lives of the related
assets. Upon asset retirement or other disposition, cost and the related
accumulated depreciation are removed from the accounts, and gain or loss is
included in the consolidated statements of operations. Amounts expended for
repairs and maintenance are charged to operations as incurred.
Website Costs
Allscripts' website costs consist of the costs to develop features that
enable users to perform functions on-line, hosting costs and costs to develop
content and graphics. Allscripts has adopted the provisions of the American
Institute of Certified Public Accountants' Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." At December 31, 1999 and 2000, approximately $0 and $286,000,
respectively, was capitalized for the development of Allscripts' website and
was included in property and equipment. These costs are being amortized over
the expected life of the website, which is two years. Costs associated with
content changes and maintenance incurred subsequent to the launch of the
website have been expensed as incurred.
Intangible Assets
Intangible assets, which are stated at cost, consist of software rights,
customer lists, trademarks and goodwill. Allscripts' policy is to amortize
intangible assets using the straight-line method over the remaining estimated
economic life of those assets, including the period being reported on.
Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Allscripts accounts for long-lived assets in accordance with the provisions
of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
Software Development Costs
Allscripts capitalizes purchased software that is ready for service and
software development costs incurred from the time technological feasibility of
the software is established until the software is ready for use. Research and
development costs and other computer software maintenance costs related to
software development are expensed as incurred. Upon the establishment of
technological feasibility for previous versions of TouchScript, related
software development costs were capitalized. However, these costs were written
off because the recoverability was uncertain since market acceptance of
TouchScript had not been achieved. Development costs incurred subsequent to the
establishment of technological feasibility but prior to general release of the
current version of TouchScript were not significant. Software development costs
of $771,000, $1,417,000 and $3,774,000 have been expensed in 1998, 1999 and
2000, respectively. The costs of purchased software are amortized using the
straight-line method over three years.
42
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Debt Issuance Costs
Costs attributable to the issuance of significant debt are deferred and
amortized on a straight-line basis over the term of the related debt.
Income Taxes
Deferred tax assets or liabilities are established for temporary differences
between financial and tax reporting bases and for tax carryforward items and
are subsequently adjusted to reflect changes in tax rates expected to be in
effect when the temporary differences reverse. A valuation allowance is
established for any deferred tax asset for which realization is not likely.
Stock Based Compensation
Allscripts follows Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (FAS 123). As allowed by FAS 123,
Allscripts has elected to continue to account for its stock based compensation
programs according to the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, compensation
expense has been recognized to the extent of employee or director services
rendered based on the intrinsic value of compensatory options or shares granted
under the plans. Allscripts has adopted the disclosure provisions required by
FAS 123.
Revenue Recognition
Allscripts' revenue is primarily derived from the sale of medications for
dispensing at the point of care. Allscripts offers the right of return on
pharmaceutical products under various policies and estimates and maintains
reserves for product returns. Revenue from the sale of medications is
recognized upon shipment of the pharmaceutical products when no obligations
remain and collection of the receivable, net of provisions for estimated
returns, is probable.
Revenue is also generated from sales of software licenses and related
consulting services as well as from subscriptions for software and hardware.
Allscripts recognizes revenue in accordance with the provisions of Statement of
Position ("SOP") No. 97-2, "Software Revenue Recognition", as amended by SOP
98-9. SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair value of those elements. The fair value of an element must be
based on objective evidence specific to the vendor. If the vendor does not have
evidence of fair value for all the elements in a multi-element arrangement, all
revenue from the arrangement is deferred until such evidence exists or until
all elements are delivered, unless evidence of fair value is available for all
undelivered elements, then revenue related to the delivered elements can be
recognized using the residual value method prescribed by SOP 98-9. Revenue from
software licensing arrangements is principally recognized upon delivery.
Revenue from consulting services is recognized in the period in which services
are performed. Allscripts defers the recognition of all revenue until
collectibility is probable, persuasive evidence of an arrangement exists,
prices of the products and services being sold are supported by vendor specific
objective evidence, and payments are fixed and determinable. Revenue from
subscription agreements for software and related hardware is recognized ratably
over the term of the subscription period beginning after the software and
hardware have been delivered and installed and customer training has been
completed. However, no revenue is recognized for subscription agreements where
payment of the related fee is refundable or subject to performance of future
obligations. Revenue from the sale of hardware is recognized upon shipment of
the product.
In December 1999, the U.S. Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The adoption of SAB 101 during the quarter ended December
31, 2000 did not have a material effect on Allscripts' financial position or
results of operations.
43
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Manufacturer Rebates
Rebates from suppliers are recorded as a reduction of cost of revenue and
are recognized on an estimated basis upon shipment of the product to customers.
The difference between the amount estimated and the amount actually received is
reflected prospectively as a change of estimate. These revisions have not been
material.
Advertising Costs
Allscripts recognizes substantially all advertising costs as incurred.
Advertising expense was $0, $118,000 and $1,006,000 in 1998, 1999 and 2000,
respectively.
Comprehensive Income
During 1998, Allscripts adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Allscripts
has reported unrealized gains/(losses) on certain investments as other
comprehensive income.
Net Loss Per Share
Allscripts accounts for net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). FAS 128
requires the presentation of "basic" loss per share and "diluted" loss per
share. Basic loss per share is computed by dividing the net loss attributable
to common stockholders by the weighted average shares of outstanding common
stock. For purposes of calculating diluted earnings per share, the denominator
includes both the weighted average shares of common stock outstanding and
dilutive potential common stock.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded the impact of all
outstanding warrants and options to purchase shares of common stock, all
outstanding convertible preferred shares and debentures on an if-converted
basis and contingent share payment obligations from the calculation of diluted
loss per share because all such securities are antidilutive for all periods
presented.
On July 28, 1999, Allscripts consummated an initial public offering of its
common stock. Upon the closing of the offering, all of the outstanding shares
of Allscripts' convertible preferred stock were automatically converted into
2,977,483 shares of common stock. Additionally, 19,958 shares of common stock
were issued upon the closing of the offering, pursuant to a contingent share
payment obligation.
Shares of common stock issuable from securities that could potentially
dilute basic earnings per share in the future that were not included in the
computation of earnings per share because their effect was anti-dilutive were
as follows at December 31:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1998 1999 2000
------ ----- -----
(In thousands)
<S> <C> <C> <C>
Stock options.......................................... 2,697 2,587 3,728
Warrants............................................... 4,892 64 19
Convertible notes...................................... 14 14 --
Convertible preferred stock............................ 8,719 -- --
------ ----- -----
Total................................................ 16,322 2,665 3,747
====== ===== =====
</TABLE>
44
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additionally, the net loss applicable to common stockholders for the years
ended December 31, 1998, 1999 and 2000 would have been decreased by adding back
interest expense related to the convertible notes of approximately $282,000,
$5,000 and $0, respectively.
Fair Value of Financial Instruments
Cash and cash equivalents and marketable securities are reported at their
fair values in the balance sheets with the corresponding mark-to-market
adjustments recorded as other comprehensive income in stockholders' equity. The
carrying amounts reported in the balance sheets for accounts receivable and
accounts payable approximate their fair values due to the short-term nature of
these financial instruments. The fair value of the long-term debt is estimated
based on current interest rates available to Allscripts for debt instruments
with similar terms, degrees of risk and remaining maturities. The carrying
value of the long-term debt approximates its fair value.
Concentration of Credit Risk
Financial instruments that potentially subject Allscripts to a concentration
of credit risk consist of cash and cash equivalents, marketable securities and
trade receivables. Allscripts maintains its cash balances with one major
commercial bank and its cash equivalents and marketable securities in interest-
bearing, investment-grade securities.
Allscripts sells its products and services to healthcare providers. Credit
risk with respect to trade receivables is generally diversified due to the
large number of customers and their dispersion across the United States. To
reduce credit risk, Allscripts performs ongoing credit evaluations of its
customers and their payment histories. In general, Allscripts does not require
collateral from its customers, but it does enter into advance deposit, security
or guarantee agreements if appropriate.
The provision for doubtful accounts aggregated $1,241,000 and $980,000 in
1998 and 2000, respectively. Allscripts recorded a net credit to income
aggregating $633,000 in 1999 due to the collection of receivables, which had
been reserved as being uncollectable in previous periods.
Use of Estimates
Accounting principles generally accepted in the United States of America
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at year end and the reported amounts of revenue and expenses during
the year. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made in the prior period financial
statements to conform to the current period.
3. Statements of Operations Information
Other operating expenses consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Management reorganization and shutdown costs.............. $430 $-- $--
Settlement of contingent payment obligation............... -- 319 --
Expenses related to revision of interim financial
statements............................................... -- -- 450
---- ---- ----
$430 $319 $450
==== ==== ====
</TABLE>
45
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The management reorganization and shutdown costs relate to severance costs
associated with reductions in force and other severance arrangements. In 1998,
ten administrative and nine sales employees were affected by the
reorganization. As of December 31, 1999, all payments provided for had been
made.
A summary of management reorganization and shutdown costs and related
payments is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Beginning balance........................................ $181 $273 $--
Expense.................................................. 430 -- --
Payments................................................. (338) (273) --
---- ---- ----
Ending balance......................................... $273 $-- $--
==== ==== ====
</TABLE>
The settlement of contingent payment obligation in 1999 reflects a non-cash
charge related to the issuance of 19,958 shares of common stock upon the
closing of the initial public offering in settlement of a contingent obligation
related to an acquisition Allscripts made in 1995.
As a result of restating Allscripts' financial results for the quarter ended
June 30, 2000, a number of charges including professional fees, were incurred.
Other non-operating expense for the twelve months ended December 31, 2000 of
$1,000,000 reflects a non-cash writedown of an investment in an early stage
Internet software company focused on the college healthcare market.
4. Acquisitions
In 1999, Allscripts completed acquisitions through the issuance of 204,771
shares of its common stock valued at approximately $2,572,000 and a promissory
note in the principal amount of $650,000, bearing interest at 6% per year and
payable upon the consummation of an initial public offering. The business
combinations were accounted for using the purchase method of accounting, and
the results of operations have been included in the consolidated financial
statements subsequent to the dates of acquisition. The acquisitions resulted in
goodwill of approximately $3,830,000, which represents the excess of the
purchase price over the fair value of the acquired net assets and which is
being amortized on a straight-line basis over two years. The promissory note,
including accrued interest of $3,000, was repaid in August 1999.
On May 9, 2000, Allscripts acquired MasterChart, Inc., a software developer
providing dictation, integration and patient record technology. In exchange for
all of the outstanding common stock of MasterChart, Allscripts issued 1,617,873
shares of its common stock with a value of approximately $127,400,000 and paid
cash of approximately $5,000,000. The business combination was accounted for
using the purchase method of accounting and MasterChart's results of operations
have been included in the consolidated financial statements subsequent to the
date of acquisition. Approximately $5,000,000 of the purchase price was
allocated to the value of acquired in-process research and development that had
no alternative future use and was charged against operations during the three
months ended June 30, 2000. In addition, approximately $4,600,000 of the
purchase price was allocated to acquired software and is being amortized on a
straight-line basis over two years, the software's estimated useful life.
Trademarks and goodwill, totaling approximately $125,600,000, are being
amortized on a straight-line basis over five years. Goodwill represents the
excess of the purchase price over the fair market value of the net assets
acquired.
On May 17, 2000, Allscripts acquired Medifor, Inc., a provider of
computerized patient and physician education products. In exchange for all of
the outstanding common and preferred A and B stock of Medifor, Allscripts
issued 935,858 shares of its common stock with a fair value of approximately
$34,400,000. In addition, Allscripts issued 142,786 common stock options in
replacement of Medifor common stock options with a fair value of approximately
$4,200,000. The fair value of the replacement common stock options was
46
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
estimated using the Black-Scholes model. The business combination was accounted
for using the purchase method of accounting and Medifor's results of operations
have been included in the consolidated financial statements subsequent to the
date of acquisition. Approximately $8,700,000 of the purchase price was
allocated to the value of acquired in-process research and development that had
no alternative future use and was charged against operations during 2000.
Trademarks and goodwill totaling $30,300,000 are being amortized on a straight-
line basis over five years. Goodwill represents the excess of the purchase
price over the fair value of the net assets acquired.
The income approach was the primary technique utilized in valuing the
purchased in-process research and development. The income approach focuses on
the income producing capability of the acquired assets and best represents the
present value of the future economic benefits expected to be derived from these
assets. The approach included, but was not limited to, an analysis of (i) the
expected cash flows attributable to the in-process research and development
projects; (ii) the risks associated with achieving such cash flows; (iii) the
completion costs for the projects, and (iv) the stage of the completion of each
project.
Pursuant to the terms of the MasterChart and Medifor purchase agreements,
certain shares of Allscripts' common stock were not delivered at the
acquisition dates. It is anticipated that all undelivered shares will be
delivered by March 31, 2001.
In 2000, Allscripts completed another acquisition through the issuance of
87,484 shares of its common stock with a value of approximately $3,000,000 and
a payment of $8,000,000 in cash. The business combination was accounted for
using the purchase method of accounting, and the results of operations have
been included in the consolidated financial statements subsequent to the date
of acquisition. The acquisition resulted in goodwill of approximately
$10,800,000, which represents the excess of the purchase price over the fair
value of the acquired net assets and which is being amortized on a straight-
line basis over two years. The operating results of this acquisition were not
material.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1999 and 2000 assume the MasterChart, Inc. and
Medifor, Inc. acquisitions occurred as of January 1 of each year after giving
effect to purchase accounting adjustments. These pro forma financial statements
have been prepared for comparative purposes only and do not purport to be
indicative of what Allscripts' operating results would have been had the
acquisitions actually taken place at the beginning of each of the periods
presented, nor are they necessarily indicative of future consolidated operating
results. The pro forma information below excludes the impact of non-recurring
charges related to an immediate expensing of acquired in-process research and
development, as well as the impact of charges from stock-based compensation
recognized by MasterChart in connection with the acquisition.
The pro forma weighted average shares used in computing unaudited pro forma
basic and diluted loss per share include 1,617,873 and 935,858 shares issued as
consideration for the MasterChart and Medifor acquisitions, respectively, as if
they had been issued as of January 1 of each period presented.
47
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1999 2000
-------- --------
(unaudited)
(In thousands,
except per share
data)
<S> <C> <C>
Revenue.............................................. $ 31,792 $ 56,703
Loss from continuing operations...................... (51,570) (75,475)
Income from discontinued operations.................. 642 83
Gain from sale of discontinued operations............ 3,547 4,353
Net loss............................................. (47,381) (71,039)
Net loss attributable to common stockholders......... (49,579) (71,039)
Per share data--basic and diluted:
Loss from continuing operations (including
accretion and accrued dividends on preferred
shares)........................................... $ (3.11) $ (2.61)
Income from discontinued operations................ 0.04 0.00
Gain from sale of discontinued operations.......... 0.20 0.15
-------- --------
Net loss attributable to common stockholders..... $ (2.87) $ (2.46)
======== ========
Weighted average shares of common stock outstanding
used in computing unaudited pro forma basic and
diluted net loss per share.......................... 17,272 28,851
======== ========
</TABLE>
5. Fixed Assets
Fixed assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1999 2000
----------- ------- -------
(In thousands)
<S> <C> <C> <C>
Office furniture and equipment............... 2-7 years $ 4,466 $ 7,093
Service assets............................... 2 years 3,844 10,619
Production and warehouse equipment........... 7 years 1,088 1,159
Leasehold improvements....................... 4 years 952 1,477
Website development costs.................... 2 years -- 286
Construction in progress..................... -- 57 --
------- -------
10,407 20,634
Less accumulated depreciation and
amortization................................ 5,467 8,842
------- -------
Fixed assets, net............................ $ 4,940 $11,792
======= =======
</TABLE>
Depreciation and amortization expense was approximately $563,000, $980,000
and $3,411,000 in 1998, 1999 and 2000, respectively.
Service assets include equipment placed with customers for their use in
running Allscripts' software. At December 31, 1999 and 2000, service assets
included $1,296,000 and $2,970,000, respectively, of assets at physician sites
in various stages of installation for which depreciation had not begun. Amounts
deemed necessary to reserve for writedowns to fair value on returned equipment
are included in accumulated depreciation and amortization.
48
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Intangible Assets
Intangible assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1999 2000
----------- ------- --------
(In thousands)
<S> <C> <C> <C>
Acquired software........................... 2-3 years $ 81 $ 4,678
Trademarks.................................. 5 years -- 26,104
Customer lists.............................. 4-5 years 3,563 3,563
Goodwill.................................... 2-8 years 12,044 152,656
------- --------
15,688 187,001
Less accumulated amortization............... 12,113 37,311
------- --------
Intangibles, net............................ $ 3,575 $149,690
======= ========
</TABLE>
Goodwill increased by $140,600,000 in 2000 due to the acquisitions described
in Note 4.
7. Notes Payable
Through April 16, 1998, Allscripts maintained a credit arrangement with a
commercial bank consisting of two components, a revolving credit facility and a
term loan. The revolving credit facility permitted borrowings up to
$10,000,000, limited by certain eligible working capital requirements.
Borrowings under the revolving credit facility were collateralized by accounts
receivable, inventories, equipment and other assets.
On April 16, 1998, Allscripts signed a revolving credit agreement with a
commercial bank. As amended, the revolving credit facility permitted borrowings
up to $10,000,000, limited by certain eligible working capital requirements.
Interest is at prime plus 0.5%. Borrowings under the revolving credit facility
are collateralized by accounts receivable, inventory, equipment and other
assets. The revolving credit facility expired on April 16, 2000.
Under the revolving credit agreement, Allscripts was required to maintain
certain financial ratios, including minimum net working capital, minimum EBITDA
and minimum capital funds. The agreement also prohibited the payment of
dividends. No outstanding borrowings existed under the line at December 31,
1999, and no amounts were available for borrowing at that date due to certain
covenant violations.
8. Long-Term Obligations
On April 30, 1996, Allscripts completed a $10,000,000 financing in the form
of 8.0% convertible subordinated debentures due April 30, 2001. Interest on the
debentures was payable semiannually. The debentures could be converted into
2,683,152 common shares of Allscripts at a conversion price equal to $4.2024.
The debentures were convertible at the option of the holder. Under the terms of
the debenture agreements, Allscripts' ability to pay dividends was restricted
under certain circumstances.
In conjunction with the issuance of the Series I Preferred and common stock,
the majority of the outstanding subordinated convertible debentures were
exchanged for 1,803,838 shares of Series J Preferred. In connection with this
exchange, Allscripts also issued to the Series J Preferred stockholders
1,326,652 detachable warrants to purchase shares of common stock of Allscripts
for $0.06 per share. The warrants had an expiration date of five years from the
date of closing of the sale of Series I Preferred (see Note 11). The balance of
the outstanding convertible subordinated debentures was paid-off in January
2000.
An extraordinary loss of $790,000 was recorded in the consolidated statement
of operations for the year ended December 31, 1998, consisting of the writeoff
of deferred financing costs related to Allscripts'
49
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
convertible subordinated debentures in connection with their exchange for
shares of Series J Preferred and warrants.
Long-term obligations as of December 31 consist of the following:
<TABLE>
<CAPTION>
1999 2000
------- -------
(In thousands,
except per
share amounts)
<S> <C> <C>
Convertible subordinated debentures issued April 30, 1996;
due April 30, 2001; interest at 8.0% payable semiannually
on April 30 and October 31, potentially increasing 0.5%
on each such interest record date to a maximum of 1.5%;
convertible into 13,985 common shares at December 31,
1999 at $4.2024.......................................... $ 59 $ --
====== =======
</TABLE>
9. Income Taxes
The U.S. Federal statutory tax rate differs from Allscripts' effective tax
rate for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory tax
rate..................... (34.0)% (34.0)% (34.0)%
Items affecting Federal
income tax rate:
Amortization of
nondeductible goodwill. 1.3 3.4 11.9
Acquired in-process
research and
development............ -- -- 8.1
Other, net.............. 1.2 (0.9) 1.2
Valuation allowance..... 31.5 31.5 12.8
----- ----- -----
Effective income tax rate. -- % -- % -- %
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 17,222 $ 22,041
Allowance for doubtful accounts..................... 1,553 1,707
Acquisition costs................................... 362 340
Accrued expenses.................................... 329 97
Deferred compensation............................... -- 407
Goodwill amortization............................... -- 186
Inventory........................................... -- 62
Property, plant, and equipment...................... 110 296
Other............................................... 62 34
-------- --------
Total deferred tax assets......................... 19,638 25,170
Less: valuation allowance............................. (19,638) (15,003)
-------- --------
Net deferred tax assets............................... $ -- $ 10,167
-------- --------
Deferred tax liabilities:
Acquired intangibles................................ $ -- $ 10,073
Website development costs........................... -- 94
-------- --------
Total deferred tax liabilities.................... -- 10,167
-------- --------
Net deferred tax assets (liabilities)................. $ -- $ --
======== ========
</TABLE>
50
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The valuation allowance as of January 1, 1999 was $15,284,000. The net
change in the total valuation allowance for the years ended December 31, 1999
and 2000 is an increase of $4,354,000 and a decrease of $4,635,000,
respectively. The decrease in the valuation allowance in 2000 is also affected
by a decrease attributable to acquired net deferred tax liabilities of
$11,973,000.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.
At December 31, 2000, Allscripts has operating loss carry forwards available
for Federal income tax reporting purposes of approximately $56,587,000. The
operating loss carryforwards expire between 2002 and 2020. Allscripts' ability
to utilize these operating loss carryforwards to offset future taxable income
is dependent on a variety of factors, including possible limitations on usage
pursuant to Internal Revenue Code Section (IRC) 382. IRC 382 imposes an annual
limitation on the future utilization of operating loss carryforwards due to
changes in ownership resulting from the issuance of common stock, stock
options, warrants and convertible preferred stock.
10. Redeemable Preferred Shares
The Series H Preferred shares were voting, nonparticipating and had a
liquidation preference upon dissolution of Allscripts of $6.462 per share plus
an amount equal to all unpaid dividends accrued thereon. The Series H Preferred
shares were senior to Series A, Series B, Series C, Series D, Series F and
Series G Preferred shares with respect to the liquidation preference.
The shares were entitled to cumulative, quarterly dividends of 8.0% accruing
from the date of issuance and payable beginning September 15, 1998 and then
payable quarterly thereafter. Mandatory redemption of shares (at $6.462 per
share) in the proportion of 10%, 10%, 10%, and 70% of the total number of
shares originally issued was initially scheduled to begin on September 15, 1998
and occur annually thereafter through 2001, respectively.
In connection with the 8% convertible subordinated debenture offering
described in Note 8, the terms of the Series H Preferred were amended. Pursuant
to such amendment, on September 15, 1998, Allscripts was required to begin
paying dividends quarterly. Allscripts was required to redeem shares of Series
H Preferred with a redemption value of $6.16 million and all accrued dividends
thereon on September 15, 2001.
In conjunction with the issuance of $8,930,000 of Series I Preferred on
April 16, 1998, the terms of the Series H Preferred were amended to extend the
maturity date five years from the closing of the sale of the Series I
Preferred. Allscripts was required to redeem shares of Series H Preferred equal
to $8,800,000 plus all accrued dividends ($3,007,000 at December 31, 1998 or
$2.21 per share) five years from the closing of the sale of Series I Preferred.
In consideration of the change in terms therein, Allscripts issued 916,651
warrants to purchase shares of common stock of Allscripts for $0.06 per share
to the holders of Series H Preferred. The warrants will expire five years from
the date of the closing of the sale of Series I Preferred. The Series H
Preferred shares were redeemed at $8,800,000 plus accrued unpaid dividends,
upon completion of the initial public offering of Allscripts common stock on
July 28, 1999.
On April 16, 1998, Allscripts effected the private placement of Series I
Preferred and common stock of Allscripts for $8,930,000. The common stock
component, 4,597,070 shares, represented 24.4% of Allscripts' common stock at
April 16, 1998, assuming exercise of all options and warrants and the
conversion of all convertible preferred stock into common stock. Based upon an
independent appraisal, $1,009,000 was allocated to the value of the common
stock issued in the Series I Unit Offering. The difference, $733,000, between
the
51
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
amount initially recorded for the redeemable preferred stock and its redemption
value was accreted over the life of the Series I Preferred shares such that the
Series I Preferred shares were reflected at redemption value at the date of
redemption on July 28, 1999. The Series I Preferred shares were voting and had
a liquidation preference upon dissolution of Allscripts of $6.462 per share
plus an amount equal to all unpaid dividends accrued thereon. The Series I
Preferred shares were in parity with the Series J Preferred shares and senior
to Series A, Series B, Series C, Series D, Series F, Series G and Series H
Preferred shares with respect to liquidation preference.
A cumulative dividend on the Series I Preferred accrued at a rate of 8.5%
per annum. The Series I Preferred shares were redeemed at $8,654,000 plus
accrued unpaid dividends on July 28, 1999.
In conjunction with the issuance of the Series I Preferred and common stock,
substantially all of the outstanding subordinated convertible debentures were
exchanged for 1,803,838 shares of Series J Preferred. The Series J Preferred
shares were voting and had a liquidation preference upon dissolution of
Allscripts of $6.462 per share plus an amount equal to all unpaid dividends
accrued thereon.
A cumulative dividend on the Series J Preferred accrued at a rate of 8.5%
per annum. The Series J Preferred shares were redeemed at $11,656,000 plus
accrued unpaid dividends on July 28, 1999.
11. Stockholders' Equity
Preferred Shares
The Series A, Series B, Series C, Series D, Series F and Series G Preferred
shares were voting, nonparticipating, convertible, and had a liquidation
preference upon dissolution of Allscripts equal to $1.00, $3.75, $3.20, $4.50,
$1.25 and $4.50 per share, respectively. The Series G Preferred shares were
senior to the Series A, Series B, Series C, Series D and Series F Preferred
shares in respect to the liquidation preference. The Series C, Series D and
Series F Preferred shares were senior to the Series A and Series B Preferred
shares in respect to the liquidation preference. These preferred shareholders
had the option to convert their shares into common shares at prescribed rates.
Automatic conversion of all convertible preferred shares into 2,977,483 shares
of common stock occurred upon the closing of the initial public offering of
Allscripts common stock on July 28, 1999.
Common Stock
During 1999, Allscripts' Board of Directors authorized and its shareholders
approved a one-for-six reverse common stock split. Consequently, all common
share and per share information in the accompanying financial statements has
been adjusted to reflect the reverse stock split.
On July 28, 1999, Allscripts completed the initial public offering of its
common stock. Allscripts issued 7,000,000 shares of common stock at an initial
public offering price of $16.00 per share and all outstanding shares of
convertible preferred stock automatically converted into 2,977,483 shares of
common stock. The initial public offering resulted in gross proceeds of
$112,000,000, $7,840,000 was applied to the underwriting discount and
approximately $1,451,000 was applied to related offering expenses. In addition,
Allscripts used approximately $34,745,000 of the proceeds to redeem all
outstanding shares of its Series H, I and J Redeemable Preferred Stock, plus
accrued dividends thereon, $3,900,000 to repay advances under its revolving
line of credit with its commercial bank and approximately $653,000 to repay a
promissory note, including accrued interest, issued as consideration for a 1999
acquisition.
52
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During February 2000, Allscripts sold IMS Health Incorporated 214,794 shares
of Allscripts common stock for a purchase price of $9,983,000, net of related
expenses of $17,000.
On March 10, 2000, Allscripts completed a public offering of 1,452,000
shares of its common stock, at an offering price of $73.00 per share. The
public offering resulted in gross proceeds of $105,996,000, $5,561,000 of which
was applied to the underwriting discount and approximately $669,000 of which
was applied to related offering expenses. The remaining net proceeds of
approximately $99,766,000 were invested in interest-bearing, investment grade
securities.
Warrants
In conjunction with the 1996 convertible subordinated debenture offering,
the term loan guaranteed by a stockholder was amended to extend the maturity
date to April 30, 1998. In exchange for extending its guaranty of such term
debt, Allscripts issued warrants to purchase an aggregate of 279,175 common
shares with a strike price of $4.2024. The warrants expire April 30, 2001.
Because the exercise price of the warrants exceeded the per share value implied
by the convertible subordinated debenture offering, no value was ascribed to
the warrants. At December 31, 2000, 10,713 warrants were outstanding, all of
which were fully vested and exercisable.
As a condition to the Series I Unit Offering, Allscripts amended the
maturity date of the Series H Preferred stock and exchanged the subordinated
convertible debentures for shares of Series J Preferred stock. In exchange for
these concessions, Allscripts issued detachable warrants to the holders of
Series H Preferred stock and holders of Series J Preferred stock to receive in
the aggregate 916,651 and 1,326,652 shares of common stock, respectively. Based
upon an independent appraisal, $165,000 was allocated to the warrants issued to
the Series H Preferred stockholders, and the net loss attributable to the
common stockholders in 1998 was increased by this amount. Based upon an
independent appraisal, $239,000 was assigned to the value of the warrants
issued to the Series J Preferred stockholders. The warrants carry a strike
price of $0.06 and expire in April 2003. At December 31, 2000, 1,876 warrants
issued to Series H Preferred stockholders and 2,528 warrants issued to Series J
Preferred stockholders were outstanding, all of which were fully vested and
exercisable.
During 1999, Allscripts issued a fully vested warrant to purchase 3,333
shares of common stock at $3.00 per share to a non-employee for services
rendered. Allscripts assigned a value of $9.00 to the warrant and accordingly
recorded expense in the amount of $30,000 in 1999. These warrants expire ten
years after issuance. In addition, during 1999, Allscripts issued a
performance-based warrant to another non-employee to purchase 8,333 shares of
common stock at $3.00 per share. This warrant expired during 2000.
All of the above warrants may be exercised with payment of cash or the
surrender of additional warrants, such warrants to be valued by the excess of
fair market value of a common share on the day of exercise over the warrant
purchase price. For the year ended December 31, 1999 and 2000, 4,165,057 and
25,954, respectively, shares of common stock were issued through the cashless
exercise of warrants. Warrants to purchase 140,834 shares of common stock in
1999 and 45 shares of common stock in 2000 were surrendered to exercise these
warrants, such warrants being valued at the excess of fair market value of a
common share on the day of exercise over the warrant exercise price. The net
value surrendered, determined by the difference between the market price on the
date of exercise and the exercise price, was approximately $1,399,000 and
$2,000 in 1999 and 2000, respectively. The value of the net shares issued has
been included in par value of common stock and additional paid-in capital in
the accompanying consolidated balance sheet.
53
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 2000, Allscripts has reserved 18,450 shares of common stock
for issuance upon the exercise of warrants.
12. Stock Option Plans
At December 31, 2000, options to purchase 7,393,489 shares of common stock
were authorized under Allscripts' Amended and Restated 1993 Stock Incentive
Plan. The exercise price for shares under this plan is determined by
Allscripts' Board of Directors at the date of grant. All options must be
exercised within ten years of the date of grant. The plan provides for exercise
of options by payment of cash or surrender of common stock. Options vest on
various schedules, primarily on a straight-line basis over three and four year
periods from the date of grant, and in certain circumstances upon a change in
control. In January 2001, the Board of Directors approved the Allscripts'
Healthcare Solutions, Inc. 2001 Nonstatutory Stock Option Plan. The plan
provides for the issuance of up to 2,000,000 options to purchase common stock.
The plan will be administered by the Compensation Committee of the Board of
Directors. The plan covers employees of Allscripts or its affiliates
(excluding, however, any employee who is also serving as an officer or director
of Allscripts or an affiliate) designated by the Board or the Compensation
Committee as being eligible under the plan and non-employee consultants or
contractors. The exercise price, term and vesting period of option issued under
this plan are determined by the Compensation Committee at the time of grant.
In May 1998, in conjunction with the closing of the Series I Unit Offering
the Board of Directors approved the cancellation and reissuance of options to
purchase 1,481,916 shares of Allscripts' common stock. The options covered by
the grant all have an exercise price of $0.06 per share.
Total stock-based compensation expense included in selling, general and
administration expenses related to options issued to employees for the years
ended 1998, 1999 and 2000 was $176,000, $449,000 and $535,000, respectively.
At December 31, 2000, Allscripts has reserved 3,728,327 shares of common
stock for issuance upon exercise of outstanding options and 1,678,906 shares of
common stock are available for future issuance under the Amended and Restated
1993 Stock Incentive Plan.
Had Allscripts elected to apply the provisions of FAS 123 regarding
recognition of compensation expense to the extent of the calculated fair value
of stock options granted, reported net loss and net loss attributable to common
stockholders per share would have been increased as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------- -------- --------
(In thousands, except
per share data)
<S> <C> <C> <C>
Net loss, as reported....................... $(7,514) $(11,244) $(57,367)
Pro forma net loss.......................... $(7,649) $(11,375) $(66,390)
Net loss per share attributable to common
stockholders--basic and diluted, as
reported................................... $ (1.63) $ (0.91) $ (2.06)
Pro forma net loss per share attributable to
common stockholders--basic and diluted..... $ (1.66) $ (0.92) $ (2.38)
</TABLE>
Under FAS 123, compensation expense representing fair value of the option
grant is recognized over the vesting period.
54
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of the FAS 123 pro forma net loss and net loss per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option pricing model. The weighted average
assumptions used in determining fair value as disclosed for FAS 123 are shown
in the following table:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................................. 5.15% 5.82% 6.20%
Option life (years)..................................... 4 4 4
Dividend rate........................................... -- % -- % -- %
</TABLE>
No expected volatility factor has been used in determining the fair value of
options granted prior to Allscripts' initial public offering, while a
volatility factor of 87% has been used in valuing options granted subsequent to
the initial public offering and prior to December 31, 1999 and 140% for option
grants issued in 2000.
Option activity for the years ended December 31, 1998, 1999 and 2000 is as
follows:
<TABLE>
<CAPTION>
Options Weighted Average Options
Outstanding Exercise Price Exercisable
----------- ---------------- -----------
<S> <C> <C> <C>
Balance at December 31,
1997..................... 2,730,357 $ 2.04 1,100,948
Options granted......... 1,985,165 0.06
Options exercised....... (336,532) 0.18
Options forfeited....... (198,291) 1.62
Options canceled........ (1,483,576) 1.34
----------
Balance at December 31,
1998..................... 2,697,123 0.68 1,434,122
Options granted......... 1,025,440 9.56
Options exercised....... (961,541) 0.84
Options forfeited....... (173,544) 1.19
----------
Balance at December 31,
1999..................... 2,587,478 4.10 984,426
Options granted......... 2,190,558 24.83
Options exercised....... (844,083) 0.86
Options forfeited....... (205,626) 13.36
----------
Balance at December 31,
2000..................... 3,728,327 $16.51 979,661
==========
</TABLE>
55
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1998, 1999 and 2000 the weighted average
fair value of options granted was $0.19, $7.97 and $22.96, respectively.
Information regarding options outstanding at December 31, 2000 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Remaining Number of
Exercise Options Contractual Life Options
Prices Outstanding (in years) Exercisable
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$ 0.06 553,279 7.53 403,546
1.15 46,049 9.38 46,049
1.50 134,559 4.42 134,559
2.16 4,800 5.66 4,800
2.34 35,984 6.05 33,346
3.00 233,042 8.25 85,241
6.12 8,622 9.38 8,622
6.88 290,000 9.96 --
11.25 344,600 8.80 89,506
12.69 163,875 8.61 49,325
12.76 13,717 9.38 13,717
13.27 26,852 9.38 26,852
13.31 90,000 9.74 --
13.78 34,953 9.38 29,651
13.93 5,858 9.38 5,858
14.69 40,000 8.75 10,000
14.88 1,672 9.79 1,672
15.31 2,303 9.38 2,303
15.38 53,000 8.69 9,500
15.51 538 9.38 --
16.00 37,499 8.56 9,377
16.59 1,782 9.38 1,782
16.64 1,393 9.38 1,393
21.25 942,850 9.56 62
21.88 66,000 9.31 --
44.63 595,100 9.09 12,500
--------- -------
3,728,327 979,661
========= =======
</TABLE>
In August 1999, Allscripts granted options to purchase an aggregate of
30,000 shares of common stock to non-employees in exchange for future services.
These options have an exercise price of $12.69 per share and became fully
vested as of February 3, 2000. Selling, general and administrative expenses for
the years ended December 31, 1999 and 2000 include $293,000 and $741,000,
respectively, in expense relating to these options. In October 2000, Allscripts
granted options to purchase 1,672 shares of common stock to a consultant in
exchange for services rendered. Selling, general and administrative expenses
for the year ended December 31, 2000 include $10,000 in expense relating to
these options.
13. Lease Commitments
Allscripts conducts its operations from leased premises and with equipment
acquired under several operating leases. Total rent expense from continuing
operations was approximately $599,000, $579,000 and $935,638 in 1998, 1999 and
2000, respectively.
56
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum rental payments for the next five years are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2001.............................. $ 868
2002.............................. 837
2003.............................. 807
2004.............................. 411
2005.............................. --
------
Total future minimum lease
payments......................... $2,923
======
</TABLE>
14. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the Food
and Drug Administration as if Allscripts were a manufacturer. Allscripts is
also subject to regulation by the Drug Enforcement Administration in connection
with the packaging and distribution of controlled substances.
Allscripts is a defendant in over 2,000 multi-defendant lawsuits brought by
over 3,000 claimants involving the manufacture and sale of dexfenfluramine,
fenfluramine and phentermine. The majority of these suits were filed in state
courts in Texas beginning in August 1999. The plaintiffs in these cases claim
injury as a result of ingesting a combination of these weight-loss drugs. In
each of these suits, Allscripts is one of many defendants, including
manufacturers and other distributors of these drugs. Allscripts does not
believe it has any significant liability incident to the distribution or
repackaging of these drugs, and it has tendered defense of these lawsuits to
its insurance carrier for handling. In addition, while Allscripts has not yet
conducted a review of all of the Texas suits, since physician dispensing is
generally prohibited in Texas and Allscripts has never distributed these drugs
in Texas, Allscripts believes that it is unlikely that it is responsible for
the distribution of the drugs at issue in many of these cases. The lawsuits are
in various stages of litigation, and it is too early to determine what, if any,
liability Allscripts will have with respect to the claims made in these
lawsuits. If Allscripts' insurance coverage in the amount of $16,000,000 per
occurrence and $17,000,000 per year in the aggregate is inadequate to satisfy
any resulting liability, Allscripts will have to defend these lawsuits and be
responsible for the damages, if any, that Allscripts suffers as a result of
these lawsuits. Allscripts does not believe that the outcome of these lawsuits
will have a material adverse effect on its financial condition, results of
operations or cash flows.
Between October and December 2000, four complaints were filed in the United
States District Court for the Northern District of Illinois against Allscripts
and its President and Chief Financial Officer, David B. Mullen. The complaints
purported to be brought on behalf of a class of individuals who purchased the
common stock of Allscripts during the period of July 27, 2000 through and
including October 26, 2000 (the "Class Period") and alleged violations of
Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on
Allscripts' restatement of its financial results for the second quarter of
2000. The four complaints were deemed related, and the cases were reassigned
and consolidated for all purposes before Judge Charles Kocoras, before whom the
first filed case was pending. The consolidated action is entitled In re
Allscripts, Inc. Securities Litigation, No. 00C6796 (N.D. Ill.) and includes
all consolidated cases: Bredeson v. Allscripts, Inc. and David B. Mullen, Civ.
No. 00C-6796 (N.D. Ill., filed on October 31, 2000), Karmazin v. Allscripts,
Inc. and David B.
57
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mullen, Civ. No. 00C-6864 (N.D. Ill., filed on November 2, 2000), Mohr v.
Allscripts, Inc. and David B. Mullen, Civ. No. 00C-6992 (N.D. Ill., filed on
November 6, 2000), Nadav v. Allscripts, Inc. and David B. Mullen, Civ. No. 00C-
8126 (N.D. Ill., filed on December 26, 2000).
In January 2001, Lead Plaintiff and Lead Counsel were appointed in the
consolidated case. On March 12, 2001, plaintiffs filed a Consolidated and
Amended Class Action Complaint (the "Amended Complaint"). The Amended Complaint
continues to name Allscripts and David B. Mullen as defendants and alleges
violations of Section 10(b) and 20(a) of the Securities Exchange Act. Three
additional defendants are named in the Amended Complaint: Glen E. Tullman,
Allscripts' Chairman of the Board and Chief Executive Officer, J. Peter
Geerlofs, Allscripts' Chief Medical Officer, and Philip J. Langley, formerly
Allscripts' Senior Vice President of Business Development/Field Services. The
Amended Complaint purports to expand the Class Period in the consolidated case
to include all individuals who purchased the common stock of Allscripts during
the period from March 6, 2000 through and including February 27, 2001. The
Amended Complaint is based on the previous allegations regarding Allscripts'
restatement of its financial results for the second quarter of 2000 and new
allegations relating to, inter alia, the prospects for the TouchScript product.
Allscripts intends to move to dismiss the Amended Complaint, and Judge
Kocoras has set June 2001 as the prospective ruling date. At this time,
management is unable to determine the likely outcome of this matter or to
reasonably estimate the amount of any potential loss with respect to this
matter.
In addition, Allscripts is from time to time subject to legal proceedings
and claims that arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on Allscripts' consolidated financial
condition, results of operations or cash flows.
15. Savings Plan
Effective January 1, 1993, employees of Allscripts who meet certain
eligibility requirements can participate in Allscripts' 401(k) Savings and
Investment Plan. Under the plan, Allscripts may, at its discretion, match the
employee contributions. Allscripts recorded expenses from continuing operations
related to its matching contributions in 1998, 1999 and 2000 of $37,000,
$60,000 and $184,000, respectively.
16. Discontinued Operations
On March 18, 1999, Allscripts signed a definitive agreement to sell certain
assets of its pharmacy benefit management operation to Pharmacare Management
Services, Inc., Pharmacare Direct, Inc., and Procare Pharmacy, Inc. The sale
closed on March 31, 1999. The aggregate purchase price was $15,400,000, payable
in the form of an up-front payment at closing of $7,000,000 and a contingent
payment of up to $8,400,000 payable within 10 business days after the first
anniversary of the closing date. Additionally, the buyers purchased the
inventory at Allscripts' net cost, approximately $500,000, while Allscripts
retained the remaining working capital. The contingent payment was based upon
the number of prescription fillings (including original fillings and subsequent
refills) for the one-year period following the closing. In May 2000, Allscripts
received payment of $4,353,000, net of related expenses, as final payment of
the contingent consideration.
The operating results of the pharmacy benefit management segment have been
segregated from continuing operations and reported as a separate line item on
the Consolidated Statements of Operations under the caption "Income from
discontinued operations." Additionally, Allscripts has reclassified its prior
years' financial statements to present the operating results of the pharmacy
benefit management operations as a discontinued operation.
58
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------- ------- ----
(In thousands)
<S> <C> <C> <C>
Revenue............................................. $52,866 $14,292 $--
Cost of revenue..................................... 49,313 13,378 --
------- ------- ----
Gross profit...................................... 3,553 914 --
Selling, general and administrative expenses........ 2,583 272 (83)
------- ------- ----
Income from discontinued operations................. $ 970 $ 642 $ 83
======= ======= ====
</TABLE>
Included in revenue is $2,982,000, $375,000 and $0 in 1998, 1999 and 2000,
respectively, from Anthem, Inc., a related party (see Note 18).
For the twelve months ended December 31, 1999 and 2000, Allscripts
recognized a gain on the sale of this business of $3,547,000 and $4,353,000,
respectively, which has been reported as a separate line item on the
Consolidated Statement of Operations under the caption "Gain from sale of
discontinued operations, net of income tax expense." The gain in 2000
represents final payment of contingent consideration related to the sale, net
of certain transaction costs.
The components of assets and liabilities of discontinued operations included
in Allscripts' consolidated balance sheets at December 31 are as follows:
<TABLE>
<CAPTION>
1999 2000
--------------
(In thousands)
<S> <C> <C>
Assets:
Accounts receivable..................................... $ 95 $ 4
Other................................................... 145 --
------ -------
Total assets.............................................. 240 4
Liabilities............................................... 226 317
------ -------
Net................................................... $ 14 $ (313)
====== =======
</TABLE>
59
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1998 1999 2000
------- ------ --------
(In thousands, except
share
and per share amounts)
<S> <C> <C> <C>
Interest paid.......................................... $ 294 $ 231 $ --
Income taxes paid...................................... -- -- --
Noncash investing and financing activity:
Accretion of mandatory redemption value of preferred
shares.............................................. 323 794 --
In connection with the Series I Unit Offering,
issuance of 1,803,838 shares of Series J Redeemable
Preferred shares and 1,326,661 warrants in exchange
for Allscripts' outstanding convertible subordinated
debentures (in the aggregate principal amount of
$11,219,000) plus accrued interest thereon through
April 15, 1998 ($437,000 in aggregate).............. 11,656 -- --
In connection with the 1999 acquisitions, issuance of
204,771 shares of common stock valued at an
aggregate amount of approximately $2,572,000 and the
issuance of a 6% promissory note in the principal
amount of $650,000 in exchange for net tangible
liabilities of $637,000............................. -- 3,222 --
In connection with the acquisition of MasterChart,
Inc., issuance of 1,617,873 shares of common stock
valued at an aggregate amount of approximately
$127,400,000 and $5,000,000 in cash, in exchange for
all outstanding common stock of MasterChart, Inc. .. -- -- 127,400
In connection with the acquisition of Medifor, Inc.,
issuance of 935,858 shares of common stock valued at
an aggregate amount of approximately $34,400,000 and
issuance of 142,786 common stock option replacements
of Medifor common stock options with a fair value of
approximately $4,200,000, in exchange for all
outstanding common and preferred A and B stock of
Medifor............................................. -- -- 38,600
In connection with other 2000 acquisitions, issuance
of 87,484 shares of common stock valued at an
aggregate amount of approximately $3,000,000 and
$8,000,000 in cash in exchange for net tangible
assets of $274,000.................................. -- -- 3,000
In connection with Allscripts' initial public
offering, conversion of 8,718,768 shares of
preferred stock into 2,977,483 shares of common
stock............................................... -- 8,719 --
Cumulative dividends in arrears on redeemable
preferred shares.................................... 1,927 1,404 --
</TABLE>
18. Related Party Transactions
From June 1997 through March 1999, Allscripts provided pharmacy benefit
management services for Anthem, Inc. One of Allscripts' directors is Chairman
of the Board of Anthem.
One of Allscripts' directors was a partner in the law firm of Green,
Stewart, Farber & Anderson, P.C., which Allscripts retained to provide legal
services. Expense related to services provided by this law firm was $44,000,
$33,000 and $55,000 in 1998, 1999 and 2000, respectively.
60
<PAGE>
19. Subsequent Events
On January 8, 2001, Allscripts acquired Channelhealth Incorporated in
exchange for 8,592,996 shares of common stock with a fair value of
approximately $218,400,000, the issuance of approximatley 493,000 common stock
options as replacement of Channelhealth common stock options with a fair value
of approximately $7,600,000 and transaction costs totaling approximately
$4,750,000. Allscripts will pay additional stock-based consideration if certain
revenue targets are achieved during 2002, resulting in the recording of
additional purchase price at the time that the targets are met.
In connection with the Channelhealth acquisition, Channelhealth and
Allscripts, Inc. each became a wholly owned subsidiary of a new holding
company, Allscripts Healthcare Solutions, Inc. As a result of the merger
transaction, each outstanding share of Allscripts Inc. common stock was
converted into one share of Allscripts Healthcare Solutions, Inc. common stock.
Allscripts Inc. no longer files reports with the Securities and Exchange
Commission, and its common stock is no longer listed on the Nasdaq National
Market; however, Allscripts Healthcare Solutions, Inc. does file reports with
the Securities and Exchange Commission, and its common stock is listed on the
Nasdaq National Market under the symbol "MDRX".
In conjunction with the acquisition of Channelhealth, Allscripts assumed the
Channelhealth 1999 Stock Option and Incentive Plan. Channelhealth reserved
2,500,000 shares of common stock for issuance under the plan. On the closing
date, January 8, 2001, there were a total of 1,461,166 options granted under
the plan at varying exercise prices. These options will be converted to options
in Allscripts based upon the perdetermined conversion rate. Accordingly, there
will be approximately 493,000 options to purchase Allscripts common stock at
exercise prices ranging from $26.74 to $68.31. Options to purchase 415,635
shares of Allscripts common stock are fully vested on the closing date. Options
generally expire ten years after issuance.
61
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Allscripts Healthcare Solutions, Inc.:
Under date of February 23, 2001, except for note 14 as to which the date is
March 12, 2001, we reported on the consolidated balance sheet of Allscripts
Healthcare Solutions, Inc. and subsidiaries (Company) as of December 31, 2000,
and the related consolidated statements of operations, stockholders' equity
(deficit) and comprehensive income (loss), and cash flows for the year then
ended. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related financial statement schedule
as listed in the accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
February 23, 2001
62
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Allscripts
Healthcare Solutions, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 17, 2000 appearing in this Form 10-K also included an
audit of the financial statement schedule for each of the two years in the
period ended December 31, 1999 listed in Item 14(a)(2) of this Form 10-K. In
our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. We have not audited the financial
statement schedule of Allscripts Healthcare Solutions, Inc. (formerly
Allscripts, Inc.) and subsidiaries for any period subsequent to December 31,
1999.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 17, 2000
63
<PAGE>
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Schedule II
<TABLE>
<CAPTION>
Beginning Charged to Deductions Ending
Balance Expense (Write-offs) Balance
--------- ---------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Allowance for accounts receivable
Year ended December 31, 1998.... $ 3,432 $1,241 $ (150) $ 4,523
Year ended December 31, 1999.... 4,523 (633) (147) 3,743
Year ended December 31, 2000.... 3,743 980 (339) 4,384
Valuation allowance for deferred
tax assets
Year ended December 31, 1998.... 13,588 1,696 -- 15,284
Year ended December 31, 1999.... 15,284 4,354 -- 19,638
Year ended December 31, 2000.... 19,638 7,338 (11,973)(1) 15,003
</TABLE>
- --------
(1) Deduction related to net deferred tax liabilities established in connection
with acquisitions made in 2000.
64
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On December 21, 2000, Allscripts dismissed PricewaterhouseCoopers LLP (PWC)
as Allscripts' independent accountant. At the recommendation of its audit
committee, the board of directors of Allscripts authorized the dismissal of
PWC.
The reports of PWC on Allscripts' consolidated financial statements as of
and for the two years ended December 31, 1998 and 1999 did not contain an
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.
During Allscripts' two fiscal years ended December 31, 1999, and in the
interim period from January 1, 2000 through December 21, 2000, there were no
disagreements with PWC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PWC, would have caused
them to make reference thereto in their report of the financial statements for
those years.
During Allscripts' two fiscal years ended December 31, 1999 and in the
interim period from January 1, 2000 through December 21, 2000, there were no
"reportable events" as defined in Item 304(a)(1)(v) of Regulation S-K
promulgated under the Securities Exchange Act of 1934 except that in connection
with PWC's review of Allscripts' financial statements for the quarter ended
September 30, 2000, PWC advised Allscripts of the existence of a material
weakness relating to the controls surrounding contract administration. To
immediately address this concern, Allscripts, among other things, hired a
contract attorney, who serves as a full-time Contract Administrator with the
responsibility for the retention, review, analysis, monitoring and maintenance
of individual customer contracts. Management and the audit committee believe
that the concerns expressed by PWC have been adequately addressed through the
actions taken by Allscripts.
Allscripts provided PWC with a copy of the disclosures made in its Current
Report on Form 8-K dated December 21, 2000 and filed with the Securities and
Exchange Commission on December 28, 2000 (the "Form 8-K") and requested that
PWC furnish Allscripts with a letter addressed to the Securities and Exchange
Commission stating whether PWC agrees with the statements made by Allscripts in
response to Item 304(a) of Regulation S-K and, if not, stating the respects in
which PWC does not agree. A copy of that letter is filed as Exhibit A to the
Form 8-K.
At the recommendation of the audit committee, the board authorized the
engagement of KPMG LLP as Allscripts' new independent accountants to audit and
report on the financial statements for the fiscal year ending December 31, 2000
and to act, on a continuing basis, as Allscripts' independent accountant. On
December 21, 2000, Allscripts requested that KPMG LLP be engaged as its
independent accountants, and KPMG LLP accepted the engagement on December 28,
2000.
During the two fiscal years ended December 31, 1999 and in the interim
period from January 1, 2000 through December 21, 2000, Allscripts did not
consult with KPMG LLP regarding either the application of accounting principles
to a specified transaction, either completed or proposed, or the types of audit
opinion that might be rendered on Allscripts' financial statements. In
addition, Allscripts did not consult with KPMG LLP regarding any matter that
was the subject of a disagreement or a reportable event within the meaning of
Item 304 of Regulation S-K.
65
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors, executive officers and other key employees
is included under the captions "Election of Directors" and "Executive Officers"
in Allscripts' proxy statement for the 2001 Annual Meeting of Stockholders and
is incorporated by reference herein.
Information regarding Section 16(a) reporting compliance is included under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
Allscripts' proxy statement for the 2001 Annual Meeting of Stockholders and is
incorporated by reference herein.
Item 11. Executive Compensation
Information regarding executive and director compensation is included under
the captions "Executive Compensation" and "Director Compensation" in
Allscripts' proxy statement for the 2001 Annual Meeting of Stockholders and is
incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership is included under the caption
"Ownership of Allscripts Common Stock" in Allscripts' proxy statement for the
2001 Annual Meeting of Stockholders and is incorporated by reference herein.
Item 13. Certain Relationships and Related Party Transactions
Information regarding certain relationships and related party transactions
is included under the caption "Certain Relationships and Related Party
Transactions" in Allscripts' proxy statement for the 2001 Annual Meeting of
Stockholders and is incorporated by reference herein.
66
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Allscripts Healthcare
Solutions, Inc. and its subsidiaries are included in Part II of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................ 34
Report of Independent Accountants................................... 35
Consolidated Balance Sheets at December 31, 1999 and 2000........... 36
Consolidated Statements of Operations for the years ended December
31, 1998, 1999 and 2000............................................ 37
Consolidated Statements of Stockholders' Equity (Deficit) and
Comprehensive Income (Loss) for the years ended December 31, 1998,
1999 and 2000...................................................... 38
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1999 and 2000............................................ 40
Notes to Consolidated Financial Statements.......................... 41
(a)(2) Financial Statement Schedules
Independent Auditors' Report........................................ 62
Report of Independent Accountants on Financial Statement Schedule... 63
Schedule II--Valuation and Qualifying Accounts...................... 64
</TABLE>
(a)(3) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
2.1 Form of Plan of Merger between Incorporated herein by reference from
Allscripts, Inc. and Allscripts, Inc., the Allscripts, Inc. Registration
an Illinois corporation. Statement on Form S-1 as part of
Amendment No. 4 filed on July 20, 1999
(SEC file no. 333-78431)
2.2 Agreement and Plan of Merger, dated as Incorporated herein by reference from
of March 13, 2000, among Allscripts, the Allscripts, Inc. Current Report on
Inc., MC Acquisition Corp., MasterChart, Form 8-K filed on May 24, 2000, as
Inc. and certain shareholders of amended on July 24, 2000 and July 25,
MasterChart, Inc., together with a list 2000
of exhibits and schedules thereto. Such
exhibits and schedules are not filed,
but the Registrant undertakes to furnish
a copy of any such exhibit or schedule
to the Securities and Exchange
Commission upon request.
2.3 Amendment No. 1 to Agreement and Plan of Incorporated herein by reference from
Merger, dated as of May 9, 2000, by and the Allscripts, Inc. Current Report on
among Allscripts Inc., MC Acquisition Form 8-K filed on May 24, 2000, as
Corp., MasterChart, Inc. and certain amended on July 24, 2000 and July 25,
shareholders of MasterChart, Inc. 2000
2.4 Agreement and Plan of Merger, dated as Incorporated herein by reference from
of April 12, 2000, among Allscripts, the Allscripts, Inc. Current Report on
Inc., WebDoc Acquisition Corp., Medifor, Form 8-K filed on May 31, 2000, as
Inc. and certain shareholders of amended on July 25, 2000
Medifor, Inc., together with a list of
exhibits and schedules thereto. Such
exhibits and schedules are not filed,
but the Registrant
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
undertakes to furnish a copy of any such
exhibit or schedule to the Securities
and Exchange Commission upon request.
2.5 Agreement and Plan of Merger, dated as Incorporated herein by reference from
of July 13, 2000, by and among the Allscripts, Inc. Current Report on
Allscripts Holding, Inc., Allscripts, Form 8-K filed on July 27, 2000
Inc., Bursar Acquisition, Inc., Bursar
Acquisition No. 2, Inc., IDX Systems
Corporation and Channelhealth
Incorporated.
2.6 First Amendment to Agreement and Plan of Incorporated herein by reference from
Merger, entered into as of November 29, the Allscripts Healthcare Solutions,
2000, by and among Allscripts Holding, Inc. Registration Statement on Form S-4
Inc., Allscripts, Inc., Bursar as part of Amendment No. 1 filed on
Acquisition, Inc., Bursar Acquisition December 7, 2000 (SEC file no. 333-
No. 2, Inc., IDX Systems Corporation and 49568)
Channelhealth Incorporated.
3.1 Amended and Restated Certificate of Incorporated herein by reference from
Incorporation of Allscripts Healthcare the Allscripts Healthcare Solutions,
Solutions, Inc. (formerly named Inc. Registration Statement on Form S-4
Allscripts Holding, Inc.). as part of Amendment No. 1 filed on
December 7, 2000 (SEC file no. 333-
49568)
3.2 Certificate of Amendment of Amended and Incorporated herein by reference from
Restated Certificate of Incorporation of the Allscripts Healthcare Solutions,
Allscripts Healthcare Solutions, Inc. Inc. Registration Statement on Form S-4
(formerly named Allscripts Holding, Inc.). as part of Amendment No. 1 filed on
December 7, 2000 (SEC file no. 333-
49568)
3.3 Certificate of Amendment of Amended and Incorporated herein by reference from
Restated Certificate of Incorporation of the Allscripts Healthcare Solutions,
Allscripts Healthcare Solutions, Inc. Inc. Registration Statement on Form S-4
(formerly named Allscripts Holding, Inc.). as part of Amendment No. 1 filed on
December 7, 2000 (SEC file
no. 333-49568)
3.4 Bylaws of Allscripts Healthcare Incorporated herein by reference from
Solutions, Inc. (formerly named the Allscripts Healthcare Solutions,
Allscripts Holding, Inc.). Inc. Registration Statement on Form S-4
as part of Amendment No. 1 filed on
December 7, 2000 (SEC file
no. 333-49568)
10.1+ Amended and Restated 1993 Stock Incorporated herein by reference from
Incentive Plan, as amended May 10, 2000. the Allscripts, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30,
2000
10.2 Asset Purchase Agreement, dated as of Incorporated herein by reference from
March 19, 1999, by and among Allscripts, the Allscripts, Inc. Registration
Inc., PharmaCare Management Services, Statement on Form S-1 as part of
Inc., PharmaCare Direct, Inc. and Amendment No. 1 filed on June 7, 1999
ProCare Pharmacy, Inc. (SEC file no. 333-78431)
10.3 Twelfth Restated Registration Agreement Incorporated herein by reference from
dated as of June 18, 1999, by and among the Allscripts, Inc. Registration
Allscripts, Inc., those Holders of Statement on Form S-1 as part of
Allscripts, Inc. Series A Preferred, Amendment No. 2 filed on June 29, 1999
Series B Preferred, Series C Preferred, (SEC file no. 333-78431)
Series D Preferred, Series F Preferred
and
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
------- ----------- ---------
<S> <C> <C>
Series G Preferred listed in Schedule I
attached thereto, the Holders of the
Extension Guaranty Warrants listed in
Schedule II thereto, the Holders of the
1996 Extension Guaranty Warrants listed
in Schedule II thereto, those Holders of
Common listed in Schedule III thereto,
the Holders of Series H Warrants and H
Unit Common listed in Schedule IV
thereto, the Holders of Extension Series
H Warrants listed in Schedule IV
thereto, the Holders of I Unit Common
listed in Schedule V thereto and the
Holders of Debenture Warrants listed in
Schedule VI thereto.
10.4 Industrial Building Lease dated April Incorporated herein by reference from
30, 1997 between G2 Limited Partnership the Allscripts, Inc. Registration
and Allscripts, Inc. Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.5 Lease Agreement between American Incorporated herein by reference from
National Bank and Trust Company of the Allscripts, Inc. Registration
Chicago, as Trustee, and Allscripts, Statement on Form S-1 as part of
Inc. dated September 1996, as amended Amendment No. 1 filed on February 18,
December 31, 1999. 2000 (SEC file no. 333-95521)
10.6+ Employment Agreement effective August 1, Incorporated herein by reference from
1997 between Allscripts, Inc. and Glen the Allscripts, Inc. Registration
E. Tullman. Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.7+ Employment Agreement effective August 1, Incorporated herein by reference from
1997 between Allscripts, Inc. and David the Allscripts, Inc. Registration
B. Mullen. Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.8+ Agreement dated May 1, 1995 between Incorporated herein by reference from
Allscripts, Inc. and John G. Cull. the Allscripts, Inc. Registration
Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.9 Form of TouchScript Master License Incorporated herein by reference from
Agreement. the Allscripts, Inc. Registration
Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.10 Supply Agreement dated August 27, 1998 Incorporated herein by reference from
between McKesson U.S. Health Care and the Allscripts, Inc. Registration
Allscripts, Inc. Statement on Form S-1 as part of
Amendment No. 1 filed on June 7, 1999
(SEC file no. 333-78431)
10.11 Asset Purchase Agreement dated June 30, Incorporated herein by reference from
1999 by and among Allscripts, Inc. and the Allscripts, Inc. Registration
Shopping@Home, Inc., Glen Tullman, Lee Statement on Form S-1 as part of
Shapiro, Stanley Crane and Joseph E. Amendment No. 4 filed on July 20, 1999
Carey. (SEC file no. 333-78431)
10.12+ Employment Agreement, effective August Incorporated herein by reference from
2, 1999, between Allscripts, Inc. and the Allscripts, Inc. Quarterly Report on
Joseph E. Carey. Form 10-Q for the quarter ended
September 30, 1999
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
------- ----------- ---------
<S> <C> <C>
10.13+ Employment Agreement dated as of April Incorporated herein by reference from
5, 2000 by and between Allscripts, Inc. the Allscripts, Inc. Quarterly Report on
and Lee A. Shapiro. Form 10-Q for the quarter ended June 30,
2000
10.14 Stock Rights and Restrictions Agreement
by and between Allscripts Healthcare
Solutions, Inc. and IDX Systems
Corporation dated as of January 8, 2001.
10.15 Strategic Alliance Agreement by and
between Allscripts Healthcare Solutions,
Inc. and IDX Systems Corporation dated
as of January 8, 2000.
10.16 Asset Purchase Agreement, dated as of Incorporated herein by reference from
July 13, 2000, by and between the Allscripts Healthcare Solutions,
Channelhealth Incorporated and IDX Inc. Registration Statement on Form S-4
Systems Corporation. as part of Amendment No. 1 filed on
December 7, 2000 (SEC file
no. 333-49568)
10.17 Amended and Restated Cross License and
Software Maintenance Agreement by and
between IDX Systems Corporation and
Channelhealth Incorporated dated
January 8, 2001.
21.1 Subsidiaries
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
</TABLE>
- --------
+Indicates management contract or compensatory plan.
(b) Reports on Form 8-K
Current report on Form 8-K filed December 28, 2000, which included
disclosure under Item 4 relating to Allscripts' change in its independent
accountants.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 30, 2001.
ALLSCRIPTS HEALTHCARE SOLUTIONS,
INC.
/s/ David B. Mullen
By: _________________________________
David B. Mullen
President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 30, 2001 by the following persons on
behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Glen E. Tullman Chairman and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
Glen E. Tullman
/s/ David B. Mullen President, Chief Financial Officer and
___________________________________________ Director (Principal Financial Officer)
David B. Mullen
/s/ John G. Cull Senior Vice President, Finance, Treasurer
___________________________________________ and Secretary (Principal Accounting
John G. Cull Officer)
/s/ Philip D. Green Director
___________________________________________
Philip D. Green
/s/ M. Fazle Husain Director
___________________________________________
M. Fazle Husain
/s/ Michael J. Kluger Director
___________________________________________
Michael J. Kluger
/s/ L. Ben Lytle Director
___________________________________________
L. Ben Lytle
/s/ Edward M. Philip Director
___________________________________________
Edward M. Philip
/s/ Richard E. Tarrant Director
___________________________________________
Richard E. Tarrant
</TABLE>
71
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
------- ----------- ---------
<C> <S> <C>
2.1 Form of Plan of Merger between Incorporated herein by reference from
Allscripts, Inc. and Allscripts, Inc., the Allscripts, Inc. Registration
an Illinois corporation. Statement on Form S-1 as part of
Amendment No. 4 filed on July 20, 1999
(SEC file no. 333-78431)
2.2 Agreement and Plan of Merger, dated as Incorporated herein by reference from
of March 13, 2000, among Allscripts, the Allscripts, Inc. Current Report on
Inc., MC Acquisition Corp., MasterChart, Form 8-K filed on May 24, 2000, as
Inc. and certain shareholders of amended on July 24, 2000 and July 25,
MasterChart, Inc., together with a list 2000
of exhibits and schedules thereto. Such
exhibits and schedules are not filed,
but the Registrant undertakes to furnish
a copy of any such exhibit or schedule
to the Securities and Exchange
Commission upon request.
2.3 Amendment No. 1 to Agreement and Plan of Incorporated herein by reference from
Merger, dated as of May 9, 2000, by and the Allscripts, Inc. Current Report on
among Allscripts Inc., MC Acquisition Form 8-K filed on May 24, 2000, as
Corp., MasterChart, Inc. and certain amended on July 24, 2000 and July 25,
shareholders of MasterChart, Inc. 2000
2.4 Agreement and Plan of Merger, dated as Incorporated herein by reference from
of April 12, 2000, among Allscripts, the Allscripts, Inc. Current Report on
Inc., WebDoc Acquisition Corp., Medifor, Form 8-K filed on May 31, 2000, as
Inc. and certain shareholders of amended on July 25, 2000
Medifor, Inc., together with a list of
exhibits and schedules thereto. Such
exhibits and schedules are not filed,
but the Registrant undertakes to furnish
a copy of any such exhibit or schedule
to the Securities and Exchange
Commission upon request.
2.5 Agreement and Plan of Merger, dated as Incorporated herein by reference from
of July 13, 2000, by and among the Allscripts, Inc. Current Report on
Allscripts Holding, Inc., Allscripts, Form 8-K filed on July 27, 2000
Inc., Bursar Acquisition, Inc., Bursar
Acquisition No. 2, Inc., IDX Systems
Corporation and Channelhealth
Incorporated.
2.6 First Amendment to Agreement and Plan of Incorporated herein by reference from
Merger, entered into as of November 29, the Allscripts Healthcare Solutions,
2000, by and among Allscripts Holding, Inc. Registration Statement on Form S-4
Inc., Allscripts, Inc., Bursar as part of Amendment No. 1 filed on
Acquisition, Inc., Bursar Acquisition December 7, 2000 (SEC file
No. 2, Inc., IDX Systems Corporation and no. 333-49568)
Channelhealth Incorporated.
3.1 Amended and Restated Certificate of Incorporated herein by reference from
Incorporation of Allscripts Healthcare the Allscripts Healthcare Solutions,
Solutions, Inc. (formerly named Inc. Registration Statement on Form S-4
Allscripts Holding, Inc.). as part of Amendment No. 1 filed on
December 7, 2000 (SEC file
no. 333-49568)
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
3.2 Certificate of Amendment of Amended and Incorporated herein by reference from
Restated Certificate of Incorporation of the Allscripts Healthcare Solutions,
Allscripts Healthcare Solutions, Inc. Inc. Registration Statement on Form S-4
(formerly named Allscripts Holding, Inc.). as part of Amendment No. 1 filed on
December 7, 2000 (SEC file
no. 333-49568)
3.3 Certificate of Amendment of Amended and Incorporated herein by reference from
Restated Certificate of Incorporation of the Allscripts Healthcare Solutions,
Allscripts Healthcare Solutions, Inc. Inc. Registration Statement on Form S-4
(formerly named Allscripts Holding, Inc.). as part of Amendment No. 1 filed on
December 7, 2000 (SEC file no. 333-
49568)
3.4 Bylaws of Allscripts Healthcare Incorporated herein by reference from
Solutions, Inc. (formerly named the Allscripts Healthcare Solutions,
Allscripts Holding, Inc.). Inc. Registration Statement on Form S-4
as part of Amendment No. 1 filed on
December 7, 2000 (SEC file no. 333-
49568)
10.1+ Amended and Restated 1993 Stock Incorporated herein by reference from
Incentive Plan, as amended May 10, 2000. the Allscripts, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30,
2000
10.2 Asset Purchase Agreement, dated as of Incorporated herein by reference from
March 19, 1999, by and among Allscripts, the Allscripts, Inc. Registration
Inc., PharmaCare Management Services, Statement on Form S-1 as part of
Inc., PharmaCare Direct, Inc. and Amendment No. 1 filed on June 7, 1999
ProCare Pharmacy, Inc. (SEC file no. 333-78431)
10.3 Twelfth Restated Registration Agreement Incorporated herein by reference from
dated as of June 18, 1999, by and among the Allscripts, Inc. Registration
Allscripts, Inc., those Holders of Statement on Form S-1 as part of
Allscripts, Inc. Series A Preferred, Amendment No. 2 filed on June 29, 1999
Series B Preferred, Series C Preferred, (SEC file no. 333-78431)
Series D Preferred, Series F Preferred
and Series G Preferred listed in
Schedule I attached thereto, the Holders
of the Extension Guaranty Warrants
listed in Schedule II thereto, the
Holders of the 1996 Extension Guaranty
Warrants listed in Schedule II thereto,
those Holders of Common listed in
Schedule III thereto, the Holders of
Series H Warrants and H Unit Common
listed in Schedule IV thereto, the
Holders of Extension Series H Warrants
listed in Schedule IV thereto, the
Holders of I Unit Common listed in
Schedule V thereto and the Holders of
Debenture Warrants listed in Schedule VI
thereto.
10.4 Industrial Building Lease dated April Incorporated herein by reference from
30, 1997 between G2 Limited Partnership the Allscripts, Inc. Registration
and Allscripts, Inc. Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.5 Lease Agreement between American Incorporated herein by reference from
National Bank and Trust Company of the Allscripts, Inc. Registration
Chicago, as Trustee, and Allscripts, Statement on Form S-1 as part of
Inc. dated September 1996, as amended Amendment No. 1 filed on February 18,
December 31, 1999. 2000 (SEC file no. 333-95521)
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
10.6+ Employment Agreement effective August 1, Incorporated herein by reference from
1997 between Allscripts, Inc. and Glen the Allscripts, Inc. Registration
E. Tullman. Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.7+ Employment Agreement effective August 1, Incorporated herein by reference from
1997 between Allscripts, Inc. and David the Allscripts, Inc. Registration
B. Mullen. Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.8+ Agreement dated May 1, 1995 between Incorporated herein by reference from
Allscripts, Inc. and John G. Cull. the Allscripts, Inc. Registration
Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.9 Form of TouchScript Master License Incorporated herein by reference from
Agreement. the Allscripts, Inc. Registration
Statement on Form S-1 filed on May 14,
1999 (SEC file no. 333-78431)
10.10 Supply Agreement dated August 27, 1998 Incorporated herein by reference from
between McKesson U.S. Health Care and the Allscripts, Inc. Registration
Allscripts, Inc. Statement on Form S-1 as part of
Amendment No. 1 filed on June 7, 1999
(SEC file no. 333-78431)
10.11 Asset Purchase Agreement dated June 30, Incorporated herein by reference from
1999 by and among Allscripts, Inc. and the Allscripts, Inc. Registration
Shopping@Home, Inc., Glen Tullman, Lee Statement on Form S-1 as part of
Shapiro, Stanley Crane and Joseph E. Amendment No. 4 filed on July 20, 1999
Carey. (SEC file no. 333-78431)
10.12+ Employment Agreement, effective August Incorporated herein by reference from
2, 1999, between Allscripts, Inc. and the Allscripts, Inc. Quarterly Report on
Joseph E. Carey. Form 10-Q for the quarter ended
September 30, 1999
10.13+ Employment Agreement dated as of April Incorporated herein by reference from
5, 2000 by and between Allscripts, Inc. the Allscripts, Inc. Quarterly Report on
and Lee A. Shapiro. Form 10-Q for the quarter ended June 30,
2000
10.14 Stock Rights and Restrictions Agreement
by and between Allscripts Healthcare
Solutions, Inc. and IDX Systems
Corporation dated as of January 8, 2001.
10.15 Strategic Alliance Agreement by and
between Allscripts Healthcare Solutions,
Inc. and IDX Systems Corporation dated
as of January 8, 2000.
10.16 Asset Purchase Agreement, dated as of Incorporated herein by reference from
July 13, 2000, by and between the Allscripts Healthcare Solutions,
Channelhealth Incorporated and IDX Inc. Registration Statement on Form S-4
Systems Corporation. as part of Amendment No. 1 filed on
December 7, 2000 (SEC file
no. 333-49568)
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
10.17 Amended and Restated Cross License and
Software Maintenance Agreement by and
between IDX Systems Corporation and
Channelhealth Incorporated dated
January 8, 2001.
21.1 Subsidiaries
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
</TABLE>
- --------
+Indicates management contract or compensatory plan.
75
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>2
<FILENAME>dex1014.txt
<DESCRIPTION>STOCK RIGHTS AND RESTRICTIONS AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.14
STOCK RIGHTS AND RESTRICTIONS AGREEMENT
by and between
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
and
IDX SYSTEMS CORPORATION
Dated as of January 8, 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS..................................................................... 3
2. SHARE RIGHTS AND RESTRICTIONS................................................... 8
2.1 LIMITATION ON CERTAIN TRANSACTIONS....................................... 8
2.2 ALLSCRIPTS BOARD OF DIRECTORS............................................ 9
2.3 LIMITATION ON ACQUISITION OF ADDITIONAL VOTING SHARES BY IDX............. 11
2.4 RESTRICTIONS ON TRANSFER................................................. 12
2.5 VOTING OF IDX SHARES..................................................... 17
2.6 RIGHT TO PARTICIPATE IN CERTAIN ISSUANCES BY ALLSCRIPTS.................. 18
3. RESTRICTIONS ON TRANSFER........................................................ 19
4. STOCK CERTIFICATES AND OTHER RESTRICTIONS....................................... 19
4.1 ENDORSEMENT OF CERTIFICATES.............................................. 19
4.2 IMPROPER TRANSFER........................................................ 19
5. GENERAL PROVISIONS.............................................................. 20
5.1 REPRESENTATIONS AND WARRANTIES........................................... 20
5.2 AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE......................... 20
5.3 INJUNCTIVE RELIEF........................................................ 20
5.4 BYLAWS................................................................... 21
5.5 NO ADOPTION OR AMENDMENT OF RIGHTS PLAN.................................. 21
5.6 GOVERNING LAW............................................................ 21
5.7 TERMINATION.............................................................. 21
5.8 NOTICES.................................................................. 21
5.9 SEVERABILITY............................................................. 22
5.10 ENTIRE AGREEMENT......................................................... 22
5.11 PARTIES IN INTEREST...................................................... 23
5.12 HEADINGS................................................................. 23
5.13 COUNTERPARTS............................................................. 23
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SCHEDULES AND EXHIBITS
----------------------
SCHEDULE I - INVESTMENT BANKING FIRMS..................................... 25
SCHEDULE II - LIST OF ACCEPTABLE ALLSCRIPTS MARKET MAKERS................. 26
EXHIBIT A - ALLSCRIPTS RETIREMENT POLICIES................................ 27
</TABLE>
ii
<PAGE>
STOCK RIGHTS AND RESTRICTIONS AGREEMENT
STOCK RIGHTS AND RESTRICTIONS AGREEMENT (the "Agreement"), dated as of
January 8, 2001, between Allscripts Healthcare Solutions, Inc., a Delaware
corporation ("Allscripts") and IDX Systems Corporation, a Vermont corporation
("IDX").
RECITALS:
A. After giving effect to the Closing, IDX owns 7,497,838 shares of
Allscripts Common Stock (together with any additional Allscripts Voting Shares
that IDX or any Affiliate of IDX may from time to time own, the "IDX Shares").
B. After giving effect to the Closing, Richard E. Tarrant
("R.E.T."). is the initial IDX Designee.
C. The Boards of Directors of Allscripts and IDX deem it advisable
to establish (i) insofar as concerns IDX, certain rights and restrictions with
respect to Allscripts Business Combination Transactions and the IDX Shares and
(ii) insofar as concerns Allscripts, certain restrictions with respect to IDX
Business Combination Transactions and any securities of IDX having voting power
under ordinary circumstances with respect to the election of directors of IDX
that Allscripts may hold from time to time.
ACCORDINGLY, premises considered, the parties have entered into this
Agreement.
1. DEFINITIONS. For purposes of this Agreement, the following terms have
the meanings indicated:
(a) "Affiliate" shall mean, with respect to any specified Person, any
other Person, directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, "control" (including, with correlative meanings,
"controlling," "controlled by," and "under common control with") means the power
to direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract, or otherwise and, with respect to a corporation or partnership,
control shall mean direct or indirect ownership of more than fifty percent (50%)
of the voting stock or general partnership interest or voting interest in any
such corporation or partnership. Notwithstanding anything to the contrary in
this definition, Affiliates of IDX who were stockholders of Channelhealth
Incorporated ("Channelhealth") immediately prior to the Closing shall not be
considered "Affiliates" for purposes of Recital A (definition of "IDX Shares")
and Sections 2.2, 2.4 (other than Section 2.4(a)), 2.5, 2.6 and 4.2 hereof.
(b) "Acceptance Notice" shall have the meaning set forth in Section
2.6(b).
(c) "Applicable Percentage" shall mean 2%.
(d) "Allscripts" shall have the meaning set forth in the first
paragraph of this Agreement; and the term "Allscripts" shall include Allscripts
and its Affiliates unless the context otherwise requires.
<PAGE>
(e) "Allscripts Business Combination Transaction" shall mean a
merger, consolidation, "business combination" as defined in Section 203 of the
DGCL as in effect on the date hereof, compulsory share exchange,
recapitalization or other transaction in which Allscripts is a constituent
corporation or to which Allscripts is a party and pursuant to which the
Allscripts Voting Shares are exchanged for cash, securities or other property or
a sale of all or substantially all of the assets of Allscripts and its
Subsidiaries, taken as a whole; provided, however, that none of the following
shall be deemed an Allscripts Business Combination Transaction for purposes of
this Agreement: (i) a merger, consolidation, compulsory share exchange,
recapitalization or other transaction in which the Beneficial Ownership of the
capital stock of Allscripts or the surviving corporation of the transaction (or
of the ultimate parent of Allscripts or of such surviving corporation)
immediately after the consummation of such transaction is substantially the same
as the ownership of the capital stock of Allscripts immediately prior to the
consummation of the transaction or (ii) a merger (A) in which Allscripts is the
surviving corporation, (B) in which all Allscripts Voting Shares immediately
prior to the consummation of such merger remain outstanding immediately after
the consummation thereof, (C) as a result of the consummation of which no Person
will Beneficially Own a majority of the Allscripts Fully Diluted Shares and (D)
following the consummation of which the Allscripts Continuing Directors (which,
for the purposes of this clause (e), shall include the IDX Designee) will
represent a majority of the Board of Directors of Allscripts.
(f) "Allscripts Common Stock" shall mean Allscripts' common stock,
par value $0.01 per share, and any shares of common stock or similar securities
into which the common stock of Allscripts are hereafter reclassified into or
exchanged for.
(g) "Allscripts Continuing Director" shall mean (i) any member of the
Board of Directors of Allscripts, while such Person is a member of such Board of
Directors, who (A) was a member of the Board of Directors of Allscripts prior to
the date hereof or (B) is recommended or elected to the Board of Directors by a
majority of the Allscripts Continuing Directors to fill a vacancy arising as a
result of an increase in the number of directors of Allscripts occurring after
the date hereof and (ii) any successor of an Allscripts Continuing Director,
while such successor is a member of the Board of Directors of Allscripts, who is
recommended or elected to succeed the Allscripts Continuing Director by a
majority of the Allscripts Continuing Directors. Notwithstanding anything to the
contrary in this definition, for purposes of this Agreement, the IDX Designee
shall not be considered an Allscripts Continuing Director.
(h) "Allscripts Exchangeable Security" shall mean a security of any
type, including but not limited to debt, equity, warrants or other rights,
issued by Allscripts or representing the right to acquire Allscripts Voting
Shares from Allscripts upon exchange, conversion or exercise thereof.
(i) "Allscripts Fully Diluted Shares" shall mean, at any time, the
sum of (i) the Allscripts Voting Shares then outstanding plus (ii) the number of
Allscripts Voting Shares reserved for issuance or issuable in connection with
the exercise, exchange or conversion of options, warrants or securities of
Allscripts then outstanding that are at such time exercisable or exchangeable
for Allscripts Voting Shares or are convertible into Allscripts Voting Shares.
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<PAGE>
(j) "Allscripts Voting Shares" shall mean the Allscripts Common Stock
and any other securities of Allscripts having voting power under ordinary
circumstances with respect to the election of directors of Allscripts.
(k) "Beneficially Own" shall have the meaning assigned to such term
in Rule 13d-3 under the Exchange Act in effect on the date hereof. "Beneficial
Owner" and "Beneficial Ownership" shall have correlative meanings.
(l) "Closing" shall have the meaning assigned to such term in the
Merger Agreement.
(m) "Current Price" shall have the meaning set forth in Section
2.4(i).
(n) "DGCL" shall have the meaning set forth in Section 2.1(c).
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute as in effect from time to time.
(p) "Expenses" shall have the meaning set forth in Section 2.5(j)(v).
(q) "IDX" shall have the meaning set forth in the first paragraph
hereof; and the term "IDX" shall include IDX and its Affiliates unless the
context otherwise requires or as otherwise specified in the definition of
"Affiliate."
(r) "IDX Business Combination Transaction" shall mean a merger,
consolidation, "business combination" as defined in Section 203 of the DGCL as
in effect on the date hereof, compulsory share exchange, recapitalization or
other transaction in which IDX is a constituent corporation or to which IDX is a
party and pursuant to which the IDX Voting Shares are exchanged for cash,
securities or other property or a sale of all or substantially all of the assets
of IDX and its Subsidiaries, taken as a whole; provided, however, that none of
the following shall be deemed an IDX Business Combination Transaction for
purposes of this Agreement: (i) a merger, consolidation, compulsory share
exchange, recapitalization or other transaction in which the Beneficial
Ownership of the capital stock of IDX or the surviving corporation of the
transaction (or of the ultimate parent of IDX or of such surviving corporation)
immediately after the consummation of such transaction is substantially the same
as the ownership of the capital stock of IDX immediately prior to the
consummation of the transaction or (ii) a merger (A) in which IDX is the
surviving corporation, (B) in which all IDX Voting Shares immediately prior to
the consummation of such merger remain outstanding immediately after the
consummation thereof, (C) as a result of the consummation of which no Person
will Beneficially Own a majority of the IDX Fully Diluted Shares and (D)
following the consummation of which the IDX Continuing Directors will represent
a majority of the Board of Directors of IDX.
(s) "IDX Common Stock" shall mean IDX's common stock, par value $0.01
per share, and any shares of common stock or similar securities into which the
common stock of IDX are hereafter reclassified into or exchanged for.
3
<PAGE>
(t) "IDX Continuing Director" shall mean (i) any member of the Board
of Directors of IDX, while such Person is a member of such Board of Directors,
who (A) was a member of the Board of Directors of IDX prior to the date hereof
or (B) is recommended or elected to the Board of Directors by a majority of the
IDX Continuing Directors to fill a vacancy arising as a result of an increase in
the number of directors of IDX occurring after the date hereof and (ii) any
successor of an IDX Continuing Director, while such successor is a member of the
Board of Directors of IDX, who is recommended or elected to succeed the IDX
Continuing Director by a majority of the IDX Continuing Directors.
(u) "IDX Designee" shall have the meaning set forth in Section 2.2(a)
hereof.
(v) "IDX Exchangeable Security" shall mean a security of any type,
including but not limited to debt, equity, warrants or other rights, issued by
IDX or representing the right to acquire IDX Voting Shares from IDX upon
exchange, conversion or exercise thereof.
(w) "IDX Fully Diluted Shares" shall mean, at any time, the sum of
(i) the IDX Voting Shares then outstanding plus (ii) the number of IDX Voting
Shares reserved for issuance or issuable in connection with the exercise,
exchange or conversion of options, warrants or securities of IDX then
outstanding that are at such time exercisable or exchangeable for IDX Voting
Shares or are convertible into IDX Voting Shares.
(x) "IDX Shares" shall have the meaning set forth in Recital A.
(y) "IDX Voting Shares" shall mean the IDX Common Stock and any other
securities of IDX having voting power under ordinary circumstances with respect
to the election of directors of IDX.
(z) "Insolvency Laws" shall have the meaning set forth in Section
5.7(a)(ii).
(aa) "Market Price" shall have the meaning set forth in Section
2.4(h).
(bb) "Maximum Number" shall have the meaning set forth in Section
2.4(j)(ii).
(cc) "Merger Agreement" shall mean the Agreement and Plan of Merger,
dated as of July 13, 2000, among Allscripts, Allscripts, Inc., Bursar
Acquisition, Inc., Bursar Acquisition No. 2, Inc., IDX and Channelhealth.
(dd) "Notice of Arranged Transfer" shall have the meaning set forth in
Section 2.4(h)(i).
(ee) "Notice of Block Purchase" shall have the meaning set forth in
Section 2.4(i)(i).
(ff) "Notice of Block Transfer" shall have the meaning set forth in
Section 2.4(i)(i).
(gg) "Notice of Proposed Transfer" shall have the meaning set forth in
Section 2.4(h)(i).
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<PAGE>
(hh) "Offer Notice" shall have the meaning set forth in Section
2.6(b).
(ii) "Per Share Market Value" means on any particular date (i) the
last sale price per share of the Allscripts Common Stock on such date on the
principal stock exchange on which the Allscripts Common Stock has been listed
or, if there is no such price on such date, then the last price on such exchange
on the date nearest preceding such date, or (ii) if the Allscripts Common Stock
is not listed on any stock exchange, the final bid price for a share of
Allscripts Common Stock in the over-the-counter market, as reported by The
Nasdaq Stock Market at the close of business on such date, or the last sales
price if such price is reported and final bid prices are not available, or (iii)
if the Allscripts Common Stock is not quoted on The Nasdaq Stock Market, the bid
price for a share of Allscripts Common Stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices), or (iv)
if the Allscripts Common Stock is no longer publicly traded, as determined by
one of the investment banking firms listed on Schedule I, as selected by IDX.
(jj) "Person" shall mean any individual, firm, partnership,
association, group (as such term is defined in Section 13(d)(3) of the Exchange
Act, as in effect on the date hereof), corporation, trust, business trust or
other entity, and includes any successor (by merger or otherwise) of any such
entity.
(kk) "Piggyback Registration" shall have the meaning set forth in
Section 2.4(j)(i).
(ll) "Piggyback Registration Request" shall have the meaning set forth
in Section 2.4(j)(i).
(mm) "Private Placement" shall mean a Transfer of IDX Shares pursuant
to a transaction not involving a Pubic Offering; provided, however, that (i) the
sale of IDX Shares pursuant to a tender or exchange offer is not a Private
Placement; (ii) a Private Placement shall not include a Transfer to any Person
who, directly or indirectly, has as one of its material businesses the provision
of healthcare information and/or point of care clinical applications and devices
(a "Allscripts Competitor") if, as a result of such Transfer, such Allscripts
Competitor would Beneficially Own such number of Allscripts Voting Shares as
would constitute 10% or more of the then outstanding Allscripts Voting Shares,
unless any such Allscripts Competitor acquiring such amount of securities enters
into an agreement with Allscripts limiting the Transfer of such shares on
substantially the same terms as this Agreement, except that the term of such
agreement shall be 10 years from the date of such agreement; and (iii) a Private
Placement shall not include a Transfer of IDX Shares to any Person if following
such Transfer such Person Beneficially Owns more than 10% of the then
outstanding Allscripts Voting Shares unless such Person enters into an agreement
with Allscripts with terms and conditions restricting the Transfer of such
shares substantially similar to those contained herein, except that the term of
such agreement shall be for 10 years from the date of such agreement. IDX shall
be entitled to rely on a representation of the proposed recipient in determining
whether a Transfer to such recipient qualifies as a Private Placement under
clauses (ii) and (iii) of the preceding sentence.
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<PAGE>
(nn) "Public Offering" shall mean a firm commitment underwritten
public offering pursuant to a registration statement that has been declared
effective by the SEC under the Securities Act.
(oo) "Rule 144" shall mean Rule 144 adopted by the SEC under the
Securities Act, or any successor rule.
(pp) "SEC" shall mean the Securities and Exchange Commission.
(qq) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute as in effect from time to time.
(rr) "Specified Price" shall have the meaning set forth in Section
2.4(i).
(ss) "Subsidiary" shall mean, with respect to any Person, any other
Person of which at least a majority of the voting power of the voting equity
securities or voting equity interest is owned, directly or indirectly, by such
Person.
(tt) "Target Price" shall have the meaning set froth in Section
2.4(h).
(uu) "Trading Day" means (i) a day on which the Allscripts Common
Stock is traded on the principal stock exchange on which the Allscripts Common
Stock has been listed, or (ii) if the Allscripts Common Stock is not listed on
any stock exchange, a day on which the Allscripts Common Stock is quoted in the
over-the-counter market, as reported by The Nasdaq Stock Market, or (iii) if the
Allscripts Common Stock is not quoted on The Nasdaq Stock Market, a day on which
the Allscripts Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding to its functions of reporting prices).
(vv) "Transfer" shall have the meaning set forth in Section 2.4
hereof.
2. SHARE RIGHTS AND RESTRICTIONS
2.1 LIMITATION ON CERTAIN TRANSACTIONS
(a) (i) Except as otherwise permitted by this Agreement, IDX agrees
that IDX shall not, during the period from the date of this Agreement until its
termination, (A) engage, or propose to engage, in any Allscripts Business
Combination Transaction with Allscripts, or (B) make any proposal to Allscripts,
the Board of Directors of Allscripts or the stockholders of Allscripts with
respect to a tender offer or exchange offer for Allscripts Voting Shares or a
liquidation of Allscripts, unless either (x) such transaction shall have been
approved by a majority of the Allscripts Continuing Directors or (y) on the date
when such transaction is proposed, no IDX Designee shall be serving on the Board
of Directors of Allscripts and IDX and its Affiliates collectively shall
Beneficially Own less than 5% of the then outstanding Allscripts Voting Shares.
(ii) Except as otherwise permitted by this Agreement,
Allscripts agrees that Allscripts shall not, during the period from the date of
this Agreement until its termination,
6
<PAGE>
(A) engage, or propose to engage, in any IDX Business Combination Transaction
with IDX, or (B) make any proposal to IDX, the Board of Directors of IDX or the
stockholders of IDX with respect to a tender offer or exchange offer for IDX
Voting Shares or a liquidation of IDX, unless either (x) such transaction shall
have been approved by a majority of the IDX Continuing Directors or (y) on the
date when such transaction is proposed, Allscripts and its Affiliates
collectively shall Beneficially Own less than 5% of the then outstanding IDX
Voting Shares.
(b)(i) Except as otherwise permitted by this Agreement, IDX agrees
that IDX shall not, during the period from the date of this Agreement until its
termination, (i) request or solicit any Person (A) to make a tender or exchange
offer for Allscripts Voting Shares or (B) to make a proposal for an Allscripts
Business Combination Transaction, unless either (x) a majority of the Allscripts
Continuing Directors shall have approved of IDX taking such action or (y) no IDX
Designee shall be serving on the Board of Directors of Allscripts and IDX and
its Affiliates collectively shall Beneficially Own less than 5% of the then
outstanding Allscripts Voting Shares.
(ii) Except as otherwise permitted by this Agreement,
Allscripts agrees that Allscripts shall not, during the period from the date of
this Agreement until its termination, (i) request or solicit any Person (x) to
make a tender or exchange offer for IDX Voting Shares or (y) to make a proposal
for an IDX Business Combination Transaction, unless either (1) a majority of the
IDX Continuing Directors shall have approved of Allscripts taking such action or
(2) Allscripts and its Affiliates collectively shall Beneficially Own less than
5% of the then outstanding IDX Voting Shares.
(c) In connection with the Merger Agreement, Allscripts' Board of
Directors has taken all action to assure that (i) no state takeover statute or
similar statute will apply to the Merger Agreement or to any of the transactions
contemplated in the Merger Agreement or the items referenced in subclauses (A)
or (B) of Section 2.3(a) and (ii) Section 203 of the DGCL will not apply to the
Merger Agreement or any of the transactions contemplated in the Merger Agreement
or the items referenced in subclauses (A) or (B) of Section 2.3(a). Further,
Allscripts has no "poison pill" or takeover defense mechanism other than Article
Twelfth of Allscripts' Certificate of Incorporation. Allscripts shall not amend
or modify any of the foregoing actions nor shall Allscripts implement any new,
additional, amended or modified poison pill or takeover defense mechanism,
unless, in each and every such case, provision shall be made to exclude IDX and
its Affiliates from all effects thereof.
(d) Allscripts and IDX agree that the operative provisions, as
presently in effect, of Section 203 of the DGCL will apply to any Allscripts
Business Combination Transaction and any IDX Business Combination Transaction
covered by Section 203 between IDX and its Affiliates and Allscripts, or
Allscripts and its Affiliates and IDX, for the term of this Agreement,
notwithstanding that the operative provisions of such Section 203 might
otherwise be applicable for a shorter period of time.
2.2 ALLSCRIPTS BOARD OF DIRECTORS
(a) From and after the date hereof and until the earlier of (i)
termination of this Agreement and (ii) the date that IDX and its Affiliates
shall Beneficially Own fewer than
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<PAGE>
1,874,459 shares of Allscripts Common Stock (subject to equitable adjustment in
the event of any stock split, stock dividend, reverse stock split or similar
event affecting the Allscripts Common Stock after the date of this Agreement),
then, in connection with each election of directors of Allscripts, whether at an
annual or special meeting, Allscripts will nominate, and, subject to the
fiduciary obligations of the Allscripts directors, solicit proxies for, in
accordance with its procedures for the nomination of, and solicitation of
proxies for, management-slate directors, an individual designated by IDX (such
individual who, at any time, is or was designated by IDX for purposes of this
Agreement is referred to herein as the "IDX Designee"). Upon the earlier of (i)
termination of this Agreement and (ii) the date that IDX and its Affiliates
shall Beneficially Own fewer than 1,874,459 shares of Allscripts Common Stock
(subject to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split or similar event affecting the Allscripts Common
Stock after the date of this Agreement), IDX shall cause any IDX Designee then
serving as a director of Allscripts to resign immediately unless otherwise
requested by Allscripts.
(b) The director initially designated by IDX as the IDX Designee is
R.E.T. Allscripts shall provide IDX with 30 days' prior written notice of any
intended mailing of a notice to stockholders for a meeting at which directors
are to be elected. IDX shall give written notice to Allscripts, no later than
10 days prior to such mailing, of the Person designated pursuant to Section
2.2(a) as nominee for election as director. Allscripts agrees to nominate and
recommend for election as director the individual designated, or to be
designated, pursuant to Section 2.2(a). If IDX shall fail to give notice to
Allscripts as provided above, it shall be deemed that the IDX Designee then
serving as director shall be the IDX Designee for election.
(c) Except as otherwise provided herein, at all times (i) when there
is an IDX Designee on Allscripts' Board of Directors and IDX and its Affiliates
shall Beneficially Own 5,623,379 or more shares of Common Stock (subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split or similar event affecting the Allscripts Common Stock after the
date of this Agreement), and (ii) such designee is R.E.T., the IDX Designee
shall be elected as the sole Vice Chairman of the Allscripts Board of Directors,
which shall be a non-executive position.
(d) In the event that any IDX Designee shall cease to serve as a
director for any reason (other than as set forth in Section 2.2(a)), the vacancy
resulting thereby shall be filled by the remaining directors of Allscripts in
accordance with its Certificate of Incorporation, Bylaws and applicable law by a
new IDX Designee and such new IDX Designee shall thereafter serve until the
expiration of the term of the IDX Designee replaced by such new IDX Designee.
(e) Notwithstanding anything to the contrary contained herein, no IDX
Designee may be a Person who previously has been a director of Allscripts and
was properly removed for cause from the Board of Directors of Allscripts or a
Person who has been convicted of a felony or a crime involving moral turpitude.
(f) The IDX Designee will be furnished with all information that is
provided to all other directors of Allscripts (in their capacities as such) at
the same time as such information is furnished to such other directors (in their
capacities as such).
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<PAGE>
(g) IDX shall cause the IDX Designee serving as a director of
Allscripts to comply with the retirement policies of Allscripts as in effect on
the date hereof (a copy of which is attached as Exhibit A) or as hereafter
amended or modified from time to time by the Board of Directors of Allscripts or
its stockholders; provided, however, that no such amendment or modification to
such policies shall be binding upon IDX or the IDX Designee unless the IDX
Designee shall have voted in favor of such amendment or modification at the
meeting, or in the action in lieu of a meeting, of the Board of Directors of
Allscripts at or in which it is considered.
(h) IDX shall make the initial IDX Designee reasonably available for
initial marketing ("road show") efforts undertaken by Allscripts in connection
with the Merger Agreement and for subsequent meetings with customers of the
Channelhealth business (which shall occur not less frequently than once per
month).
2.3 LIMITATION ON ACQUISITION OF ADDITIONAL VOTING SHARES BY IDX
(a) From and after the date hereof, IDX shall not acquire any
Allscripts Voting Shares, other than the IDX Shares owned by IDX as of the date
hereof and after giving effect to the Closing, (i) without the prior written
consent of a majority of the Allscripts Continuing Directors or (ii) pursuant to
Article III of the Merger Agreement; provided, however, that nothing in this
Section 2.3(a) shall limit IDX's power and right (A) to purchase or acquire
shares as a result of any stock dividend or stock split, reclassification of the
Allscripts Common Stock, or the exercise or conversion of any security received
by IDX from Allscripts in respect of the IDX Shares, or (B) to acquire shares of
Allscripts Common Stock or any Allscripts Exchangeable Security pursuant to
Section 2.6 or to convert, exchange or exercise any such Allscripts Exchangeable
Security.
(b) From and after the date hereof, Allscripts shall not acquire any
IDX Voting Shares without the prior written consent of a majority of the IDX
Continuing Directors; provided, however, that nothing in this Section 2.3(b)
shall limit Allscripts' power and right (i) to purchase or acquire shares as a
result of any stock dividend or stock split, reclassification of the IDX Common
Stock, or the exercises or conversion of any security received by Allscripts
from IDX in respect of any IDX securities that Allscripts may hold or (ii) to
acquire shares of IDX Common Stock, or the exercise or conversion of any
security received by Allscripts in respect of any IDX securities that Allscripts
may hold or any IDX Exchangeable Security pursuant to Section 2.6 or to convert,
exchange or exercise any such IDX Exchangeable Security.
(c) Notwithstanding anything to the contrary contained herein, in the
event IDX shall effect a sale of any IDX Shares, IDX shall be entitled to
acquire additional Voting Shares, without the necessity of obtaining prior
written consent, up to an aggregate amount that would cause IDX to hold the same
amount of Voting Shares as IDX held after giving effect to the Closing, and the
obligations of Allscripts set forth in Section 2.2 shall be reinstated, if
applicable; provided, however, that (i) IDX may not undertake to acquire such
additional Voting Shares until the end of the six month period immediately
following any such sale, (ii) in no event will IDX be entitled to reinstate the
obligations of Allscripts set forth in Section 2.2(b) once such obligations are
terminated and (iii) IDX will be restricted from making any further sales of IDX
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<PAGE>
Shares until the end of the thirty day period immediately following the
acquisition of any additional Voting Shares pursuant to this Section 2.3(c).
2.4 RESTRICTIONS ON TRANSFER. From and after the date hereof until the
termination of this Agreement, IDX and its Affiliates shall not sell, transfer,
write options on or otherwise convey (when used as a verb, "Transfer" and, any
sale, transfer, writing of options on or other conveyance, a "Transfer")
Beneficial Ownership of any Allscripts Voting Shares (including Allscripts
Voting Shares subject to Allscripts Exchangeable Securities), without the prior
written consent of a majority of the Allscripts Continuing Directors, except
that, in any event, any and all of the following Transfers shall be permitted:
(a) One or more Transfers to an Affiliate of IDX; provided, however,
that each such Affiliate agrees in writing with Allscripts to be bound by the
same restrictions as are applicable to IDX hereunder.
(b) One or more Transfers to Allscripts or to a Subsidiary of
Allscripts (pursuant to a tender offer or otherwise).
(c) One or more Transfers pursuant to a merger, consolidation or
compulsory share exchange, in which Allscripts is a constituent corporation.
(d) One or more Transfers made as a pro rata dividend or distribution
to the holders of the common stock of IDX or its Affiliates; provided, however,
unless such dividend or distribution is to the public stockholders of IDX, such
holders agree in writing with Allscripts to be bound by the same restrictions as
IDX hereunder.
(e) One or more Transfers to any Person (other than IDX or any of its
Affiliates) who shall have commenced a tender or exchange offer for shares of
Allscripts Common Stock if, at the time of public announcement of the tender or
exchange offer: (i) IDX and its Affiliates collectively Beneficially Own less
than 5% of the then outstanding Allscripts Voting Shares and no IDX Designee is
serving on the Allscripts Board of Directors, or (ii) IDX and its Affiliates
collectively Beneficially Own more than 5% of the then outstanding Allscripts
Voting Shares and a majority of the Allscripts Continuing Directors recommend to
the holders of the shares of Allscripts Common Stock that such holders accept
such tender or exchange offer.
(f) From and after the following anniversaries of the date of this
Agreement, IDX and its Affiliates may, collectively, Transfer the following
percentages of the IDX Shares in one or more Private Placements and/or
transactions described below in Sections 2.4(g) or 2.4(h):
10
<PAGE>
PERCENTAGE OF
IDX SHARES
<TABLE>
<CAPTION>
ANNIVERSARY OF PERMITTED TO TRANSFER*
THIS AGREEMENT INCREMENTAL* AGGREGATE*
-------------- ------------ ----------
<S> <C> <C>
First 25% 25%
Second 25% 50%
Third 25% 75%
Fourth 25% 100%
</TABLE>
*These time restrictions and percentages will also apply
to any shares of Allscripts Common Stock acquired by IDX
and its Affiliates pursuant to Article III of the Merger
Agreement, which will result in additional IDX Shares that
can be Transferred based on the percentage limitations
being applied to a greater number of IDX Shares.
In any month, no more than 16.6667% of the IDX Shares eligible to be Transferred
during the then current year may be sold by IDX and its Affiliates pursuant to
this Section 2.4(f). IDX and its Affiliates shall not be permitted to cumulate,
or carry forward for Transfer in subsequent periods, either (i) unsold maximum
monthly eligible share Transfer amounts from month to month during any
particular year or (ii) unsold maximum annual eligible share Transfer amounts
from year to year.
(g) Subject to Section 2.4(f), one or more Transfers in accordance
with Rule 144; provided, however, that no Transfers shall be permitted pursuant
to Rule 144 except through one of the market makers in Allscripts' Common Stock
listed on Schedule II or as otherwise previously approved in writing by
Allscripts.
(h)(i) During each of the periods (A) from and after the first
anniversary of the date hereof through the second anniversary of the date hereof
and (B) from and after the third anniversary of the date hereof through the
fourth anniversary of the date hereof, IDX may deliver a written notice to
Allscripts that IDX desires to Transfer in a single transaction either 50% or
100% of the maximum aggregate number of its IDX Shares that it would be
permitted to Transfer in that period, which notice (the "Notice of Proposed
Transfer") must set forth (A) the number of IDX Shares that IDX desires to
Transfer (which number must equal either 50% or 100% of the maximum aggregate
number of shares that it would be permitted to Transfer in that period) and (B)
the price at which IDX would be willing to Transfer such shares (the "Target
Price"). The Notice of Proposed Transfer shall constitute an offer by IDX, which
shall be irrevocable for a period of 10 days following receipt of such notice by
Allscripts, to permit Allscripts to arrange for the purchase of such shares by a
purchaser selected by Allscripts in its sole discretion for cash at a price per
share equal to the average of the Per Share Market Value of such shares for the
five Trading Days immediately preceding (and excluding) the date that Allscripts
delivers a written notice to IDX (the "Notice of Arranged Transfer") that
Allscripts has arranged for such purchase at such price per share (the "Market
Price"); provided, however, that
11
<PAGE>
IDX shall have no obligation to Transfer any of its IDX Shares to the proposed
purchaser if the proposed purchase price per share does not equal at least 90%
of the Target Price.
(ii) The consummation of such purchase shall take place on such
date, not later than 10 days after receipt of the Notice of Arranged Transfer by
IDX, as Allscripts and IDX shall select. Upon the consummation of such purchase,
(A) IDX shall deliver the certificate or certificates evidencing the IDX Shares
so purchased duly endorsed in blank for transfer or accompanied by written
instruments of transfer in form satisfactory to the purchaser duly executed by
IDX, free and clear of any liens, encumbrances and claims and (B) the purchaser
shall simultaneously with the delivery of the certificate or certificates
evidencing the IDX Shares so purchased pay to IDX the aggregate Market Price of
such shares.
(iii) Allscripts shall have no obligation to deliver a Notice of
Arranged Transfer in response to any Notice of Proposed Transfer delivered by
IDX, and the decision as to whether to deliver any Notice of Arranged Transfer
shall be made by Allscripts in the exercise of its sole discretion. In the
event that Allscripts shall have received a Notice of Proposed Transfer from IDX
but shall not have given a Notice of Arranged Transfer to IDX with respect
thereto prior to the expiration of the 10-day period following receipt of such
Notice of Proposed Transfer, nothing in this Section 2.4(h) shall limit the
right of IDX to Transfer any IDX Shares that are not to be purchased pursuant to
a Notice of Arranged Transfer, but otherwise subject to and in accordance with
the time, percentage and other restrictions set forth in Section 2.4(f).
(i) (i) From and after the fifth anniversary of the date hereof, IDX
agrees not to effect any Transfer of IDX Shares in any single transaction
involving a number of such shares representing in excess of 2.5% of the then
issued and outstanding shares of Allscripts Common Stock unless and until IDX
delivers a written notice to Allscripts that IDX intends to effect such
Transfer, which notice (a "Notice of Block Transfer") must set forth (A) the
number of IDX Shares that IDX desires to Transfer, or maximum and minimum number
of, such shares and (B) the price per share at which IDX would be willing to
Transfer such shares (the "Specified Price"). The Notice of Block Transfer shall
constitute an offer by IDX, which shall be irrevocable for a period of 10 days
following receipt of such notice by Allscripts, to permit Allscripts to arrange
for the purchase of the maximum number (but not fewer than the minimum number)
of such shares by a purchaser selected by Allscripts in its sole discretion for
cash at a price per share equal to the average of the Per Share Market Value of
such shares for the five Trading Days immediately preceding (and excluding) the
date that Allscripts delivers a written notice to IDX (the "Notice of Block
Purchase") that Allscripts has arranged for such purchase at such price per
share (the "Current Price"); provided, however, that IDX shall have no
obligation to Transfer any of its IDX Shares to the proposed purchaser if the
Current Price does not equal at least 90% of the Specified Price offered in the
Notice of Block Transfer.
(ii) The consummation of such purchase shall take place on such
date, not later than 10 days after receipt of the Notice of Block Purchase by
IDX , as Allscripts and IDX shall select. Upon the consummation of such
purchase, (A) IDX shall deliver the certificate or certificates evidencing the
IDX Shares so purchased duly endorsed in blank for transfer or accompanied by
written instruments of transfer in form satisfactory to the purchaser duly
executed by IDX, free and clear of any liens, encumbrances and claims and (B)
the purchaser
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<PAGE>
shall simultaneously with the delivery of the certificate or certificates
evidencing the IDX Shares so purchased pay to IDX the aggregate Current Price of
such shares.
(iii) Allscripts shall have no obligation to deliver a Notice of
Block Purchase in response to any Notice of Block Transfer delivered by IDX, and
the decision as to whether to deliver any Notice of Block Purchase shall be made
by Allscripts in the exercise of its sole discretion. In the event that
Allscripts shall have received a Notice of Block Transfer from IDX but shall not
have given a Notice of Block Purchase to IDX with respect thereto prior to the
expiration of the 10-day period following receipt of such Notice of Block
Transfer, nothing in this Section 2.4(i) shall limit the right of IDX to
Transfer any IDX Shares that are not to be purchased pursuant to a Notice of
Block Purchase.
(j) (i) During the period from and after the third anniversary of the
date hereof through the fourth anniversary of the date hereof, if Allscripts
proposes to file a registration statement under the Securities Act with respect
to a primary firm commitment underwritten public offering of Allscripts Common
Stock (a "Piggyback Registration"), it shall give written notice of such
proposed filing to IDX as soon as practicable, but in no event fewer than 20
days before the anticipated filing date. Allscripts shall include in such
registration all IDX Shares with respect to which Allscripts has received a
written request for inclusion within 10 days after the giving of Allscripts'
notice (a "Piggyback Registration Request"); provided, however, that Allscripts
may in its sole discretion restrict the number of IDX Shares so requested for
inclusion to the maximum aggregate number of such shares that IDX would be
permitted to sell in such period after the date that Allscripts gives notice of
its intention to effect a Piggyback Registration.
(ii) If the managing underwriters of the Piggyback Registration
advise IDX that, in their opinion, the number of shares requested to be included
in such registration exceeds the maximum number that can be included in such
offering without adversely affecting the marketability of the offering (the
"Maximum Number"), IDX will limit the number of shares included in such
registration to the Maximum Number, and the shares registered shall be selected
in the following order of priority: (A) first, the shares of Allscripts Common
Stock Allscripts proposes to Transfer, and (B) second, the IDX Shares covered by
the Piggyback Registration Request and other shares requested to be included in
such registration based upon rights under agreements outstanding on the date
hereof; provided, however, that if shares of Common Stock are being offered for
the account of Persons other than IDX, the proportion by which the amount of IDX
Shares intended to be offered for the account of IDX is reduced shall not exceed
the proportion by which the amount of shares of Allscripts Common Stock intended
to be offered for the account of such other Persons is reduced.
(iii) IDX may not participate in any Piggyback Registration
unless it (A) agrees to sell its shares of Allscripts Common Stock on the basis
provided in any underwriting arrangements approved by Allscripts, (B) completes
and executes all questionnaires, powers of attorney, custody arrangements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and this Agreement, and (C)
furnishes in writing to Allscripts such information regarding IDX and other
information as Allscripts may from time to time request or as may be legally
required in connection with such registration; provided, however, that IDX shall
not be required to make any
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<PAGE>
representations or warranties in connection with any such registration other
than representations and warranties as to (x) its ownership of its IDX Shares to
be Transferred free and clear of all liens, encumbrances and claims, (y) IDX's
power and authority to effect such Transfer, and (z) such matters pertaining to
compliance with securities laws as may be reasonably requested; provided
further, however, that the obligation of IDX to indemnify pursuant to any such
underwriting agreements shall be several, not joint and several, among such
Persons selling securities, and the liability of IDX will be in proportion to,
and provided further that such liability will be limited to, the net amount
received by IDX from the sale of the IDX Shares pursuant to such registration.
(iv) In connection with any Piggyback Registration, Allscripts
will enter into such agreements (including an underwriting agreement) as are
customary in transactions of the kind contemplated by the intended method or
methods of distribution set forth in the Piggyback Registration Statement and
reasonably acceptable to Allscripts, and take such other actions as are
reasonably necessary in connection therewith in order to expedite or facilitate
the Piggyback Registration; and (A) make such representations and warranties
with respect to the Piggyback Registration Statement or any post-effective
amendment or supplement thereto, prospectus or any amendment or supplement
thereto, and documents incorporated by reference, if any, to IDX and the
underwriters of the Piggyback Registration in form, substance, and scope as are
customary in connection with transactions of such kind; (B) if requested by the
managing underwriters of the Piggyback Registration, obtain an opinion of
outside counsel to Allscripts in customary form and covering matters of the type
customarily covered by such an opinion, addressed to such underwriters named in
the underwriting agreement and dated the date of the closing of the sale of the
shares covered by the Piggyback Registration Statement; (C) if requested by the
managing underwriters of the Piggyback Registration, obtain a "comfort" letter
(or, if a "comfort" letter may not be delivered under applicable accounting
pronouncements or standards, a single "procedures" letter) and a single update
thereof from each of the independent certified public accountants who have
certified the most recent audited financial statements that are incorporated by
reference in the Piggyback Registration Statement, which letters shall be
addressed to the underwriters of the Piggyback Registration, such letter or
letters to be in customary form and covering such matters of the type
customarily covered by "comfort" letters of such type; (D) deliver such
documents and certificates as may be reasonably requested by IDX and the
underwriters of the Piggyback Registration to evidence compliance with any
conditions contained in the underwriting agreement or other agreements entered
into by Allscripts; and (E) undertake such obligations relating to expense
reimbursement as provided in Section 2.4(j)(v) and indemnification and
contribution obligations for the benefit of IDX of the type customarily
undertaken by issuers in connection with "piggyback" registrations.
(v) In connection with any Piggyback Registration, Allscripts
agrees to bear and to pay, or cause to be paid, promptly upon request being made
therefor, all expenses incident to Allscripts' performance of, or compliance
with, this Section 2.4(j), including, without limitation: (A) all SEC and any
National Association of Securities Dealers registration and filing fees and
expenses, (B) all fees and expenses in connection with the qualification of the
shares covered by any Piggyback Registration Statement for offering and sale
under state securities or "blue sky" laws, including reasonable fees and
disbursements of counsel for any underwriter in connection with such
qualifications, (C) all expenses relating to the preparation, printing,
distribution and reproduction of any Piggyback Registration Statement, each
prospectus included
14
<PAGE>
therein or prepared for distribution pursuant thereto, each amendment or
supplement to the foregoing, the certificates representing the shares covered by
such Piggyback Registration Statement and all other documents relating hereto,
(D) internal expenses of Allscripts, including, without limitation, all salaries
and expenses of Allscripts' officers and employees performing legal or
accounting duties, (E) fees, disbursements and expenses of Allscripts' counsel
and its other advisors and experts and independent certified public accountants
of Allscripts (including the expenses of any opinions or "comfort" letters
required by or incident to such performance and compliance) and (F) the fees and
expenses incurred in connection with the listing of the shares covered by the
Piggyback Registration Statement on the Nasdaq Stock Market, Inc. or any other
stock exchange or dealer quotation system on which the Allscripts Common Stock
shall at such time be listed or traded (collectively, the "Expenses"). To the
extent that any Expenses are incurred, assumed or paid by IDX or any underwriter
of shares covered by the Piggyback Registration Statement, Allscripts shall
reimburse IDX for the full amount of the Expenses so incurred, assumed or paid
promptly after receipt of a written request therefor, which shall specify in
reasonable detail the nature and amount of the Expenses. Notwithstanding the
foregoing, IDX shall pay, or cause to be paid, as appropriate, (A) all
underwriting discounts and commissions attributable to the sale of the shares
covered by the Piggyback Registration Statement by or on behalf of IDX, (B) the
fees, disbursements and expenses of its counsel in connection with the offering
and sale of such shares and (C) all transfer taxes applicable to the sale of
such shares.
2.5 VOTING OF IDX SHARES. Except as provided below, during the term of
this Agreement, IDX and its Affiliates shall be entitled to vote on all matters
all of its or their IDX Shares in its or their complete discretion.
Notwithstanding the foregoing, IDX and its Affiliates shall vote all such shares
in accordance with the recommendation of the majority of the Allscripts
Continuing Directors on any matter that (i) constitutes an Allscripts Business
Combination Transaction, (ii) would involve a change of control of Allscripts
(for purposes of this section a change in control shall mean the acquisition by
a Person other than IDX or its Affiliates of Beneficial Ownership of more than
50% of the then outstanding Allscripts Voting Shares), (iii) involves the
issuance by Allscripts of securities for its own account for cash, or (iv)
involves any acquisition by Allscripts, whether through merger, share exchange,
purchase of assets or otherwise unless (A) the average of the Per Share Market
Value for Allscripts' Common Stock for the 90 Trading Days immediately preceding
(and excluding) the date on which the matter is voted upon is less than $14.5625
per share (such amount to be appropriately adjusted to give effect to stock
splits, reverse splits, stock dividends, reclassifications and share exchanges
since the date hereof) and (B) there shall exist no continuing and uncured
default by IDX of any of its obligations under this Agreement, the Merger
Agreement, the Strategic Alliance Agreement, the Facilities Lease Agreement or
the Cross License Agreement (as such terms are defined in the Merger Agreement),
which default shall have resulted in a material adverse effect on the business,
properties, results of operations, prospects, condition (financial or otherwise)
or Per Share Market Value of Allscripts' Common Stock in which case, if both
conditions described in subclauses (A) and (B) are satisfied, IDX and its
Affiliates shall be entitled to vote on each matter described in the foregoing
clauses (i) through (iv) all of its or their IDX Shares in its or their complete
discretion.
15
<PAGE>
2.6 RIGHT TO PARTICIPATE IN CERTAIN ISSUANCES BY ALLSCRIPTS.
(a) If, when, and for so long as, IDX and its Affiliates Beneficially
Own shares of Allscripts Common Stock that would constitute, after giving effect
to the proposed transaction (but not prior to the proposed transaction), less
than the Applicable Percentage of the then outstanding shares of Allscripts
Common Stock, Allscripts shall not issue any shares of Allscripts Common Stock
or any Allscripts Exchangeable Securities, for any consideration or in any type
of transaction, unless Allscripts shall have first complied with, in the case of
an issuance other than pursuant to a Public Offering, the provisions of Section
2.6(b) or, in the case of a Public Offering, the provisions of Section 2.6(c).
(b) If Allscripts determines to issue any shares of Allscripts Common
Stock or any Allscripts Exchangeable Security, other than in a Public Offering,
then Allscripts shall provide written notice of such determination to IDX, which
notice shall include all the terms of such issuance and shall offer to IDX the
right to purchase, at the same price and on the same terms as Allscripts
proposes to issue such shares of Allscripts Common Stock or Allscripts
Exchangeable Security to others (or, if Allscripts proposes to issue such shares
of Allscripts Common Stock or any Allscripts Exchangeable Security other than
for cash, at a cash price equal to the current market price of the Allscripts
Common Stock or if an Allscripts Exchangeable Security, such value to be
determined by agreement between Allscripts or IDX, or if the parties are unable
to agree, by an investment banking firm or other asset valuation firm of
national reputation selected by IDX from Schedule I attached hereto (as such
Schedule I may be amended in writing from time to time by both Allscripts and
IDX) with the consent of a majority of the Allscripts Continuing Directors,
which consent shall not be unreasonably withheld, the cost of which shall be
borne by Allscripts) a number or amount of the shares of Allscripts Common Stock
or Allscripts Exchangeable Securities proposed to be issued determined by
dividing the aggregate number of outstanding shares of Allscripts Common Stock
then Beneficially Owned by IDX by the total number of shares of Allscripts
Common Stock then outstanding (the "Offer Notice"). If IDX determines to accept
the offer contained in the Offer Notice, IDX shall deliver a written notice to
Allscripts indicating its acceptance within 10 days after its receipt of the
Offer Notice, which notice shall indicate whether IDX has accepted such offer in
whole or in part, and, if accepted in part, the number or amount of shares of
Allscripts Common Stock or Allscripts Exchangeable Securities as to which such
offer has been accepted (an "Acceptance Notice"). Any acceptance of the offer
contained in an Offer Notice by delivery of an Acceptance Notice shall be
irrevocable and shall constitute a commitment by IDX to purchase from
Allscripts, and by Allscripts to sell to IDX, the number or amount of shares of
Allscripts Common Stock or Allscripts Exchangeable Securities covered by such
Acceptance Notice upon the terms contained in the Offer Notice.
1. If at any time and from time to time, (i) Allscripts determines
to issue any Allscripts Voting Shares or any Allscripts Exchangeable
Security in a Public Offering, and (ii) as a result thereof IDX and its
Affiliates would Beneficially Own less than the Applicable Percentage of
the then to be outstanding Allscripts Voting Shares, then (A) Allscripts
shall provide written notice of such determination to IDX, which notice
shall include the proposed size and other terms of such issuance, to the
extent then known, the name or names of any managing underwriter or
placement agent(s) and the date when it is proposed that any such issuance
will be made, and (B) Allscripts shall either sell
16
<PAGE>
directly or cause the underwriters or placement agent(s) to offer to IDX
the right to purchase from Allscripts directly or from the underwriters or
placement agent(s), at the applicable offering price, a number or amount of
the Allscripts Voting Shares, Allscripts Exchangeable Securities or other
securities proposed to be issued that, if purchased by IDX, would permit
IDX and its Affiliates to Beneficially Own a number of Voting Shares
determined by dividing the aggregate number of outstanding shares of
Allscripts Common Stock then Beneficially Owned by IDX by the total number
of shares of Allscripts Common Stock then outstanding.
3. RESTRICTIONS ON TRANSFER. From and after the date of Closing and
until the expiration of the six month period following the Closing, R.E.T. shall
not Transfer any shares of Common Stock Beneficially Owned by R.E.T. in his
individual capacity, unless and until such time as Glen E. Tullman ("G.E.T.")
shall Transfer any shares of Common Stock Beneficially Owned by G.E.T. in his
individual capacity.
4. STOCK CERTIFICATES AND OTHER RESTRICTIONS.
4.1 ENDORSEMENT OF CERTIFICATES.
(a) All certificates representing IDX Shares shall, subject to
Section 4.1(c), bear the following legend:
"THIS CERTIFICATE IS SUBJECT TO THE PROVISIONS OF A STOCK
RIGHTS AND RESTRICTIONS AGREEMENT BETWEEN ALLSCRIPTS
HEALTHCARE SOLUTIONS, INC. AND IDX SYSTEMS CORPORATION
DATED AS OF JANUARY 8, 2001. A COPY OF SUCH AGREEMENT IS
ON FILE AT THE PRINCIPAL BUSINESS OFFICE OF ALLSCRIPTS
HEALTHCARE SOLUTIONS, INC."
(b) After such time as the legend set forth in Section 4.1(a) is no
longer required hereunder (including without limitation as a result of the
termination of this Agreement in accordance with its terms) or if the securities
represented by a certificate have been registered under the Securities Act
pursuant to an effective registration statement or are to be sold pursuant to
Rule 144, or if Allscripts shall have been furnished with an opinion of counsel,
which opinion shall be reasonably satisfactory to counsel for Allscripts, that
registration under the Securities Act is not required, as the case may be, then,
in any such event, upon the request of IDX, Allscripts shall cause such
certificate or certificates to be exchanged for a certificate or certificates
that do not bear any legend.
4.2 IMPROPER TRANSFER. Any attempt by IDX or its Affiliates to Transfer
any IDX Shares other than in accordance with this Agreement shall be null and
void and neither Allscripts nor any transfer agent for such securities shall be
required to give any effect to such attempted Transfer in its stock records.
17
<PAGE>
5. GENERAL PROVISIONS.
5.1 REPRESENTATIONS AND WARRANTIES.
(a) Allscripts represents and warrants to IDX that (i) Allscripts is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder, (ii) the
execution and delivery of this Agreement by Allscripts and the consummation by
Allscripts of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Allscripts and no other corporate
proceedings on the part of Allscripts are necessary to authorize this Agreement
or any of the transactions contemplated hereby, and (iii) this Agreement has
been duly executed and delivered by Allscripts and constitutes a valid and
binding obligation of Allscripts, and, assuming this Agreement constitutes a
valid and binding obligation of IDX, is enforceable against Allscripts in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights generally from time to time and to general principles of
equity.
(b) IDX represents and warrants to Allscripts that (i) IDX is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Vermont and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder, (ii) the execution
and delivery of this Agreement by IDX and the consummation by IDX of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of IDX and no other corporate proceedings on the
part of IDX are necessary to authorize this Agreement or any of the transactions
contemplated hereby, and (iii) this Agreement has been duly executed and
delivered by IDX and constitutes a valid and binding obligation of IDX, and,
assuming this Agreement constitutes a valid and binding obligation of
Allscripts, is enforceable against IDX in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance and similar laws affecting creditors' rights generally from time to
time and to general principles of equity.
5.2 AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE. This Agreement may
be amended or waived only by written instrument duly executed by the parties. In
the event of the amendment or modification of this Agreement in accordance with
its terms, the Board of Directors of Allscripts shall adopt any amendment to the
Bylaws of Allscripts that may be required as a result of such amendment or
modification to this Agreement, and, if required, shall propose any amendment to
its Certificate of Incorporation that may be required as a result of such
amendment or modification to this Agreement to the Allscripts stockholders
entitled to vote thereon at a meeting duly called and held for such purpose, and
shall recommend that the Allscripts stockholders vote in favor of such amendment
to the Certificate of Incorporation.
5.3 INJUNCTIVE RELIEF. Each of the parties hereto hereby acknowledges
that in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party may be without an adequate remedy of law. Each
of the parties therefore agrees that in the event of a breach of any material
provision of this Agreement the aggrieved party may elect to
18
<PAGE>
institute and prosecute proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing breach of such
provision, as well as to obtain damages for breach of this Agreement. By seeking
or obtaining any such relief, the aggrieved party will not be precluded from
seeking or obtaining any other relief to which it may be entitled in equity or
at law.
5.4 BYLAWS. At all times while this Agreement shall be in effect,
Allscripts shall cause its Bylaws to conform to the provisions of this
Agreement, including by causing its Bylaws to be amended.
5.5 NO ADOPTION OR AMENDMENT OF RIGHTS PLAN. During the term of this
Agreement, Allscripts' Board of Directors shall not adopt any shareholder rights
plan or amend any rights plan without the approval of the IDX Designee then on
the Board of Directors of Allscripts unless such plan exempts IDX and its
Affiliates from all effects thereof.
5.6 GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to the principles of conflicts of law thereof.
5.7 TERMINATION.
(a) This Agreement may be terminated:
(i) by the mutual written consent of the parties hereto; and
(ii) by IDX if (A) Allscripts shall seek relief under any
bankruptcy, insolvency, receivership, custodianship, trusteeship, liquidation,
reorganization, composition, readjustment, moratorium or similar law (an
"Insolvency Law"); or (B) a proceeding or case shall be commenced under an
Insolvency Law by a third party against Allscripts and such proceeding or case
shall continue undismissed or unstayed for 60 days; or (C) an order for relief
under an Insolvency Law shall be entered against Allscripts.
(b) Unless this Agreement shall have been earlier terminated as
provided in Section 5.7(a), this Agreement shall terminate on the 10th
anniversary of the date of this Agreement.
5.8 NOTICES. All notices, requests, demands or other communications
required or permitted by this Agreement shall be in writing and effective when
received, and delivery shall be made personally or by registered or certified
mail, return receipt requested, postage prepaid, or overnight courier or
confirmed facsimile transmission, addressed as follows:
(a) If to Allscripts:
Allscripts Healthcare Solutions, Inc.
2401 Commerce Drive
Libertyville, IL 60048
Telephone: (847) 680-3515
Facsimile: (847) 680-3573
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<PAGE>
Attention: President
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana Street, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Fax: (713) 224-9511
(b) If to IDX:
IDX Systems Incorporated
1400 Shelburne Road
South Burlington, VT 05403
Telephone: (802) 862-1022
Facsimile: (802) 865-3681
Attention: General Counsel
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Virginia Kapner
Fax: (617) 526-5000
5.9 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions 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 adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being 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 to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
5.10 ENTIRE AGREEMENT. Except as otherwise expressly stated herein, this
Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof. Except for the Permitted Transfers to IDX and Affiliates of IDX
and except as otherwise expressly permitted or contemplated herein, the rights
and obligations under this Agreement shall not be assigned by operation of law
or otherwise. Nothing in this Agreement shall be construed as prohibiting
Allscripts from effecting a merger, consolidation or other similar transaction
with another entity, provided that (i) the operative terms of this Agreement
shall be applied in respect of any such
20
<PAGE>
transaction and (ii) under the express terms of such transaction this Agreement
will be continued in effect by Allscripts or any successor thereto.
5.11 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and to IDX and the Affiliates of IDX
if they receive permitted Transfers in accordance with this Agreement. Nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other Person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement, except as expressly otherwise contemplated herein.
5.12 HEADINGS. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.13 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
By: /s/ Glen E. Tullman
---------------------------------
Name: Glen E. Tullman
--------------------------
Title: Chief Executive Officer
--------------------------
IDX SYSTEMS CORPORATION
By: /s/ Robert W. Baker
---------------------------------
Name:____________________________
Title:___________________________
/s/ Richard E. Tarrant
-----------------------------------
Richard E. Tarrant (solely with respect to Section 3 of
this Agreement)
22
<PAGE>
SCHEDULE I
LIST OF ACCEPTABLE INVESTMENT BANKING FIRMS
1. Goldman Sachs & Co.
2. Credit Suisse First Boston Corporation
The above list may be revised from time to time by a written instrument
signed by both Allscripts and IDX.
23
<PAGE>
SCHEDULE II
LIST OF ACCEPTABLE ALLSCRIPTS MARKET MAKERS
1. Goldman Sachs & Co.
2. Bear Stearns
3. CIBC World Markets
The above list may be revised from time to time by Allscripts in its sole
discretion by a written instrument signed by Allscripts, a copy of which will be
furnished to IDX.
24
<PAGE>
EXHIBIT A
ALLSCRIPTS RETIREMENT POLICIES
None.
25
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>3
<FILENAME>dex1015.txt
<DESCRIPTION>STRATEGIC ALLIANCE AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.15
STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") is made and
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entered into as of January 8, 2001 by and between ALLSCRIPTS HEALTHCARE
SOLUTIONS, INC., a Delaware corporation ("Allscripts") and IDX SYSTEMS
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CORPORATION, a Vermont corporation ("IDX").
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W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Allscripts is in the business of developing and marketing
products and services (the "Allscripts Products") to automate the delivery of
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physician or licensed clinical professional care and associated administrative
tasks using technology at whatever location the physician or licensed clinical
professional performs such activities;
WHEREAS, IDX has business units that develop and market computer
technology to automate administrative and financial aspects of physician office
medical practice. Through its subsidiary CHANNELHEALTH INCORPORATED, a Delaware
corporation ("ChannelHealth"), IDX is in the business of developing and
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marketing products and services ( the "Physician Channel Products") to automate
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the delivery of physician or allied professional clinical care and associated
administrative tasks carried out by physicians and licensed clinical
professionals using technology at whatever location such physicians or clinical
professionals perform such activities;
WHEREAS, IDX desires to divest its Physician Channel business and
Allscripts desires to acquire such business;
WHEREAS, IDX and Allscripts have entered into an Agreement and Plan of
Merger whereby Allscripts will acquire all of the issued and outstanding capital
stock of ChannelHealth, and ChannelHealth will become a wholly-owned subsidiary
of Allscripts (the "Acquisition");
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WHEREAS, IDX and ChannelHealth entered into that certain Cross License
and Software Maintenance Agreement, dated as of January 1, 2000, pertaining to
the use and distribution of certain technology and products (the "Cross License
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Agreement"), and, concurrently herewith, the parties are entering into an
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Amended and Restated Cross License and Software Maintenance Agreement to modify
the terms and conditions thereof to provide for the transfer of certain
technology to Allscripts (the "License Addendum" and, together with the Cross
----------------
License Agreement, the License Agreement"); and
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WHEREAS, IDX and Allscripts desire to enter into an exclusive
strategic relationship whereby Allscripts and its Affiliates and successors,
including without limitation, ChannelHealth, and IDX and its Affiliates and
successors, will cooperate in marketing the Allscripts Products and the
Physician Channel Products to IDX customers. Allscripts would agree to sell IDX
products with agreeable revenue sharing or commission arrangement.
<PAGE>
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS
Capitalized terms used in this Agreement, unless otherwise defined in
this Agreement, shall have the meanings ascribed to them on Schedule 1 attached
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hereto.
2. TERM AND TERMINATION
2.1 Term. This Agreement shall be in effect for an initial term of ten
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(10) years from the date hereof (the "Initial Term") and shall
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automatically renew for additional, successive two (2) year terms
unless earlier terminated by either of IDX or Allscripts by giving
written notice of such party's election not to renew this Agreement
not later than one (1) year prior to the expiration of the Initial
Term or six (6) months prior to the expiration of any then current
successive term.
2.2 Termination. Notwithstanding the provisions of Section 2.1, this
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Agreement may be terminated:
2.2.1 by Allscripts if IDX shall have defaulted under or breached
any material term of this Agreement and shall not have cured
such breach within one hundred twenty (120) days after
receiving written notice from Allscripts specifying the
nature of such default or breach; or
2.2.2 by IDX if Allscripts shall have defaulted under or breached
any material term of this Agreement and shall not have cured
such breach within one hundred twenty (120) days after
receiving written notice from IDX specifying the nature of
such default or breach; or
2.2.3 by either party upon receipt of a notice from the other
party that such other party requires a composition or other
similar arrangement with creditors, files for bankruptcy or
is declared bankrupt.
2.3 Effect of Termination; Survival.
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2.3.1 In the event that this Agreement is validly terminated as
provided herein, then each of the parties shall be relieved
of their duties and obligations arising under this Agreement
after the date of such termination and such termination
shall be without liability to Allscripts or IDX; provided,
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however, that the obligations of the parties set forth in
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Sections 11.7 and 11.8 hereof shall survive
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any such termination and shall be enforceable hereunder;
provided, further, however, that nothing in this Section 2.3
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shall relieve Allscripts or IDX of any liability for a
breach of this Agreement.
2.4 Change of Control.
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2.4.1 Allscripts Change of Control. If a Change of Control of
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Allscripts or the Physician Channel Products business shall
occur at any time during the term of this Agreement whereby
a Direct Competitor of IDX shall Control Allscripts or the
Physician Channel Products business, (i) IDX shall
thereafter, for the term of this Agreement, be entitled to
payment of compensation on the sale or license of all
Allscripts Products (other than pharmaceutical products) in
a percentage amount equivalent to that provided to IDX at
the time of such Change of Control pursuant to the
Compensation Table set forth in the Development Plan and
(ii) immediately at the end of the term of this Agreement,
Allscripts shall deliver the source code for all Allscripts
Products to IDX.
2.4.2 IDX or Patient Channel Change of Control. If a Change of
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Control of IDX or the Patient Channel business of IDX shall
occur at any time during the term of this Agreement whereby
a Direct Competitor of Allscripts shall Control IDX or the
Patient Channel business of IDX (i) Allscripts shall
thereafter, for the term of this Agreement, be entitled to
payment of compensation on the sale or license of all
Patient Channel Products in a percentage amount equivalent
to that provided to Allscripts at the time of such Change of
Control pursuant to the Compensation Table set forth in the
Development Plan and (ii) immediately at the end of the term
of this Agreement, IDX shall deliver the source code for all
Patient Channel Products to Allscripts.
2.4.3 "Intellectual Property". All rights and licenses granted
-----------------------
under or pursuant to this Agreement 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. A
party receiving 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 a party under the Code, the other party shall be
entitled to retain all of its rights under this Agreement.
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3. OPERATIONAL MANAGEMENT
The following obligations shall be in effect during the Initial Term
of this Agreement only:
3.1 Executive Management. Allscripts and IDX shall each appoint an
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executive with the title of vice president or higher to oversee
performance under this Agreement. These two executives shall meet not
less frequently than once each calendar quarter during the Initial
Term (and more frequently as needed) and shall produce not later than
five (5) business days after the end of each such calendar quarter a
written report to the boards of directors of IDX and Allscripts
setting forth in detail:
3.1.1 the accomplishments of Allscripts and IDX during the
preceding month in performing this Agreement;
3.1.2 plans for managing the relationship between IDX and
Allscripts during the next calendar month;
3.1.3 any items of dispute or disagreement between IDX and
Allscripts;
3.1.4 plans for resolving any dispute or disagreement between IDX
and Allscripts;
3.1.5 any changes proposed to be made to the Marketing Plan or
Development Plan; and
3.1.6 such other items as may be deemed appropriate by such
executives.
4. PRODUCT DEVELOPMENT
The following obligations shall be in effect during the Initial Term
of this Agreement only:
4.1 Product Development.
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4.1.1 Development and Enhancement of Allscripts Products.
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Allscripts shall be responsible for development of the
Physician Channel Products as described in the Development
Plan attached hereto as Exhibit A, as such Development Plan
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is updated from time to time pursuant to Section 4.1.2. IDX
shall perform all of its duties under the Development Plan.
The parties shall cooperate to jointly test any software
used in connection with the Allscripts Products to ensure
the functionality of such software prior to distribution
thereof to any IDX Customer.
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4.1.2 Update of Development Plan. IDX and Allscripts shall
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update the Development Plan every calendar quarter during
the term of this Agreement unless earlier updated as
necessary to maintain the commercial reasonableness thereof.
The Development Plan, as updated from time to time, shall
describe detailed activities and responsibilities for two-
year periods initially commencing on the date hereof. Not
later than three (3) months prior to the expiration of the
initial two-year term of the Development Plan, and
thereafter not later than three (3) months prior to the
expiration of each successive two-year period, the parties
shall commence work on a revised Development Plan for the
following two-year period. The Development Plan, as updated
from time to time, shall be executed by the parties and
shall become subject to this Agreement. Should the parties
have failed to agree upon and execute a revised an updated
Development Plan at the time of the expiration of the then
current Development Plan, the parties shall continue to
perform under the terms of the then current Development Plan
until such time as the parties shall agree upon a revised
Development Plan. Notwithstanding anything contained herein
or in any Development Plan to the contrary, at all times
during the Initial Term, Allscripts shall continue to fund
the development of the Physician Channel Products as
provided in the Development Plan as adopted on the date
hereof.
4.1.3 Participation in Development. Upon reasonable request by
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the other party, each party agrees to cooperate during the
term of this Agreement in the provision of suggestions and
specifications for enhancement and improvement of their
respective products and services based upon the needs and
requirements of their respective customers. If either party
agrees to develop additional products, features,
functionality, or interfaces, the material terms with
respect to such additional development shall be memorialized
in a written addendum to this Agreement specifying such
terms.
4.1.4 User Groups. Allscripts shall be given an opportunity to
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present and participate at IDX's annual ESD and Systems
Division national sales and user group conferences.
4.1.5 Early Releases and Testing. IDX and Allscripts shall
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deliver to each other for testing purposes only, copies of
the earliest test releases of all development deliverables
provided for in the Development Plan prior to delivery
thereof to any other customers or Distribution Partners.
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4.1.6 Demonstration Products. Each party shall develop
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demonstration versions of its products for use in selling
its products to the other party's customers and prospects
and shall have access to the demonstration systems of the
other party, in accordance with the Demonstration Product
Specification.
4.2 Technologies and Architectures.
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4.2.1 Standards.
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4.2.1.1 To facilitate data exchange and ease of use of the
parties' respective products, Allscripts Products
shall connect with the appropriate technical,
architectural, communication, functional design
and programming standards embodied in IDX Practice
Management Products, as well as the Patient
Channel and EDiX products, from time to time,
including without limitation the technical
standards, protocols, conventions and platforms
incorporated in the IDX Web FrameWork. IDX shall
provide Allscripts with no less than ninety (90)
days' prior written notice before implementing any
change with respect to such standards, protocols,
conventions or platforms.
4.2.1.2 IDX represents and warrants, as of the Closing
Date, that Physician Channel Products connect with
the appropriate technical, architectural,
communication, functional design and programming
standards embodied in IDX Practice Management
Products, as well as the Patient Channel and EDiX
products, including without limitation the
technical standards, protocols, conventions and
platforms incorporated in the IDX Web FrameWork.
4.2.1.3 To facilitate data exchange between the Patient
Channel and the portions of the Allscripts
Products related to the Patient Channel, all IDX
products shall connect with the appropriate
technical, architectural, communication,
functional design and programming standards
embodied in such Allscripts Products, such
compliance to allow for connection with such
products. Allscripts shall provide IDX with no
less than ninety (90) days' prior written notice
before implementing any change with respect to
such technical, architectural, communication,
design and programming standards embodied in such
Allscripts Products from time to time.
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4.2.2 Databases. Allscripts shall not create the capability in
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its products and services, or permit the use of its products
and services, to write to Practice Management Product
database except in conformance with written standards and
procedures approved by IDX in advance. IDX shall not create
the capability in its products and services, or permit the
use of its products and services, to write to any Allscripts
Product database except in conformance with written
standards and procedures approved by Allscripts in advance.
The parties shall regularly keep each other informed of
their respective standards and procedures.
4.3 Data Exchange.
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4.3.1 Interfaces. Each of IDX and Allscripts shall develop and
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maintain Interfaces with respect to each of the products of
the other party identified in the Development Plan. The
Interfaces, and any updates thereof required to be made to
maintain the Interfaces, shall be developed at the complete
and sole expense of the developing party with respect to any
particular Interface and shall be provided to the other
party at no charge. Allscripts shall migrate toward a
service oriented architecture in 2002 provided that such
architecture is stable, deployable, has comparable
performance to currently utilized technologies and has a
similar cost structure to currently utilized technologies.
Allscripts shall be responsible for integration and support
costs related to the guaranteed methods developed by
Allscripts in connection with such architecture.
4.3.2 Synchronization. Each of IDX and Allscripts shall be
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required to reasonably maintain the compatibility of their
respective products with any updates or new version releases
of the products of the other party identified in the
Development Plan.
4.3.3 Additional Interfaces. If the parties agree to develop
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interfaces between their respective products in addition to
the Interfaces, the material terms with respect to such
additional interfaces shall be memorialized in a written
addendum to this Agreement specifying such terms. Upon the
execution of such an addendum by each party, such additional
interfaces shall be deemed to be Interfaces hereunder.
4.3.4 Effects on Integration. Each party shall provide ninety
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(90) days' prior notice to the other of any new versions or
other material changes in any of its respective products
that might affect any Interface. Within a reasonable time
following receipt of such notice, the notified party shall
make any alterations or updates to
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any so affected Interface necessary to maintain such
Interface, at its own expense.
4.4 Other Products. The parties shall make suggestions for developing
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functional integration and data exchange among other IDX Practice
Management Products, EDiX products, Patient Channel Products and
Allscripts Products for the purpose of creating work flows and
processes that benefit physicians.
5. MARKETING OF ALLSCRIPTS PRODUCTS
The following obligations shall be in effect during the Initial Term
of this Agreement only:
5.1 Marketing Plan. During the Initial Term, IDX and Allscripts shall
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regularly update a marketing plan for marketing Allscripts Products to
IDX Customers and prospects, such marketing plan to initially to be
developed by Allscripts and IDX during the first ninety (90) days
following the Closing Date (as updated from time to time, the
"Marketing Plan"). The Marketing Plan shall commence on the Closing
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Date, shall include the physician installation targets of new
physician users of Allscripts Products set forth in Schedule 5.1 and
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shall describe detailed activities and responsibilities (including
without limitation, with respect to implementation) and sales
forecasts over the initial two-year period of this Agreement, but
shall be updated not less frequently than every three (3) months. The
Marketing Plan for the initial two-year period shall be completed and
executed by the parties no later than ninety (90) days following the
Closing Date and shall be subject to the terms of this Agreement. Not
less than three (3) months prior to the expiration of the initial two-
year period, and thereafter three (3) months prior to the expiration
of each successive two-year period of the Initial Term, the parties
shall commence work on a revised Marketing Plan for the following two-
year sales forecast period. The initial and each revised two-year
Marketing Plan shall be executed by the parties and shall be subject
to the terms of this Agreement. Should the parties have failed to
agree upon and execute a revised Marketing Plan at the time of the
expiration of the then current Marketing Plan, the parties shall
continue to perform under the terms of the then current Marketing Plan
until such time as the parties shall agree upon a revised Marketing
Plan.
5.2 Certain Restrictions on Marketing Rights.
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5.2.1 Restrictions on Allscripts. Except as provided in Section
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5.2.3:
5.2.1.1 Allscripts shall not develop any Practice
Management Products and shall not enter into any
relationship or arrangement with any Direct
Competitor of IDX whereby Allscripts or such
Direct Competitor of IDX Provides
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Practice Management Products; provided, that
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except as expressly set forth in this Agreement,
nothing shall preclude Allscripts from developing
or marketing any product, service, or
functionality that it currently markets.
5.2.1.2 Allscripts shall not Provide any products to IDX
Customers that are similar to the Virtual Office
Products unless IDX has abandoned the marketing of
such products.
5.2.2 Restrictions on IDX. Except as provided in Section 5.2.3,
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(i) IDX shall not develop or Provide any products similar to
the Allscripts Products and (ii) shall not enter into any
relationship or arrangement with any Direct Competitor of
Allscripts whereby IDX Provides products similar to or in
competition with the Allscripts Products, including without
limitation, the IDX products referred to as "OCM" or "Order
Communication" or "ESD's Mobile Schedule" (except to
continue to market the "ESD Mobile Schedule" as a stand
alone application on the Palm Pilot). The Practice
Management System of IDX as of the date hereof shall not be
deemed to be similar to the Allscripts Products.
5.2.3 Restrictions Not Applicable. Notwithstanding anything to
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the contrary contained in this Agreement or in any other
agreement between the parties:
5.2.3.1 Allscripts may cooperatively market Allscripts
Products with any vendor of Practice Management
Products that is not a Direct Competitor of IDX,
to any Person other than IDX Customers.
5.2.3.2 Allscripts may cooperate with a Person that
Provides products and services similar to the
Practice Management Products for the purpose of
deploying such products and services, on a
case-by-case basis to any Allscripts customer or
prospect, including without limitation by
development of data exchange or interfaces, if
such Allscripts customer or prospect requests such
similar products or services; provided, that
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interface development and data exchange performed
by Allscripts in connection with such other
products or services shall be performed at a
charge that is consistent with the ordinary and
customary practices of Allscripts, and Allscripts
will not cooperate with any Direct Competitor of
IDX to provide any financial benefits beyond
payment of such ordinary and customary charge.
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5.2.3.3 IDX may Provide any products or services similar
to Allscripts Products only as an offering
integrated with its LastWord and IDXrad and
Imaging Suite product lines, and any other non-
Practice Management Product products and services,
such as image management. IDX shall not Provide
any products or services similar to Allscripts
Products as an offering integrated with any
Practice Management Products. IDX may Provide any
hand-held device for dictation only in connection
with its EDiX product line, but not any other
products similar to Allscripts Products in
connection therewith.
5.2.3.4 IDX may establish direct connections for pharmacy
benefit management companies, drug manufacturers
and drug distributors involving a direct message
to a patient via the Patient Channel only (except
with respect to IDX Customers that utilize
LastWord as their inpatient EMR).
5.2.3.5 IDX may cooperate with a Person that Provides
products and services similar to the Allscripts
Products for the purpose of deploying such
products and services, on a case-by-case basis to
any IDX Customer or prospect, using any means,
including without limitation, development of
interfaces or publication of specifications, if
such IDX Customer or prospect requests such
similar products or services; provided, that
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interface development and data exchange performed
by IDX in connection with such other products or
services shall be performed at a charge which is
consistent with the ordinary and customary
practices of IDX, and IDX will not cooperate with
any Direct Competitor of Allscripts to provide any
financial benefits beyond payment of such ordinary
and customary charge.
5.2.3.6 Allscripts may market Allscripts Products to any
IDX Customer; provided, that Allscripts shall
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notify IDX of any such marketing efforts within
seven (7) days after Allscripts' initial contact
with such IDX Customer.
5.2.3.7 IDX may sell and market CMS subject to the
compensation provisions of Section 9.1.
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5.2.3.8 Clinical Trials. Nothing in this Agreement shall
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prevent either party from developing or marketing
functionality that that facilitates participation
by customers and prospects of such party in
clinical trials. With respect to and in connection
with marketing such functionality as
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may be contained in IDX's Practice Management
Products, however, IDX shall not resell or
distribute products of any Person that are similar
to the Allscripts Products.
5.2.4 Termination of Restrictions. Allscripts may elect to
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terminate Section 5.2.1 in the event of a Material Adverse
Change with respect to IDX, and IDX may elect to terminate
Section 5.2.2 in the event of a Material Adverse Change with
respect to Allscripts. In the event of a notice given
pursuant to this Section 5.2.4 by either party, the notified
party may, in its sole and absolute discretion, refer to
arbitration pursuant to Section 11.20, the determination of
whether the change which is the subject of such notice is a
Material Adverse Change.
5.3 Joint Marketing Duties.
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5.3.1 Joint Marketing Materials. At their joint expense, shared
-------------------------
equally, Allscripts and IDX shall develop and produce
product marketing documentation and materials similar in
kind and quality to that currently provided by Allscripts
and IDX to their respective sales prospects for the purpose
of promoting and marketing the joint solution for physician
office practice, including without limitation,
administrative, financial and clinical information systems,
through integration of the IDX Practice Management Products
and the Allscripts Products.
5.3.2 User Groups and Trade Shows. Allscripts shall provide for
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featured participation by IDX at Allscripts' user group
meetings involving the Allscripts Products, and IDX shall
provide for featured participation by Allscripts at IDX's
user group meetings involving the Practice Management
Products. Each of Allscripts and IDX shall provide space at
their respective user group meetings for the other party's
products and shall show such products together with their
own respective products. In accordance with the Marketing
Plan, Allscripts and IDX shall publicize the alliance
created hereby at appropriate trade shows.
5.3.3 Information Regarding IDX Customers and Competitors.
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Allscripts and IDX shall keep each other informed of
opportunities that may exist for marketing products to their
respective customers. Allscripts shall promptly notify IDX
of any sales contact with an IDX Customer. IDX shall provide
Allscripts with access to IDX sales pipelines and IDX
Customer and competitor databases to the same extent and in
the same manner as provided to ChannelHealth prior to the
date hereof.
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<PAGE>
5.3.4 Joint Sales. Each of Allscripts and IDX shall bill and
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collect for its own respective products and services
provided to IDX Customers. Allscripts and IDX shall each be
responsible for the payment to members of their own
respective sales forces of any appropriate commissions
earned by such members on sales of Allscripts Products
pursuant to Sections 5.4 and 5.5. Glen Tullman and Rich
Tarrant shall be reasonably available for initial marketing
efforts undertaken by Allscripts in connection with the
Merger Agreement and for subsequent meetings with customers
of the Physician Channel Products (which shall occur no less
frequently than once per month).
5.4 Marketing Duties of Allscripts--Allscripts Products. Allscripts shall
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market the Allscripts Products in accordance with the Marketing Plan
and in any event shall provide services necessary to support IDX's
marketing of Allscripts Products to IDX Customers as set forth below,
at its own expense:
5.4.1 Allscripts shall continue to develop and produce product
marketing documentation and collateral similar in kind and
quality to that currently provided by Allscripts to its
sales prospects. Allscripts shall deliver such documentation
and collateral in reasonable quantities and at such times
and places reasonably requested by IDX.
5.4.2 Allscripts shall provide sales support services with respect
to the Allscripts 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 proposals, requests for
information and requests for quotations.
5.4.3 Allscripts shall maintain a qualified sales and marketing
support staff in numbers reasonably sufficient to support
IDX sales activities related to Allscripts Products.
5.4.4 Allscripts shall provide training to the IDX sales staff in
the Allscripts Products and Allscripts' business strategy.
5.4.5 Allscripts shall provide IDX with current sales projections
and regular updates thereto.
5.4.6 Allscripts shall develop and maintain a program for
incenting at least one IDX Customer in each IDX sales region
to be a reference site for every Allscripts Product in
general release.
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5.4.7 Allscripts shall appropriately compensate and incent its
sales personnel to sell Allscripts Products to IDX Customers
and prospects.
5.5 Marketing Duties of IDX--Allscripts Products. IDX shall market the
--------------------------------------------
Allscripts Products in accordance with the Marketing Plan and in any
event shall provide services necessary to support Allscripts'
marketing of Allscripts Products to IDX Customers as set forth below,
at its own expense:
5.5.1 IDX shall educate and train its sales and sales support
personnel so as to be able to present the Allscripts
Products to IDX Customers and prospects as necessary to
appropriately commercialize the Allscripts Products.
5.5.2 IDX shall appropriately compensate and incent its sales
personnel to sell Allscripts Products.
5.5.3 IDX shall provide Allscripts with current sales projections
and regular updates thereto.
5.5.4 IDX shall include appropriate descriptions of Allscripts
Products and Allscripts' business strategy in sales
proposals for new business as necessary to appropriately
commercialize the Allscripts Products.
5.5.5 IDX shall respond to requests for information, quotations,
proposals and the like for Allscripts Products as necessary
to appropriately commercialize the Allscripts Products.
5.5.6 IDX shall pay reasonable compensation to its sales force for
sales of Allscripts Products to IDX Customers; provided,
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that commission percentages paid on gross profit of
Allscripts Products by any member of IDX's sales force shall
be not less than commission percentages paid to such members
on sales of any other products.
5.5.7 Quotas for sales of Allscripts Products to IDX Customers and
prospects shall be placed on members of IDX's ESD and
Systems Division sales force. IDX account executives shall
be provided with a special bonus opportunity of $5,000 per
year in each of years 2001 and 2002 for the achievement of
such quotas established pursuant to this Section 5.5.7.
5.5.8 Each member of IDX's ESD and Systems Division sales
management shall be included in bonus plans and commission
plans whereby a meaningful portion of such person's annual
compensation is based upon overall sales of Allscripts
Products.
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5.5.9 IDX shall provide Allscripts employees involved in the sale
and development of Physician Channel Products with
reasonable access to IDX facilities for the same or similar
purposes related to the development, marketing and sale of
Physician Channel Products as provided to ChannelHealth
prior to the Closing Date.
5.6 Use of Allscripts Names and Marks. IDX may use the name "Allscripts"
---------------------------------
and the other Allscripts names and marks in connection with customer
communications pertaining to the co-marketing relationship between IDX
and Allscripts provided for under this Agreement and in accordance
with Allscripts' reasonable branding standards in effect from time to
time.
5.7 Use of IDX Names and Marks. Allscripts may use the name "IDX" and the
--------------------------
other IDX names and marks in connection with customer communications
pertaining to the co-marketing relationship between IDX and Allscripts
as provided for under this Agreement and in accordance with IDX's
reasonable branding standards in effect from time to time.
5.8 Marketing and Administrative Duties of IDX. IDX shall have the
------------------------------------------
authority to market, sell, resell and distribute Allscripts Products
pursuant to IDX's own terms and conditions as previously agreed upon
in writing by Allscripts. At IDX's request, IDX and Allscripts shall
enter into a distribution agreement for the term of this Agreement
that shall set forth customary terms and conditions upon which IDX may
purchase, license, sell and sublicense the Allscripts Products. To the
extent permitted by law, IDX shall have authority as Allscripts' agent
to bind Allscripts to perform for IDX Customers all of Allscripts'
standard sales terms and conditions as previously agreed upon in
writing by Allscripts; provided, however, that in the event of a
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failure by an IDX Customer to pay for an Allscripts Product, and such
failure is not based upon a dispute with respect to such Allscripts
Product, IDX shall be responsible to Allscripts for the sale price of
such Allscripts Product. Allscripts shall confirm IDX's authority as
provided in this Section 5.8 to any IDX Customer or prospective
customer on request of IDX.
6. OTHER MARKETING RIGHTS
6.1 Right to Provide on Non-exclusive Basis. Notwithstanding any
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termination or non-renewal of this Agreement, other than a termination
pursuant to Section 2.2.1 and including otherwise without limitation
any termination under Section 2.2 of this Agreement, for so long as
Allscripts or any Affiliate of Allscripts shall offer, license,
support, or maintain any Allscripts Products, or any derivatives,
enhancements, or improvements thereof, IDX shall be entitled to and
Allscripts shall offer to permit IDX to, Provide such Allscripts
Products, derivatives, enhancements, and improvements, and support or
maintenance services with respect thereto, upon the best terms and
conditions offered by Allscripts or such Affiliate
14
<PAGE>
of Allscripts to any distributor of Allscripts; provided, that if
--------
Allscripts or such Affiliate has no distributor, IDX's provision of
Allscripts Products shall be upon customary terms and at a price equal
to Allscripts' direct sale price less a commercially reasonable
discount.
6.2 Best Prices. Allscripts or any Affiliate of Allscripts shall at all
-----------
times during the term of this Agreement offer IDX Customers such
prices and terms for Allscripts Products equally favorable to the
prices (plus any subsidy earned by Allscripts on such Allscripts
Products) and terms offered to any customer of Allscripts similarly
situated to such IDX Customer.
7. TERMINATION OF PRIOR MARKETING OBLIGATIONS
Upon the Closing, that certain Marketing, Development and Service
Agreement, made and entered into as of January 1, 2000, by and between
ChannelHealth and IDX shall, except for the obligations of the parties set forth
in Section 5.1 thereof, terminate and cease to be of any further effect.
8. OWNERSHIP
8.1 In General. Ownership of software developments shall be governed by
----------
the License Agreement, except with respect to Interfaces, which shall
be governed by Section 8.2 of this Agreement.
8.2 Interfaces Developed Pursuant to This Agreement. The parties
-----------------------------------------------
contemplate that they may individually or jointly develop certain new
Interfaces. In each instance in which a new Interface is created, the
parties will agree to a specification for the Interface. Where the
specification is in the public domain, this Agreement does not purport
to create any rights for either party in such specification. If the
specification is owned by one of the parties, the other party receives
a perpetual, non-exclusive, non-transferable license to use the
Intellectual Property embodied in the Interface specification for the
purpose of creating the Interfaces contemplated in this Agreement. If
a specification is jointly authored by the parties, the parties shall
jointly own such specification and shall be free to use such
specification without interference from the other party and without
any obligation to pay any royalties or account for any profits. The
parties contemplate that Intellectual Property in and to the new
Interfaces may be created as a result of the creation of the new
Interfaces. As between the parties, such Intellectual Property related
to portions of the Interfaces intended to (a) organize data from IDX's
systems in the manner stated in the specification or (b) organize data
received in the manner stated in the specifications for use by IDX's
systems, shall be IDX's Intellectual Property. As between the parties,
the Intellectual Property related to Interfaces intended to (x)
organize data from Allscripts systems in the manner stated in the
specification, (y) organize data received in the
15
<PAGE>
manner stated in the specifications for use by Allscripts' systems, or
(z) organize data between Allscripts' systems and third party systems,
shall be Allscripts' Intellectual Property. IDX hereby assigns to
Allscripts all right, title, and interest in and to all Intellectual
Property in the new Interfaces that is described above as belonging to
Allscripts. Allscripts hereby assigns to IDX all right, title, and
interest in and to all Intellectual Property in the new Interfaces
that is described above as belonging to IDX. The parties agree from
time to time to exchange and agree upon a written schedule setting
forth the allocation of the ownership and rights in and to the
specifications and Intellectual Property used or developed in
connection with the development of the new Interfaces.
9. COMPENSATION
9.1 Compensation; Payment. IDX and Allscripts shall be entitled to
---------------------
compensation for the sale or license of Allscripts Products and IDX
products as set forth in the Compensation Table set forth in the
Development Plan; provided, however, that IDX shall not be entitled to
-------- -------
any compensation for the sale or license of any Allscripts Products or
IDX Products installed prior to the Closing Date.
9.2 Minimum Compensation. Provided Allscripts shall not have defaulted
--------------------
under or breached any material term of this Agreement and shall not
have cured such breach within one hundred twenty (120) days after
receiving written notice from IDX specifying the nature of such
default or breach:
9.2.1 If the gross revenues to Allscripts for Allscripts Products
(less any commissions paid to IDX by Allscripts and less
payments to third parties for equipment sold) for fiscal
year 2001 (the "2001 Revenue") are less than $4.5 million,
------------
IDX will pay to Allscripts an amount equal to the difference
between $4.5 million minus 2001 Revenue.
9.3 Payments. Any payment to be made by a party pursuant to this
--------
Agreement shall be made no later than the twentieth-fifth (25th) day
of the calendar month next following the calendar month to which such
payment applies and shall be made by delivery of a check, payable to
the order of the party entitled to payment or by wire transfer of
immediately available funds to an account designated by such party.
Any payment to be made by IDX to Allscripts pursuant to Section 9.2
shall be made no later than March 31st of the year next following the
fiscal year to which such payment applies and shall be made by
delivery to Allscripts of a check, payable to the order of Allscripts
or by wire transfer of immediately available funds to an account
designated by Allscripts.
16
<PAGE>
9.4 Late Fees. Each party agrees to pay late fees equal to one and
---------
one-half percent (1 1/2%) per month on all amounts due but not paid
within the time provided in Section 9.3.
10. SERVICES
10.1 Customer Support Services. Allscripts shall provide customer support
-------------------------
services for Allscripts Products, as follows:
10.1.1 CMS. Allscripts 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 contractual commitments of IDX to
its customers for CMS. As the sole compensation to
Allscripts for such services, IDX hereby assigns to
Allscripts all support fees for CMS it receives from such
customers.
10.1.2 Other Products. At its own expense and cost, Allscripts
--------------
shall provide Allscripts Maintenance for all IDX Customers
of Allscripts Products, including bugs, fixes and drivers,
consistent with Allscripts' ordinary and customary business
practices. Upgrades to Allscripts Products sold to IDX
Customers will be provided in the manner and price as is
consistent with Allscripts' ordinary and customary business
practices.
10.1.3 Other Services. Notwithstanding the fact that each party
--------------
shall be responsible for servicing and supporting its own
products, the parties hereby agree to cooperate with respect
to installation and implementation of each others' products
and in the provision of customer support services. The
parties further agree to cooperate to create a seamless help
desk, operations support and problem triage model for
customers to which products of both parties are marketed and
sold. If requested by an IDX Customer, IDX shall be entitled
to oversee and coordinate the implementation of such model.
10.2 Service Quality. All installation services provided by Allscripts
---------------
with respect to sales by IDX of Allscripts Products pursuant to
Section 5.8 shall be performed in a good and workmanlike manner and
consistent with standards generally applicable in the healthcare
clinical information systems industry and consistent with the
reasonable and customary support standards maintained in the
healthcare clinical information systems industry or, if higher, by the
IDX business unit most closely associated with the IDX Customer using
the Allscripts Products as previously communicated to Allscripts in
writing. Allscripts employees shall be permitted to directly support
IDX Customers.
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11. MISCELLANEOUS
11.1 Confidentiality. Each of IDX and Allscripts will receive or learn
---------------
from, information, both orally and in writing, concerning the business
of Allscripts or IDX, respectively, including, without limitation,
financial, technical and marketing information, data, and information
related to the development of technology and services relating to
business plans, customers, and markets, which information is deemed,
in the case of Allscripts, proprietary to Allscripts 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 by 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." Each party hereby agrees that the
Confidential Information will be used solely for the purpose of this
Agreement and not for any other purpose. Each party further agrees
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. Each party further agrees 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, "Representatives") on a
"need to know" basis for the purpose of this Agreement on the
condition that (i) each of such Representatives will be informed by
the receiving party of the confidential nature of such Confidential
Information and will agree to be bound by the terms of this Agreement
and not to disclose the Confidential Information to any other person
and (ii) each party agrees to accept full responsibility for any
breach of this Section 11.1 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. Each
party hereby agrees, upon the request of the other party, to promptly
deliver to the other party at the other party's cost the Confidential
Information pertaining to such other party, without retaining any
copies thereof. Specifically and without limitation, each party agrees
to notify the other party promptly in writing upon any officer or
director learning of any unauthorized disclosure or use of the
Confidential Information.
18
<PAGE>
11.2 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.
11.3 No-Solicitation. During the first year of the term of this Agreement,
---------------
neither party, nor any Affiliate within its Control, shall hire any
individual who had been in the employ of the other party or any of the
other party's Affiliates. After the first year of the term of this
Agreement, neither party, nor any Affiliate within its Control, shall
hire any individual who had been in the employ of the other party or
any of the other party's Affiliates until such time as one (1) year
has passed since such individual was in the employ of the other party.
11.4 Regulatory Matters. Each party shall adopt, implement, and maintain
------------------
appropriate and compliant policies, procedures, and practices
necessary to comply with laws and regulations (including without
limitation the Health Insurance Portability and Accountability Act of
1996 ("HIPAA")) applicable to it in its business and applicable to it
as a business partner of a customer of the other to whom products or
services are provided under this Agreement. The parties agree to
amend this Agreement to contain any provisions necessary to be
included as a result of such business partner status. Each party
agrees to timely develop and include in its respective products
covered by this Agreement the functionality required to support the
minimum necessary standards applicable to users of its products as
required by HIPAA.
11.5 No Consequential Damages. In no event shall either party or any
------------------------
Affiliate of either party be liable hereunder for any consequential,
special, incidental, punitive or indirect damages (including without
limitation loss of profit, revenue, business opportunity or business
advantage), whether based upon a claim or action of tort, contract,
warranty, negligence, strict liability, breach of statutory duty, or
any other legal theory or cause of action, even if advised of the
possibility of such damages.
11.6 Agreements with Healtheon/WebMD. Each of IDX and Allscripts agree not
-------------------------------
to cause any default under or termination of (other than a termination
as a result of a default by Healtheon/WebMD) of the contracts between
IDX and Healtheon/WebMD and ChannelHealth and Healtheon/WebMD.
19
<PAGE>
In the event IDX shall cause such a default or termination, IDX agrees
to pay Allscripts such amount of revenues as would have been paid to
Allscripts under the terms of the defaulted or terminated contract if
such default or termination by IDX had not occurred.
11.7 Indemnification. Each party (an "Indemnifying Party") will indemnify
--------------- ------------------
the other party, its officers, employees, and agents (each
an "Indemnified Party" and, collectively, the "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.
11.7.1 The Indemnifying Party's obligations under this Section 12
will survive the termination of this Agreement.
11.7.2 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
20
<PAGE>
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.
11.7.3 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 of the possibility or
likelihood of such damages.
11.7.4 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.
11.8 Expenses. Except as otherwise specified in this Agreement, all
--------
costs and expenses, including, without limitation, fees and
disbursements of counsel, 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.
11.9 Further Assurances and Documents. IDX and Allscripts 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.
11.10 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 11.10):
21
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(a) if to Allscripts:
Allscripts Healthcare Solutions, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: President
Facsimile: (847) 680-3573
With a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin III
Facsimile: (713) 224-9511
(b) if to IDX:
IDX Systems Corporation
1400 Shelbourne Road
South Burlington, VT 05043
Attention: President
Facsimile: (802) 865-3681
With a copy to: General Counsel at the same address
11.11 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.
11.12 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.
11.13 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
enforced, the parties hereto shall negotiate in good faith to modify
this
22
<PAGE>
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.
11.14 Entire Agreement. This Agreement, together with the License
----------------
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.
11.15 Assignment. This Agreement shall be binding upon the parties and
----------
their respective successors, representatives and permitted assigns
and their Affiliates Controlled by them, respectively. 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.
11.16 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.
11.17 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.an
11.18 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Delaware without regard to its conflict of laws provisions.
11.19 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.
11.20 Arbitration. The parties shall attempt in good faith to resolve by
-----------
agreement any claim or controversy arising out of or relating to
this Agreement or the breach hereof.
23
<PAGE>
11.20.1 Subject to the first sentence of this Section 11.20, any
and all claims, counterclaims, demands, causes of action,
disputes, controversies, and other matters in question
arising out of or relating to this Agreement, any
provision hereof, the alleged breach of any such
provision, or in any way relating to the subject matter of
this Agreement or the relationship between the parties
created by this Agreement, involving the parties, their
Affiliates and/or their respective representatives (all of
which are referred to herein as "Arbitrable Claims"), even
------------------
though some or all of such Arbitrable Claims allegedly are
extra-contractual in nature, whether such Arbitrable
Claims sound in contract, tort, or otherwise, at law or in
equity, under state or federal law, whether provided by
statute or the common law, for damages or any other
relief, will be resolved by binding arbitration. Any
arbitration will be administered by the arbitrators in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA") in effect at
---
the time the arbitration is initiated (collectively, the
"Rules").
-----
11.20.2 The validity, construction, and interpretation of this
agreement to arbitrate, and all procedural aspects of the
arbitration conducted pursuant to this agreement to
arbitrate, including without limitation, the determination
of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues,
allegations of "fraud in the inducement" to enter into
this Agreement or this arbitration provision, allegations
of waiver, laches, delay or other defenses to
arbitrability, and the rules governing the conduct of the
arbitration (including without limitation, the time for
filing an answer, the time for the filing of
counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of
discovery, the issuance of subpoenas, the times for the
designation of experts, whether the arbitration is to be
stayed pending resolution of related litigation involving
third parties not bound by this Agreement, the receipt of
evidence, and the like), will be decided by the
arbitrators in accordance with the Rules. In deciding the
substance of the parties' Arbitrable Claims, the
arbitrators shall refer to the substantive laws of the
State of Delaware for guidance (excluding Delaware choice-
of-law principles that might call for the application of
some other state's law). Each party shall be entitled to
discovery rights equivalent to those provided under the
Federal Rules of Civil Procedure. NOTWITHSTANDING ANY
OTHER PROVISION IN THIS AGREEMENT TO THE CONTRARY, THE
PARTIES EXPRESSLY AGREE THAT THE ARBITRATORS WILL HAVE
ABSOLUTELY NO AUTHORITY TO AWARD CONSEQUENTIAL, TREBLE,
24
<PAGE>
EXEMPLARY OR PUNITIVE DAMAGES OF ANY TYPE UNDER ANY
CIRCUMSTANCES REGARDLESS OF WHETHER SUCH DAMAGES MAY BE
AVAILABLE UNDER DELAWARE LAW, THE LAW OF ANY OTHER STATE,
OR FEDERAL LAW, OR UNDER THE FEDERAL ARBITRATION ACT, OR
UNDER THE RULES, THE PARTIES HEREBY WAIVING THEIR RIGHT,
IF ANY, TO RECOVER CONSEQUENTIAL, TREBLE, EXEMPLARY OR
PUNITIVE DAMAGES IN CONNECTION WITH ANY ARBITRABLE CLAIMS.
11.20.3 The arbitration proceeding will be conducted in New York,
New York. Within thirty days of the notice of initiation of
the arbitration procedure, the parties shall obtain from the
AAA a list of arbitrators from its Commercial Panel from
which the parties shall select a panel of three neutral
arbitrators in accordance with the Rules and normal
procedures of the New York office of the AAA. If necessary,
the AAA shall select some or all of the arbitrators when it
is authorized to do so under the Rules.
11.20.4 In the event of an arbitration proceeding between Allscripts
and IDX or any of their Affiliates, one half of all fees of
the arbitrators will be borne by Allscripts and the other
half will be borne by IDX.
11.20.5 To the fullest extent permitted by law, the arbitration
proceeding and the arbitrators' award will be maintained in
confidence by the parties.
11.20.6 The award of the arbitrators will be final and binding on
the parties, and judgement thereon may be entered in a court
of competent jurisdiction.
11.21 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 or the transactions contemplated hereby and
for any counterclaim therein.
25
<PAGE>
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 ALLSCRIPTS HEALTHCARE
SOLUTIONS, INC.
By: /s/ Robert W. Baker, Jr. By: /s/ Robert W. Baker, Jr.
------------------------------------- --------------------------------
[Signature of Authorized Agent] Glen E. Tullman
Chief Executive Officer
Print Name and Title:
26
<PAGE>
SCHEDULE 1
----------
DEFINITIONS
"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.
"Allscripts" means Allscripts Healthcare Solutions, Inc. a Delaware
corporation.
"Allscripts Products" means the products and services (i) offered by
Allscripts as more fully described in the Development Plan, (ii) the Physician
Channel Products as of the Closing Date and (iii) all of the products and
services to be developed as set forth under the Development Plan.
"Change of Control" means any event, transaction or occurrence as a
result of which either of IDX or Allscripts (i) shall cease to own or control,
directly or indirectly through any of its respective Affiliates, a majority of
the voting rights associated with ownership of its respective voting stock or
(ii) shall cease to have the ability, directly or indirectly, through one or
more of its Affiliates, to elect a majority of its respective board of
directors.
"ChannelHealth" means ChannelHealth Incorporated, a Delaware
corporation, its successors and assigns, and any other entity which, as of the
Closing, Controls, is Controlled by, or is under common Control with
ChannelHealth.
"ChannelHealth Customers" means customers that have contracted or are
in the process of contracting for some or all of the products and services
offered by ChannelHealth.
"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."
"Closing" means the closing of the acquisition by Allscripts of all of
the issued and outstanding capital stock of ChannelHealth pursuant to the Merger
Agreement.
"Closing Date" means the date on which the Closing occurs.
"Compensation Table" means the revenue sharing model as provided in
the Development Plan.
"ConnectR" means the product currently marketed by IDX under the
trademark "ConnectR."
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"Control" including the terms "Controlling," "Controlled by," and
"under common Control with," means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Cross License Agreement" has the meaning set forth in the recitals to
the Strategic Alliance Agreement.
"Demonstration Product Specification" means the hardware and software
required to demonstrate the Allscripts Products as mutually agreed to in the
Marketing Plan.
"Development Plan" means the Development Plan as described in Section
4 to the Strategic Alliance Agreement, and as initially set forth on Exhibit A
attached to the Strategic Alliance Agreement.
"Direct Competitor of Allscripts" means any Person that Provides any
products similar to the Allscripts Products and any successor, assignee,
Affiliate or partner of such Person.
"Direct Competitor of IDX" means any Person that Provides any Practice
Management Products and is named on Annex A to this Schedule 1 and any
-------
successor, assignee, Affiliate or partner of such Person and any Person that IDX
notifies Allscripts shall be additionally included on Annex A to this Schedule 1
-------
from time to time.
"Distribution Partner" means any Person that has the right to market,
cooperatively market, 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, co-marketer, outsourcing vendor, or other information technology
company.
"EDI" means effecting the exchange of information and transactions
between trading partners over a network using electronic means.
"IDX" means IDX Information Systems Corporation, a Vermont
corporation.
"IDX Customer" means any Person that has entered into a written
agreement with IDX pursuant to which IDX provides any of its core products,
including without limitation Practice Management Systems, IDXrad, and
LastWord(R) (the "Core Products"), all Affiliates of such Person, and all
Persons receiving the benefit of any of the Core Products by or through such
Person or Affiliates of such Person including without limitation those IDX
Customers as set forth in the Development Plan.
"IDX Licensed Technology" means the technology licensed to Allscripts
and ChannelHealth pursuant to the License Addendum.
28
<PAGE>
"Initial Term" means a period of ten (10) years commencing on the
Closing Date.
"Intellectual Property" means, without limitation, know-how, trade
secrets, inventions (whether or not patentable), ideas, materials, discoveries,
techniques, plans, designs, formulas, processes, invention disclosures,
technology, data or information, software and documentation therefor, hardware,
source code (including all programmers' notes), procedures, methods, works and
other documentation and information and the right to sue and recover damages for
past, present and future infringement of such intellectual property.
"Interfaces" means the interfaces between the Allscripts Products and
the IDX Practice Management Products, Patient Channel, and EDiX as described on
Schedule 4.3.1 attached to the Strategic Alliance Agreement.
"Lastword" means the product marketed by IDX under the trademark
LastWord.
"License Addendum" has the meaning set forth in recitals to the
Strategic Alliance Agreement.
"License Agreement" has the meaning set forth in recitals to the
Strategic Alliance Agreement.
"Maintenance" means the upkeep of software products by a Person
including the provision of bugs, fixes and drivers, consistent with such
Person's ordinary and customary business practices
"Marketing Plan" has the meaning set forth in Section 5.1 of the
Strategic Alliance Agreement.
"Material Adverse Change" means any material adverse change in the
business, properties, results of operations, condition (financial or otherwise)
of an applicable Person (other than changes that are the result of economic
factors affecting the economy as a whole or changes that are the result of
factors generally affecting the specific industry or markets in which a party
competes).
"Merger Agreement" means that certain Agreement and Plan of Merger by
and among Allscripts (formerly named Allscripts Holding, Inc.), Allscripts,
Inc., Bursar Acquisition, Inc., Bursar Acquisition No. 2, Inc., IDX and
Channelhealth, dated as of July 13, 2000, whereby Allscripts agreed to acquire
all of the issued and outstanding capital stock of ChannelHealth.
"OutReach" means the product currently marketed by IDX under the
trademark "OutReach."
"Patient Channel" means the product marketed by ChannelHealth and IDX
under the name Patient Channel.
29
<PAGE>
"Patient Channel Products" means the computer software and
computerized or automated products and services marketed under the name "Patient
Channel" as more fully described in the Development Plan.
"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.
"Physician Channel Products" means the computer software and
computerized or automated products and services marketed under the name
"Physician Channel" as more fully described in the Development Plan.
"Practice Management Products" means any software application
expressly designed to automate the business processes of physician billing,
physician scheduling and managed care contract administration.
"Provide" means to market, sell, license, cooperatively market, or
otherwise distribute, including through one or more Distribution Partners.
"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 the Strategic Alliance 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.
"Strategic Alliance Agreement" means that certain agreement to which
these definitions are a Schedule entitled "Strategic Alliance Agreement" by and
between Allscripts and IDX executed or intended to be executed on the Closing
Date.
"Virtual Office Products" means the product currently marketed by IDX
under the name "Virtual Office" which allows for secure messaging, managing
appointments, viewing of personal information, monitoring patient account status
and tasking management.
"Web FrameWork" means the product currently marketed by IDX under the
trademark "IDX Web FrameWork" and as more fully described in the Development
Plan.
30
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>4
<FILENAME>dex1017.txt
<DESCRIPTION>AMENDED AND RESTATED CROSS LICENSE
<TEXT>
<PAGE>
Exhibit 10.17
AMENDED AND RESTATED CROSS LICENSE
AND
SOFTWARE MAINTENANCE AGREEMENT
THIS AMENDED AND RESTATED CROSS LICENSE AND SOFTWARE MAINTENANCE AGREEMENT
(this "Agreement") is made and entered into as of the January 8, 2001, 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").
Background
IDX and ChannelHealth entered into that certain Cross License and Software
Maintenance Agreement dated January 1, 2000.
ChannelHealth is in the business of, among other things, developing and
marketing products and services known as the "Physician Channel" to automate the
delivery of office-based clinical care, the "Patient Channel" to automate
communication between physicians and their patients, and the "eCommerce Channel"
to automate aspects of claims and payments for healthcare.
IDX is interested in retaining the eCommerce Channel business and certain
components of the Patient Channel business and in divesting the Physician
Channel business. Allscripts Healthcare Solutions, Inc., a Delaware corporation
("Allscripts"), is interested in acquiring the Physician Channel business of
ChannelHealth.
As of July 13, 2000, (i) IDX and ChannelHealth entered into an Asset
Purchase Agreement whereby, on the date hereof, IDX shall acquire the assets and
assume the liabilities associated with the eCommerce Channel business and
certain components of the Patient Channel business and (ii) IDX and Allscripts
entered into an Agreement and Plan of Merger (the "Merger Agreement") whereby
ChannelHealth, on the date hereof, will become a subsidiary of Allscripts, and
concurrently herewith, IDX and Allscripts have entered into a Strategic Alliance
Agreement whereby they shall cooperatively develop and market integrated office
practice management and clinical management systems.
IDX and ChannelHealth desire to restate and supersede the Cross License and
Software Maintenance Agreement, dated as of January 1, 2000, entered into by and
between IDX and ChannelHealth (the "License Agreement"), to reflect (i) the
conveyance by ChannelHealth of the eCommerce Channel business and certain
components of the Patient Channel, and (ii) the conveyance of certain
intellectual properties related to the Physician Channel by IDX to
ChannelHealth.
<PAGE>
IN CONSIDERATION of the premises, the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SCOPE AND EFFECT
From and after the Effective Time, each party shall be relieved from all
obligations to perform the License Agreement that shall have arisen from and
after the Effective Time, but this Agreement shall not relieve any party to the
License Agreement from any obligation that shall have arisen prior to the
Effective Time. Except for any such obligations, this Agreement shall supersede
the License Agreement.
2. DEFINITIONS
The capitalized terms used in this Agreement and not otherwise defined in
this Agreement shall have the meanings ascribed to them on Schedule 1 attached
hereto.
3. IDX LICENSE GRANTS AND CONVEYANCE OF INTELLECTUAL PROPERTY
As of the Effective Time, IDX grants licenses to ChannelHealth and makes
conveyances of intellectual property to ChannelHealth as set forth in this
Section 3, all of which shall for the purposes of this Agreement be deemed
effective as of the Closing Date.
3.1 In General. IDX hereby grants to ChannelHealth a perpetual (except as set
forth in Section 3.2), non-exclusive, non-cancellable and non-teminable,
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 Allscripts
Products, (ii) to market and sublicense (including through one or more
Distribution Partners), and in connection therewith to copy, use,
distribute, perform, and display the IDX Software, in whole or in part,
only as the IDX Software may be Merged into Allscripts Products, and (iii)
to use and practice the IDX Licensed Technology to accomplish the purposes
set forth in clauses (i) and (ii) of this Section 3.1.
3.2 Subject to Section 3.4.3, IDX shall make no claim to any derivative works
developed by or on behalf of ChannelHealth pursuant to Section 3.1.
3.3 New Enabling Technologies. Upon the Termination and/or nonrenewal of the
Strategic Alliance Agreement, the licenses granted to ChannelHealth shall
terminate with respect to all New Enabling Technologies, except for New
Enabling Technologies embodied in the Web FrameWork and ConnectR. From and
after such termination, ChannelHealth shall not use any New Enabling
Technologies for any purpose other than to create or maintain compatibility
or connectivity between Allscripts Products and IDX Products.
2
<PAGE>
3.4 Ownership, Patent Prosecution and Enforcement.
3.4.1 IDX hereby transfers and assigns to ChannelHealth all of its
copyrights in and to the products known as CMS and the Physician
Channel. IDX shall execute an assignment in the form attached hereto
as Exhibit 3.4.1 to effectuate and confirm such assignment.
3.4.2 Except for the rights expressly granted herein to ChannelHealth, IDX
reserves and retains all right, title and interest (including
without limitation patents and copyrights) in, the IDX Licensed
Technology, the Virtual Office, Health Resources, the eCommerce
Channel, DietSite, and all customizations, additions, modifications,
changes, enhancements, improvements, and derivative works thereof
made by IDX or on behalf of IDX, and all rights therein and copies
thereof.
3.4.3 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
Reference 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 Reference 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.
3.4.4 ChannelHealth reserves and retains all right, title and interest to
any and all patentable inventions with claims in part or wholly
directed to inventions embodied in, or necessary to implement and
practice the Physician Channel alone, or in combination with any
other product or service made, conceived, or reduced to practice by
ChannelHealth, including without limitation by ChannelHealth
personnel, employees or contractors.
3.4.5 In the event IDX does not wish to prosecute a patent application for
an invention owned by IDX, and directed to, embodied in, or
necessary to implement and practice the Physician Channel,
ChannelHealth may elect to prosecute that application at its
expense.
3.4.6 If IDX decides not to enforce any issued patent with claims in part
or wholly directed to inventions embodied in, or necessary to
implement and practice the Physician Channel alone, or in
combination with any other product or service, ChannelHealth may at
its sole expense request that either IDX, at its sole discretion,
either bring an action for infringement against the alleged
infringing party or parties, or assign sufficient rights in the
patent to ChannelHealth to enable ChannelHealth to have standing to
enforce the patent on its own.
3
<PAGE>
3.5 Limitations, Restrictions, and Conditions. The licenses granted to
ChannelHealth hereunder are subject to the following limitations,
restrictions, and conditions:
3.5.1 Distribution Pursuant to Strategic Alliance Agreement. During the
Initial Term of the Strategic Alliance Agreement, ChannelHealth's
use of the IDX Licensed Technology or any part thereof, including as
Merged into Allscripts Products, is governed by the Strategic
Alliance Agreement. This restriction shall not apply following the
Initial Term or the termination of the Strategic Alliance Agreement.
3.5.2 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 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 Allscripts Products 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 Allscripts Products, or (ii) using
contractors as set forth in Section 3.5.4.
3.5.3 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.
3.5.4. 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.
3.5.5 ChannelHealth may not indicate that any portion of the IDX Licensed
Technology originated from IDX, except with IDX's prior written
consent and except as may be otherwise expressly set forth in the
Strategic Alliance Agreement.
3.6 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
4
<PAGE>
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:
IN NO EVENT SHALL 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 CHANNELHEALTH, ITS SUPPLIERS OR
LICENSORS. THE LICENSEE UNDERSTANDS AND AGREES THAT THE SOFTWARE PROVIDED
BY CHANNELHEALTH TO LICENSEE CONTAINS SOFTWARE THAT IS THE COPYRIGHTED
PRODUCT AND A TRADE SECRET OF 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 CHANNELHEALTH,
ITS SUPPLIERS AND LICENSORS, AND MAY BE ENFORCED BY CHANNELHEALTH AND ITS
SUPPLIERS AND LICENSORS.
3.7 Delivery. As of the Reference Date, IDX has delivered one copy (in both
object code and Source Code forms) of each component of the IDX Licensed
Technology.
3.8 IDX Names and Marks. ChannelHealth may not use any IDX Names or Marks in
connection with ChannelHealth's business or otherwise, except as may be
expressly set forth in the Strategic Alliance Agreement.
3.9 Bankruptcy. 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.
5
<PAGE>
4. LIMITED WARRANTIES OF IDX
Except for the warranties made in the Merger Agreement, 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 Reference Date. ChannelHealth acknowledges that, except for
the express warranties set forth in this Section 4, it has accepted the license
and delivery of the IDX Licensed Technology "AS IS" and "WITH ALL FAULTS." With
respect to Software Updates and Support Services the warranties are as follows:
4.1 Encumbrances. The IDX Software Updates 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 Software Updates as permitted
under this Agreement.
4.2 Ownership; Right to License. IDX owns or otherwise has adequate rights to
make the grants of the licenses to the IDX Software Updates to
ChannelHealth hereunder and possesses all rights and interests in the IDX
Software Updates necessary to enter into this Agreement.
4.3 No Infringement. IDX Software Updates 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 8.1.
5. CHANNELHEALTH LICENSE GRANTS AND CONVEYANCE OF INTELLECTUAL PROPERTY
ChannelHealth grants licenses to IDX as set forth in this Section 5.
5.1 License to ChannelHealth Licensed Technology. ChannelHealth hereby grants
to IDX a perpetual, non-exclusive, non-cancellable and non-terminable,
fully paid-up license to copy, use, display, perform, market, sublicense,
transmit, create and own derivative works, and distribute (including
through one or more Distribution Partners) all or any portion of the
ChannelHealth Licensed Technology the use of which is limited to use with
the Patient Channel.
5.2 Delivery. ChannelHealth shall deliver one copy (in both object code and
Source Code forms) of each component of the ChannelHealth Licensed
Technology.
5.3 Bankruptcy. 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
6
<PAGE>
ChannelHealth under the Code, IDX shall be entitled to retain all of its
rights under this Agreement.
6. LIMITED WARRANTIES OF CHANNELHEALTH
Except for the warranties made in the Merger Agreement, there are NO
WARRANTIES made by ChannelHealth in connection with the subject matter of this
Agreement. The warranties of ChannelHealth set forth below are made only to IDX
and shall be true as of the Reference Date. IDX acknowledges that, except for
the express warranties set forth in this Section 6, it has accepted the license
and delivery of the ChannelHealth Licensed Technology "AS IS" and "WITH ALL
FAULTS." With respect to Software Updates and Support Services the warranties
are as follows:
6.1 Encumbrances. The ChannelHealth Software Updates 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 IDX's use of the ChannelHealth Software Updates as permitted under
this Agreement.
6.2 Ownership; Right to License. ChannelHealth owns or otherwise has adequate
rights to make the grants of the licenses to the ChannelHealth Software
Updates to IDX hereunder and possesses all rights and interests in the
ChannelHealth Software Updates necessary to enter into this Agreement.
6.3 No Infringement. ChannelHealth Software Updates 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 8.1.
7. SUPPORT AND SERVICES
7.1 IDX Support. 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.
7.2 ChannelHealth Support. During the ChannelHealth Support Term,
ChannelHealth shall provide ChannelHealth Maintenance and ChannelHealth
Updates on a timely basis.
7.3 Implementation and Consulting. Each party will provide services for
customer specific implementation work and consulting services to the other
party at the then current consulting rate for the party.
7.4 Level of Support. Each party will further provide the other with the same
level of support that is offered to its customers for the specific product
for which support is requested.
7
<PAGE>
8. INDEMNIFICATION
8.1 IDX Indemnity.
8.1.1 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 loss, damages, expenses (including attorneys'
fees) arising from claims of third parties that the IDX Software
Updates, or any component thereof, whether used alone or in
combination with any other item as intended, designed, suggested or
induced by IDX or its agents, infringes or violates any patents,
copyrights, trademarks, trade secrets, licenses, or other
proprietary rights of any third party. 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 8.1.1. At any time
after IDX becomes aware of any such claim under this Section 8.1.1,
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.
8.1.2 Exceptions. IDX's obligations to indemnify as set forth in this
Section 8 shall not apply to any claim to the extent that it arises
from (i) any modifications, changes, additions, or enhancements to
the IDX Software Updates 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 or (ii) any such modifications
made by IDX at the request or to the specification of ChannelHealth,
ChannelHealth's Customers, or any of their agents.
8.2 ChannelHealth Indemnity.
8.2.1 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 that the
ChannelHealth Updates, or any component thereof, whether used alone
or in combination with any other item as intended, designed,
suggested or induced by ChannelHealth or its
8
<PAGE>
agents, infringes or violates any patents, copyrights, trademarks,
trade secrets, licenses, or other proprietary rights of any third
party.
8.2.2 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 Updates 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 Updates 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.
9. LIMITATION OF LIABILITY.
NEITHER PARTY SHALL BE LIABLE TO THE OTHER EXCEPT FOR (i) INDEMNIFICATION
OBLIGATIONS PURSUANT TO SECTION 8 OF THIS AGREEMENT, (ii) THIRD-PARTY CLAIMS FOR
PROPERTY DAMAGE, PERSONAL INJURY OR DEATH, AND OTHER CLAIMS FOR WHICH EITHER
PARTY MAY BE ENTITLED TO INDEMNIFICATION OR CONTRIBUTION FROM THE OTHER PURSUANT
TO THIS AGREEMENT OR AS A MATTER OF LAW, AND (iii) ANY MATERIAL BREACH BY EITHER
PARTY OF ANY WARRANTY SET FORTH IN SECTIONS 4 AND 6 OF THIS AGREEMENT.
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 Allscripts Products, which information is, 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
9
<PAGE>
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 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
10 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
agrees to (i) reproduce (and refrain from removing or destroying) copyright
and proprietary rights notices which are placed on the IDX Licensed
Technology or the Allscripts Products, (ii) erase or otherwise destroy,
prior to disposing of media, all portions of IDX Licensed Technology or the
Allscripts Products contained on such media, (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
Allscripts Products and (iv) reasonably cooperate with the other party to
cure any unauthorized disclosure or use of the IDX Licensed Technology or
the Allscripts 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.
10
<PAGE>
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 3 and 5 hereof, once effective, 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 addressed as follows:
(a) if to IDX:
IDX Systems Corporation
1400 Shelbourne Road
South Burlington, VT 05043
Attention: President
Facsimile: (802) 862-6351
with a copy to: General Counsel at same address
(b) if to ChannelHealth
ChannelHealth Incorporated
25 Green Mountain Drive
P. O. Box 8370
Burlington, VT 05402-8370
Attention: Jeffrey J. McMahan
Facsimile: (802) 865-1197
with copies to:
Allscripts Healthcare Solutions, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: President
Facsimile: (847) 680-3721
and
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Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Facsimile: (713) 224-9511
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 Delaware, 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
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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 and their
Affiliates, respectively. 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.
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. Section 10 shall survive the termination of this Agreement.
11.13 Entire Agreement. This Agreement constitutes the entire sum of changes
of any kind or nature to the License Agreement, and there are no changes,
representations, warranties, covenants or obligations of any kind except
as set forth herein. This Agreement supersedes all prior and
contemporaneous agreements, understanding, negotiations and discussions,
written or oral, of the parties hereto, relating to any transaction
contemplated by this Agreement. There have been no changes to any other
agreement entered in to in connection with the License Agreement, unless
reduced to writing and made a part of an addendum to such other
agreement. Except as otherwise especially provided herein, nothing in
this Agreement is intended or shall be construed to confer upon or to
give any
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person other than the parties hereto any rights or remedies under or by
reason of this Agreement.
11.14 Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
11.15 Amendments. This Agreement may be amended only in writing executed by
the parties affected by such amendment.
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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/ Robert W. Baker, Jr.
------------------------------------ --------------------------------
Robert W. Baker, Jr. Robert W. Baker, Jr.
Vice President and General Counsel Vice President
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SCHEDULE 1
DEFINITIONS
"Allscripts" means Allscripts Healthcare Solutions, Inc., a Delaware
corporation.
"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 Amended and Restated Cross License and Software
Maintenance Agreement, including all schedules, exhibits another items attached
hereto and incorporated by reference herein.
"Allscripts Products" means the products and services (i) offered by Allscripts
as more fully described in the Development Plan, (ii) the Physician Channel
Products as of the Closing Date and (iii) all of the products and services to be
developed as set forth under the Development Plan.
"ChannelHealth" means Channelhealth Incorporated, a Delaware corporation, its
successors and assigns, and any other entity which, as of the Closing, Controls,
is Controlled by, or is under common Control with ChannelHealth.
"ChannelHealth Licensed Technology" means (i) the object and Source Code for the
ChannelHealth Works, (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 Works, 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 and
copyrights, embodied or contained in the items named in clauses (i) through
(iii).
"ChannelHealth Maintenance" means services to correct errors found in the
ChannelHealth Works and delivered during the ChannelHealth Support Term.
"ChannelHealth Support Term" means the period commencing with the Effective Time
and ending on the expiration of the Initial Term of the Strategic Alliance
Agreement or later if renewed as set forth in this Agreement.
"ChannelHealth Updates" means all additions, corrections, and modifications to
the ChannelHealth Works provided as part of ChannelHealth Maintenance and all
standard new releases, new versions, and updates to the ChannelHealth Works
delivered by ChannelHealth to its customers generally as part of the
ChannelHealth Works during the ChannelHealth Support Term.
"ChannelHealth Works" means the products and works of ChannelHealth known as
"WebWorks Task Engine," "Task Engine Database," "My Health" and "Patient
Messaging" (also known as Secure Messaging).
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"Clinical Management System" or "CMS" means the product formerly marketed by IDX
under the trademark of "CMS" or "Clinical Management System," including its
predecessor product known as "CRS."
"Closing" means the closing of the acquisition by Allscripts of all of the
issued and outstanding capital stock of ChannelHealth pursuant to the Merger
Agreement.
"Closing Date" means the date on which the Closing occurs.
"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."
"Development Plan" has the meaning specified in Section 4 of the Strategic
Alliance Agreement.
"DietSite" means the product consisting of the World Wide Web site on the
Internet at www.dietsite.com, and all content and services available therein,
----------------
and all future versions thereof.
"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.
"eCommerce Channel" means the service currently marketed by IDX under the
service mark "eCommerce Channel."
"Effective Time" means the time of completion of the Closing.
"Enterprise Index" means the product currently marketed by IDX under the
trademark of "Enterprise Index."
"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 Reference Date, (ii) IDX Software Updates, (iii)
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Integration Methods as of the Reference Date, and (iv) the intellectual property
rights of IDX, including without limitation patent rights (including patent
rights owned by IDX with claims in part or