-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUizW88f2V39sbcXk99DkKhEZ3NxK83hvUDIz2SOkk07T1ntx4kglUxjSkVRHPlF vdrUItWJPUg5WxUMbZAnUQ== 0001001185-02-000048.txt : 20020814 0001001185-02-000048.hdr.sgml : 20020814 20020814151753 ACCESSION NUMBER: 0001001185-02-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDX SYSTEMS CORP CENTRAL INDEX KEY: 0001001185 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 030222230 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26816 FILM NUMBER: 02735597 BUSINESS ADDRESS: STREET 1: 1400 SHELBURNE RD STREET 2: PO BOX 1070 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05403 BUSINESS PHONE: 8028621022 MAIL ADDRESS: STREET 1: 1400 SHELBURNE RD STREET 2: PO BOX 1070 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05403 10-Q 1 idxform10q2qv3.txt FORM 10-Q FOR 2Q 2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM__________TO_____________ ------------------------------- Commission File Number 0-26816 IDX SYSTEMS CORPORATION (Exact Name of Registrant as Specified in Its Charter) Vermont 03-0222230 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 40 IDX Drive South Burlington, VT 05403 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (802-862-1022) Indicate by check mark whether the registrant (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 ---- ---- The number of shares outstanding of the registrant's common stock as of August 2, 2002 was 29,031,276. ================================================================================ IDX SYSTEMS CORPORATION FORM 10-Q For the Period Ended June 30, 2002 TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements (Unaudited) Condensed Consolidated Balance Sheets ...........................3 Condensed Consolidated Statements of Operations .................4 Condensed Consolidated Statements of Cash Flows .................5 Notes to Condensed Consolidated Financial Statements ............6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................13 Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................................27 PART II. OTHER INFORMATION Item 1. Legal Proceedings ......................................28 Item 2. Changes In Securities and Use of Proceeds...............29 Item 3. Defaults Upon Senior Securities ........................29 Item 4. Submission of Matters to a Vote of Security Holders ....29 Item 5. Other Information ......................................29 Item 6. Exhibits and Reports on Form 8-K .......................29 SIGNATURES................................................................30 EXHIBIT INDEX.............................................................31 Page 2 of 31 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2002 2001 --------------- --------------- (unaudited) (audited) ASSETS Cash and marketable securities $ 42,594 $ 56,373 Accounts receivable, net 102,876 95,478 Refundable income taxes 7,745 12,100 Prepaid and other current assets 8,576 6,189 Deferred tax asset 7,718 7,718 --------------- ------------- TOTAL CURRENT ASSETS 169,509 177,858 Property and equipment, net 82,832 77,636 Capitalized software costs, net 2,738 2,055 Goodwill, net 1,511 1,391 Other assets 12,474 5,592 Deferred tax asset 790 790 -------------- ------------ TOTAL ASSETS $ 269,854 $ 265,322 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $ 43,155 $ 51,963 Deferred revenue 20,716 20,361 Notes payable to bank 18,727 15,000 ------------- ------------ TOTAL CURRENT LIABILITIES 82,598 87,324 Stockholders' equity 187,256 177,998 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 269,854 $ 265,322 ============ ============
SEE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Page 3 of 31 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, 2002 2001 2002 2001 ---- ---- ---- ---- REVENUES Systems sales $ 26,182 $ 33,666 $ 53,398 $ 59,828 Maintenance and service fees 86,561 70,641 167,216 139,059 -------- -------- -------- -------- TOTAL REVENUES 112,743 104,307 220,614 198,887 OPERATING EXPENSES Cost of systems sales 8,588 8,444 17,813 19,773 Cost of maintenance and services 64,184 59,562 127,095 114,352 Selling, general and administrative 22,959 23,920 44,949 42,871 Software development costs 13,122 11,350 25,256 21,851 -------- -------- -------- -------- TOTAL OPERATING EXPENSE 108,853 103,276 215,113 198,847 OPERATING INCOME 3,890 1,031 5,501 40 OTHER INCOME Other income 234 625 509 1,309 Gain on sale of investment in subsidiary - - 4,273 35,546 Gain on investment - - - 5,849 -------- -------- -------- -------- TOTAL OTHER INCOME 234 625 4,782 42,704 Income before income taxes and equity in loss of unconsolidated affiliate 4,124 1,656 10,283 42,744 Equity in loss of unconsolidated affiliate - (5,451) - (11,502) Income tax benefit (provision) (1,361) 1,518 (3,393) (13,759) -------- -------- -------- -------- NET INCOME (LOSS) $ 2,763 $(2,277) $ 6,890 $17,483 ======== ======== ======== ======== BASIC EARNINGS PER SHARE (LOSS) $ 0.10 $ (0.08) $ 0.24 $ 0.61 ======== ======== ======== ======== Basic weighted average shares outstanding $28,875 $28,476 $28,858 $28,455 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE (LOSS) $ 0.09 $ (0.08) $ 0.24 $ 0.61 ======== ======== ======== ======== Diluted weighted average shares outstanding $29,162 $28,476 $29,088 $28,786 ======== ======== ======== ========
SEE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Page 4 of 31 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS IDX SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended June 30, 2002 2001 ------------- ------------ OPERATING ACTIVITIES: Net income $ 6,890 $ 17,483 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 7,869 7,488 Amortization 1,170 856 Deferred tax provision - 2,128 Increase in allowance for doubtful accounts 2,138 921 Minority interest - 297 Gain on investment - (5,849) Equity in loss of unconsolidated affiliate - 11,502 Gain on sale of investment in subsidiary (4,273) (35,546) Loss on disposition of assets 93 404 Changes in operating assets and liabilities: Accounts receivable (9,538) 3,653 Prepaid expenses and other assets (3,604) (3,468) Accounts payable and accrued expenses (4,535) (10,799) Federal and state income taxes 4,355 6,877 Deferred revenue 354 (286) ------------ ------------ Net cash provided by (used in) operating activities 919 (4,339) INVESTING ACTIVITIES: Purchase of property and equipment, net (13,157) (25,941) Purchase of securities available-for-sale (18,744) (65,270) Proceeds from sale of securities available-for-sale 27,293 96,787 Proceeds from sale of investment - 11,282 Business acquisitions - (2,080) Other assets (7,498) (242) ------------ ------------ Net cash (used in) provided by investing activities (12,106) 14,536 FINANCING ACTIVITIES: Proceeds from sale of common stock 2,204 2,753 Proceeds from notes payable to bank 3,727 12,000 Contributions to affiliates, net - (472) ------------ ------------ Net cash provided by financing activities 5,931 14,281 ------------ ------------ Increase (decrease) in cash and cash equivalents (5,256) 24,478 Cash and cash equivalents at beginning of period 38,083 16,357 ------------ ------------ Cash and cash equivalents at end of period 32,827 40,835 Securities available-for-sale 9,767 11,411 ------------ ------------ Total cash and securities available-for-sale $ 42,594 $ 52,246 ============ ============ Noncash investing activities: Fair value of stock received from sale of investment in subsidiary $ - $ 17,624 ============ ============ Deconsolidation of minority interest in real estate partnership $ - $ 8,979 ============ ============
SEE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Page 5 of 31 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States. Accordingly, certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed. In the opinion of management, all necessary adjustments (consisting of normal recurring accruals and adjustments) have been made to provide a fair presentation. The operating results for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes included in the Company's latest annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2002. Note 2 - New Accounting Standards In March of 2002, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) issued EITF No. 01-14, "Issue No. 01-14 of the Financial Accounting Standards Board (FASB) Emerging Issues Task Force" ("EITF No. 01-14"). EITF No. 01-14 states that customer reimbursements received for "out-of-pocket" expenses incurred should be characterized on the income statement as revenue. These expenses include, but are not limited to, airfare, mileage, hotel stays, out-of-town meals, photocopies, and telecommunications and facsimile charges. Service revenue and cost of service expenses have been restated for all periods presented in order to reflect this change resulting in no change to net income. In June 2002, the FASB issued Statement of Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)", ("EITF No. 94-3"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. EITF No. 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 146 will have a material impact on its financial position or results of operations. Note 3 - Deconsolidation, Acquisitions and Investments In April 2002, the Company acquired a minority interest in Stentor, Inc., one of the Company's strategic partners, by exercising a warrant to purchase 562,069 shares of preferred stock of Stentor, Inc. The Company paid approximately $7.5 million to purchase the preferred shares. Stentor, Inc. is a California based medical informatics company and a worldwide leader in medical image and information management. The warrant was issued to the Company in November 2000 in connection with the alliance agreement that was entered into by the parties to jointly develop vnetix(TM), a medical image and information management system (MIMS) combining the advanced intelligence of the Company's Radiology Imaging Suite with the innovative image distribution technology from Stentor, Inc. This investment will be carried at cost and there is currently no public market for the preferred shares. Through April 19, 2001, the Company's consolidated financial statements included the accounts of the Company and BDP Realty Associates (BDP), a real estate trust owned by certain stockholders and key employees of the Company whose real estate was leased exclusively by the Company. Effective with the date of the acquisition of the Company's corporate headquarters from BDP, the Company has deconsolidated BDP and eliminated the net assets, principally real estate and a minority interest, included in the Company's consolidated balance sheet as of Page 6 of 31 that date. The Company's purchased its corporate headquarters from BDP for cash, at the fair market value of approximately $15.0 million as determined by independent appraisers, for in the second quarter of 2001. This amount has been recorded as property and equipment. In May 2001, the Company acquired PVI, LLC for approximately $1.0 million. This acquisition has been accounted for under the purchase method of accounting. The purchase price has been allocated based on estimated fair market values of PVI, LLC's assets at the date of acquisition, principally to software. There are contingent payments based on a percentage of future sales related to this purchase, however, there have been no sales to date. In June 2001, the Company acquired Vogt Management Consulting, Inc. for approximately $1.1 million. This acquisition has been accounted for under the purchase method of accounting. The purchase price has been allocated, principally to goodwill, based on estimated fair market values of Vogt Management Consulting, Inc.'s assets at the date of acquisition. Had these purchase acquisitions occurred as of the beginning of the year in which they occurred, the Company's pro forma operating results would not be materially different than as reported in the accompanying condensed consolidated financial statements. Note 4 - Restructuring Charges On September 28, 2001, the Company announced its plan to restructure and realign its large physician group practice businesses. The Company implemented a workforce reduction and restructuring program affecting approximately four percent of the Company's employees. The restructuring program resulted in a charge to earnings of approximately $19.5 million during the fourth quarter of 2001, in connection with costs associated with employee severance arrangements of approximately $5.5 million, lease payment costs of approximately $5.2 million and equipment and leasehold improvement write-offs related to the leased facilities and workforce reduction of $8.8 million. Substantially all work force related actions were completed during the fourth quarter of 2001. As of June 30, 2002, the Company had an accrual balance of $3.5 million primarily related to leased facilities, of which approximately $1.1 million will be paid during the remainder of 2002 and approximately $2.4 million thereafter. Note 5 - Sale of Investment in Subsidiary and Other Related Matters On January 8, 2001, the Company sold certain operations of its majority owned subsidiary, ChannelHealth Incorporated to Allscripts Healthcare Solutions, Inc., a leading provider of point-of-care e-prescribing and productivity solutions for physicians. In addition to the sale, the Company entered into a ten-year strategic alliance whereby Allscripts is the exclusive provider of point-of-care clinical applications sold by IDX to physician practices. Allscripts acquired ChannelHealth in exchange for 8.6 million shares, or 21.3%, of Allscripts stock on a pro-forma fully diluted basis, of which IDX received approximately 90% or 7.5 million shares of Allscripts stock. The Allscripts shares received are subject to restrictions on any transfer of the securities for a period of one year from the date of the transaction and, after one year, on the transfer of more than 25% of the Allscripts shares in any one year, and 16.67% in any one month and, under certain circumstances, more favorable sale restrictions may apply. IDX recorded the Allscripts shares at their fair value of $29.5 million, which included a discount from market value due to restrictions on transfer, resulting in a $35.5 million gain on the transaction. The reported gain is greater than the fair market value of the stock received due to the Company's negative carrying value of the ChannelHealth investment at the time of the sale. Pursuant to the strategic alliance agreement, IDX guaranteed that Allscripts would have gross revenues resulting from the alliance (less any commissions paid to IDX) of at least $4.5 million for fiscal year Page 7 of 31 2001. IDX deferred $4.5 million of the gain on sale as of the date of the transaction. IDX and Allscripts finalized the analysis related to the Allscripts 2001 eligible gross revenues guarantee, and IDX recognized an additional $4.3 million gain on the sale during the first three months of 2002. At June 30, 2002, IDX owns approximately 20% of the outstanding common stock of Allscripts and accounts for its investment under the equity method of accounting. Under the equity method of accounting, IDX recognized its pro-rata share of Allscripts 2001 losses and recorded an equity loss during 2001 of $17.6 million, including $5.5 million during the second quarter of 2001 and $11.5 million during the first six months of 2001. These equity losses resulted in the elimination of the carrying value of the Allscripts investment during the third quarter of 2001. Based on the quoted market price at June 30, 2002, the Allscripts investment has a market value, of approximately $28.0 million which is not currently reflected on the balance sheet. Summary audited financial information for Allscripts for the year ended December 31, 2001 is as follows in thousands:
Revenue $ 70,754 Gross profit 4,633 Net loss (418,931) Current assets 64,846 Non current assets 52,598 Current liabilities 18,485 Non current liabilities 325
Summary unaudited financial information for Allscripts for the three and six month periods ended June 30, 2002 and 2001 is as follows in thousands:
FOR THE THREE MONTHS ENDED JUNE 30: 2002 2001 ---- ---- Revenue $20,094 $19,173 Gross profit 4,970 2,305 Net loss (3,962) (27,728) FOR THE SIX MONTHS ENDED JUNE 30: 2002 2001 ---- ---- Revenue $38,867 $35,772 Gross profit 8,792 3,316 Net loss (9,986) (58,528)
Note 7 - Income Taxes The 2002 effective tax rate is lower than the statutory rate, primarily the result of research credits. The 2001 effective tax rate was higher than the statutory rate principally due to the non-deductible nature of certain costs related to the sale of ChannelHealth. The net deferred tax assets as of June 30, 2002 of approximately $8.5 million are expected to be realized by generating future taxable income and are otherwise recoverable through available tax planning strategies. Page 8 of 31 Note 8 - Segment Information The Company views its operations and manages its business as principally two segments, information systems and services that include software, hardware and related services and medical transcription services. The Company's business units have separate management teams and infrastructures that offer different products and services. Accordingly, these business units have been classified as reportable segments. Information Systems and Services: This reportable segment consists of IDX Systems Corporation's healthcare information solutions that includes software, hardware and related services. IDX solutions enable healthcare organizations to redesign patient care and other workflow processes in order to improve efficiency and quality. The principal markets for this segment include physician groups, management service organizations, hospitals and integrated delivery networks primarily located in the United States. Medical Transcription Services: This reportable segment consists of EDiX, a provider of medical transcription outsourcing services. The principal markets for this segment include hospitals and large physician group practices primarily located in the United States. The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to the Consolidated Financial Statements included in Company's annual report on Form 10-K for the year ended December 31, 2001. The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenues are immaterial. No one customer accounts for greater than 10% of revenue for any reportable segment. Page 9 of 31 Summarized financial information concerning the Company's reportable segments is shown in thousands in the following table:
Medical Information Dictation and Systems and Transcription Services Services Total ------------------------------------- FOR THE THREE MONTHS ENDED JUNE 30, 2002 Net operating revenues $ 85,061 $ 27,682 $ 112,743 Operating income (loss) 4,948 (1,058) 3,890 Income (loss) before income taxes and equity in loss of unconsolidated affiliate 6,088 (1,964) 4,124 Identifiable operating assets 230,427 39,427 269,854 FOR THE THREE MONTHS ENDED JUNE 30, 2001 Net operating revenues $ 80,254 $ 24,053 $ 104,307 Operating income 127 904 1,031 Income before income taxes and equity in loss of unconsolidated affiliate 1,597 59 1,656 Identifiable operating assets 52,552 32,534 285,086 FOR THE SIX MONTHS ENDED JUNE 30, 2002 Net operating revenues $ 165,984 $ 54,630 $ 220,614 Operating income (loss) 5,725 (224) 5,501 Income (loss) before income taxes and equity in loss of unconsolidated affiliate 12,283 (2,000) 10,283 Identifiable operating assets 230,427 39,427 269,854 FOR THE SIX MONTHS ENDED JUNE 30, 2001 Net operating revenues $ 152,811 $ 46,076 $ 198,887 Operating income (loss) (1,737) 1,777 40 Income before income taxes and equity in loss of unconsolidated affiliate 42,558 186 42,744 Identifiable operating assets 252,552 32,534 285,086
Corporate headquarter assets and related operating costs are included in the Information Systems and Services segment information. Substantially all of the Company's operations are in the United States. Note 9 - Comprehensive Income Total comprehensive income for the quarter ended June 30, 2002 amounted to $2.8 million compared to a comprehensive loss of $2.4 million for the same period in 2001. Total comprehensive income for the six months ended June 30, 2002 amounted to $6.9 million compared to a comprehensive income of $17.4 million for the same period in 2001. Comprehensive income/loss includes unrealized gains or losses on the Company's available-for-sale securities that are included as a component of stockholders' equity. Page 10 of 31 Note 10 - Earnings Per Share Information The following sets forth the computation of basic and diluted earnings (loss) per share: (in thousands, except for per share data)
Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Numerator: Net income (loss) $ 2,763 $(2,277) $ 6,890 $ 17,483 ------- -------- ------- -------- Numerator for basic and diluted income (loss) per share $2,763 $(2,277) $ 6,890 $ 17,483 ====== ======== ========= ========= Denominator: Basic weighted-average shares outstanding 28,875 28,476 28, 858 28,455 Effect of employee stock options 287 - 230 331 ------------------------------------------------- Denominator for diluted income per share 29,162 28,476 29,088 28,786 ------ ------ ------ ------ Basic income (loss) per share $ .10 $ .(08) $ .24 $ .61 ====== ======= ====== ====== Diluted income (loss) per share $ .09 $ .(08) $ .24 $ .61 ====== ======= ====== ======
Options for 1,719,018, and 2,578,742 shares for the three month periods ended June 30, 2002 and 2001, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive. Options for 2,444,900, and 2,460,997 shares for the six month periods ended June 30, 2002 and 2001, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive. Note 11 - Legal Proceedings On January 18, 2001, the Company commenced a lawsuit against Epic Systems Corporation, a competitor of the Company, the University of Wisconsin Medical Foundation (the Foundation), and two individuals, claiming, among other things, that trade secrets of the Company involving its IDXtend medical group practice system were wrongfully disclosed to, and misappropriated by, Epic in a series of meetings that took place in 1998 and 1999. The defendants deny the Company's claims. The Company's lawsuit seeks damages and injunctive relief and was brought in the United States District Court for the Western District of Wisconsin and is entitled, IDX Systems Corporation v. Epic Systems Corporation, et al. The Foundation brought a counterclaim against the Company claiming that its lawsuit interferes with a contract between the Foundation and Epic, and that the confidentiality provisions in IDX's contracts with the Foundation are invalid. The counterclaim seeks damages and declaratory judgment. The Company denies the counterclaim. Subsequently, Epic filed an Answer denying the essential elements of the Company's claims, and asserted counterclaims against the Company. Epic alleges that the Company's claims asserting its trade secret rights were brought in bad faith, with an intent to injure Epic competitively, and thereby violated Sections 1 and 2 of the Sherman Act because the Company allegedly possesses monopoly power in the U.S. market for medical practice information systems. Epic also claims that this same alleged conduct constitutes intentional interference with its contract with the Foundation. The counterclaim seeks treble damages. The Company denies the counterclaims. On July 31, 2001, the Company's lawsuit against Epic, the Foundation and the individuals was dismissed and the counterclaims of Epic and the Foundation were dismissed. The Company appealed the dismissal of its lawsuit to the United States Court of Appeals, and on April 1, 2002, that appellate court affirmed the District Court's dismissal of the trade secret claim, but reversed and remanded the other related claims of the Company, including breach of contract and tortuous interference claims against the defendants. The Company continues to vigorously pursue such remanded claims Page 11 of 31 at the District Court. It has resumed its discovery efforts in anticipation of trial, which has been scheduled to begin in September 2002. In April 2000, the Company commenced a lawsuit for damages caused by wrongful cancellation and material breach of contract by St. John Health System (SJHS), in the United States District Court for Eastern District of Michigan, entitled IDX Systems Corporation v. St. John Health System. Subsequently, SJHS commenced a lawsuit against the Company in the Circuit Court of Wayne County, Michigan, claiming unspecified damages against the Company for anticipatory repudiation, breach of contract, tort and fraud. On motion of the Company, SJHS's lawsuit was removed to and consolidated in the federal court. In its answer to the Company's lawsuit, SJHS asserted the same claims previously asserted in its state court action. In September 2001, SJHS specified damage claims of approximately $77.0 million in allegedly lost savings, and in January 2002 raised another theory of alleged unspecified damages for "cover". The Company believes the claims of SJHS are without merit and continues to vigorously defend itself and prosecute its own claims for damages. The lawsuit is in the trial preparation stage and the parties are awaiting scheduling of the trial by the court. From time to time, the Company is a party to or may be threatened with other litigation in the ordinary course of its business. The Company regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The ultimate outcome of these matters is not expected to materially affect the Company's business, financial condition or annual results of operations, however, an adverse outcome could have a material impact on quarterly income or cash flows. Page 12 of 31 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q. THIS ITEM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934 THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE THOSE SET FORTH UNDER "FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE" COMMENCING ON PAGE 21, AS WELL AS THOSE OTHERWISE DISCUSSED IN THIS SECTION AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q. UNLESS OTHERWISE SPECIFIED OR THE CONTEXT REQUIRES OTHERWISE, THE TERMS "WE", "US", "OUR" AND THE "COMPANY" REFER TO IDX SYSTEMS CORPORATION AND ITS SUBSIDIARIES. CRITICAL ACCOUNTING POLICIES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Those estimates are based on our historical experience, terms of existing contracts, and our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different assumptions or conditions. o Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We have identified the following as our critical accounting policies: revenue recognition and accounts receivable, income taxes and accounting for litigation, commitments and contingencies. For a detailed discussion on the application of these and other accounting policies, see Note 1 of Notes to Consolidated Financial Statements included in the Company's annual report on Form 10-K for the year ended December 31, 2001. o Revenue recognition and accounts receivable. We recognize revenue when evidence of an arrangement exists, contractual obligations have been satisfied, title and risk of loss (in the case of hardware) have been transferred to the customer and collection of the resulting receivable is reasonably assured. We defer revenue when initial payment terms exceed 90 days. We recognize revenue on software licensing arrangements involving multiple elements by allocation of the fair value of the transaction to each element, or more typically using the residual method when the arrangement includes undelivered elements. Fair value determination requires management's judgment on a number of factors including typical sales price. Revenue from software licensing arrangements is principally recognized upon attainment of specified contractual milestones and dates. Additionally, we periodically enter into certain long-term contracts where revenue is recognized on a percentage of completion basis or the completed contract method, as appropriate measures of completion for each contract are achieved. We also generate service revenues from the sale of product maintenance contracts, consulting contracts and transcription service arrangements. Revenue from maintenance contracts is recognized ratably over the support period, including the installation period through the term of the agreements, which is typically one year. Revenues from consulting and transcription services are recognized in the period in which services are performed. Revenue from hardware sales is recognized upon transfer of title to customers. Management estimates allowances for doubtful accounts receivable based on historical experience and management's evaluation of the financial condition of the customer. The Company typically does not require collateral. Historically, management's estimates have been adequate to Page 13 of 31 cover accounts receivable exposures. We believe our reported allowances at April 30, 2002, are adequate. If the financial conditions of those customers were to deteriorate, however, resulting in their inability to make payments, we may need to record additional allowances which would result in additional selling, general and administrative expenses being recorded for the period in which such determination was made. o Income taxes. Our valuation allowance relating to the net deferred tax assets is based on our assessment of historical pre-tax income as well as tax planning strategies designed to generate future taxable income. These strategies include estimates and involve judgments relating to certain favorable lease rights and unrealized gains in the Company's investment in common stock of an equity investee. To the extent that facts and circumstances change, these tax planning strategies may no longer be sufficient to support the deferred tax assets and the Company may be required to increase the valuation allowance. As we generate future taxable income against which these tax assets may be applied, some portion or all of the valuation allowance would be reversed and an increase in net income would consequently be reported in future years. o Accounting for litigation, commitments and contingencies. We are currently involved in certain legal proceedings, which, if unfavorably determined, could have a material adverse effect on our operating results and financial condition. In connection with management's assessment of these legal proceedings, management must determine if an unfavorable outcome is probable and evaluate the costs for resolution of these matters, if reasonably estimable. These determinations and related estimates have been developed in consultation with outside counsel handling our defense in these matters and is based upon an analysis of potential results, assuming a combination of litigation and defense strategies. See Part II, Item 1. "Legal Proceedings" and Note 11 to our audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2001. The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K which contain accounting policies and other disclosures required by generally accepted accounting principles. GENERAL Revenues increased to $112.7 million for the second quarter of 2002 from $104.3 million for the same period in 2001. Systems sales decreased $7.5 million (22.2%) during the second quarter of 2002, while maintenance and service fees increased $15.9 million (22.5%) as compared to the same period in the prior year. The Company reported net income of $2.8 million, or $0.09 per share, for the second quarter of 2002 as compared to a net loss of $2.3 million, or $0.08 per share, for the same period in 2001. Excluding the effects of the equity in the loss of an unconsolidated affiliate of $5.5 million, the net income after income taxes for the three months ended June 30, 2001 was $994,000 or $0.03 per share. On January 8, 2001, the Company sold ChannelHealth, including certain product lines, to Allscripts Healthcare Solutions, Inc. (Allscripts), a leading provider of point-of-care e-prescribing and productivity solutions for physicians. ChannelHealth, incorporated in September 1999, was a majority owned subsidiary of IDX. IDX retained the Patient and eCommerce Channels, which were previously part of Channelhealth, enabling IDX to integrate an Internet solution that leverages its core competencies in physician practice management systems. In addition to the sale, the Company entered into a 10-year strategic alliance whereby Allscripts will become the exclusive provider of point-of-care clinical applications sold by IDX to physician practices. Allscripts acquired Channelhealth in exchange for 8.6 million shares, or 21.3% of Allscripts stock Page 14 of 31 on a pro-forma fully diluted basis, of which IDX received approximately 7.5 million shares (approximately 90%). This investment in Allscripts stock is accounted for under the equity method. Under this method, IDX is required to recognize a pro-rata share of Allscripts net income or loss after elimination of certain related entity transactions. IDX recorded approximately $17.6 million in its pro-rata share of Allscripts losses in 2001, including $5.5 million during the second quarter of 2001, and reduced the carrying value of this investment to zero in 2001. In the event Allscripts generates net income in the future, IDX would not record its share of Allscripts net income until such time as IDX's share of such future net income aggregated to an amount that was greater than the proportionate share of cumulative losses IDX has not recorded subsequent to its investment being written down to zero. IDX is not committed to and does not currently plan to provide any future investments or advances to Allscripts. Allscripts has reported losses since 1995 and may report losses in the future. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 REVENUES The Company's total revenues increased to $112.7 million during the three months ended June 30, 2002 from $104.3 million for the corresponding period in 2001, an increase of approximately $8.4 million or 8.1%. Revenues from systems sales decreased to $26.2 million during the three months ended June 30, 2002 (23.2% of total revenues) from $33.7 million for the corresponding period in 2001 (32.3% of total revenues), a decrease of $7.5 million or 22.2%. This decrease was primarily due to a decrease in recognized revenue from new sales and installations of certain IDX systems. Revenues from maintenance and service fees increased to $86.6 million during the quarter ended June 30, 2002 (76.8% of total revenues) from $70.6 million for the corresponding period in 2001 (67.7% of total revenues), an increase of $15.9 million or 22.5%. The increase was due to a $5.2 million increase in maintenance revenue primarily resulting from price increases and an increase in the Company's installed base, as well as a $4.8 million increase in installation and consulting services provided by IDX's core business, combined with a $3.6 million increase in EDiX's medical transcription service fee revenue. COST OF SALES AND SERVICES System sales and the corresponding category of cost of system sales are attributable to IDX's core business segment, information systems and services. The cost of system sales increased to $8.6 million during the quarter ended June 30, 2002 from $8.4 million for the comparable period in 2001, an increase of $144,000 or 1.7%. Cost of system sales fluctuates primarily due to the amount of hardware and third party software included as a component of the Company's systems sales. The gross margin as a percentage of systems sales decreased to 67.2% during the second quarter of 2002 from 74.9% for the same period in 2001. Fluctuations in the gross profit margin as a percentage of system sales result from the revenue mix of software license revenue which has a higher gross profit margin and hardware sales which have a lower gross profit. The cost of services increased to $64.2 million during the second quarter of 2002 from $59.6 million for the comparable period in 2001, an increase of $4.6 million or 7.8%. The increase in cost of services resulted from growth in client services expenses, primarily medical transcription staff, as well as maintenance, installation and consulting staff. The gross profit margin as a percentage of maintenance and service fee revenues increased to 25.9% during the second quarter of 2002 from 15.7% for the same period in 2001. The increase in gross profit margin as a percentage of revenues is due to increased maintenance and service revenue in IDX's core business partially offset by growth in maintenance and service expenses, combined with a decrease in EDiX's gross Page 15 of 31 profit margin due to higher labor and related costs as a percentage of total revenue. The gross profit margin as a percentage of maintenance and service fee revenues of IDX's core business, information systems and services, increased to 28.9% in the second quarter of 2002 from 12.2% for the same period in 2001 primarily due to increased maintenance and installation revenue which was partially offset by growth in maintenance and service expenses. The gross profit margin as a percentage of revenues for the Company's medical dictation and transcription business segment (EDiX) decreased to 19.5% for the second quarter of 2002 from 22.4% for the same period in 2001 due to higher labor and related costs as a percentage of total revenue. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased to $23.0 million for the second quarter of 2002 from $23.9 million for the same period in 2001, a decrease of $961,000 or 4.0%. As a percentage of total revenues, selling, general and administrative expenses decreased to 20.4% for the second quarter of 2002 from 22.9% for the same period in 2001. IDX's core business, information systems and services, selling, general and administrative expenses decreased $2.8 million primarily due to a decrease in general administrative expenses combined with decreased personnel costs during the second quarter of 2002 as compared to the same period in the prior year. This decrease is a result of restructuring programs and cost control initiatives. EDiX's selling, general and administrative expenses increased $1.8 million during the second quarter of 2002 as compared to the same period in 2001 due to an increase in the allowance for doubtful accounts of $1.2 million combined with increased costs in order to support sales growth. SOFTWARE DEVELOPMENT COSTS Software development expenses increased to $13.1 million in 2002 from $11.3 million in 2001, an increase of $1.8 million or 15.6%. As a percentage of total revenues, software development expenses increased to 11.6% in the second quarter of 2002 from 10.9% for the same period in 2001. As a percentage of system sales, software development costs increased to 50.1% in the second quarter of 2002 from 33.7% for the same period in 2001. The $1.8 million increase is primarily due to increased personnel costs as compared to the prior year in IDX's core information systems and services business segment. Approximately, $245,000 of software development costs, net of amortization, were capitalized during the second quarter of 2002 as compared to $665,000 for the same period in 2001. Research and development costs in the medical dictation and transcription business segment (EDiX) increased $133,000 to $695,000 for the second quarter of 2002 from $562,000 for the same period in 2001. OTHER INCOME, NET Interest income decreased to approximately $281,000 during the second quarter of 2002 as compared to $677,000 for the same period in 2001. This decrease was primarily due to a lower average invested balance combined with lower interest rates during the second quarter of 2002 as compared to the same period in 2001. Interest expense during the second quarter of 2002 increased to $72,000 from $0 during the comparable period in 2001. MINORITY INTEREST The Company's consolidated financial statements included the accounts of the Company and BDP Realty Associates (BDP) through April 2001. BDP's real estate was leased exclusively by the Company, and the Company was subject to substantially all the risks of ownership through the date that this property was acquired by the Company at the fair market value of approximately $15.0 million as determined by an independent appraiser. All transactions between the Company and BDP have been eliminated. The minority interest, which was eliminated in April 2001, represented the net income and equity of BDP. Page 16 of 31 EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE IDX, through a wholly owned subsidiary, currently owns approximately 20% of the outstanding common stock of Allscripts and records its investment under the equity method of accounting. IDX records its interest in the losses of Allscripts as a reduction to its investment account. IDX recorded an equity loss during the second quarter of 2001 of $5.5 million on a pre-tax basis. IDX's interest in the losses of Allscripts in 2001 reduced the balance of IDX's investment carrying balance in Allscripts to zero, and accordingly no share of Allscripts loss has been recorded during the second quarter of 2002. INCOME TAXES The Company recorded income tax expense of approximately $1.4 million during the second quarter of 2002, an effective tax rate of 33.0%. This is lower than the Company's historical tax rate of 40.0% due to certain research and experimentation credits. The Company recorded an income tax benefit of approximately $1.5 million during the second quarter of 2001, an effective tax rate of 40.0%. The Company anticipates a consolidated effective tax rate of approximately 33.0% for the year ending December 31, 2002. This favorable rate is primarily the result of research credits projected to be generated and utilized in 2002. The Company anticipates that EDiX's effective tax rate in 2002 will also be less than the statutory rate due to the use of operating loss carry forwards, subject to annual limitations. The net deferred tax assets as of June 30, 2002 of approximately $8.5 million are expected to be realized by generating future taxable income and are otherwise recoverable through available tax planning strategies. SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 REVENUES The Company's total revenues increased to $220.6 million during the six months ended June 30, 2002 from $198.9 million for the corresponding period in 2001, an increase of approximately $21.7 million or 10.9%. Revenues from systems sales (attributable to IDX's core business, information systems and services segment) decreased to $53.4 million during the six months ended June 30, 2002 (24.2% of total revenues) from $59.8 million for the corresponding period in 2001 (30.1% of total revenues), a decrease of $6.4 million or 10.7%. This decrease was primarily due to a decrease in new sales and installations of certain IDX systems. Revenues from maintenance and service fees increased to $167.2 million during the six months ended June 30, 2002 (75.8% of total revenues) from $139.1 million for the corresponding period in 2001 (69.9% of total revenues), an increase of $28.2 million or 20.2%. The increase was due to an $8.6 million increase in EDiX's medical transcription service fee revenue, an $8.6 million increase in maintenance revenue primarily resulting from price increases and an increase in the Company's installed base, as well as an $8.4 million increase in installation and consulting services provided by IDX's core business segment. COST OF SALES AND SERVICES System sales and the corresponding category of cost of system sales are attributable to IDX's core business segment, information systems and services segment. The cost of system sales decreased to $17.8 million during the six months ended June 30, 2002 from $19.8 million for the comparable period in 2001, a decrease of $2.0 million or 9.9%. The decrease in cost of system sales is primarily a result of a decrease in hardware and third party software included as a component of sales of the Company's systems sales. The gross margin as a percentage of system sales decreased to 66.6% during the first six months of 2002 from 67.0% for the same period in 2001. Fluctuations in the gross profit margin as a percentage of system sales result from the revenue mix of software license revenues which have a higher gross profit margin and hardware revenues which have a lower gross profit margin. Page 17 of 31 The cost of services increased to $127.1 million during the first six months of 2002 from $114.4 million for the comparable period in 2001, an increase of $12.7 million or 11.1%. The increase in cost of services resulted from growth in client services expenses, primarily medical transcription staff, as well as maintenance, installation and consulting staff. The gross profit margin on maintenance and service fee revenues increased to 24.0% during the first six months of 2002 from 17.8% for the same period in 2001 and was due to increased maintenance revenue in IDX's core business partially offset by growth in service and maintenance expenses, combined with a decrease in EDiX's gross profit margin due to higher labor and related costs as a percentage of total revenue. The gross profit margin as a percentage of maintenance and service fee revenues of IDX's core business, information systems and services, increased to 26.3% in the first six months of 2002 from 16.8% for the same period in 2001 primarily due to increased maintenance and service revenue offset partially by growth in maintenance and service expenses. The gross profit margin as a percentage of service revenues for the Company's medical dictation and transcription business segment (EDiX) decreased to 19.3% for the first six months of 2002 from 19.8% for the same period in 2001 due to higher labor and related costs as a percentage of total revenue. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $44.9 million for the first six months of 2002 from $42.9 million for the same period in 2001, an increase of $2.1 million or 4.8%. As a percentage of total revenues, selling, general and administrative expenses decreased to 20.4% for the first six months of 2002 from 21.6% for the same period in 2001. IDX's core business, information systems and services, selling, general and administrative expenses decreased $1.1 million primarily due to a decrease in general administrative expenses and decreased personnel costs during the first half of 2002 as compared to the same period in the prior year. This decrease is a result of restructuring programs and cost control initiatives. EDiX's selling, general and administrative expenses increased $3.2 million during the first half of 2002 as compared to the same period in 2001 due to an increase in the allowance for doubtful accounts of $1.2 million combined with increased costs in order to support sales growth. SOFTWARE DEVELOPMENT COSTS Software development expenses increased to $25.3 million during the first six months of 2002 from $21.9 million for the same period in 2001, an increase of $3.4 million or 15.6%. As a percentage of total revenues, software development expenses increased to 11.4% in the first six months of 2002 from 11.0% for the same period in 2001. As a percentage of system sales, software development costs increased to 47.3% in the first six months of 2002 from 36.5% for the same period in 2001. The $3.4 million increase is primarily due to increased personnel costs as compared to the prior year in IDX's core information systems and services business segment. Approximately $680,000 of software development costs, net of amortization, were capitalized during the first six months of 2002 as compared to $950,000 for the same period in 2001. Research and development costs in the medical dictation and transcription business segment (EDiX) increased to $1.2 million for the first six months of 2002 from $977,000 for the same period in 2001. OTHER INCOME, NET Interest income decreased to approximately $611,000 during the first six months of 2002 as compared to $1.6 million for the same period in 2001. This decrease was primarily due to a lower average invested balance combined with lower interest rates during the first six months of 2002 as compared to the same period in 2001. Interest expense during the first six months of 2002 increased to $123,000 from $0 during the comparable period in 2001. MINORITY INTEREST The Company's consolidated financial statements included the accounts of the Company and BDP Realty Associates (BDP) through April 2001. BDP's real estate was leased exclusively by the Company, and the Company was subject to substantially all the risks of ownership through the date that this property was Page 18 of 31 acquired by the Company at the fair market value of approximately $15.0 million as determined by an independent appraiser. All transactions between the Company and BDP have been eliminated. The minority interest, which was eliminated in April 2001, represented the net income and equity of BDP. GAIN ON SALE OF INVESTMENT IN SUBSIDIARY On January 8, 2001, Allscripts acquired IDX's interest in ChannelHealth in exchange for approximately 7.5 million shares of Allscripts common stock (Allscripts shares). The Allscripts shares received are subject to restrictions on the transfer of more than 25% of the Allscripts shares in any one year, and 16.67% in any one month. IDX recorded the Allscripts shares at fair value of $29.5 million, which included a discount from market value due to the four year restrictions on transfer, resulting in a $35.5 million gain on the transaction. IDX also entered into a ten-year strategic alliance agreement with Allscripts. Pursuant to the strategic alliance agreement, IDX had guaranteed that Allscripts will have gross revenues resulting from the alliance (less any commissions paid to IDX) of at least $4.5 million for fiscal year 2001. IDX accrued the $4.5 million liability as of the date of the transaction. IDX and Allscripts have finalized the analysis related to the Allscripts 2001 eligible gross revenues guarantee, and accordingly, IDX has recognized an additional gain on the sale of Channelhealth of $4.3 million during the first quarter of 2002. IDX accounts for its investment in Allscripts under the equity method of accounting. As a result of the transaction, the Company is entitled to representation on Allscripts Board of Directors. REALIZED GAIN ON INVESTMENT. Other income during the six months of 2001 includes a $5.8 million realized gain from a distribution of marketable equity securities related to an investment in an unrelated investment partnership. EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE. IDX, through a wholly owned subsidiary, currently owns approximately 20% of the outstanding common stock of Allscripts and records its investment under the equity method of accounting. IDX records its interest in the losses of Allscripts as a reduction to its investment account. IDX recorded an equity loss during the first six months of 2001 of $11.5 million on a pre-tax basis. IDX's interest in the losses of Allscripts in 2001 reduced the balance of IDX's investment carrying balance in Allscripts to zero, and accordingly no share of Allscripts loss has been recorded during the first six months of 2002. INCOME TAXES The Company recorded income tax expense of approximately $3.4 million during the first six months of 2002, an effective tax rate of 33.0%. This is lower than the Company's historical tax rate of 40.0% due to certain research and experimentation credits. The Company recorded income tax expense of approximately $13.8 million during the first six months of 2001, an effective tax rate of 44.0%. The higher rate in 2001 is principally due to transaction costs related to the sale of ChannelHealth that are non-deductible for income tax purposes. The Company anticipates a consolidated effective tax rate of approximately 33.0% for the year ending December 31, 2002. This favorable rate is primarily the result of research credits projected to be generated and utilized in 2002. The Company anticipates that EDiX's effective tax rate in 2002 will also be less than the statutory rate due to the use of operating loss carry forwards, subject to annual limitations. The net deferred tax assets as of June 30, 2002 of approximately $8.5 million are expected to be realized by generating future taxable income and are otherwise recoverable through available tax planning strategies. NEW ACCOUNTING STANDARDS In March of 2002, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) issued (EITF 01-14), [Issue No. 01-14 of the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF)] EITF 01-14 states that customer reimbursements received for "out-of-pocket" expenses incurred should be characterized on the income statement as revenue. These expenses include, but are not limited to, airfare, mileage, hotel stays, out-of-town meals, photocopies, and telecommunications and facsimile charges. Service revenue and cost of service expenses have been restated for all periods presented in order to reflect this change resulting in no change to net income. Page 19 of 31 In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. EITF 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan. SFAS 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company does not expect the adoption of SFAS 146 will have a material impact on its financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES The Company principally has funded its operations, working capital needs and capital expenditures from operations and short-term borrowings under revolving secured bank lines of credit. Net cash provided by or used in operations is principally comprised of net income and depreciation and is primarily affected by the net effect of the change in accounts receivable, accounts payable, accrued expenses and non-cash items relating to the sale of Channelhealth and certain components of restructuring charges. Due to the nature of the Company's business, accounts receivable, deferred revenue and accounts payable fluctuate considerably due to, among other things, the length of installation efforts which are dependent upon the size of the transaction, the changing business plans of the customer, the effectiveness of customers' management and general economic conditions. During the first six months of 2002, accounts receivable from customers have been collected on average within 84 days which represents a decrease of 8 days in terms of average days to collect receivables from customers as compared to the year ended December 31, 2001. Cash flows related to investing activities have historically been related to the purchase of computer and office equipment, leasehold improvements and the purchase and sale of investment grade marketable securities. The Company invested approximately $3.0 million on the acquisition and implementation of an enterprise resource planning system during the second quarter of 2002 and anticipates investing an additional $3.5 million related to this implementation during the remainder of 2002. The Company purchased its corporate headquarters facility from a related party in April 2001 for approximately $15.0 million based on an independent appraisal of its fair market value. This transaction was reviewed and approved by certain independent members of the Board of Directors of the Company that had no financial interest in the transaction. In April 2000, the Company entered into a new operating lease for office space in Seattle, Washington, commencing in 2003, for a period of 12 years. The Company anticipates approximately $4.5 million in cash outlays for improvements related to this Seattle lease in 2002. In addition, investing activities may also include purchases of interests in, loans to and acquisitions of businesses for access to complementary products and technologies. The Company expects these activities to continue. In April 2002, the Company acquired a minority interest in Stentor, Inc., one of the Company's strategic partners, by exercising a warrant to purchase 562,069 shares of preferred stock of Stentor, Inc. The Company paid approximately $7.5 million to purchase the preferred shares. Stentor, Inc. is a California based medical informatics company and a worldwide leader in medical image and information management. The warrant was issued to the Company in November 2000 in connection with the alliance agreement that was entered into by the parties to jointly develop vnetix(TM), a medical image and information management system (MIMS) combining the advanced intelligence of the Company's Radiology Imaging Suite with the innovative image distribution technology from Stentor, Inc. This investment will be carried at cost and there is currently no public market for the preferred shares. There can be no assurance that the Company will be able to successfully complete any such purchases or acquisitions in the future. Cash flows from financing activities historically relate to the issuance of common stock through the exercise of employee stock options and in connection with the employee stock purchase plan and proceeds from line of credit. Cash,cash equivalents and securities available-for-sale at June 30, 2002 were $42.6 million, a decrease of $13.8 million from December 31, 2001. The Company entered into a new revolving line of credit agreement during the second quarter of 2002 allowing the Company to borrow up to $40.0 million based on certain restrictions. This line of credit is secured by deposit accounts, accounts receivable and other assets and bears interest at the bank's base rate plus ..25%, which was approximately 5.0% as of June 30, 2002. This line of credit is Page 20 of 31 subject to certain terms and conditions and will expire on June 27, 2005. At June 30, 2002, the Company had $18.7 million outstanding under this arrangement and is in compliance with all covenants under this agreement. As of August 6, 2002 there was no outstanding balance on this line of credit. In addition to existing financing arrangements, the Company owns, through a wholly owned subsidiary, approximately 7.5 million shares of Allscripts Healthcare Solutions, Inc. stock, a public company listed on the Nasdaq National Market under the symbol MDRX. This investment in Allscripts stock is accounted for under the equity method. IDX recorded a non-cash equity loss during the first nine months of 2001 of $17.6 million on a pre-tax basis that reduced the balance of IDX's investment carrying balance in Allscripts to zero. This investment has a quoted market value of approximately $28.0 million as of June 30, 2002, and is subject to certain sale restrictions that may significantly impact the market value. The Company expects that its requirements for office facilities and other office equipment will grow as staffing requirements dictate. The Company's operating lease commitments consist primarily of office leasing for the Company's operating facilities. The Company plans to increase the number of its professional staff during 2002 as needed to meet anticipated sales volume and to support research and development efforts for certain products. To the extent necessary to support increases in staffing, the Company may obtain additional office space. As of June 30, 2002, the Company has not entered into other material lease or purchase commitments not disclosed above. The Company believes that currently available funds will be sufficient to finance its operating requirements at least through the next twelve months. To date, inflation has not had a material impact on the Company's revenues or income. During the six month period ended June 30, 2002, IDX has not engaged in: o Material off-balance sheet activities, including the use of structured finance or special purpose entities, with the exception of BDP Realty which has been given full recognition in the financial statements for all periods presented as described below, and 4901 LBJ as described below, o Trading activities in non-exchange traded contracts, or o Transactions with persons or entities that benefit from their non-independent relationship with IDX, other than described below. Through April 19, 2001, the Company's consolidated financial statements included the accounts of the Company and BDP Realty Associates (BDP), a real estate trust owned by certain stockholders and key employees of the Company, Robert H. Hoehl and Richard E. Tarrant, whose real estate was leased exclusively by the Company. Effective with the date of the acquisition of the Company's corporate headquarters from BDP, the Company has deconsolidated BDP and eliminated the net assets, principally real estate and minority interest, included in the Company's consolidated balance sheet as of that date. The Company's corporate headquarters were purchased from BDP for cash, at fair market value as determined by independent appraisers, for approximately $15.0 million during the second quarter of 2001. This amount has been recorded as property and equipment. This transaction was reviewed and approved by certain independent members of the Board of Directors of the Company that had no financial interest in the transaction. Total rent expense includes $294,000 in 2001 related to this lease. The Company leases an office building from 4901 LBJ Ltd. Partnership, a real estate partnership (REP) owned by certain stockholders and key employees of the Company. Lease agreements are based on fair market value rents and are reviewed and approved by independent members of the Board of Directors. Total rent expense includes approximately $279,000 during each of the six month periods ending June 30, 2002 and June 30, 2001, respectively, related to this lease. Page 21 of 31 FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined in Section 21E of the Securities and Exchange Commission Act of 1934. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Words such as "believes," "anticipates," "plans," "expects," "will" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause results to differ materially from those indicated by these forward-looking statements, including among others, the factors set forth below. If any risk or uncertainty identified in the following factors actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of IDX's common stock could decline. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time. Because of these and other factors, past financial performance should not be considered an indicator of future performance. Investors should not use historical trends to anticipate future results. The following important factors affect IDX's business and operations generally or affect more than one segment of our business and operations: QUARTERLY OPERATING RESULTS MAY VARY. The Company's quarterly operating results have varied in the past and may vary in the future. IDX expects its quarterly results of operations to continue to fluctuate. Because a significant percentage of IDX's expenses are relatively fixed, the following factors could cause these fluctuations: o delays in customers purchasing decisions due to a variety of factors such as consideration and management changes; o long sales cycles; o long installation and implementation cycles for the larger, more complex and costlier systems; o recognizing revenue at various points during the installation process, typically based on milestones; and o timing of new product and service introductions and product upgrade releases. In light of the above, IDX believes that its results of operations for any particular quarter or fiscal year are not necessarily reliable indicators of future performance. VOLATILITY OF STOCK PRICE. IDX has experienced, and expects to continue to experience, fluctuations in its stock price due to a variety of factors including: o actual or anticipated quarterly variations in operating results; o changes in expectations of future financial performance; o changes in estimates and/or ratings of securities analysts; o market conditions particularly in the computer software and healthcare industries; o announcements of technological innovations, including Internet delivery of information and use of application service provider technology; o new product introductions by IDX or its competitors; o delay in customers purchasing decisions due to a variety of factors; o market prices of competitors; and o healthcare reform measures and healthcare regulation. These fluctuations have had a significant impact on the market price of our common stock, and may have a significant impact on the future market price of our common stock. Page 22 of 31 These fluctuations may affect operating results as follows: o ability to transact stock acquisitions; and o ability to retain and incent key employees. FINANCIAL TRENDS. Although the Company's results from operations improved during the first six months of 2002, year over year operating results and cash from operations generally declined during the period from 1998 through 2000. In 2001 and 2000, IDX generated a net loss of approximately $8.6 million and $36.0 million, respectively. If these trends continue, IDX may have difficulty financing future growth and funding operating initiatives, including future acquisitions. DISRUPTION IN THE ECONOMY. The terrorist events of September 11, 2001 have sensitized the Company and many other businesses to the potential disruption that such activities can have on the economy, the business cycle and, ultimately, on the financial performance of these organizations. It is impossible to know whether such terrorist activities will continue, and whether, and to what extent, they may cause a disruption which may have a material adverse effect on the business and financial condition of the Company. NEW PRODUCT DEVELOPMENT AND RAPIDLY CHANGING TECHNOLOGY. To be successful, IDX must enhance its existing products, respond effectively to technology changes and help its clients adopt new technologies. In addition, IDX must introduce new products and technologies to meet the evolving needs of its clients in the healthcare information systems market. IDX may have difficulty in accomplishing this because of: o the continuing evolution of industry standards, for example, transaction standards pursuant to the Health Insurance Portability and Accountability Act of 1996; and o the creation of new technological developments, for example, Internet and application service provider technology. IDX is currently devoting significant resources toward the development of enhancements to its existing products, particularly in the area of Internet-based functionality and the migration of existing products to new hardware and software platforms, including relational database technology, object-oriented architecture and application service provider technology. However, IDX may not successfully complete these product developments or the adaptation in a timely fashion, and IDX's current or future products may not satisfy the needs of the healthcare information systems market. Any of these developments may adversely affect IDX's competitive position or render its products or technologies noncompetitive or obsolete. CHANGES AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY. IDX currently derives substantially all of its revenues from sales of financial, administrative and clinical healthcare information systems, medical transcription services and other related services within the healthcare industry. As a result, the success of IDX is dependent in part on the political and economic conditions in the healthcare industry. Virtually all of IDX's customers and the other entities with which IDX has a business relationship operate in the healthcare industry and, as a result, are subject to governmental regulation, including Medicare and Medicaid regulation. Accordingly, IDX's customers and the other entities with which IDX has a business relationship are affected by changes in such regulations and limitations in governmental spending for Medicare and Medicaid programs. Recent actions by Congress have limited governmental spending for the Medicare and Medicaid programs, limited payments to hospitals and other providers under such programs, and increased emphasis on competition and other programs that potentially could have an adverse effect on IDX's customers and the other entities with which IDX has a business relationship. In addition, federal and state legislatures have considered proposals to reform the U.S. healthcare system at both the federal and state level. If enacted, these proposals could increase government involvement in healthcare, lower reimbursement rates and otherwise change the business environment of IDX's customers and the other entities with which IDX has a business relationship. IDX's customers and the other entities with which IDX has a business relationship could react to these proposals and the uncertainty surrounding these proposals by curtailing or Page 23 of 31 deferring investments, including those for IDX's products and services. In addition, many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for IDX's products and services. If IDX is forced to reduce its prices, its operating margins would likely decrease. As the healthcare industry consolidates, competition for customers will become more intense and the importance of acquiring each customer will become greater. COMPETITION FOR HEALTHCARE INFORMATION SYSTEMS. The market for healthcare information systems is intensely competitive, rapidly evolving and subject to rapid technological change. IDX believes that the principal competitive factors in this market include the breadth and quality of system and product offerings, the features and capabilities of the systems, the price of the system and product offerings, the ongoing support for the systems, the potential for enhancements and future compatible products. Some of IDX's competitors have greater financial, technical, product development, marketing and other resources than IDX, and some of its competitors offer products that it does not offer. The Company's principal existing competitors include, Eclipsys Corporation, McKesson Medquist, Inc., Siemans AG, Epic Systems Corporation and Cerner Corporation. Each of these competitors offers a suite of products that compete with many of IDX's products. There are other competitors that offer a more limited number of competing products. In addition, IDX expects that major software information systems companies, large information technology consulting service providers and system integrators, Internet-based start-up companies and others specializing in the healthcare industry may offer competitive products or services. In October 2001, Pfizer, IBM and Microsoft announced the creation of a joint venture known as Amicore to develop applications to automate the administrative, clinical and financial functions of a medical practice and connect the practice to groups, laboratories, pharmacies and other providers for physicians and physician groups. PRODUCT LIABILITY CLAIMS. Any failure by IDX's products that provide applications relating to patient medical histories, diagnostic procedures and treatment plans could expose IDX to product liability claims. These potential claims may exceed IDX's current insurance coverage. Unsuccessful claims could be costly to defend and divert management time and resources. In addition, IDX cannot make assurances that it will continue to have appropriate insurance available to it in the future at commercially reasonable rates. KEY PERSONNEL. The success of IDX is dependent to a significant degree on its key management, sales, marketing and technical personnel. To be successful IDX must attract, motivate and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including programmers, consultants and systems architects skilled in the technical environments in which IDX's products operate. Competition for such personnel in the software and information services industries is intense. IDX does not maintain "key man" life insurance policies on any of its executives with the exception of Richard E. Tarrant. Additionally, not all IDX personnel have executed noncompetition agreements. GOVERNMENT REGULATION. Virtually all of IDX's customers and the other entities with which IDX has a business relationship operate in the healthcare industry and, as a result, are subject to governmental regulation. Because IDX's products and services are designed to function within the structure of the healthcare financing and reimbursement systems currently in place in the United States, and because IDX is pursuing a strategy of developing and marketing products and services that support its customers' regulatory and compliance efforts, IDX may become subject to the reach of, and liability under, these regulations. The Federal Anti-Kickback Law, among other things, prohibits the direct or indirect payment or receipt of any remuneration for Medicare, Medicaid and certain other Federal or state healthcare program patient referrals, or arranging for or recommending referrals or other business paid for in whole or in part by the federal health care programs. Violations of the Federal Anti-Kickback Law may result in civil and criminal sanction and liability, including the temporary or permanent exclusion of the violator from government Page 24 of 31 health programs, treble damages and imprisonment for up to five years for each violation. If the activities of a customer of IDX or other entity with which IDX has a business relationship were found to constitute a violation of the Federal Anti-Kickback Law and IDX, as a result of the provision of products or services to such customer or entity, was found to have knowingly participated in such activities, IDX could be subject to sanction or liability under such laws, including the exclusion of IDX from government health programs. As a result of exclusion from government health programs, IDX customers would not be permitted to make any payments to IDX. The Federal Civil False Claims Act and the Medicare/Medicaid Civil Money Penalties regulations prohibit, among other things, the filing of claims for services that were not provided as claimed, which were for services that were not medically necessary, or which were otherwise false or fraudulent. Violations of these laws may result in civil damages, including treble and civil penalties. In addition, the Medicare/Medicaid and other Federal statutes provide for criminal penalties for such false claims. If, as a result of the provision by IDX of products or services to its customers or other entities with which IDX has a business relationship, IDX provides assistance with the provision of inaccurate financial reports to the government under these regulations, or IDX is found to have knowingly recorded or reported data relating to inappropriate payments made to a healthcare provider, IDX could be subject to liability under these laws. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains provisions regarding standardization, privacy, security and administrative simplification in healthcare. As a result of regulations now proposed under HIPAA, IDX intends to make investments to support customer operations in areas, such as: o electronic data transactions; o computer system security; and o patient privacy. Although it is not possible to anticipate the final form of all regulations under HIPAA, IDX has made and expects to continue to make investments in product enhancements to support customer operations that are regulated by HIPAA. Responding to HIPAA's impact may require IDX to make investments in new products or charge higher prices. It may be expensive to implement security or other measures designed to comply with any new legislation or regulation. The United States Food and Drug Administration has promulgated a draft policy for the regulation of computer software products as medical devices under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To the extent that computer software is a medical device under the policy, IDX, as a manufacturer of such products, could be required, depending on the product, to: o register and list its products with the FDA; o notify the FDA and demonstrate substantial equivalence to other products on the market before marketing such products; or o obtain FDA approval by demonstrating safety and effectiveness before marketing a product. Depending on the intended use of a device, the FDA could require IDX to obtain extensive data from clinical studies to demonstrate safety or effectiveness, or substantial equivalence. If the FDA requires this data, IDX would be required to obtain approval of an investigational device exemption before undertaking clinical trials. Clinical trials can take extended periods of time to complete. IDX cannot provide assurances that the FDA will approve or clear a device after the completion of such trials. In addition, these products would be subject to the Federal Food, Drug and Cosmetic Act's general controls, including those relating to good manufacturing practices and adverse experience reporting. Although it is not possible to anticipate the final form of the FDA's policy with regard to computer software, IDX expects that the FDA is likely to become increasingly active in regulating computer software intended for use in healthcare settings regardless of whether the draft is finalized or changed. The FDA can impose extensive requirements governing pre- and post-market conditions like service investigation, approval, labeling and manufacturing. In addition, the FDA can impose extensive requirements governing development controls and quality assurance processes. Page 25 of 31 SYSTEM ERRORS AND WARRANTIES. IDX's healthcare information systems are very complex. As with complex systems offered by others, IDX's healthcare information systems may contain errors, especially when first introduced. IDX's healthcare information systems are intended to provide information to healthcare providers for use in the diagnosis and treatment of patients. Therefore, users of IDX's products may have a greater sensitivity to system errors than the market for software products generally. Failure of an IDX customer's system to perform in accordance with its documentation could constitute a breach of warranty and require IDX to incur additional expenses in order to make the system comply with the documentation. If such failure is not timely remedied, it could constitute a material breach under a contract allowing the client to cancel the contract and subject IDX to liability. POTENTIAL INFRINGEMENT OF PROPRIETARY RIGHTS OF OTHERS. If any of IDX's products violate third party proprietary rights, IDX may be required to re-engineer its products or seek to obtain licenses from third parties to continue offering its products without substantial re-engineering. Any efforts to reengineer IDX's products or obtain licenses from third parties may not be successful, in which case IDX may be forced to stop selling the infringing product or remove the infringing functionality or feature. IDX may also become subject to damage awards as a result of infringing the proprietary rights of others, which could cause IDX to incur additional losses and have an adverse impact on its financial position. IDX does not conduct comprehensive patent searches to determine whether the technologies used in its products infringe patents held by others. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies. LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. IDX's success and competitiveness are dependent to a significant degree on the protection of its proprietary technology. IDX relies primarily on a combination of copyrights, trade secret laws, patents and restrictions on disclosure to protect its proprietary technology. Despite these precautions, others may be able to copy or reverse engineer aspects of IDX's products, to obtain and use information that IDX regards as proprietary or to independently develop similar technology. Litigation may continue to be necessary to enforce or defend IDX's proprietary technology or to determine the validity and scope of the proprietary rights of others. This litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management and technical resources. RISKS ASSOCIATED WITH ACQUISITION STRATEGY. IDX intends to continue to grow in part through either acquisitions of complementary products, technologies and businesses or alliances with complementary businesses. IDX may not be successful in these acquisitions or alliances, or in integrating any such acquired or aligned products, technologies or businesses into its current business and operations. Factors which may affect IDX's ability to expand successfully include: o the generation of sufficient financing to fund potential acquisitions and alliances; o the successful identification and acquisition of products, technologies or businesses; o effective integration and operation of the acquired or aligned products, technologies or businesses despite technical difficulties, geographic limitations and personnel issues; and o overcoming significant competition for acquisition and alliance opportunities from companies that have significantly greater financial and management resources. STRATEGIC ALLIANCE WITH ALLSCRIPTS HEALTHCARE SOLUTIONS. In 2001, IDX entered into a ten-year strategic alliance with Allscripts Healthcare Solutions, Inc. to co-operatively develop, market and sell integrated clinical and practice management products. During the term of the alliance, IDX is prohibited from co-operating with direct competitors of Allscripts to develop or provide any products similar to or in competition with Allscripts products in the practice management systems market. If the strategic alliance is not successful, or the restrictions placed on IDX during the term of the strategic alliance prohibit IDX from successfully marketing and selling certain products and services, IDX's operating results may suffer. Additionally, if Allscripts breaches the strategic alliance, it may also leave the Company without critical clinical components for its information systems offerings in the physician group practice markets. Page 26 of 31 BUSINESS RELATIONSHIP WITH COMPAQ/HEWLETT-PACKARD. Compaq Computer Corporation completed its proposed merger with Hewlett-Packard Company in May 2002. Prior to the merger, Compaq had been leading provider of hardware and operating system software used by a majority of the applications offered by the Company. To the extent the merger impacts the product lines that IDX uses in its product offering, or the development activities of the combined entity, it may adversely affect IDX's ability to continue to offer its products on the historical hardware platforms. To date, there has not been any significant change in the relationship between IDX and the resulting company HP/Compaq but as a result, the merger could have a material adverse effect upon the business of IDX. RESTRICTIONS ON LIQUIDATION OF INVESTMENT IN ALLSCRIPTS HEALTHCARE SOLUTIONS. In January 2001, IDX received approximately 7.5 million shares of common stock of Allscripts Healthcare Solutions, Inc. in connection with the acquisition by Allscripts of IDX's majority owned subsidiary, ChannelHealth Incorporated. IDX entered into a stock rights and restrictions agreement with Allscripts, pursuant to which, among other things, IDX agreed to restrictions on the sale of its shares of Allscripts common stock. In general, IDX is prohibited from selling more than 25% of it shares of Allscripts common stock in any one year, and 16.67% in any one month. The restrictions on IDX's ability to sell shares of Allscripts common stock may make it difficult for IDX to liquidate its investment in Allscripts and may adversely affect the value of such investment. ANTI-TAKEOVER DEFENSES. IDX's Second Amended and Restated Articles of Incorporation and Second Amended and Restated Bylaws contain certain anti-takeover provisions, which could deter an unsolicited offer to acquire IDX. For example, IDX's board of directors is divided into three classes, only one of which will be elected at each annual meeting. These provisions may delay or prevent a change in control of IDX. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK IDX does not currently use derivative financial instruments. The Company generally places its securities available-for-sale investments in high credit quality instruments primarily U.S. Government and Federal Agency obligations, tax-exempt municipal obligations and corporate obligations with contractual maturities of a year or less. We do not expect any material loss from our marketable security investments. Internationally, IDX invoices customers in United States currency. The Company is exposed to minimal foreign exchange rate fluctuations and does not enter into foreign currency hedge transactions. Through June 30, 2002, foreign currency fluctuations have not had a material impact on our financial position or results of operations. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that may experience a decline in market value due to changes in interest rates. A hypothetical 10% increase or decrease in interest rates, however, would not have a material adverse effect on our financial condition. Interest rates on short-term borrowings with floating rates carry a degree of interest rate risk. Our future interest expense may increase if interest rates fluctuate. Interest expense was immaterial in the first six months of 2002 and 2001. Interest income on the Company's investments is included in "Other Income." The Company accounts for cash equivalents and securities available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Cash equivalents are short-term highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value. The Company's investments are classified as securities available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders' equity. Page 27 of 31 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On January 18, 2001, the Company commenced a lawsuit against Epic Systems Corporation, a competitor of the Company, the University of Wisconsin Medical Foundation (the Foundation), and two individuals, claiming, among other things, that trade secrets of the Company involving its IDXtend medical group practice system were wrongfully disclosed to, and misappropriated by, Epic, in a series of meetings that took place in 1998 and 1999. The defendants deny the Company's claims. The Company's lawsuit seeks damages and injunctive relief and was brought in the United States District Court for the Western District of Wisconsin and is entitled, IDX Systems Corporation v. Epic Systems Corporation, et al. The Foundation brought a counterclaim against the Company claiming that its lawsuit interferes with a contract between the Foundation and Epic, and that the confidentiality provisions in IDX's contracts with the Foundation are invalid. The counterclaim seeks damages and declaratory judgment. The Company denies the counterclaim. Subsequently, Epic filed an Answer denying the essential elements of the Company's claims, and asserted counterclaims against the Company. Epic alleges that the Company's claims asserting its trade secret rights were brought in bad faith, with an intent to injure Epic competitively, and thereby violated Sections 1 and 2 of the Sherman Act because the Company allegedly possesses monopoly power in the U.S. market for medical practice information systems. Epic also claims that this same alleged conduct constitutes intentional interference with its contract with the Foundation. The counterclaim seeks treble damages. The Company denies the counterclaims. On July 31, 2001, the Company's lawsuit against Epic, the Foundation and the individuals was dismissed and the counterclaims of Epic and the Foundation were dismissed. The Company appealed the dismissal of its lawsuit to the United States Court of Appeals, and on April 1, 2002, that appellate court affirmed the District Court's dismissal of the trade secret claim, but reversed and remanded the other related claims of the Company, including breach of contract and tortious interference claims against the defendants. The Company continues to vigorously pursue such remanded claims at the District Court. It has resumed its discovery efforts in anticipation of trial, which has been scheduled to begin in September 2002. In April 2000, the Company commenced a lawsuit for damages caused by wrongful cancellation and material breach of contract by St. John Health System (SJHS), in the United States District Court for Eastern District of Michigan, entitled IDX Systems Corporation v. St. John Health System. Subsequently, SJHS commenced a lawsuit against the Company in the Circuit Court of Wayne County, Michigan, claiming unspecified damages against the Company for anticipatory repudiation, breach of contract, tort and fraud. On motion of the Company, SJHS's lawsuit was removed to and consolidated in the federal court. In its answer to the Company's lawsuit, SJHS asserted the same claims previously asserted in its state court action. In September 2001, SJHS specified damage claims of approximately $77.0 million in allegedly lost savings, and in January 2002 raised another theory of alleged unspecified damages for "cover". The Company believes the claims of SJHS are without merit and continues to vigorously defend itself and prosecute its own claims for damages, which the Company believes may exceed approximately $9.0 million. The lawsuit is in the trial preparation stage and the parties are awaiting scheduling of the trial by the court. From time to time, the Company is a party to or may be threatened with other litigation in the ordinary course of its business. The Company regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The ultimate outcome of these matters is not expected to materially affect the Company's business, financial condition or results of operations. Page 28 of 31 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 2002 Annual Meeting of Stockholders on May 20, 2002. Of the 28,851,174 shares of common stock outstanding and entitled to vote at this meeting, 22,895,765 were represented at this meeting, in person or by proxy. The following matter was voted upon at the Annual Meeting. 1. Richard E. Tarrant and Allen Martin, Esq. were elected to serve for a term of three years as Class I Directors. The remaining terms of Stuart H. Altman, Ph.D., Henry M. Tufo, M.D., Robert H. Hoehl, Mark F. Wheeler, M.D. and David P. Hunter continued after the meeting. The result of the vote with respect to each nominee for director was as follows:
For Withheld --- -------- Richard E. Tarrant 21,285,839 1,609,926 Allen Martin, Esq. 22,756,710 139,055
ITEM 5. OTHER INFORMATION Shareholder's Proposal for 2003 Annual Meeting. As set forth in the Company's Proxy Statement for its 2002 Annual Meeting of Stockholders, proposals of stockholders intended to be included in the Company's proxy statement for the 2003 Annual Meeting of Stockholders must be received by the Company at its principal office in South Burlington, Vermont not later than December 23, 2002. Stockholders who wish to make a proposal at the 2003 Annual Meeting - other than one that will be included in the Company's proxy materials - must notify the Company no later than March 8, 2003. If a stockholder who wishes to present a proposal fails to notify the Company by this date, the proxies that management solicits for the meeting will have discretionary authority to vote on the stockholder's proposal if it is properly brought before the meeting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits filed as part of this Form 10-Q are listed on the Exhibit Index immediately preceding such exhibits, which Exhibit Index is incorporated herein by reference: (b) There were no Forms 8-K filed during the second quarter of 2002. Page 29 of 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IDX SYSTEMS CORPORATION Date: August 14, 2002 By: /S/ JOHN A. KANE ____________________________ John A. Kane, Sr. Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Page 30 of 31 EXHIBITS -------- The following exhibits are filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description Page - ---------- ----------- ---- 10.1 Loan and Security Agreement by and among IDX 32 Systems Corporation, IDX Information Systems Corporation, IDX Investment Corporation, EDiX Corporation and Heller Healthcare Finance, Inc. dated as of June 27, 2002. 10.2 Revolving Credit Note by and among IDX Systems 71 Corporation, IDX Information Systems Corporation, IDX Investment Corporation, EDiX Corporation and Heller Healthcare Finance, Inc. dated as of June 27, 2002. 99.1 Certification pursuant to 18 U.S.C. Section 1350 77 Page 31 of 31 EX-10 3 loansecurityagreement.txt EXHIBIT 10.1 Exhibit 10.1 $40,000,000 REVOLVING CREDIT LOAN LOAN AND SECURITY AGREEMENT by and among IDX SYSTEMS CORPORATION, IDX INFORMATION SYSTEMS CORPORATION, IDX INVESTMENT CORPORATION, AND EDIX CORPORATION and HELLER HEALTHCARE FINANCE, INC Dated: June 27, 2002 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of June 27, 2002, by and among IDX SYSTEMS CORPORATION, a Vermont corporation, IDX INFORMATION SYSTEMS CORPORATION, a Vermont corporation, IDX INVESTMENT CORPORATION, a Vermont corporation, and EDIX CORPORATION, a Delaware corporation (collectively, "BORROWER"), and HELLER HEALTHCARE FINANCE, INC., a Delaware corporation and a GE Capital Company ("LENDER"). RECITALS A. Borrower desires to establish certain financing arrangements with and borrow funds from Lender, and Lender is willing to establish such arrangements for and make loans and extensions of credit to Borrower, on the terms and conditions set forth below. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties covenant and agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, unless otherwise specified, all references to "Sections" shall be deemed to refer to Sections of this Agreement, and the following terms shall have the meanings set forth below: Section 1.1. ACCOUNT. "Account" means any right to payment of a monetary obligation, whether or not earned by performance, including, without limitation, the right to payment of management fees. Without limiting the generality of the foregoing, the term "Account" shall further include any "account" (as that term is defined in the Uniform Commercial Code now or hereafter in effect), any accounts receivable, any "payment intangibles" (as that term is defined in the Uniform Commercial Code now or hereafter in effect) and all other rights to payment of every kind and description, whether or not earned by performance. Section 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on any Account of Borrower. Section 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person, any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, including, without limitation, their stockholders and any Affiliates thereof. A Person shall be deemed to control a corporation or other entity if the Person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation or other entity, whether through the ownership of voting securities, by contract, or otherwise. Section 1.4. AFFILIATED LOAN DOCUMENTS. "Affiliated Loan Documents" shall mean any and all documents evidencing, securing and/or governing any financing provided by Lender or Lender's Affiliates to Borrower, any Guarantor, or any Affiliate of Borrower or any Guarantor, as the same may be amended, modified, increased, renewed or restated from time to time. Section 1.5. AGREEMENT. "Agreement" means this Loan and Security Agreement, as it may be amended or supplemented from time to time, together with all attachments, exhibits, schedules, riders and addenda, all of which are incorporated herein by this reference and made a part hereof. Section 1.6. BASE RATE. "Base Rate" means a rate of interest equal to one quarter of one percent (.25%) per annum above the "Prime Rate of Interest". Section 1.7. BORROWED MONEY. "Borrowed Money" means, with respect to any Person, without duplication, (a) all indebtedness for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) that portion of obligations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (d) any obligations of such Person issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six (6) months of the incurrence thereof or evidenced by a note or other instrument), (e) all Borrowed Money of others secured by (or for which the holder of such Borrowed Money has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, any property or asset owned, held or acquired by such Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, (f) all guaranty obligations of such Person in respect of any Borrowed Money of any other person, (g) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (h) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product plus any accrued interest thereon, and (i) the Borrowed Money of any partnership or unincorporated joint venture in which such Person is a general partner or joint venturer. Section 1.8. BORROWER. "Borrower" has the meaning set forth in the Preamble. Section 1.9. BORROWING BASE. "Borrowing Base" has the meaning set forth in Section 2.1(d). Section 1.10. BUSINESS DAY. "Business Day" means any day on which financial institutions are open for business in the State of Maryland, excluding Saturdays and Sundays. Section 1.11 CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the meanings set forth in Section 5.3. Section 1.12. COLLATERAL. "Collateral" has the meaning set forth in Section 3.1. Section 1.13. COLLATERAL MANAGEMENT FEE. "Collateral Management Fee" has the meaning set forth in Section 2.4(c). Section 1.14. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in Section 2.4(a). Section 1.15. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning set forth in Section 2.3(a). Section 1.16. CONTROLLED GROUP. "Controlled Group" means all businesses that would be treated as a single employer under Section 401(b) of ERISA. Section 1.17. DEFAULT RATE. "Default Rate" means a rate per annum equal to two percent (2.0%) per annum above the then applicable Base Rate. Section 1.18. ERISA. "ERISA" has the meaning set forth in Section 4.12. Section 1.19. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have the meanings set forth in Section 8.1. Section 1.20. [INTENTIONALLY DELETED.] Section 1.21. GAAP. "GAAP" means generally accepted accounting principles applied in a consistent manner. Section 1.22. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and includes any federal, state, District of Columbia, county, municipal, or other government and any department, commission, board, bureau, agency or instrumentality thereof, whether domestic or foreign. 2 Section 1.23. GUARANTOR. "Guarantor" means any Person who may from time to time guaranty, pledge assets as security for or otherwise become obligated in respect of the obligations of Borrower under the Loan Documents. Section 1.24. GUARANTY. "Guaranty" means, if applicable, any guaranty of the obligations of Borrower under the Loan Documents from time to time outstanding, as the same may be amended, modified, or supplemented from time to time. Section 1.25. HAZARDOUS MATERIAL. "Hazardous Material" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance, or similar term, by any environmental statute, rule or regulation or any Governmental Authority applicable to Borrower or its business, operations or assets. Section 1.26. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the maximum lawful rate of interest referred to in Section 2.7 that may accrue pursuant to this Agreement. Section 1.27. [INTENTIONALLY DELETED.] Section 1.28. [INTENTIONALLY DELETED.] Section 1.29. LENDER. "Lender" has the meaning set forth in the Preamble. Section 1.30. LIEN. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same practical effect as any of the foregoing). Section 1.31. LOAN. "Loan" has the meaning set forth in Section 2.1(a). Section 1.32. LOAN DOCUMENTS. "Loan Documents" means and includes this Agreement, the Note, the Certificate of Validity, the Stock Pledge Agreements, and each and every other document now or hereafter delivered by Borrower or any Guarantor in connection with this Agreement, as any of them may be amended, modified, increased, renewed or restated from time to time. Section 1.33. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3. Section 1.34. LOCKBOX ACCOUNT. "Lockbox Account" means an account or accounts maintained at the Lockbox Bank into which all collections of Accounts are paid directly. Section 1.35. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section 2.3. Section 1.36. MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean any fact, event or circumstance that, alone or when taken with other events or conditions occurring or existing concurrently with such event or condition (a) has or is reasonably expected to have a material adverse effect on the business, operations, condition (financial or otherwise), assets, liabilities, prospects, or properties of Borrower; (b) has or is reasonably expected to have any material adverse effect on the validity or enforceability of this Agreement or any Loan Document; (c) materially impairs or is reasonably expected to materially impair the ability of Borrower to pay and perform the Obligations; (d) to the extent reasonably known to Borrower, materially impairs or is reasonably expected to materially impair the ability of Lender to enforce its rights and remedies under this Agreement or any of the Loan Documents; or (e) has or is reasonably expected to have any material adverse effect on the Collateral, the Liens of Lender in the Collateral or the priority of such Liens. Section 1.37. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set forth in Section 2.1(a). Section 1.38. NOTE. "Note" has the meaning set forth in Section 2.1(c). Section 1.39. OBLIGATIONS. "Obligations" has the meaning set forth in Section 3.1. 3 Section 1.40. PERMITTED LIENS. "Permitted Liens" means: (a) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance; (b) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (c) mechanic's, workmen's, materialmen's or other like Liens arising in the ordinary course of business with respect to obligations which are not due, or which are being contested in good faith by appropriate proceedings which suspend the collection thereof and in respect of which adequate reserves have been made (provided that such proceedings do not, in Lender's sole discretion, involve any substantial risk of the sale, loss or forfeiture of such property or assets or any interest therein); (d) Liens and encumbrances in favor of Lender; and (e) Liens set forth on SCHEDULE 1.40. Section 1.41. PERSON. "Person" means an individual, partnership, corporation, trust, joint venture, joint stock company, limited liability company, association, unincorporated organization, Governmental Authority, or any other entity. Section 1.42. PLAN. "Plan" has the meaning set forth in Section 4.12. Section 1.43. PREMISES. "Premises" has the meaning set forth in Section 4.14. Section 1.44. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate of interest designated as such by Citibank, N.A., or any successor thereto, as the same may from time to time fluctuate. Section 1.45. PROHIBITED TRANSACTION. "Prohibited Transaction" means a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code that is not exempt under Section 407 or Section 408 of ERISA or Section 4975(c)(2) or (d) of the Internal Revenue Code or under a class exemption granted by the U.S. Department of Labor. Section 1.46. QUALIFIED ACCOUNT. "Qualified Account" means an Account of Borrower generated in the ordinary course of Borrower's business from the sale of goods or rendition of services which Lender, in its sole credit judgment, deems to be a Qualified Account. Without limiting the generality of the foregoing, no Account shall be a Qualified Account if: (a) the Account or any portion of the Account is payable by a commercial institution unacceptable to Lender in its sole discretion; (b) the Account remains unpaid more than ninety (90) days past the claim or invoice date (but in no event more than one hundred five (105) days after the applicable services have been rendered); (c) the Account is subject to any defense, set-off, counterclaim, deduction, discount, credit, chargeback, freight claim, allowance, or adjustment of any kind; (d) any part of any goods, the sale of which has given rise to the Account, has been returned, rejected, lost or damaged; (e) if the Account arises from the sale of goods by Borrower, (i) the sale was not an absolute sale, or (ii) the sale was made on consignment or on approval or on a sale-or-return basis, or (iii) the sale was made subject to any other repurchase or return agreement, or (iv) the sale was made subject to the completion of installation of any other ancillary product or other condition of performance, or (v) the goods have not been shipped to the Account Debtor or its designee; (f) if the Account arises from the Borrower's sale, licensing or other distribution of Borrower's software, the subject software is not registered with the United States Copyright Office and perfected by Lender's filing of a Copyright Security Agreement with the United States Copyright Office, except to the extent otherwise allowed by Lender in its good faith credit judgment; (g) if the Account arises from the performance of services, the services have not actually been performed or the services were undertaken in violation of any law; (h) the Account is subject to a Lien other than a Permitted Lien; (i) Borrower knows or should have known of the bankruptcy, receivership, reorganization or insolvency of the Account Debtor; (j) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; (k) the Account is an Account of an Account Debtor having its principal place of business or executive office outside the United States; (l) the Account Debtor is an Affiliate or subsidiary of Borrower; (m) more than ten percent (10%) of the aggregate balance of all Accounts owing from the Account Debtor obligated on the Account are outstanding more than one hundred twenty (120) days past their invoice date; (n) fifty percent (50%) or more of the aggregate unpaid Accounts from any single Account Debtor are not deemed Qualified Accounts under this Agreement; (o) the total unpaid Accounts of the Account Debtor exceed twenty percent (20%) of the net amount of all Qualified Accounts; (p) any covenant, representation or warranty contained in the Loan Documents with respect to such Account has been breached; (q) the Account has not been billed; or (r) the Account fails to meet such other specifications and requirements which may from time to time be established by Lender. For purposes of Section 1.46(f), "subject software" will be deemed registered with the United States Copyright Office if an integer revision, e.g. 1.0 or 2.0, (any version within an integer revision) of the 4 "subject software" is so registered, commencing with the most current integer revision of the "subject software" as of the Closing Date, and including subsequent integer revisions of the "subject software" (any version within an integer version) that are generally released after the Closing Date. Registration of copyrights in "dot" revisions (e.g. 1.1, 1.2) within an integer revision is not required for the purpose of satisfying the registration requirements under Section 1.46(f) for the "subject software," nor is registration required for any integer revision other than the most current general release of the "subject software" on the Closing Date. Section 1.47. REPORTABLE EVENT. "Reportable Event" means a "reportable event" as defined in Section 4043(c) of ERISA for which the notice requirements of Section 4043(a) of ERISA are not waived. Section 1.48. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning set forth in Section 2.1(b). Section 1.49. STOCK PLEDGE AGREEMENTS. "Stock Pledge Agreements" means, collectively, all of the stock pledge agreements executed and delivered by Borrower to Lender in connection with the Closing. Section 1.50. TERM. "Term" has the meaning set forth in Section 2.8. Section 1.51. TERMINATION FEE. "Termination Fee " shall mean a fee payable upon termination of the Agreement within the first calendar year following the Closing Date, as yield maintenance for the loss of bargain and not as a penalty, equal to one percent (1.0%) of the Maximum Loan Amount. ARTICLE II LOAN Section 2.1. TERMS. (a) The maximum aggregate principal amount of credit extended by Lender to Borrower under this Agreement (the "LOAN") that will be outstanding at any time is Forty Million and No/100 Dollars ($40,000,000.00) (the "MAXIMUM LOAN AMOUNT"). (b) The Loan shall be in the nature of a revolving line of credit, and shall include sums advanced and other credit extended by Lender to or for the benefit of Borrower from time to time under this Article II (each a "REVOLVING CREDIT LOAN") up to the Maximum Loan Amount, depending upon the availability in the Borrowing Base, the requests of Borrower pursuant to the terms and conditions of Section 2.2, and on such other basis as Lender may determine in its good faith credit judgment. The outstanding principal balance of the Loan may fluctuate from time to time, to be reduced by repayments made by Borrower (which may be made without penalty or premium), and to be increased by future Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower, and shall be due and payable in full upon the expiration of the Term. For purposes of this Agreement, any determination as to whether there is availability within the Borrowing Base for advances or extensions of credit shall be made by Lender in its sole discretion and is final and binding upon Borrower. (c) At Closing, Borrower shall execute and deliver to Lender a promissory note evidencing Borrower's unconditional obligation to repay Lender for Revolving Credit Loans, advances, and other extensions of credit made under the Loan, in the form of EXHIBIT A to this Agreement (as amended, modified, increased, restated or replaced from time to time, the "NOTE"), dated the date of this Agreement, payable to the order of Lender in accordance with the terms thereof. The Note shall bear interest on the outstanding principal balance of the Note from the date of the Note until repaid, with interest payable monthly in arrears on the first Business Day of each month, at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate, provided that after the occurrence and during the continuance of an Event of Default, such rate shall be equal to the Default Rate. Lender shall be entitled to assess such fee whether or not an Event of Default is declared or otherwise occurs. Each Revolving Credit Loan, advance and other extension of credit shall be deemed evidenced by the Note, which is deemed incorporated into and made a part of this Agreement by this reference. (d) Subject to the terms and conditions of this Agreement, advances under the Loan shall be made against a borrowing base equal to eighty percent (80%) of Qualified Accounts due and owing from any Account Debtors (the "BORROWING BASE"). Lender, in its sole credit judgment, may further adjust the 5 Borrowing Base by applying percentages (known as "liquidity factors") to Qualified Accounts based upon Borrower's actual recent collection history in a manner consistent with Lender's underwriting practices and procedures. Such liquidity factors may be adjusted by Lender throughout the Term as warranted by Lender's underwriting practices and procedures and using its sole credit judgment. Section 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows: (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower will give Lender notice of its intention to borrow, together with a completed Borrowing Base certificate and all documentation associated therewith, not later than 10:30 a.m. Eastern time on the proposed borrowing date; provided, however, that no such request may be made at a time when there exists an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the day following the due date in the amount required to pay such interest or other Obligation if such was not paid by Borrower on the due date. (b) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, as follows: (i) the proceeds of each Revolving Credit Loan requested under Section 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan deemed to be requested under Section 2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. (c) All Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower shall constitute one general Obligation of Borrower, and shall be secured by Lender's Lien upon all of the Collateral. (d) Lender shall enter all Revolving Credit Loans as debits to a loan account in the name of Borrower and shall also record in said loan account all payments made by Borrower on any Obligations and all proceeds of Collateral which are indefeasibly paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower. All collections into the Concentration Account pursuant to Section 2.3 shall be applied first to fees, costs and expenses due and owing under the Loan Documents, then to interest due and owing under the Loan Documents, and then to principal outstanding with respect to Revolving Credit Loans. (e) Lender will account to Borrower monthly with a statement of Revolving Credit Loans, charges and payments made pursuant to this Agreement, and such accounting rendered by Lender shall be deemed final, binding and conclusive upon Borrower, absent manifest error, unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each accounting is mailed to Borrower. Such notice shall be deemed an objection to those items specifically objected to in the notice. Section 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX ACCOUNT. (a) Lender shall establish and maintain a lockbox and a lockbox account (the "LOCKBOX" and the "LOCKBOX ACCOUNT", respectively) with Citizens Bank (the "LOCKBOX BANK"), and Borrower shall execute with Lender and the Lockbox Bank a Provider Account Agreement in substantially the form attached hereto as EXHIBIT B (the "LOCKBOX AGREEMENT"), together with any other agreements or documents necessary to effectuate the intent of the parties as set forth in this Section 2.3 or in the Lockbox Agreement as Lender may require. Borrower shall ensure that all collections of Accounts are paid directly from Account Debtors to the Lockbox for deposit into the Lockbox Account and that all funds deposited into the Lockbox Account are immediately transferred into a depository account maintained by Lender at Bank One, N.A., or such other financial institution as determined by Lender in its sole discretion, by written notice to Borrower and the Lockbox Bank (the "CONCENTRATION ACCOUNT"). Borrower hereby irrevocably makes, constitutes and appoints Lockbox Bank (and all persons designated by Lockbox Bank for such purpose) as Borrower's true and lawful attorney and agent-in-fact to endorse Borrower's name on all checks, items of payment or other cash items that are acceptable for collection through the Federal Reserve System (collectively, "CHECKS") payable to IDX SYSTEMS CORPORATION, IDX INFORMATION SYSTEMS CORPORATION, IDX INVESTMENT CORPORATION, or EDIX CORPORATION (or any reasonable variation of such names) with the endorsement "CREDIT TO THE ACCOUNT OF HELLER HEALTHCARE FINANCE, INC. - HEALTHCARE FINANCIAL SERVICES - XXXXXXXXXXXX"). Borrower agrees not to change 6 the foregoing irrevocable instructions to the Lockbox Bank without the prior written consent of Lender. (b) Notwithstanding anything in any lockbox agreement to the contrary, Borrower agrees that it shall be liable for any fees and charges in effect from time to time and charged by the Lockbox Bank in connection with the Lockbox and the Lockbox Account, and that Lender shall have no liability therefor. Borrower further acknowledges and agrees that, to the extent such fees and charges are not paid by Borrower directly but are satisfied using collections in the Lockbox Account, such fees and charges shall be deemed to be Revolving Credit Loans made by Lender hereunder and, to the extent that the payment of such fees or charges by Borrower as provided herein results in any overadvance under this Agreement, Borrower agrees to immediately (upon notice) repay to Lender the amount of such overadvance. Borrower agrees to indemnify and hold Lender harmless from any and all liabilities, claims, losses and demands whatsoever, including reasonable attorney's fees and expenses, arising from or relating to actions of Lender or the Lockbox Bank pursuant to this Section 2.3 or any lockbox agreement. (c) Lender shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to this Section 2.3 to reduce the outstanding indebtedness under the Loan (in accordance with Section 2.2(d)), and all future Revolving Credit Loans, advances and other extensions of credit to be made by Lender under the conditions set forth in this Article II. To the extent that any collections of Accounts or proceeds of other Collateral are not sent directly to the Lockbox as required by this Section 2.3 but are received by Borrower, such collections shall be held in trust for the benefit of Lender and immediately remitted, in the form received, to the Lockbox Bank for transfer to the Concentration Account immediately upon receipt by Borrower. (d) Borrower acknowledges and agrees that its compliance with the terms of this Section 2.3 is essential, and that Lender will suffer immediate and irreparable injury and have no adequate remedy at law, if Borrower, through its acts or omissions, causes or permits Account Debtors to send payments other than to the Lockbox, or if Borrower fails to immediately deposit collections of Accounts or proceeds of other Collateral in the Lockbox Account as herein required. (e) All funds transferred from the Concentration Account for application to Borrower's indebtedness to Lender shall be applied to reduce the Loan balance, but for purposes of calculating interest shall be subject to a three (3) Business Day clearance period. If as the result of collections of Accounts pursuant to the terms and conditions of this Section 2.3 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Event of Default, and no fact, event or circumstance that, with notice or the passage of time (or both), would constitute an Event of Default, exists. Section 2.4. FEES. (a) By executing this Agreement, Borrower agrees unconditionally to pay to Lender a commitment fee equal to one half of one percent (.50%) of the Maximum Loan Amount (the "COMMITMENT FEE"). (b) For so long as the Loan is available to Borrower, Borrower unconditionally shall pay to Lender a monthly unused line fee (the "UNUSED LINE FEE") equal to one-fifth of one percent (0.20%) of the average amount by which the Maximum Loan Amount exceeds the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month; PROVIDED, HOWEVER, that so long as the average monthly balance of all outstanding Revolving Credit Loans is greater than Fifteen Million ($15,000,000), then no Unused Line Fee shall be due and owing; and PROVIDED, FURTHER, that for purposes of calculating the Unused Line Fee in this Section 2.4 only, the term "Maximum Loan Amount" shall mean Thirty Million Dollars ($30,000,000) for the first two (2) months of each fiscal quarter of Borrower. The Unused Line Fee, if any, shall be payable monthly in arrears on the first Business Day of each successive calendar month. (c) For so long as the Loan is available to Borrower, Borrower unconditionally shall pay to Lender a monthly collateral management fee (the "COLLATERAL MANAGEMENT FEE") equal to one-quarter of one percent (0.25%) per annum (calculated on the basis of a 360-day year using the actual number of days elapsed) of the outstanding balance of the Loan. The Collateral Management Fee shall be payable monthly in arrears on the first Business Day of each successive calendar month. (d) Borrower shall pay to Lender all fees and expenses in connection with audits and appraisals of Borrower's books and records and such other matters as Lender shall deem appropriate, which shall be due and payable 7 on the first Business Day of the month following the date of issuance by Lender of a request for payment thereof to Borrower. (e) Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender or any participant pays to a bank or other similar institution (including, without limitation, any fees paid by Lender to any participant) arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement, and (ii) the depositing for collection, by Lender or any participant, of any check or item of payment received or delivered to Lender or any participant on account of Obligations. Section 2.5. PAYMENTS. Principal payments on account of Revolving Credit Loans shall be payable by Borrower to Lender immediately upon the earliest of (a) the receipt by Borrower or Lender of any payments on or proceeds from any of the Collateral, to the extent of such proceeds, (b) the occurrence of an Event of Default if the Loan and the maturity of the payment of the Obligations are accelerated, or (c) the termination of this Agreement pursuant to Section 2.8 of this Agreement; PROVIDED, HOWEVER, that if the outstanding principal balance of the Revolving Credit Loans is at any time in excess of the Borrowing Base, Borrower shall, immediately upon demand, repay such excess. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (x) the first Business Day of each month (for the immediately preceding month), computed on the last calendar day of the preceding month, (y) the occurrence of an Event of Default if the Loan and the maturity of the payment of the Obligations are accelerated, or (z) the termination of this Agreement pursuant to Section 2.8. Except to the extent otherwise set forth in this Agreement or permitted by Lender, all payments of principal and of interest on the Loan, all other charges and any other obligations of Borrower under this Agreement, shall be made to Lender to the Concentration Account, in immediately available funds. All payments shall be made without deduction for any set-off, recoupment, counterclaim or defense that Borrower now has or may have in the future. Section 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan shall be used solely for funding future capital expenditures of Borrower and for working capital and for other costs of Borrower arising in the ordinary course of Borrower's business. Section 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated by this Agreement would be usurious under such laws, then notwithstanding any other provision of this Agreement: (a) the aggregate of all interest that is contracted for, charged or received under this Agreement or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law (the "HIGHEST LAWFUL RATE"), and any excess shall be promptly credited to Borrower by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to Borrower by Lender); (b) neither Borrower nor any other Person now or hereafter liable under this Agreement shall be obligated to pay the amount of such interest to the extent that it is in excess of the Highest Lawful Rate; and (c) the effective rate of interest shall be reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of the Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding anything to the contrary in this Agreement, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Agreement under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had been in effect, then Borrower agrees to pay to Lender an amount equal to the difference between (x) the lesser of (A) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (B) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (y) the amount of interest accrued in accordance with the other provisions of this Agreement. Section 2.8. TERM. (a) Subject to Lender's right to cease making Revolving Credit Loans to Borrower upon or after any Event of Default, this Agreement shall be in effect for a period of three (3) years from the Closing Date, unless terminated 8 as provided in this Section 2.8 (the "TERM"), and this Agreement shall be renewed for one-year periods thereafter upon the mutual written agreement of the parties. (b) Notwithstanding anything in this Agreement to the contrary, Lender may terminate this Agreement without notice upon or after the occurrence of an Event of Default. (c) Upon at least thirty (30) days prior written notice to Lender (the "TERMINATION NOTICE PERIOD"), Borrower may terminate this Agreement. (d) All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement (the "Termination Date"); provided that, notwithstanding anything in Section 2.8(c) to the contrary, other than a termination by Lender following the occurrence of an Event of Default, the Termination Date shall be effective no earlier than the first Business Day of the month following the expiration of the Termination Notice Period. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such termination and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrower has paid the Obligations to Lender, in full, in immediately available funds. At the effective date of any termination of this Agreement (whether by voluntary termination by Borrower or by termination by Lender following the occurrence of an Event of Default), Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as yield maintenance for the loss of bargain and not as a penalty, an amount equal to the applicable Termination Fee, if such termination occurs prior to the first annual anniversary of the Closing Date. Thereafter, no such Termination Fee shall be due and payable upon a termination by Borrower made pursuant to Section 2.8(c) above. (e) Notwithstanding any provision of this Agreement which makes reference to the continuance of an Event of Default, nothing in this Agreement shall be construed to permit Borrower to cure an Event of Default following the lapse of the applicable cure period, and Borrower shall have no such right in any instance unless specifically granted in writing by Lender. Section 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each entity constituting Borrower shall be jointly and severally liable for all of the obligations of Borrower under the Note and this Agreement. Each Borrower, individually, expressly understands, agrees and acknowledges, that the loan would not be made available on the terms herein in the absence of the collective credit of all of the Borrowers, the joint and several liability of all Borrowers, and the cross collateralization of the collateral of all Borrowers. Accordingly, each Borrower, individually acknowledges that the benefit to each of the participants in the facility as a whole constitutes reasonably equivalent value, regardless of the amount of the loan actually borrowed by, advanced to, or the amount of collateral provided by, any individual Borrower. In addition, each entity comprising Borrower hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon each entity comprising Borrower, and shall be binding upon all such entities when taken together. ARTICLE III COLLATERAL Section 3.1. GENERALLY. As security for the payment of all liabilities of Borrower to Lender, including, without limitation: (a) indebtedness evidenced under the Note, repayment of Revolving Credit Loans, advances and other extensions of credit, all fees and charges owing by Borrower, (including, without limitation, the Termination Fee) and all other liabilities and obligations of every kind or nature whatsoever of Borrower to Lender, whether now existing or hereafter incurred, joint or several, matured or unmatured, direct or indirect, primary or secondary, related or unrelated, due or to become due, including, without limitation, any extensions, modifications, substitutions, increases and renewals thereof, (b) the payment of all amounts advanced by Lender to preserve, protect, defend, and enforce its rights under this Agreement and in the following property in accordance with the terms of this Agreement, (c) the payment of all expenses incurred by lender in connection therewith, and (d) the payment and performance by Borrower, any Guarantor and their respective affiliates of their respective obligations under the Affiliated Loan Documents (collectively, the "OBLIGATIONS"), Borrower hereby assigns and grants to Lender a continuing first priority lien on and security interest in, upon, and to the following property whether now owned or hereafter acquired or 9 arising (the "COLLATERAL"; unless otherwise defined in this Agreement, all terms used in the following subparagraphs shall have the meanings given them in the uniform Commercial Code as now or hereafter in effect): (a) All of Borrower's Accounts, and all of Borrower's money, contract rights, chattel paper, documents, deposit accounts, securities, investment property and instruments with respect thereto, and all of Borrower's rights, remedies, security, Liens and supporting obligations, in, to and in respect of the foregoing, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor, and credit and other insurance; (b) To the extent not listed above, all of Borrower's money, securities, investment property, deposit accounts, instruments and other property and the proceeds thereof that are now or hereafter held or received by, in transit to, in possession of, or under the control of Lender or a bailee or Affiliate of Lender, whether for safekeeping, pledge, custody, transmission, collection or otherwise; (c) To the extent not listed above, all of Borrower's now owned or hereafter acquired deposit accounts into which Accounts or the proceeds of Accounts are deposited, including the Lockbox Account; (d) All of Borrower's right, title and interest in, to and in respect of all goods relating to, or which by sale have resulted in, Accounts, including, without limitation, all goods described in invoices or other documents or instruments with respect to, or otherwise representing or evidencing, any Account, and all returned, reclaimed or repossessed goods; (e) All of Borrower's general intangibles (including, without limitation, payment intangibles) and other property of every kind and description with respect to, evidencing or relating to its Accounts, including, without limitation, all existing and future customer lists, choses in action, claims, books, records, ledger cards, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies; (f) All of Borrower's other general intangibles (including, without limitation, any proceeds from insurance policies after payment of prior interests), patents, unpatented inventions, trade secrets, contract rights, goodwill, rights to performance, rights under licenses, choses-in-action, claims, things in action, trademarks and trademarks applied for (together with the goodwill associated therewith) and derivatives thereof, trade names, including the right to make, use, and vend goods utilizing any of the foregoing, and permits, licenses, certifications, authorizations and approvals, and the rights of Borrower thereunder, issued by any governmental, regulatory, or private authority, agency, or entity whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; (g) All of Borrower's copyrights, literary rights and information contained in computer media, computer programs, information and software, such as data bases, source and object codes, and information therein, for the purpose of perfecting, under applicable law, Lender's security interest in any of Borrower's Accounts, and the rights of Borrower thereunder issued by any governmental, regulatory, or private authority, agency or entity, whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; (h) All of Borrower's now owned or hereafter acquired machinery, equipment, computer equipment, tools, tooling, furniture, fixtures, goods, supplies, materials, work-in-process, whether now owned or hereafter acquired, together with all additions, parts, fittings, accessories, special tools, attachments and accessions now and hereafter affixed thereto and/or used in connection therewith, all replacements thereof and substitutions therefor, and all cash and non-cash proceeds and products thereof; and (i) To the extent not listed above as original collateral, the proceeds (including, without limitation, insurance proceeds) and products of all of the foregoing. In addition to the foregoing Collateral, IDX Systems Corporation shall execute and deliver to Lender at Closing the Stock Pledge Agreements, pursuant to which IDX Systems Corporation shall pledge, assign and grant to Lender a portion of its publicly traded common stock in Allscripts Healthcare Solutions, Inc. and all of its common stock in several of its Affiliates, all of which shall serve as additional collateral and security for the repayment of the Loan. 10 Section 3.2. LIEN DOCUMENTS. At Closing, and thereafter as Lender deems necessary in its sole discretion, Borrower shall execute and deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender in its sole discretion) any agreements, documents, instruments and writings deemed necessary by Lender or as Lender may otherwise request from time to time in its sole discretion to evidence, perfect or protect Lender's Lien and security interest in the Collateral required under this Agreement. Borrower hereby authorizes Lender to file one or more financing statements and amendments thereto describing the Collateral and describing any agricultural liens or other statutory liens held by Lender, and providing any other notices deemed necessary by Lender. Section 3.3. COLLATERAL ADMINISTRATION. (a) All Collateral (except deposit accounts) shall at all times be kept by Borrower at its principal office(s) as set forth on SCHEDULE 4.15 and shall not be moved from such locations without (i) providing prior written notice to Lender in accordance with Section 6.15, and (ii) obtaining the prior written consent of Lender, which consent shall not be unreasonably withheld. (b) Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall request a sales and collections report for the preceding period, in form satisfactory to Lender. In addition, if Accounts in an aggregate face amount in excess of $50,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Qualified Accounts or otherwise, Borrower shall notify Lender of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Lender, Borrower shall execute and deliver to Lender formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of claims, invoices or other information related thereto. (c) Whether or not an Event of Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Lender or any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. Lender shall have the right at any time to notify Account Debtors that Accounts have been assigned to Lender. (e) Borrower shall bear the risk of loss on all Collateral, regardless of whether such Collateral is in the possession or control of Borrower, Lender, a bailee or any other Person. Section 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower: (a) shall direct each Account Debtor to make payments into the Lockbox, and hereby authorizes Lender, upon any Event of Default, to send any and all notices to each entity who either is currently an Account Debtor or becomes an Account Debtor at any time following the date of such Event of Default that Lender has been granted a first priority Lien and security interest in, upon and to all Accounts applicable to such entity, and to direct such entity to make payments into the Lockbox; (b) shall do and hereby authorizes Lender to do anything further that may be lawfully required by Lender to secure Lender and effectuate the intentions and objects of this Agreement, including, without limitation, the execution and delivery of lockbox agreements, continuation statements, amendments to financing statements, and any other documents required under this Agreement; (c) at Lender's request, shall immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest; (d) shall, on Lender's demand, deliver to Lender all notes, certificates, and documents of title, chattel paper, warehouse receipts, instruments, and any other similar instruments constituting Collateral; 11 (e) shall, where Collateral is in the possession of a third party, join with Lender in notifying the third party of Lender's security interests and obtaining an acknowledgement from the third party that it is holding the Collateral for the benefit of Lender; (f) shall cooperate with Lender in obtaining control with respect to Collateral consisting of deposit accounts, investment property, letter of credit rights, electronic chattel paper and any other portion of the Collateral for which control is required in order to perfect a security interest; and (g) shall not create any chattel paper without placing a legend on the chattel paper acceptable to Lender indicating that Lender has a security interest in the chattel paper. Section 3.5. SEARCHES. Before Closing, and thereafter (as and when determined by Lender in its sole discretion), Lender will perform the searches described in clauses (a), (b) and (c) below against Borrower (the results of which are to be consistent with Borrower's representations and warranties under this Agreement), all at Borrower's expense: (a) Uniform Commercial Code searches with the Secretary of State and local filing offices of each jurisdiction where Borrower maintains its executive offices, a place of business, or assets and the jurisdiction in which the Borrower is organized; (b) Judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above; and (c) Searches of applicable corporate, limited liability company, partnership and related records to confirm the continued existence, organization and good standing of Borrower and the exact legal name under which Borrower is organized. Section 3.6. POWER OF ATTORNEY. Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrower (without requiring any of them to act as such) with full power of substitution to do the following: (a) endorse the name of Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Borrower and constitute collections on Borrower's Accounts; (b) execute in the name of Borrower, if and to the extent necessary, any financing statements, schedules, assignments, instruments, documents and statements that Borrower is obligated to give Lender under this Agreement; (c) take any action Borrower is required to take under Section 3.4 above; and (d) do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or desirable to enforce any Account or other Collateral or perfect Lender's security interest or Lien in any Collateral. In addition, if Borrower breaches its obligation to direct payments of the proceeds of the Collateral to the Lockbox Account, Lender, as the irrevocably made, constituted and appointed true and lawful attorney for Borrower pursuant to this paragraph, may, by the signature or other act of any of Lender's officers (without requiring any of them to do so), direct any federal, state or private payor or fiscal intermediary to pay proceeds of the Collateral to Borrower by directing payment to the Lockbox Account. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each entity comprising Borrower represents and warrants to Lender, and shall be deemed represent and warrant to Lender in all material respects on each day on which any Obligations shall be outstanding under this Agreement, that: Section 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, Borrower has no subsidiaries. Section 4.2. ORGANIZATION AND GOOD STANDING. Borrower is a corporation, limited liability company or limited liability partnership, as the case may be, duly organized, validly existing, and in good standing under the laws of its state of formation, is in good standing as a foreign corporation, limited liability company or limited liability partnership, as the case may be, in each jurisdiction in which the character of the properties owned or leased by it therein or the nature of its business makes such qualification necessary, has the corporate, limited liability company or limited liability partnership (as 12 the case may be) power and authority to own its assets and transact the business in which it is engaged. Borrower's state of organization is listed on SCHEDULE 4.2 and its EXACT legal name is as set forth in the first paragraph of this Agreement. Section 4.3. AUTHORITY. Borrower has full corporate, limited liability company or limited liability partnership (as the case may be) power and authority to enter into, execute, and deliver this Agreement and to perform its obligations under this Agreement, to borrow the Loan, to execute and deliver the Note, and to incur and perform the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary corporate, limited liability company or limited liability partnership (as the case may be) action. No consent or approval of shareholders, members or partners of, or lenders to, Borrower and no consent, approval, filing or registration with any Governmental Authority is required as a condition to the validity of the Loan Documents or the performance by Borrower of its obligations under the Loan Documents. Section 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents constitute, and the Note, when issued and delivered pursuant to this Agreement for value received, will constitute, the valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. Section 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are no actions, suits, proceedings or investigations pending or threatened against Borrower before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of Borrower, could have a material adverse effect on the business, properties, condition (financial or otherwise) or operations, current or prospective, of Borrower, or upon its ability to perform its obligations under the Loan Documents. Borrower is not in default with respect to any order of any court, arbitrator or Governmental Authority applicable to Borrower or its properties. Section 4.6. NO CONFLICTS. The execution and delivery by Borrower of this Agreement and the other Loan Documents do not, and the performance of its obligations under the Loan Documents will not, violate, conflict with, constitute a default under, or result in the creation of a Lien or encumbrance upon the property of Borrower (other than for the benefit of Lender) under: (a) any provision of Borrower's articles of incorporation or bylaws, certificate of formation or operating agreement, or certificate of limited liability partnership or agreement of limited liability partnership, as the case may be, (b) to the best of Borrower's knowledge after due inquiry, any provision of any law, rule, or regulation applicable to Borrower, (c) any indenture or other agreement or instrument to which Borrower is a party or by which Borrower or its property is bound, or (d) any judgment, order or decree of any court, arbitration tribunal, or Governmental Authority having jurisdiction over Borrower which is applicable to Borrower. Section 4.7. FINANCIAL CONDITION. The financial statements of Borrower which have been delivered to Lender fairly present the financial condition of Borrower and the results of its operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with GAAP. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of Borrower as of the dates of such financial statements which are not reflected in such financial statements or in the notes to such financial statements. There has been no adverse change in the business, properties, condition (financial or otherwise) or operations (current or prospective) of Borrower since the date of the last financial statement delivered to Lender. The federal tax identification number and fiscal year of each entity comprising the Borrower is as described on Schedule 4.7. Section 4.8. NO DEFAULT. Borrower is not in default under or with respect to any obligation in any respect which could be adverse to its business, operations, property or financial condition, or which could adversely affect the ability of Borrower to perform its obligations under the Loan Documents. No Event of Default or event that, with the giving of notice or lapse of time, or both, could become an Event of Default, has occurred and is continuing. Section 4.9. TITLE TO PROPERTIES. Borrower has good, marketable and indefeasible title to, rights in and the power to transfer its properties and assets, including the Collateral and the properties and assets reflected in the financial statements described in Section 4.7, subject to no Lien, mortgage, pledge, encumbrance or charge of any kind, other than Permitted Liens. Borrower has not agreed or consented to cause any of its properties or assets whether owned now or hereafter acquired to be subject in the future (upon the happening of a contingency or otherwise) to any Lien, mortgage, pledge, encumbrance or charge of any kind other than Permitted Liens. All of the Collateral, and all other property and assets of Borrower that are necessary to the conduct of Borrower's business, is owned by Borrower or the rights to same are held by 13 Borrower in its name, and none of the Collateral, or any such property or assets are owned or the rights thereto held in the name of any other entity. Section 4.10. TAXES. Borrower has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes shown as due on those returns and all assessments, fees and other amounts due as of the date of this Agreement. All tax liabilities of Borrower are adequately provided for on Borrower's books. No tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. Section 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS. (a) The use of the proceeds of the Loan and Borrower's issuance of the Note will not directly or indirectly violate or result in a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations U, T or X of the Board of Governors of the Federal Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the proceeds of the Loan under this Agreement will be used to purchase or carry any margin stock or to extend credit to others for such purpose. (b) Borrower is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of that Act. Section 4.12. ERISA. No employee benefit plan (a "PLAN") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant to ERISA that is maintained by Borrower or under which Borrower could have any material liability under ERISA (a) has failed to meet minimum funding standards established in Section 302 of ERISA, (b) has failed to substantially comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, or (c) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code. Neither Borrower, nor any member of a Controlled Group that includes Borrower, has assumed, or received notice of a claim asserted against Borrower or another member of the Controlled Group for, withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan. Borrower has timely made when due all contributions with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a material claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. Section 4.13. COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Except as described in SCHEDULE 4.13, Borrower is not, to the best of its knowledge after due inquiry, in violation of any statute, rule or regulation of any Governmental Authority (including, without limitation, any statute, rule or regulation relating to employment practices or to environmental, occupational and health standards and controls). Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar Governmental Authority and is in full compliance with all applicable rules and regulations of such commissions. Borrower has obtained all certificates, licenses, permits, franchises, qualifications and other governmental authorizations required under all laws, regulations, ordinances, or orders of public authorities necessary for the ownership and operation of all of its properties, the transaction of all of its business, and the generation of all of its Accounts, except where the absence thereof would not have a Material Adverse Effect, all of which are in the name of Borrower. Section 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material has occurred or is occurring on or from any real property on which the Collateral is located or which is owned, leased or otherwise occupied by Borrower (the "PREMISES"), or off the Premises as a result of any action of Borrower, except as described in SCHEDULE 4.14. All Hazardous Material used, treated, stored, transported to or from, generated or handled on the Premises, or off the Premises by Borrower, has been disposed of on or off the Premises by or on behalf of Borrower in a lawful manner. There are no underground storage tanks present on or under the Premises owned or leased by Borrower. No other environmental, public health or safety hazards exist with respect to the Premises. Section 4.15. PLACES OF BUSINESS. As of the Closing Date, the only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the addresses 14 set forth in SCHEDULE 4.15. SCHEDULE 4.15 also lists the owner of record of each such property. Borrower's Chief Executive Office is located in the state and at the address shown in SCHEDULE 4.15. Section 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns, or possesses sufficient licensing rights in, all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses and rights with respect to the foregoing necessary for the current and planned future conduct of its business, without, to the best of Borrower's knowledge after due inquiry, any conflict with the rights of others. A list of copyright applications and registrations, patent applications and trademark applications and registrations owned by Borrower, developed as a result of reasonable effort, but not necessarily a comprehensive list, is attached as Schedule 4.16. . To the best of Borrower's knowledge after due inquiry, Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. To the best of Borrower's knowledge after due inquiry, Borrower is not infringing on any patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses, any rights with respect to the foregoing, or any other intellectual property rights of others and the Borrower is not aware of any infringement by others of any such rights owned by Borrower. Section 4.17. CAPITALIZATION. The authorized equity securities (whether capital stock, partnership or membership interests or otherwise) of each entity comprising Borrower are as set forth in SCHEDULE 4.17. All issued and outstanding equity securities of the Borrower are duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens or pledges other than those in favor of Lender or for the benefit of Lender, and such equity securities were issued in compliance with all applicable state, federal and foreign laws concerning the issuance of securities. The identity of the holders of equity securities in excess of five percent (5%) of all issued and outstanding equity securities of Borrower on a percentage basis as of December 31, 2001 and the percentage of such holder's ownership of such equity securities are set forth on SCHEDULE 4.17. No shares of the equity securities of Borrower, other than those described above, are issued and outstanding. Except as provided in SCHEDULE 4.17, there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from Borrower of any equity securities of Borrower. Section 4.18. MATERIAL FACTS. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated by this Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained in this Agreement or other Loan Document not misleading. There is no fact known to Borrower that would result in or cause a Material Adverse Effect. Section 4.19. INVESTMENTS, GUARANTEES AND CERTAIN CONTRACTS. Borrower does not own or hold any equity or long-term debt investments in, have any outstanding advances to, have any outstanding guarantees for the obligations of, or have any outstanding borrowings from, any Person, except as described on SCHEDULE 4.19. Borrower is not a party to any contract or agreement, or subject to any corporate restriction, which adversely affects its business. Section 4.20. BUSINESS INTERRUPTIONS. Within five (5) years before the date of this Agreement, neither the business, property or assets, or operations of Borrower has been adversely affected in any way by any casualty, strike, lockout, combination of workers, or order of the United States of America or other Governmental Authority, directed against Borrower. There are no pending or threatened labor disputes, strikes, lockouts or similar occurrences or grievances against Borrower or its business. Section 4.21. NAMES. Within five (5) years before the date of this Agreement, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) other than as shown on SCHEDULE 4.21. Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, business, and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. Section 4.22 JOINT VENTURES. Borrower is not engaged in any joint venture or partnership with any other Person, except as set forth on SCHEDULE 4.22. Section 4.23 ACCOUNTS. Lender may rely, in determining which Accounts are Qualified Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Qualified Account, Borrower represents that: 15 (a) The Account is genuine and in all respects what it purports to be, and will represent a BONA FIDE obligation of Borrower's Account Debtors, and is not evidenced by a judgment; (b) The Account arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts, certification, participation, certificate of need, or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) The Account is for a liquidated amount maturing as stated in a duplicate claim or invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender; (d) The Account, and Lender's security interest in such Account, is not, and will not (by voluntary act or omission by Borrower), be in the future, subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (e) There are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable thereunder from the face amount of the claim or invoice and statements delivered to Lender with respect thereto; (f) To the best of Borrower's knowledge, (i) the Account Debtor under the Account had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (ii) such Account Debtor is solvent; (g) To the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor under the Account which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account; and (h) The Account has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and compliance and conformance with any and requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account is properly payable directly to Borrower. Section 4.24. SOLVENCY. Both before and after giving effect to the transactions contemplated by the terms and provisions of this Agreement, Borrower (taken as a whole) (a) owns assets whose fair saleable value is greater than the amount required to pay all of Borrower's Indebtedness (as defined in Section 7.11), (b) was and is able to pay all of its Indebtedness as such Indebtedness matures, and (c) had and has capital sufficient to carry on its business and transactions and all business and transactions in which it about to engage. ARTICLE V CLOSING AND CONDITIONS OF LENDING Section 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to enter into and perform this Agreement and to make Revolving Credit Loans is subject to the following conditions precedent: (a) Lender shall have received two (2) originals of this Agreement, the Certificate of Validity, the Stock Pledge Agreements, and all other Loan Documents required to be executed and delivered at or before Closing (other than the Note, as to which Lender shall receive only one (1) original), executed by Borrower and any other required Persons, as applicable. (b) Lender shall have received all searches required by Section 3.5. (c) Borrower shall have complied and shall then be in compliance with all the terms, covenants and conditions of the Loan Documents. (d) There shall have occurred and be continuing no Event of Default and no event that, with the giving of notice or the lapse of time, or both, could constitute such an Event of Default. 16 (e) The representations and warranties contained in Article IV shall be true and correct. (f) Lender shall have received copies of all board of directors resolutions, consents of members and managers and consents of partners of each Borrower, and other action taken by Borrower to authorize the execution, delivery and performance of the Loan Documents and the borrowing of the Loan under the Loan Documents, as well as the names and signatures of the officers of, members and managers of and partners of Borrower authorized to execute documents on its behalf in connection with the Loan, all as also certified as of the date of this Agreement by Borrower's chief financial officer, or equivalent, and such other papers as Lender may require. (g) Lender shall have received (i) copies, certified as true, correct and complete by the applicable state of organization of each Borrower of the certificate of incorporation, certificate of formation or certificate of limited liability partnership of each Borrower, with any amendments to any of the foregoing, (ii) copies, certified as true, correct and complete by an authorized officer, member or partner of each Borrower of all other documents necessary for performance of the obligations of Borrower under this Agreement and the other Loan Documents, and (iii) certificates of good standing for each Borrower issued by the state of organization of each Borrower and by each state in which each Borrower is doing and currently intends to do business for which qualification is required. (h) Lender shall have received a written opinion of counsel for Borrower dated the date of this Agreement, substantially in the form of EXHIBIT C. (i) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered under this Agreement, including, without limitation, an initial borrowing base certificate calculating the Borrowing Base. (j) Lender shall have received evidence of all of Borrower's applications for registration of copyrights and registration numbers of the following software products with the United States Copyright Office: (i) IDXtend 9.0; (ii) IDXtend 2.0 for the Web; (iii) LASTWORD 4.0; and (iv) CARECAST 5.0. (k) Lender shall have received the Commitment Fee. (l) The Lockbox, Lockbox Account and the Concentration Account shall have been established. (m) Lender shall have received a certificate of Borrower's chief financial officer, dated the Closing Date, certifying that all of the conditions specified in this Section have been fulfilled. Section 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances or other extensions of credit under the Loan shall be disbursed under this Agreement unless the following conditions have been satisfied or waived immediately before such disbursement: (a) The representations and warranties on the part of Borrower contained in Article IV of this Agreement shall be true and correct in all material respects at and as of the date of disbursement or advance, as though made on and as of such date (except to the extent that such representations and warranties expressly relate solely to an earlier date and except that the references in Section 4.7 to financial statements shall be deemed to be a reference to the then most recent annual and interim financial statements of Borrower furnished to Lender pursuant to Section 6.1). (b) No Event of Default or event that, with the giving of notice or the lapse of time, or both, could become an Event of Default shall have occurred and be continuing or would result from the making of the disbursement or advance. 17 (c) No Material Adverse Effect has occurred or exists. (d) All instruments and legal documents and proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Lender and its counsel, and Lender shall have received all documents, including records of corporate proceedings and opinions of counsel, which Lender may have requested in connection therewith. Section 5.3. CLOSING. Subject to the conditions of this Article V, the Loan shall be made available on the date as is mutually agreed by the parties (the "CLOSING DATE") at such time as may be mutually agreeable to the parties upon the execution of this Agreement (the "CLOSING") at such place as may be requested by Lender. Section 5.4. WAIVER OF RIGHTS. By completing the Closing under this Agreement, or by making advances under the Loan, Lender does not waive a breach of any representation or warranty of Borrower under this Agreement or under any other Loan Document, and all of Lender's claims and rights resulting from any breach or misrepresentation by Borrower are specifically reserved by Lender, unless the Lender has specifically waived such claim and right in writing. ARTICLE VI AFFIRMATIVE COVENANTS Each entity comprising Borrower covenants and agrees that for so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: Section 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower will furnish to Lender (a) a revenue and collections report and accounts receivable aging schedule on a form acceptable to Lender within fifteen (15) days after the end of each calendar month, which shall include, without limitation, a listing of collections received; (b) payables aging schedules within fifteen (15) days after the end of each calendar month; (c) internally prepared monthly financial statements for Borrower, certified by the chief financial officer of Borrower, within forty-five (45) days of the end of each calendar month; (d) to the extent prepared by Borrower, annual projections, profit and loss statements, balance sheets, and cash flow reports (prepared on a quarterly basis) for the succeeding fiscal year, which, on a preliminary basis, shall be delivered within thirty (30) days before the end of each of Borrower's fiscal years, with a final version to be provided on or before February 28 of the subject year; (e) internally prepared annual financial statements for Borrower within sixty (60) days after the end of each of Borrower's fiscal years, subject to annual audit adjustments; (f) annual audited financial statements for Borrower prepared by a firm of independent public accountants satisfactory to Lender, within one hundred thirty-five (135) days after the end of each of Borrower's fiscal years; (g) promptly upon receipt thereof, copies of any reports submitted to Borrower by the independent accountants in connection with any interim audit of the books of Borrower and copies of each management control letter provided to Borrower by independent accountants; (h) as soon as available, and to the extent not already provided, copies of all financial statements and notices provided by Borrower to all of its stockholders; (i) on the last business day of every month, evidence satisfactory to Lender that all federal and state taxes, including, without limitation, payroll taxes, that are due have been paid in full; and (j) such additional information, reports or statements as Lender may from time to time request. Annual financial statements shall set forth in comparative form figures for the corresponding periods in the prior fiscal year. All financial statements shall include a balance sheet and statement of earnings and shall be prepared in accordance with GAAP. Section 6.2. PAYMENTS UNDER THIS AGREEMENT. Borrower will make all payments of principal, interest, fees, and all other payments required under this Agreement and under the Loan, and under any other agreements with Lender to which Borrower is a party, as and when due. Section 6.3. EXISTENCE, GOOD STANDING AND COMPLIANCE WITH LAWS. Borrower will do or cause to be done all things necessary (a) to obtain and keep in full force and effect all corporate, limited liability company or limited liability partnership existence, rights, licenses, permits, certificates of needs, regulatory approvals, privileges, and franchises (collectively, "PERMITS") of Borrower necessary to the ownership of its property or the conduct of its business, and comply with all applicable current and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over Borrower; (b) to maintain and protect at 18 all times all of Borrower's insurance upon its insurable property and operations as required by law or by Section 6.7; and (c) to maintain all Permits free from restrictions or known conflicts which could materially impair their use or operation or cause the Permits to be provisional, probationary or restricted in any way. Section 6.4. LEGALITY. The making of the Loan and each disbursement or advance under the Loan shall not be subject to any penalty or special tax, shall not be prohibited by any governmental order or regulation applicable to Borrower, and shall not violate any rule or regulation of any Governmental Authority, and necessary consents, approvals and authorizations of any Governmental Authority to or of any such disbursement or advance shall have been obtained. Section 6.5. REGISTRATION OF SOFTWARE PRODUCTS. Unless otherwise provided for in SCHEDULE 6.28, Borrower shall file with the United States Copyright Office using the expedited registration process in the United States Copyright Office, an application for registration of the most current integer revision, e.g., 1.0 or 2.0, in general release on the Closing Date (any version within an integer revision) for any and all software products owned by Borrower and, in the future, new integer revisions (any version within an integer revision) of any software products owned by Borrower, within sixty (60) days following the general release thereof, and Borrower shall diligently pursue obtaining a copyright registration number for each such product. Borrower shall provide notice to Lender of any such filing, together with copies of all applications, filings and other registration correspondence and documents relating thereto. Upon receipt of registration for any such copyrightable work, Borrower shall execute and deliver to Lender a Copyright Security Agreement in substantially the form attached hereto as EXHIBIT D, or any other document required by Lender to be filed with the United States Copyright Office for the purpose of perfecting Lender's security interest over such software product(s). Section 6.6. TAXES AND CHARGES. Borrower will timely file all tax reports and pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, or its income or profits or upon its properties or any part thereof, before the same shall be in default and before the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies or otherwise which, if unpaid, might become a Lien or charge upon the properties or any part thereof of Borrower; PROVIDED, HOWEVER, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, and Borrower shall have set aside on their books adequate reserve therefor; and PROVIDED FURTHER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's Lien and priority on the Collateral are not adversely affected, altered or impaired thereby. Section 6.7. INSURANCE. Borrower will carry adequate public liability and professional liability insurance with responsible companies reasonably satisfactory to Lender in such amounts and against such risks as is customarily maintained by similar businesses and by owners of similar property in the same general area. Section 6.8. INFORMATION; VISITS AND INSPECTIONS. Borrower shall furnish to Lender such information as Lender may, from time to time, reasonably request with respect to the business or financial affairs of Borrower. Borrower shall also permit any officer, employee, agent or representative of Lender, upon at least two (2) Business Days' notice, to visit and inspect any of the properties of Borrower, to inspect, audit and make copies of or prepare extracts from Borrower's minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom, and to discuss the business affairs, finances and accounts of Borrower with, and be advised as to the same by, the officers and key employees of Borrower, and by Borrower's independent accountants (but only in the presence of a representative of Borrower), all at such times and as often as Lender may reasonably require. Section 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep and preserve all of its properties in good repair, working order and condition and from time to time make all necessary repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly conducted at all times. Section 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (a) any Event of Default; (b) any event that, with the giving of notice or lapse of time, or both, could constitute an Event of Default; (c) any event, development or circumstance whereby the financial statements previously furnished to Lender fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of Borrower; (d) any judicial, administrative or arbitration proceeding pending against Borrower, and any 19 judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could adversely affect its condition (financial or otherwise) or operations (current or prospective) or which may expose Borrower to uninsured liability of $100,000 or more; (e) any default claimed by any creditor other than Lender for Borrowed Money of Borrower in excess of $100,000; and (f) any other development in the business or affairs of Borrower which may result in a Material Adverse Effect; in each case describing the nature of the event or development. In the case of notification under clauses (a) and (b), Borrower should set forth the action Borrower proposes to take with respect to such event. Section 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (a) comply with the funding requirements of ERISA with respect to the Plans for its employees, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA; (b) furnish Lender, promptly after filing the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service with respect to all Plans, or which Borrower, or any member of a Controlled Group, may receive from such Governmental Authority with respect to any such Plans, and (c) promptly advise Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Plan and the action which Borrower proposes to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Lender: (x) upon its receipt of notice of the assertion against Borrower of a claim for withdrawal liability; (y) upon the occurrence of any event that could trigger the assertion of a claim for withdrawal liability against Borrower; and (z) upon the occurrence of any event that would place Borrower in a Controlled Group as a result of which any member (including Borrower) thereof may be subject to a claim for withdrawal liability, whether liquidated or contingent. Section 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender evidence satisfactory to Lender as to the due recording of termination statements, releases of collateral, and Forms UCC-3, and shall cause to be recorded financing statements on Form UCC-1, duly executed by Borrower and Lender, in all places necessary to release all existing security interests and other Liens in the Collateral (other than as permitted by this Agreement) and to perfect and protect Lender's first priority Lien and security interest in the Collateral, as Lender may request. Section 6.13. FINANCIAL RECORDS. Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. Section 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its Accounts in the ordinary course of business. Section 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior written notice to Lender of any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of any new, or the discontinuance of any existing, places of business. Section 6.16. BUSINESS CONDUCTED. Borrower shall continue in the business currently conducted by it using its best efforts to maintain its customers and goodwill. Borrower shall not engage, directly or indirectly, in any line of business substantially different from the business conducted by it immediately before the Closing Date, or engage in business or lines of business which are not reasonably related thereto. Section 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation, arbitration, or other proceeding before any Governmental Authority against or affecting Borrower if the amount claimed is more than $100,000. Section 6.18. [INTENTIONALLY DELETED] Section 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on demand of Lender, make available to Lender copies of shipping and delivery receipts evidencing the shipment of goods that gave rise to an Account, records, insurance verification forms, assignment of benefits, in-take forms or other proof of the satisfactory performance of services that gave rise to an Account, a copy of the claim or invoice for each Account and copies of any written contract or order from which the Account arose. Borrower shall promptly notify Lender if an Account becomes evidenced or secured by an instrument or chattel paper and upon request of Lender, will promptly deliver any such instrument or chattel paper to Lender. 20 Section 6.20. LICENSURE. Borrower will maintain all licenses necessary to conduct its business as currently conducted, and take any steps required to comply with any such new or additional requirements that may be mposed on Borrower. Section 6.21. OFFICER'S CERTIFICATES. Together with the monthly financial statements delivered pursuant to clause (c) of Section 6.1, and together with the audited annual financial statements delivered pursuant to clause (f) of that Section, Borrower shall deliver to Lender a certificate of its chief financial officer, in form and substance satisfactory to Lender: (a) Setting forth the information (including detailed calculations) required to establish whether Borrower is in compliance with the requirements of Articles VI and VII as of the end of the period covered by the financial statements then being furnished; and (b) Stating that such officer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under such officer's supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the income statements being delivered to the date of the certificate, and that such review has not disclosed the existence during such period of any fact, event or circumstance that constitutes an Event of Default or that is then, or with the passage of time or giving of notice or both, could become an Event of Default, and if any such condition or event existed during such period or now exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. Section 6.22. [INTENTIONALLY DELETED] Section 6.23. TERMINATION/DEFAULT OF CONTRACTS. Borrower shall notify Lender of any (a) default or event of default under, (b) termination of, or (c) failure of any party to renew, any of Borrower's contracts (unless the default or event of default under, termination of or failure to renew such contract, as the case may be, could not reasonably be expected to have an adverse effect on Borrower, including, without limitation, on Borrower's business, the Collateral or the Loan hereunder) as soon as reasonably possible (other than with respect to any notice of default, termination or failure to renew that originates with Borrower, which notice shall be sent concurrently to Lender). Notwithstanding anything in this Section 6.23 to the contrary, no provision in this Section 6.23 shall modify, reduce or otherwise affect Lender's rights hereunder or under any other Loan Document. Section 6.24. COMPLIANCE WITH REQUIREMENTS OF PROSPECTIVE TRANSFEREE. Borrower shall do anything reasonably necessary to comply with the requirements of any prospective transferee or servicer of the Loan, in order to enable Lender or such transferee to sell, transfer, deliver, assign, securitize or grant a participation in the Loan; provided, however, that Borrower shall not be required to do anything that has the effect of changing the essential economic terms of this Agreement. Section 6.25. CAPITAL ADEQUACY AND OTHER ADJUSTMENTS. In the event that Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by Lender or any corporation controlling Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from any central bank or governmental agency or body having jurisdiction does or shall have the effect of increasing the amount of capital, reserves or other funds required to be maintained by Lender or any corporation controlling Lender and thereby reducing the rate of return on Lender's or such corporation's capital as a consequence of its obligations hereunder, then Borrower shall from time to time within fifteen (15) days after notice and demand from Lender pay to Lender additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of such cost and showing the basis of the computation of such cost submitted by such Lender to Borrower shall, absent manifest error, be final, conclusive and binding for all purposes. Section 6.26. TAXES. (a) No Deductions. Any and all payments or reimbursements made under the Loan Documents shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto of any nature whatsoever imposed by any taxing authority, excluding such taxes to the extent imposed on Lender's net income by the jurisdiction in which Lender is organized. If Borrower shall be 21 required by law to deduct any such amounts from or in respect of any sum payable hereunder to Lender, then the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, Lender receives an amount equal to the sum it would have received had no such deductions been made. (b) Changes in Tax Laws. In the event that, subsequent to the initial advance under the Loan, (1) any changes in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (2) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (3) compliance by Lender with any request or directive (whether or not having the force of law) from any governmental authority, agency or instrumentality: (A) does or shall subject Lender to any tax of any kind whatsoever with respect to this Agreement or the other Loan Documents, or change the basis of taxation of payments to Lender of principal, fees, interest or any other amount payable hereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment fees or other fees payable hereunder or changes in the rate of tax on the overall net income of Lender); or (B) does or shall impose on Lender any other condition or increased cost in connection with the transactions contemplated hereby or participations herein; and the result of any of the foregoing is to increase the cost to Lender of making or continuing the Loan hereunder, as the case may be, or to reduce any amount receivable hereunder, then, in any such case, Borrower shall promptly pay to Lender, upon its demand, any additional amounts necessary to compensate Lender, on an after-tax basis, for such additional cost or reduced amount receivable, as determined by Lender with respect to this Agreement or the other Loan Documents. If Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify Borrower of the event by reason of which Lender has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall, absent manifest error, be final, conclusive and binding for all purposes. Section 6.27. FURTHER DOCUMENTATION. In the event any further documentation or information is (a) reasonably required by Lender or any prospective transferee in connection with selling, transferring, delivering, assigning, securitizing or granting a participation in the Loan (or transferring the servicing of the Loan), or (b) deemed reasonably necessary or appropriate by Lender in the exercise of its rights under the Loan Documents or to correct patent mistakes in the Loan Documents, materials relating to mortgagee's land title insurance or the funding of the Loan, Borrower shall provide, or cause to be provided to Lender, at Borrower's cost and expense, such documentation or information. Borrower shall execute and deliver to Lender and/or the prospective transferee or servicer such documentation, including, without limitation, any amendments, corrections, deletions or additions to the Loan Documents as is required by Lender and/or the prospective transferee; provided, however, that Borrower shall not be required to do anything that has the effect of changing the essential economic terms of the Loan set forth in the Loan Documents. Section 6.28. POST-CLOSING OBLIGATIONS. Borrower shall cause to be performed and completed, to Lender's satisfaction, all of the obligations set forth on SCHEDULE 6.28 hereto within the time periods set forth on SCHEDULE 6.28. ARTICLE VII NEGATIVE COVENANTS Each entity comprising Borrower covenants and agrees that so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: Section 7.1. BORROWING. Borrower will not create, incur, assume or suffer to exist any liability for Borrowed Money except: (a) indebtedness to Lender; (b) accounts payable to trade creditors and current operating expenses (other than for borrowed money) which are not aged more than one hundred twenty (120) days from the billing date or more than thirty (30) days from the due date, in each case incurred in the ordinary course of business and paid within 22 such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings, and Borrower shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower and its independent accountants; (c) borrowings incurred in the ordinary course of its business and not exceeding $1,000,000 in the aggregate outstanding at any one time; (d) indebtedness secured by Permitted Liens; and (e) indebtedness used by Borrower to refinance the Vermont Property (as defined in Section 7.3(b) below), subject to the terms and conditions of Section 7.3(b). Borrower will not make prepayments on any existing or future indebtedness for Borrowed Money to any Person (other than Lender, to the extent permitted by this Agreement or any subsequent agreement between Borrower and Lender). Section 7.2. JOINT VENTURES. Borrower will not invest directly or indirectly in any joint venture for any purpose without the prior written notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. Section 7.3. NO LIENS, ENCUMBRANCES OR DISPOSITION OF THE COLLATERAL OR REAL PROPERTY. (a) Lender does not authorize, and Borrower agrees not to: (i) create, incur, assume or suffer to exist any mortgage, pledge, Lien or other encumbrance of any kind (including the charge upon property purchased under a conditional sale or other title retention agreement) upon, or any security interest in, any of its Collateral, whether now owned or hereafter acquired, except for Permitted Liens; (ii) make any sale or leases of any of the Collateral; or (iii) license any of the Collateral. (b) Lender does not authorize, and Borrower agrees not to: (i) create, incur, assume or suffer to exist any mortgage, pledge, Lien or other encumbrance of any kind (including the charge upon property purchased under a conditional sale or other title retention agreement) upon, or any security interest in the real property located in South Burlington, Vermont which serves as the corporate headquarters of Borrower and owned by Borrower (the "VERMONT PROPERTY"); or (ii) make any sale or leases of the Vermont Property; PROVIDED, HOWEVER, that in the event Borrower desires to mortgage, pledge or otherwise encumber the Vermont Property in connection with a third-party refinancing thereof, and such refinancing terms are at arms' length and consistent with current market terms and conditions, as determined by Lender in its commercially reasonable discretion, and provided there is no default under any of the Loan Documents, then Lender will execute an amendment to this Agreement terminating all negative covenants with respect to the Vermont Property. Section 7.4. RESTRICTION ON FUNDAMENTAL CHANGES; NO CHANGE IN OPERATION OR CONTROL. Borrower will not: (a) enter into any transaction of merger or consolidation, other than internal reorganizations that do not change the beneficial ownership of Accounts or Borrower's other assets; (b) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, any of its assets, or the capital stock of any subsidiary of Borrower, whether now owned or hereafter acquired; or (d) acquire by purchase or otherwise all or any substantial part of the business or assets of, or stock or other evidence of beneficial ownership of, any Person. Borrower agrees that compliance with this Section 7.4 is a material inducement to Lender's advancing credit under this Agreement and Borrower further agrees that any breach of the terms of this Section 7.4 shall constitute fraud. Borrower further agrees that in addition to all other remedies available to Lender, Lender shall be entitled to specific enforcement of the covenants in this Section 7.4, including injunctive relief. Section 7.5. SALE AND LEASEBACK. Borrower will not, directly or indirectly, enter into any arrangement whereby Borrower sells or transfers all or any part of its assets and thereupon and within one year thereafter rents or leases the assets so sold or transferred without prior written notice to and the prior written consent of Lender, which consent shall not be unreasonably withheld. Section 7.6. DISTRIBUTIONS AND MANAGEMENT FEES. Borrower shall not make any Distributions (as defined below) to any of its Affiliates, to any shareholder, member, partner or other person holding an equity interest in Borrower or to any other Person related to or affiliated with any of the foregoing, if an Event of Default has occurred and is continuing, or if, as a result of such Distribution, an Event of Default would occur or would be likely to occur. "DISTRIBUTIONS" shall mean management fees, salaries or other fees or compensation, lease or rental payments, repayments of or debt service on loans or other indebtedness, dividends or other distributions with respect to any of its stock, partnership or membership interests (as the case may be) now or hereafter outstanding, the purchase, redemption or other acquisition for value of any of its stock, partnership or membership interests (as the case may be) now or hereafter outstanding, or the return of any capital of its stockholders, partners or members. Notwithstanding the foregoing, whether or not an Event of Default has occurred, Borrower may pay reasonable salaries consistent with 23 Borrower's past practices to employees, officers or directors of Borrower, and may reimburse employees, officers or directors of Borrower for reasonable expenses and other payments made in the ordinary course of business. Section 7.7. LOANS. Borrower will not make loans or advances to any Person, other than (a) trade credit extended in the ordinary course of its business, and (b) advances for business travel and similar temporary advances made in the ordinary course of business to officers, stockholders, directors, and employees. Section 7.8. CONTINGENT LIABILITIES. Borrower will not assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. Section 7.9. SUBSIDIARIES. Borrower will not form any subsidiary, or make any investment in or any loan in the nature of an investment to (excluding any short-term marketable securities and cash-like equivalents), any other Person without the written consent of Lender, which consent shall not be unreasonably withheld. Section 7.10. COMPLIANCE WITH ERISA. Borrower will not permit with respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or any Reportable Event. Section 7.11. FINANCIAL COVENANTS. (a) Definitions. For purposes of this Section 7.11, the following terms shall have the meanings set forth below, and all of which shall be determined by Lender in its sole credit judgment: "Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities during such period and excluding that portion of Capital Leases (except any cash down payment) which is capitalized on the consolidated balance sheet of the Borrower) net of cash amounts received by the Borrowers from other Persons during such period in reimbursement of Capital Expenditures made by Borrower, excluding interest capitalized during construction by Borrower during such period, that, in conformity with GAAP, are required to be included in or reflected by the property, plant, equipment or intangibles or similar fixed asset accounts reflected in the consolidated balance sheet of Borrower (including equipment which is purchased simultaneously with the trade-in of existing equipment owned by any Borrower to the extent of the gross amount of such purchase price less the book value of the equipment being traded in at such time), but excluding expenditures made in connection with the replacement or restoration of assets, to the extent reimbursed or financed from insurance proceeds paid on account of the loss of or the damage to the assets being replaced or restored, or from awards of compensation arising from the taking by condemnation or eminent domain of such assets being replaced. "Capital Lease" means any lease of any property (whether real, personal or mixed) that, in conformity with GAAP, should be accounted for as a capital lease. "EBITDA" means, for any period, without duplication, the total of the following for Borrower, on a consolidated basis, each calculated for such period: (i) net income determined in accordance with GAAP, PLUS (ii) to the extent included in the calculation of net income, the sum of (A) income and franchise taxes paid or accrued, (B) interest expenses, net of interest income, paid or accrued, (C) amortization and depreciation and (D) other non-cash charges (excluding accruals for cash expenses made in the ordinary course of business), LESS (iii) to the extent included in the calculation of net income, the sum of (A) the income of any Person in which any Borrower has a direct or indirect ownership interest, except to the extent such income is received by such Borrower in a cash distribution during such period; (B) gains or losses from sales or other dispositions of assets (other than inventory in the normal course of business); and (C) extraordinary or non-recurring gains and non-recurring losses. "Indebtedness", as applied to any Person, means, without duplication: (i) all indebtedness for Borrowed Money, (ii) obligations under leases which in accordance with GAAP constitute Capital Leases, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for Borrowed Money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six (6) months from the date the obligation is incurred or is evidenced by a note or similar written instrument, (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person, regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person, (vi) obligations in respect of any letters of credit, and (vii) any advances under 24 any factoring arrangement. "Intangible Assets" means all intangible assets (determined in accordance with GAAP) including, without limitation, goodwill, intellectual property, licenses, organizational costs, deferred amounts and covenants not to compete. "Net Cash Flow" means, for any period, (i) EBITDA, LESS (ii) Capital Expenditures, LESS (iii) amounts owed in respect of principal (excluding repayment of Revolving Credit Loans) and interest payments (net of interest income) for Indebtedness. For purposes of calculating Net Cash Flow, EBITDA shall include a prorated expense for the accrued but unpaid Corporate Performance Incentive Bonus in each fiscal quarter. "Tangible Net Worth" means assets (excluding Intangible Assets) LESS liabilities. (b) Net Worth. Borrower, on a consolidated basis and at the end of each calendar quarter, shall not at any time during the Term permit its Tangible Net Worth to fall below the amounts set forth below:
Quarter Amount ------- ------ Closing Date $180,000,000 June 30, 2002 $181,000,000 September 30, 2002 $184,000,000 December 31, 2002 $186,000,000 March 31, 2003 $190,000,000 June 30, 2003 $193,000,000 September 30, 2003 $197,000,000 December 31, 2003 $202,000,000 March 31, 2004 $210,000,000 June 30, 2004 $215,000,000 September 30, 2004 $224,000,000 December 31, 2004 $233,000,000 March 31, 2005 $240,000,000
(c) Indebtedness to EBITDA Ratio. Borrower, on a consolidated basis, shall not permit the ratio of (i) Indebtedness of Borrower, on a consolidated basis, to (ii) EBITDA of Borrower, on a consolidated basis, each calculated as of the last day of each fiscal quarter set forth below, to be greater than the ratio set forth below for such period:
Quarter Ratio for Rolling Twelve Months ------- ------------------------------- June 30, 2002 1.85 September 30, 2002 1.75 December 31, 2002 1.50 March 31, 2003 1.35 June 30, 2003 1.35 September 30, 2003 1.35 December 31, 2003 1.35 March 31, 2004 1.35 June 30, 2004 1.35 September 30, 2004 1.35 December 31, 2004 1.35 March 31, 2005 1.35
25 (d) Minimum Net Cash Flow. Borrower, on a consolidated basis and at the end of each calendar quarter, shall not at any time during the Term permit its Net Cash Flow to fall below the amounts set forth below:
Quarter Amount ------- ------ June 30, 2002 ($ 750,000) September 30, 2002 $ 750,000 December 31, 2002 $1,000,000 March 31, 2003 $5,000,000 June 30, 2003 $5,000,000 September 30, 2003 $5,000,000 December 31, 2003 $5,000,000 March 31, 2004 $5,000,000 June 30, 2004 $5,000,000 September 30, 2004 $5,000,000 December 31, 2004 $5,000,000 March 31, 2005 $5,000,000
(e) Capital Expenditure Limits. Borrower, on a consolidated basis and at the end of each calendar year, shall not at any time during the Term permit its Capital Expenditures to be greater than the amounts set forth below:
Year Amount ---- ------ 2002 $33,000,000 2003 $22,000,000 2004 $27,500,000
To the extent Borrower does not reach the Capital Expenditure limit in Year 2002 or Year 2003, Borrower shall be permitted to increase Capital Expenditures in Year 2003 and Year 2004, respectively, by the amount of such "unused" Capital Expenditures for the prior year. For example, if Borrower incurs Capital Expenditures of $30,000,000 in Year 2002, then Borrower shall be permitted to incur Capital Expenditures of $25,000,000 in Year 2003. Section 7.12. TRANSACTIONS WITH AFFILIATES. Borrower will not enter into any transaction, including, without limitation, the purchase, sale, or exchange of property, or the loaning or giving of funds to any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction is not otherwise prohibited under this Agreement. For purposes of the foregoing, Lender consents to the transactions described on SCHEDULE 7.12. Section 7.13. USE OF LENDER'S NAME. Neither party will not use the other party's name (or the name of any of such party's affiliates) in connection with any of its business operations. Neither party will permit its Affiliates to, in the future, issue any press release or other public disclosure using the name of the other party (and for Lender, such parties shall include General Electric Capital Corporation or any of their respective Affiliates) or referring to this Agreement or the other Loan Documents without at least two (2) Business Days prior written notice to such other party and without the prior written consent of such party unless (and only to the extent that) the requesting party or its Affiliate is required to so disclose under law and then, in any event, such party or Affiliate will consult with the other party before issuing such press release or other public disclosure. Borrower consents to the publication by Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing contained in this Agreement is intended to permit or authorize Borrower to make any contract on behalf of Lender. 26 Section 7.14. CHANGE IN CAPITAL STRUCTURE. Without Lender's prior written consent, (a) there shall occur no change in the legal or beneficial ownership of the capital stock, partnership interests or membership interests, or in the capital structure, of Borrower (other than IDX Systems Corporation) or any Guarantor, from that set forth on SCHEDULE 4.17, (b) there shall occur no pledge, assignment or hypothecation of or Lien or encumbrance on any of the legal or beneficial equity interests in the Borrower (other than IDX Systems Corporation) or any Guarantor, and (c) Borrower shall not consent to or acknowledge any of the transactions described in the foregoing subparts (a) and (b) of this sentence. IDX Systems Corporation will at all times remain a publicly held company. Section 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party to any contract or agreement which would breach this Agreement, or breach any other instrument, agreement, or document to which Borrower is a party or by which it is or may be bound. Section 7.16. MARGIN STOCK. Borrower will not carry or purchase any "margin security" within the meaning of Regulations U, T or X of the Board of Governors of the Federal Reserve System. Section 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not furnish to Lender any certificate or other document that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. Section 7.18. CONFIDENTIALITY. Borrower will not disclose the contents of this Loan Agreement and the other Loan Documents to any third party (including, without limitation, any financial institution or intermediary) without Lender's prior written consent, other than to Borrower's officers and advisors on a need-to-know basis. Borrower agrees to inform all such persons who receive information concerning this Agreement that such information is confidential and may not be disclosed to any other person. Section 7.19. Certain Fundamental Changes. Borrower will not, without providing Lender with thirty (30) days' prior written notice, change the state of its formation or change its legal name. ARTICLE VIII EVENTS OF DEFAULT Section 8.1. EVENTS OF DEFAULT. Each of the following (individually, an "EVENT OF DEFAULT" and collectively, the "EVENTS OF DEFAULT") shall constitute an event of default under this Agreement: (a) A default in the payment of any principal of, or interest upon, the Note when due and payable, whether at maturity or otherwise, or any breach of Section 2.3, which default or breach, as applicable, shall have continued unremedied for a period of five (5) days after written notice of the default or breach from Lender to Borrower; (b) A default in the payment of any other charges, fees, or other monetary obligations in excess of $5,000 owing to Lender arising out of or incurred in connection with this Agreement when such payment is due and payable, which default shall have continued unremedied for a period of five (5) days after written notice of the default from Lender to Borrower; (c) A default in the due observance or performance by Borrower or any Guarantor of the Obligations or any other term, covenant or agreement contained in any of the Loan Documents, which default shall have continued unremedied for a period of ten (10) days after written notice of the default from Lender to Borrower; (d) Any representation or warranty made by Borrower in this Agreement or in any of the other Loan Documents, any financial statement, or any statement or representation made in any other certificate, report or opinion delivered in connection with this Agreement or the other Loan Documents proves to have been incorrect or misleading in any material respect when made; (e) Any obligation of Borrower (other than its Obligations under this Agreement) for the payment of Borrowed Money in excess of $100,000 is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable before the expressed maturity of 27 the obligation, or there shall have occurred an event that, with the giving of notice or lapse of time, or both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable; (f) Borrower makes an assignment for the benefit of creditors, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter conducted by Borrower; (g) Borrower or any Guarantor (i) files a petition in bankruptcy, (ii) is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for itself or any substantial part of its property, (iii) commences any proceeding relating to itself under any reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or any such proceeding is commenced against Borrower or any Guarantor and such proceeding remains undismissed for a period of sixty (60) days, (iv) by any act indicates its consent to, approval of, or acquiescence in, any such proceeding or the appointment of any receiver of or any trustee for a Borrower or any Guarantor or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days, or (v) admits in writing its inability to pay its debts as they become due; (h) One or more (i) final judgments against Borrower or attachments against its property in excess of $100,000 shall be rendered by a court, arbitrator, arbitration panel, mediator or any individual(s) or entity with the authority to issue binding judgments against Borrower or (ii) final settlements by or on behalf of Borrower of any pending litigation, arbitration or other claim or otherwise disputed matter, in any event not fully and unconditionally covered by insurance, shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of ten (10) days; (i) A Reportable Event that might constitute grounds for termination of any Plan covered by Title IV of ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan or for the entry of a Lien or encumbrance to secure any deficiency, has occurred and is continuing thirty (30) days after its occurrence, or any such Plan is terminated, or a trustee is appointed by an appropriate United States District Court to administer any such Plan, or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan, or a Lien or encumbrance is entered to secure any deficiency or claim; (j) There shall occur any uninsured damage to or loss, theft or destruction of any portion of the Collateral that exceeds $100,000 in the aggregate; (k) Borrower breaches or violates the terms of, or a default or any fact, event or circumstance that could, whether with notice or the passage of time, or both, constitute a default causing a Material Adverse Effect, occurs under any other existing or future agreement (related or unrelated) between Borrower and Lender; (l) Upon the issuance of any execution or distraint process against Borrower or any of its property or assets; (m) Borrower ceases any material portion of its business operations as currently conducted; (n) Any indication or evidence is received by Lender that Borrower may have directly or indirectly been engaged in any type of activity which, in Lender's discretion, may result in the forfeiture of any property of Borrower to any Governmental Authority, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; (o) Borrower or any Affiliate of Borrower, shall challenge or contest, in any action, suit or proceeding, the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or the enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender; (p) Borrower shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Collateral; (r) There shall occur a material adverse change in the financial condition or business prospects of Borrower, or if Lender in good faith deems itself insecure as a result of acts or events bearing upon the 28 financial condition of Borrower or the repayment of the Note, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; or (s) An event of default occurs under any of the Affiliated Loan Documents. Notwithstanding the foregoing, Borrower's failure to comply with any same provision of this Agreement two (2) times in any twelve (12) month period shall effect an immediate Event of Default (without the expiration of any applicable cure period) with respect to all subsequent failures by Borrower to comply with such provision of this Agreement, and Lender thereupon may exercise any remedy set forth in this Article VIII without affording Borrower any opportunity to cure such Event of Default. All cure periods provided for in this Section shall run concurrently with any cure period provided for in any applicable Loan Documents under which the default occurred. If any right or privilege of the Borrower herein, or any consent of Lender herein, is conditioned upon the absence of an Event of Default, such right, privilege or consent shall be construed as being conditioned upon the absence of an Event of Default as well as the absence of any fact, event or circumstance that, with the passage of time, or the giving of notice, or both, could constitute an Event of Default. Section 8.2. ACCELERATION. Upon the occurrence of any of the foregoing Events of Default, the Obligations under the Note shall become and be immediately due and payable upon declaration to that effect delivered by Lender to Borrower; provided that, upon the happening of any event specified in Section 8.1(g),all Obligations including, without limitation, the Termination Fee, shall be immediately due and payable without declaration or other notice to Borrower. Section 8.3. REMEDIES. (a) Upon the occurrence of and during the continuance of an Event of Default under this Agreement or the other Loan Documents, Lender, in addition to all other rights, options, and remedies granted to Lender under this Agreement or at law or in equity, may take any of the following steps (which list is given by way of example and is not intended to be an exhaustive list of all such rights and remedies): (i) Terminate the Loan, whereupon all outstanding Obligations (including, without limitation, the Termination Fee) shall be immediately due and payable; (ii) Exercise all other rights granted to it under this Agreement and all rights under the UCC in effect in the applicable jurisdiction(s) and under any other applicable law; and (iii) Exercise all rights and remedies under all Loan Documents now or hereafter in effect, including, without limitation: (A) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; (B) The right to (by its own means or with judicial assistance) enter any of Borrower's premises and take possession of the Collateral, or render it unusable, or dispose of the Collateral on such premises in compliance with subsection (C) below, without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action; (C) The right to require Borrower at Borrower's expense to assemble all or any part of the Collateral and make it available to Lender at any place designated by Lender; (D) The right to reduce the Maximum Loan Amount or to use the Collateral and/or funds in the Concentration Account in amounts up to the Maximum Loan Amount for any reason; and (E) The right to enforce Borrower's rights against Account Debtors and other obligors, including, without limitation, the right to collect Accounts directly in Lender's own name and to charge the collection costs and expenses, including attorneys' fees, to Borrower. 29 (b) Borrower agrees that a notice received by it at least fifteen (15) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrower. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral. Lender shall have no obligation to clean-up or otherwise prepare the Collateral for sale. Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. If Lender sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Lender and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Lender may resell the Collateral and Borrower shall be credited with the proceeds of the sale. (c) Lender shall have no obligation to marshal any assets in favor of Borrower, or against or in payment of the Note, any of the other Obligations or any other obligation owed to Lender by Borrower or any other person. Section 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order (a) the liabilities and Obligations of Borrower or any of its subsidiaries or Affiliates to Lender or any Affiliate of Lender under this Agreement or any other loan documents evidencing financings provided to Borrower or (b) the liabilities and obligations of Borrower, any Guarantor and their respective Affiliates to Lender under the Affiliated Loan Documents. All rights and remedies granted Lender under this Agreement and under any agreement referred to in this Agreement, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Loan, and all other existing and future liabilities and obligations of Borrower to Lender, are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement, with any available remedy and in any order. All sums received from Borrower and/or the Collateral in respect of the Loan may be applied by Lender to the any other liabilities and obligations of Borrower under the Loan Documents and the Affiliated Loan Documents in such order of application and in such amounts as Lender shall deem appropriate in its sole and absolute discretion. Borrower waives any right it may have to require Lender to pursue any Person for any of the Obligations. ARTICLE IX MISCELLANEOUS Section 9.1. EXPENSES AND TAXES. (a) Borrower agrees to pay, whether or not the Closing occurs, a reasonable documentation preparation fee, together with actual legal, audit and appraisal fees and all other out-of-pocket charges and expenses incurred by Lender in connection with the negotiation, preparation, legal review and execution of each of the Loan Documents, including, without limitation, UCC and judgment lien searches and UCC filings and fees for post-Closing UCC and judgment lien searches. In addition, Borrower shall pay all such fees associated with any amendments, modifications and terminations to the Loan Documents following Closing. If Lender uses in-house counsel for any of these purposes, Borrower further agrees that its Obligations under the Loan Documents include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Lender for the work performed. Notwithstanding the foregoing, the fees incurred by Lender's in-house counsel in connection with closing the Loan shall not exceed Thirty Five Thousand Dollars ($35,000), which specifically excludes any outside counsel retained by Lender and any out-of-pocket legal costs incurred by Lender, including lien and litigation search fees, UCC financing statements and termination statements, and the similar fees. 30 (b) Borrower also agrees to pay all out-of-pocket charges and expenses incurred by Lender (including the fees and expenses of Lender's counsel) in connection with the enforcement, protection or preservation of any right or claim of Lender, the termination of this Agreement, the termination of any Liens of Lender on the Collateral, or the collection of any amounts due under the Loan Documents. If Lender uses in-house counsel for any of these purposes (i.e., for any task in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under its Loan Documents), Borrower further agrees that its Obligations under the Loan Documents include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Lender for the work performed. (c) Borrower shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of the security documents therefor. The obligations of Borrower under this clause (c) shall survive the payment of Borrower's indebtedness under this Agreement and the termination of this Agreement. Section 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents constitute the full and entire understanding and agreement among the parties with regard to their subject matter and supersede all prior written or oral agreements, understandings, representations and warranties made with respect thereto. No amendment, supplement or modification of this Agreement nor any waiver of any provision thereof shall be made except in writing executed by the party against whom enforcement is sought. Section 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party to this Agreement of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of any party in exercising any right, power or remedy under this Agreement, nor acceptance of partial performance or partial payment, shall operate as a waiver of such right, power or remedy nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy. The remedies provided for in this Agreement are cumulative and are not exclusive of any remedies that may be available to any party to this Agreement at law, in equity or otherwise. Section 9.4. NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice under this Agreement: (a) If to Lender, at: ----------------- Heller Healthcare Finance, Inc. c/o GE Capital Healthcare Financial Services 2 Wisconsin Circle, 4th Floor Chevy Chase, Maryland 20815 Attention: Pascale Bissainthe, Esq., Chief Counsel Telephone: (301) 961-1640 Telecopier: (301) 664-9866 (b) If to Borrower, at: ------------------- c/o IDX Systems Corporation 40 IDX Drive South Burlington, Vermont 05403 Attention: William F. Grieco, Esquire, Senior Vice President and General Counsel Telephone: (802) 862-1022 Telecopier: (802) 862-6351 If mailed, notice shall be deemed to be given five (5) days after being sent, and if sent by personal delivery, telecopier or prepaid courier, notice shall be deemed to be given when delivered. 31 Section 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement, or the application of such term, covenant or condition to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, the remainder of this Agreement and the application of such term, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term is invalid, illegal or unenforceable, Lender may, but is not obligated to, advance funds to Borrower under this Agreement until the parties to this Agreement amend this Agreement so as to effect the original intent of the parties as closely as possible in a valid and enforceable manner. Section 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns and shall bind all Persons who become bound as a debtor to this Agreement. Notwithstanding the foregoing, Borrower may not assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of Lender, which may be withheld in its sole discretion. Lender may sell, assign, transfer, or participate any or all of its rights or obligations under this Agreement without notice to or consent of Borrower. Section 9.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. Section 9.8. INTERPRETATION. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any party because that party or its legal representative drafted that provision. The titles of the paragraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Any pronoun used in this Agreement shall be deemed to include singular and plural and masculine, feminine and neuter gender as the case may be. The words "herein," "hereof," and "hereunder" shall be deemed to refer to this entire Agreement, except as the context otherwise requires. Section 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and warranties made in this Agreement, any other Loan Document, and in any certificates and other instruments delivered in connection with this Agreement shall be considered to have been relied upon by Lender and shall survive the making by Lender of the Loans contemplated by this Agreement and the execution and delivery to Lender of the Note, and shall continue in full force and effect until all liabilities and obligations of Borrower to Lender are satisfied in full. Section 9.10. RELEASE OF LENDER. For and in consideration of the Loan and each advance or other financial accommodation hereunder, each Borrower, voluntarily, knowingly, unconditionally, and irrevocably, with specific and express intent, for and on behalf of itself and its agents, attorneys, heirs, successors, and assigns (collectively the "RELEASING PARTIES") does hereby fully and completely release, acquit and forever discharge Lender, and its successors, assigns, heirs, affiliates, subsidiaries, parent companies, principals, directors, officers, employees, shareholders and agents (hereinafter called the "LENDER PARTIES"), and any other person, firm, business, corporation, insurer, or association which may be responsible or liable for the acts or omissions of the Lender Parties, or who may be liable for the injury or damage resulting therefrom (collectively the "RELEASED PARTIES"), of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) have or may have, against the Released Parties or any of them (whether directly or indirectly), except to the extent caused by a Lender Party's gross negligence or willful misconduct. Each Borrower acknowledges that the foregoing release is a material inducement to Lender's decision to extend to Borrower the financial accommodations hereunder and has been relied upon by Lender in agreeing to make the Loan and in making each advance of Loan proceeds hereunder. Section 9.11. TIME. Whenever Borrower is required to make any payment or perform any act on a Saturday, Sunday, or a legal holiday under the laws of the State of Maryland (or other jurisdiction where Borrower is required to make the payment or perform the act), the payment may be made or the act performed on the next Business Day. Time is of the essence in Borrower's performance under this Agreement and all other Loan Documents. Section 9.12. COMMISSIONS. The transaction contemplated by this Agreement was brought about by Lender and Borrower acting as principals and without any brokers, agents, or finders being the effective procuring cause. Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission, or charge in connection with this transaction. If any such claim is made on Lender by any broker, finder, or agent or other person, 32 Borrower will indemnify, defend, and hold Lender harmless from and against the claim and will defend any action to recover on that claim, at Borrower's cost and expense, including Lender's counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount demanded will be deemed a liability of Borrower under this Agreement, secured by the Collateral. Section 9.13. THIRD PARTIES. No rights are intended to be created under this Agreement or under any other Loan Document for the benefit of any third party donee, creditor, or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower's duty of performance, including, without limitation, Borrower's duties under any account or contract in which Lender has a security interest. Section 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time, and from time to time, without prior notice to Borrower but only if Borrower fails to do so within the time permitted, to: (a) obtain insurance covering any of the Collateral as required under this Agreement; (b) pay for the performance of any of Borrower's obligations under this Agreement; (c) discharge taxes, Liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items; and (d) pay for the maintenance and preservation of any of the Collateral. Expenses and advances shall be added to the Loan, until reimbursed to Lender and shall be secured by the Collateral. Any such payments and advances by Lender shall not be construed as a waiver by Lender of an Event of Default. Section 9.15. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant it may obtain in the Loan, or any portion of the Loan, all information, and furnish to such participant copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any other Loan Document. Section 9.16. INDEMNITY. Borrower hereby indemnifies and agrees to defend (with counsel acceptable to Lender) and hold harmless Lender, its partners, officers, agents and employees (collectively, "Indemnitee") from and against any liability, loss, cost, expense (including reasonable attorneys' fees and expenses for both in-house and outside counsel), claim, damage, suit, action or proceeding ever suffered or incurred by Lender or in which Lender may ever be or become involved (whether as a party, witness or otherwise) (a) arising from Borrower's failure to observe, perform or discharge any of its covenants, obligations, agreements or duties under this Agreement, (b) arising from the breach of any of the representations or warranties contained in Article IV of this Agreement, (c) by reason of this Agreement, the other Loan Documents or the transactions contemplated hereby or thereby, except to the extent resulting from Lender's gross negligence or willful misconduct, or (d) relating to claims of any Person with respect to the Collateral. Notwithstanding any contrary provision in this Agreement, the obligation of Borrower under this Section 9.16 shall survive the payment in full of the Obligations and the termination of this Agreement. Section 9.17. APPOINTMENT OF AGENT UNDER THIS AGREEMENT. (a) Each of the entities comprising Borrower (other than IDX Systems Corporation) hereby irrevocably appoints and constitutes IDX Systems Corporation as its agent to request and receive Revolving Credit Loans (and to otherwise act on behalf of each such entity pursuant to this Agreement and the other Loan Documents) from Lender in the name or on behalf of each such entity. Lender may disburse the Revolving Credit Loans to the bank account of any one or more of such entities without notice to any of the other entities comprising Borrower or any other Person at any time obligated on or in respect of the Obligations. (b) Each of the entities comprising Borrower (other than IDX Systems Corporation) hereby irrevocably appoints and constitutes IDX Systems Corporation as its agent to receive statements of account and all other notices from Lender with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents. (c) No purported termination of the appointment of IDX Systems Corporation agent shall be effective without the prior written consent of Lender. Section 9.18. LENDER APPROVALS. Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Lender with respect to any matter that is the subject of this Agreement, the other Loan Documents may be granted or withheld by Lender in its sole and absolute discretion. 33 Section 9.18a. FURTHER ASSURANCES. Borrower hereby agrees that at any time and from time to time, at the expense of Borrower, Borrower will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Lender or any of its agents to exercise and enforce its rights and remedies under this Agreement with respect to any portion of such collateral. Section 9.19. CHOICE OF LAW; CONSENT TO JURISDICTION. EXCEPT TO THE EXTENT THAT THE UCC PROVIDES FOR THE APPLICATION OF THE LAW OF THE BORROWER'S STATE OF ORGANIZATION, THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S. DISTRICT COURT FOR THE DISTRICT OF MARYLAND, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4. OR IF SERVED BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAW. Section 9.20. COOPERATION IN DISCOVERY AND LITIGATION. IN ANY LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF BORROWER OR OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF BORROWER FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE). BORROWER AGREES THAT LENDER'S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION. BORROWER IN ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM) OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE IN ANY JURISDICTION THAT RECOGNIZES THAT (OR ANY SIMILAR) DISTINCTION. Section 9.21. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. Section 9.22. CONFESSION OF JUDGMENT. BORROWER AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF BORROWER IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OR PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE 34 FULL AMOUNT DUE ON THIS AGREEMENT (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING; PROVIDED, HOWEVER, THAT WITH RESPECT TO ATTORNEYS' FEES, LENDER SHALL NOT SEEK TO COLLECT FROM BORROWER MORE THAN ITS ACTUAL ATTORNEYS' FEES INCURRED. BORROWER AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND. BORROWER WAIVES THE BENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER. Section 9.23. CONFIDENTIALITY OF BORROWER INFORMATION. Lender will not disclose to any third party, other than to Lender's employees on a need-to-know basis, any information provided by Borrower to Lender in connection with this Agreement or any Loan made hereunder that is identified to the Lender as "proprietary" or "confidential"; PROVIDED, HOWEVER, that, notwithstanding the foregoing, Lender may disclose any such information (a) to any Person at any time with Borrower's written consent; (b) to the extent such disclosure is compelled by legal, arbitral, judicial or regulatory process, or is requested by any judge, arbitrator, agency or authority having authority over Lender; (c) to any Person to whom Lender sells or assigns a participation in the Loan, provided that such Person executes an agreement reasonably acceptable to Borrower providing for the confidential treatment of such information; (d) to any Person in connection with Lender's exercise or enforcement of any rights, remedies or privileges under this Agreement or at law in equity in respect of this Agreement and the Loans made by Lender hereunder; and (e) to any Person in connection with any dispute, claim, litigation, action, regulatory inquiry or other similar process to which Lender or any of its employees, officers, directors, Affiliates or Subsidiaries are a party or in which Lender or any of such individuals or entities are required to testify. Notwithstanding the foregoing, information provided by Borrower to Lender shall not be deemed "proprietary" or "confidential" to the extent such information (x) was available to the public at the time of Lender's receipt thereof, (y) becomes available to the public at any time following Lender's receipt thereof other than as a result of unauthorized disclosure by Lender, or (z) is acquired by Lender from a Person not known by Lender to have any confidentiality obligation to Borrower in respect of such information. [SIGNATURES APPEAR ON FOLLOWING PAGE] 35 IN WITNESS WHEREOF, intending to be legally bound, and intending that this Agreement constitutes an instrument executed under seal, the parties have caused this Agreement to be executed under seal as of the date first written above. WITNESS/ATTEST: LENDER: ------- HELLER HEALTHCARE FINANCE, INC., a Delaware corporation and a GE Capital Company By: /S/ LISA LENDERMAN By:/S/ BRETT ROBINSON ___________________________ ________________________________(SEAL) Name: Lisa Lenderman Name: Brett Robinson Title: Senior Counsel & VP Title: Vice Pres. BORROWER: -------- IDX SYSTEMS CORPORATION, a Vermont corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ ________________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P., CFO & Treasurer IDX INFORMATION SYSTEMS CORPORATION, a Vermont corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ _______________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P. & Treasurer IDX INVESTMENT CORPORATION, a Vermont corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ ________________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P. & Treasurer EDIX CORPORATION, a Delaware corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ ________________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P. & Treasurer 36 LIST OF EXHIBITS - ---------------- Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Lockbox Agreement Exhibit C - Form of Legal Opinion Exhibit D - Form of Copyright Security Agreement 37 LIST OF SCHEDULES ----------------- Schedule 1.40 - Permitted Liens Schedule 4.1 - Subsidiaries Schedule 4.2 - State of Organization Schedule 4.5 - Litigation Schedule 4.7 - Tax Identification Numbers; Fiscal Years Schedule 4.13 - Non-Compliance with Law Schedule 4.14 - Environmental Matters Schedule 4.15 - Places of Business; Record Owner; Chief Executive Office Schedule 4.16 - Intellectual Property Schedule 4.17 - Capitalization; Ownership Schedule 4.19 - Borrowings and Guarantees Schedule 4.21 - Trade Names Schedule 4.22 - Joint Ventures Schedule 6.28 - Post-Closing Obligations Schedule 7.12 - Affiliated Transactions 38 EX-10 4 revolvingnote.txt EXHIBIT 10.2 Exhibit 10.2 REVOLVING CREDIT NOTE $40,000,000.00 June 27, 2002 FOR VALUE RECEIVED, the undersigned, IDX SYSTEMS CORPORATION, a Vermont corporation, IDX INFORMATION SYSTEMS CORPORATION, a Vermont corporation, IDX INVESTMENT CORPORATION, a Vermont corporation, and EDIX CORPORATION, a Delaware corporation (collectively, "BORROWER"), jointly and severally, promise to pay, in lawful money of the United States, to the order of HELLER HEALTHCARE FINANCE, INC., a Delaware corporation and a GE Capital Company (together with its successors and assigns, "LENDER"), the principal sum of Forty Million and No/100 Dollars ($40,000,000.00), or so much of such principal sum as shall be advanced or readvanced and shall remain unpaid under the Loan established pursuant to that certain Loan and Security Agreement dated as of even date with this Note by and among the undersigned and Lender (as amended, modified, restated or replaced from time to time, the "LOAN AGREEMENT"), plus interest on the unpaid balance thereof, calculated on the basis of the actual number of days elapsed over a year of 360 days, at the rate per annum that is set forth in the Loan Agreement. 1. All capitalized terms used and not otherwise specifically defined in this Revolving Credit Note (as amended, modified, restated or replaced from time to time, the "NOTE") shall have the meanings given to them in the Loan Agreement. 2. This Note shall evidence the undersigned's obligation to repay all sums advanced by Lender from time to time under the Loan Agreement and as part of the Loan. The actual amount due and owing from time to time under this Note shall be evidenced by Lender's records of receipts and disbursements with respect to the Loan, which shall be conclusive evidence of that amount, absent manifest error. 3. Interest due pursuant to this Note shall be payable monthly, in arrears, on the first Business Day of each month after the date of this Note (for the previous month). 4. This Note shall become due and payable upon the earlier to occur of (a) the expiration of the Term, or (b) the occurrence of any Event of Default under the Loan Agreement. At such time, the entire principal balance of this Note and all other fees, costs and expenses, if any, shall be due and payable in full. Lender shall then have the option at any time and from time to time to exercise all of the rights and remedies set forth in this Note and in the other Loan Documents, as well as all rights and remedies otherwise available to Lender at law or in equity, to collect the unpaid indebtedness under this Note and the other Loan Documents. This Note is secured by the Collateral, as defined in and described in the Loan Agreement. 5. Upon the occurrence of any Event of Default, interest on this Note shall thereafter be payable at a rate per annum equal to two (2) percentage points above the stated rate of interest on this Note until such amounts shall be paid. 6. The undersigned and Lender intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated by the Loan Agreement or this Note would be usurious under such laws, then notwithstanding any other provision hereof: (a) the aggregate of all interest that is contracted for, charged, or received under this Note or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law, and any excess shall be promptly credited to the undersigned by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to the undersigned by Lender); (b) neither the undersigned nor any other Person (as defined in the Loan Agreement) now or hereafter liable hereunder shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum interest permitted by applicable law; and (c) the effective rate of interest shall be reduced to the Highest Lawful Rate (as defined in the Loan Agreement). All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of this Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under this Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Note shall be limited, notwithstanding anything to the contrary in this Note, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Note below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Note under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under this Note had been in effect, then the undersigned agrees to pay to Lender an amount equal to the difference between (x) the lesser of (A) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (B) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (y) the amount of interest accrued in accordance with the other provisions of this Note and the Loan Agreement. 7. This Note is the "Note" referred to in the Loan Agreement, and is issued pursuant to the Loan Agreement. Reference is made to the Loan Agreement for a statement of the additional rights and obligations of the undersigned and Lender. In the event of any conflict between the terms of this Note and the terms of the Loan Agreement, the terms of the Loan Agreement shall prevail. All of the terms, covenants, provisions, conditions, stipulations, promises and agreements contained in the Loan Documents to be kept, observed and/or performed by the undersigned are made a part of this Note and are incorporated into this Note by this reference to the same extent and with the same force and effect as if they were fully set forth in this Note; the undersigned promises and agrees to keep, observe and perform them or cause them to be kept, observed and performed, strictly in accordance with the terms and provisions thereof. 2 8. Each party liable on this Note in any capacity, whether as maker, endorser, surety, guarantor or otherwise, (a) waives presentment for payment, demand, protest and notice of presentment, notice of protest, notice of non-payment and notice of dishonor of this debt and each and every other notice of any kind respecting this Note and all lack of diligence or delays in collection or enforcement hereof; (b) agrees that Lender at any time or times, without notice to the undersigned or its consent, may grant extensions of time, without limit as to the number of the aggregate period of such extensions, for the payment of any principal, interest or other sums due hereunder; (c) to the extent permitted by law, waives all exemptions under the laws of the State of Maryland and/or any state or territory of the United States; (d) to the extent permitted by law, waives the benefit of any law or rule of law intended for its advantage or protection as an obligor under this Note or providing for its release or discharge from liability on this Note, in whole or in part, on account of any facts or circumstances other than full and complete payment of all amounts due under this Note; and (e) agrees to pay, in addition to all other sums of money due, all cost of collection and attorney's fees, whether suit be brought or not, if this Note is not paid in full when due, whether at the stated maturity or by acceleration. 9. No waiver by Lender of any one or more defaults by the undersigned in the performance of any of its obligations under this Note shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of Lender in exercising any right, power or remedy under this Note (including, without limitation, the right to declare this Note due and payable) shall operate as a waiver of such right, power or remedy nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy. 10. If any term, provision, covenant or condition of this Note or the application of any term, provision, covenant or condition of this Note to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, then the remainder of this Note and the application of such term, provision, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, provision, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term, provision, covenant or condition is invalid, illegal or unenforceable, Lender may, but is not obligated to, advance funds to Borrower under this Note until Borrower and Lender amend this Note so as to effect the original intent of the parties as closely as possible in a valid and enforceable manner. 11. No amendment, supplement or modification of this Note nor any waiver of any provision of this Note shall be made except in writing executed by the party against whom enforcement is sought. 12. This Note shall be binding upon the undersigned and its successors and assigns. Notwithstanding the foregoing, the undersigned may not assign any of its rights or delegate any of its obligations under this Note without the prior written consent of Lender, which may be withheld in its sole discretion. 13. Each entity constituting Borrower shall be jointly and severally liable for all of the obligations of Borrower under this Note. 3 14. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT RESPECT TO ANY OTHERWISE APPLICABLE CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO INTERPRETATION AND PERFORMANCE, AND THE PARTIES EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND, WAIVING ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH IN SECTION 9.4 OF THE LOAN AGREEMENT. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH. 15. IN ANY LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF BORROWER OR OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF BORROWER FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE). BORROWER AGREES THAT LENDER'S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION. BORROWER IN ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM) OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE IN ANY JURISDICTION THAT RECOGNIZES THAT (OR ANY SIMILAR) DISTINCTION. 16. THE UNDERSIGNED HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE UNDERSIGNED, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY 4 TRIAL. FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. 17. THE UNDERSIGNED HEREBY AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF THE UNDERSIGNED IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OR PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS NOTE (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING; PROVIDED, HOWEVER, THAT WITH RESPECT TO ATTORNEYS' FEES, LENDER SHALL NOT SEEK TO COLLECT FROM BORROWER MORE THAN ITS ACTUAL ATTORNEYS' FEES INCURRED. THE UNDERSIGNED AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND. THE UNDERSIGNED WAIVES THE BENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST THE UNDERSIGNED SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER. [SIGNATURES APPEAR ON FOLLOWING PAGE] 5 IN WITNESS WHEREOF, intending to be legally bound, and intending that this Note constitutes an instrument executed under seal, the Borrower has caused this Note to be executed under seal as of the date first written above. WITNESS/ATTEST: BORROWER: -------- IDX SYSTEMS CORPORATION, a Vermont corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ ________________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P., CFO & Treasurer IDX INFORMATION SYSTEMS CORPORATION, a Vermont corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ ________________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P & Treasurer IDX INVESTMENT CORPORATION, a Vermont corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ ________________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr. Paralegal Title: Sr. V.P. & Treasurer EDIX CORPORATION, a Delaware corporation By: /S/ DIANE L. BROWN By: /S/ JOHN A. KANE ___________________________ _______________________________(SEAL) Name: Diane L. Brown Name: John A. Kane Title: Sr.Paralegal Title: Sr. V.P. & Treasurer 6 EX-99 5 certification.txt EXHIBIT 99.1-CERTIFICATION EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of IDX Systems Corporation (the "Company") for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Richard E. Tarrant, Chief Executive Officer of the Company, and John A. Kane, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/RICHARD E. TARRANT --------------------------------------- Dated: August 14, 2002 Richard E. Tarrant Chief Executive Officer /S/ JOHN A. KANE --------------------------------------- Dated: August 14, 2002 John A. Kane Sr. Vice President, Finance and Administration, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----