-----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, GSSY8qQ216W1x2/Nm906ckcptqBxsRAYBAmBZ6mikSjZcC6foeCUB1FvFtu4Gw2m EWOBnLAC8uDq7B7c0JLuXQ== 0000950170-00-000441.txt : 20000411 0000950170-00-000441.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950170-00-000441 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYBEAR INC CENTRAL INDEX KEY: 0001036824 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133936988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-26389 FILM NUMBER: 582829 BUSINESS ADDRESS: STREET 1: 5000 BLUE LAKE DRIVE CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5619993500 MAIL ADDRESS: STREET 1: 407 E GRAND RIVER CITY: BRIGHTON STATE: MI ZIP: 48116 FORMER COMPANY: FORMER CONFORMED NAME: 1997 CORP DATE OF NAME CHANGE: 19970331 10-K405 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File No. 0-26389 CYBEAR, INC. (Exact name of Registrant as specified in its charter) Delaware 13-3936988 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5000 Blue Lake Drive, Suite 200 Boca Raton, Florida 33431 ------------------------------- ------------------- (Address of principal (Zip Code) executive offices (561) 999-3500 ---------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The number of shares outstanding of the Registrant's Common Stock was 17,772,537 (as of March 13, 2000). The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $43,907,247 (as of March 13, 2000). DOCUMENTS INCORPORATED BY REFERENCE None As used in this Report, the terms "we," "us," "our," the "Company" and "Cybear" mean Cybear, Inc. and its subsidiaries (unless the context indicates a different meaning). FORWARD-LOOKING STATEMENTS Cybear cautions readers that some of the information in this report contains forward-looking statements within the meaning of the federal securities laws. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements typically are identified by use of terms like "may," "will," "expect," "anticipate," "estimate", "believe", "intend", "could", "would" and similar words, although some forward-looking statements are expressed differently. You should be aware that Cybear's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including our limited operating history and substantial operating losses, feasibility of developing commercially profitable Internet healthcare services, availability of capital resources, ability to effectively compete, economic conditions, unanticipated difficulties in product development, ability to continue product development, ability to gain market acceptance and market share, ability to manage growth, Internet security risks and uncertainty relating to the evolution of the Internet as a medium for commerce, dependence on the capacity, reliability and security of our network infrastructure, dependence on third party content providers, dependence on our key personnel, ability to protect our intellectual property and the impact of future government regulation on our business. You should also consider carefully the risks described in this Report or detailed from time to time in our filings with the Securities and Exchange Commission (the "SEC"). PART I ITEM 1. BUSINESS OVERVIEW Cybear Inc., a Delaware corporation, was incorporated on February 5, 1997. Cybear is an information technology company using the Internet to improve the efficiency of administrative and communications tasks of managing patient care while addressing the healthcare industry's critical need for secure and reliable transmission of information. An Internet Service Provider ("ISP") and Application Services provider ("ASP") for the healthcare industry, Cybear uses or intends to use its own secure private network to provide access to the Internet, email and productivity applications available on a transaction or subscription basis to physicians, physician organizations, pharmacies and hospitals. Some of its online applications include or will include business tools for hospital messaging, lab orders and results, streamlined purchasing, prescription writing, claims processing, eligibility verification, formulary compliance, credentialing, web site creation and physician-patient communications via the Internet. In March 1999, Cybear introduced its first product, its Physician Practice Portal ("dr.cybear"), which addresses the communications and operational needs of physicians and other healthcare providers. The Physician Practice Portal is an Internet portal site that provides a combination of healthcare content, practice management tools, the entry point to a communications network and ongoing access to further products and services. Dr.cybear is marketed to physicians, physician organizations, hospitals, managed care organizations and integrated delivery networks throughout the United States. In the three months ended June 30, 1999, Cybear emerged from the development stage for financial reporting purposes. In June 1999, the Company completed a public offering of 3,450,000 shares of its common stock, raising approximately $50.8 million in net proceeds. In September 1999, the Company acquired Telegraph Consulting Corporation ("Telegraph"), the programming, networking and interactive design division of Telegraph New Technology, Inc. The purchase price of approximately $4.1 million included $1.2 million in cash, the issuance of 320,000 shares of Cybear unregistered common stock valued at approximately $2.8 million and the assumption of approximately $136,000 of Telegraph's debt. The 2 acquisition was recorded using the purchase method of accounting. As of December 31, 1999, Cybear was approximately 73% owned by Andrx Corporation ("Andrx"). In September 1999, we entered into an arrangement with Andrx pursuant to which prescription vaccines and injectables and other items distributed by Andrx can be ordered through Cybear's Physician Practice Portal. In December 1999, Cybear received from Andrx a tracking stock recapitalization plan offer which would give Andrx shareholders the ability to distinguish their investments in Andrx and Cybear. In March 2000, Andrx and Cybear announced that they executed a definitive agreement with respect to the previously announced tracking stock recapitalization plan. This plan, which was recommended to the Cybear Board of Directors by its Special Committee and approved by the boards of both Cybear and Andrx will create a new class of Andrx common stock to separately track the performance of Cybear ("Cybear Group Common"). The plan will be submitted to Andrx and Cybear shareholders for approval later this year. Cybear has incurred net operating losses and negative cash flows from operating activities since its inception. As of December 31, 1999, Cybear had an accumulated deficit of approximately $14.8 million. In addition, Cybear intends to continue to invest heavily in product development, network operations, customer support, sales and marketing and administrative areas. As a result, Cybear expects to continue to incur substantial operating losses for the foreseeable future, and may never achieve or sustain profitability. In March 2000, Cybear signed a one-year agreement, subject to additional one-year periods renewals by mutual agreement, with Novartis Pharmaceuticals Corporation ("Novartis") pursuant to which Cybear will provide secure on-line connectivity and communications solution through its dr.cybear product to an initial group of 5,000 Novartis-selected physicians for monthly subscription fees commencing one month after such physicians are registered. Novartis has committed to register 5,000 physicians by the end of the year 2000. In March 2000, we entered into two separate agreements with AHT Corporation whereby (i) we were granted a license to use certain computer software applications which we believe will enable users of dr.cybear and other Cybear websites to access and use a prescription writing and transmission service and a laboratory ordering process; and (ii) we have agreed to develop, with the assistance of AHT, an electronic prescription writing device. Both agreements provide, among other things, for a sharing of revenues between AHT and Cybear in the event revenues are generated from the sales of products and/or services related to the two agreements. Contemporaneously with the execution of these agreements, we purchased from AHT a 10% Senior Secured Convertible Note due March 31, 2001 in the amount of $4.0 million, which is convertible, at our option, into shares of AHT Common Stock. In addition and in connection with the entering into of the two agreements, we received a warrant to purchase 300,000 shares of AHT Common Stock. Over the next year, we intend to supplement our core dr.cybear product by continuing to improve its functionality and by introducing our Pharmacist Portal Product ("rx.cybear"). The Company's Pharmacist Portal Product will provide physicians the ability to write prescriptions and prescription refills in the context of patient medical histories and payer clinical rules. As a result, we expect our product to provide physicians and pharmacies with the necessary tools to help reduce potentially harmful drug interactions, lessen the number of telephone calls from payers and pharmacies, improve patient satisfaction and ultimately improve patient care. Pharmacies may also benefit through reduced administrative costs due to the correction and clarification of prescriptions before being submitted for dispensing. We also intend to implement additional functionality to our dr.cybear product such as the communication of laboratory results. This service will enable physicians to order and view the results of diagnostic tests from participating clinical laboratories. We also intend to provide through our dr.cybear product medical messaging services that may include discharge summaries and nursing notes from hospitals, prescription and laboratory information, transcription information, as well as other pertinent patient medical records to allow physicians "real time" access to such information. We also intend to offer healthcare providers the ability to verify patient eligibility and coverage and process medical claims through our dr.cybear product. CORPORATE INFORMATION Our executive offices are located at 5000 Blue Lake Drive, Suite 200, Boca Raton, Florida 33431. Our telephone number is (561) 999-3500 and our web site address is www.cybear.com. Information contained on our web site is not part of this Report. 3 HEALTHCARE COMMUNICATIONS AND INFORMATION TECHNOLOGY ISSUES Participants in the healthcare industry are highly dependent upon information. Information is generated by multiple sources, must be acted on at various times by a variety of participants and forms the basis of quality care and adequate reimbursement for services. With both the continued penetration of managed care and reductions in government reimbursement, the need for accurate, rapid and interactive information continues to increase. At the same time, demand for real-time accurate clinical and administrative information among healthcare network providers has increased. Management believes that, notwithstanding the recognized need for improved business-to-business communication, the healthcare industry has, to date, underinvested in information technology. Instead, the exchange of complex information currently depends on the inefficiencies inherent in mail, telephone and fax communications. It is not unusual for patients to experience delays in obtaining authorizations, in gaining access to specialists or in having diagnostic or therapeutic procedures performed because of inefficient manual methods of sharing information. Physicians find it increasingly difficult to monitor the thousands of different medications covered by insurers, so pharmacists interrupt patient care with requests to change or substitute medications. It is common practice for physicians and their office staff to telephonically verify a patient's eligibility and other items necessary to render care. Manual methods of coding for healthcare reimbursement claims are prone to human error. These inefficiencies are a daily part of healthcare and reduce the profitability of healthcare providers and provider organizations. The desired linkage of existing computer systems used by participants in the healthcare industry has been hindered by a variety of factors, including the sheer number of industry participants, the complexity of healthcare transactions, the high cost of technology, limitations of existing information systems, the incompatibility of the many existing operating platforms and the continuing prevalence of computer systems that were not Y2K compliant. We believe that the Internet is a transformational communications technology that will be best suited to handle complex communications between healthcare providers and payers. The Internet's open architecture, universal accessibility and acceptance makes it a powerful communications medium overcoming many of the limitations of legacy healthcare information access and technology systems. Additionally, the Internet has gained wide acceptance in the healthcare community as an information access and gathering tool, with approximately 75% of U.S. physicians accessing the Internet regularly. Consequently, the deployment of various applications, content and tools will more readily be accepted by physicians and their office staffs. THE CYBEAR SOLUTION We developed dr.cybear to meet healthcare providers' need to improve the accuracy and efficiency of communications with other providers, third party payers and provider networks. In order to meet the demands of managed care, we believe a system needs to quickly collect and deliver patient information at the point of care, track physician activities and patterns, identify trends and issues that affect the critical components of managed care such as quality, cost, outcomes, variability and patient satisfaction and facilitate prospective utilization review. We also believe that there will be a strong demand for real-time clinical and practice management solutions that are easy to use, secure and cost effective. Our integrated suite of Internet-based products and services is designed to improve the efficiency of day-to-day administrative and communication tasks of the various participants in the healthcare industry, including physicians, hospitals, networks and payers that must interact to successfully manage patient care. These products may include applications, information and data transfer capabilities designed by us to meet their particular needs, and, through our ISP, allow for the creation of secure intranets or custom private networks for members of these networks to communicate and share private information. Access to our products is restricted to registered users. Registered users must enter passwords to obtain access, and the passwords are programmed to provide general access to product content and applications 4 and tiered-restricted access to member specific network communications. Our Internet-based technology platform allows for efficient installation, maintenance and customization using the user's existing computer system. Like other Internet service providers, we use existing phone lines and the telecommunications infrastructure. Registered users may also access dr.cybear through other ISPs, even though Internet access through our ISP is already included in their service. CYBEAR'S COMPETITIVE ADVANTAGES We believe our healthcare experience, our sales force, our Internet-based technology platform, our in-house software development capabilities and our business relationship with Andrx provide us with significant competitive advantages that should permit Cybear to become an Internet communications and applications provider for the healthcare community. Our main strengths are: /bullet/ We Have Healthcare Experience - Our chief executive officer is a physician with experience practicing medicine, managing provider networks and providing practice management services. Other members of our senior management and Board of Directors have experience in healthcare practice management and pharmaceutical industries. Our development, marketing and support staff has in-depth knowledge of the operations and specific needs of physicians and other key participants in the healthcare industry. As a result, we believe we are able to develop and deliver products that are useful and acceptable to our users allowing us to build meaningful and lasting user relationships. /bullet/ We Have Our Own Sales Force - We have an in-house sales and marketing staff that has long-standing ties to key segments of the healthcare industry, including physician practices, physician organizations and pharmaceutical companies. We believe that these relationships will allow us to rapidly expand our user base. /bullet/ We Have an Internet-Based Technology Platform - We provide direct Internet access to our registered users through our own ISP, unlike our competitors who depend on others for Internet access. Being an ISP allows us to provide a secure medium for transmission of sensitive patient and transactional information in an easy to use, low cost, fast and reliable manner. Our ISP platform also allows us to provide more value to our users by providing general purpose Internet access at no additional cost, web-hosting and the ability to develop private intranets, which we believe will result in users being less likely to switch to a competitor's product or service. /bullet/ We Have Extensive In-House Software Development Capabilities - We have an in-house software development team made up of over 30 programmers, allowing us to provide easy to use, low cost tools for day-to-day operational and management needs of medical practices and networks. This allows us to create flexible Java and Cold Fusion language-based applications to address the particular needs of different segments of the healthcare industry. Our in-house development capability, together with our server-based applications technology that allows us to send updates to subscribers online, will allow us to make continuous improvements to our products. /bullet/ We Have a Business Relationship with Andrx - Andrx, our parent corporation, provides us with telemarketing and product distribution expertise. We have an arrangement with Andrx pursuant to which prescription vaccines and injectables distributed by Andrx can be ordered through our Physician Practice Portal. 5 CYBEAR'S STRATEGY Our strategy to become an Internet-based platform linking physicians with other healthcare providers, third party payers and participants in the healthcare industry is based upon several elements, including: /bullet/ Building a Physician User Base - We are marketing dr.cybear to physicians, their staff and physician organizations that have ever-increasing and complex communications needs. In addition to individual physicians, large physician organizations will either subscribe to encourage their members to use dr.cybear. We expect administrative staff, particularly office managers, schedulers and billers will be regular users of many of the administrative tools of dr.cybear. /bullet/ Using Physician User Base to Obtain Additional Industry Users - By developing a physician-centered user base, we believe that we will attract non-physician users such as pharmacies, hospitals and Independent Practice Associations ("IPA's") who will use our future products to communicate and transact business with our dr.cybear physician users. To this end, we are actively pursuing strategic relationships with key healthcare, technology and content partners to enable us to offer higher quality products and solutions to other segments of the healthcare industry. /bullet/ Using Connectivity to Retain Users - We believe that our ISP-related ability to link physician organizations through custom, secure private networks will improve communications and administrative efficiency. We believe that once individual users are connected to and use a private network, particularly members of large provider networks, they will continue subscribing to our products and services instead of switching to one of our competitor's services because if they switched, they would not be able to communicate with members who are dr.cybear users. /bullet/ Capitalizing on Multiple Revenue Sources - We intend to generate revenues from multiple sources, including e-commerce, transaction fees and subscription fees. PRODUCTS OUR TECHNOLOGY PLATFORM Our Internet-based technology platform for our products includes an ISP that serves only our users, and as a result improves security and reliability of their Internet access, the use of Java and Cold Fusion language-based programming to design our user applications, and a network operations center with full system backups to provide reliability to our user base, all with the capacity to meet our users' growing needs. COMMON FEATURES OF OUR PRODUCTS Each of our products will share the following common features tailored to meet the needs of the targeted user:
COMPONENT FEATURES - ------------------------------------------------ --------------------------------------------------------------------- Internet Service Provider /bullet/ Automatic configuration of the user's computer /bullet/ Dial-in from any location in the U.S. through a network of local numbers /bullet/ Customizable front-end image that may include the name and service mark of the user or the user's network /bullet/ On-demand customer support /bullet/ Access to our products as well as full general purpose Internet access for use by our users - ------------------------------------------------ ---------------------------------------------------------------------
6
- ------------------------------------------------ --------------------------------------------------------------------- Communications Services /bullet/ E-mail, private network capabilities and web hosting services /bullet/ Tiered multiple user groups for password secure restricted access network communications with others in the relevant healthcare delivery system, with the ability to control access to information as desired /bullet/ User group menus comprising larger groups or organizations defined by a common interest or situation - ------------------------------------------------ --------------------------------------------------------------------- Content and Applications /bullet/ A portal entry point notifying users of new information and product updates relevant to the particular user group /bullet/ A template for users to design their own web site, search engine/directory to find information on the Internet, and online newsletter publisher, each customizable to the needs of the user, and web site access and the ability to track the number of visitors to a web site /bullet/ Software applications tools to streamline day-to-day healthcare administrative and operational tasks /bullet/ Lifestyle information geared for the e-commerce needs of healthcare professionals - ------------------------------------------------ ---------------------------------------------------------------------
DR.CYBEAR Dr.cybear includes a broad range of practice management tools to assist physicians and their office staff, increase physician productivity and enhance potential reimbursement. Dr.cybear is designed to manage communications between physicians and the various other segments of the healthcare industry that interact with them. Cybear launched dr.cybear in March 1999. The following highlights the dr.cybear practice, office and physician tools: PRACTICE TOOLS
APPLICATION CONTENT BENEFIT - ---------------------------------------- --------------------------------------- ------------------------------------- Managed Care Applications /bullet/ Contract Manager Helps manage differing insurance /bullet/ Eligibility and Authorization contracts, checks a patient's /bullet/ Capitation Evaluation insurance status, obtains referral authorization and evaluates managed care payments. - ---------------------------------------- --------------------------------------- ------------------------------------- Care Management /bullet/ Patient Satisfaction Survey Patient services including /bullet/ Patient Education satisfaction evaluation, /bullet/ Patient Support educational handouts, online /bullet/ Practice Benchmarks patients support links and evaluation of practice by comparing to standard norms. - ---------------------------------------- --------------------------------------- ------------------------------------- Coding Management /bullet/ Coding Newsletter Updates and trains staff on coding /bullet/ Medicare Training changes, simplifies billing with /bullet/ ICD-9 Online online procedure and disease listings. - ---------------------------------------- --------------------------------------- ------------------------------------- Practice Compliance /bullet/ Compliance Newsletter Keeps practice abreast of /bullet/ Legislative Update compliance issues and legislative /bullet/ Legal Resources initiatives, alerts regarding fraud /bullet/ Fraud and Abuse Alerts and abuse issues and assists in evaluating health care attorney qualifications. - ---------------------------------------- --------------------------------------- -------------------------------------
7 OFFICE TOOLS
APPLICATION CONTENT BENEFIT - ---------------------------------------- --------------------------------------- ------------------------------------- Supply Replacement /bullet/ Injectables and Vaccines Online ordering of injectables, /bullet/ Medical Supplies vaccines, medical, and office /bullet/ Office Supplies supplies frees staff time and ensures availability. - ---------------------------------------- --------------------------------------- ------------------------------------- Staff Services /bullet/ Human Resources Helps track required human resource /bullet/ Policy and Procedures documentation, contains staff /bullet/ Office Training policies and procedures, online /bullet/ Occupational Safety and training courses, and Occupational Health Administration Safety and Health Administration Regulatory compliance compliance evaluation and protocols. /bullet/ Disaster Protocols - ---------------------------------------- --------------------------------------- ------------------------------------- Infrastructure Support /bullet/ Office Forms Database Extensive repository of office forms for all needs, both business and clinical. - ---------------------------------------- --------------------------------------- -------------------------------------
PHYSICIAN TOOLS
APPLICATION CONTENT BENEFIT - ---------------------------------------- -------------------------------------- -------------------------------------- Continuing Education /bullet/ Continuing Medical Education Keeps physicians updated on their /bullet/ Medical Library education, and allows patient, /bullet/ Conference calendar disease and clinical research. /bullet/ Clinical Studies - ---------------------------------------- -------------------------------------- -------------------------------------- Prescription Management /bullet/ Managed Care Tracks the medications covered by /bullet/ Food and Drug different insurance carriers, and Administration Approvals minimizes changes and substitutions /bullet/ Drug Formulary Prescription of patient medications. Profiling - ---------------------------------------- -------------------------------------- -------------------------------------- Certification Assistance /bullet/ Credentialing Database Updates physician's profile /bullet/ Utilization Benchmarking regarding education, hospital privileges, licensure, etc. Allows comparison of patient management and treatment to standard clinical protocols and treatment regimes. - ---------------------------------------- -------------------------------------- --------------------------------------
FUTURE PRODUCT Cybear is developing additional functionality to its dr.cybear product as well as an additional Internet-based product, rx.cybear, targeted to the needs of pharmacies. The additional functionality to the dr.cybear product and the rx.cybear product are based on our Internet-based technology platform, and will add tools specially designed to meet the needs of the expected users. Cybear anticipates that the additional functionality to the dr.cybear product and the rx.cybear product will attract new users that will benefit from the connectivity features to communicate among themselves and with physicians. /bullet/ Additional functionality to our dr.cybear product will include: /bullet/ Communication of laboratory results. This service will enable physicians to order and view the results of diagnostic tests from participating clinical laboratories. 8 /bullet/ Medical messaging services which may include discharge summaries and nursing notes from hospitals, prescription and laboratory information, transcription information, as well as other pertinent patient medical records to allow physicians "real time" access to such information. /bullet/ Enhanced patient eligibility and coverage verification. /bullet/ Medical claims processing. /bullet/ Rx.cybear will be targeted to the community pharmacies, a segment of the healthcare delivery sector that is experiencing increased pressures to reduce and control operational costs. Rx.cybear will also function and provide benefits to the pharmacy chain market. Cybear believes rx.cybear will have a direct bottom line cost to managing the prescription benefit as well as the patient coordination between the physician practice, the pharmacy and the patient. In addition to the standard portal product, rx.cybear will offer applications that have been developed by Cybear including: /bullet/ Calculators that assist with managing the profitability of the store, labor budgets, delivery costs, contract profitability, profit and loss, and price increases. /bullet/ Electronic integration of the Patient / Physician / Pharmacy for Rx refills & renewals. /bullet/ Ability to modify and change drug therapies during the refill process. /bullet/ E-commerce through the pharmacist's web page. /bullet/ Access to numerous journals, regulatory information, formulary listings and clinical study summaries. MARKETING AND SALES We sell our product primarily through two mechanisms: our in-house sales force and our distribution partnerships. We have an in-house sales force of individuals with healthcare backgrounds and relationships oriented to building the physician user base. The sales force activity is complemented by senior management in approaching other segments of the healthcare community, including the pharmaceutical, medical device and supplies and ancillary service providers. We believe both through direct sales and through distribution partnerships, we will have more rapid product penetration and revenue generation. We plan to continue recruiting additional sales and marketing staff. To complement our sales strategy, we have a multifaceted marketing approach that includes advertising, direct mailing, telemarketing, trade show visibility and direct selling activity. Our marketing efforts take a business partnership approach, with a focus on developing three main revenue bases: e-commerce, transaction revenues and subscription revenues. We believe that providing useful, easy to use and well supported products and services will allow us to build our user base, and that building our user base will allow us to generate e-commerce and transaction revenues. CUSTOMER SERVICE AND SUPPORT Cybear believes that effective customer service is essential to attracting and retaining users and is acutely sensitive to the demands for person-to-person responsiveness of the healthcare community. Cybear provides ongoing telephone support in both technical computer hardware and healthcare applications matters. This support is provided through its customer service and help desk which are accessible by a toll-free call and are available from 8:00 a.m. to 8:00 p.m. eastern standard time Monday through Friday with after hours support available via pager. Personnel are trained to both resolve technical problems and to answer inquiries on product usage. Cybear also has trained customer satisfaction associates to ensure proper use and customer satisfaction. NETWORK OPERATIONS CENTER Cybear's network operations center, or NOC, was designed to fully integrate redundancy and scalability. We have installed redundant power supplies, each with its own power cable, into every major switch or router in our system so as to ensure that a disruption in the power supply or disconnected power cable does not incapacitate the network. We can increase our capacity, speed and fault tolerance 9 without affecting or stopping existing services simply by connecting additional equipment into our network. Upgrades are done to our equipment and software as computer virus and other security advisories become available. We use the latest in firewalls running dual design in the event one should fail. Cybear's external connectivity is designed to be as redundant and self- repairing as its internal network. We have connectivity, split across several routes and high speed segments known as T3 lines, to several major telecommunication infrastructure providers, including Bell South, Uunet, Sprint and Cable & Wireless, to provide connections with the Internet. If any one or more of the providers or routers becomes unavailable, the infrastructure itself will re-route traffic as necessary to continue functioning without interruption. Every network segment is split among redundant switches, and each switch also is attached to the backbone through redundant connections, resulting in an efficient self-healing network that can sense and repair itself as the need arises. Our host routers and network segments, both internal and external, are monitored 365 days a year through several systems, on and offsite, in order to maintain site integrity. The NOC is located in Boca Raton, Florida. COMPETITION Cybear's competitors include online services or web sites targeted to healthcare, general purpose ISPs, publishers and distributors of offline media, healthcare information companies and large data processing and information companies. Many of these competitors have substantial installed customer bases in the healthcare industry and the ability to fund significant product development and acquisition efforts. Cybear believes that the principal competitive factors in its market include knowledge of user needs and client service, system quality and product features, price and the effectiveness of marketing and sales efforts. There can be no assurance that Cybear will be competitive with respect to any individual factor or combination thereof. To be competitive, Cybear must incorporate leading technologies, enhance its existing services and content, develop new technologies that address the increasingly sophisticated and various needs of healthcare professionals and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. There can be no assurance that Cybear will be successful in using new technologies effectively or adapting dr.cybear and other products to user requirements or emerging industry standards. Any pricing pressures, reduced margins or loss of market share resulting from Cybear's failure to compete effectively would materially adversely affect Cybear's business, financial condition and operating results. Many of Cybear's current and potential competitors have greater financial, technical and marketing resources to devote to the development, promotion and sale of their services; longer operating histories; greater name recognition; and larger user bases than Cybear and, therefore, may have a greater ability to attract users. Many of these competitors may be able to respond more quickly than Cybear to new or emerging technologies in the Internet and the personal communications market and changes in Internet user requirements and to devote greater resources than Cybear to the development, promotion and sale of their services. In addition, Cybear does not have contractual rights to prevent its business partners from entering into competing businesses or directly competing with it. GOVERNMENT REGULATION AND HEALTHCARE REFORM The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operation of healthcare organizations. Cybear's products are designed to function within the structure of the healthcare financing and reimbursement system currently being used in the United States. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates. Proposals to reform the U.S. healthcare system have been and will continue to be considered by the U.S. Congress. These programs may contain proposals to increase governmental involvement in healthcare and otherwise change the operating environment for Cybear's potential customers. Healthcare 10 organizations may react to these proposals and the uncertainty surrounding such proposals by curtailing or deferring investments, including those for Cybear's products. On the other hand, changes in the regulatory environment have in the past increased and may continue to increase the needs of healthcare organizations for cost-effective information management and thereby enhance the marketability of Cybear's products and services. Cybear cannot predict with any certainty what impact, if any, such proposals or healthcare reforms might have on Cybear's results of operations, financial condition and business. Cybear's products and services are not directly subject to governmental regulations, although the proposed user base is subject to extensive and frequently changing federal and state laws and regulations. However, with regard to healthcare issues on the Internet, the recently enacted Health Insurance Portability and Accountability Act of 1996, mandates the use of standard transactions, standard identifiers, security and other provisions by the year 2002. It will be necessary for Cybear's platform and for the applications that it provides to be in compliance with the proposed regulations. Congress is also likely to consider legislation that would establish uniform, comprehensive federal rules about an individual's right to access his own or someone else's medical information. This legislation would likely define what is to be considered "protected health information" and outline steps to ensure the confidentiality of this information. The proposed Health Information Modernization and Security Act would provide for establishing standards and requirements for the electronic transmission of health information. There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. However, laws and regulations may be adopted in the future that address issues such as online content, user privacy, pricing and characteristics and quality of products and services. For example, although it was held unconstitutional, the Communications Decency Act of 1996 prohibited the transmission over the Internet of certain types of information and content. In addition, several telecommunications carriers are seeking to have telecommunications over the Internet regulated by the FCC in the same manner as other telecommunications services. Because the growing popularity and use of the Internet has burdened the existing telecommunications infrastructure in many areas, local exchange carriers have petitioned the FCC to regulate ISPs in a manner similar to long distance telephone carriers and to impose access fees on the ISPs. Internet user privacy has become an issue in the United States. Current United States privacy law consists of a few disparate statutes directed at specific industries that collect personal data, none of which specifically covers the collection of personal information online. Cybear cannot guarantee that the United States will not adopt legislation purporting to protect such privacy. Any such legislation could affect the way in which Cybear is allowed to conduct its business, especially those aspects that involve the collection or use of personal information, and could have a material adverse effect on Cybear's business, financial condition and operating results. Moreover, it may take years to determine the extent to which existing laws governing issues such as property ownership, libel, negligence and personal privacy are applicable to the Internet. With regard to copyright infringement liability, Congress recently enacted the Online Copyright Infringement Liability Limitation Act as part of the Digital Millennium Copyright Act which limits the copyright liability of ISPs for certain transmissions through their systems. Through this law, an ISP can avoid liability for copyright infringement with respect to the ISP's transmitting, routing, linking, and storing materials through its service if the materials are transmitted or stored by or at the direction of a person other than the ISP through an automatic process without selection of the materials by the ISP, the ISP does not select the recipients of the materials except as an automatic response to the request of another person, the materials are not accessible by unanticipated recipients, and the materials are transmitted without modification of content. The ISP must not have actual knowledge or information making it apparent that materials on its system infringe, and must have procedures in place to deal with allegations of infringement, including a designated person to receive notifications of claimed infringement, a commitment to remove allegedly 11 infringing material from the service upon receipt of credible notifications and notification of the subscriber whose material is removed from the service. While this law provides some protection, it will not apply in all aspects where Cybear could face liability for copyright infringement as a result of materials available on its ISP because Cybear may create or modify certain of these materials, and therefore be outside of the safe harbor provided by this law. The tax treatment of the Internet and e-commerce is currently unsettled. A number of proposals have been made at the federal, state and local level and by certain foreign governments that could impose taxes on the sale of goods and services and certain other Internet activities. A recently-passed law places a temporary moratorium on certain types of taxation on Internet commerce. Cybear cannot predict the effect of current attempts at taxing or regulating commerce over the Internet. Any legislation that substantially impairs the growth of e-commerce could have a material adverse effect on Cybear's business, financial condition and operating results. INTELLECTUAL PROPERTY Cybear seeks to protect its proprietary information through nondisclosure agreements with its employees. Cybear's policy is to have employees enter into nondisclosure agreements containing provisions prohibiting the disclosure of confidential information to anyone outside Cybear, requiring disclosure to Cybear of any new ideas, developments, discoveries or inventions conceived during employment, and requiring assignment to Cybear of proprietary rights to such matters that are related to Cybear's business. Cybear also relies on a combination of trade secrets, copyright and trademark laws, contractual provisions and technical measures to protect its rights in various methodologies, systems and products and knowledge bases. Cybear believes that because of the rapid pace of technological change in the EDI industry, trade secret and copyright protection are less significant than factors such as the knowledge, ability, experience and integrity of Cybear's employees, frequent product enhancements and the timeliness and quality of support services. We have a federal service mark registration for "Cybear". We have also registered the domain names "dr.cybear.com" and "Cybear.com." Any infringement or misappropriation of Cybear's intellectual property rights would disadvantage Cybear in its efforts to retain and attract new customers in a highly competitive market and could cause Cybear to lose revenues or incur substantial litigation expense. Although Cybear believes that its products do not infringe on the intellectual property rights of others, there can be no assurance that such a claim will not be asserted against Cybear in the future. If asserted, such a claim could cause Cybear to lose revenues or incur substantial litigation expense. EMPLOYEES As of March 8, 2000, Cybear had 100 full-time employees. None of such employees is a member of a labor union and Cybear considers its relationship with its employees to be good. ITEM 2. PROPERTIES Cybear currently leases 21,648 square feet of space in Boca Raton, Florida housing its corporate headquarters and network systems. The lease provides for annual rent of $270,600, excluding taxes, insurance, utilities and common area maintenance charges. In September 1999, the Company amended its lease to expand the leased premises by 16,420 square feet starting April 1, 2000. This will increase the annual base rent to $490,316 excluding taxes, insurance, utilities and common area maintenance charges starting on April 1, 2000. In addition, the lease term was extended to March 31, 2007. Cybear 12 has adequate insurance for the premises. Management believes that this office space will be adequate for Cybear's needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS From time to time, Cybear may be involved in litigation relating to claims arising out of its operations in the normal course of business. Cybear is not currently a party to any legal proceeding or aware of any other claim, the adverse outcome of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Cybear's business, operating results and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended December 31, 1999. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our common stock has been listed for trading on the Nasdaq National Market under the symbol "CYBA" since June 18, 1999. From January 28, 1999 to June 17, 1999, our common stock was traded on the OTC Bulletin Board under the symbol "CYBR". The following table sets forth, for the calendar quarters indicated, the range of high and low bid prices per share of common stock as reported by the OTC Bulletin Board for the period from January 28, 1999 to June 17, 1999 and the range of high and low sales prices per share of common stock as reported by the Nasdaq National Market for the period from June 18, 1999 to December 31, 1999. Quotations from the OTC Bulletin Board were over-the-market quotations and, accordingly, reflected inter-dealer prices, without retail mark-up, mark-down or commission and may have not represented actual transactions. Because only 269,400 shares were freely tradable at that time, there was a limited public market for our common stock and the prices might not have reflected the true value of our common stock: 1999 HIGH LOW - ----------- ------- ------ First Quarter (Commencing January 28, 1999) $ 53.00 $ 3.25 Second Quarter 41.00 13.88 Third Quarter 23.25 5.88 Fourth Quarter 10.00 5.47 HOLDERS As of March 7, 2000, there were approximately 51 registered holders of record of Cybear's common stock. Cybear believes the number of beneficial owners of its common stock is approximately 3,139. DIVIDENDS Cybear has not paid dividends on its common stock and does not intend to pay dividends for the foreseeable future. Cybear intends to retain any earnings, to finance the development and expansion of its business. ITEM 6. SELECTED FINANCIAL DATA This section presents selected historical financial data of Cybear. You should read this selected financial data together with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Report as well as Cybear's Consolidated Financial Statements and related notes contained in Item 8 of this Report. The selected data in this section is not intended to replace the Consolidated Financial Statements. Cybear derived the statement of operations data and balanced sheet data from the audited consolidated financial statements contained in Item 8 of this Report. Those financial statements were audited by Arthur Andersen LLP, independent certified public accountants. 14 STATEMENT OF OPERATIONS DATA*:
YEARS ENDED FOR THE PERIOD FROM DECEMBER 31, FEBRUARY 5, 1997 ----------------------------- (INCEPTION) TO 1999 1998 DECEMBER 31, 1997 ------------ ------------ ------------ Revenues $ 269,707 $ -- $ 95,927 Operating expenses: Network operations and operations support 2,867,047 643,309 -- Product development 3,058,207 1,716,454 894,027 Sales and marketing 4,908,939 482,418 -- General and administrative 2,543,952 1,189,122 666,873 Depreciation and amortization 1,555,613 139,268 65,376 ------------ ------------ ------------ Total operating expenses 14,933,758 4,170,571 1,626,276 ------------ ------------ ------------ Loss from operations (14,664,051) (4,170,571) (1,530,349) Other income (expense): Interest expense on due to Andrx Corporation (216,182) (210,441) (28,220) Interest income 1,282,379 -- -- ------------ ------------ ------------ Loss before income taxes (13,597,854) (4,381,012) (1,558,569) Income tax benefit 2,824,069 1,900,000 -- ------------ ------------ ------------ Net loss $(10,773,785) $ (2,481,012) $ (1,558,569) ============ ============ ============ Basic and diluted net loss per share $ (0.70) $ (0.19) $ (0.12) ============ ============ ============ Basic and diluted weighted average shares of common stock outstanding 15,470,009 13,030,999 12,768,303 ============ ============ ============
BALANCE SHEET DATA:
DECEMBER 31, ------------------------------------------ 1999 1998 1997 ----------- ----------- ----------- Cash, cash equivalents and investments available-for-sale $37,993,628 $ 3,983 $ 1,000 Working capital (deficit) 39,389,776 (3,235,200) (1,378,412) Total assets 53,068,029 3,331,951 395,456 Total liabilities 3,090,680 3,799,568 1,410,119 Total shareholders' equity (deficit) 49,977,349 (467,617) (1,014,663)
*Certain prior year amounts have been reclassified to conform to the current year presentation. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Cybear Inc., a Delaware corporation, was incorporated on February 5, 1997. Cybear is an information technology company using the Internet to improve the efficiency of administrative and communications tasks of managing patient care. Cybear provides access to the Internet and the Cybear product line through its own ISP system, delivering productivity applications to health care providers and health information to consumers. In March 1999, Cybear introduced its first product, its Physician Practice Portal, which addresses the communications and operational needs of physicians. Cybear's future products will provide Internet-based productivity software applications and communication networks for other constituents of the healthcare community. In the three months ended June 30, 1999, Cybear emerged from the development stage for financial reporting purposes. In June 1999, the Company completed a public offering of 3,450,000 shares of its common stock, raising approximately $50.8 million in net proceeds. In September 1999, the Company acquired Telegraph Consulting Corporation ("Telegraph"), the programming, networking and interactive design division of Telegraph New Technology, Inc. The purchase price of approximately $4.1 million included $1.2 million in cash, the issuance of 320,000 shares of Cybear unregistered common stock valued at approximately $2.8 million and the assumption of approximately $136,000 of Telegraph's debt. The acquisition was recorded using the purchase method of accounting. As of December 31, 1999, Cybear was approximately 73% owned by Andrx. In December 1999, Cybear received from Andrx a tracking stock recapitalization plan offer which would give Andrx shareholders the ability to distinguish their investments in Andrx and Cybear. In March 2000, Andrx and Cybear entered into a definitive agreement with respect to the previously announced tracking stock recapitalization plan. This plan, which was recommended to the Cybear Board of Directors by its Special Committee and approved by the Boards of both Cybear and Andrx, will create a new class of Andrx common stock to separately track the performance of Cybear ("Cybear Group Common"). The plan will be submitted to Andrx and Cybear shareholders for approval later this year. Pursuant to an Agreement and Plan of Merger and Reorganization (the "Agreement"), Andrx will acquire all of the publicly traded shares of common stock of Cybear in a tax-free "roll-up" merger. Public shareholders currently own approximately 5.4 million shares (assuming the exercise by Edward E. Goldman, M.D., Cybear's chief executive officer, of a warrant to acquire 525,000 shares of Cybear's common stock currently owned by Andrx), or 30.5%, of the common shares of Cybear, and those shareholders will receive one share of Cybear Group Common for every Cybear share they currently own. In the recapitalization, the number of Cybear shares held by Andrx will be reduced from 12.4 million shares to 10.3 million shares so as to provide the equivalent of a 20% increase in shares held by the non-Andrx shareholders of Cybear. As a result, the non-Andrx shareholders of Cybear will own approximately 34.5% of the Cybear Group Common following the closing of the transaction. Pursuant to the Agreement, each Andrx common share will be converted into (i) one share of Andrx Group Common and (ii) approximately .1622 shares of Cybear Group Common, after giving effect to Andrx' pending two-for-one stock split (in the form of a stock dividend) announced on March 1, 2000. Upon completion of the recapitalization, (i) Cybear will be a wholly owned subsidiary of Andrx with 100% of its value publicly traded in the form of Cybear Group Common; (ii) current Cybear shareholders will own approximately 34.5% of the Cybear Group Common; and (iii) current Andrx shareholders will own 100% of the Andrx Group Common and approximately 65.5% of the Cybear Group Common. Andrx and Cybear will be filing a preliminary joint proxy statement and a registration statement with respect to the proposed transaction with the SEC, which is subject to review by the SEC. In addition to shareholder approval, the transaction will be subject to various Federal and state regulatory approvals and, accordingly, no assurance can be given that this transaction will be consummated. In connection with the tracking stock recapitalization plan, the Company estimates it will incur merger costs of up to approximately $1.5 million if the tracking stock recapitalization plan is consummated. These costs will be charged to expense as incurred. No assurance can be given that this transaction will be consummated. 16 Cybear has incurred net operating losses and negative cash flows from operating activities since its inception. As of December 31, 1999, Cybear had an accumulated deficit of approximately $14.8 million. In addition, Cybear intends to continue to invest heavily in product development, network operations, customer support, sales and marketing and administrative areas. As a result, Cybear expects to continue to incur substantial operating losses for the foreseeable future, and may never achieve or sustain profitability. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 ("1999") AS COMPARED TO YEAR ENDED DECEMBER 31, 1998 ("1998"). Cybear had $269,707 in revenues for 1999 and had no revenues for 1998. Revenue for 1999 includes subscriptions to the Company's Physician Practice Portal product, as well as revenues from web site development and maintenance and e-commerce revenues (see Note 2 to the accompanying consolidated financial statements). Cybear does not expect that revenues derived from Web site development and maintenance to be material in the year ending December 31, 2000. Network operations and operations support costs were $2.9 million in 1999 compared to $643,309 in 1998. Network operations and operations support costs consist primarily of personnel and related costs associated with operating the network operations center and providing customer support, telecommunications costs and maintenance expense on computer hardware and software. The increase in network operations and operations support costs for 1999 related to the establishment of the network operations center and the development of the operations support infrastructure. Product development costs were $3.1 million in 1999 compared to $1.7 million in 1998. Product development costs include payroll, benefits and other expenses of employees involved in the creation, design and development of Cybear's products, outside consultant fees and content fees. The increase in the product development costs for 1999 reflects the progress and expansion of Cybear's development activities. Sales and marketing expenses were $4.9 million in 1999 compared to $482,418 in 1998. Sales and marketing expenses consist primarily of salaries and personnel related costs, consulting and advertising fees and costs of developing and distributing promotional material. The increase in sales and marketing expenses for 1999 related primarily to the establishment of the selling and marketing infrastructure, an increase in consulting and advertising fees, the development and distribution of promotional material and costs incurred for trade shows. General and administrative expenses were $2.5 million in 1999 compared to $1.2 million in 1998. General and administrative expenses consist primarily of salaries and personnel related expenses for executives and administrative functions, housing expenses and professional fees. The increase in general and administrative expenses for 1999 related to the expansion of the administrative infrastructure. Depreciation and amortization expense was $1.6 million in 1999 compared to $139,268 in 1998. Depreciation and amortization expense consists primarily of the depreciation and amortization of property and equipment, amortization of goodwill and amortization of capitalized product development costs. The increase in depreciation and amortization for 1999 resulted primarily from Cybear's purchases of computer hardware and software used in its network operations center and the development of its products, leasehold improvements to the rented space housing its corporate headquarters and network operations center. In addition, Cybear began amortizing capitalized product development costs as it released its first products in 1999 and began amortizing the goodwill arising from the acquisition of Telegraph. 17 Interest expense was $216,182 in 1999 compared to $210,441 in 1998. Interest expense represented interest on Due to Andrx under the credit agreement between the two companies to fund Cybear's operations. Upon completion of the public offering in June 1999, Andrx converted its advances due from Cybear, net of the reimbursement for income tax attributes, to Cybear's capital in exchange for 465,387 shares of Cybear common stock at the public offering price of $16.00 per share. Cybear had interest income of $1.3 million in 1999 and had no interest income in 1998. The interest income resulted primarily from the investments of the net proceeds generated from the public offering in money market funds and interest bearing investment grade securities. Cybear's taxable results through the completion of the public offering in June 1999 were included in the consolidated income tax return of Andrx since Andrx owned at least 80% of the common stock of Cybear. Cybear and Andrx have a tax allocation agreement pursuant to which Federal income tax liabilities or benefits are allocated to Cybear as if Cybear had filed a separate income tax return when Cybear's taxable results are included in the consolidated income tax return of Andrx. Upon completion of the public offering in June 1999, Andrx's ownership in Cybear was reduced below 80%. Consequently, Cybear thereafter files its income tax returns separately. For the period from June 23, 1999 (date of completion of the public offering) to December 31, 1999, Cybear generated a net operating loss carryforward of approximately $10 million which is available to offset future earnings. As of December 31, 1999, Cybear has net deferred tax assets of approximately $4.0 million attributable primarily to the net operating loss carryforward of approximately $10 million generated from June 23, 1999 to December 31, 1999. Under the provisions of SFAS No. 109, "Accounting for Income Taxes", Cybear has provided a valuation allowance to reserve against 100% of its net deferred tax assets due to its history of net losses. For the period from January 1, 1999 to June 22, 1999 and for 1998, Cybear recorded $2.8 million and $1.9 million, respectively, in income tax benefits. The income tax benefits reflect the reimbursement from Andrx for the utilization of Cybear's income tax attributes pursuant to the tax allocation agreement. 1998 AS COMPARED TO PERIOD FROM FEBRUARY 5, 1997 (INCEPTION) TO DECEMBER 31, 1997 ("1997"). Cybear had no revenues for 1998 as it was in the development stage. Revenues were $95,927 in 1997 and consisted of software development services rendered to Andrx. Network operations and operations support costs were $643,309 in 1998. Cybear had no network operations and operations support costs in 1997. The increase in network operations and operations support costs for 1998 related to the establishment of the network operations center and the development of the operations support infrastructure. Product development costs were $1.7 million in 1998 compared to $894,027 in 1997. The increase in the product development costs for 1998 reflected the progress and expansion of Cybear's development activities. Sales and marketing expenses were $482,418 in 1998. Cybear had no sales and marketing expenses in 1997. The increase in sales and marketing expenses for 1998 related to the development of the sales and marketing infrastructure. General and administrative expenses were $1.2 million in 1998 compared to $666,873 in 1997. The increase in general and administrative expenses for 1998 related to the expansion of the administrative infrastructure. Depreciation and amortization expense was $139,268 in 1998 compared to $65,376 in 1997. The increase in depreciation and amortization for 1998 resulted primarily from the Company's purchases of computer hardware and software used in the establishment of its network operations center and the development of its products. 18 Interest expense was $210,441 in 1998 compared to $28,220 in 1997. Interest expense represented interest on advances from Andrx under the Credit Agreement between the two companies to fund Cybear's operations. At December 31, 1998, the net advances including interest amounted to approximately $5.4 million. Cybear recorded a tax benefit of $1.9 million in 1998 reflecting the reimbursement from Andrx for the utilization of Cybear's income tax attributes pursuant to the tax allocation agreement. In 1997, the Company did not record any income tax provision or benefit as Andrx could not utilize Cybear's tax attributes. As of December 31, 1998, Cybear had net deferred tax assets of approximately $342,000 attributable primarily to a net operating loss carryforward in the amount of approximately $800,000 which was available to offset future earnings. Under the provisions of SFAS No. 109, Cybear had provided a valuation allowance to reserve against 100% of its net deferred tax assets given its history of net losses. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, Cybear had $38.0 million in cash, cash equivalents and investments available-for-sale and $39.4 million of working capital. Net cash used in operating activities was $9.7 million in 1999 compared to $1.4 million in 1998 and $1.4 million in 1997. The increase in net cash used in operating activities in 1999, as compared to 1998 is primarily due to Cybear incurring a net loss of $10.8 million in 1999 as compared to a net loss of $2.5 million in 1998, an increase in other assets of $1.3 million in 1999 as compared to a decrease of $11,730 in 1998 offset by depreciation and amortization expense of $1.6 million in 1999, as compared to $139,268 in 1998. The increase in other assets results primarily from recording a long term receivable of $600,000 from a medical organization and advance payments made to an operator of web sites (see Note 10 to the accompanying consolidated financial statements). In 1999, net cash used in operating activities was primarily attributable to Cybear's loss from operations, the interest receivable from the Company's investments available-for-sale and an increase in other assets, offset by the depreciation and amortization expense and an increase in accounts payable. In 1998 and 1997, the net cash used in operating activities was primarily attributed to Cybear's loss from operations offset by increases in accounts payable. Net cash used in investing activities was $34.2 million in 1999, $2.7 million in 1998 and $400,535 in 1997. In 1999, Cybear made net purchases of $26.2 million in investments available-for-sale, purchased a $3.0 million one-year convertible promissory note from HIE, Inc., and used $1.2 million in net cash for the acquisition of Telegraph. Cybear also purchased $2.2 million in property and equipment consisting mainly of computer hardware and software used in its network operations center and the development of its products, leasehold improvements to the rented space housing its corporate headquarters and network operations center and furniture for its corporate headquarters. Cybear also purchased $1.6 million in software licenses and capitalized $140,304 in product development costs. In 1998, Cybear purchased $2.3 million of property and equipment consisting mainly of computer hardware and software used in its network operations center and in its product development activities, and leasehold improvements to the rented space housing its corporate headquarters and network operations center. In addition, Cybear capitalized $358,000 in product development costs. In 1997, Cybear invested $240,535 in capital expenditures consisting mainly of computer hardware and software used in the development of its products. In addition, Cybear purchased a software license for $160,000. Net cash provided by financing activities was $55.9 million in 1999, $4.1 million in 1998 and $1.8 million in 1997. In 1999, net cash provided by financing activities consisted mainly of $50.8 million in net proceeds generated from the public offering of 3,450,000 shares of common stock of the Company and $5.1 million of advances from Andrx to fund Cybear's operations, net of the reimbursement from Andrx for the utilization of Cybear's income tax attributes pursuant to the tax allocation agreement. In 1998, net cash provided by financing activities consisted of advances from Andrx to fund Cybear's operations, net of the reimbursement from Andrx for the utilization of Cybear's 19 income tax attributes pursuant to the tax allocation agreement. In 1997, net cash provided by financing activities consisted of advances from Andrx to fund Cybear's operations and proceeds from issuance of Cybear's stock. From time to time, Cybear may be involved in litigation relating to claims arising out of its operations in the normal course of business. Cybear is not currently a party to any legal proceeding or aware of any other claim, the adverse outcome of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Cybear's business, operating results and financial condition. Cybear anticipates that its cash requirements will continue to increase as it continues to expend substantial resources to build its infrastructure, develop its products and establish its sales and marketing, network operations, customer support and administrative organizations. Cybear currently anticipates that its available cash resources will be sufficient to meet its presently anticipated working capital and capital expenditure requirements for the next twelve months. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133, as amended, requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133, as amended, is effective for fiscal years beginning after June 15, 2000. A company may also implement the provisions of SFAS No. 133, as amended, as of the beginning of any fiscal quarter after issuance. SFAS No. 133, as amended, cannot be applied retroactively. SFAS No. 133, as amended, must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company will adopt the provisions of SFAS No. 133 beginning January 1, 2001, as required. Adoption of the provisions of this standard is not expected to have a material effect on the Company's consolidated results of operations and financial condition. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to its investments available-for-sale portfolio. The Company has not entered into derivative financial instruments in its investments available-for-sale portfolio. The Company's investments available-for-sale portfolio consists of fixed rate debt instruments of the U.S. Government and its agencies, and of high-quality corporate issuers. The Company has established guidelines, which were approved by its board of directors, relative to diversification and maturities of its investments available-for-sale portfolio that are designed to limit the amount of credit exposure to any one issuer and help ensure safety and liquidity. Investments in fixed rate interest earning instruments carries a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. Although changes in interest rates may affect the fair value of the investments available-for-sale portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CYBEAR, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF CYBEAR, INC. AND SUBSIDIARIES:
PAGE ---- Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3 Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997 F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997 F-6 Notes to Consolidated Financial Statements F-7
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Cybear, Inc.: We have audited the accompanying consolidated balance sheets of Cybear, Inc. (a Delaware corporation and 73% owned subsidiary of Andrx Corporation as of December 31, 1999) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cybear, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, February 10, 2000 (except for the tracking stock recapitalization plan discussed in Note 14, as to which the date is March 24, 2000). F-2 CYBEAR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------------- 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 11,921,731 $ 3,983 Investments available-for-sale 26,071,897 -- Investment interest receivable 740,037 -- Accounts receivable, net of allowance of $3,000 104,742 -- Convertible note receivable from HIE, Inc. 3,000,000 -- Receivable from Blue Lake Ltd. -- 366,000 Prepaid expenses and other current assets 642,049 194,385 ------------ ------------ Total current assets 42,480,456 564,368 Property and equipment, net 3,523,395 2,406,629 Product development costs, net 332,752 358,000 Software licenses 1,603,000 -- Goodwill, net 3,818,844 -- Other assets 1,309,582 2,954 ------------ ------------ Total assets $ 53,068,029 $ 3,331,951 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 2,758,330 $ 1,153,059 Accrued liabilities 332,350 301,782 Due to Andrx Corporation -- 2,344,727 ------------ ------------ Total current liabilities 3,090,680 3,799,568 ------------ ------------ Commitments and contingencies (Notes 10 and 14) Shareholders' equity (deficit): Preferred stock, $.01 par value; 2,000,000 shares authorized, none issued and outstanding as of December 31, 1999 and 1998 -- -- Common stock, $.001 par value; 25,000,000 shares authorized, 17,653,662 and 13,269,400 shares issued and outstanding as of December 31, 1999 and 1998, respectively 17,654 13,269 Additional paid-in capital 64,873,031 3,558,695 Accumulated deficit (14,813,366) (4,039,581) Accumulated other comprehensive loss (99,970) -- ------------ ------------ Total shareholders' equity (deficit) 49,977,349 (467,617) ------------ ------------ Total liabilities and shareholders' equity (deficit) $ 53,068,029 $ 3,331,951 ============ ============
The accompanying notes to the consolidated financial statements are an integral part of these consolidated balance sheets. F-3 CYBEAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FOR THE PERIOD FROM DECEMBER 31, FEBRUARY 5, 1997 ----------------------------- (INCEPTION) TO 1999 1998 DECEMBER 31, 1997 ------------ ------------ ------------ Revenues $ 269,707 $ -- $ 95,927 Operating expenses: Network operations and operations support 2,867,047 643,309 -- Product development 3,058,207 1,716,454 894,027 Sales and marketing 4,908,939 482,418 -- General and administrative 2,543,952 1,189,122 666,873 Depreciation and amortization 1,555,613 139,268 65,376 ------------ ------------ ------------ Total operating expenses 14,933,758 4,170,571 1,626,276 ------------ ------------ ------------ Loss from operations (14,664,051) (4,170,571) (1,530,349) Other income (expense): Interest expense on due to Andrx Corporation (216,182) (210,441) (28,220) Interest income 1,282,379 -- -- ------------ ------------ ------------ Loss before income taxes (13,597,854) (4,381,012) (1,558,569) Income tax benefit 2,824,069 1,900,000 -- ------------ ------------ ------------ Net loss $(10,773,785) $ (2,481,012) $ (1,558,569) ============ ============ ============ Basic and diluted net loss per share $ (0.70) $ (0.19) $ (0.12) ============ ============ ============ Basic and diluted weighted average shares of common stock outstanding 15,470,009 13,030,999 12,768,303 ============ ============ ============
The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements. F-4 CYBEAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER ------------------- --------------------- PAID-IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS LOSS -------- --------- ---------- --------- ------------ ------------ --------- ------------ FEBRUARY 5, 1997 (INCEPTION) -- $ -- -- $ -- $ -- $ -- $ -- Issuance of shares of common stock to Andrx Corporation as promoter -- -- 12,870,000 12,870 487,130 -- -- Issuance of shares of convertible preferred stock 130,000 130 -- -- 29,870 -- -- Shares of common stock issued in connection with conversion of shares of convertible preferred stock (130,000) (130) 130,000 130 -- -- -- Options granted to non-employees -- -- -- -- 13,906 -- -- Net loss and comprehensive loss -- -- -- -- -- (1,558,569) -- $ (1,558,569) -------- --------- ---------- --------- ------------ ------------ --------- ============ BALANCE, DECEMBER 31, 1997 -- -- 13,000,000 13,000 530,906 (1,558,569) -- Shares of common stock issued in connection with merger with 1997 Corp. -- -- 269,400 269 (269) -- -- Conversion of due to Andrx Corporation upon consummation of merger with 1997 Corp. -- -- -- -- 3,012,452 -- -- Options granted to non-employees -- -- -- -- 15,606 -- -- Net loss and comprehensive loss -- -- -- -- -- (2,481,012) -- $ (2,481,012) -------- --------- ---------- --------- ------------ ------------ --------- ============ BALANCE, DECEMBER 31, 1998 -- -- 13,269,400 13,269 3,558,695 (4,039,581) -- Shares of common stock issued in connection with public offering -- -- 3,450,000 3,450 50,774,716 -- -- Conversion of due to Andrx Corporation upon completion of public offering -- -- 465,387 466 7,445,726 -- -- Shares of common stock issued in connection with the acquisition of Telegraph Consulting Corporation -- -- 320,000 320 2,770,680 -- -- Shares of common stock issued in connection with exercise of stock options -- -- 148,875 149 168,852 -- -- Options granted to non-employees -- -- -- -- 154,362 -- -- Unrealized loss on investments available-for-sale -- -- -- -- -- -- (99,970) $ (99,970) Net loss -- -- -- -- -- (10,773,785) -- (10,773,785) ------------ Comprehensive loss $(10,873,755) -------- --------- ---------- --------- ------------ ------------ --------- ============ BALANCE, DECEMBER 31, 1999 -- $ -- 17,653,662 $ 17,654 $ 64,873,031 $(14,813,366) $ (99,970) ======== ========= ========== ========= ============ ============ =========
The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements. F-5 CYBEAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM YEARS ENDED DECEMBER 31, FEBRUARY 5, 1997 ----------------------------- (INCEPTION) TO 1999 1998 DECEMBER 31, 1997 ------------ ------------ ------------ Cash flows from operating activities: Net loss $(10,773,785) $ (2,481,012) $ (1,558,569) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 1,555,613 139,268 65,376 Other non-cash charges 35,508 159,897 -- Changes in operating assets and liabilities: Investment interest receivable (740,037) -- -- Accounts receivable (45,994) -- -- Receivable from Blue Lake Ltd. 366,000 (366,000) -- Prepaid expenses and other current assets (447,664) (163,678) (30,707) Other assets (1,306,628) 11,730 (14,684) Accounts payable 1,577,012 1,088,246 64,813 Accrued liabilities 30,568 225,249 76,533 ------------ ------------ ------------ Net cash used in operating activities (9,749,407) (1,386,300) (1,397,238) ------------ ------------ ------------ Cash flows from investing activities: Purchases of investments available-for-sale, net (26,171,867) -- -- Convertible note receivable from HIE, Inc. (3,000,000) -- -- Purchases of property and equipment (2,154,165) (2,341,123) (240,535) Product development costs (140,304) (358,000) -- Purchase of software licenses (1,603,000) -- (160,000) Acquisition of Telegraph Consulting Corporation (1,181,244) -- -- Proceeds from sale of property and equipment 5,450 -- -- ------------ ------------ ------------ Net cash used in investing activities (34,245,130) (2,699,123) (400,535) ------------ ------------ ------------ Cash flows from financing activities: Advances from Andrx Corporation, net of Andrx's utilization of Cybear's income tax attributes 5,101,465 4,088,406 1,268,773 Repayment of bank loan (136,347) -- -- Net proceeds from public share offering 50,778,166 -- -- Proceeds from exercises of stock options 169,001 -- -- Proceeds from promissory note issued for purchase of convertible preferred stock -- -- 30,000 Net proceeds from issuance of shares of common stock -- -- 500,000 ------------ ------------ ------------ Net cash provided by financing activities 55,912,285 4,088,406 1,798,773 ------------ ------------ ------------ Net increase in cash and cash equivalents 11,917,748 2,983 1,000 Cash and cash equivalents, beginning of period 3,983 1,000 -- ------------ ------------ ------------ Cash and cash equivalents, end of period $ 11,921,731 $ 3,983 $ 1,000 ============ ============ ============ Supplemental disclosure of non-cash activities: Conversion of due to Andrx Corporation into shares of common stock $ 7,446,192 $ -- $ -- ============ ============ ============ Conversion of due to Andrx Corporation into additional paid-in capital $ -- $ 3,012,452 $ -- ============ ============ ============
The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements. F-6 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (1) GENERAL Cybear Inc. ("Cybear" or the "Company"), a Delaware corporation, was incorporated on February 5, 1997. As of December 31, 1999, Cybear was a 73% owned subsidiary of Andrx Corporation ("Andrx"). Cybear is an information technology company using the Internet to improve the efficiency of administrative and communications tasks of managing patient care. Cybear provides access to the Internet and the Cybear product line through its own Internet Service Provider ("ISP") system, delivering productivity applications to health care providers and health information to consumers. RECAPITALIZATION On November 20, 1998, Cybear, Inc. ("Cybear, Inc. (FL)"), a Florida corporation, merged with 1997 Corp. (the "Merger") pursuant to a Merger Agreement and Plan of Reorganization, dated July 15, 1998 ("the Merger Agreement"). 1997 Corp. was a "blank check" company that had a registration statement on file with the Securities and Exchange Commission ("SEC") to seek a business combination with an operating entity. Upon consummation of the Merger, Cybear, Inc. (FL) became a wholly owned subsidiary of 1997 Corp. and 1997 Corp. changed its name to Cybear, Inc. 1997 Corp. (now called Cybear, Inc.) remains the continuing registrant for SEC reporting purposes. The Merger was intended to be a tax-free reorganization for federal income tax purposes and was treated as a recapitalization of Cybear, Inc. (FL) for accounting and financial reporting purposes. The result of the Merger was that the holders of Cybear, Inc. (FL)'s common stock prior to the Merger owned 13,000,000 shares of Cybear, Inc.'s common stock and the 1997 Corp.'s original shareholders owned 269,400 shares of Cybear, Inc.'s common stock immediately following the Merger. REGISTRATION STATEMENT In June 1999, the Company completed the public offering of 3,450,000 shares of its common stock, raising approximately $50.8 million in net proceeds. ACQUISITION On September 17, 1999, the Company acquired Telegraph Consulting Corporation ("Telegraph"), the programming, networking and interactive design division of Telegraph New Technology, Inc. The purchase price of approximately $4.1 million included $1.2 million in cash, the issuance of 320,000 shares of Cybear unregistered common stock valued at approximately $2.8 million and the assumption of approximately $136,000 of Telegraph's debt. The acquisition was recorded using the purchase method of accounting. The excess of the purchase price over the fair value of the net assets acquired represents goodwill of approximately $3.9 million. The goodwill is being amortized on a straight-line basis over its estimated useful life of 10 years. The amortization of the goodwill totaled $114,729 in 1999. The following summarizes the acquisition: Cash used for acquisition $ 1,181,244 Common stock issued 2,771,000 Debt assumed 136,347 ------------ Purchase price 4,088,591 Working capital acquired (30,489) Property and equipment acquired (124,529) ------------ Goodwill $ 3,933,573 ============ F-7 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The results of Telegraph have been included in the accompanying consolidated financial statements since the acquisition date. The following unaudited pro forma information presents the consolidated results of operations of Cybear and Telegraph as if the acquisition had occurred at the beginning of each period presented: YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 ------------ ------------ Revenues $ 1,111,782 $ 1,146,000 ============ ============ Net loss $(11,216,390) $ (2,875,681) ============ ============ Basic and diluted net loss per share $ (0.71) $ (0.22) ============ ============ Such pro forma information has been prepared for comparative purposes only and is not necessarily indicative of what the consolidated results of operations of Cybear and Telegraph would have been had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of the consolidated results of Cybear and Telegraph subsequent to the acquisition. PROPOSED TRACKING STOCK RECAPITALIZATION PLAN In December 1999, Cybear received from Andrx a tracking stock recapitalization plan offer which would give Andrx shareholders the ability to distinguish their investments in Andrx and Cybear. The plan would create a new class of Andrx common stock to separately track the performance of Cybear ("Cybear Group Common"). Pursuant to an Agreement and Plan of Merger and Reorganization (the "Agreement"), Andrx would acquire all of the publicly traded shares of common stock of Cybear in a tax-free "roll-up" merger. Under the Agreement, the public shareholders of Cybear, who owned approximately 27% of the common stock of Cybear as of December 31, 1999, would exchange such shares for Cybear Group Common shares at terms, including the exchange ratio for such shares, to be negotiated between Cybear and Andrx. The Andrx common stock would be converted into shares of Andrx Group Common and shares of Cybear Group Common. Upon completion of the recapitalization, Cybear would be a wholly owned subsidiary of Andrx with 100% of its value publicly trading in the form of Cybear Group Common. The Agreement would be subject to various conditions, including approval by Cybear's Board of Directors and the shareholders of Andrx and Cybear and, accordingly, no assurance can be given that this proposed merger will be consummated. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Cybear, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-8 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 CASH AND CASH EQUIVALENTS All highly liquid investments with an original maturity of three months or less are considered cash equivalents. INVESTMENTS AVAILABLE-FOR-SALE The Company utilizes the provisions of Financial Accounting Standards Board ("FASB") Statement on Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that marketable equity securities and all debt securities be classified into three categories: (i) held to maturity securities, (ii) trading securities, or (iii) available-for-sale securities. The Company classifies its investment as available-for-sale and, accordingly, the investments are carried at market value and any unrealized gain or loss is reported as a separate component of shareholders' equity. The cost related to investments available-for-sale is determined utilizing the specific identification method. PROPERTY AND EQUIPMENT, NET Property and equipment is recorded at cost less accumulated depreciation or amortization. Depreciation or amortization is provided using the straight-line method over the following estimated useful lives: Computer hardware and software 3 years Furniture and fixtures 5 years Leasehold improvements Lesser of useful life or term of lease Major renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred. PRODUCT DEVELOPMENT COSTS, NET The Company capitalizes costs incurred for the production of computer software used in the sale of its services subsequent to the establishment of technological feasibility. Capitalized costs include direct labor and payroll-related costs for software produced by the Company and fees charged by third parties to produce software for the Company. Once technological feasibility has been established, such costs are capitalized until the software has completed beta testing and is generally available. Product development costs are amortized, on a product-by-product basis, using the straight-line method over a maximum of five years or the expected life of the product, whichever is less. Quarterly, the Company reviews and expenses the unamortized cost of any major feature of products identified as being impaired or being redesigned. The Company also reviews recoverability of the total unamortized cost of all products in relation to estimated revenues and, when necessary, makes an appropriate adjustment to net realizable value. F-9 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 SOFTWARE LICENSES In December 1999, Cybear entered into a perpetual non-transferable and non-exclusive license agreement with HIE, Inc. ("HIE") to use certain of their software applications as a means to offer an Application Service Provider through Cybear's network operations center. Cybear has agreed to pay HIE $1.6 million for such software application licenses. As of December 31, 1999, Cybear had paid $600,000 of such amount and the remaining $1 million is included in accounts payable on the accompanying consolidated balance sheet. Once these software applications are placed in service, they will be transferred to property and equipment and will be amortized using the straight-line method over an estimated useful life of three years. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company utilizes the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To determine a loss, if any, to be recognized, the book value of the asset would be compared to the market value or expected undiscounted future cash flow value. REVENUE RECOGNITION Revenues for the year ended December 31, 1999 include subscriptions to the Company's Physician Practice Portal product, web site development and maintenance services and e-commerce. Revenues for the period from February 5, 1997 (inception) to December 31, 1997 represent software development services rendered to Andrx. Subscription, web site development and maintenance and software development revenues are earned when the Company's services are provided. E-commerce revenues are earned when the products are shipped. Cybear has entered into certain agreements with medical organizations (see Note 10) to provide the Company's subscription services to the organizations' members in exchange for various consulting services. Certain of these agreements result in a net cash outflow. Subscription services earned under agreements resulting in net cash outflows are recorded as a reduction of the amounts expensed for the consulting services received. Revenues recorded in the years ended December 31, 1999 and 1998 and in the period from February 5, 1997 (inception) to December 31, 1997 consist of the following: FOR THE PERIOD FROM YEARS ENDED FEBRUARY 5, 1997 DECEMBER 31, (INCEPTION) TO -------------------- DECEMBER 31, 1999 1998 1997 -------- -------- -------- Subscription $ 86,898 $ -- $ -- Web site development and maintenance 102,167 -- -- E-commerce 80,642 -- -- Software development services to Andrx -- -- 95,927 -------- -------- -------- $269,707 $ -- $ 95,927 ======== ======== ======== Subscription revenues for the year ended December 31, 1999 include $56,908 from a medical organization. Starting in the fourth quarter of 1999, subscription services to this organization are being provided for non-cash consideration and, accordingly, revenue is not being recorded. F-10 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 Subscription revenues for the year ended December 31, 1999 include $19,311 from Andrx (see Note 11). In the year ended December 31, 1999, Cybear provided subscriptions to its Physician Practice Portal product to certain customers of Andrx at the standard monthly rate of $24.95 per subscriber. Andrx paid for such subscription services on behalf of its customers. Starting in the fourth quarter of 1999, these subscription services are being provided for non-cash consideration and, accordingly, revenue is not being recorded. E-commerce revenues for the year ended December 31, 1999 represent revenues earned from an arrangement between Cybear and Andrx to sell products to physicians on orders placed through Cybear's Physician Practice Portal product (see Note 11). STOCK-BASED COMPENSATION Under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", companies can either measure the compensation cost of equity instruments issued to employees under employee compensation plans using a fair value based method, or can continue to recognize compensation cost using the intrinsic value method under the provisions of Accounting Principles Board Opinion ("APB") No. 25. However, if the provisions of APB No. 25 are applied, pro forma disclosures of net income or loss and earnings or loss per share must be presented in the financial statements as if the fair value method had been applied. For the years ended December 31, 1999 and 1998, and for the period from February 5, 1997 (inception) to December 31, 1997, the Company recognized compensation costs for options granted to non-employees under the provisions of APB No. 25, and the Company has provided the expanded disclosure required by SFAS No. 123 (see Note 13). INCOME TAXES The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". The provisions of SFAS No. 109 require, among other things, recognition of future tax benefits measured at enacted rates attributable to the deductible temporary differences between the financial reporting and income tax bases of assets and liabilities and to tax net operating loss carryforwards to the extent that the realization of said benefits is "more likely than not". NET LOSS PER SHARE The Company calculates its basic and diluted net loss per share pursuant to SFAS No. 128, "Earnings Per Share". For the years ended December 31, 1999 and 1998, and for the period from February 5, 1997 (inception) to December 31, 1997, basic and diluted net loss per share is based on the weighted average number of shares of common stock outstanding. Since the effect of common stock equivalents was antidilutive, all such equivalents were excluded in the computation of diluted net loss per share. Common equivalent shares consist of the incremental common shares issuable upon exercise of stock options and warrants using the treasury stock method. There were 1,647,408 and 985,083 options and warrants outstanding at December 31, 1999 and 1998, respectively, that could potentially dilute earnings per share in the future. FAIR VALUE OF FINANCIAL INSTRUMENTS As of December 31, 1999 and 1998, the carrying amounts of cash and cash equivalents, investments available-for-sale, investment interest receivable, accounts receivable, the convertible note receivable from HIE, Inc., the receivable from Blue Lake Ltd., accounts payable and accrued liabilities approximate fair value due to their short term maturity and/or market rates of interest. F-11 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject Cybear to credit risk consist primarily of the Company's investments available-for-sale and the convertible note receivable from HIE, Inc. Cybear invests in U.S. Treasury and government agency securities, and debt instruments of corporations with investment grade credit ratings. Cybear has established guidelines relative to diversification and maturities that are designed to help ensure safety and liquidity. Cybear has limited the amount of its credit risk exposure related to the convertible note receivable from HIE, Inc. (the "Note"). At its option, Cybear may convert the Note into shares of common stock of HIE at a conversion price of $3.19 per share. As of December 31, 1999, the closing sale price of HIE's common stock was $3.38. If Cybear does not convert the Note and HIE fails to pay the outstanding principal balance of the Note, Cybear will receive a royalty free license to sub-license to its customers the software applications purchased from HIE (see Note 4). COMPREHENSIVE LOSS The Company adopted the provision of SFAS No. 130, "Reporting Comprehensive Income", in the year ended December 31, 1998, as required. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income or loss and its components in financial statements. The Company has included the required disclosure of this statement in the accompanying consolidated statements of shareholders' equity (deficit) for the years ended December 31, 1999 and 1998, and for the period from February 5, 1997 (inception) to December 31, 1997. BUSINESS SEGMENTS SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has adopted the provisions of SFAS No. 131 in the year ended December 31, 1998, as required. Currently, the Company does not believe it has any separately reportable business segments or other disclosure information required by the Statement. DERIVATIVES In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133, as amended, requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. F-12 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 SFAS No. 133, as amended, is effective for fiscal years beginning after June 15, 2000. A company may also implement the provisions of SFAS No. 133, as amended, as of the beginning of any fiscal quarter after issuance. SFAS No. 133, as amended, cannot be applied retroactively. SFAS No. 133, as amended, must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company will adopt the provisions of SFAS No. 133 beginning January 1, 2001, as required. Adoption of the provisions of this standard is not expected to have a material effect on the Company's consolidated results of operations and financial condition. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. (3) INVESTMENTS AVAILABLE-FOR-SALE Investments available-for-sale consist of the following as of December 31, 1999: GROSS AMORTIZED UNREALIZED MARKET COST LOSSES VALUE ------------ ------------ ------------ U.S. government agencies $ 16,008,769 $ (91,489) $ 15,917,280 Corporate bonds 10,163,098 (8,481) 10,154,617 ------------ ------------ ------------ $ 26,171,867 $ (99,970) $ 26,071,897 ============ ============ ============ (4) CONVERTIBLE NOTE RECEIVABLE FROM HIE, INC. In December 1999, Cybear entered into a software license agreement with HIE (see Note 2). In connection with the agreement, upon receipt of $3,000,000 from Cybear, HIE issued to Cybear a one-year convertible promissory note in the amount of $3,000,000 bearing interest at the rate of 7.8%. At its option, on the maturity date, Cybear may convert the Note into shares of common stock of HIE at a conversion price of $3.19 per share. The Company has recorded the Note at cost. As of December 31, 1999, the closing sale price of HIE's common stock was $3.38. In addition, HIE granted Cybear a warrant (the "Warrant") to purchase 47,022 shares of its common stock. The Warrant has an exercise price of $3.19 per share and expires five years from the grant date. Using the Black-Scholes pricing model, the Company has recorded to other assets the Warrant at its fair market value of $100,000. The resulting deferred income of $100,000 was recorded to accounts payable and is being amortized to interest income over the term of the Note. (5) RECEIVABLE FROM BLUE LAKE LTD. In September 1998, Cybear entered into a lease agreement with Blue Lake Ltd. ("Blue Lake") to house its corporate headquarters and network systems. As part of the lease agreement, Blue Lake agreed to pay Cybear a portion ("Landlord Contribution") of the total costs incurred by the Company to improve the rented space prior to its occupancy. As of December 31, 1998, Cybear had recorded a receivable of $366,000 from Blue Lake for such Landlord Contribution. The Company collected the receivable in 1999. F-13 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (6) PROPERTY AND EQUIPMENT, NET Property and equipment are summarized as follows: DECEMBER 31, --------------------------- 1999 1998 ----------- ----------- Computer hardware and software $ 3,243,477 $ 1,806,831 Furniture and fixtures 703,933 241,911 Leasehold improvements 831,469 532,916 ----------- ----------- 4,778,879 2,581,658 Less: accumulated depreciation and amortization (1,255,484) (175,029) ----------- ----------- Property and equipment, net $ 3,523,395 $ 2,406,629 =========== =========== (7) PRODUCT DEVELOPMENT COSTS, NET Capitalized product development costs consist of the following: 1999 1998 --------- --------- Balance, beginning of year $ 358,000 $ -- Costs capitalized 140,304 358,000 Costs amortized (165,552) -- --------- --------- Balance, end of year $ 332,752 $ 358,000 ========= ========= The accumulated amortization of capitalized product development costs totaled $97,896 at December 31, 1999. There was no accumulated amortization of capitalized product development costs at December 31, 1998. The Company did not record any amortization of its capitalized product development costs in the year ended December 31, 1998 as it had not yet released any products. (8) ACCRUED LIABILITIES Accrued liabilities consist of the following: DECEMBER 31, -------------------- 1999 1998 -------- -------- Payroll and employee benefits $233,455 $116,782 Litigation settlement charge -- 125,000 Other 98,895 60,000 -------- -------- $332,350 $301,782 ======== ======== (9) INCOME TAXES Cybear's taxable results through the completion of the public offering in June 1999 (see Note 1) were included in the consolidated income tax return of Andrx since Andrx owned at least 80% of the common stock of Cybear. Cybear and Andrx have a tax allocation agreement pursuant to which Federal income tax liabilities or benefits are allocated to Cybear as if Cybear had filed a separate income tax return when Cybear's taxable results are included in the consolidated income tax return of Andrx. Upon completion of the public offering in June 1999, Andrx's ownership in Cybear was reduced below 80%. Consequently, Cybear thereafter files its income tax returns separately. F-14 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 For the period from June 23, 1999 (date of completion of the public offering) to December 31, 1999, Cybear generated a net operating loss carryforward of approximately $10 million which is available to offset future earnings. As of December 31, 1999, Cybear has net deferred tax assets of approximately $4.0 million attributable primarily to the net operating loss carryforward of approximately $10 million generated from June 23, 1999 to December 31, 1999. Under the provisions of SFAS No. 109, "Accounting for Income Taxes", Cybear has provided a valuation allowance to reserve against 100% of its net deferred tax assets due to its history of net losses. For the period from January 1, 1999 to June 22, 1999 and for the year ended December 31, 1998, Cybear recorded $2,824,069 and $1,900,000, respectively, in income tax benefits. The income tax benefits reflect the reimbursement from Andrx for the utilization of Cybear's income tax attributes pursuant to the tax allocation agreement. For the period from February 5, 1997 (inception) to December 31, 1997, Cybear did not record any income tax provision or benefit as Andrx could not utilize Cybear's income tax attributes. The components of the income tax benefits are summarized as follows: FOR THE PERIOD FROM FEBRUARY 5, 1997 DECEMBER 31, (INCEPTION) TO ------------------------ DECEMBER 31, 1999 1998 1997 ---------- ---------- ------------ Current $2,824,069 $1,900,000 $ -- Deferred -- -- -- ---------- ---------- ------------ Total $2,824,069 $1,900,000 $ -- ========== ========== ============ Deferred income taxes represent the tax effect of the difference between the financial reporting and tax bases of assets and liabilities. The major components of deferred tax assets and liabilities are as follows: DECEMBER 31, --------------------------- 1999 1998 ----------- ----------- Net operating loss carryforward $ 3,928,709 $ 324,989 Book over (under) tax depreciation 44,507 (7,525) Software development costs (128,442) -- Other, net 111,883 24,704 ----------- ----------- 3,956,657 342,168 Valuation allowance (3,956,657) (342,168) ----------- ----------- Net $ -- $ -- =========== =========== The following table indicates the activity in the valuation allowance: 1999 1998 ----------- ----------- Beginning balance January 1 $ (342,168) $ (523,723) Generated (6,438,558) (1,718,445) Utilized by Andrx 2,824,069 1,900,000 ----------- ----------- Ending Balance December 31 $(3,956,657) $ (342,168) =========== =========== As of December 31, 1999, the Company has a net operating loss carryforward of approximately $10 million which is available to offset future earnings. Under the provisions of SFAS No. 109, the Company has provided a valuation allowance to reserve against 100% of its net deferred tax assets given the Company's history of net losses. Included in Cybear's deferred tax asset for its net operating loss carryforward is a benefit of approximately $1.0 million related to the exercise of non-qualified stock options. If and when this benefit is utilized, it will be recorded as an increase to additional paid-in capital rather than a reduction of the income tax provision. Net operating loss carryforwards are subject to review and possible adjustments by the Internal Revenue Service and may be limited in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%. F-15 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (10) COMMITMENTS EMPLOYMENT CONTRACTS The Company has entered into employment contracts with certain officers, the terms of which expire at various dates through September 2003. Such agreements provide for annual base salary, stock options, severance packages and in some instances, signing and/or incentive bonuses or deferred compensation. Future commitments under employment agreements at December 31, 1999 are as follows: 2000 $ 710,000 2001 612,000 2002 612,000 2003 390,000 ------------ $ 2,324,000 ============ PRODUCT LIABILITY Software products such as those to be offered by the Company frequently contain undetected errors or failures when first introduced or as new versions are released. Testing of the Company's products is particularly challenging because it is difficult to simulate the wide variety of computing environments in which the Company's potential customers may deploy these products. There can be no assurance that defects, errors or difficulties will not cause delays in product introductions, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or customer satisfaction with the Company's products. In addition, there can be no assurance that, despite testing by the Company and by potential customers, errors will not be found after commencement of commercial introduction, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon the Company's business, operating results and financial condition. OPERATING LEASES The Company leases office space, telephone lines and various equipment under operating leases. The following schedule summarizes future minimum lease payments required under non-cancelable operating leases with terms greater than one year, as of December 31, 1999: 2000 $ 1,156,000 2001 1,185,000 2002 748,000 2003 750,000 2004 767,000 Thereafter 1,792,000 ------------ $ 6,398,000 ============ Rent expense for the years ended December 31, 1999 and 1998 amounted to $1,137,000 and $145,000, respectively, and $130,000 for the period from February 5, 1997 (inception) to December 31, 1997. F-16 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 OTHER Cybear has entered into certain agreements with medical organizations to provide the Company's subscription services to the organizations' members in exchange for various consulting services. Certain of these agreements result in a net cash outflow. Subscription services earned under agreements resulting in net cash outflows are recorded as a reduction of the amounts expensed for the consulting services received. In addition, under some of these agreements, Cybear has issued to one medical organization options to purchase 100,000 shares of its common stock and to another organization a warrant to purchase 75,000 shares of its common stock. The warrant and 70,000 of these options are exercisable upon the medical organizations achieving certain paid subscriptions objectives among their membership. The other 30,000 options are exercisable at the earlier of achieving certain paid subscriptions objectives or a specified date. Also, under some of these agreements, Cybear has agreed to pay rebates based on the organizations achieving certain paid subscriptions objectives or share revenues generated from the organizations' subscribers or from advertising. As of December 31, 1999, Cybear has a remaining obligation to pay $800,000 in 2000 for consulting services under these agreements and has recorded $600,000 to other assets representing subscription services to be paid by one medical organization in 2001. These subscription services are currently being recorded as a reduction of the amounts expensed for consulting services when earned. In June 1999, the Company entered into a 25-month agreement with an operator of web sites and other online and interactive services. Under the terms of the agreement, beginning on September 1, 1999, Cybear is providing healthcare-related content for health channels that the operator is including on its web sites. Additionally, the Company's products are advertised on the operator's web sites. The Company is paying a fee of $3,625,000 in monthly installments during the term of the agreement in exchange for an Internet portal box on the operator's health channels and for advertising services the operator is providing to the Company. These monthly installments are recorded to other assets and are being expensed at a monthly rate of $164,773 beginning in September 1999 over the remaining term of this agreement. For the year ended December 31, 1999, Cybear made payments of $1,015,000 under this agreement and has expensed $659,000. (11) RELATED PARTY TRANSACTIONS In September 1999, the Company provided subscriptions to its Physician Practice Portal product to certain customers of Andrx at the standard monthly rate of $24.95 per subscriber. Andrx paid for such subscription services on behalf of its customers. Revenues generated from such services were $19,311 for the year ended December 31, 1999. Starting in the fourth quarter of 1999, these subscription services are being provided for non-cash consideration and, accordingly, revenue is not being recorded. Beginning in September 1999, Cybear entered into an arrangement with Andrx for the sale of products to physician offices on orders placed through Cybear's Physician Practice Portal product. Andrx charges Cybear at its cost for the products sold. Andrx also charges Cybear for services that include the purchasing, warehousing and distribution of the products to the physician offices. Management believes that the amounts incurred for these services approximate fair market value. For the year ended December 31, 1999, Cybear recorded product sales of $80,642 and cost of sales of $77,435 under such arrangement. In addition, in the year ended December 31, 1999, Andrx charged Cybear $8,064 for the services it provided. F-17 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 The Company and Andrx have a corporate services agreement whereby Andrx provides the Company with various services of its management. For the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997, the Company incurred amounts for these services based upon mutually agreed upon allocation methods. Management believes that the amounts incurred for these services approximate fair market value. Costs for such services were $120,000 for each of the years ended December 31, 1999 and 1998, respectively, and $110,000 for the period from February 5, 1997 (inception) to December 31, 1997. Due to Andrx in the accompanying balance sheet as of December 31, 1998, represented advances from Andrx to fund the Company's operations and the related accrued interest. Such advances bore interest at prime plus 1/2%. On November 20, 1998, upon consummation of the merger with 1997 Corp. (see Note 1), the then outstanding Due to Andrx of $3,012,452 was converted into additional paid-in capital to the Company. Upon completion of the public offering in June 1999 (see Note 1), Andrx converted its advances due from Cybear, net of the reimbursement for income tax attributes, to Cybear's capital in exchange of 465,387 shares of Cybear common stock at the public offering price of $16.00 per share. For the years ended December 31, 1999 and 1998, Cybear recorded $216,182 and $210,441, respectively, in interest expense on the Due to Andrx. For the period from February 5, 1997 (inception) to December 31, 1997, Cybear recorded $28,220 in interest expense on the Due to Andrx. In November, 1998, the Company entered into a sublease with Strategy Business and Technology Solutions, LLC, a company owned by the chairman of the Company, for 4,000 square feet of office space in Ridgefield Park, New Jersey to house its business development and sales activities. The lease provided for $120,000 and $5,000 in annual base rent and electricity, respectively, and had a five-year term commencing on November 1, 1998. In November 1999, the Company terminated the lease and incurred an early termination penalty of $95,000. In addition, for the years ended December 31, 1999 and 1998, the Company recorded $111,332 and $20,834, respectively, in rent expense relative to this lease. From February 5, 1997 (inception) to December 31, 1997, the Company provided Andrx with software development services. The Company charged Andrx based on mutually agreed upon allocation methods. Software development services charged to Andrx were $95,927 for the period from February 5, 1997 (inception) to December 31, 1997. The Company did not provide Andrx with software development services for the years ended December 31, 1999 and 1998. (12) SHAREHOLDERS' EQUITY In February 1997, the Company issued 130,000 shares of convertible preferred stock for a promissory note of $30,000. In the period from February 5, 1997 (inception) to December 31, 1997, the promissory note was paid in full and the 130,000 shares of preferred stock were converted into 130,000 shares of common stock. In November 1998, the Company merged with 1997 Corp., a "blank check" company that had a registration statement on file with the SEC to seek a business combination with an operating entity (see Note 1). As a result of the merger, the 1997 Corp.'s original shareholders were issued 269,400 shares of Cybear, Inc.'s common stock. In addition, upon consummation of the merger with 1997 Corp., the then outstanding Due to Andrx of $3,012,452 was converted into additional paid-in capital of the Company. In June 1999, the Company completed the public offering of 3,450,000 shares of its common stock, raising approximately $50.8 million in net proceeds. Upon completion of the public offering, Andrx converted its advances due from Cybear, net of the reimbursement for income tax attributes, into Cybear's capital in exchange for 465,387 shares of Cybear common stock at the public offering price of $16.00 per share. F-18 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 In September 1999, the Company acquired Telegraph Consulting Corporation (see Note 1). The purchase price included the issuance of 320,000 shares of Cybear unregistered common stock valued at approximately $2.8 million. (13) STOCK INCENTIVE PLAN The Company has reserved 1,800,000 shares of its common stock for issuance under its 1997 Stock Option Plan (the "Plan"). Under the Plan, incentive and nonqualified stock options are available to directors, officers, employees or consultants to the Company. The terms of each option agreement are determined by the Company's Board of Directors or its compensation committee (the "Committee"). The terms for, and exercise price at which any stock option may be awarded is to be determined by the Committee. Options granted under the Plan must be exercised within ten years of the date of grant, unless a shorter period is designated at the time of grant. In July 1999, the Company's Board of Directors approved an amendment to the Company's Plan increasing the number of shares issuable under the Plan by 1,200,000 to 3,000,000 subject to approval by the stockholders of Cybear. The Company accounts for options granted to employees under the Plan in accordance with the provisions of APB No. 25. Each stock option has an exercise price equal to the market price on the date of grant and, accordingly, no compensation expense has been recorded for any stock option grants to employees. On rare occasions, the Company may issue an insignificant amount of equity instruments to non-employees. Stock options issued to non-employees for the years ended December 31, 1999 and 1998 and for the period from February 5, 1997 (inception) to December 31, 1997 were accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable, as required by SFAS No. 123. In instances where the fair value or the goods or services received is not reliably measurable, the measure is based upon the fair value of the equity instruments issued, and such value is amortized over the period for which services are provided. The fair value of equity instruments issued to non-employees are valued using the Black Scholes option pricing model. A summary of the Plan's activity is as follows:
OUTSTANDING EXERCISABLE ---------------------------------------------- ---------------------- NUMBER OF SHARES EXERCISE PRICE PER SHARE WEIGHTED AVG. UNDER -------------------------------- EXERCISE OPTION LOW HIGH WTD. AVG. SHARES PRICE --------- -------- --------- --------- -------- -------- February 5, 1997 (inception) -- Granted 350,000 $ 1.00 $ 1.00 $ 1.00 --------- December 31, 1997 350,000 1.00 1.00 1.00 -- $ -- Granted 705,083 2.00 3.00 2.81 Forfeited (70,000) 1.00 1.00 1.00 --------- December 31, 1998 985,083 1.00 3.00 2.30 70,000 1.00 Granted 919,950 3.00 16.25 12.63 Exercised (148,875) 1.00 3.00 1.14 Forfeited (183,750) 1.00 16.00 4.32 --------- December 31, 1999 1,572,408 $ 1.00 $ 16.25 $ 8.22 430,675 $ 9.29 =========
F-19 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997
OPTIONS OUTSTANDING AT EXERCISABLE OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999 - ------------------------------------------------------------------------------------------ -------------------------------- WEIGHTED AVG. REMAINING LIFE WEIGHTED AVG. WEIGHTED AVG. RANGE OF EXERCISE PRICES SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE - -------------------------------- ------------- ------------------ ------------------ ------------ ----------------- $ 1.00 - $ 2.00 155,125 7.6 $ 1.36 20,500 $ 1.51 $ 3.00 - $ 3.00 602,833 8.8 3.00 175,175 3.00 $ 6.50 - $13.25 327,700 9.6 9.51 35,000 6.98 $16.00 - $16.25 486,750 9.5 16.01 200,000 16.00 ---------- ------- $ 1.00 - $16.25 1,572,408 9.0 $ 8.22 430,675 $ 9.29 ========== =======
The range of weighted average fair value per share as of the grant date was $2.54 to $13.79 and $1.50 to $2.23 for stock options granted during the years ended December 31, 1999 and 1998, respectively, and $0.70 for stock options granted during the period from February 5, 1997 (inception) to December 31, 1997. The fair market value of an option was estimated using the Black-Scholes option pricing model with the following assumptions: FOR THE PERIOD FROM YEARS ENDED DECEMBER 31, FEBRUARY 5, 1997 ------------------------ (INCEPTION) TO 1999 1998 DECEMBER 31, 1997 ------------ ---------- ------------------- Risk-free interest rate 5.6% 4.8% 5.3% Average life of options (years) 5.2 4.5 6.0 Average volatility 110% 85% 75% Dividend yield - - - The following table summarizes the pro forma consolidated results of operations of the Company as though the provision of the fair value based accounting method of SFAS No. 123 had been used in accounting for stock options:
FOR THE PERIOD FROM YEARS ENDED DECEMBER 31, FEBRUARY 5, 1997 -------------------------- (INCEPTION) TO 1999 1998 DECEMBER 31, 1997 ------------ ----------- ------------ Basic and diluted net loss As reported $(10,773,785) $(2,481,012) $ (1,558,569) Pro forma $(15,228,401) $(2,570,414) $ (1,590,717) Basic and diluted net loss per share As reported $ (0.70) $ (0.19) $ (0.12) Pro forma $ (0.98) $ (0.20) $ (0.12)
(14) SUBSEQUENT EVENTS AGREEMENTS In January 2000, Cybear entered into a thirty-month subscription agreement with a provider of Internet-based electronic data interchange ("EDI") transactions and information solutions. Cybear agreed to pre-purchase $300,000 of annual subscriptions and to pay certain transaction fees to enable its subscribers access to services provided by this third party. This provider of EDI transactions agreed to pay Cybear monthly fees for its customers subscribing to Cybear's Physician Practice Portal product. F-20 CYBEAR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 In January 2000, Cybear entered into a perpetual non-transferable and non-exclusive license agreement with a third party to use their software as a means to gain access to electronic patient records. Cybear has agreed to pay $2.5 million for such software application license. Cybear also entered into a five-year agreement with this third party. Under that agreement, Cybear has agreed to pay certain commissions, including the issuance of up to $7.5 million of its common stock based on its average closing price for 180 days, if certain targets of paid subscriptions to Cybear's ISP are achieved by customers using the third party's software application. In addition, Cybear and the third party have agreed to share transaction fees derived from the usage of the software applications by Cybear's customers. TRACKING STOCK RECAPITALIZATION PLAN In March 2000, Andrx and Cybear entered into a definitive agreement with respect to the previously announced tracking stock recapitalization plan. This plan, which was recommended to the Cybear Board of Directors by its Special Committee and approved by the Boards of both Cybear and Andrx, will create a new class of Andrx common stock to separately track the performance of Cybear. The plan will be submitted to Andrx and Cybear shareholders for approval later this year. Pursuant to the Agreement, Andrx will acquire all of the publicly traded shares of common stock of Cybear in a tax-free "roll-up" merger. Public shareholders currently own approximately 5.4 million shares (assuming the exercise by Edward E. Goldman, M.D., Cybear's Chief Executive Officer, of a warrant to acquire 525,000 shares of common stock of Cybear currently owned by Andrx), or 30.5%, of the common shares of Cybear, and those shareholders will receive one share of Cybear Group Common for every Cybear share they currently own. In the recapitalization, the number of Cybear shares held by Andrx will be reduced from 12.4 million shares to 10.3 million shares so as to provide the equivalent of a 20% increase in shares held by the non-Andrx shareholders of Cybear. As a result, the non-Andrx shareholders of Cybear will own approximately 34.5% of the Cybear Group Common following the closing of the transaction. Pursuant to the Agreement, each Andrx common share will be converted into (i) one share of Andrx Group Common and (ii) approximately .1622 shares of Cybear Group Common, after giving effect to Andrx' pending two-for-one stock split (in the form of a stock dividend) announced on March 1, 2000. Upon completion of the recapitalization, (i) Cybear will be a wholly owned subsidiary of Andrx with 100% of its value publicly traded in the form of Cybear Group Common; (ii) current Cybear shareholders will own approximately 34.5% of the Cybear Group Common; and (iii) current Andrx shareholders will own 100% of the Andrx Group Common and approximately 65.5% of the Cybear Group Common. Andrx and Cybear will be filing a preliminary joint proxy statement and a registration statement with respect to the proposed transaction with the SEC, which is subject to review by the SEC. In addition to shareholders approval, the transaction will be subject to various Federal and state regulatory approvals and, accordingly, no assurance can be given that this transaction will be consummated. In connection with the tracking stock recapitalization plan, the Company estimates it will incur merger costs of up to approximately $1.5 million if the tracking stock recapitalization plan is consummated. These costs will be charged to expense as incurred. No assurance can be given that this transaction will be consummated. F-21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting or financial disclosure matters. 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and officers of Cybear are set forth below. All directors and officers hold office for one year or until their successors have been elected and qualified. Vacancies in the existing board are filled by majority vote of the remaining directors.
NAME AGE POSITION (S) HELD - ---- --- ----------------- John H. Klein (1) 54 Chairman and Director Edward E. Goldman, M.D.(1,3) 55 Chief Executive Officer and Director Timothy E. Nolan (2) 44 President, Chief Operating Officer and Director Jack S. Greenman 52 Executive Vice-President and Chief Financial Officer Eric D. Moskow, M.D. (1) 41 Executive Vice-President-Market Development and Director Scott Lodin (3) 44 Secretary and Director Alan P. Cohen (1) 45 Director Angelo C. Malahias (2) 38 Director Melvin Sharoky, M.D. (3) 49 Director Philip P. Gerbino, Ph.D. (2,4) 53 Director Martin Reid Stoller, Ph.D. (3) 44 Director
(1) Member of Executive Committee (2) Member of Audit Committee (3) Member of Compensation Committee (4) Member of Special Committee of Independent Directors JOHN H. KLEIN has been the chairman and a director of Cybear since September 1, 1998. Mr. Klein has been a director of Hackensack University Medical Center in New Jersey since 1997, and became a director of Sunbeam Corporation in February 1999. Mr. Klein was the chief executive officer, chairman of the board and a director of MIM Corporation, a publicly traded pharmacy management company, from May 1996 to May 1998. From 1989 to 1994, Mr. Klein served as president, chief executive officer, a director and a member of the executive committee of the board of directors of Zenith Laboratories, Inc., a manufacturer of multi-source generic pharmaceutical drugs, which was acquired by IVAX Corporation, a major multi-source generic pharmaceutical manufacturer and marketer. From January 1995 to January 1996, Mr. Klein was a member of the executive committee of IVAX and was president of IVAX's North American Multi-Source Pharmaceutical Group. EDWARD E. GOLDMAN, M.D. has been the chief executive officer and a director of Cybear since September 1, 1998. From September 1, 1998 until March 12, 2000, Dr. Goldman also served as president of Cybear. From 1985 until he joined Cybear, he had served as a founding partner and executive officer of PhyMatrix Corporation ("PhyMatrix"), a publicly traded physician practice management company, where he was executive vice president of physician development and chief medical officer. From 1983 to 1994, he served as chairman of Pal-Med Health Services, a multi-divisional healthcare company engaged in practice management, risk contracting and the operation of imaging centers, ambulatory surgeries and ancillary service facilities. TIMOTHY E. NOLAN has been Cybear's president and chief operating officer since March 2000 and a director of Cybear since June 1999. He was employed by Aetna U.S. Healthcare from 1985 to March 2000, most recently as senior vice president of Aetna U.S. Healthcare in charge of the field organization. 22 JACK S. GREENMAN, has been the executive vice president and chief financial officer of Cybear since June 1999. From November 1998 to June 1999, he had served as executive vice president and chief financial officer of FPA Medical Management, Inc. ("FPA"), a publicly traded physician practice management company whose plan of reorganization was confirmed by the U.S. Bankruptcy Court for the District of Delaware on May 26, 1999. From May 1998 to November 1998 he served as an executive vice president with FPA. From June 1993 to May 1998 he served as senior vice president and chief financial officer with Sterling Healthcare Group, Inc., a publicly traded physician practice company specialized in the management of hospital emergency departments. Sterling merged with FPA in October 1996. Mr. Greenman is a member of the American and Florida Institute of Certified Public Accountants. ERIC D. MOSKOW, M.D. has been a director of Cybear since June 1999 and the executive vice president-market development of Cybear since February 2000. Since September 1996 he has been a director of Innovative Clinical Solutions, Ltd. ("ICSL") and was the executive vice president of strategic planning of ICSL from September 1996 to February 2000. He founded Physician's Choice Management, LLC in 1995 and served as its executive vice president from 1995 to 1996. Prior to establishing Physician's Choice, he served as medical director for Mediplex of Ridgefield from 1994 to 1996 and as associate medical director for U.S. Healthcare, a health maintenance organization, in Connecticut from 1988 to 1992. Dr. Moskow is board-certified in internal medicine and served as president of the Family Medical Associates of Ridgefield for nine years. SCOTT LODIN has been secretary and a director of Cybear since February 5, 1997. He joined Andrx in 1994 and is its vice president, general counsel and secretary. Prior to joining Andrx, Mr. Lodin was special counsel to Hughes, Hubbard & Reed and a predecessor law firm in Miami, Florida, where he practiced primarily in the areas of corporate and commercial law for over 13 years. ALAN P. COHEN was the chairman and a director of Cybear from February 5, 1997 to August 31, 1998, when he resigned as chairman upon John Klein's assuming such position. He remains a director of Cybear. Mr. Cohen has been the chairman of the board, chief executive officer and a director of Andrx since he founded Andrx in August 1992. ANGELO C. MALAHIAS has been a director of Cybear since April 1999. Mr. Malahias has been vice president and chief financial officer of Andrx since January 1996. From January 1995 to January 1996, Mr. Malahias was vice president and chief financial officer of Circa Pharmaceuticals, Inc., where he also served as corporate controller from July 1994 to January 1995. From 1983 to July 1994 he was employed by KPMG LLP. Mr. Malahias is a certified public accountant. MELVIN SHAROKY, M.D. has been a director of Cybear since April 1999. Dr. Sharoky has been a director of Andrx since November 1995 and joined Andrx as executive director on March 1, 1999. Dr. Sharoky is also president of Somerset Pharmaceuticals Inc., 50% owned by Watson Pharmaceuticals, Inc., a significant shareholder of Andrx. Dr. Sharoky was a director of Watson from July 1995 to May 1998. From July 1995 through January 1998, Dr. Sharoky was president of Watson. From February 1993 through January 1998, Dr. Sharoky served as the president and chief executive officer of Circa Pharmaceuticals. From November 1995 to May 1998, Dr. Sharoky served on Andrx' board of directors as the designee of Watson. PHILIP P. GERBINO, Ph.D. has been a director of Cybear since June 1999. Dr. Gerbino is the Linwood F. Tice professor of pharmacy and has been president of the University of the Sciences in Philadelphia and its predecessor, the Philadelphia College of Pharmacy, since 1995. Prior to being named president of the College, he served as dean of the school of pharmacy and vice president for academic affairs for one year. He is a national leader in the pharmacy profession having served as president of the American Pharmaceutical Association in 1990 and president of the AphA Academy of Pharmacy Practice from 1986-87. 23 MARTIN REID STOLLER, PH.D. has been a director of Cybear since June 1999. Since 1987, Dr. Stoller has been a Clinical Full Professor of Organization Behavior at the Kellogg School of Management of Northwestern University. Dr. Stoller also served as president and chief executive officer of Plextel Telecommunications from August 1994 through January 1997. Plextel Telecommunications was an artificial intelligence and pattern recognition software development company. Dr. Stoller led Plextel's growth from 3 to 100 employees in less than three years. Plextel was sold to Cendant Corporation in a $53 million transaction and is now known as Spark Technologies, Inc. From August 1998 through her resignation in February 2000, Debra S. Richman served as the Company's executive vice president-business development. From June 1999 through her resignation in December 1999, Betsy Atkins served as a member of the board of directors of Cybear. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and holders of more than 10% of the Company's Registered Common Stock, to file reports of ownership and changes in ownership with the Commission. Such persons are required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or oral or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that, with respect to 1999, all filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information about the compensation received during 1999, 1998 and 1997 by the Company's Chief Executive Officer and by each of the other most highly compensated executive officers of the Company whose aggregate direct compensation exceeded $100,000 (the "Named Executive Officers").
LONG TERM COMPENSATION ANNUAL COMPENSATION ----------- ----------------------------------- SECURITIES FISCAL OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) - --------------------------- ---- -------- -------- ----------- ------- Edward E. Goldman, M.D. (1) 1999 $250,000 $ -- $ 1,416(2) -- CEO 1998 $ 72,115 $ -- $ 288(2) 650,000(3) 1997 $ -- $ -- $ -- -- Debra S. Richman (4) 1999 $203,077 $ -- $ 5,578(2) -- Executive Vice President- 1998 $ 68,462 $ -- $ 1,106(2) 100,000 Business Development 1997 $ -- $ -- $ -- --
(1) Dr. Edward Goldman, M.D. served as President until March 2000. (2) Represents group term life insurance benefits and also includes an automobile allowance for Ms. Debra Richman. (3) Pursuant to his employment agreement, (i) in exchange for the payment by Dr. Edward Goldman of $50,000, Dr. Edward Goldman received from Andrx a warrant to purchase through April 30, 2006, 24 650,000 shares of Cybear common stock at its then market price of $3.00 per share (the "Goldman Warrant"), of which Dr. Edward Goldman has purchased 125,000 shares of Cybear common stock as of March 20, 2000, and (ii) Dr. Edward Goldman received options to acquire 40,000 shares (after giving effect to a 2:1 stock split of Andrx common stock) of common stock of Andrx having an exercise price per share of $18.50, the fair market value of Andrx common stock at the close of business on the date of grant, of which Dr. Edward Goldman has exercised options to acquire 8,500 shares of common stock of Andrx as of March 20, 2000 (see employment and severance agreements). (4) Ms. Debra Richman resigned from the Company in February 2000. OPTION GRANTS TABLE The Company did not grant any stock options to the Named Executive Officers during 1999. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE The following table indicates the number of shares acquired and value realized from the exercise of options and the total number and value of exercisable and unexercisable stock options held by each of the Named Executive Officers listed as of December 31, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES FISCAL YEAR-END FISCAL YEAR-END ACQUIRED ON VALUE -------------------------------- --------------------------------------- EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE (1) UNEXERCISABLE (1) ------------- ---------- -------------- --------------- ----------------- ------------------- Edward E. Goldman, M.D. (2, 3) -- -- -- -- $ -- $ -- Debra S. Richman (4) -- -- 37,500 62,500 $ 142,969 $ 238,281
(1) Based on a fair market value of $6.8125 at December 31, 1999 (2) Dr. Edward Goldman, M.D. served as President until March 2000. (3) On October 1, 1999, Dr. Goldman acquired 125,000 shares of Cybear common stock pursuant to the exercise of a portion of the Goldman Warrant. On that date, the closing sales price of Cybear common stock was $8.375. (4) Ms. Richman resigned from the Company in February 2000. In connection with her resignation, options to purchase 37,500 shares of common stock of the Company accelerated and became vested (see employment and severance agreements). COMPENSATION OF DIRECTORS In June 1999, each non-employee director of the Company was granted stock options under the Company's stock option plan to purchase 25,000 shares of Common Stock. These options vested immediately, were granted at fair market value on the date of the grant ($16.00 per share) and expire ten years from the date of the grant. In addition, the Compensation and Audit committee chairmen are entitled to receive $1,000 and each committee member is entitled to receive $500 per meeting attended, at their option. Through March 23, 2000, the Company paid to Dr. Philip P. Gerbino $40,000 in consideration for Dr. Gerbino's services on the Special Committee of the Independent Directors of Cybear. 25 EMPLOYMENT AND SEVERANCE AGREEMENTS Cybear has entered into a five-year employment agreement with Edward Goldman, M.D. pursuant to which he serves as Cybear's Chief Executive Officer effective as of September 15, 1998. The agreement provides for an annual salary of $250,000 during the first two years and $300,000 for the remaining three years. The agreement may be renewed for additional two-year periods upon the agreement of the parties. The agreement also provides that Dr. Goldman will continue to receive his salary until the expiration of the term of the employment agreement if his employment is terminated by the Company for any reason other than death, disability or "good cause" or by Dr. Goldman by reason of a material breach of the agreement by Cybear. In the event of such a termination, Dr. Goldman is entitled to receive full compensation to which he would otherwise be entitled under the agreement as if he had not so terminated his employment and was continuing to serve as an employee thereunder for the full term of the agreement, payable in a single lump sum distribution in cash or in equivalent marketable securities of Andrx on the date of such termination. In the event Dr. Goldman's employment with Cybear is terminated within six months following a "Change in Control" of Cybear, then Cybear is obligated to pay him on the date of such termination a single lump sum distribution equal to his salary for the remaining term of the agreement. Notwithstanding the foregoing, Dr. Goldman's employment will not be deemed terminated if, in lieu of his position with Cybear, Andrx or any other entity owned or controlled by Andrx offers him a replacement position, where he will perform similar executive duties and will receive a compensation package at least equal to the one set forth in the agreement; provided, however, that he is not required to be appointed as president and chief executive of any entity, but rather that he shall continue to perform employment duties generally performed by senior management personnel of an entity in the healthcare industry. In recognition of the potential value of Dr. Goldman to Cybear and to induce him to forego other employment opportunities, (i) in exchange for the payment by Dr. Edward Goldman of $50,000, Dr. Edward Goldman received from Andrx a warrant to purchase 650,000 shares of Cybear common stock at its then market price of $3.00 per share, of which Dr. Edward Goldman has purchased 125,000 shares of Cybear common stock as of March 20, 2000, and (ii) Dr. Edward Goldman received options to acquire 40,000 shares (after giving effect to a 2:1 stock split of Andrx common stock) of common stock of Andrx having an exercise price per share of $18.50, the fair market value of Andrx common stock at the close of business on the date of grant, of which Dr. Edward Goldman has exercised options to acquire 8,500 shares of common stock of Andrx as of March 20, 2000. The stock to be issued pursuant to the exercise of Dr. Goldman's warrant includes piggyback registration rights. The warrant is exercisable from April 30, 1999 to April 30, 2006, subject to contractual obligations with Andrx. In August 1998, Cybear entered into an employment agreement with Debra Richman pursuant to which Ms. Richman served as Cybear's executive vice president-business development. The agreement provided for a two-year term ending August 2000, a base salary of $160,000 and $80,000 in deferred compensation payable in eight $10,000 quarterly installments. Ms. Richman was also granted options to purchase 100,000 shares of Cybear's common stock at its then market price of $3.00 per share under Cybear's stock option plan. On the first anniversary of the agreement, 37,500 options vested and became exercisable. In February 2000, Ms. Richman resigned from Cybear and entered into a severance arrangement with Cybear pursuant to which (i) Cybear agreed to pay to Ms. Richman her base salary through May 2000 and (ii) unvested options to purchase 37,500 shares of Cybear's common stock previously granted to Ms. Richman became vested and exercisable as provided for in her employment agrement. 26 In June 1999, Cybear entered into an employment agreement with Jack Greenman, its executive vice president and chief financial officer. The agreement provides for a four-year initial term of employment. Mr. Greenman's salary is $175,000 per year, with a non-discretionary bonus of $25,000 on his first three anniversaries of employment, and an additional $25,000 bonus upon agreement to terms for his continued employment after the initial four-year term. He is also eligible to receive discretionary bonuses and he receives a car allowance. Mr. Greenman was also granted options to purchase 100,000 shares of Cybear's common stock at its then market price of $16.00 per share with 40% vesting on the first anniversary of employment and 20% vesting on each of the three subsequent anniversaries. In the event that prior to the expiration of the initial four-year term, Mr. Greenman terminates his employment or Cybear terminates his employment for good cause as defined in the agreement, Cybear's sole obligation is to pay Mr. Greenman's salary and other accrued entitlements up to the date of termination. If Cybear terminates Mr. Greenman's employment prior to the expiration of the initial term for other than good cause as defined in the agreement or within six months after a change in control of Cybear, Mr. Greenman is entitled to severance compensation consisting of at least twelve months of his base salary and the immediate vesting of stock options that would have vested in the next 12 months. In March 2000, Cybear entered into an employment agreement with Timothy E. Nolan, its president and chief operating officer. The agreement provides for a four-year term of employment. Mr. Nolan's salary is $400,000 per year, with a discretionary yearly bonus of $150,000 and a car allowance of $7,200 per year. Mr. Nolan was also granted options to purchase 300,000 shares of Cybear's common stock (waiving any conversion premium that may result from the closing of the tracking stock transaction with Andrx) and 75,000 shares of Andrx's common stock at market price with 20% vesting at grant date and the balance vesting equally over four years on the anniversaries of employment. He is also eligible to receive deferred compensation, payable within 30 days after the four-year term of employment, of $700,000 minus the "additional value". The additional value is defined as the cumulative amount Mr. Nolan received or is entitled to receive as a result of his employment by the Company excluding the above noted salary and bonus and increases thereof and benefits. In the event Mr. Nolan's employment with Cybear is terminated within one year following a "Change in Control" of Cybear, then Mr. Nolan is entitled to severance compensation consisting of $500,000 and the immediate vesting of all unvested Cybear and Andrx stock options. Notwithstanding the foregoing, Mr. Nolan's employment will not be deemed terminated if, in lieu of his position with Cybear, Andrx or any other entity owned or controlled by Andrx offers him an executive position for at least the same pay and benefits. Mr. Nolan has been a director of the Company since June 1999 and as such, he was granted options to acquire 25,000 shares of Cybear's common stock in June 1999. Cybear has been negotiating an employment agreement with Dr. Eric D. Moskow, M.D., who recently became its executive vice president-market development. Following are what are expected to be the material terms. There can be no assurance that such terms will not be modified prior to execution. The agreement provides for a three-year initial term of employment. Dr. Moskow's salary is $250,000 per year and he receives a car allowance. Mr. Moskow was also granted options to purchase 85,000 shares of Cybear's common stock at market price with 20% vesting immediately and the remaining vesting equally over three years on the anniversaries of employment. If Cybear terminates Mr. Moskow's employment prior to the expiration of the initial term for other than good cause as defined in the agreement, Mr. Moscow is entitled to severance compensation consisting of at least twelve months of his base salary and the immediate vesting of stock options that would have vested in the next 12 months. If Cybear terminates Mr. Moscow's employment prior to the expiration of the initial term within six months after a change in control of Cybear, Mr. Moscow is entitled to severance compensation consisting of at least twelve months of his base salary and the immediate vesting of all unvested stock options. Dr. Moskow has been a director of the Company since June 1999. From June 1999 to February 2000, he also served as an advisor to the executive committee of the board of directors. As such, Dr. Moskow was granted options to purchase 100,000 shares of Cybear's common stock in 1999. 27 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee is presently comprised of Scott Lodin, Melvin Sharoky and Martin Stoller with Dr. Edward E. Goldman as a non-voting member. Mr. Lodin currently serves as the Secretary of the Company and Dr. Goldman currently serves as the Chief Executive Officer of the Company. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION In evaluating the reasonableness of compensation paid to the Company's executive officers, the Compensation Committee takes into account, among other factors, how compensation compares to compensation paid by competing companies, individual contributions and the Company's performance. Base salary is determined based upon individual performance, competitive compensation trends and a review of salaries for like jobs at similar companies. It is the Company's policy that the compensation of executive officers also be based, in part, on the grant of stock options as an incentive to enhance the Company's performance. Stock options are granted based upon a review of such executive's responsibilities and relative position in the Company, such executive's overall job performance and such executive's existing stock option position. PERFORMANCE GRAPH The graph below compares the cumulative total shareholder return on the Company's Common Stock since June 18, 1999, the first day of significant trading of the Company's Common Stock, with the cumulative total shareholder return on the Nasdaq Stock Market (U.S.) Index and the Hambrecht and Quist Healthcare Information Services Index over the same period (assuming the investment of $100 in the Company's Common Stock and in the two other indices, and reinvestment of all dividends). Past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. [GRAPH OMITTED] 28 * Assumes that $100 was invested on June 18, 1999 in the Company's Common Stock, in the Hambrecht and Quist Healthcare Information Services Index, or the Nasdaq Stock Market Index, and that all dividends are reinvested.
JUNE 18, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 1999 1999 1999 ----------- ----------- ----------- ----------- Cybear, Inc. $ 100.00 $ 84.79 $ 50.76 $ 41.45 Nasdaq Stock Market (U.S.) Index 100.00 104.62 107.01 154.43 Hambrecht & Quist Healthcare Information Services Index 100.00 99.15 72.33 82.94
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of March 13, 2000, by each person owning more than 5% of such common shares and, the directors and the Named Executive Officers, and by all officers and directors, as a group.
NUMBER OF SHARES PERCENT OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER (1), (2) BENEFICIALLY OWNED OUTSTANDING - --------------------------------------------------------------- ------------------------------------ ------------------- Andrx Corporation 12,877,054 (5) 72.5% Alan P. Cohen 12,905,554 (3),(4) 72.5% John H. Klein 444,444 (6) 2.5% Edward E. Goldman, M.D. 650,500 (7) 3.7% Timothy E. Nolan 85,000 (8) * Eric D. Moskow, M.D. 67,000 (9) * Scott Lodin 12,903,554 (3),(4),(10) 72.5% Angelo C. Malahias 12,902,554 (3),(4) 72.5% Melvin Sharoky, M.D. 12,913,454 (3),(4) 72.6% Philip. P. Gerbino 25,000 (4) * Martin Reid Stoller, Ph.D. 26,300 (4) * Debra S. Richman - (11) * All Directors and Officers as a Group (11 persons) 13,767,698 (12) 75.7%
* Less than 1% (1) Except as indicated, the address of each person named in the table is c/o Cybear, Inc. 5000 Blue Lake Dr. suite 200, Boca Raton, Florida 33431. (2) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock listed, which include shares of common stock that such persons have the right to acquire a beneficial interest within 60 days from the date of this Report. 29 (3) Includes shares owned indirectly by Andrx Corporation. and 525,000 shares of common stock deemed to be beneficially owned by Edward E. Goldman, M.D. (4) Includes 25,000 shares of common stock issuable upon the exercise of stock options. (5) Includes 525,000 shares of common stock deemed to be beneficially owned by Edward E. Goldman, M.D. (6) Includes 111,111 shares of common stock issuable upon the exercise of stock options. (7) Includes 525,000 shares of common stock issuable upon the exercise of a warrant issued to Dr. Goldman by Andrx exercisable beginning on April 30, 1999 having an exercise price of $3.00 per share. (8) Represents 85,000 shares of common stock issuable upon the exercise of stock options. (9) Represents 67,000 shares of common stock issuable upon the exercise of stock options. (10) Includes 1,000 shares of common stock held by Mr. Lodin as custodian for his minor children. (11) Ms. Richman resigned from the Company in February 2000. (12) Includes the shares of common stock described in notes (4) through (7), and (10); 413,111 shares of common stock issuable upon the exercise of the stock options described in notes (4), (6), and (8) through (10) and 500 shares of common stock held by Jack S. Greenman, the Company's executive vice president and chief financial officer. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Since Cybear's inception, Andrx and Cybear have operated pursuant to a corporate services agreement pursuant to which Andrx provides certain legal, financial and administrative services to Cybear in exchange for $120,000 per annum. In addition, Andrx and Cybear have operated pursuant to a tax allocation agreement pursuant to which Cybear will be responsible for its tax liability as if it had filed a separate income tax return when its taxable results are included in the consolidated income tax return of Andrx. The Company recorded a tax benefit of $2,824,000 for the year ended December 31, 1999 reflecting the reimbursement from Andrx for the utilization of Cybear's income tax attributes pursuant to the tax allocation agreement. In January 1999, Andrx sold to John Klein, the Chairman of the Company, 100,000 shares of Cybear common stock at its then market price of $3.00 per share for $300,000. In November, 1998, the Company entered into a five year sublease agreement with Strategy Business and Technology Solutions, LLC (the "Lessor"), a company owned by the chairman of the Company, whereby the Company leased approximately 4,000 square feet of office space to house its business development and sales activities. The Company agreed to pay the Lessor $10,000 and $417 per month in base rent and electricity, respectively. In November 1999, the Company terminated the lease and incurred an early termination penalty of $95,000. In addition, for the year ended December 31, 1999, the Company recorded $111,332 in rent expense relative to this lease. In May 1999, Cybear entered into a five-year renewable consulting agreement with Innovative Clinical Solutions, Ltd. ("ICSL"). Dr. Eric Moskow, M.D., a director of the Company and also the Company's Executive Vice-President-Market Development is a director of ICSL and was the Executive Vice-President of Strategic Planning of ICSL from September 1996 to February, 2000. The Company agreed to pay ICSL a $1 million consulting fee. ICSL will make reasonable good faith efforts to cause healthcare professionals employed by or any medical practice managed by or affiliated with ICSL to subscribe to Cybear's Physician Practice Portal product, to market Cybear's Physician Practice Portal product to others, and to present Cybear with potential advertisers. ICSL also agreed to pay Cybear $600,000 representing 24 subscription months for the first 1,000 subscribers obtained from ICSL. In addition, Cybear and ICSL will share revenues generated from subscribers and advertisers provided by ICSL. 30 In December 1999, Cybear received from Andrx a tracking stock recapitalization plan offer which would give Andrx shareholders the ability to distinguish their investment in Andrx and Cybear. The plan would create a new class of Andrx stock to separately track the performance of Cybear ("Cybear Group Common"). In March 2000, Andrx and Cybear announced that they executed a definitive agreement with respect to the previously announced tracking stock recapitalization plan. This plan was recommended to the Cybear Board of Directors by its Special Committee and approved by the Boards of both Cybear and Andrx. The plan will be submitted to Andrx and Cybear shareholders for approval later this year. Pursuant to the Agreement, Andrx will acquire all of the publicly traded shares of common stock of Cybear in a tax-free "roll-up" merger. Public shareholders currently own approximately 5.4 million shares (assuming the exercise by Edward E. Goldman, M.D., Cybear's chief executive officer, of a warrant to acquire 525,000 shares of common stock of Cybear currently owned by Andrx), or 30.5%, of the common shares of Cybear, and those shareholders will receive one share of Cybear Group Common for every Cybear share they currently own. In the recapitalization, the number of Cybear shares held by Andrx will be reduced from 12.4 million shares to 10.3 million shares so as to provide the equivalent of a 20% increase in shares held by the non-Andrx shareholders of Cybear. As a result, the non-Andrx shareholders of Cybear will own approximately 34.5% of the Cybear Group Common following the closing of the transaction. Pursuant to the Agreement, each Andrx common share will be converted into (i) one share of Andrx Group Common and (ii) approximately .1622 shares of Cybear Group Common, after giving effect to Andrx' pending two-for-one stock split (in the form of a stock dividend) announced on March 1, 2000. Upon completion of the recapitalization, (i) Cybear will be a wholly owned subsidiary of Andrx with 100% of its value publicly traded in the form of Cybear Group Common; (ii) current Cybear shareholders will own approximately 34.5% of the Cybear Group Common; and (iii) current Andrx shareholders will own 100% of the Andrx Group Common and approximately 65.5% of the Cybear Group Common. Andrx and Cybear will be filing a preliminary joint proxy statement and a registration statement with respect to the proposed transaction with the SEC, which is subject to review by the SEC. In addition to shareholders approval, the transaction will be subject to various Federal and state regulatory approvals and, accordingly, no assurance can be given that this proposed transaction will be consummated. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) DOCUMENTS FILED AS PART OF THIS REPORT (1) CONSOLIDATED FINANCIAL STATEMENTS Reference is made to the Index to Financial Statements included in Part II, Item 8 of this Report. (2) FINANCIAL STATEMENT SCHEDULES All other schedules for which provision is made in applicable regulations of the Commission are omitted because they are not applicable or the required information is in the Consolidated Financial Statements or notes thereto. (3) EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.0 Merger Agreement and Plan of Reorganization dated as of July 15, 1998 among 1997 Corp., Cybear, Inc. and Cybear Capital Corp.* 2.1 Agreement and Plan of Merger dated as of September 17, 1999 among Cybear, Inc., TN Acquisition Corporation, telegraph New Technology, Inc. and Telegraph Consulting Corporation.* 2.2 Agreement and Plan of Merger and Reorganization dated March 23, 2000 by and among Andrx Corporation, Cybear Inc., New Andrx Corporation, Andrx Acquisition Corp., and Cybear Acquisition Corp.(1) 3.1 Registrant's Certificate of Incorporation, as amended.* 3.2 Registrant's Bylaws.* 31 3.3 Certificate of Ownership and Merger of Cybear, Inc. (FL) with and into the Registrant* 4.1 Specimen common stock certificate* 10.1 Stock Option Plan* 10.2+ Form of Employment Agreement between Edward Goldman and the Registrant.* 10.3+ Form of Employment Agreement between Debra Richman and the Registrant.* 10.4 Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.* 10.5 Corporate Services Agreement between the Registrant and Andrx Corporation.* 10.6 Credit Agreement between Andrx Corporation and the Registrant.* 10.7 Tax Allocation Agreement between the Registrant and Andrx Corporation.* 10.8 Letter Agreement between the Registrant and Andrx Corporation.* 10.9 Lease Agreement relating to premises located at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.* 10.10 Lease Agreement relating to premises located 105 Challenger Rd, Ridgefield Park, New Jersey.* 10.11 Agreement between the Registrant and Cox Interactive Media, Inc.* 10.12+ Letter of Employment between the Registrant and Jack Greenman.* 10.13 First Amendment to Lease Agreement relating to premises located at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.(1) 10.14 Second Amendment to Lease Agreement relating to premises located at 5000 Blue Lake Dr suite 200, Boca Raton, Florida.(1) 10.15+ Letter of Employment between the Registrant and Timothy E. Nolan(1) 16 Letter from Feldman Sherb Ehrlich & Co., P.C. (formerly Feldman Radin & Co., P.C.)* 21 Subsidiaries of the Registrant(1) 23.1 Consent of Arthur Andersen LLP.(1) 27.1 Financial Data Schedule.(1) * Previously filed. + Agreement between registrant and Executive Officer (1) Filed herewith 32 (B) REPORTS ON FORM 8-K A Current Report on Form 8-K/A was filed on November 22, 1999 reporting the financial statements of Telegraph Consulting Corporation and the Company's pro forma financial statements. The Report was an amendment to the Report on Form 8-K filed on September 29, 1999 reporting under Item 2 "Acquisition or Disposition of Assets" regarding the Company's acquisition of Telegraph Consulting Corporation. (C) ITEM 601 EXHIBITS The exhibits required by Item 601 of Regulation S-K are set forth in (A)(3) above. (D) FINANCIAL STATEMENT SCHEDULES The financial statement schedules required by Regulation S-K are set forth in (A)(2) above. 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CYBEAR, INC. BY:/s/ EDWARD E. GOLDMAN ------------------------------------ Edward E. Goldman, M.D. Chief Executive Officer and Director BY: /s/ JACK S. GREENMAN ------------------------------------ Jack S. Greenman Executive Vice President and Chief Financial Officer Date: March 28, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ JOHN H. KLEIN Chairman and Director March 28, 2000 - ------------------------------ John H. Klein /s/ EDWARD E. GOLDMAN Chief Executive Officer and Director March 28, 2000 - ------------------------------ (Principal Executive Officer) Edward E. Goldman, M.D. /s/ TIMOTHY E. NOLAN President, Chief Operating Officer and Director March 28, 2000 - ------------------------------ Timothy E. Nolan /s/JACK S. GREENMAN Executive Vice President and Chief Financial March 28, 2000 - ------------------------------ Officer (Principal Financial and Accounting Officer) Jack S. Greenman /s/ERIC D. MOSKOW Executive Vice President - Market March 28, 2000 - ------------------------------ Development and Director Eric D. Moskow, M.D. /s/ SCOTT LODIN Secretary and Director March 28, 2000 - ------------------------------ Scott Lodin /s/ ALAN P. COHEN Director March 28, 2000 - ------------------------------ Alan P. Cohen /s/ ANGELO C. MALAHIAS Director March 28, 2000 - ------------------------------ Angelo C. Malahias
34
/s/ MELVIN SHAROKY Director March 28, 2000 - ------------------------------ Melvin Sharoky, M.D. /s/ PHILIP P. GERBINO Director March 28, 2000 - ------------------------------ Philip P. Gerbino, Ph.D. /s/ MARTIN REID STOLLER Director March 28, 2000 - ------------------------------ Martin Reid Stoller, PhD
35 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.2 Agreement and Plan of Merger and Reorganization dated March 23, 2000 by and among Andrx Corporation, Cybear Inc., New Andrx Corporation, Andrx Acquisition Corp., and Cybear Acquisition Corp. 10.13 First Amendment to Lease Agreement relating to premises located at 5000 Blue Lake Dr suite 200, Boca Raton, Florida. 10.14 Second Amendment to Lease Agreement relating to premises located at 5000 Blue Lake Dr suite 200, Boca Raton, Florida. 10.15+ Letter of Employment between the Registrant and Timothy E. Nolan 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule. + Agreement between registrant and Executive Officer EX-2.2 2 EXHIBIT 2.2 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG ANDRX CORPORATION, CYBEAR, INC. NEW ANDRX CORPORATION, ANDRX ACQUISITION CORP., AND CYBEAR ACQUISITION CORP. March __, 2000 TABLE OF CONTENTS
Page 1. Definitions.............................................................................................2 2. Basic Transaction.......................................................................................6 (a) The Mergers....................................................................................6 (b) Filing of Plan of Merger, Effective Time.......................................................7 (c) Effect of Merger...............................................................................7 (i) General........................................................................................7 (ii) Articles of Incorporation......................................................................7 (iii) Bylaws.........................................................................................7 (iv) Directors......................................................................................8 (v) Officers.......................................................................................8 (d) The Closing....................................................................................8 (e) Intentionally Omitted..........................................................................9 (f) Conversion of Andrx and Cybear Capital Stock...................................................9 (g) Cancellation of Treasury Stock.................................................................9 (h) Unvested Andrx Common Stock and Cybear Common Stock...........................................10 (i) Capital Stock of Merger Subs..................................................................10 (j) Fractional Shares.............................................................................10 (k) Existing New Andrx Capital Stock..............................................................11 (l) Exchange Agent................................................................................11 (m) New Andrx to Provide Stock....................................................................11 (n) Exchange Procedures...........................................................................11 (o) Dividends, Etc................................................................................12 (p) Lost, Stolen or Destroyed Certificates........................................................13 (q) Tax Consequences..............................................................................13 3. Representations and Warranties of Cybear...............................................................13 (a) Organization, Qualification, and Corporate Power..............................................13 (b) Capitalization................................................................................13 (c) Authorization of Transaction..................................................................14 (d) Noncontravention..............................................................................14 (e) Filings with the SEC..........................................................................14 (f) Financial Statements..........................................................................14
-i- TABLE OF CONTENTS (CONTINUED)
Page (g) Events Subsequent to Most Recent Cybear Fiscal Period End.....................................15 (h) Undisclosed Liabilities.......................................................................15 (i) Brokers' Fees.................................................................................15 (j) Disclosure....................................................................................15 (k) Litigation....................................................................................15 (l) Opinion of Financial Advisor..................................................................16 (m) Waiver of Change in Control Provisions........................................................16 4. Representations and Warranties of Andrx................................................................16 (a) Organization of Andrx and Subsidiary Corp.....................................................16 (b) Capitalization................................................................................16 (c) Authorization of Transaction..................................................................16 (d) Noncontravention..............................................................................17 (e) Filings with the SEC..........................................................................17 (f) Financial Statements..........................................................................17 (g) Events Subsequent to Most Recent Andrx Fiscal Period End......................................17 (h) Undisclosed Liabilities.......................................................................18 (i) Brokers' Fees.................................................................................18 (j) Disclosure....................................................................................18 (k) Litigation....................................................................................18 5. Representations and Warranties of New Andrx and Merger Subs............................................18 (a) Organization of New Andrx and Merger Subs.....................................................18 (b) Capitalization................................................................................19 (c) Authorization of Transaction..................................................................19 (d) Noncontravention..............................................................................19 (e) Undisclosed Liabilities.......................................................................19 (f) Brokers' Fees.................................................................................20 (g) Disclosure....................................................................................20 (h) Litigation....................................................................................20 6. Covenants..............................................................................................20 (a) General.......................................................................................20
-ii- TABLE OF CONTENTS (CONTINUED)
Page (b) Notices and Consents..........................................................................20 (c) Regulatory Matters and Approvals..............................................................20 (i) Securities Act, Securities Exchange Act, and State Securities Laws...................20 (ii) Approvals............................................................................21 (iii) S-4 Registration Statement and Joint Proxy Statement.................................21 (iv) Cybear Stockholder Meeting...........................................................22 (v) Andrx Stockholder Meeting............................................................22 (vi) HSR and other Filings; Reasonable Efforts............................................22 (d) Operation of Business.........................................................................23 (e) Full Access...................................................................................23 (f) Notice of Developments........................................................................24 (g) Insurance and Indemnification.................................................................24 (h) Expenses......................................................................................24 (i) Assumption of Andrx Option Plan and Cybear Option Plan; Form S-8; Employee Plans..............25 (j) Certain Tax Matters...........................................................................25 (i) Return Filing; Information Sharing Until the Closing Date............................25 (ii) Certain Tax Opinions.................................................................26 (k) No Solicitation...............................................................................27 (l) Voting Agreements.............................................................................28 7. Conditions to Obligation to Close......................................................................28 (a) Conditions to Obligation of New Andrx, Andrx and Merger Subs..................................28 (b) Conditions to Obligation of Cybear............................................................29 8. Termination............................................................................................31 (a) Termination of Agreement......................................................................31 (b) Effect of Termination.........................................................................32 9. Miscellaneous..........................................................................................32 (a) Survival......................................................................................32 (b) Press Releases and Public Announcements.......................................................32 (c) No Third Party Beneficiaries..................................................................32
-iii- TABLE OF CONTENTS (CONTINUED)
Page (d) Entire Agreement..............................................................................32 (e) Succession and Assignment.....................................................................32 (f) Counterparts..................................................................................32 (g) Headings......................................................................................33 (h) Notices.......................................................................................33 (i) Governing Law.................................................................................34 (j) Amendments and Waivers........................................................................34 (k) Severability..................................................................................34 (l) Expenses......................................................................................34 (m) Construction..................................................................................34 (n) Incorporation of Exhibits and Schedules.......................................................35 EXHIBIT A -- PLAN OF MERGER.................................................................................1 EXHIBIT B-1 -- NEW ANDRX AMENDED AND RESTATED CERTIFICATE OF INCORPORATION......................................................................2 EXHIBIT B-2 -- NEW ANDRX BYLAWS.................................................................................3 EXHIBIT C -- TAX SHARING AGREEMENT..........................................................................4 EXHIBIT D -- CYBEAR TRACKING COMMON STOCK POLICIES...........................................................5
-iv- AGREEMENT AND PLAN OF MERGER AND REORGANIZATION This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is made and entered into as of March ____, 2000, by and among Andrx Corporation, a Florida corporation ("Andrx"), Cybear, Inc., a Delaware corporation ("Cybear"), New Andrx Corporation, a Delaware corporation ("New Andrx"), Andrx Acquisition Corp., a Florida corporation and wholly owned subsidiary of New Andrx ("Andrx Merger Sub"), and Cybear Acquisition Corp., a Florida corporation and wholly owned subsidiary of New Andrx ("Cybear Merger Sub") (together, Andrx Merger Sub and Cybear Merger Sub are collectively referred to herein as "Merger Subs"). Andrx, Cybear, New Andrx and the Merger Subs are individually referred to as a "Party" and collectively referred to herein as the "Parties." R E C I T A L S A. The Board of Directors of Andrx has unanimously (i) determined that it is advisable and fair to, and in the best interests of, Andrx and its stockholders that, upon the terms and subject to the conditions of this Agreement, Andrx Merger Sub merge with and into Andrx, with Andrx being the surviving corporation (the "Andrx Merger"), (ii) approved this Agreement, the Andrx Merger and the other transactions contemplated hereby and (iii) recommended the approval of this Agreement and the Andrx Merger by the stockholders of Andrx. B. The Board of Directors of Cybear, based upon a recommendation of a Special Committee (the "Special Committee") consisting of one disinterested director, has (i) determined that it is advisable and fair to, and in the best interests of, Cybear and its stockholders that, upon the terms and subject to the conditions of this Agreement, Cybear Merger Sub merge with and into Cybear, with Cybear being the surviving corporation (the "Cybear Merger"), (ii) approved this Agreement, the Cybear Merger and the other transactions contemplated hereby and (iii) recommended the approval of this Agreement and the Cybear Merger by the stockholders of Cybear. The Andrx Merger and the Cybear Merger are collectively referred to herein as the "Mergers." C. The Board of Directors of New Andrx has (i) determined that the Mergers are advisable and in the best interests of New Andrx and its stockholders and (ii) approved this Agreement, the Mergers and the other transactions contemplated hereby. D. Pursuant to the Mergers, among other things, the outstanding shares of Common Stock, par value $.001 per share ("Andrx Common Stock"), of Andrx shall be converted into the right to receive the consideration set forth herein and the outstanding shares of Common Stock, par value $.001 per share ("Cybear Common Stock"), of Cybear shall be converted into the right to receive the consideration set forth herein. E. The Parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and to cause the Andrx Merger to qualify as a "reorganization" under the provisions of Section 368(a)(1)(A) and 368(a)(2)(E) of the Code and the exchange of shares pursuant to the Cybear Merger to qualify as a tax-free exchange under Section 351(a) of the Code. 1 Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. DEFINITIONS. "Action" has the meaning set forth in Section 6(g) below. "Andrx Acquisition Corp." has the meaning set forth in preface above. "Andrx Articles of Incorporation" has the meaning set forth in Section 2(c)(ii). "Andrx Capital Stock" means all shares of Andrx Common Stock and all shares of any other capital stock of Andrx. "Andrx Closing Tax Opinion" has the meaning set forth in Section 7(a)(xi) below. "Andrx Common Stock" has the meaning set forth in the preface above. "Andrx Exchange Ratio" has the meaning set forth in Section 2(f)(i). "Andrx Initial Tax Opinion" has the meaning set forth in Section 6(j)(ii) below. "Andrx Material Adverse Effect" has the meaning set forth in Section 4(a) below. "Andrx Merger" means set forth in the preface above. "Andrx Merger Sub" has the meaning set forth in the preface above. "Andrx Merger Sub Common Stock" has the meaning set forth in Section 2(i) below. "Andrx Option Plan" means the Andrx Stock Incentive Plan. "Andrx Options" means all unexpired and unexercised issued and outstanding options, warrants and other rights to acquire or receive Andrx Capital Stock (whether or not vested or exercisable). "Andrx Public Reports" has the meaning set forth in Section 4(e) below. "Andrx Stockholders Meeting" has the meaning set forth in Section 6(c)(v) below. "Andrx Surviving Corporation" has the meaning set forth in Section 2(a) below. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. 2 "Certificates" has the meaning set forth in 2(n) below. "Closing" has the meaning set forth in Section 2(d) below. "Closing Date" has the meaning set forth in Section 2(d) below. "Closing Tax Certificates" has the meaning set forth in 6(j)(ii) below. "Code" has the meaning set forth in the preface above. "Confidential Information" means any information concerning the businesses and affairs of a Person that is not already generally available to the public. "Cybear" has the meaning set forth in the preface above. "Cybear Articles of Incorporation" has the meaning set forth in Section 2(c)(ii). "Cybear Capital Stock" means all shares of Cybear Common Stock and all shares of any other capital stock of Cybear. "Cybear Closing Tax Opinion" has the meaning set forth in Section 7(b)(viii) below. "Cybear Common Stock" has the meaning set forth in the preface above. "Cybear Initial Tax Opinion" has the meaning set forth in Section 6(j)(ii) below. "Cybear Material Adverse Effect" has the meaning set forth in Section 3(a) below. "Cybear Merger" has the meaning set forth in the preface above. "Cybear Merger Sub" has the meaning set forth in the preface above. "Cybear Merger Sub Common Stock" has the meaning set forth in Section 2(i)(ii) below. "Cybear Option Plan" means Cybear's 1997 Stock Option Plan. "Cybear Options" means all unexpired and unexercised issued and outstanding options, warrants and other rights to acquire or receive Cybear Capital Stock (whether or not vested or exercisable). "Cybear Public Reports" has the meaning set forth in Section 3(e) below. "Cybear Stockholder" means any Person who or which holds any Cybear Capital Stock. "Cybear Stockholders Meeting" has the meaning set forth in Section 6(c)(iv) below. 3 "Cybear Surviving Corporation" has the meaning set forth in Section 2(a) below. "Cybear Tracking Common Stock" means the Andrx Corporation - Cybear Group Common Stock, par value $.001 per share, of New Andrx, a class of New Andrx Capital Stock that will have the terms and features set forth in the New Andrx Certificate of Incorporation. "Cybear Tracking Option" has the meaning set forth in Section 2(f)(iii) below. "DGCL" means the General Corporation Law of the State of Delaware, as amended. "DOJ" means the Antitrust Division of the United States Department of Justice. "Disclosure Schedule" has the meaning set forth in Section 3 below. "Effective Time" has the meaning set forth in Section 2(b) below. "Employees" has the meaning set forth in Section 6(i) below. "Exchange Agent" has the meaning set forth in Section 2(l) below. "FBCA" means the Business Corporation Act of the State of Florida, as amended. "FTC" means the United States Federal Trade Commission. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "HSR Act" has the meaning set forth in Section 3(d) below. "IRS" means the Internal Revenue Service. "Indemnified Party" has the meaning set forth in Section 6(g) below. "Initial Tax Certificate" has the meaning set forth in Section 6(j)(ii). "Joint Proxy Statement" has the meaning set forth in Section 6(c)(i) below. "Knowledge" means actual knowledge after reasonable investigation. "Mergers" has the meaning set forth in the preface above. "Merger Subs" has the meaning set forth in the preface above. "Most Recent Andrx Fiscal Period End" has the meaning set forth in 4(f)(ii) below. 4 "Most Recent Cybear Fiscal Period End" has the meaning set forth in Section 3(f)(ii) below. "New Andrx" has the meaning set forth in the preface above. "New Andrx Certificate of Incorporation" has the meaning set forth in Section 2(c)(ii) below. "New Andrx Capital Stock" means all shares of New Andrx Common Stock, Cybear Tracking Common Stock and all shares of any other capital stock of New Andrx. "New Andrx Common Stock" means the Andrx Corporation - Andrx Common Stock, par value $.001 per share, of New Andrx, a class of New Andrx Capital Stock that will have the terms and features set forth in the New Andrx Certificate of Incorporation. "New Andrx Material Adverse Effect" has the meaning set forth in Section 5(a) below. "New Andrx Option" has the meaning set forth in Section 2(f)(iii). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Party" has the meaning set forth in the preface above. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Plan of Merger" has the meaning set forth in Section 2(a) below. "Required Andrx Stockholder Vote" means the affirmative vote in favor of this Agreement and the Andrx Merger by the holders of a majority of the Andrx Capital Stock outstanding. "Required Cybear Stockholder Vote" means the affirmative vote in favor of this Agreement and the Cybear Merger by the holders of a majority of the Cybear Capital Stock outstanding; provided that the holders of a majority of the Cybear Capital Stock outstanding, other than Andrx or its Subsidiaries, have not voted against this Agreement and the Cybear Merger. "S-4 Registration Statement" has the meaning set forth in Section 6(c)(i) below. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. 5 "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's, landlord's and similar liens, (b) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SG Cowen" has the meaning set forth in Section 3(l) below. "Special Committee" has the meaning set forth in the preface above. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Superior Proposal" has the meaning set forth in Section 6(k) below. "Surviving Corporations" has the meaning set forth in Section 2(a) below. "Takeover Proposal" means any offer or proposal for, or any written indication of interest in, a merger or other business combination involving Cybear or any of its Subsidiaries or the acquisition of ten percent (10%) or more of the outstanding Cybear Capital Stock, or a significant portion of the assets of, or any of its Subsidiaries, other than the transactions contemplated by this Agreement. "Third Party Expenses" has the meaning set forth in Section 6(h) below. 2. BASIC TRANSACTION. (a) THE MERGERS. Subject to the terms and conditions of this Agreement and the applicable provisions of the FBCA and the DGCL, at the Effective Time the plan of merger (the "Plan of Merger") in the form of and as set forth in this Agreement (or such other instrument setting forth the plan of merger as set forth in this Section 2), (i) Andrx Merger Sub shall be merged with and into Andrx, the separate corporate existence of Andrx Merger Sub shall cease and Andrx shall continue as the surviving corporation, and (ii) Cybear Merger Sub shall be merged with and into Cybear, the separate corporate existence of Cybear Merger Sub shall cease and Cybear shall continue as the surviving corporation. Andrx, as the surviving corporation after the Andrx Merger, is hereinafter sometimes referred to as the "Andrx Surviving Corporation," Cybear as the surviving corporation after the Cybear Merger is hereinafter sometimes referred to as the "Cybear Surviving Corporation," and Andrx Surviving Corporation and Cybear Surviving Corporation are sometimes hereinafter collectively referred to as the "Surviving Corporations." As a result of the Mergers, Andrx and Cybear shall become wholly owned, direct subsidiaries of New Andrx. The effects and consequences of the Mergers shall be as set forth in Section 2(c) below. 6 (b) FILING OF PLAN OF MERGER, EFFECTIVE TIME. In connection with the Closing, the Parties hereto shall cause the Mergers to be consummated by filing the Plan of Merger with the Secretary of State of the State of Florida, in accordance with the relevant provisions of the FBCA and by filing the Plan of Merger with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of the DGCL. The Mergers shall become effective at the time and date on which the Plan of Merger has been duly filed with the Secretary of State of Florida and the Secretary of State of Delaware or such time and date as agreed upon by the Parties and specified in the Plan of Merger, being hereinafter referred to as the "Effective Time." (c) EFFECT OF MERGER. (i) GENERAL. At the Effective Time, the effect of the Mergers shall be as provided in this Agreement, the Plan of Merger and the applicable provisions of the FBCA and DGCL. Without limiting the generality of the foregoing, and subject to the foregoing, at the Effective Time, (A) all the property, rights, privileges, powers and franchises of Andrx and Andrx Merger Sub shall vest in the Andrx Surviving Corporation, and all debts, liabilities and duties of Andrx and Andrx Merger Sub shall become the debts, liabilities and duties of the Andrx Surviving Corporation, and (B) all the property, rights, privileges, powers and franchises of Cybear and Cybear Merger Sub shall vest in the Cybear Surviving Corporation, and all debts, liabilities and duties of Cybear and Cybear Merger Sub shall become the debts, liabilities and duties of the Cybear Surviving Corporation. (ii) ARTICLES OF INCORPORATION. (A) The Articles of Incorporation (the "Andrx Articles of Incorporation") of Andrx Merger Sub, at the Effective Time, shall be the Articles of Incorporation of the Andrx Surviving Corporation. (B) The Articles of Incorporation (the "Cybear Articles of Incorporation") of Cybear Merger Sub, at the Effective Time, shall be the Articles of Incorporation of the Cybear Surviving Corporation. (C) The Amended and Restated Certificate of Incorporation of New Andrx, substantially as set forth as Exhibit B-1 hereto (the "New Andrx Certificate of Incorporation"), shall be the Certificate of Incorporation of New Andrx, provided that at the Effective Time the name of the corporation shall be "Andrx Corporation." (iii) BYLAWS. (A) The Bylaws of Andrx Merger Sub, at the Effective Time, shall be the Bylaws of the Andrx Surviving Corporation until thereafter amended as provided by law and such Bylaws. (B) The Bylaws of Cybear Merger Sub, at the Effective Time, shall be the Bylaws of the Cybear Surviving Corporation until thereafter amended as provided by law and such Bylaws. 7 (C) The Bylaws of New Andrx shall be substantially as set forth in Exhibit B-2 hereto. (iv) DIRECTORS. (A) The directors of Andrx Merger Sub immediately prior to the Effective Time shall be the directors of the Andrx Surviving Corporation as of the Effective Time and until their successors are duly appointed or elected in accordance with applicable law, or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and Bylaws. (B) The directors of Cybear Merger Sub immediately prior to the Effective Time shall be the directors of Cybear Surviving Corporation as of the Effective Time and until their successors are duly appointed or elected in accordance with applicable law, or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Articles of Incorporation and Bylaws. (C) The directors of New Andrx shall be the existing directors of Andrx and the director nominee designated by Cybear as set forth in Section 7(b)(x). (v) OFFICERS. (A) The officers of the Andrx Merger Sub at the Effective Time shall be the officers of the Andrx Surviving Corporation immediately prior to the Effective Time until their successors are duly appointed or elected in accordance with applicable law, or until their earlier death, resignation or removal in accordance with the Andrx Surviving Corporation's Articles of Incorporation and Bylaws. (B) The officers of Cybear Merger Sub at the Effective Time shall be the officers of the Cybear Surviving Corporation immediately prior to the Effective Time until their successors are duly appointed or elected in accordance with applicable law, or until their earlier death, resignation or removal in accordance with the Cybear Surviving Corporation's Articles of Incorporation and Bylaws. (C) The officers of New Andrx shall be the existing officers of Andrx until their successors are duly appointed or elected in accordance with applicable law, or until their earlier death, resignation or removal in accordance with the New Andrx Certificate of Incorporation and Bylaws. (d) THE CLOSING. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Broad and Cassel, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131, at 10:00 a.m. on (a) the next business day after the last to be fulfilled or waived of the conditions set forth in Section 7 shall be fulfilled or waived in accordance herewith (other than conditions which by their nature are to be satisfied at the Closing, but subject to such conditions) or (b) at such other time, date or place as Cybear and New Andrx may agree in writing. The date on which the Closing occurs is referred to herein as the "Closing Date." 8 (e) INTENTIONALLY OMITTED. (f) CONVERSION OF ANDRX AND CYBEAR CAPITAL STOCK. (i) Each share of Andrx Common Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Andrx Common Stock to be canceled pursuant to Section 2(g)) will be canceled and extinguished and be converted automatically into the right to receive (A) one share of New Andrx Common Stock and (B) a fraction (the "Andrx Exchange Ratio") of a share of Cybear Tracking Common Stock equal to 10,293,378 divided by the number of shares of Andrx Common Stock outstanding immediately prior to the Effective Date, upon surrender of the certificate representing such share of Andrx Common Stock in the manner provided in Section 2(n) (or, in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit and, if required, bond in the manner provided in Section 2(p)). It is the intention of the Parties that the holders of Cybear Common Stock other than Andrx, which holders currently own approximately 30.5% of the outstanding Cybear Capital Stock as of the date hereof, will as a result of the Mergers, own in the aggregate approximately 34.5% of the Cybear Tracking Common Stock assuming full exercise of the warrant to purchase Cybear Common Stock held by Dr. Edward E. Goldman. (ii) Each share of Cybear Common Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Cybear Common Stock owned by Andrx or its Subsidiaries or shares of Cybear Common Stock to be canceled pursuant to Section 2(g)) will be canceled and extinguished and be converted automatically into the right to receive one share of Cybear Tracking Common Stock upon surrender of the certificate representing such share of Cybear Common Stock in the manner provided in Section 2(n) (or, in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit and, if required, bond in the manner provided in Section 2(p)). (iii) At the Effective Time, each outstanding Cybear Option shall be assumed by New Andrx in such manner that it is converted into an option to purchase .8842 shares of Cybear Tracking Common Stock for each share of Cybear Common Stock subject to the Cybear Option (each a "Cybear Tracking Option"). At the Effective Time, each outstanding Andrx Option shall be assumed by New Andrx and converted into an option to purchase one share of New Andrx Common Stock (each a "New Andrx Option") and a Cybear Tracking Option to purchase Cybear Tracking Common Stock equal to the number of shares of Andrx Common Stock subject to the Andrx Option multiplied by the Andrx Exchange Ratio. The exercise price for the New Andrx Option shall be equal to the exercise price on the existing Andrx Option less the product of the Andrx Exchange Ratio and the price of the Cybear Common Stock on the Closing Date subject to potential adjustment to conform with the Emerging Issues Task Force 99-9. The exercise price for the Cybear Tracking Options issued to holders of the Andrx Options shall be equal to the price of the Cybear Common Stock at the Closing Date. It is the intention of the Parties that, to the extent that any such Andrx Option or Cybear Option constituted an "incentive stock option" (within the meaning of Section 422 of the Code) immediately prior to the Effective Time, the New Andrx Option or Cybear Tracking Option continue to qualify as an incentive stock option to the maximum extent permitted by Section 422 of the Code, and that the assumption of the New Andrx Option or Cybear Options provided by this Section 2(f)(iii) satisfy the conditions of Section 424(a) of the Code. 9 (g) CANCELLATION OF TREASURY STOCK. Each share of Andrx Common Stock that is owned by Andrx as treasury stock immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. Each share of Cybear Common Stock that is owned by Cybear as treasury stock immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (h) UNVESTED ANDRX COMMON STOCK AND CYBEAR COMMON STOCK. If any shares of Andrx Common Stock or Cybear Common Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement, or other agreement with Andrx or Cybear or under which Andrx or Cybear has any rights, then (unless such condition terminates by virtue of the Merger pursuant to the express term of such agreement) the shares of New Andrx Common Stock issued in exchange for such shares of Andrx Common Stock or Cybear Common Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such shares of New Andrx Common Stock may accordingly be marked with appropriate legends. Andrx and Cybear shall take all action that may be necessary to ensure that, from and after the Effective Time, New Andrx is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement. (i) CAPITAL STOCK OF MERGER SUBS. (i) At the Effective Time, each share of Common Stock, par value $.01 per share, of Andrx Merger Sub ("Andrx Merger Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock, par value $.01 per share, of the Andrx Surviving Corporation, and the Andrx Surviving Corporation shall become a wholly owned subsidiary of New Andrx. Each stock certificate of Andrx Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Andrx Surviving Corporation. (ii) At the Effective Time, each share of Common Stock, par value $.01 per share, of Cybear Merger Sub ("Cybear Merger Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock, par value $.01 per share, of the Cybear Surviving Corporation, and the Cybear Surviving Corporation shall become a wholly owned subsidiary of New Andrx. Each stock certificate of Cybear Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such share of capital stock of the Cybear Surviving Corporation. (j) FRACTIONAL SHARES. No fraction of a share will be issued to the Shareholders of Andrx in the Andrx Merger. Instead, the fractional share interests of Cybear Tracking Common Stock will be aggregated into whole shares of Cybear Tracking Common Stock (provided that after such aggregation, the remaining fractional share of Cybear Tracking, if any, shall be rounded up to the next whole share) and sold on the open market by the Exchange Agent. The net proceeds from the sale will be distributed by the Exchange Agent to the stockholders entitled to receive such fractional share interests from New Andrx in an amount of 10 cash (rounded to the nearest whole cent) equal to the product of such fraction, multiplied by the last sale price for a share of Cybear Common Stock as quoted on The Nasdaq National Market on the last full trading day prior to the Effective Time (less any commissions or expenses paid). (k) EXISTING NEW ANDRX CAPITAL STOCK. At the Effective Time, any shares of common stock, par value $.01 per share, of New Andrx issued and outstanding immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (l) EXCHANGE AGENT. New Andrx shall appoint a reputable institution reasonably acceptable to New Andrx and Cybear to serve as exchange agent (the "Exchange Agent") in the Merger. (m) NEW ANDRX TO PROVIDE STOCK. Promptly after the Effective Time, New Andrx shall make available to the Exchange Agent for exchange in accordance with this Section 2 the shares of New Andrx Common Stock and Cybear Tracking Common Stock issuable pursuant to Section 2 in exchange for all of the outstanding shares of the Andrx Common Stock and Cybear Common Stock immediately prior to the Effective Time. (n) EXCHANGE PROCEDURES. Promptly after the Effective Time, New Andrx shall cause the Exchange Agent to mail to each holder of record (as of the Effective Time) of a certificate or certificates (the "Certificates"), which immediately prior to the Effective Time represented outstanding shares of Andrx Capital Stock or Cybear Capital Stock, as applicable, whose shares were converted into shares of New Andrx Common Stock and/or Cybear Tracking Common Stock pursuant to Section 2(f) and any dividends or other distributions pursuant to Section 2(o), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall contain such other provisions as New Andrx may reasonably specify) and (ii) instructions for use in effecting the surrender of Certificates in exchange for certificates representing shares of New Andrx Capital Stock and/or Cybear Tracking Common Stock, as applicable, and any dividends or other distributions pursuant to Section 2(o). Upon surrender of the Certificates for cancellation to the Exchange Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange therefor certificates representing the number of whole shares of New Andrx Common Stock and/or Cybear Tracking Common Stock, as applicable, into which their shares of Andrx Capital Stock or Cybear Capital Stock were converted, as applicable, at the Effective Time and any dividends or distributions payable pursuant to Section 2(o), and payment in lieu of fractional shares which the holder has the right to receive pursuant to Section 2(j) and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes, subject to Section 2(o) as to the payment of dividends, to evidence the ownership of the number of full shares of New Andrx Common Stock and/or Cybear Tracking Common Stock into which such shares of Andrx Capital Stock or Cybear Capital Stock, as applicable, shall have been so converted and any dividends or distributions payable pursuant to Section 2(o). If any portion of the New Andrx Common Stock and/or Cybear Tracking Common Stock (and any dividends or distributions thereon), otherwise payable hereunder to any person, is to be issued or paid to a person other than the person in whose name the Certificate is registered, 11 it shall be a condition to such issuance or payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such issuance or payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such issuance or payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. (o) DIVIDENDS, ETC. (i) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on the Andrx Common Stock or Cybear Tracking Common Stock shall be paid with respect to any shares of Andrx Capital Stock or Cybear Capital Stock, as applicable, represented by a Certificate until such Certificate is surrendered for exchange as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the Andrx Common Stock or Cybear Tracking Common Stock certificates issued in exchange therefor, without interest, (A) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Andrx Common Stock or Cybear Tracking Common Stock and not paid, less the amount of any withholding taxes which may be required thereon and (B) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such shares of Andrx Common Stock or Cybear Tracking Common Stock, less the amount of any withholding taxes which may be required thereon. (ii) All shares of the Andrx Common Stock or Cybear Tracking Common Stock issued upon surrender of Certificates in accordance with this Section 2 shall be deemed to be in full satisfaction of all rights pertaining to the shares of Andrx Capital Stock or Cybear Capital Stock represented thereby, and from and after the Effective Time, there shall be no transfers on the stock transfer books of Andrx or Cybear of the shares of Andrx Capital Stock or Cybear Capital Stock, respectively. If, after the Effective Time, certificates representing any such shares are presented to the Andrx Surviving Corporation, or the Cybear Surviving Corporation, they shall be canceled and exchanged for certificates for the consideration, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 2. (iii) Upon demand by New Andrx, the Exchange Agent shall deliver to New Andrx any portion of the New Andrx Common Stock or Cybear Tracking Common Stock made available to the Exchange Agent pursuant to Section 2(n) hereof, and cash in lieu of fractional shares thereof, that remains undistributed to holders of Andrx Capital Stock or Cybear Capital Stock one year after the Effective Time. Holders of Certificates who have not complied with this Section 2 prior to such demand shall thereafter look only to New Andrx for payment of any claim to such New Andrx Common Stock or Cybear Tracking Common Stock and dividends or distributions, if any, in respect thereof. (iv) Each of Andrx Surviving Corporation, Cybear Surviving Corporation and New Andrx shall be entitled to deduct and withhold from the Andrx Common 12 Stock or Cybear Tracking Common Stock (and any dividends or distributions thereon), otherwise payable hereunder, to any person such amounts as it is required to deduct and withhold with respect to making of such payment under any provision of federal, state, local or foreign income tax law. To the extent that the Andrx Surviving Corporation, Cybear Surviving Corporation or New Andrx so withholds those amounts, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Andrx Capital Stock or Cybear Capital Stock in respect of which such deduction and withholding was made by the Andrx Surviving Corporation, Cybear Surviving Corporation or New Andrx, as the case may be. (p) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by New Andrx, the posting by such person of a bond in such reasonable amount as New Andrx may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the applicable merger consideration and unpaid dividend and distributions on shares of Andrx Common Stock or Cybear Tracking Common Stock deliverable in respect thereof pursuant to this Agreement. (q) TAX CONSEQUENCES. It is intended by the parties hereto that the Andrx Merger shall constitute a reorganization within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Code. The parties hereto adopt this Agreement as a "plan of reorganization" within the meaning of Section 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. It is intended by the parties hereto that the exchange of shares pursuant to the Cybear Merger shall constitute a tax-free exchange pursuant to Section 351(a) of the Code. 3. REPRESENTATIONS AND WARRANTIES OF CYBEAR. Cybear represents and warrants to Andrx, New Andrx and Merger Subs that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as disclosed in or contemplated by the Cybear Public Reports or as set forth on the disclosure schedule accompanying this Agreement and initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3. (a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of Cybear and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each of Cybear and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the business, operations, results of operations, assets, liabilities or financial condition of Cybear and its Subsidiaries taken as a whole or on the ability of the Parties to consummate the transactions contemplated by this Agreement (a "Cybear Material Adverse Effect"). Each of Cybear and its Subsidiaries has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. 13 (b) CAPITALIZATION. The entire authorized capital stock of Cybear consists of 25,000,000 shares of Cybear Common Stock, of which 17,772,537 shares of Cybear Common Stock are issued and outstanding, and 2,000,000 shares of preferred stock, par value $.01 per share, none of which is issued and outstanding. All of the issued and outstanding shares of Cybear Common Stock have been duly authorized and are validly issued, fully paid, and nonassessable. There are no outstanding or authorized purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Cybear to issue, sell, or otherwise cause to become outstanding any of its capital stock. (c) AUTHORIZATION OF TRANSACTION. Cybear has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder; PROVIDED, HOWEVER, that Cybear cannot consummate the Cybear Merger unless and until it receives the Required Cybear Stockholder Vote. This Agreement constitutes the valid and legally binding obligation of Cybear, enforceable in accordance with its terms and conditions. (d) NONCONTRAVENTION. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which any of Cybear and its Subsidiaries is subject or any provision of the charter or bylaws of any of Cybear and its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which any of Cybear and its Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a Cybear Material Adverse Effect. Other than in connection with the provisions of the DGCL, the Securities Exchange Act, the Securities Act, and the state securities laws, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), none of Cybear and its Subsidiaries are required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement. (e) FILINGS WITH THE SEC. Cybear has made all filings with the SEC that it has been required to make under the Securities Act and the Securities Exchange Act (collectively, the "Cybear Public Reports"). Each of the Cybear Public Reports has complied in all material respects with the Securities Act and the Securities Exchange Act in effect as of their respective dates. None of the Cybear Public Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Cybear has delivered to Andrx a correct and complete copy of each Cybear Public Report (together with all exhibits and schedules thereto and as amended to date). 14 (f) FINANCIAL STATEMENTS. (i) The audited financial statements included in Cybear's Annual Report on Form 10-K for the year ended December 31, 1998 (including the related notes and schedules) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of Cybear and its Subsidiaries as of the indicated dates and the results of operations of Cybear and its Subsidiaries for the indicated periods, are correct and complete in all material respects, and are consistent with the books and records of Cybear and its Subsidiaries. (ii) The unaudited financial statements included in Cybear's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (the "Most Recent Cybear Fiscal Period End"), as of the date thereof, comply in all material respects with the Securities Exchange Act and the rules and regulations of the SEC promulgated thereunder, present fairly the results of operations of Cybear and its Subsidiaries for the periods covered, and are correct and complete in all material respects. (g) EVENTS SUBSEQUENT TO MOST RECENT CYBEAR FISCAL PERIOD END. Since the Most Recent Fiscal Period End, there has not been any change which would have a Cybear Material Adverse Effect. (h) UNDISCLOSED LIABILITIES. Neither Cybear nor any of its Subsidiaries has any obligations or liabilities (contingent or otherwise) except obligations and liabilities (i) that are fully accrued or provided for in all material respects in the consolidated balance sheet of Cybear as of the Most Recent Cybear Fiscal Period End in accordance with GAAP, or disclosed in the notes therein in accordance with GAAP or (ii) that were incurred after the Most Recent Cybear Fiscal Period End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). All material agreements currently in effect, including all material agreements, arrangements or understandings with directors and officers of Cybear, are filed as Exhibits to Cybear Public Reports. (i) BROKERS' FEES. None of Cybear or its Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which New Andrx or Andrx could become liable or obligated except for fees to be paid to SG Cowen Securities Corporation. (j) DISCLOSURE. The S-4 Registration Statement and the Joint Proxy Statement will comply with the Securities Exchange Act in all material respects. The S-4 Registration Statement and the Joint Proxy Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they will be made, not misleading; PROVIDED, HOWEVER, that Cybear makes no representation or warranty with respect to any information that New Andrx or Andrx will supply specifically for use in the S-4 Registration Statement and the Joint Proxy Statement. None of the information that Cybear will supply specifically for use in the S-4 Registration Statement or the Joint Proxy Statement will contain any untrue statement of a 15 material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they will be made, not misleading. (k) LITIGATION. Cybear is not (i) subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) a party to or, to the Knowledge of any directors or executive officers of Cybear, threatened to be made a party to, any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator which would have a Cybear Material Adverse Effect. (l) OPINION OF FINANCIAL ADVISOR. Cybear has received the opinion of SG Cowen Securities Corporation ("SG Cowen") to the effect that, as of the date hereof, the consideration to be received by the stockholders of Cybear in the Cybear Merger is fair to such holders from a financial point of view and a complete and correct signed copy of such opinion has been, or promptly upon receipt thereof, will be delivered to Cybear. (m) WAIVER OF CHANGE IN CONTROL PROVISIONS. The officers of Cybear and its Subsidiaries have agreed that for purposes of their employment agreements, the entering of this Agreement or the consummation of the Mergers shall not be deemed to be a "Change in Control" as such term is defined in their employment agreements. 4. REPRESENTATIONS AND WARRANTIES OF ANDRX. Andrx hereby represents and warrants to Cybear that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4), except as disclosed in or contemplated by the Andrx Public Reports or as set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section 4. (a) ORGANIZATION OF ANDRX AND SUBSIDIARY CORP. Andrx is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation. Andrx is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the business, operations, results of operations, assets, liabilities or financial condition of Andrx taken as a whole or on the ability of the Parties to consummate the transactions contemplated by this Agreement (an "Andrx Material Adverse Effect"). Andrx has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. (b) CAPITALIZATION. The entire authorized capital stock of the Andrx consists of 50,000,000 shares of Andrx Common Stock, of which 31,737,192 shares of Andrx Common Stock are issued and outstanding (without giving effect to a two for one stock split in the form of a stock dividend declared on February 29, 2000), and 1,000,000 shares of preferred stock, par value $.001 per share, none of which are issued and outstanding. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Andrx to issue, sell, or otherwise cause to become outstanding any of its capital stock. 16 (c) AUTHORIZATION OF TRANSACTION. Andrx has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder; provided, however, that Andrx cannot consummate the Andrx Merger unless and until it receives the Required Andrx Shareholder Vote. This Agreement constitutes the valid and legally binding obligation of Andrx, enforceable in accordance with its terms and conditions. (d) NONCONTRAVENTION. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Andrx is subject or any provision of the charter or bylaws of Andrx or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which Andrx is a party or by which it is bound or to which any of its assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have an Andrx Material Adverse Effect. Other than in connection with the provisions of the DGCL, FBCA, the Securities Exchange Act, the Securities Act, and the state securities laws and the HSR Act, Andrx is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement. (e) FILINGS WITH THE SEC. Andrx has made all filings with the SEC that it has been required to make under the Securities Act and the Securities Exchange Act (collectively, the "Andrx Public Reports"). Each of the Andrx Public Reports has complied in all material respects with the Securities Act and the Securities Exchange Act in effect as of their respective dates. None of the Andrx Public Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (f) FINANCIAL STATEMENTS. (i) The audited financial statements included in Andrx' Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (including the related notes and schedules) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of Andrx and its Subsidiaries as of the indicated dates and the results of operations of Andrx and its Subsidiaries for the indicated periods, are correct and complete in all material respects, and are consistent with the books and records of Andrx and its Subsidiaries. 17 (ii) The unaudited financial statements included in Andrx' Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (the "Most Recent Andrx Fiscal Period End"), as of the date thereof, complies in all material respects with the Securities Exchange Act and the rules and regulations of the SEC promulgated thereunder, present fairly the results of operations of Andrx and its Subsidiaries for the periods covered, and is correct and complete in a material respects. (g) EVENTS SUBSEQUENT TO MOST RECENT ANDRX FISCAL PERIOD END. Since the Most Recent Andrx Fiscal Period End, there has not been any change which would have an Andrx Material Adverse Effect. (h) UNDISCLOSED LIABILITIES. Andrx does not have any obligations or liabilities (contingent or otherwise) except obligations and liabilities (i) that are fully accrued or provided for in all material respects in the consolidated balance sheet of Andrx as of the Most Recent Andrx Fiscal Period End in accordance with GAAP, or disclosed in the notes therein in accordance with GAAP or (ii) that were incurred after the Most Recent Andrx Fiscal Period End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). All material agreements currently in effect, including all agreements, arrangements or understandings with directors and officers of Andrx are filed as Exhibits to the Andrx Public Reports. (i) BROKERS' FEES. Andrx does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any of Cybear and its Subsidiaries could become liable or obligated except for fees to be paid to Credit Suisse First Boston Corporation. (j) DISCLOSURE. The S-4 Registration Statement and the Joint Proxy Statement will comply with the Securities Act and the Securities Exchange Act in all material respects. The S-4 Registration Statement and the Joint Proxy Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they will be made, not misleading, PROVIDED, HOWEVER, that Andrx makes no representation or warranty with respect to any information that Cybear will supply specifically for use in the S-4 Registration Statement and the Joint Proxy Statement. None of the information that Andrx will supply specifically for use in the S-4 Registration Statement or the Joint Proxy Statement will contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they will be made, not misleading. (k) LITIGATION. Andrx is not (i) subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) a party to or, to the Knowledge of any directors or executive officers of Andrx, threatened to be made a party to, any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator which would have an Andrx Material Adverse Effect. 18 5. REPRESENTATIONS AND WARRANTIES OF NEW ANDRX AND MERGER SUBS. Each of New Andrx and the Merger Subs hereby, jointly and severally, represent and warrant to Cybear that the statements contained in this Section 5 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 5), except as set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section 5. (a) ORGANIZATION OF NEW ANDRX AND MERGER SUBS. Each of New Andrx and the Merger Subs is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation. Each of New Andrx and the Merger Subs is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the business, operations, results of operations, assets, liabilities or financial condition of New Andrx and the Merger Subs taken as a whole or on the ability of the Parties to consummate the transactions contemplated by this Agreement (a "New Andrx Material Adverse Effect"). Each of New Andrx and the Merger Subs has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. (b) CAPITALIZATION. The authorized capital stock of New Andrx at the Effective Time is as set forth in Exhibit B-1. All of the New Andrx Common Stock and Cybear Tracking Common Stock to be issued in the Mergers has been duly authorized and, upon consummation of the Mergers, will be validly issued, fully paid, and nonassessable. Except as contemplated by this Agreement, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require New Andrx to issue, sell, or otherwise cause to become outstanding any of its capital stock. (c) AUTHORIZATION OF TRANSACTION. Each of New Andrx and the Merger Subs has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of New Andrx and the Merger Subs, enforceable in accordance with its terms and conditions. (d) NONCONTRAVENTION. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which New Andrx is subject or any provision of the charter or bylaws of New Andrx or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which New Andrx is a party or by which it is bound or to which any of its assets is subject, except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, or failure to give notice would not have a New Andrx Material Adverse Effect. Other than in connection with the provisions of the DGCL, FBCA, the Securities Exchange Act, the Securities Act, and the state securities laws and the HSR 19 Act, New Andrx is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement. (e) UNDISCLOSED LIABILITIES. Neither New Andrx nor the Merger Subs has any obligations or liabilities (contingent or otherwise) except obligations and liabilities of any nature other than those incurred or to be incurred in connection with the Merger and the transactions related thereto and/or contemplated pursuant hereto and which have not had and are not reasonably likely to have a New Andrx Material Adverse Effect. (f) BROKERS' FEES. New Andrx has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any of Cybear and its Subsidiaries could become liable or obligated. (g) DISCLOSURE. The S-4 Registration Statement and the Joint Proxy Statement will comply with the Securities Act and the Securities Exchange Act in all material respects. The S-4 Registration Statement and the Joint Proxy Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they will be made, not misleading, PROVIDED, HOWEVER, that New Andrx makes no representation or warranty with respect to any information that Cybear will supply specifically for use in the S-4 Registration Statement and the Joint Proxy Statement. None of the information that New Andrx will supply specifically for use in the S-4 Registration Statement or the Joint Proxy Statement will contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they will be made, not misleading. (h) LITIGATION. Neither New Andrx nor the Merger Subs is (i) subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) a party to or, to the Knowledge of any directors or executive officers of New Andrx or the Merger Subs, threatened to be made a party to, any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. 6. COVENANTS. The Parties agree as follows with respect to the period from and after the execution of this Agreement through the earlier of Closing or termination of this Agreement. (a) GENERAL. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 7 below). 20 (b) NOTICES AND CONSENTS. The Parties will give any notices (and will cause each of its Subsidiaries to give any notices) to third parties, and will use their reasonable best efforts to obtain (and will cause each of their Subsidiaries to use their reasonable best efforts to obtain) any required third party consents, or those reasonably requested by the other Party in connection with the matters referred to herein. (c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will (and Cybear will cause each of its Subsidiaries to) give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 3(d), Section 4(d) and Section 5(c) above. Without limiting the generality of the foregoing: (i) SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE SECURITIES LAWS. As soon as practicable after the execution of this Agreement, New Andrx and Andrx shall, with the assistance and cooperation of Cybear, prepare and cause to be filed with the SEC a joint proxy statement (the "Joint Proxy Statement") and a S-4 Registration Statement (the "S-4 Registration Statement"). Each of New Andrx, Andrx and Cybear shall use all reasonable efforts to cause the S-4 Registration Statement and the Joint Proxy Statement to comply with applicable law and the rules and regulations promulgated by the SEC and all other applicable federal and state securities law requirements, to respond promptly to any comments of the SEC or its staff and to have the S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC. New Andrx, Andrx and Cybear shall use all reasonable efforts to cause the Joint Proxy Statement to be mailed to their respective stockholders as promptly as practicable after the S-4 Registration Statement is declared effective under the Securities Act. Each of New Andrx, Andrx or Cybear hereto shall promptly furnish to the other party all information concerning itself, its stockholders and its affiliates that may be required or reasonably requested in connection with any action contemplated by this Section 6(c). If any event relating to New Andrx, Andrx or Cybear occurs, or if New Andrx, Andrx or Cybear becomes aware of any information, that should be disclosed in an amendment or supplement to the S-4 Registration Statement or the Joint Proxy Statement, then New Andrx, Andrx or Cybear, as applicable, shall inform the other thereof and shall cooperate with each other in filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to the stockholders of Andrx and Cybear. Each of New Andrx, Andrx and Cybear will notify the other promptly upon the receipt of any comments from the SEC or its staff or any other government officials and of any request by the SEC or its staff or any other government officials for amendments or supplements to the S-4 Registration Statement or the Joint Proxy Statement or for additional information and will supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the S-4 Registration Statement, the Joint Proxy Statement or the Merger. The Joint Proxy Statement shall include (A) the recommendations of the Board of Directors of Cybear and the Special Committee in favor of this Agreement, the Merger and the transactions contemplated hereby; and (B) the recommendation of the Board of Directors of Andrx in favor of approval of this Agreement, the Merger, and the transactions contemplated hereby. Neither New Andrx, Andrx nor Cybear shall take any action inconsistent with such recommendation. 21 (ii) APPROVALS. Prior to the Effective Time, New Andrx shall use reasonable efforts to obtain all regulatory or other approvals needed to ensure that the New Andrx Common Stock and Cybear Tracking Common Stock to be issued in the Merger: (A) will be registered or qualified under the securities law of every jurisdiction of the United States in which any registered holder of Andrx Common Stock or Cybear Common Stock, who is receiving shares of registered New Andrx Common Stock and/or Cybear Tracking Common Stock has an address of record or be exempt from such registration and (B) will be approved for quotation at the Effective Time on the Nasdaq National Market; provided, however, that New Andrx shall not, pursuant to the foregoing, be required (i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified or (ii) to file a general consent to service of process in any jurisdiction with respect to matters unrelated to the issuance of the New Andrx Common Stock or Cybear Tracking Common Stock pursuant hereto. (iii) S-4 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. Each of the Parties (in respect of the information respectively supplied by it) agrees that: (A) none of the information to be supplied by it or its affiliates for inclusion in the S-4 Registration Statement will, at the time the S-4 Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading; (B) none of the information to be supplied by it or its affiliates for inclusion in the Joint Proxy Statement will, at the time Cybear's Proxy Statement is mailed to the stockholders of Cybear or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) as to matters respecting it, the Joint Proxy Statement and the S-4 Registration Statement will comply as to form in all material respects with the provisions of the Securities Act and the Securities Exchange Act, as applicable, and the rules and regulations promulgated by the SEC thereunder, except that no covenant, representation or warranty is made by Cybear with respect to statements made or incorporated by reference therein based on information supplied by New Andrx or Andrx for inclusion or incorporation by reference therein and no covenant, representation or warranty is made by New Andrx or Andrx with respect to statements made or incorporated by reference therein based on information supplied by Cybear for inclusion or incorporation by reference therein. (iv) CYBEAR STOCKHOLDER MEETING. Cybear shall promptly after the date hereof take all action necessary in accordance with applicable law and its Amended and Restated Certificate of Incorporation and Bylaws to hold and convene a meeting of Cybear's stockholders (the "Cybear Stockholders Meeting") as soon as practicable following the date the S-4 Registration Statement is declared effective by the SEC. Except as required by the SEC or applicable court order and except as may be required in order to amend or supplement the S-4 Registration Statement or Joint Proxy Statement, Cybear shall not postpone or adjourn (other than for the absence of a quorum) the Cybear Stockholders Meeting without the consent of Andrx. Cybear shall take all other action necessary or advisable to secure the Required Cybear Stockholder Vote. 22 (v) ANDRX STOCKHOLDER MEETING. Andrx shall promptly after the date hereof take all action necessary in accordance with applicable law and its Second Amended and Restated Articles of Incorporation and Bylaws to hold and convene a meeting of Andrx' stockholders (the "Andrx Stockholders Meeting") as soon as practicable following the date the S-4 Registration Statement is declared effective by the SEC. Except as required by the SEC or applicable court order, Andrx shall not postpone or adjourn (other than for the absence of a quorum) Andrx Stockholders Meeting without the consent of Cybear. Andrx shall take all other action necessary or advisable to secure the Required Andrx Stockholder Vote. (vi) HSR AND OTHER FILINGS; REASONABLE EFFORTS. As soon as may be reasonably practicable, the Parties shall file with the FTC and the DOJ Notification and Report Forms relating to the transactions contemplated herein as required by the HSR Act, as well as comparable pre-merger notification forms required by the merger notification or control laws and regulations of any applicable jurisdiction, as agreed to by the Parties. The Parties shall promptly (A) supply the other with any information which may be required in order to effectuate such filings and (B) supply any additional competition or merger control authorities of any other jurisdiction and which the parties may reasonably deem appropriate. (d) OPERATION OF BUSINESS. Cybear will not (and will not cause or permit any of its Subsidiaries to) engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business without the prior written consent of New Andrx and Andrx. Without limiting the generality of the foregoing: (i) none of Cybear and its Subsidiaries will authorize or effect any change in its charter or bylaws; (ii) none of Cybear and its Subsidiaries will grant any options, warrants, or other rights to purchase or obtain any of its capital stock or issue, sell, or otherwise dispose of any of its capital stock (except upon the conversion or exercise of options, warrants, and other rights currently outstanding); (iii) none of Cybear and its Subsidiaries will declare, set aside, or pay any dividend or distribution with respect to the Cybear Capital Stock (whether in cash or in kind), or split, combine, reclassify, redeem, repurchase, or otherwise acquire, directly or indirectly, Cybear Capital Stock; (iv) none of Cybear and its Subsidiaries will issue any note, bond, or other debt security or create, incur, assume, or guarantee any indebtedness for borrowed money or capitalized lease obligation outside the Ordinary Course of Business; (v) none of Cybear and its Subsidiaries will impose any Security Interest upon any of its assets outside the Ordinary Course of Business; (vi) none of Cybear and its Subsidiaries will make any capital investment in, make any loan to, or acquire the securities or assets of any other Person outside the Ordinary Course of Business; 23 (vii) none of Cybear and its Subsidiaries will make any change in employment terms for any of its directors or executive officers, or enter into any other arrangement or agreement with directors or executive officers, and none of Cybear and its Subsidiaries will make any change in employment terms for any of its employees outside the Ordinary Course of Business; (viii) none of Cybear and its Subsidiaries will sell or transfer to any Person any material rights to Cybear's intellectual property, purchase any material right to intellectual property or enter into any material license agreement with any Person with respect to Cybear's intellectual property outside the Ordinary Course of Business; and (ix) none of Cybear and its Subsidiaries will commit to any of the foregoing. (e) FULL ACCESS. Cybear will (and will cause each of its Subsidiaries to) permit representatives of New Andrx and Andrx to have full access to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to each of Cybear and its Subsidiaries. New Andrx and Andrx will (and will cause each of its employees and agents to) treat and hold as such any Confidential Information it receives from any of Cybear and its Subsidiaries in the course of the reviews contemplated by this Section 6(e), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, agrees to return to Cybear all tangible embodiments (and all copies) thereof which are in its possession. The provisions of this Section 6(e) relating to the Confidential Information will survive any termination of this Agreement. (f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Section 3, Section 4 and Section 5 above. No disclosure by any Party pursuant to this Section 6(f), however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (g) INSURANCE AND INDEMNIFICATION. For a period of six years after the Effective Time, New Andrx shall indemnify, defend and hold harmless to the fullest extent permitted under applicable law each person who is now or has been an officer, director, employee, trustee or agent of Andrx or Cybear (or any subsidiary or division thereof), including, without limitation, each person controlling any of the foregoing persons (individually, an "Indemnified Party" and collectively, the "Indemnified Parties,") against all losses, claims, damages, liabilities, costs or expenses (including reasonable attorneys' fees), judgments, fines, penalties and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to acts or omissions, or alleged acts or omissions, by them in their capacities as such, whether commenced, asserted or claimed before or after the Effective Time. In the event of any such claim, action, suit, proceeding or investigation (an "Action"), (A) New Andrx shall pay the reasonable fees and expenses of counsel selected by the Indemnified Party, which counsel shall be reasonably acceptable to New Andrx in advance of the final disposition of any such Action to the full extent and under all circumstances permitted by applicable law as in effect on the date hereof, upon 24 receipt of any undertaking required by applicable law, and (B) New Andrx will cooperate in the defense of any such matter; provided, however, that New Andrx shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withhold) and provided, further, that New Andrx shall not be obligated pursuant to this Section to pay the fees and disbursements of more than one counsel for all Indemnified Parties in any single Action, except to the extent that, in the opinion of counsel for the Indemnified Parties, two or more of such Indemnified Parties have conflicting interests in the outcome of such action. New Andrx may obtain directors' and officers' liability insurance covering its obligations under this Section. (h) EXPENSES. Except as set forth in Section 8, whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger, including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("Third Party Expenses") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses; provided, however, that Andrx and Cybear shall share equally in all fees and expenses, other than Third Party Expenses, incurred in relation to the filing and printing of the S-4 Registration Statement and the Joint Proxy Statement (including any preliminary materials related thereto). (i) ASSUMPTION OF ANDRX OPTION PLAN AND CYBEAR OPTION PLAN; FORM S-8; EMPLOYEE PLANS. (i) At the Effective Time, New Andrx shall assume all outstanding Andrx Options and Cybear Options under the Andrx Option Plan (and shall assume the Andrx Option Plan) and Cybear Option Plan (and shall assume the Cybear Option Plan), respectively, and agrees to file promptly after the Closing, a registration statement on Form S-8 covering the shares of New Andrx Common Stock and Cybear Tracking Common Stock issuable pursuant to outstanding Andrx Options and Cybear Options granted under the Andrx Option Plan and Cybear Option Plan, respectively. Andrx and Cybear shall cooperate with and assist New Andrx in the preparation of such registration statement. (ii) Following the Effective Time, New Andrx shall cause each "employee benefit plan" (as defined in section 3(3) of ERISA) maintained by New Andrx or affiliates of New Andrx that covers or will cover employees of Andrx or Cybear or their Subsidiaries who are active at the Effective Time (the "Employees") to recognize all service, for purposes of eligibility and vesting of benefits (but not for benefit accrual purposes), that is credited to Employees for Subsidiaries as of the Effective Time. Following the Effective Time, New Andrx shall cause each "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) covering Employees (A) to reduce each eligible employee's (and their eligible dependents') annual deductible limits under such plans for the plan year in which the Effective Time occurs to the extent the comparable benefit plans covering the Employees immediately prior to the Effective Time and (B) to waive any pre-existing condition limitations or exclusions that do not apply to Employees immediately prior to the Effective Time. (iii) Prior to the Effective Time, the Boards of Directors of Andrx and Cybear shall take such actions, including obtaining all necessary individual consents, as shall 25 ensure that the Andrx Options (and the Andrx Option Plan) and the Cybear Options (and the Cybear Option Plan) may be assumed by New Andrx in accordance with Section 2 hereof and will not have their vesting accelerated as a result of the consummation of the Merger and the transactions contemplated hereby. (j) CERTAIN TAX MATTERS. (i) RETURN FILING; INFORMATION SHARING UNTIL THE CLOSING DATE: (A) Andrx and Cybear shall prepare and file, or cause to be prepared and filed, with the appropriate governmental authority all federal tax returns and all material state, local and foreign tax returns required to be filed (with extensions) by or with respect to Andrx and the Andrx Subsidiaries and Cybear and the Cybear Subsidiaries, respectively, on or prior to the Closing Date; (B) Andrx and Cybear agree that it will, and will cause its affiliates to, make available all such information, employees and records of or relating to Andrx and the Andrx Subsidiaries and Cybear and the Cybear Subsidiaries, respectively, as New Andrx may request with respect to matters relating to Taxes (including, without limitation, the right to make copies of such information and records) and will cooperate with respect to all matters relating to Taxes (including, without limitation, the filing of tax returns, the filing of an amended tax return, audits, and proceedings); and (C) If any of Andrx and the Andrx Subsidiaries and Cybear or any Cybear Subsidiary or affiliate thereof receives any written notice from any Tax authority proposing any audit or adjustment to any Tax relating to Andrx or any Andrx Subsidiaries or Cybear or any Cybear Subsidiary or affiliates thereof, or such Cybear Subsidiary or affiliates shall give prompt written notice thereof to Andrx, which notice shall describe in detail each proposed adjustment. (ii) CERTAIN TAX OPINIONS. (A) New Andrx and Andrx, jointly and severally, each represent, warrant and covenant that they have received an opinion of Arthur Andersen LLP issued for the sole reliance of New Andrx and Andrx, in form and substance satisfactory to New Andrx and Andrx, that the Andrx Merger, if consummated in accordance with this Agreement, should qualify as a reorganization within the meaning of Code Section 368(a) as in effect as of the date hereof (the "Andrx Initial Tax Opinion") and that the exchange of shares pursuant to the Cybear Merger should qualify for tax-free treatment pursuant to Section 351(a). (B) Cybear represents, warrants and covenants that it has received an opinion of Arthur Andersen LLP (the "Cybear Initial Tax Opinion"), issued for the sole reliance of Cybear, in form and substance satisfactory to Cybear, that the exchange of shares pursuant to the Cybear Merger, if consummated in accordance with this Agreement and in connection with the Andrx Merger should qualify as a tax-free exchange within the meaning of Code Section 351(a) as in effect as of the date hereof. 26 (C) New Andrx, Andrx and Cybear shall cooperate in causing the Andrx Merger to qualify as a tax-free reorganization under Code Section 368(a) and shall treat the Andrx Merger as such a reorganization in which no other property or money (within the meaning of Code Section 356) is received by Andrx stockholders for all Tax purposes, including the reporting of the Andrx Merger as qualifying as such a reorganization on all relevant federal, state, local and foreign tax returns. New Andrx, Andrx and Cybear shall cooperate in causing the exchange of shares pursuant to the Cybear Merger to qualify as a tax-free exchange under Code Section 351(a) and shall treat the exchange as one in which no other property or money (within the meaning of Code Section 351(b) is received by the Cybear stockholders for all Tax purposes, including the reporting of the Cybear Merger as qualifying as a tax-free Section 351(a) exchange on all relevant federal, state, local and foreign tax returns. New Andrx, Andrx and Cybear covenant and agree to (and to cause any affiliate or successor to their assets or business to) vigorously and in good faith defend all challenges to the tax-free status of the Mergers. (iii) TAX COVENANTS. New Andrx, Andrx and Cybear covenant to each other that none of New Andrx, Andrx, Cybear or any of their respective subsidiaries has taken (or will take) any action inconsistent with the qualification of the Andrx Merger as a tax-free reorganization under Code Section 368(a) (or has failed, or will fail to take, any action necessary for the Andrx Merger to so qualify), including, without limitation, any action inconsistent with any representation, warranty, or covenant made or to be made in connection with opinions to be delivered pursuant to Sections 6(a) or 6(b) hereof. New Andrx, Andrx and Cybear covenant to each other that none of New Andrx, Andrx, Cybear or any of their respective subsidiaries has taken (or will take) any action inconsistent with the qualification of the Cybear Merger qualifying as a tax-free, share-for-share exchange pursuant to Code Section 351(a) (or has failed, or will fail to take, any action necessary for the Cybear Merger to so qualify), including, without limitation, any action inconsistent with any representation, warranty, or covenant made or to be made in connection with opinions to be delivered pursuant to Sections 6(a) or 6(b) hereof. In addition, New Andrx, Andrx and Cybear each agree that in the event such party becomes aware of any such fact or circumstance that is reasonably likely to prevent either the Andrx Merger or the Cybear Merger from qualifying for tax-free treatment described herein, it will promptly notify the other party in writing. (k) NO SOLICITATION. Cybear and its Subsidiaries and the officers, directors, employees, agents, representatives and advisors of Cybear and its Subsidiaries (collectively, the "Representatives") will not, directly or indirectly, (i) take any action to solicit, initiate, encourage (including by way of furnishing information) or take any other action designed to facilitate or agree to any Takeover Proposal or (ii) subject to the next three sentences, engage in negotiations with, or disclose any nonpublic information relating to Cybear or its Subsidiaries to, or afford access to the properties, books or records of Cybear or any of its Subsidiaries to, any person that has advised Cybear that it may be considering making, or that has made, a Takeover Proposal, or whose efforts to formulate a Takeover Proposal would be assisted thereby; provided, nothing herein shall prohibit Cybear's Board of Directors from taking and disclosing to its stockholders a position with respect to an unsolicited tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities Exchange Act. Notwithstanding the immediately preceding sentence, if an unsolicited Takeover Proposal shall be received by the Board of Directors of Cybear, then, to the extent the Board of Directors of Cybear believes in good faith (after receiving written advice from its financial advisor) that such Takeover Proposal is reasonably 27 capable of being consummated and would, if consummated, result in a transaction more favorable to Cybear's Stockholders from a financial point of view than the transaction contemplated by this Agreement (any such more favorable Takeover Proposal being referred to in this Agreement as a "Superior Proposal") and the Board of Directors of Cybear determines in good faith that it is necessary for the Board of Directors of Cybear to further entertain and consider the Superior Proposal in order to comply with its fiduciary duties to stockholders under applicable law, Cybear and its Representatives may furnish information to the party making such Superior Proposal and engage in negotiations with such party, and such actions shall not be considered a breach of this Section 6(k) or any other provisions of this Agreement; provided that in each such event Cybear notified Andrx of such determination by Cybear's Board of Directors and has delivered to the other party a true and complete copy of the Superior Proposal (or summary of any oral proposal) received from such third party and all documents containing or referring to non-public information of Cybear that are supplied to such third party. Further, Cybear shall provide such non-public information pursuant to a restrictive nondisclosure agreement. In addition, Cybear shall not agree to or endorse, and shall not permit any of its officers, directors, employees or other representatives to agree to or endorse, any Takeover Proposal or withdraw its recommendation of this Agreement and the Cybear Merger unless the Board of Directors of Cybear believes in good faith (after receiving written advice from its financial advisors) that such action is required in order for the Board of Directors to comply with its fiduciary duties to stockholders under applicable law, Cybear has provided Andrx at least ten business days prior notice thereof and within such ten business days Cybear has not received a proposal from Andrx superior in value to the Superior Proposal as determined by Cybear's Board of Directors acting in good faith consistent with complying with its fiduciary duties to stockholders under applicable law, and Cybear has terminated this Agreement pursuant to Section 8(a). Cybear will promptly (and in any event within 24 hours) notify the other party after receipt of any Takeover Proposal or any notice that any person is considering making a Takeover Proposal or any request for non-public information relating to Cybear or any of its subsidiaries or for access to the properties, books or records of Cybear or any of its subsidiaries by any person that has advised Cybear that it may be considering making, or that has made, a Takeover Proposal, or whose efforts to formulate a Takeover Proposal would be assisted thereby (such notice to include the identity of such person or persons), and will keep Andrx fully informed of the status and details of any such Takeover Proposal notice, request or any correspondence or communications related thereto and shall provide the other party with a true and complete copy of such Takeover Proposal notice or request or correspondence or communications related thereto, if it is in writing, or a complete written summary thereof, if it is not in writing. Cybear shall immediately cease and cause to be terminated any discussion or negotiations with any persons conducted that may have existed with respect to a Takeover Proposal prior to the execution of this Agreement. (l) VOTING AGREEMENTS. Cybear shall use best efforts to obtain as promptly as practicable (but in any event not later than March 25, 2000) for the benefit of New Andrx, an agreement from Dr. Edward E. Goldman and John Klein whereby they agree to vote in favor of this Agreement and the Cybear Merger. New Andrx shall use best efforts to obtain as promptly as practicable (but in any event not later than March 25, 2000) for the benefit of Cybear, an agreement from Alan P. Cohen, Chih-Ming J. Chen and Elliot F. Hahn whereby they agree to vote in favor of this Agreement and the Andrx Merger. 28 7. CONDITIONS TO OBLIGATION TO CLOSE. (a) CONDITIONS TO OBLIGATION OF NEW ANDRX, ANDRX AND MERGER SUBS. The obligation of New Andrx, Andrx and the Merger Subs to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) this Agreement and the Cybear Merger shall have received the Required Cybear Stockholder Vote; (ii) Cybear and its Subsidiaries shall have procured all of the third party consents specified in Section 6(b) above; (iii) the representations and warranties set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date; (iv) Cybear shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (v) no court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or arbitrator shall have enacted, issued, promulgated, enforced or entered any injunction, judgment, order, decree, ruling, or charge which would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of the Cybear Surviving Corporation to own the former assets, to operate the former businesses, and to control the former Subsidiaries of Cybear, or (D) affect adversely the right of any of the former Subsidiaries of Cybear to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (vi) Cybear shall have delivered to New Andrx a certificate signed by Dr. Edward E. Goldman and Jack Greenman to the effect that each of the conditions specified above in Section 7(a)(i)-(v) is satisfied in all respects; (vii) the S-4 Registration Statement shall have become effective under the Securities Act; (viii) the New Andrx Common Stock and Cybear Tracking Common Stock that will be issued in the Mergers shall have been approved for listing on the Nasdaq National Market, subject to official notice of issuance; (ix) This Agreement and the Andrx Merger shall have received the Required Andrx Stockholder Vote; (x) Andrx shall have received from Arthur Andersen LLP an opinion (the "Andrx Closing Tax Opinion") to the effect that the Andrx Merger should constitute a tax-free reorganization pursuant to Code Section 368(a)(1)(A) addressed to Cybear and Andrx, and dated the Closing Date; 29 (xi) New Andrx and Cybear shall have entered into the Tax Sharing Agreement attached hereto as Exhibit C (the "Tax Sharing Agreement"); and (xii) all actions to be taken by Cybear in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to New Andrx. New Andrx, Andrx and the Merger Subs may waive any condition specified in this Section 6(a) if it executes a writing so stating at or prior to the Closing, except where such condition may not be waived as a matter of law. (b) CONDITIONS TO OBLIGATION OF CYBEAR. The obligation of Cybear to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the S-4 Registration Statement shall have become effective under the Securities Act; (ii) This Agreement and the Andrx Merger shall have received the Required Andrx Stockholder Vote; (iii) the New Andrx Common Stock and Cybear Tracking Common Stock that will be issued in the Merger shall have been approved for listing on the Nasdaq National Market, subject to official notice of issuance; (iv) the representations and warranties set forth in Section 4 and above shall be true and correct in all material respects at and as of the Closing Date; (v) New Andrx, Andrx and the Merger Subs shall each have performed and compiled with all of its covenants hereunder in all material respects through the Closing; (vi) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of the Andrx Surviving Corporation, or the Cybear Surviving Corporation to own the former assets, to operate the former businesses, and to control the former Subsidiaries of Cybear, or (D) affect adversely the right of any of the former Subsidiaries of Cybear to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (vii) each of New Andrx and Andrx shall have delivered to Cybear a certificate to the effect that each of the conditions specified above in Section 7(b)(i)-(vi) is satisfied in all respects; 30 (viii) this Agreement and the Cybear Merger shall have received the Required Cybear Stockholder Vote; (ix) Cybear shall have received from Arthur Andersen LLP an opinion (the "Cybear Closing Tax Opinion") to the effect that the exchange of shares pursuant to the Cybear Merger should constitute a tax-free exchange pursuant to Code Section 351(a), addressed to Cybear and New Andrx, and dated the Closing Date; and (x) New Andrx and Cybear shall have entered into the Tax Sharing Agreement; (xi) The Board of Directors of New Andrx shall, among others, consist of one person appointed by Cybear reasonably acceptable to Andrx upon consummation of the Mergers; (xii) New Andrx shall have adopted the Cybear Tracking Common Stock Policies in substantially the form attached hereto as Exhibit D. (xiii) all actions to be taken by New Andrx in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Cybear. Cybear may waive any condition specified in this Section 7(b) if it executes a writing so stating at or prior to the Closing, except where such condition may not be waived as a matter of law. 8. TERMINATION. (a) TERMINATION OF AGREEMENT. Either of the Parties may terminate this Agreement with the prior authorization of its board of directors (whether before or after stockholder approval) as provided below: (i) the Parties may terminate this Agreement by mutual written consent at any time prior to the Effective Time; (ii) New Andrx and Andrx may terminate this Agreement by giving written notice to Cybear at any time prior to the Effective Time (A) in the event Cybear has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Andrx has notified Cybear of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach, or (B) if the Closing shall not have occurred on or before December 31, 2000, by reason of the failure of any condition precedent under Section 7(a) hereof (unless the failure results primarily from New Andrx breaching any representation, warranty, or covenant contained in this Agreement); 31 (iii) Cybear may terminate this Agreement by giving written notice to New Andrx and Andrx at any time prior to the Effective Time (A) in the event Andrx has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Cybear has notified Andrx of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach, or (B) if the Closing shall not have occurred on or before December 31, 2000, by reason of the failure of any condition precedent under Section 7(b) hereof (unless the failure results primarily from Cybear breaching any representation, warranty, or covenant contained in this Agreement); (iv) Cybear may terminate this Agreement by giving written notice to Andrx at any time after the Cybear Stockholders Meeting in the event this Agreement and the Cybear Merger fail to receive the Required Cybear Stockholder Vote; (v) New Andrx and Andrx may terminate this Agreement by giving written notice to Cybear at any time after the New Andrx Stockholders Meeting in the event the Andrx Merger fails to receive the Required New Andrx Stockholder Vote; (vi) Cybear may terminate this Agreement if an unsolicited Takeover Proposal shall have occurred, and in connection therewith, Cybear's Board of Directors in compliance with the procedures set forth in Section 6(k) determines in good faith that such Takeover Proposal is a Superior Proposal and that it is required by its fiduciary duty to accept such Takeover Proposal and advises Andrx thereof; and (vii) by either New Andrx or Andrx, if (a) there shall be a final nonappealable order of a federal or state court restraining or prohibiting the consummation of the Merger, or (b) there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any governmental authority, that would make the consummation of the Merger illegal. (b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to Section 8(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); PROVIDED, HOWEVER, that the confidentiality provisions contained in Section 6(e) above shall survive any such termination. 9. MISCELLANEOUS. (a) SURVIVAL. None of the representations, warranties, and covenants of the Parties (other than the provisions in Section 2 above concerning issuance of the New Andrx Common Stock and Cybear Tracking Common Stock, the provisions in Section 6(g) above concerning insurance and indemnification and the provisions in Section 6 concerning post-closing covenants) will survive the Effective Time. (b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party 32 will use its best efforts to advise the other Party and its counsel at least one day prior to making the disclosure). (c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns; PROVIDED, HOWEVER, that (i) the provisions in Section 2 above concerning issuance of the New Andrx Shares are intended for the benefit of the Cybear Stockholders, (ii) the provisions in Section 6(g) above concerning indemnification are intended for the benefit of the individuals specified therein and their respective legal representatives, and (iii) the provisions in Section 6(i) above concerning certain post-closing covenants for the benefit of the holders of Andrx Options and Cybear Options are intended for the holders thereof. (d) ENTIRE AGREEMENT. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party. (f) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (g) HEADINGS. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) NOTICES. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: IF TO CYBEAR: Edward E. Goldman, M.D. Cybear, Inc. 5000 Blue Lake Drive Boca Raton, FL 33431 Telephone: (561) Facsimile: (561) 33 COPY TO: Charles Rennert, Esq. Berman Wolfe Rennert Vogel & Mandler, P.A. 100 Southeast Second Street Miami, Florida 33131 Telephone: (305) 577-4177 Facsimile: (305) 373-6036 IF TO ANDRX OR NEW ANDRX: Alan P. Cohen Andrx Corporation 4001 Southwest 47th Avenue Ft. Lauderdale, FL 33314 Telephone: (954) Facsimile: (954) COPY TO: Dale S. Bergman, Esq. Broad and Cassel Suite 3000 201 South Biscayne Blvd. Miami, FL 33131 Telephone: (305) 373-9400 Facsimile: (305) 3739493 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. (i) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision of this Agreement at any time prior to the Effective Time with the prior authorization of their respective boards of directors; PROVIDED, HOWEVER, that any amendment effected subsequent to stockholder approval will be subject to the restrictions contained in the DGCL. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing 34 and signed by both of the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (l) EXPENSES. Each of the Parties and their respective stockholders will bear its or their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. (m) CONSTRUCTION. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. The word "including" shall mean including without limitation. (n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. THIS SECTION INTENTIONALLY LEFT BLANK 35 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. ANDRX CORPORATION, a Florida corporation By: -------------------------------------------------- Alan P. Cohen, Co-Chairman and CEO NEW ANDRX CORPORATION, a Delaware corporation By: -------------------------------------------------- Alan P. Cohen, Co-Chairman and CEO ANDRX ACQUISITION CORP., a Florida corporation By: -------------------------------------------------- Alan P. Cohen, President CYBEAR ACQUISITION CORP., a Florida corporation By: -------------------------------------------------- Alan P. Cohen, President CYBEAR, INC., a Delaware corporation By: -------------------------------------------------- Dr. Edward E. Goldman, CEO 36 EXHIBIT A -- PLAN OF MERGER EXHIBIT B-1 -- NEW ANDRX AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT B-2 -- NEW ANDRX BYLAWS EXHIBIT C -- TAX SHARING AGREEMENT EXHIBIT D -- CYBEAR TRACKING COMMON STOCK POLICIES EX-10.13 3 EXHIBIT 10.13 FIRST AMENDMENT TO BLUE LAKE CORPORATE CENTER STANDARD LEASE BETWEEN BLUE LAKE, LTD. AND CYBEAR, INC. THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made by and between BLUE LAKE, LTD. (the "Landlord") and CYBEAR, INC. (FL), successor by merger to Cybear, Inc. (the "Tenant") as of this 4th day of February, 1999. WITNESSETH: WHEREAS, Landlord and Tenant are bound under that certain Blue Lake Corporate Center Standard Lease dated September 14, 1998 (the "Lease") regarding certain leased premises (the "Existing Premises") described in the Lease, being located in Blue Lake Corporate Center, Boca Raton, Florida; and WHEREAS, Tenant desires to increase the area of the Existing Premises to that more particularly described on EXHIBIT "A-REVISED" hereto (the "Enlarged Premises"), and, which thereby will result in a decrease in the size of the Expansion Premises described in the Lease ("Existing Expansion Premises") as more particularly described in EXHIBIT "A-1-REVISED" hereto ("Reduced Expansion Premises") and Landlord has agreed to lease the Enlarged Premises to Tenant and to decrease the area of the Existing Expansion Premises to the Reduced Expansion Premises, subject to and on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the sum of TEN and NO/100 DOLLARS ($10.00) paid by Tenant to Landlord, the mutual promises contained herein, and other good and valuable considerations, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant do hereby agree as follows: 1. RECITALS. The foregoing recitals are true and correct and are hereby incorporated by this reference as if set forth in their entirety. 2. DEFINED TERMS. Terms in this Amendment shall have the same meaning as ascribed to said terms in the Lease, unless otherwise provided in this Amendment. As hereby amended, the Lease and this Amendment shall hereinafter be referred to as the "Lease". 3. ENLARGED PREMISES. Attached hereto as Exhibit "A-REVISED" is a floor plan of the Enlarged Premises. Exhibit "A" of the Lease is hereby replaced with EXHIBIT "A-REVISED" as attached hereto and made a part hereof which the parties hereto stipulate contains 21,648 square feet of Net Rentable Area based on 18,824 usable square feet and a fifteen (15%) percent add-on factor. The term, "Premises" shall be deemed to be, and shall be defined as, the Enlarged Premises. Attached hereto as EXHIBIT "A-1-REVISED" is a floor plan of the Reduced Expansion Premises. Exhibit "A-1" of the Lease is hereby replaced with EXHIBIT "A-1-REVISED" attached hereto and made a part hereof, which the parties stipulate contains 16,420 square feet of Net Rentable Area, based on 14,278 usable square feet and a fifteen (15%) percent add-on factor. Landlord and Tenant 1 agree that the foregoing calculation shall be dispositive of the actual Net Rentable Area and that no further measurement shall be made of the Premises pursuant to Section 1 of the BLI Rider to the Lease. The Rentable Area of the Premises includes restrooms, electrical and mechanical rooms over which the Tenant is herein granted exclusive control and dominion which are themselves deemed part of the Premises, except that Landlord shall maintain such restrooms, electrical and mechanical rooms which are shared among tenants. 4. TENANT'S SHARE. Tenant's Share (as set forth in Paragraph 3 of the BLI Rider and as defined in the Lease) for the Enlarged Premises shall be increased to 1.22%. 5. BASE RENT. Section 3 of the BLI Rider to the Lease is hereby replaced with the following; BASE RENT: TENANT AGREES TO PAY TO LANDLORD AS RENT FOR THE PREMISES, IN ADVANCE WITHOUT DEMAND, DEDUCTION OR SET OFF (EXCEPT AS OTHERWISE MAY BE SPECIFICALLY PROVIDED IN THE LEASE), FROM AND AFTER THE RENT COMMENCEMENT DATE AND THROUGHOUT THE TERM, THE ANNUAL BASE RENT IN THE AMOUNTS AS INDICATED IN THE FOLLOWING SCHEDULE OF BASE RENT IN EQUAL MONTHLY INSTALLMENTS, PLUS APPLICABLE SALES TAX. SCHEDULE OF BASE RENT ------------------------------------------------------- PERIOD PER SQUARE ANNUAL BASE MONTHLY BASE FOOT RENT RENT ------------------------------------------------------- Months 1-12: $12.50 $270,600.00 $22,550.00 ------------------------------------------------------- Months 13-24: $12.88 $278,826.24 $23,235 52 ------------------------------------------------------- Months 25-36: $13 27 $287,268.96 $23,939.08 ------------------------------------------------------- Months 37-48: $13.67 $295,928.16 $24,660.68 ------------------------------------------------------- Months 49-60: $14.08 $304,803.84 $25.400.32 ------------------------------------------------------- EACH MONTHLY INSTALLMENT IN ACCORDANCE WITH THE ABOVE SCHEDULE SHALL BE DUE AND PAYABLE ON OR BEFORE THE FIRST DAY OF EACH CALENDAR MONTH SUCCEEDING THE RENT COMMENCEMENT DATE, EXCEPT THAT THE RENTAL PAYMENT FOR ANY FRACTIONAL CALENDAR MONTH COMMENCING ON THE RENT COMMENCEMENT DATE OF THE LEASE SHALL BE PRORATED. 6. DEMISING OF PREMISES. The Landlord is not and shall not be responsible for the design or construction of any Tenant Improvements (other than for any Landlord's Contribution as defined and as may be provided in the Lease) or for the demising of the Premises, other than for the construction of a temporary wall, as depicted on EXHIBIT "B" attached hereto and designated as "Temporary 2 Demising Wall", which shall be installed at Landlord's expense. However, the Tenant further acknowledges that if Tenant does not exercise its Right of First Refusal pursuant to PARAGRAPH 1.B of the Lease, the Reduced Expansion Premises or portions thereof may be leased to third party(ies) or used for common areas, and in such event, a corridor will be required to be constructed between the Reduced Expansion Premises and the stairs as depicted on EXHIBIT "B" attached hereto ("Corridor") for the purpose of fire egress in accordance with applicable codes, standards, ordinances and laws. The Tenant acknowledges and agrees that it shall be responsible for removing from the area of the Corridor all of Tenant's improvements, personal property, equipment, furnishings and fixtures. Tenant shall pay for all actual reasonable costs and fees associated with (i) the demolition, removal and relocation of the improvements located in the Corridor including, but not limited to, ceilings, HVAC, life-safety, lighting, alarms, electrical, plumbing and other mechanical systems; and (ii) the cost of designing, permitting and constructing the Corridor, including but not limited to the fire-rated wall, and the installation of ceilings, HVAC, lighting, alarms, life-safety, electrical, plumbing and other mechanical systems serving the Corridor ("Corridor Expenses"). The Landlord shall prepare an estimate of the Corridor Expenses prior to commencing work on the Corridor, and within ten (10) days from receipt of Landlord's estimate, Tenant shall deposit with Landlord the amount shown therein. After completion of all work associated with the Corridor, the Landlord shall notify the Tenant of actual Corridor Expenses. If the actual Corridor Expenses are less than the amount deposited by Tenant with the Landlord, the Landlord shall refund the excess amount so deposited within fifteen (15) days and if the actual Corridor Expenses are greater than the amount so deposited, the Tenant shall pay such costs and fees within fifteen (15) days from receipt of Landlord's notice. 7. TENANT IMPROVEMENTS. Tenant shall complete or cause the completion of improvements to the Enlarged Premises in accordance with the Work Letter Agreement to the Lease. The Landlord's Contribution shall apply to the Enlarged Premises on the same basis as provided in the Work Letter Agreement to the Premises. 8. SUPPLEMENTAL AIR CONDITIONING. Landlord agrees that Tenant, at its sole cost and expense, may install a backup emergency supplemental air conditioning system for the Enlarged Premises (the "Backup AC") on the roof of the Building. Should Tenant elect to install a Backup AC on the roof of the Building, Tenant agrees to install the Backup AC in accordance with all applicable codes and laws and sound engineering and construction practices. Tenant further agrees to use any specified architect, engineer, roofing contractor or other general contractor reasonably required by Landlord to design and install the Backup AC so as avoid any compromise to the roof structure or membrane, or to other elements of the Building. The architectural and engineering plans and specifications for the Backup AC and any required Alterations to the Building in connection therewith shall be subject to the Landlord's approval as an Alteration under this Lease. Tenant covenants and agrees that the Backup AC shall only be use for emergency backup use in the event of the cessation of air conditioning provided by the Landlord or the Utility Manager pursuant to the terms of the Lease, and the Tenant shall not use the Backup AC in lieu of the air conditioning services provided by the Landlord or the Utility Manager pursuant to Section 8.A.(3)of the Lease. The Tenant shall be responsible to maintain, repair and replace the roof in the area of the Backup AC and any supporting or related roofing systems, such maintenance, repair and replacement, subject to the Landlord's prior 3 written approval. If the Tenant fails to promptly, and as and when appropriate or necessary, maintain, repair or replace the roof and supporting and related systems, the Landlord may perform such maintenance, repair or replacement, and such shall be charged to the Tenant as Additional Rent. 9. TENANT STIPULATIONS. Tenant acknowledges that, as a result of a merger, it is the tenant under the Lease, has assumed all of Cybear, Inc.'s obligations, liabilities and responsibilities under the Lease, and hereby stipulates, agrees and affirms that there are no other assignees, sublessees or transferees of the Lease, or any part thereof, or any person or firm occupying or having the right in the future to occupy the Existing Premises, or any part thereof, except as has been approved in writing by Landlord. As of the date hereof, Landlord and Tenant are not aware of the occurrence of any event of default under the Lease by either Landlord or Tenant. 10. RATIFICATION. Except as herein specifically amended, the terms of the Lease are incorporated herein by reference as if fully set forth herein and shall apply to and bind the Enlarged Premises. In the event of any conflict or ambiguity between this Amendment and the Lease, this Amendment shall pre-empt and control. The parties hereby ratify and confirm their rights and obligations under the Lease as modified by this Amendment. Landlord and Tenant each represent and warrant to the other that (i) the execution and delivery of the Amendment has been fully authorized by all necessary corporate action, and (ii) this Amendment is valid, binding and legally enforceable in accordance with its terms. 11. BROKERS. Each party represents and warrants that it has not dealt with any agent or broker in connection with this transaction except for Blue Lake Realty, Inc. and the agents or brokers specifically set forth in the BLI Rider to the Lease whose commissions shall be paid by Landlord pursuant to separate agreement. If either party's representation and warranty proves to be untrue, such party will indemnify the other party against all resulting liabilities, costs, expenses, claims, demands and causes of action, including reasonable attorneys' fees and costs through all appellate actions and proceedings, if any. The foregoing will survive the end of the Lease Term. IN WITNESS WHEREOF, Landlord and Tenant have signed this Amendment as of this 4th day of February, 1999. WITNESSES: "TENANT" /s/ Michael W. Carbrey CYBEAR, INC. (FL), a Florida corporation - ------------------------------------ By: /s/ Todd A. Macleod - ------------------------------------ ------------------------------------- Name: Todd A. Macleod ----------------------------------- Title: EVP, Operations ---------------------------------- 4 WITNESSES: "LANDLORD" /s/ Eileen Heemskerk BLUE LAKE, LTD., a Florida limited - ------------------------------------ partnership - ------------------------------------ By: Blue Lake, Inc., a Florida corporation, its general partner By: /s/ Michael D. Masanoff, EVP ------------------------------------- Authorized Agent 5 REVISED EXHIBIT A ENLARGED PREMISES [GRAPHIC OMITTED] 6 REVISED EXHIBIT A-1 REDUCED EXPANSION PREMISES [GRAPHIC OMITTED] 7 EXHIBIT B DEMISING CORRIDOR / TEMPORARY WALL [GRAPHIC OMITTED] 8 EX-10.14 4 EXHIBIT 10.14 SECOND AMENDMENT TO BLUE LAKE CORPORATE CENTER STANDARD LEASE BETWEEN BLUE LAKE, LTD. AND CYBEAR, INC. THIS SECOND AMENDMENT TO LEASE (this "Second AMENDMENT") is made by and between BLUE LAKE, LTD. (the "LANDLORD") and CYBEAR, INC. (FL), successor by merger to CYBEAR, INC, (the "TENANT") as of this 3rd day of September, 1999. W I T N E S S E T H: WHEREAS, Landlord and Tenant are bound under that certain Blue Lake Corporate Center Standard Lease, dated September 14, 1998 (the "ORIGINAL LEASE") as amended by the First Amendment thereto, dated February 4, 1999 ("FIRST AMENDMENT") regarding certain leased premises (the "EXISTING PREMISES") described in the Original Lease and the First Amendment (collectively, the "LEASE"), being located in Blue Lake Corporate Center, Boca Raton, Florida; and WHEREAS, Tenant desires to lease the Reduced Expansion Premises (as defined in the First Amendment) and Landlord has agreed to lease the Reduced Expansion Premises to Tenant, subject to and on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the sum of TEN and NO/100 DOLLARS ($10.00) paid by Tenant to Landlord, the mutual promises contained herein, and other good and valuable considerations, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant do hereby agree as follows: 1. RECITALS. The foregoing recitals are true and correct and are hereby incorporated by this reference as if set forth in their entirety. 2. DEFINED TERMS. Terms in this Amendment shall have the same meaning as ascribed to said terms in the Lease, unless otherwise provided in this Second Amendment. As hereby amended, the Lease and this Second Amendment shall hereinafter be referred to as the "Lease". 3. EXPANDED PREMISES. Exhibit "A" of the Lease, as replaced with EXHIBIT "A-REVISED", pursuant to the First Amendment, shall be modified to add thereto EXHIBIT "A-1-REVISED" as attached to the First Amendment. The term "Premises" shall be deemed to be, and shall be defined as, the Enlarged Premises, together with the Reduced Expansion Premises. The parties stipulate that the Reduced Expansion Premises contains 16,420 square feet of Net Rentable Area, based on 14,278 usable square feet and a fifteen (15%) percent add-on factor and that the Premises as amended hereby contains a total of 38,068 square feet of Net Rentable Area based on 33,102 usable square feet and a fifteen (15%) percent add-on factor. Landlord and Tenant agree that the foregoing calculation shall be dispositive of the actual Net Rentable Area and that no further measurement shall be made of the Premises pursuant to Section 1 of the BLI Rider to the Lease. The Rentable Area of the Premises includes restrooms, electrical and mechanical rooms over which the Tenant is herein granted exclusive control and dominion which are themselves deemed part of the premises, except that Landlord shall maintain such electrical and mechanical rooms. As a result of the amendments set forth herein, the Right of First Refusal contained in Paragraph 1.B of the Original Lease is no longer applicable and is deemed deleted. 4. TENANT'S SHARE. Tenant's Share (as set forth in Paragraph 3 of the BLI Rider and as defined in the Lease) for the Premises shall be increased to 2.15%. 5. RENT COMMENCEMENT DATE WITH RESPECT TO REDUCED EXPANSION PREMISES. With respect to the Reduced Expansion Premises, the Rent Commencement Date shall be April 1, 2000. 5. EXTENSION OF LEASE TERM. With respect to the Premises (as expanded hereby) Lease Term shall be extended so that the Lease Term will expire on March 31st, 2007. 6. BASE RENT. Section 3 of the BLI Rider to the Lease is hereby replaced with the following: BASE RENT: TENANT AGREES TO PAY TO LANDLORD AS RENT FOR THE PREMISES, IN ADVANCE WITHOUT DEMAND, DEDUCTION OR SET OFF (EXCEPT AS OTHERWISE MAY BE SPECIFICALLY PROVIDED IN THE LEASE), FROM AND AFTER THE RENT COMMENCEMENT DATE AND THROUGHOUT THE TERM, THE ANNUAL BASE RENT IN THE AMOUNTS AS INDICATED IN THE FOLLOWING SCHEDULE OF BASE RENT IN EQUAL MONTHLY INSTALLMENTS, PLUS APPLICABLE SALES TAX. SCHEDULE OF BASE RENT --------------------- ----------------------------------------------------- PERIOD PER SQUARE ANNUAL BASE MONTHLY BASE FOOT RENT RENT ----------------------------------------------------- 01/01/99 - $12.50 $270,600.00 $22,550.00 12/31/99 ----------------------------------------------------- 01/01/0O - $12.88 $278,826.00 $23,235.52 03/31/00 based on 21,648 sq. feet ----------------------------------------------------- -2- ----------------------------------------------------- 04/01/00 - $12.88 $490,315.84 $40,859.65 12/31/00 based on 38,068 sq. feet ----------------------------------------------------- 01/01/01 - $13.27 $505,162.36 $42,096.86 12/31/01 based on 38,068 sq. feet ----------------------------------------------------- 01/01/02 - $13.67 $520,389.56 $43,365.80 12/31/O2 based on 38,068 sq. feet ----------------------------------------------------- 01/01/03 - $14.08 $535,997.44 $44,666.45 12/31/03 based on 38,068 sq. feet ----------------------------------------------------- 01/01/04 - $14.50 $551,986.00 $45,998.83 12/31/04 based on 38,068 sq. feet ----------------------------------------------------- 01/01/05 - $14.94 $568,735.92 $47,394.66 12/31/05 based on 38,068 sq. feet ----------------------------------------------------- 01/01/06 - $15.39 $585,866.52 $48,822.21 12/31/06 based on 38,068 sq. feet ----------------------------------------------------- 01/01/07 - $15.85 $603,377.80 $50,281.48 03/31/07 based on 38,068 sq. feet ----------------------------------------------------- EACH MONTHLY INSTALLMENT IN ACCORDANCE WITH THE ABOVE SCHEDULE SHALL BE DUE AND PAYABLE ON OR BEFORE THE FIRST DAY OF EACH CALENDAR MONTH SUCCEEDING THE RENT COMMENCEMENT DATE, EXCEPT THAT THE RENTAL PAYMENT FOR ANY FRACTIONAL CALENDAR MONTH COMMENCING ON THE RENT COMMENCEMENT DATE OF THE LEASE SHALL BE PRORATED. 7. DEMISING OF REDUCED EXPANSION PREMISES. The Landlord is not and shall not be responsible for the design or construction of any Tenant Improvements (other than for a Landlord's Contribution of $214,170.00, which shall replace any Landlord's Contribution provided in the Lease other than the demolition of existing improvements in the Reduced Expansion Premises, which shall be accomplished by Landlord, at its expense, within sixty (60) days from receipt of the Landlord-Approved Tenant Construction Plans, pursuant to a demolition plan approved by Tenant. 8. TENANT IMPROVEMENTS. Tenant shall complete or cause the completion of improvements to the Reduced Expansion Premises in accordance with the Work Letter Agreement to the Lease. The Landlord's Contribution shall apply to the Reduced Expansion Premises on the same basis as provided in the Work Letter Agreement to the Premises. -3- 9. PARKING SPACES. In addition to Tenant's right to use the parking facility as described in Paragraph 7 of the Original Lease, Landlord shall assign for Tenant's exclusive use during the term of the Lease, the six (6) parking spaces depicted on EXHIBIT "L" attached hereto and made part hereof. Landlord reserves the right to reconfigure and to reasonably relocate the aforementioned Tenant's spaces from time to time; however, Landlord agrees that the same number of parking spaces will remain in the same vicinity. Tenant agrees that Landlord will have no liability on account of any loss or damage to any vehicle, except as otherwise expressly provided in this Lease nor will the Landlord be responsible for patrolling said spaces. There shall be no rental payable by Tenant for the use of the assigned spaces. The assigned spaces will be marked by Landlord, at its expenses, to read "Reserved-Cybear, Inc., (FL)" or such other designation(s) of Tenant as desired by Tenant. Landlord is not responsible for patrolling the assigned spaces as described above. 10. RATIFICATION. Except as herein specifically amended, the terms of the Lease are incorporated herein by reference as if fully set forth herein and shall apply to and bind the Reduced Expansion Premises. In the event of any conflict or ambiguity between this Second Amendment and the Lease, this Second Amendment shall preempt and control. The parties hereby ratify and confirm their rights and obligations under the Lease as modified by this Second Amendment. Landlord and Tenant each represent and warrant to the other that (i) the execution and delivery of the Second Amendment has been fully authorized by all necessary corporate action, and (ii) this Second Amendment is valid, binding and legally enforceable in accordance with its terms. 11. BROKERS. Each party represents and warrants that it has not dealt with any agent or broker in connection with this transaction except for Blue Lake Realty, Inc. and the agents or brokers specifically set forth in the BLI Rider to the Lease whose commissions shall be paid by Landlord pursuant to separate agreement. If either party's representation and warranty proves to be untrue, such party will indemnify the other party against all resulting liabilities, costs, expenses, claims, demands and causes of action, including reasonable attorneys' fees and costs through all appellate actions and proceedings, if any. The foregoing will survive the end of the Lease Term. IN WITNESS WHEREOF, Landlord and Tenant have signed this Amendment as of this 3rd day of September, 1999. WITNESSES: "LANDLORD" BLUE LAKE, LTD., a Florida limited partnership -4- By: BLUE LAKE, INC., a Florida corporation, its General Partner By: /s/ Michael D. Masanoff, EVP -------------------------------- Print Name: /s/ Charlotte A. Keller Name: Michael D. Masanoff, EVP ------------------------- --------------------------- Authorized Agent Print Name: /s/ E.R. Raybody ------------------------- (Corporate Seal) "TENANT" CYBEAR INC. (FL), a Florida corporation By: /s/ Jack S. Greenman ----------------------------------- Print Name: /s/ Charlotte A. Keller Name: Jack S. Greenman ------------------------- -------------------------- Print Name: /s/ E.R. Rayboy Title: EVP -------------------------- ------------------------- (Corporate Seal) -5- REVISED EXHIBIT "A-1" REDUCED EXPANSION PREMISES [GRAPHIC OMITTED] -6- EXHIBIT C PARKING [GRAPHIC OMITTED] -7- EX-10.15 5 EXHIBIT 10.15 February 15, 2000 Mr. Tim Nolan 17 Greenbriar Circle Newtown, PA 18940 Dear Tim: I am very pleased to offer you a position at Cybear, Inc. ("Cybear"), an affiliate of Andrx Corporation ("Andrx" and collectively with Cybear, the "Company"), upon the following terms: (1) Position: President and Chief Operating Officer of Cybear (2) Reporting to: Alan P. Cohen, Co-Chairman & Chief Executive Officer of Andrx (3) Annual Salary: $400,000 (4) Bonus: $150,000 per annum target, at the discretion of the Andrx Chief Executive Officer (5) Stock Options: Options to acquire 300,000 shares of Cybear stock (with you waiving any conversion premium that may result from the closing of the tracker stock transaction) and 75,000 shares of Andrx common stock, at exercise price as of date of grant by Compensation Committees of Board of Directors of Andrx and Cybear, with 20% of said options vesting immediately and the balance vesting in equal increments on the 1st, 2nd, 3rd and 4th anniversary of the date you assume your position. (6) Termination: In the event (i) your employment with the Company or any successor entity is terminated at any time without "cause" or (ii) during the one year period after a "change of control" of Cybear you voluntarily terminate your employment for "good reason", then you shall be entitled to (i) $500,000 payable within thirty (30) days of your termination of employment, and (ii) the immediate vesting of all of the unvested foregoing Cybear and Andrx stock options.
For the foregoing purposes, (i) a change in control shall be deemed to have occurred if there occurs a "change of control" as defined in the rules promulgated under the Securities Exchange Act of 1934 (the Act); when any person or group as that term is defined in the Act, becomes beneficial owner directly or indirectly of securities of forty percent (40%) or more in voting power or a majority of the Board of Directors has changed within two years after the acquisition took place; provided, however, (i) the acquisition of Cybear stock by Andrx as part of the tracking stock transaction shall not be deemed a change of control; (ii) "cause" shall mean (x) the commission of a criminal act by you; (y) gross negligence, gross malfeasance or gross misconduct by you in the performance of your job; (z) a material breach by you of your Confidentiality and Non-Competition Agreement; and (iii) "good reason" shall mean any decrease in your compensation or value of benefits without "cause"; any change in your job responsibilities or reporting requirements without "cause"; or any change in your work location that is outside of a fifty (50) mile radius of your work location at the time of the change in control, and you are not offered an executive position at Andrx for at least the same pay and benefits. (7) Deferred Pay: We understand that you will be leaving an executive position that presently offers you a larger annual salary and greater bonus potential than we are. Accordingly, within 30 days of the "determination date", the Company will provide you with a total deferred cash compensation payment of $700,000 minus the "additional value". For this purpose, (i) "determination date" shall mean the earlier of (x) the end of your fourth anniversary of employment by the Company, or (y) at the time of your separation, if you are terminated without cause from the Company or you leave for good reason, as those terms are defined above, and (ii) "additional value" shall mean the cumulative amount you received or are then entitled to receive as a result of your employment by the Company, excluding the above noted salary and bonus and increases thereof and the benefits specified below. (8) Benefits: You will receive all benefits comparable to the executive employees of Andrx, including without limitation, the following: 401(k) plan, group medical, dental and life insurance plans, medical insurance plan (beginning the first day of the month after you join us) and certain other benefits. Benefits also include the reimbursement of reasonable properly authorized expenses incurred in connection with the performance of duties.
(9) Car Allowance: $7,200 per annum. (10) Relocation: Cybear shall reimburse your reasonable relocation expenses.
You have explained and represented to me that you believe that your employment by Cybear and the performance of your duties will not violate the terms of any non-compete or other agreements to which you are a party. In the event, however, your duties or expected duties with Cybear would violate the non-compete or other obligations that you have, Andrx agrees to employ you in an alternative executive position with Andrx, subject to the same compensation terms and benefits as those set forth above. Moreover, as your position will give you access to information which Andrx keeps confidential, your execution of the attached Confidentiality and Non-Competition Agreement will be a condition of your employment. I am sure that you will find the environment at the Company both stimulating and rewarding and we look forward to your joining us. Should you have any questions, please feel free to call me. Please signify your acceptance of this offer by signing a copy of this letter where indicated below and returning that copy to me by either fax (at 954-792-1034) or by mail as soon as possible. Sincerely, /s/ ALAN P. COHEN -------------------------------------- Alan P. Cohen Co-Chairman & Chief Executive Officer AGREED TO AND ACCEPTED ON THIS ____ DAY OF FEBRUARY, 2000 /s/ TIMOTHY E. NOLAN - --------------------------------- Timothy E. Nolan cc: Scott Lodin EX-21.1 6 EXHIBIT 21.1 Subsidiaries of the Registrant Telegraph Consulting Corporation Cybearclub LLC. EX-23.1 7 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Form S-8 Registration Statement No.333-84291. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, March 27, 2000. EX-27 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 11,921,731 26,071,897 107,742 (3,000) 0 42,480,456 4,778,879 (1,255,484) 53,068,029 3,090,680 0 0 0 17,654 49,959,695 53,068,029 0 269,707 0 14,933,758 0 0 216,182 (13,597,854) 2,824,069 (10,773,785) 0 0 0 (10,773,785) (0.70) (0.70)
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