<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1999
REGISTRATION NO. 333-77665
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MEDSCAPE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7375 13-3879679
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
134 WEST 29TH STREET
NEW YORK, NEW YORK 10001-5399
(212) 760-3100
------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PAUL T. SHEILS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDSCAPE, INC.
134 WEST 29TH STREET
NEW YORK, NEW YORK 10001-5399
(212) 760-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOHN P. SCHMITT, ESQ. STEVEN A. MUSELES, ESQ.
PATTERSON, BELKNAP, WEBB & TYLER LLP HOGAN & HARTSON L.L.P.
1133 AVENUE OF THE AMERICAS 555 13TH STREET, N.W.
NEW YORK, NEW YORK 10036-6710 WASHINGTON, D.C. 20004-1109
(212) 336-2000 (202) 637-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION -- SEPTEMBER 7, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 1999
MEDSCAPE LOGO
5,400,000 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
MARKET & SYMBOL:
- - We have been approved for listing on the
Nasdaq National Market under the
symbol MSCP.
THE OFFERING:
- - We are offering 5,400,000 shares of our common stock.
- - The underwriters have an option to purchase an additional 750,000 shares from
us to cover over-allotments.
- - We anticipate that the initial public
offering price will be between $11 and $13 per share.
- - CBS Corporation has indicated an
interest in purchasing 400,000 of the shares we are offering.
<TABLE>
<CAPTION>
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Per Share Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Medscape:
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</TABLE>
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
WIT CAPITAL CORPORATION
DLJDIRECT INC.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED.
<PAGE> 3
------------------------
[ARTWORK INCLUDES MEDSCAPE'S LOGO, SCREEN SHOTS OF MEDSCAPE'S WEB SITE, A
DESCRIPTION OF SOME OF OUR SERVICE AND CONTENT OFFERINGS AND THE TRADEMARK AND
"EYE" DESIGN OF CBS.]
<PAGE> 4
TABLE OF CONTENTS
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PAGE
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 6
Forward-Looking Statements........ 20
Use of Proceeds................... 20
Dividend Policy................... 20
Capitalization.................... 21
Dilution.......................... 23
Pro Forma Consolidated Statements
of Operations................... 24
Selected Consolidated Financial
Data............................ 25
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 26
Business.......................... 34
Management........................ 48
Transactions with Related
Parties......................... 56
Recent Transactions............... 58
Principal Stockholders............ 63
Description of Capital Stock...... 66
Shares Eligible for Future Sale... 68
Underwriting...................... 70
Validity of the Shares............ 72
Experts........................... 72
Where You Can Find More
Information..................... 73
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
<PAGE> 5
PROSPECTUS SUMMARY
The information below is only a summary of more detailed information
included in other sections of this prospectus. This summary may not contain all
the information that is important to you or that you should consider before
buying shares in the offering. The other information is important, so please
read this entire prospectus carefully.
MEDSCAPE, INC.
OUR BUSINESS
We operate Medscape.com, a healthcare Web site that provides comprehensive,
authoritative and timely medical information and interactive programs targeted
toward physicians and allied healthcare professionals, such as pharmacists and
nurses. We offer a wide range of high-quality medical information, including
original, proprietary articles written for us by renowned medical experts. We
also offer what we believe is one of the Web's largest collection of free,
peer-reviewed, full-text medical journal articles and one of the Web's most
extensive libraries of continuing medical education accredited programs. We
supplement our medical content with a variety of non-medical information,
community features and interactive programs that make Medscape.com a
full-service professional healthcare destination Web site. We plan to launch our
separate consumer site, CBS.Medscape.com, in the third quarter of 1999. We have
also entered into a strategic relationship with America Online, Inc. under which
we have agreed to develop new versions of our consumer sites which will be
co-branded with AOL. We expect to launch our AOL co-branded consumer sites in
the fourth quarter of 1999 and the first quarter of 2000. As of June 30, 1999,
Medscape.com had more than 1,200,000 registered members worldwide, including
over 210,000 registered as physicians, 600,000 registered as allied healthcare
professionals and 400,000 registered as consumers.
Medscape.com is designed to meet the needs of our members in a personalized
and easy-to-use manner. We organize our professional information by medical
specialty area, such as oncology and cardiology, to make it easier for our
members to access the information most relevant to them. Our extensive and
up-to-date medical content and easy-to-use searching features assist medical
professionals in keeping abreast of medical advances and obtaining fast, online
answers to medical questions, helping them to make more informed diagnoses.
Through our strategic relationship with National Data Corporation, we will
integrate selected clinical data interchange and data management services
provided by NDC into Medscape.com. We will also serve as the principal content
provider to NDC's physician practice management system and an online distributor
of some of NDC's other online clinical products.
We believe our current consumer members view Medscape.com as a trusted
source of healthcare information because of our high-quality content and our
credibility with physicians. To enhance and personalize the consumer experience,
we plan to launch our consumer site, CBS.Medscape.com, and several newly
developed AOL co-branded consumer sites. We have entered into a strategic
relationship with CBS Corporation under which our CBS.Medscape.com consumer site
will be the exclusive Internet healthcare site integrated into CBS News
programming and, with the AOL co-branded consumer sites, will be promoted on CBS
media properties. Our AOL co-branded consumer sites will appear and be promoted,
through contextual links and banners, on AOL, AOL.com, CompuServe Service,
Netscape Netcenter and Digital City, all of which are AOL properties. AOL will
guarantee a minimum number of impressions, which means a user seeing a screen
with a link to one of our co-branded sites. We are designing our consumer sites
to help consumers make better informed healthcare decisions and to simplify
management of their healthcare needs. Our consumer sites will provide
personalized, authoritative medical content written for the consumer, access to
our professional content on Medscape.com and interactive personal health
management tools, such as health diaries.
Our database of registered members, coupled with our ability to deliver
advertisements to specific demographic groups within our membership base,
enables pharmaceutical, healthcare and other consumer product companies to reach
substantially all segments of their target audience. Our advertisers and
sponsors include over 30 of the world's largest pharmaceutical companies.
1
<PAGE> 6
OUR MARKET OPPORTUNITY
We believe the $1 trillion healthcare industry is being changed by the
emergence of the Internet as a global medium for communications, news,
information and commerce. In particular, we believe that the Internet can
cost-effectively address the increasing need for timely, comprehensive and
authoritative medical information caused by:
- the accelerated development of new medical and pharmaceutical therapies;
- increased time constraints on physicians who are faced with an
ever-increasing volume of information; and
- consumers taking greater interest in health-related issues.
We address these needs by providing high-quality, timely and well-organized
medical content on Medscape.com and will further address these needs on our soon
to be launched consumer sites, CBS.Medscape.com and our AOL co-branded sites. We
design our Web sites to be conveniently accessible wherever and whenever our
members choose. The organization of our sites and breadth of our membership base
enables our advertisers and sponsors, including pharmaceutical, healthcare and
other consumer product companies, to deliver marketing programs and interactive
services targeted directly to specific healthcare constituencies.
OUR STRATEGY
Our objective is to operate the premier online healthcare destination Web
sites where physicians, allied healthcare professionals and consumers find
reliable and comprehensive information that enables them to make better and more
informed medical and health decisions. We believe we are positioned to become a
preferred online advertising medium and e-commerce partner in the healthcare
sector. We intend to achieve our objective by pursuing the following strategies:
- strengthening the Medscape brands;
- expanding and enhancing our content;
- growing membership;
- developing strategic relationships and enhancing distribution; and
- developing additional revenue sources.
OUR HISTORY
Medscape, Inc. was incorporated in New York in March 1996 and commenced
operations in April 1996. Medscape, Inc. was reincorporated in Delaware in
December 1998. In October 1998, we purchased Healthcare Communications Group,
LLC, which operated a leading HIV Web site.
Our executive offices are located at 134 West 29th Street, New York, New
York, 10001-5399. Our telephone number is (212) 760-3100. Our Web site is
located at www.medscape.com. Information contained on our Web site is not part
of this prospectus.
Medscape is our registered service mark. Each other trademark, trade name
or service mark of any other company appearing in this prospectus is the
property of its holder.
RECENT DEVELOPMENTS
We have recently consummated several strategic relationships.
On June 15, 1999, we entered into a License and Web Site Development
Agreement with Softwatch Ltd. and its subsidiary, Softwatch, Inc., under which
we licensed software from Softwatch to support our consumer Web site, and
Softwatch agreed to provide ongoing technical and development support. As part
of this transaction, we also purchased 1,040,170 of Softwatch's Series A
Preferred Shares for $2,999,954.
2
<PAGE> 7
On August 3, 1999, we entered into agreements with CBS Corporation under
which during the next seven years we will receive approximately $150 million in
advertising and promotion in the United States, and a license to the "CBS"
trademark and "Eye" design and selected health-related news content together
valued at $7 million, in exchange for 7,397,208 shares of our Class A Common
Stock and 6,541,160 shares of our Class B Common Stock, which will represent
approximately 33% of our outstanding capital stock upon completion of this
offering. Additionally, CBS has indicated an interest in purchasing 400,000
shares from us in the offering at the initial offering price less underwriting
fees. Under our agreements with CBS, CBS has rights to maintain its then current
capital stock interest by purchasing shares in our future stock issuances and
has the right to designate three of our directors.
On August 4, 1999, we entered into a strategic development and marketing
agreement with National Data Corporation, a leading provider of healthcare
information services and electronic commerce solutions. As part of this
transaction, NDC invested $10 million cash in Medscape and has agreed to provide
$10 million in licensing and promotional value, product purchase amounts, and
credits against future commissions due by us to NDC under the agreement in
exchange for 1,000,000 shares of our Class A Common Stock and 400,000 shares of
our Series E Preferred Stock. Assuming an initial offering price of at least
$10, the 400,000 shares of Series E Preferred Stock will convert into 1,000,000
shares of our common stock upon completion of this offering. The number of
shares of common stock issuable to the holders of Series E Preferred Stock would
be increased based on a formula if the initial public offering price is less
than $10 per share.
On September 3, 1999, we entered into a strategic agreement with America
Online, Inc. Under this agreement, we will develop separate AOL co-branded
consumer sites and AOL will guarantee a minimum number of impressions. In
exchange, we have paid AOL $3 million and will pay an additional $30 million
over the next two years. In addition, we granted AOL two warrants, each to
purchase up to 1,352,158 shares of our Class A Common Stock.
Upon completion of this offering, the Series E stock will convert into
common stock and the Class A Common Stock and Class B Common Stock will be
redesignated as common stock.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Medscape............ 5,400,000 shares
Common stock to be outstanding after this
offering.................................. 42,093,533 shares
Use of proceeds............................. We intend to use the net proceeds of this
offering to make payments under our contract
with AOL and for general corporate purposes,
including funding operating losses, working
capital and capital needs. We may use a
portion to acquire or invest in
complementary businesses or technologies.
Nasdaq National Market Symbol............... MSCP
</TABLE>
The outstanding share information is based on our shares outstanding as of
August 31, 1999. This information excludes:
- 5,674,085 shares of common stock underlying options granted under our
1996 Stock Option Plan and outstanding as of August 31, 1999 at a
weighted average exercise price of $2.34 per share;
- 14,887.5 shares of common stock reserved for exercise of outstanding
warrants at an exercise price of $0.004 per share; and
- 2,704,316 shares of common stock reserved for issuance upon the exercise
of two outstanding warrants issued to AOL, 1,352,158 shares of which
under one warrant are at an exercise price of $10 and 1,352,158 shares of
which under the other warrant are at an exercise price to be determined
based upon the fair market value of our common stock at the times the
warrant becomes exercisable.
3
<PAGE> 8
ASSUMPTIONS WHICH APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus assumes
the following:
- the conversion of our outstanding Class B Common Stock on a one-for-one
basis into Class A Common Stock, and the redesignation of our Class A
Common Stock as common stock, both of which will occur concurrently with
the completion of this offering;
- the conversion of our Series A Preferred Stock, Series C-1 Preferred
Stock, Series D Preferred Stock, and Series E Preferred Stock all on a
2.5-for-one basis, and our Series C Preferred Stock, on a 2.68-for-one
basis, into Class A Common Stock, all of which will occur immediately
prior to the completion of this offering;
- the anti-dilution provision of the Series E Preferred Stock is not
triggered by an initial offering price of less than $10;
- an increase in the number of our authorized shares of common stock to
100,000,000 to be effected concurrently with this offering; and
- no exercise by the underwriters of their over-allotment option to
purchase up to 750,000 additional shares of common stock.
4
<PAGE> 9
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes our financial data for the nine months ended
December 31, 1996 and for each of the two years in the period ended December 31,
1998 and the six month periods ended June 30, 1998 and 1999, which have been
derived from our consolidated financial statements and their notes. The pro
forma data for the year ended December 31, 1998 (as restated) have been prepared
as though the acquisition of Healthcare Communications Group, LLC had occurred
on January 1, 1998. The pro forma balance sheet data give effect to the NDC and
CBS transactions as if they had occurred on June 30, 1999. For a more detailed
explanation of these financial data, see "Selected Consolidated Financial Data"
and our financial statements located elsewhere in this prospectus.
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
YEAR ENDED PRO FORMA SIX MONTHS ENDED
NINE MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------- DECEMBER 31, ---------------------
1996 1997 1998(1) 1998 1998(1)
(AS RESTATED) 1999(1)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues................ $ 1,015 $ 1,522 $ 3,069 $ 5,654 $ 1,078 $ 4,930
--------- --------- --------- --------- --------- ---------
Operating expenses:
Editorial, production,
content and
technology......... 1,182 1,790 2,588 4,325 853 3,916
Sales and marketing... 278 1,201 2,357 2,357 811 3,502
General and
administration..... 830 1,823 1,987 2,855 793 2,664
Depreciation and
amortization....... 41 160 287 406 96 225
--------- --------- --------- --------- --------- ---------
Total
operating
expenses.... 2,331 4,974 7,219 9,943 2,553 10,307
--------- --------- --------- --------- --------- ---------
Loss from operations.... (1,316) (3,452) (4,150) (4,289) (1,475) (5,377)
Interest expense
(income)........... 28 12 (249) (251) (149) (296)
--------- --------- --------- --------- --------- ---------
Net loss................ $ (1,344) $ (3,464) $ (3,901) $ (4,038) $ (1,326) $ (5,081)
========= ========= ========= ========= ========= =========
Basic net loss per
share(1).............. $ (0.66) $ (1.26) $ (1.07) $ (0.61) $ (0.47) $ (0.71)
Weighted average number
of shares of common
stock outstanding..... 2,026,233 2,750,552 3,636,558 6,628,100 2,834,172 7,164,127
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------
PRO FORMA FOR
CBS AND NDC PRO FORMA
ACTUAL TRANSACTIONS AS ADJUSTED(2)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Current assets.......................................... $16,764 $26,903 85,303
Working capital......................................... 13,018 23,157 81,557
Total assets............................................ 23,213 46,852 105,252
Stockholders' equity.................................... 19,467 43,106 101,507
</TABLE>
- ---------------
(1) We calculate loss per common share by dividing the loss attributable to
common shares by the weighted average number of shares outstanding. We do
not include outstanding common stock options and warrants in the loss per
common share calculation, as their effect is anti-dilutive.
(2) As adjusted on a pro forma basis to give effect to this offering, assuming
net proceeds of $58.4 million.
5
<PAGE> 10
RISK FACTORS
You should consider carefully the risks described below and the other
information in this prospectus before deciding to invest in shares of our common
stock. If any of the following risks actually occurs, our business, financial
condition and results of operations would likely suffer. In this case, the
market price of our common stock could decline, and you may lose all or a part
of the money you pay to buy our common stock.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE IS LIKELY TO BE VOLATILE.
Our stock price is likely to be volatile. The market prices of the
securities of Internet-related companies have been very volatile. Our investors
may not be able to sell their shares at or above the initial public offering
price. In the past, following periods of volatility in the market price for a
company's securities, stockholders have often instituted securities class action
litigation. If a lawsuit were to be filed against us, it could result in
substantial costs and the diversion of our management's attention and resources,
which could seriously harm our financial results.
OUR EXISTING STOCKHOLDERS WILL MAINTAIN CONTROL OF OUR COMPANY.
Our existing stockholders' control may have the effect of delaying or
preventing a change in control of Medscape, which could negatively affect our
stock price. Upon completion of this offering, our present directors and
executive officers, holders of more than 5% of our common stock, and their
affiliates will beneficially own approximately 75% of our outstanding common
stock, assuming CBS purchases 400,000 shares in this offering. Furthermore, all
of the members of our current board have been elected in accordance with the
terms of stockholders agreements which provided specified stockholders, or
classes of stockholders, with rights to elect directors. Our board is comprised
of ten members, eight of which were elected by pre-existing stockholders and
three of which, including one of our pre-existing directors, were designated by
CBS, in each case under stockholders agreements. While the rights to elect
directors in the stockholders agreements terminate at the effective time of this
offering, except the right of CBS to designate three of our directors, the
incumbent board of directors will continue to be composed of the representatives
of our pre-existing stockholders until they resign or are removed. As a result,
these stockholders, if they act as a group, will be able to control all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions.
A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR RESALE, AND THEIR SALE COULD
REDUCE OUR STOCK PRICE.
After the completion of this offering, we will have a large number of
shares of common stock outstanding and available for resale beginning at various
points of time in the future. Sales of substantial amounts of shares of our
common stock in the public market following this offering, or the perception
that those sales will occur, could cause the market price of our common stock to
decline. Those sales also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate. Some
of the holders of our common stock also have demand and piggyback registration
rights enabling them to register their shares under the Securities Act for sale.
For more detailed information, see "Shares Eligible for Future Sale."
WE HAVE ANTI-TAKEOVER DEFENSES AND OTHER CONTRACTUAL PROVISIONS AND
RELATIONSHIPS THAT COULD DELAY OR PREVENT AN ACQUISITION OF MEDSCAPE.
We have anti-takeover provisions and other contractual obligations and
relationships that could serve to limit our stockholders' voting power and may
negatively affect our stock price. Our certificate of incorporation and bylaws
provide for staggered terms for members of our board of directors and give the
board the power to issue shares of preferred stock which could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our stockholders. Also, our agreement with CBS provides that we
will not increase our board beyond ten members, and that CBS will have the right
to designate up to three directors, depending on the percentage of our
outstanding voting securities that CBS holds. The staggered board and CBS's
rights to designate directors could make it more difficult to remove incumbent
directors.
6
<PAGE> 11
Additionally, CBS's obligation to provide us with approximately $150 million in
advertising and promotion may be terminated by CBS if we issue more than 9% of
our common stock to a competitor of CBS and for other events contained in the
agreement. In addition, AOL generally may terminate its agreement to provide us
with promotions and guaranteed impressions if we are acquired. These provision
may dissuade potential acquirers from pursuing a transaction, even if that
acquisition would be beneficial to our stockholders, which could negatively
affect our stock price.
OUR SECURITIES HAVE NO PRIOR PUBLIC MARKET, AND OUR STOCK PRICE MAY DECLINE
AFTER THIS OFFERING.
Before this offering, there has not been a public market for our common
stock. The trading market price of our common stock may decline below the
initial public offering price. In addition, an active public market for our
common stock may not develop or be sustained after this offering. The initial
public offering price has been determined by negotiations between us and the
representatives of the underwriters. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The price you will pay for our common stock will be substantially higher
than the pro forma tangible book value per share of outstanding common stock. As
a result, you will experience immediate and substantial dilution in tangible
book value per share, and the current stockholders of our company will
experience an immediate increase in the tangible book value per share of their
shares of common stock. The dilution that you will experience in this offering
will be approximately $9.11 per share. Furthermore, to the extent that we issue
additional shares of common stock in connection with acquisitions or any
strategic partner agreements, or other outstanding options or warrants to
purchase common stock are exercised, there will be further dilution. For more
detailed information, see "Dilution."
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
We initiated our operations in April 1996 and have not yet launched our
consumer sites. As a result, we have only a limited operating history on which
you can base an evaluation of our business and prospects. Our prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets like ours. We may not
be successful in addressing these risks and uncertainties. Our failure to do so
could have a material adverse effect on our financial condition. Some of these
risks and uncertainties relate to our ability to:
- attract and maintain a large base of users;
- develop and introduce desirable services and compelling and original
content to members and users;
- establish and maintain strategic relationships with distribution partners
and service and content providers;
- establish and maintain relationships with sponsors and with advertisers
and their advertising agencies;
- respond effectively to competitive and technological developments; and
- build an infrastructure, including additional hardware and software,
customer support, personnel and facilities, to support our business.
IF THE LAUNCHES OF OUR CONSUMER SITES ARE DELAYED OR UNSUCCESSFUL, OUR FINANCIAL
PERFORMANCE WOULD FAIL TO MEET EXPECTATIONS.
We plan to launch our separate consumer site, CBS.Medscape.com, in the
third quarter of 1999. We also expect to launch our AOL co-branded consumer
sites in the fourth quarter of 1999 and the first quarter of 2000. If the
launches are delayed or unsuccessful, we may fail to attract the additional
users that will be required to increase our sponsorship and advertising revenues
and, as a result, our financial performance would fail to meet expectations.
7
<PAGE> 12
WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES.
We have not achieved profitability. We expect to continue to incur net
losses for the foreseeable future and may never become profitable. We have
incurred net losses of approximately $13.8 million during the period from our
inception through June 30, 1999.
Our ability to generate significant revenues is uncertain. Our growth to
date may not continue. Almost all of our revenues to date have been derived from
advertising sales and sponsorships. As our business evolves, we expect to
introduce a number of new products and services. With respect to both current
and future product and service offerings, including to a large extent our
consumer site, we expect to increase significantly our operating expenses to
increase our customer base, enhance our brand image and support our
infrastructure. To achieve profitability, our revenues and gross profit margins
will need to increase sufficiently to cover these and other future costs.
Otherwise, we may never make a profit. Even if we become profitable, we may not
sustain or increase our profits on a quarterly or annual basis in the future.
WE DEPEND ON THE PHARMACEUTICAL INDUSTRY FOR A SIGNIFICANT PORTION OF OUR
REVENUES.
Our revenues could seriously decrease if there were adverse developments in
the pharmaceutical industry. Our near-term and long-term prospects depend upon
selling our services to the pharmaceutical industry. In 1998, 92% of our
revenues were derived from services provided to pharmaceutical companies, and
three pharmaceutical companies in particular provided 48% of our 1998 revenues.
Accordingly, our success is highly dependent on the sales and marketing
expenditures of pharmaceutical companies and our ability to attract these
expenditures. Some of the adverse developments in the pharmaceutical industry
that could affect our revenues would be:
- a reduction in sales and marketing expenditures of pharmaceutical
companies;
- public or private market initiatives or reforms designed to regulate the
manner in which pharmaceutical companies promote their products;
- regulatory or legislative developments that discourage or prohibit
pharmaceutical companies' promotional activities;
- a decrease in the number of new drugs being developed; or
- the adoption of current legislative and regulatory proposals to control
drug costs for Medicare and Medicaid patients, including proposals in the
U.S. Congress.
OUR BUSINESS MODEL IS UNPROVEN AND THE MARKET MAY NOT ACCEPT IT.
Our success depends upon achieving significant market acceptance of our
services by physicians, allied healthcare professionals and consumers. Failure
to achieve or maintain market acceptance of Medscape.com and CBS.Medscape.com
and our AOL co-branded sites would result in a loss of revenues. Medical
professionals or consumers may not accept Medscape.com, CBS.Medscape.com, or our
AOL co-branded sites or even the Internet, as a replacement for traditional
sources of healthcare information. Market acceptance of Medscape.com,
CBS.Medscape.com and our AOL co-branded sites depends upon continued growth in
the use of the Internet generally and, in particular, as a source of healthcare
information services for medical professionals and consumers. The Internet may
not prove to be a viable channel for these services due to:
- inadequate development of necessary reliable network infrastructure or
complementary services, such as high-speed modems and security procedures
for the transmission of confidential healthcare information;
- development and acceptance of a competing method for delivering
healthcare information services to medical professionals and consumers;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity; and
- governmental regulation.
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WE RELY UPON OUR CBS AGREEMENTS FOR SIGNIFICANT PROMOTION AND ADVERTISING, AND
THEIR EARLY TERMINATION COULD NEGATIVELY AFFECT OUR FINANCIAL RESULTS AND STOCK
PRICE.
If our agreements with CBS are terminated prior to the end of their term,
our financial results and stock price could be adversely affected.
Under a license agreement, we license the "CBS" trademark, and "Eye" design
and other health-related news content from CBS. The "CBS" trademark and "Eye"
design are very important to our marketing and brand building activities for our
consumer Web sites. Our license agreement with CBS will expire on August 3, 2006
and CBS will have no obligation to renew it. Under specified circumstances, CBS
will also have the right to terminate this agreement and keep the stock received
from us.
CBS HAS SIGNIFICANT CONTROL OVER THE CONTENT OF OUR CONSUMER WEB SITES AND ITS
ADVERTISING AND PROMOTION OF OUR WEB SITES.
Under our license agreement with CBS, CBS can require us to remove any
content on our consumer Web sites which it determines conflicts with, interferes
with or is detrimental to its reputation or business or for other reasons. We
are also required to conform to CBS's guidelines for the use of its trademark.
CBS has the right to approve all materials, such as marketing materials, that
include the "CBS" trademark and "Eye" design. Because of these restrictions, we
may not be able to perform our desired marketing activities.
CBS has agreed, with some limitations, to provide us with approximately
$150 million of advertising and on-air promotions during the period from August
3, 1999 through August 3, 2006. However, CBS has discretion as to the timing and
placement of these advertisements and promotions. CBS could change the manner in
which it promotes us. CBS also makes no guarantees to us as to the demographic
composition or size of the audience that views these advertisements or
promotions. This advertising and on-air promotion, as well as our association
with the CBS brand, are important elements of our strategy to increase our brand
awareness. This obligation to provide advertising and promotion may terminate at
CBS's option if our license agreement with CBS terminates.
WE RELY ON OUR AOL AGREEMENT FOR SIGNIFICANT PROMOTION AND ADVERTISING, AND ITS
TERMINATION COULD NEGATIVELY AFFECT OUR FINANCIAL RESULTS AND STOCK PRICE.
If our agreement with AOL is terminated prior to the end of its term, our
financial results and stock price could be adversely affected.
Our relationship with AOL and the impressions to be delivered by AOL are
very important to our marketing and brand building activities for our consumer
Web sites. Our agreement with AOL will expire on September 3, 2002. The
agreement may be extended unilaterally by AOL for nine months but AOL will have
no obligation to extend it or renew it. Under specified circumstances, AOL will
also have the right to terminate the agreement or its obligation to provide us
with the impressions and keep the warrants it received from us.
AOL MAY LIMIT THE CONTENT OF OUR AOL CO-BRANDED CONSUMER SITES AND OUR ABILITY
TO WORK WITH THIRD PARTIES, WHICH COULD IMPEDE OUR GROWTH, NEGATIVELY AFFECT
USER LOYALTY, REDUCE TRAFFIC ON THE SITES AND COULD REDUCE REVENUES.
Under our interactive services agreement with AOL, AOL has significant
control over the content, interactive tools and links to other sites that we may
feature on our AOL co-branded consumer sites. We are also prohibited from
linking to or selling advertising to specified third parties. AOL could limit
content, the tools and links available on our co-branded consumer sites to an
extent that might make these sites less useful and attractive to users, which
could negatively affect our user loyalty and reduce traffic on the sites.
AOL HAS SIGNIFICANT CONTROL OVER ITS PROMOTION OF OUR CONSUMER SITES, WHICH MAY
NEGATIVELY IMPACT OUR OPERATING RESULTS.
AOL may exercise its discretion over its promotion of our consumer sites in
a manner that makes the promotions on AOL Internet services less valuable by
failing to generate traffic on our consumer sites which could reduce our
revenues.
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AOL has broad discretion as to the form, placement, timing and nature of
its promotions of our co-branded sites. AOL also makes no guarantees to us as to
the demographic compositions of the audience that views these promotions.
WE DEPEND ON REVENUES FROM ADVERTISING AND SPONSORSHIPS, AND THE ACCEPTANCE AND
EFFECTIVENESS OF INTERNET ADVERTISING AND SPONSORSHIP IS UNCERTAIN.
Our future success depends on an increase in the use of the Internet as an
advertising medium. We derive most of our revenues from the sale of
advertisements and sponsorships on our site, and we expect to continue to do so
for the foreseeable future. The market for Internet advertising may not continue
to emerge or become sustainable. If the market for Internet advertising and
sponsorships fails to develop or develops more slowly than we expect, our
revenues will decline.
The Internet advertising market is new and rapidly evolving. It cannot yet
be compared with the traditional advertising market to gauge its effectiveness.
As a result, there is significant uncertainty about the demand and market
acceptance for Internet advertising. Many of our advertising customers and
sponsors have limited experience with Internet advertising and sponsorship, and
may ultimately conclude that Internet advertising and sponsorship are not
effective relative to traditional advertising media and sponsorship
opportunities. Different pricing models are used to sell advertising on the Web,
and it is difficult to predict which model, if any, will emerge as the industry
standard. This makes it difficult to project our future advertising and
sponsorship rates and revenues.
In addition, widespread adoption or increased use by Internet users of
filter software programs that allow them to limit or remove advertising from
their desktops or the adoption of this type of software by Internet access
providers could have a material adverse effect on the viability of advertising
on the Internet and on our financial condition.
OUR OPERATING RESULTS WILL BE SEASONAL AND MAY FLUCTUATE FROM QUARTER TO
QUARTER, WHICH MAY NEGATIVELY AFFECT OUR STOCK PRICE IF INVESTORS EXPECT
CONSISTENT RESULTS FROM QUARTER TO QUARTER.
Our operating results will be seasonal and may fluctuate from quarter to
quarter, which may negatively affect our stock price if investors expect
consistent results from quarter to quarter. Because a substantial portion of our
revenues comes from sponsorships associated with major medical conferences that
occur less frequently in the summer months, our results of operations have
historically been seasonal. Our limited operating history makes it difficult to
assess the impact of this seasonal factor on our business and our stock price.
Should the major medical conferences' schedule change, our operating results
would be affected accordingly.
Because of seasonality and other factors, our operating results will likely
continue to vary from quarter to quarter. Since a substantial portion of our
current and future costs are fixed, if our revenues fall short of expectations,
we may not be able to adjust our fixed expenses to compensate for this shortfall
on a timely basis.
OUR MEDSCAPE BRANDS MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY FOR US TO
CONTINUE TO GROW OUR MEMBERSHIP AND TRAFFIC AND ATTRACT ADVERTISERS AND
SPONSORS.
We believe that broad recognition and a favorable audience perception of
the Medscape brands are essential to our future success. If we fail to increase
our membership and traffic, we may be unable to attract advertisers and
sponsors. Successful positioning of the Medscape brands will largely depend on:
- the success of our advertising and promotional efforts; and
- our ability to continue to provide a high-quality experience for our
audience.
We incurred sales and marketing expenses of $2.4 million during the year
ended December 31, 1998. To increase awareness of the Medscape brand, we expect
to spend significantly more on sales and marketing in the future. If our brand
enhancement strategy is unsuccessful, these expenses may never be recovered and
we may not receive appropriate value for the stock issued to CBS or the payments
made and warrants issued to AOL and we may be unable to increase future
revenues. In addition, even if brand recognition increases, the
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number of Medscape.com and CBS.Medscape.com users may not increase. Even if the
number of new users increases, those users may not become registered members.
IF WE ARE UNABLE TO RETAIN ANY OF OUR MAJOR ADVERTISERS OR SPONSORS, OUR
REVENUES MAY DECLINE.
The loss of any of the advertisers or sponsors that account for a material
portion of our total revenues, or the non-payment or late payment of amounts due
from significant advertisers and sponsors, could seriously harm our financial
results. In 1998, we derived approximately 27% of our revenue from Genentech
Incorporated, 14% from Roche Laboratories and 7% from Johnson & Johnson. We
believe that a substantial amount of revenue from advertising and sponsorship
sales in any given future period may continue to come from a relatively small
number of advertisers and sponsors. If any of our major advertisers or sponsors
were to substantially cut back on advertising or sponsorship expenditures or
stop using our services, our revenues would decline.
We typically sell advertisements and sponsorships for a one-year period or
less. As a result, our current advertisers or sponsors may not purchase
advertising or sponsorships from us in the future, and we may not be able to
successfully attract additional advertisers or sponsors.
WE MAY LOSE BUSINESS IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL OR
OTHER CHANGES.
If we are unable to keep up with changing technology and other factors
related to our market, we may be unable to attract and retain users, advertisers
and sponsors, which would reduce our revenues. The markets in which we compete
are characterized by rapidly changing technology, evolving technological
standards in the industry, frequent new service and product announcements and
changing consumer demands. Our future success will depend on our ability to
adapt to these changes and to continuously improve the performance, features and
reliability of our service in response to competitive services and product
offerings and the evolving demands of the marketplace. In addition, the
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require us to incur
substantial expenditures to modify or adapt our services or infrastructure,
which might impact our ability to become or remain profitable.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The market for Internet content, products, services and advertising is new,
rapidly evolving and intensely competitive. We expect this competition to
increase significantly and our financial results and share value would be
adversely affected if we are unable to compete successfully. We currently
compete, or potentially compete, with many providers of Web content, information
services and products, as well as traditional media and promotional efforts, for
audience attention and advertising and sponsorship expenditures. We expect
competition to intensify in the future. Barriers to entry are not significant,
and current and new competitors may be able to launch new Web sites at a
relatively low cost. We compete, directly and indirectly, for members,
consumers, content providers, advertisers, sponsors and acquisition candidates
with:
- companies and organizations providing or maintaining online services or
Web sites targeted to physicians or the healthcare industry;
- companies and organizations providing or maintaining general purpose
consumer online services which provide access to healthcare content and
services;
- companies and organizations providing or maintaining public sector and
non-profit Web sites that provide healthcare information and services
without advertising or commercial sponsorships;
- companies and organizations providing or maintaining Web search and
retrieval services and other high-traffic Web sites;
- publishers and distributors of traditional media, including those
targeted to medical professionals, many of which have established or may
establish Web sites; and
- vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging.
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Competition for members, users and advertisers, as well as competition in
the electronic commerce market, is intense and is expected to increase
significantly.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR RAPID GROWTH.
If we are unable to manage growth effectively, our financial results would
be seriously harmed. Our ability to successfully offer services and products and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. We have increased, and plan to continue to
increase, the scope of our operations. These expansion efforts could be
expensive and may put a strain on management, and, if we do not manage growth
properly, could adversely affect our business. To manage our future growth, we
will need to:
- improve existing or implement new operational and financial systems,
procedures and controls;
- expand, train and manage our employee base; and
- maintain close coordination among our technical, finance, marketing,
sales and editorial staffs.
WE ARE CURRENTLY DEPENDENT UPON ONLINE MARKETING PARTNERS, AND OUR FUTURE
SUCCESS DEPENDS UPON FURTHER DEVELOPING AND ENHANCING OUR STRATEGIC
RELATIONSHIPS.
If we are not successful in developing and enhancing our strategic
relationships, we could become less competitive and our revenues could decline.
Although we have a variety of sources of traffic to our Web site, we expect a
growing percentage of our traffic to be generated by strategic distribution
partners, which are third party healthcare service vendors that facilitate
distribution of our Web site content to their customer base.
We formed our existing relationships recently and our distribution partners
may not view their relationships with us as significant to their own business.
As a result, they may reassess their commitment to us or decide to compete
directly with us in the future. We generally do not have agreements that
prohibit our distribution partners from competing against us directly or from
contracting with our competitors. Our arrangements with our distribution
partners generally do not establish minimum performance requirements, but
instead rely on the voluntary efforts of our distribution partners. As a result,
these relationships may not be successful.
WE DEPEND UPON CONTENT PROVIDERS, AND OUR REVENUES MAY DECLINE IF WE ARE UNABLE
TO MAINTAIN OUR EXISTING RELATIONSHIPS WITH CONTENT PROVIDERS, TO BUILD NEW
RELATIONSHIPS WITH OTHER CONTENT PROVIDERS AND TO CONTINUE TO OBTAIN ORIGINAL
CONTENT FROM MEDICAL EXPERTS.
Our agreements with expert medical professionals who provide us with a
majority of our original proprietary content are generally short-term and
project-based. We may not be able to attract expert medical professionals to
provide us with original proprietary content in the future. Our failure to
acquire original proprietary content written by expert medical professionals
would have a negative effect on our content, resulting in a likely decline in
our revenues.
We have entered into relationships with approximately 45 companies
representing over 100 publications, medical databases and newsfeeds to obtain
content for Medscape.com, and we intend to enter into additional relationships
in the future. Our success depends significantly on our ability to maintain our
existing relationships with these content providers, to build new relationships
with other content providers and to continue to obtain original content from
medical experts.
Many of our agreements with content providers are non-exclusive, and
competitors offer, or could offer, content that is similar or the same as ours.
If content providers, including our current providers, offer information to
users or our competitors on more favorable terms than offered to us, we could
become less competitive and our profit margins and prospects could be harmed. In
addition, the failure by our content providers to deliver high-quality content
from reliable sources and to continuously upgrade their content in response to
user demand and evolving healthcare industry trends could result in user
dissatisfaction and inhibit our ability to attract users and add members.
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WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND WE MAY BE LIABLE FOR
INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our revenues and share price could be adversely affected if unauthorized
parties infringe upon or misappropriate our products, services or proprietary
information. Our intellectual property is important to our business. Our efforts
to protect our intellectual property may not be adequate. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others, which
could be time consuming and costly.
Intellectual property infringement claims could be made against us as the
number of our competitors grows. These claims, even if not meritorious, could be
expensive and divert our attention from operating our company. In addition, if
we become liable to third parties for infringing their intellectual property
rights, we could be required to pay a substantial damage award and to develop
comparable non-infringing intellectual property or obtain a license or cease
providing the services that contain the infringing intellectual property. We may
be unable to develop non-infringing intellectual property or obtain a license on
commercially reasonable terms, or at all.
OUR SYSTEMS MAY EXPERIENCE FAILURES WHICH COULD CAUSE OUR REVENUES TO DECLINE.
Any significant interruption in our operations would cause our revenues to
decline. We have experienced periodic system interruptions in the past, which
may occur again. Any significant interruptions in our services or an increase in
response time could result in a loss of potential or existing users and members,
strategic partners or advertisers and sponsors and, if sustained or repeated,
could reduce the attractiveness of our Web sites to these parties in the future.
Our insurance policies have low coverage limits and, therefore, cannot
adequately compensate us for any material losses that may occur due to
disruptions in our service.
Our Web sites may be required to accommodate a high volume of traffic and
deliver frequently updated information. We may experience slower response times
or system failures due to increased traffic on our Web sites or for a variety of
other reasons. We depend on content providers to provide information and data
feeds on a timely basis. Our Web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, our members and consumers depend on
Internet service providers and other Web site operators for access to our Web
sites. These providers and operators have experienced significant outages in the
past and could experience outages, delays and other difficulties in the future
due to system failures unrelated to our systems. Moreover, the Internet
infrastructure may not be able to support continued growth in its use. We do not
maintain redundant systems or facilities for all of our services. To operate
with limited interruption, our service and content providers must guard against:
- damage from fire, power loss and other natural disasters;
- communications failures;
- software and hardware errors or failures;
- security breaches, computer viruses and similar disruptive problems; and
- other potential interruptions.
IF OUR MEMBERS DO NOT PROVIDE US WITH ACCURATE REGISTRATION INFORMATION ABOUT
THEMSELVES WE MAY BE LESS ATTRACTIVE TO ADVERTISERS.
If we are unable to accurately classify our members, we may be less
attractive to advertisers and our revenues may decline. We classify our members
as physicians, allied healthcare professionals and consumers based on the
information that members supply to us at the time of registration, and this
information may not be accurate. Possible changes in state or federal
confidentiality laws also may make it more costly and more difficult to verify
the accuracy of information about our members. We are conducting an ongoing
verification effort that may result in some members being reclassified because
of incomplete or inaccurate information that they supplied at the time of
registration. A significant amount of reclassifications may also make us less
attractive to advertisers, and revenues may decrease.
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WE MAY INCUR LIABILITY FOR CONTENT AND USER DATA.
As a content provider, we may face potential liability for intellectual
property infringement, defamation, indecency and other claims. In addition, we
may incur liability for unauthorized duplication or distribution of third-party
content or materials or for information collected from and about our users.
Third parties or users may bring claims against us relating to proprietary
rights or use of personal information. Our general liability insurance may not
cover or be adequate for potential claims of this type.
WE HAVE LIMITED EXPERIENCE WITH INTERNATIONAL OPERATIONS, WHICH MAY RESULT IN
OUR INABILITY TO SUCCEED ON AN INTERNATIONAL LEVEL.
Our revenues could be adversely affected if we or our future foreign
business associates are unable to successfully market and operate our online
services in foreign markets. To date, we have had limited experience in
developing localized versions of our online services and in marketing and
operating our online services internationally. One element of our strategy is to
develop our online service brands in international markets. To achieve this, we
intend to enter into relationships with foreign business partners. We may
experience difficulty in obtaining these partners and managing international
operations because of distance, trade regulation, language barriers and cultural
differences.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT.
The failure of our internal systems or material third-party systems to be
Year 2000 compliant could cause a significant number of business disruptions and
inefficiencies for us, our service and content providers and our members and
users that may divert our time and attention and financial and human resources
from our ordinary business activities. The Year 2000 issue is the potential for
system and processing failures of date-related data as the result of
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. Medscape may be affected by Year 2000 issues related to non-compliant
information technology systems or non-information technology systems operated by
Medscape or by third parties.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of our control may
not be Year 2000 compliant. The failure by these entities to be Year 2000
compliant could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, that could also
prevent us from delivering our services to our customers, decrease the use of
the Internet or prevent users from accessing our Web sites, which would lead to
a decline in our revenues. For more detailed information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
WE MAY FAIL TO EFFECTIVELY INTEGRATE AND MANAGE OUR RECENT ACQUISITIONS WHICH
COULD LEAD TO HIGHER THAN ANTICIPATED COSTS OR LOWER THAN ANTICIPATED REVENUES.
We have recently acquired two medical Web sites. The process of integrating
acquisitions is complex and will place significant demands on our management,
technical, financial and other resources which could lead to higher than
anticipated costs or lower than anticipated revenues. The successful integration
of these acquisitions is critical to our future success. Our systems,
procedures, controls and existing space may not be adequate to support the
integration of these acquisitions into our operations. We are now finalizing the
integration of the technologies, service offerings, operations and systems of
our recently acquired sites. Potential challenges to the successful integration
of Web sites we acquired include:
- our ability to attract their users to our Web sites;
- our ability to market and sell these Web sites' services to our clients;
- centralization and consolidation of financial, operational and
administrative functions;
- elimination of unnecessary costs;
- the technological integration of these Web sites' services with ours; and
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- the integration of these Web sites' personnel with ours.
POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses. Some
of the factors that will affect our ability to successfully integrate an
acquired company include:
- our ability to assimilate the personnel and operations of the acquired
company;
- whether the personnel of the acquired company decide to work for us; and
- the extent to which newly acquired services or technologies are
incompatible with and must be integrated into our existing services and
marketing, sales and support efforts.
In addition, if we finance the acquisitions by issuing equity securities, this
could dilute our existing stockholders. Any amortization of goodwill or other
assets, or other charges resulting from the costs of these acquisitions, could
adversely affect our operating results.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with our available funds, will be sufficient to satisfy
our anticipated needs for working capital, capital expenditures and business
expansion for at least the next 12 months. After that time, we may need
additional capital. Alternatively, we may need to raise additional funds sooner
to fund more rapid expansion, to develop new or enhanced services, or to respond
to competitive pressures. We currently do not have any commitments for
additional financing. If adequate funds are not available on acceptable terms,
we may not be able to fund our expansion, develop or enhance our products or
services or respond to competitive pressures. If we raise additional funds by
issuing equity or convertible debt securities, the percentage ownership of our
stockholders will be diluted. Furthermore, any new securities could have rights,
preferences and privileges senior to those of the common stock.
RISKS RELATED TO ONLINE HEALTHCARE SERVICES AND THE INTERNET
OUR ACTIVITIES MAY EXPOSE US TO MALPRACTICE LIABILITY AND OTHER LIABILITY
INHERENT IN HEALTHCARE DELIVERY.
We may be exposed to malpractice or other liability against which we may
not be adequately insured, resulting in a decline in our financial results.
Patients who file lawsuits against doctors often name as defendants all persons
or companies with any relationship to the doctors. As a result, patients may
file lawsuits against us based on treatment provided by physicians who maintain
Web pages at our site. In addition, a court or government agency may take the
position that our delivery of health information directly, including through
licensed physicians, or information delivered by a third-party site that a
consumer accesses through our Web site, exposes us to malpractice or other
personal injury liability for wrongful delivery of healthcare services or
erroneous health information. Under some circumstances, AOL may also be entitled
to terminate its agreement with us if a material claim of this nature is filed
against us. The amount of insurance we maintain with insurance carriers may not
be sufficient to cover all of the losses we might incur from these claims and
legal actions. In addition, insurance for some risks is difficult, impossible or
too costly to obtain, and as a result, we may not be able to purchase insurance
for some types of risks.
STATE RESTRICTIONS ON THE PRACTICE OF MEDICINE MAY NEGATIVELY AFFECT OUR
ACTIVITIES.
Any finding in a state that we are not in compliance with its laws could
require us to restructure our services, which could adversely affect our
revenues or share price. The laws in some states prohibit some business
entities, such as our company, from practicing medicine. This is commonly
referred to as the prohibition against the "corporate practice of medicine."
These laws generally prohibit us from employing physicians to practice medicine
or from directly furnishing medical care to patients. Each state requires
licensure for the practice of medicine within that state, and some states
consider the receipt of an electronic
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transmission of selected healthcare information in that state to be the practice
of medicine. These laws restrict our activities and the extent to which we can
provide medical advice to consumers, physicians and others. If challenged, our
activities may not be found to be in compliance with these laws.
HEALTHCARE REFORMS AND THE COST OF REGULATORY COMPLIANCE COULD NEGATIVELY AFFECT
OUR BUSINESS.
The healthcare industry is heavily regulated. Various laws, regulations and
guidelines promulgated by government, industry and professional bodies affect,
among other matters, the provision, licensing, labeling, marketing, promotion
and reimbursement of healthcare services and products, including pharmaceutical
products. Our failure or our clients' failure to comply with any applicable
regulatory requirements or industry guidelines could:
- limit or prohibit business activities;
- subject us or our clients to adverse publicity; or
- increase the costs of regulatory compliance or subject us or our clients
to monetary fines or other penalties.
A federal law commonly known as the Medicare/Medicaid antikickback law, and
several similar state laws, prohibit payments that are intended to induce
physicians or others either to refer patients or to acquire or arrange for or
recommend the acquisition of healthcare products or services, including
pharmaceuticals. Another federal law, commonly known as the "Stark" law,
prohibits physicians from referring Medicare and Medicaid patients for
designated health services to entities with which they have a financial
relationship, unless that relationship qualifies for an explicit exception to
the referral ban. Some of these laws have been applied to the marketing and
promotional practices of pharmaceutical manufacturers, to payments to physicians
for services and to other benefits to physicians, and could constrain our
relationships, including financial, marketing and continuing medical education
relationships, with our sponsors and advertisers and with physicians, including
any physicians who perform services for us. It is possible that additional or
changed laws, regulations or guidelines could be adopted in the future.
In addition, implementation of government healthcare reform may adversely
affect promotional and marketing expenditures by pharmaceutical companies, which
could decrease the business opportunities available to us. Healthcare reform
measures have been considered by the U.S. Congress and other federal and state
bodies during recent years. The intent of the proposals generally has been to
reduce the growth of total healthcare expenditures and expand healthcare
coverage.
THE INTERNET IS SUBJECT TO MANY LEGAL UNCERTAINTIES AND POTENTIAL GOVERNMENT
REGULATIONS THAT MAY DECREASE DEMAND FOR OUR SERVICES, INCREASE OUR COST OF
DOING BUSINESS OR OTHERWISE HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
RESULTS OR PROSPECTS.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our financial results and prospects.
Laws and regulations may be adopted in the future that address
Internet-related issues, including online content, user privacy, pricing and
quality of products and services. For example, although it was held
unconstitutional, in part, the Communications Decency Act of 1996 prohibited the
transmission over the Internet of various types of information and content. In
addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission 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 Internet service providers in a manner similar to
long distance telephone carriers and to impose access fees on the Internet
service providers.
The United States or foreign nations may adopt legislation aimed at
protecting Internet users' privacy. This legislation could increase our cost of
doing business and negatively affect our financial results. Moreover, it may
take years to determine the extent to which existing laws governing issues like
property ownership, libel, negligence and personal privacy are applicable to the
Internet. Currently, U.S. privacy law consists of
16
<PAGE> 21
disparate state and federal statutes regulating specific industries that collect
personal data. Most of them predate and therefore do not specifically address
online activities. However, European nations are now implementing a European
Union Data Privacy Directive regulating the transmission and storage of personal
information and data. In addition, a number of comprehensive legislative and
regulatory privacy proposals are now under consideration by federal, state and
local governments in the United States.
STATE AND FEDERAL LAWS THAT PROTECT INDIVIDUAL HEALTH INFORMATION MAY LIMIT OUR
PLANS TO COLLECT, USE AND DISCLOSE THAT INFORMATION.
If we fail to comply with current or future laws or regulations governing
the collection, dissemination, use and confidentiality of patient health
information, this failure could have a material adverse effect on our business,
operating results and financial condition.
Consumers sometimes enter private health information about themselves or
their family members when using our services. Also, our systems record use
patterns when consumers access our databases that may reveal health-related
information or other private information about the user. Numerous federal and
state laws and regulations govern collection, dissemination, use and
confidentiality of patient-identifiable health information, including:
- state privacy and confidentiality laws;
- state laws regulating health care professionals, such as physicians,
pharmacists and nurse practitioners;
- Medicaid laws;
- the Health Insurance Portability and Accountability Act of 1996 and
related rules proposed by the Health Care Financing Administration; and
- Health Care Financing Administration standards for Internet transmission
of health data.
The U.S. Congress has been considering proposed legislation that would
establish a new federal standard for protection and use of health information.
In addition, the laws of other countries also govern the use of and disclosure
of health information. Our systems for safeguarding patient health information
from unauthorized disclosure or use may not preclude successful claims against
us for violation of applicable law. Other third-party sites that consumers
access through our site also may not maintain systems to safeguard this health
information. In some cases, we may place our content on computers that are under
the physical control of others, which may increase the risk of an inappropriate
disclosure of health information. For example, we may contract out the hosting
of our Web site to a third party. In addition, future laws or changes in current
laws may necessitate costly adaptations to our systems.
We intend to develop medical information systems and market research
services that we will use to collect, analyze and report aggregate medical care,
medical research, outcomes and financial data pertaining to items such as
prescribing patterns and usage habits. Some states have enacted legislation
regulating the aggregation of health information and the manipulation, use and
ownership of that aggregated data, even when this data does not reveal the
patient's identity. Because this area of the law is rapidly changing, our
collection, analysis and reporting of aggregate healthcare data maintained in
our database may not at all times and in all respects comply with laws or
regulations governing the ownership, collection and use of this data. Future
laws or changes in current laws governing the ownership, collection and use of
aggregate healthcare data may necessitate costly adaptations to our systems or
limit our ability to use this data.
FDA AND FTC REGULATIONS ON ADVERTISING MAY BE BURDENSOME AND NEGATIVELY AFFECT
OUR ABILITY TO PROVIDE SOME APPLICATIONS OR SERVICES, WHICH COULD LEAD TO HIGHER
THAN ANTICIPATED COSTS OR LOWER THAN ANTICIPATED REVENUES.
Complying with Food and Drug Administration and Federal Trade Commission
regulations may be time consuming, burdensome and expensive and could negatively
affect our ability to continue providing some applications or services, or to
introduce new applications or services in a timely manner. This may result in
higher than anticipated costs or lower than anticipated revenues. In addition,
because part of our business involves direct-to-consumer advertising of
prescription drugs, any increase in FDA or FTC regulation of these
advertisements or the enforcement of these regulations or policies could make it
more difficult for us to
17
<PAGE> 22
provide existing or future applications or services to our audience or obtain
the necessary corporate sponsorship to do so.
Any current or future regulatory requirements that the FDA or the FTC
impose on us or our advertisers and sponsors could harm us by:
- making it harder to persuade pharmaceutical, biotechnology and medical
device companies to advertise or promote their products on our Web sites;
- restricting our ability to continue to provide some of our services or
content, or to introduce new services or content in a timely manner;
- damaging our relationships with pharmaceutical, biotechnology and medical
device companies, particularly if programs we recommend or endorse result
in FDA or FTC enforcement action directed against us or these companies;
or
- making it more expensive and time-consuming to comply with new
requirements.
As a consequence of these harms, we might lose advertising or sponsorship
revenue, spend significant amounts of our limited resources on regulatory
experts in the area of FDA or FTC compliance, or receive adverse publicity that
negatively affects share value. In addition to existing FDA and FTC regulation
of advertising and promotion by pharmaceutical, biotechnology and medical device
companies, our business faces a potential risk of increased FDA and FTC
regulation of these activities in an online context. For more detailed
information, see "Business -- Government Regulation of the Internet and
Healthcare Industries."
POTENTIAL FDA REGULATION OF OUR SOFTWARE COULD NEGATIVELY AFFECT OUR FINANCIAL
RESULTS.
We face potential FDA regulation of software that we develop for use on our
Web sites. Changes in existing regulatory requirements, our failure to comply
with current or future requirements or adoption of new requirements could
increase our expenses and negatively affect our financial results.
Some computer applications and software are considered medical devices and
are subject to regulation by the FDA. While the FDA's policies regarding the
regulation of software are evolving, based on the FDA's informal policy
statements regarding the scope of its regulation of stand-alone software, we
believe that our current and intended software applications are not subject to
regulation as medical devices because they do not meet the statutory definition
of a device. However, the FDA may take the view that some of our current or
future applications or services do in fact meet the definition of a medical
device and, therefore, are subject to regulation. If the FDA finds that our
software is subject to regulation as a medical device, the applicable regulatory
controls could include both premarket and postmarket requirements and the FDA
might require us:
- to obtain premarket clearance or approval of the medical device software
from the FDA, which might include the conduct of supporting clinical
trials or other studies;
- to register ourselves as a medical device manufacturer and to list our
devices with the FDA;
- to create our software in compliance with the FDA design and
manufacturing standards;
- to permit the FDA to inspect our facilities and records; and
- to make periodic reports to the FDA.
For more detailed information, see "Business -- Government Regulation of the
Internet and Healthcare Industries."
INTERNET SALES MAY BECOME LESS DESIRABLE TO CONSUMERS IF THEY BECOME TAXABLE.
The tax treatment of the Internet and e-commerce is currently unsettled and
any legislation that substantially impairs the growth of e-commerce could
seriously harm our revenues and prospects. A number of proposals have been made
at the federal, state and local level and by some foreign governments that could
impose taxes on the sale of goods and services and some other Internet
activities. The Internet Tax Freedom Act of 1998 placed a three-year moratorium
on selected types of federal, state and local taxation on Internet
18
<PAGE> 23
commerce. This moratorium expires on October 21, 2001. We cannot predict the
effect of current attempts at taxing or regulating commerce over the Internet
after the moratorium expires.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
Our security measures may not prevent security breaches. Substantial or
ongoing security breaches on our system or other Internet-based systems could
reduce user confidence in our Web sites leading to reduced usage and lower
revenues. The secure transmission of confidential information over the Internet
is essential in maintaining confidence in our Web sites and will be increasingly
important as we expand our consumer-oriented offerings. Consumers generally are
concerned with security and privacy on the Internet and any publicized security
problems could inhibit the growth of the Internet and, therefore, our services.
We will need to incur significant expense to protect and remedy against
security breaches when we identify a significant business risk. Currently, we do
not store sensitive information, like patient information or credit card
information, on the site. When we launch services that require us to gather
sensitive information, our security expenditures will increase significantly. We
are in the process of moving our systems to an external server and site hosting
facility operated by Exodus Communications. As part of this service, Exodus will
provide various upgraded security features, including firewall protection.
A party that is able to circumvent our security systems could steal
proprietary information or cause interruptions in our operations. Security
breaches could also damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our insurance policies carry low coverage
limits, which may not be adequate to reimburse us for losses caused by security
breaches. We also face risks associated with security breaches affecting third
parties conducting business over the Internet.
19
<PAGE> 24
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about Medscape and our
industry. We generally identify forward-looking statements in this prospectus
using words like "believe," "intend," "expect," "may," "will," "should," "plan,"
"project," "contemplate," "anticipate" or similar statements. These statements
are based on our beliefs as well as assumptions we made using information
currently available to us. Because these statements reflect our current views
concerning future events, these forward-looking statements involve risks and
uncertainties. Medscape's actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors, as
more fully described in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" and elsewhere in
this prospectus. Medscape undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
USE OF PROCEEDS
Assuming an initial public offering price of $12.00 per share and after
deducting estimated underwriting discounts and commissions and our estimated
offering expenses, the net proceeds from the sale of the 5,400,000 shares of
common stock in this offering are estimated to be approximately $58,514,000. The
net proceeds will be approximately $66,884,000 if the underwriters'
over-allotment option is exercised in full. The principal purposes of this
offering are to:
- obtain additional capital;
- create a public market for our common stock;
- enhance our ability to acquire other businesses, products or
technologies; and
- facilitate future access by us to public equity markets.
We intend to use up to $30 million of the net proceeds to finance the
payments due to AOL over the next two years, of which $10 million is due upon
the completion of this offering. We expect to use the balance of the net
proceeds of this offering for general corporate purposes, including funding
operating losses, working capital and capital needs. We also may use a portion
of the net proceeds of this offering to acquire or invest in complementary
businesses or technologies, although we have no present commitments or
agreements with respect to any material acquisition or investment. Pending the
application of the proceeds towards one of the above uses, we intend to invest
the net offering proceeds in short-term, interest-bearing, investment-grade
securities.
The forgoing represents our present intentions based upon our present plans
and business conditions. The occurrence of unforeseen events or changed business
conditions, however, could result in the application of the proceeds of this
offering in a manner other than as described in this prospectus.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities and we do not intend to pay any cash dividends with respect to
our common stock in the foreseeable future. We intend to retain any earnings for
use in the operation of our business and to fund future growth.
20
<PAGE> 25
CAPITALIZATION
The following shows the cash and cash equivalents and capitalization of
Medscape as of June 30, 1999 (1) on an actual basis, (2) as adjusted on a pro
forma basis to give effect to the issuance of 7,397,208 shares of Class A Common
Stock and 6,541,160 shares of Class B Common Stock to CBS and 1,000,000 shares
of Class A Common Stock and 400,000 shares of Series E Preferred Stock in the
NDC transaction, and (3) as adjusted on a pro forma basis to give effect to the
sale of 5,400,000 shares of common stock offered by Medscape at the initial
public offering price and the application of the estimated net proceeds as
described in "Use of Proceeds," the authorization of 5,000,000 shares of
preferred stock effective as of the closing of the offering, and the automatic
conversion of Preferred and Class B Common Stock into Class A Common Stock and
the redesignation of Class A Common Stock into Common Stock to occur upon the
closing of this offering. The table should be read together with the financial
statements and the related notes and the other information included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------
PRO FORMA
FOR CBS AND PRO FORMA
ACTUAL NDC TRANSACTIONS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 12,954 $ 23,093 $ 81,493
======== ========= =========
Shareholders' equity:
Series A Preferred Stock, par value $.01; 788,200 shares
authorized, issued and outstanding (actual); 788,200
shares authorized, issued and outstanding (pro forma);
no shares authorized, issued or outstanding (pro forma
as adjusted).......................................... 8 8 --
Series C Preferred Stock, par value $.01 1,478,359
shares authorized, issued and outstanding (actual);
1,478,359 shares authorized, issued and outstanding
(pro forma); no shares authorized, issued or
outstanding (pro forma as adjusted)................... 15 15 --
Series C-1 Preferred Stock, par value $.01; 932,401
shares authorized, issued and outstanding (actual);
932,401 shares authorized, issued and outstanding (pro
forma); no shares authorized, issued or outstanding
(pro forma as adjusted)............................... 9 9 --
Series D Preferred Stock, par value $.01; 1,757,683
shares authorized, issued and outstanding (actual);
1,757,683 shares authorized, issued and outstanding
(pro forma); no shares authorized, issued or
outstanding (pro forma as adjusted)................... 17 17 --
Series E Preferred Stock, par value $.01; no shares
authorized, issued and outstanding (actual); 400,000
shares authorized, issued and outstanding (pro forma);
no shares authorized, issued or outstanding (pro forma
as adjusted).......................................... -- 4 --
Preferred Stock, par value $.01; no shares authorized,
issued or outstanding (actual); no shares authorized,
issued or outstanding (pro forma); 5,000,000 shares
authorized, no shares issued or outstanding (pro forma
as adjusted).......................................... -- -- --
Class A Common Stock, par value $.01; 27,500,000 shares
authorized, 1,079,000 issued and outstanding (actual);
35,897,208 shares authorized, 9,476,208 issued and
outstanding (pro forma); no shares authorized, issued
or outstanding (pro forma as adjusted)................ 11 95 --
Class B Common Stock, par value $.01; 15,000,000 shares
authorized, 6,995,602.5 shares issued and outstanding
(actual); 21,541,160 shares authorized, 13,536,762.5
issued and outstanding (pro forma); no shares
authorized, issued or outstanding (pro forma as
adjusted)............................................. 70 135 --
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------
PRO FORMA
FOR CBS AND PRO FORMA
ACTUAL NDC TRANSACTIONS AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock, par value $.01; no shares authorized,
issued and outstanding (actual), no shares authorized,
issued or outstanding (pro forma); 100,000,000 shares
authorized, 42,071,643 issued or outstanding (pro
forma as adjusted).................................... -- -- 420
Warrants................................................ 85 85 85
Additional paid-in capital.............................. 36,223 213,069 271,333
Treasury stock.......................................... (3) (3) (3)
Notes receivable........................................ (628) (628) (628)
Deferred Compensation................................... (2,550) (2,550) (2,550)
Distribution of services................................ -- (153,360) (153,360)
Accumulated deficit..................................... (13,790) (13,790) (13,790)
-------- --------- ---------
Total shareholders' equity......................... 19,467 43,106 101,507
-------- --------- ---------
Total capitalization............................... $ 19,467 $ 43,106 $ 101,507
======== ========= =========
</TABLE>
The outstanding share information is based on our shares outstanding as of June
30, 1999. This information excludes:
- 5,082,975 shares of common stock subject to options granted under our
1996 Stock Option Plan and outstanding as of June 30, 1999 at a weighted
average exercise price of $1.36 per share; and
- 14,887.5 shares of common stock reserved for issuance upon exercise of
outstanding warrants at an exercise price of $0.004 per share.
- 2,704,316 shares of common stock reserved for issuance upon exercise of
two outstanding warrants issued to AOL, 1,352,158 shares of which under
one warrant are at an exercise price of $10 and 1,352,158 shares of which
under the other warrant are at an exercise price to be determined based
upon the fair market value of our common stock at the future times that
the warrant becomes exercisable.
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<PAGE> 27
DILUTION
Our net tangible book value as of June 30, 1999 was approximately $17
million, or $0.82 per share of common stock. Net tangible book value per share
is equal to Medscape's total net tangible book value, which is total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding on that date. Dilution per share equals the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the net tangible book value per share of shares of common stock offered by
us in this offering. Assuming an initial public offering price of $12.00 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, and the application of the estimated
net proceeds from this offering, Medscape's net tangible book value as of June
30, 1999 would have been $75.4 million, or $2.89 per share. This represents an
immediate increase in pro forma net tangible book value to existing stockholders
of $2.07 per share and an immediate dilution to purchasers in this offering of
$9.11 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $12.00
Pro forma net tangible book value per share prior to this
offering............................................... $0.82
Increase per share attributable to this offering.......... 2.07
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. 2.89
------
Dilution per share to new investors(1)...................... $ 9.11
======
</TABLE>
- ---------------
(1) Assuming the exercise in full of the underwriters' over allotment option,
the adjusted pro forma net tangible book value of Medscape at June 30, 1999
would have been approximately $3.12 per share, representing an immediate
increase in net tangible book value of $2.30 per share to our existing
stockholders and an immediate dilution in net tangible book value of $8.88
per share to purchasers in this offering.
The following table illustrates, on a pro forma basis, as of June 30, 1999,
the difference between (1) the number of shares of common stock purchased from
Medscape, the total consideration paid and the average price per share paid or
to be paid by existing stockholders, option holders, warrant holders and (2) by
the purchasers in this offering at an assumed initial public offering price of
$12.00 per share and before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
OR TO BE PURCHASED PAID OR TO BE PAID
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 20,733,275 42% $ 31,602,119 10% $ 1.52
Existing optionholders and warrant
holders, other than AOL.......... 5,082,975 10 6,974,953 2 1.36
Pro forma for Warrants issued to
AOL.............................. 2,704,316 5 29,747,476 10 $11.00
Pro forma for CBS and NDC
Transactions..................... 15,938,368 32 177,000,000 57 11.11
Purchasers in this offering........ 5,400,000 11 64,800,000 21 12.00
---------- --- ------------ --- ------
Total.................... 49,858,934 100% $310,124,548 100% $ 6.22
========== === ============ ===
</TABLE>
The discussion and table assumes exercise of options outstanding under our
1996 Stock Option Plan as of June 30, 1999. As of June 30, 1999, there were
options outstanding to purchase a total of 5,068,087.5 shares of common stock at
a weighted average price of $1.36 per share and 14,887.5 shares issuable upon
exercise of outstanding warrants with a weighted average exercise price of
$0.004 per share. On August 31, 1999, we issued two warrants to AOL, one for
1,352,158 shares at an exercise price of $10 per share and the other for
1,352,158 shares at exercise prices per share to be determined based upon the
fair market value of our common stock at the times the warrant becomes
exercisable which, for purposes of this discussion and table, has been assumed
to be $12.00 per share. The discussion and table assumes that the average price
per share for purchasers in this offering will be $12.00. If CBS purchases
400,000 shares of the 5,400,000 shares for which it has expressed an interest,
the per share price to CBS would be $12.00 less the underwriting fee, or $11.16
per share.
23
<PAGE> 28
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
The following unaudited pro forma consolidated statements of operations
present Medscape's consolidated results of operations for the year ended
December 31, 1998, after giving effect to the Healthcare Communications Group,
LLC acquisition and the other adjustments referred to below, in each case as if
this transaction had occurred on January 1, 1998. The pro forma data does not
give effect to this offering. The pro forma data is not necessarily indicative
of the results that would have been achieved, nor is it indicative of Medscape's
future results.
<TABLE>
<CAPTION>
HEALTHCARE
COMMUNICATIONS
HISTORICAL GROUP, LLC
YEAR ENDED JANUARY 1, 1998 PRO FORMA
DECEMBER 31, TO PRO FORMA YEAR ENDED
1998 OCTOBER 27, 1998 ADJUSTMENTS(1) DECEMBER 31,
(AS RESTATED)(3) 1998
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues................................. $ 3,069 $2,585 $ -- $ 5,654
--------- ------ ----- ---------
Operating expenses:
Editorial, production, content and
technology.......................... 2,588 1,737 -- 4,325
Sales and marketing.................... 2,357 -- -- 2,357
General and administration............. 1,987 868 -- 2,855
Depreciation and amortization.......... 287 9 110 406
--------- ------ ----- ---------
Total operating expenses....... 7,219 2,614 110 9,943
--------- ------ ----- ---------
Loss from operations..................... (4,150) (29) (110) (4,289)
Interest expense (income).............. (249) (2) -- (251)
--------- ------ ----- ---------
Net loss................................. $ (3,901) $ (27) $(110) $ (4,038)
========= ====== ===== =========
Basic net loss per share(2).............. $ (1.07) $ (0.61)
Weighted average number of shares of
common stock outstanding............... 3,636,558 6,628,100
</TABLE>
- ---------------
(1) Adjustment represents amortization of goodwill for the 10 months ended
October 27, 1998.
(2) We calculate loss per common share by dividing the loss attributable to
common shares by the weighted average number of shares outstanding. We do
not include outstanding common stock options and warrants in the loss per
common share calculation, as their effect is anti-dilutive.
(3) As restated, see Note 14 of Notes to Consolidated Financial Statements.
24
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
Shown below are selected financial data for the nine months ended December
31, 1996 and for each of the years in the two year period ended December 31,
1998 and for the six month periods ended June 30, 1998 and 1999. The selected
consolidated financial data presented below with respect to the nine months
ended December 31, 1996 and for the years ended December 31, 1997 and 1998 (as
restated) and the six month periods ended June 30, 1998 and 1999 have been
derived from the financial statements appearing elsewhere in this prospectus.
Deloitte & Touche LLP, independent auditors, have audited the consolidated
financial statements for the nine months ended December 31, 1996 and two year
period ended December 31, 1998. In our opinion the unaudited consolidated
financial statements as of June 30, 1998 and 1999 and for the respective six
month periods, have been prepared on the same basis as the audited financial
statements and include all adjustments, which consist only of normal recurring
adjustments, necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six month
periods ended June 30, 1998 and 1999 are not necessarily indicative of the
results that may be expected for the full year. The information shown below is
qualified by reference to and should be read together with the financial
statements and their notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------- --------------------------
1996 1997 1998 1998 1999
(AS RESTATED)
(2)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues........................ $ 1,015 $ 1,522 $ 3,069 $ 1,078 $ 4,930
--------- --------- --------- --------- ----------
Operating expenses:
Editorial, production, content
and technology............. 1,182 1,790 2,588 853 3,916
Sales and marketing........... 278 1,201 2,357 811 3,502
General and administration.... 830 1,823 1,987 793 2,664
Depreciation and
amortization............... 41 160 287 96 225
--------- --------- --------- --------- ----------
Total operating
expenses............ 2,331 4,974 7,219 2,553 10,307
--------- --------- --------- --------- ----------
Loss from operations............ (1,316) (3,452) (4,150) (1,475) (5,377)
Interest expense (income)..... 28 12 (249) (149) (296)
--------- --------- --------- --------- ----------
Net loss........................ $ (1,344) $ (3,464) $ (3,901) $ (1,326) $ (5,081)
========= ========= ========= ========= ==========
Basic loss per share(1)......... $ (0.66) $ (1.26) $ (1.07) $ (0.47) $ (0.71)
Weighted average number of
shares of common stock
outstanding................... 2,026,233 2,750,552 3,636,558 2,834,172 7,164,127
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------- ----------------
1996 1997 1998 1998 1999
(AS RESTATED)(2)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Current assets........................... $ 560 $4,294 $3,038 $5,922 $16,764
Working capital.......................... (1,570) 2,350 1,368 4,995 13,018
Total assets............................. 836 4,633 5,874 6,290 23,213
Stockholders' (deficit) equity........... (1,294) 2,689 4,204 5,363 19,467
</TABLE>
- ---------------
(1) We calculate loss per common share by dividing the loss attributable to
common shares by the weighted average number of shares outstanding. We do
not include outstanding common stock options and warrants in the loss per
common share calculation as their effect is anti-dilutive.
(2) As restated, see Note 14 to the Consolidated Financial Statements.
25
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and operations should
be read in conjunction with the consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to, those
described under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We operate Medscape.com, a healthcare Web site for physicians, allied
healthcare professionals, such as pharmacists and nurses. To enhance and
personalize the consumer experience, we plan to launch a separate consumer site,
CBS.Medscape.com, in the third quarter of 1999 and to develop and launch several
additional co-branded consumer sites in the fourth quarter of 1999 and the first
quarter of 2000 under an agreement with America Online, Inc. Medscape, Inc.
commenced operations in April 1996. In October 1998, we acquired Healthcare
Communications Group, LLC, which operated a leading HIV Web site. In the first
quarter of 1999, we acquired the trademarks and hired key employees of
Bonehome.com, a leading orthopedic Web site, and CompuRx, Inc., a healthcare
market research company serving pharmaceutical and other healthcare companies.
The Bonehome.com and CompuRx transactions were not material to our financial
statements. These transactions are consistent with our strategy to be the
leading online information source for selected medical specialties and to
broaden our revenue streams.
Since our inception, we have derived substantially all of our revenues from
advertising and sponsorships from pharmaceutical companies. We also generate
revenues from our e-commerce partners who either provide us with a placement fee
or a commission on sales of their products generated through our Web site. We
offer banner advertising to third-party advertisers and generally guarantee
delivery of a specified number of advertising impressions. We derive sponsorship
revenues from the development of client-sponsored content, including modules on
disease topics and editorial coverage of medical conferences. We expect our
revenues to be seasonal due to the scheduling of major medical conferences.
We recognize banner advertising revenues in the period that we display the
advertisement, provided that no significant obligations remain and collection of
the resulting receivable is probable. We recognize revenues from modules on a
cost of completion basis and editorial coverage of medical conferences in the
period in which the conference was held. We recognize revenues from e-commerce
based on commissions when earned from our third-party partners or, in cases
where third-party partners pay placement fees to us, over the life of the
product placement. We generally invoice for our services at the inception of a
project and record a receivable. Accordingly, our receivables have increased in
connection with our increase in revenues and due to an increase in the number of
large scale sponsored programs which have become a more prominent part of our
business following our acquisition of Healthcare Communications Group, LLC.
To date, we have incurred substantial costs to create and enhance our
content, build brand awareness, develop our infrastructure and grow our
business, and have yet to achieve significant revenue. As a result, we have
incurred operating losses in each fiscal quarter since we were formed. We expect
operating losses and negative cash flow to continue for the foreseeable future
as we intend to significantly increase our operating expenses to grow our
business. These costs could have an adverse effect on our future financial
condition or operating results. We believe that period-to-period comparison of
our financial results is not necessarily meaningful and you should not rely upon
them as an indication of our future performance.
RESULTS OF OPERATIONS
RESTATEMENT
Subsequent to the issuance of our 1998 Consolidated Financial Statements,
our management determined that the valuation of Class B Common Stock and related
options should be revised for Class B Common Stock and options issued after
August 1, 1998. As a result, the 1998 Consolidated Financial Statements have
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<PAGE> 31
been restated from the amounts previously reported to recognize additional stock
based compensation expense of $257,109, deferred compensation of $715,436 and
additional goodwill of $459,523 based upon the revised fair value of Class B
Common Stock and options Additional paid-in capital has also been increased by
$1,432,068.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
AT DECEMBER 31, 1998: REPORTED AS RESTATED
<S> <C> <C>
Goodwill -- Net........................................... $ 1,950,268 $ 2,409,791
Additional Paid-In Capital................................ 12,726,241 14,158,309
Accumulated Deficit....................................... 8,451,914 8,709,023
Deferred Stock Compensation............................... -- 715,436
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AS PREVIOUSLY
DECEMBER 31, 1998: REPORTED AS RESTATED
<S> <C> <C>
Editorial, Production, Content & Technology............... $ 2,563,419 $ 2,588,353
Sales and Marketing....................................... 2,343,962 2,356,432
General and Administrative................................ 1,774,649 1,987,183
Depreciation and Amortization............................. 279,528 286,699
Net Loss.................................................. 3,643,510 3,900,619
Basic net loss per share.................................. $1.00 $1.07
</TABLE>
REVENUE AND EXPENSE COMPONENTS
The following descriptions of the components of revenues and expenses apply
to the Comparison of Results of Operations:
Revenues. Revenues consist primarily of sales of advertising banners and
sponsorships for developing content for modules and medical conferences.
Revenues also include commission revenues or placement fees from product sales,
such as medical books, and market research services to pharmaceutical and other
healthcare companies.
Editorial, Production, Content and Technology. Product development
expenses consist primarily of salaries, third-party content acquisition costs,
the development of sponsored content and expenditures associated with
maintaining and enhancing our Web site.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, advertising, promotions and related marketing costs.
General and Administration. General and administration expenses consist
primarily of salaries, facility costs and fees for professional services.
Depreciation and Amortization. Depreciation expense reflects the charge
for depreciation of capitalized fixed assets, including computer equipment, Web
site servers and related equipment, and the amortization of office leasehold
improvements. Additionally, this category includes goodwill amortization related
to corporate acquisitions.
Interest Expense/Income. Interest expense is related to loans that a
related party provided to Medscape, which were fully repaid by the end of 1998.
Interest income consists primarily of interest earned on cash and cash
equivalents generated from private placements of equity securities.
The following tables present, for the periods given, selected data from
Medscape's statements of operations and this data as a percentage of net
revenues. We have derived our statements of operations data for 1996, 1997 and
1998 periods from our audited financial statements. We have derived the
statement of operations data for the first quarters of 1998 and 1999 from our
unaudited financial statements which, in our opinion, have been prepared on
substantially the same basis as the audited financial statements and includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the
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<PAGE> 32
financial information. This information should be read together with the
financial statements and their notes included elsewhere in this prospectus. The
operating results in any period are not necessarily indicative of the results
that may be expected for any future period.
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
NINE MONTHS YEAR ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------- -----------------
1996 1997 1998 1998
(AS RESTATED) 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 1,015 $ 1,522 $ 3,069 $ 1,078 $ 4,930
------- ------- ------- ------- -------
Operating Expenses:
Editorial, production, content and
technology........................ 1,182 1,790 2,588 853 3,916
Sales and marketing................. 278 1,201 2,356 811 3,502
General and administration.......... 830 1,823 1,987 793 2,664
Depreciation and amortization....... 41 160 288 96 225
------- ------- ------- ------- -------
Total operating expenses....... 2,331 4,974 7,219 2,553 10,307
------- ------- ------- ------- -------
Loss from operations..................... (1,316) (3,452) (4,150) (1,475) (5,377)
Interest expense (income)........... 28 12 (249) (149) (296)
------- ------- ------- ------- -------
Net loss................................. $(1,344) $(3,464) $(3,901) $(1,326) $(5,081)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
NINE MONTHS YEAR ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------- ----------------
1996 1997 1998 1998
(AS RESTATED) 1999
(IN PERCENT)
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ -------
Operating expenses:
Editorial, production, content and
technology........................... 116.5 117.6 84.3 79.1 79.5
Sales and marketing.................... 27.4 78.9 76.8 75.2 71.0
General and administration............. 81.8 119.8 64.7 73.6 54.0
Depreciation and amortization.......... 4.0 10.5 9.4 8.9 4.6
------ ------ ------ ------ -------
Total operating expenses.......... 229.7 326.8 235.2 236.8 209
------ ------ ------ ------ -------
Loss from operations........................ (129.7) (226.8) (126.8) (136.8) (109.1)
Interest expense (income).............. 2.8 0.8 (8.1) 13.8 (6.0)
------ ------ ------ ------ -------
Net loss.................................... (132.4)% (227.6)% (118.7)% (123.0)% (103.1)%
====== ====== ====== ====== =======
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Revenues and operating expenses for the first half of 1999 include
Healthcare Communications Group, which we acquired in October 1998.
Revenues. Revenues increased 357% from $1.1 million for the six months
ended June 30, 1998 to $4.9 million for the six months ended June 30, 1999. The
increase in revenues was driven by the inclusion of Healthcare Communications
Group revenues during the first six months of 1999 and an increase in the number
of advertisers and sponsors on our Web site. Advertising and sponsorship
revenues, for both comparison periods, comprise more than 95% of total revenues.
Editorial, Production, Content and Technology. Product development
expenses increased 359% from $853,000 for the six months ended June 30, 1998 to
$3.9 million for the six months ended June 30, 1999. The increase in costs was
primarily due to increased variable costs related to the development of
sponsored
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<PAGE> 33
content and costs associated with expanding and enhancing editorial content and
the functionality of our Web site.
Sales and Marketing. Sales and marketing expenses increased 332% from
$811,000 for the six months ended June 30, 1998 to $3.5 million for the six
months ended June 30, 1999. The increase in costs was primarily due to increased
costs related to the continued development and implementation of our marketing
and branding campaigns and additional sales and marketing personnel.
General and Administration. General and administration expenses increased
236% from $793,000 for the six months ended June 30, 1998 to $2.7 million for
the six months ended June 30, 1999. The increase in costs was primarily a result
of expenses related to increased personnel and other employee compensation
expenses, professional service fees and facility expenses necessary to support
our growth.
Depreciation and Amortization. Depreciation and amortization expenses
increased 134% from $96,000 for the six months ended June 30, 1998 to $225,000
for the six months ended June 30, 1999. The increase in costs was attributable
to increased purchases of fixed assets and amortization of goodwill related to
the Healthcare Communications Group acquisition in October 1998.
Interest Expense/Income. Net interest income for the six months ended June
30, 1999 was $296,000 compared to $149,000 for the six months ended June 30,
1998. The higher interest income was due to a higher average of net cash and
cash equivalents balance as a result of our issuance of preferred stock in March
1999.
Income Taxes. As of June 30, 1999, Medscape had federal net operating loss
carryforwards of approximately $13.7 million which will be available to reduce
future taxable income. The federal net operating loss carryforwards expire
beginning in 2011 through 2019. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the realization
of the asset due to our lack of earnings history.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998
Operating results for the year ended December 31, 1998 include the results
of Healthcare Communications Group, which we acquired in October 1998.
Revenues. Revenues increased 102% from $1.5 million for the year ended
December 31, 1997 to $3.1 million for the year ended December 31, 1998. The
increase in revenues was driven by the inclusion of Healthcare Communications
Group revenues for November and December 1998 and an increase in the number of
advertisers and sponsors on our Web site. Advertising and sponsorship revenues,
for both comparison periods, comprise more than 98% of total revenues.
Editorial, Production, Content and Technology. Product development
expenses increased 45% from $1.8 million for the year ended December 31, 1997 to
$2.6 million for the year ended December 31, 1998. The increase in costs was
primarily due to increased variable costs associated with the development of
sponsored content as well as from additional editorial, production and
technology personnel.
Sales and Marketing. Sales and marketing expenses increased 96% from $1.2
million for the year ended December 31, 1997 to $2.4 million for the year ended
December 31, 1998. The increase in costs was primarily due to the expansion of
our sales force and client services staff and costs related to marketing and
branding campaigns.
General and Administration. General and administration expenses increased
9% from $1.8 million for the year ended December 31, 1997 to $2.0 million for
the year ended December 31, 1998. The increase in costs was primarily due to the
hiring of several senior managers and related recruitment fees and increased
support costs in line with the increase in our number of personnel.
Depreciation and Amortization. Depreciation and amortization expenses
increased 80% from $160,000 for the year ended December 31, 1997 to $288,000 for
the year ended December 31, 1998. The increase in
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<PAGE> 34
costs was largely attributable to increased purchases of fixed assets and
amortization of goodwill resulting from the Healthcare Communications Group
acquisition in October 1998.
Interest Expense/Income. Net interest expense for the year ended December
31, 1997 was $12,000. Net interest income for the year ended December 31, 1998
was $249,000. The improvement was due to higher average net cash and cash
equivalents balances as a result of the issuance of preferred stock at the end
of 1997 and in 1998, as well as the payment in full of all outstanding loans in
1998.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31,
1997
Revenues. Revenues increased 50% from $1.0 million for the period from
April 1, 1996, when we commenced operations, to December 31, 1996 to $1.5
million, for the year ended December 31, 1997. The increase in revenues was
driven primarily by an increase in the number of advertisers and sponsors on our
Web site and the inclusion of twelve months of revenues for the year ended
December 31, 1997 versus nine months for the prior period. Advertising and
sponsorship revenues, for both comparison periods, comprise more than 99% of
total revenues.
Editorial, Production, Content and Technology. Product development
expenses increased 51% from $1.2 million for the nine months ended December 31,
1996 to $1.8 million for the year ended December 31, 1997. The increase in costs
was primarily due to increased number of personnel required to develop our core
product offerings and the inclusion of twelve months of costs for the year ended
December 31, 1997 versus nine months for the prior period.
Sales and Marketing. Sales and marketing expenses increased 332% from
$278,000 for the nine months ended December 31, 1996 to $1.2 million for the
year ended December 31, 1997. The increase in costs was primarily due to
increased sales and marketing personnel and promotional costs and inclusion of
twelve months of costs for the year ended December 31, 1997 versus nine months
for the prior period.
General and Administration. General and administration expenses increased
120% from $830,000 for the nine months ended December 31, 1996 to $1.8 million
for the year ended December 31, 1997. The increase in costs was primarily a
result of non-recurring items in 1997, including service fees paid to a related
party and the twelve month period versus nine months of operations.
Depreciation and Amortization. Depreciation and amortization expenses
increased 290% from $41,000 for the nine months ended December 31, 1996 to
$160,000 for the year ended December 31, 1997. The increase in costs was
primarily attributable to increased purchases of fixed assets and the inclusion
of twelve months of costs for the year ended December 31, 1997 versus nine
months for the prior year.
Interest Expense/Income. Interest expense for the nine months ended
December 31, 1996 was $28,000 as compared with $12,000 for the year ended
December 31, 1997. We earned income on net cash and cash equivalents balances
from the issuance of preferred stock offset by interest paid, at commercial
rates, on a loan to Medscape.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have largely financed our operations through the
private placement of equity securities and, to a lesser extent, from revenues
generated from advertising and sponsorship sales and loans received from a
related party.
Net cash used in operating activities was $80,000, $3.6 million and $4.2
million for the period from April 1, 1996 through December 31, 1996 and for the
years ended December 31, 1997 and 1998, respectively. Net cash used in operating
activities for the six months ended June 30, 1999 was $4.4 million. Cash used in
operating activities from April 1, 1996 through June 30, 1999 was attributable
to funding net operating losses and increases in accounts receivable and prepaid
expenses, which were partially offset by increases in deferred revenues, accrued
expenses and accounts payable.
Net cash used in investing activities was $318,000, $222,000 and $1.5
million for the period from April 1, 1996 through December 31, 1996 and for the
years ended December 31, 1997 and 1998, respectively. Net
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<PAGE> 35
cash used in investing activities for the six months ended June 30, 1999 was
$3.8 million. Cash used in investing activities for the six months ended June
30, 1999 related primarily to the investment in Softwatch.
Cash provided by financing activities was $597,000, $7.3 million and $3.6
million for the period from April 1, 1996 through December 31, 1996 and for the
years ended December 31, 1997 and 1998, respectively. For the six months ended
June 30, 1999, gross proceeds provided by financing activities were $19.6
million.
As of June 30, 1999, the primary source of liquidity for Medscape was $13
million of cash and cash equivalents. As of this date, we had no bank credit
facility.
We expect to incur significantly higher costs, particularly content
creation costs and sales and marketing costs to grow our business. For 1999, we
expect total marketing costs, and related capital expenditures, to be
approximately $30 million. We plan to launch CBS.Medscape.com, our separate
consumer site, in the third quarter of 1999, and our AOL co-branded consumer
sites in the fourth quarter of 1999 and first quarter of 2000. CBS.Medscape.com
and the AOL co-branded sites will provide consumer-oriented information
organized by health topic and offer community features and interactive
healthcare information programs. A large portion of our promotional expenditures
for our consumer sites will be funded through the approximately $150 million in
advertising and promotion to be provided by CBS.
On June 15, 1999, we entered into a License and Web Site Development
Agreement with Softwatch Ltd., an Israeli company, and its U.S. subsidiary,
Softwatch, Inc., under which we licensed software from Softwatch to support our
consumer site and to provide ongoing support services for our consumer site. At
the same time we purchased 1,040,170 Series A Preferred Shares of Softwatch
Ltd., an Israeli company, for $2,999,954.
We believe that the net proceeds from this offering, together with current
cash and cash equivalents and any cash generated from operations, will be
sufficient to meet anticipated cash needs for working capital and capital
expenditures for at least the next 12 months following the offering. However, if
during or following that period we are not successful in generating sufficient
cash flow from operations or in raising additional capital when required in
sufficient amounts and on terms acceptable to us, these failures could have a
material adverse effect on our business, results of operations and financial
condition. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our then current stockholders would be
reduced.
SUBSEQUENT FINANCING EVENTS
On August 4, 1999, we entered into a strategic development and marketing
agreement with National Data Corporation, an electronic data interchange and
data management company for medical practices. As part of this transaction, NDC
invested $10 million cash in Medscape, and has agreed, over the three year term
of the agreement, to provide $10 million in licensing and promotional value and
credits against future commission and product purchase amounts due by us to NDC.
$6,000,000 will be expensed as used over the three-year life of the agreement,
commencing August 4, 1999 and terminating August 31, 2002. In addition, the
license fee of $4,000,000 will be amortized on a straight line basis over the
life of the agreement. Under the agreement, NDC received 1,000,000 shares of our
Class A Common Stock and 400,000 shares of our Series E Preferred Stock.
Assuming an initial offering price of at least $10, the 400,000 shares of Series
E Preferred Stock will convert into 1,000,000 shares of our common stock upon
the completion of this offering. In accordance with instructions by NDC, 25,000
of the 1,000,000 shares of Class A Common Stock and 10,000 of the 400,000 shares
of Series E Preferred Stock were delivered to NDC's financial advisor in the
transaction, Lazard Freres & Co., LLC.
On August 3, 1999, we entered into agreements with CBS Corporation under
which, during the next seven years, we will receive approximately $150 million
in advertising and promotion in the United States and a license to the "CBS"
trademark and "Eye" design and selected health-related news content in exchange
for 7,397,208 shares of our Class A Common Stock and 6,541,160 shares of our
Class B Common Stock, which will represent approximately 33% of our outstanding
capital stock upon completion of this offering.
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On September 3, 1999, we entered into an agreement with America Online,
Inc., under which AOL has agreed, among other things, to deliver to us a
guaranteed number of impressions. In addition, we will develop separate
co-branded Web sites on AOL, AOL.com, CompuServe Service and Netscape Netcenter
and Digital City, which are AOL properties. In exchange, we have paid AOL $3
million and will pay an additional $30 million over the next two years. These
amounts will be charged to earnings over the three-year life of the contract. In
addition, we granted AOL two seven-year warrants, each to purchase up to
1,352,158 shares of our Class A Common Stock. One of the warrants is fully
vested now and has an exercise price of $10 per share. The other warrant will
become vested over a three-year period based on AOL meeting specified
performance requirements and will have exercise prices equal to the fair market
value of our common stock at the times the warrant becomes exercisable. Each
warrant has a value of approximately $2,530,000 as determined using the Black
Scholes option pricing method. The value of the fully vested warrant will be
charged to earnings immediately and the warrant that vests over three years will
be charged to earnings adjusted variably over the vesting periods.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes new rules for the reporting and display
of comprehensive income and its components. We have no elements of comprehensive
income; we operate in one segment in the United States.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and hedging activities for our year ended
December 31, 2001. Generally, it requires that a entity recognize all
derivatives as either an asset or liability and measure those instruments at
fair value, as well as identify the conditions for which a derivative may be
specifically designated as a hedge. We currently do not have any derivative
instruments and we do not engage in any hedging activities.
During 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Policy No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement is applicable to our 1999 financial statements and
will require us to capitalize various payroll and payroll-related costs and
other costs that are directly related to the development of some of our systems.
Amortization of these costs will be over the life of the systems.
YEAR 2000
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many software and computer systems used by companies and governmental
agencies may need to be upgraded or replaced in order to correctly process dates
beginning in 2000 and comply with Year 2000 requirements.
We are conducting a comprehensive review of both information technology and
non-information systems to ensure that they are, or prior to the end of 1999
will be, Year 2000 compliant. Significant information technology systems include
our production system, composed of the servers, networks and software that
comprise the underlying technical infrastructure that runs our business, and
various internal office systems. Our significant non-information technology
systems include the telephone systems, air conditioning and security system. Our
Year 2000 review project includes the following phases:
- conducting a comprehensive inventory of our internal systems and the
systems acquired or to be acquired by us;
- assessing and prioritizing any required remediation;
- remediating any problems by repairing or, if appropriate, replacing the
non-compliant systems; and
- testing all remediated systems for Year 2000 compliance.
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With the exception of one element of our production system, which is in
remediation stage now, all other elements of our information technology systems
have been certified as Year 2000 compliant. We expect to complete remediation
for the one outstanding element by October 31, 1999. We are in the process of
completing our testing and review of all non-information technology systems and
expect to complete this work by end of the third quarter.
Based upon the results of our review to date, it appears that there are no
significant Year 2000 issues within our systems that would have a negative
effect on our ability to conduct business.
In addition to assessing the readiness of our systems, we have gathered
information from, and have directly communicated through written correspondence,
telephone calls and in face-to-face meetings with our third-party systems and
software vendors, as well as other suppliers, to identify and, to the extent
possible, resolve issues involving the Year 2000 problem. Based on
representations made to us by applicable suppliers, we believe that the
third-party software and systems that are material to our business are Year 2000
compliant. We have approximately six major vendors with whom we have met and/or
corresponded to determine Year 2000 issues and appropriate compliance. However,
we have limited or no control over the actions of our third-party suppliers.
Thus, while we expect that we will be able to resolve any significant Year 2000
problems with our systems, we cannot guarantee that our third-party suppliers
will resolve all Year 2000 problems with their systems before the occurrence of
a material disruption to our business. Any failure of material third-party
suppliers to resolve Year 2000 problems with their systems in a timely manner
would have a negative effect on our ability to conduct business.
To date, we have spent an immaterial amount on Year 2000 compliance issues
but expect to incur approximately an additional $50,000 in connection with
evaluating and addressing these issues. We expect to pay for these expenses from
our working capital. Most of our expenses have related to operating costs
associated with the time spent by employees and consultants in the evaluation
process and Year 2000 compliance matters generally. These expenses, if higher
than anticipated, could have a negative effect on our financial condition.
We have identified and expect to resolve by October 31, 1999 all Year 2000
problems that could materially adversely affect our business, financial
condition or operating results. We cannot assure you, however, that we will
achieve full Year 2000 compliance before the end of 1999. A failure of our
computer systems or the failure of our suppliers or customers to effectively
upgrade their software and systems for transition to the year 2000 could have a
material adverse effect on our business, financial condition and results of
operations.
In addition, we cannot be certain that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical failure,
that could prevent us from delivering our services to our customers, decrease
the use of the Internet or prevent users from accessing our Web site, any of
which could have a material adverse effect on our business, financial condition
and results of operations.
We completed an acquisition during 1998 and are finalizing the integration
of the systems of the acquired business into our operations. Those systems are
included in our Year 2000 review. For any other acquisitions that we may
complete prior to the end of 1999, we will evaluate the extent of the Year 2000
problems associated with the potential acquisitions and the cost and timing of
remediation. This work will be done as part of the due diligence process as well
as post-acquisition integration. We cannot assure you, however, that the systems
of any acquired business will be Year 2000 compliant when we acquire them or
will be capable of timely remediation.
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have not yet developed any contingency plans. We will take the results of our
assessment into account in determining the nature and extent of any contingency
plans. We have established a contingency plan to remedy issues for a key element
of our production system. If the planned remediation is not successful by the
end of the third quarter of 1999, we will execute the contingency plan. This
plan will involve outsourcing the service and could be implemented within a
reasonable time frame.
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BUSINESS
MEDSCAPE
We operate Medscape.com, a healthcare Web site targeted at physicians and
allied healthcare professionals, such as pharmacists and nurses. Our Web site is
a valuable resource that enables our members to make better informed healthcare
decisions. We provide comprehensive, authoritative and timely medical
information, including original proprietary articles written for us by renowned
medical experts. We supplement our medical content with a variety of non-medical
information, community features and interactive programs that make Medscape.com
a full-service professional healthcare destination site. We plan to launch our
separate consumer site, CBS.Medscape.com, in the third quarter of 1999. We have
also entered into a strategic relationship with America Online, Inc. under which
we have agreed to develop new versions of our consumer site which will be
co-branded with AOL. We expect to launch our AOL co-branded sites in the fourth
quarter of 1999 and the first quarter of 2000. As of June 30, 1999, Medscape.com
had more than 1,200,000 registered members worldwide, including over 210,000
registered as physicians, 600,000 registered as allied healthcare professionals
and 400,000 registered as consumers. Our registered member base allow us to
provide pharmaceutical, healthcare and other consumer product companies with
direct access to their target audiences.
Medscape.com is currently organized by medical specialty area, such as
oncology and cardiology, to make it easier for our members to access the
information most relevant to them. Our medical content and interactive programs
assist medical professionals in keeping abreast of medical advances. Our
original, exclusive and proprietary content includes such innovative features as
next day summaries of major medical conferences and online, peer-reviewed
medical journals. We also provide proprietary interactive programs that test a
medical professional's diagnostic skills and understanding of recent medical
developments. We provide access to extensive online medical databases and what
we believe is one of the Web's largest collection of free, peer-reviewed,
full-text medical articles. In addition, we offer physicians the opportunity to
earn continuing medical education credits that are required by most states'
licensing boards. Through our strategic relationship with National Data
Corporation, a leading provider of healthcare information services and
electronic commerce solutions, we will integrate selected clinical data
interchange and data management services provided by NDC into Medscape.com. We
will also serve as the principal content provider to NDC's physician practice
management system and be an online distributor of some of NDC's other online
clinical products.
We believe our current consumer members view Medscape.com as a trusted
source of healthcare information because of our high-quality content and our
credibility with physicians. To enhance and personalize the consumer experience,
we plan to launch our consumer site, CBS.Medscape.com, and several newly
developed AOL co-branded consumer sites. We have entered into a strategic
relationship with CBS Corporation under which our CBS.Medscape.com consumer site
will be the exclusive Internet healthcare site integrated into CBS News
programming and, with the AOL co-branded consumer sites, will be promoted on CBS
media properties. Our AOL co-branded consumer sites will appear and be promoted
through contextual links and banners, as AOL, AOL.com, CompuServe Service,
Netscape Netcenter and Digital City, all of which are AOL properties. AOL will
guarantee a minimum number of impressions, which means a user seeing a screen
with a link to one of our co-branded sites. We will design our consumer sites to
help consumers make better informed healthcare decisions and to simplify
management of their healthcare needs. Our consumer sites will provide
personalized, authoritative medical content written for the consumer, access to
our professional content on Medscape.com and interactive health management
tools, such as health diaries. All visitors to our consumer sites will be able
to access our general content and features. However, visitors will be required
to register as members in order to have full access to all the content and
features of our consumer sites.
Medscape was incorporated in New York in March 1996 and commenced
operations in April 1996. Medscape was reincorporated in Delaware in December
1998. In October 1998, we purchased Healthcare Communications Group, which
operated a leading HIV Web site.
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INDUSTRY BACKGROUND
THE INTERNET
The Internet has emerged as a global medium for communications, news,
information and commerce. International Data Corporation estimates that the
number of Web users worldwide will increase from approximately 97 million at the
end of 1998 to 320 million by the end of 2002. IDC also estimates that the
number of Web users in the United States will increase from approximately 52
million at the end of 1998 to 136 million by the end of 2002. A number of
factors drive the Internet's continued growth, including the large and growing
installed base of personal computers, a rapidly expanding and improving Internet
delivery infrastructure and an explosion of content and commerce offerings on
the Web.
The Internet allows content delivery in a manner not possible through
traditional broadcast and print media. These traditional media can have large
audiences but generally are limited to a specific geographic area, can deliver
only limited content and are not effective for distributing detailed information
quickly. The Internet is distinct from traditional media in that it offers
immediate access to dynamic and interactive content and enables instantaneous
communication among users. As a result, the Internet has become an important
alternative to traditional media, enabling users to seek current information and
to communicate with one another. These characteristics, combined with the fast
growth of the Internet, have created a powerful, rapidly expanding direct
marketing and sales channel. Advertisers can target very specific demographic
groups, measure the effectiveness of advertising campaigns and quickly revise
them in response to the prompt feedback allowed by the Internet's technology.
As users increasingly rely on the Internet for their information needs,
they have sought more detailed content on a wide variety of specific subjects.
Utilizing subject-specific sites, users can find information on selected topics
quickly, easily and cost effectively, making these sites a very attractive
resource for users. In addition to offering detailed and comprehensive content,
many of these subject-specific sites have developed online communities that
allow users to communicate with each other and to engage in other interactive
activities. We believe these community features are attractive to users who want
to express themselves and who seek to interact with other users who have similar
interests.
RELEVANT DYNAMICS IN THE HEALTHCARE INDUSTRY
Healthcare is the largest sector of the U.S. economy, accounting for
approximately $1 trillion in annual spending. As the focal point of the
healthcare delivery system, the approximately 620,000 prescribing physicians in
the United States directly or indirectly influence approximately 80% of the $1
trillion in annual expenditures. This makes physicians attractive marketing
targets for pharmaceutical companies, medical device manufacturers and other
healthcare companies. According to IMS Health, in 1998, pharmaceutical companies
spent over $10 billion on promotional and educational activities targeting
physicians in the United States. According to Scott-Levin, approximately $5.7
billion of these expenditures were on 59 million face-to-face product details, a
process in which a sales representative explains to a physician the therapeutic
benefits and adverse effects of new or existing drugs. This amount represents an
increase of 14.6% over 1997 detailing expenditures. In addition, pharmaceutical
companies spent approximately $1.9 billion on medical journal print advertising,
promotional meetings and events.
Continuing changes in the healthcare industry, including the increasing
adoption of managed care plans and the need to keep informed about rapidly
emerging medical and pharmaceutical therapies, are placing increasing pressures
on physicians' time. Physicians must keep abreast of the latest developments
within their medical specialty to provide their patients with the best possible
care and to meet continuing medical education requirements. There is a vast flow
of information from many sources, including traditional medical journals,
medical textbooks, industry conferences and other trade literature. The sheer
volume of medical information and the time constraints that physicians face make
it extremely difficult for them to stay current and to quickly and efficiently
access the information most relevant to their practice. We believe that
physicians value services that allow them to easily find and manage information
they are seeking.
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Consumers are taking a more active role in seeking information sources on
health and wellness topics and educating themselves on available treatment
options. This trend is driven by the proliferation of new therapies and the
increased oversight of treatment options by payors. Traditional media have
sought to meet this demand for consumer-oriented healthcare information by
introducing magazines focused on health and wellness and by increasing news
coverage of healthcare-related issues. We believe that consumers, like
physicians, value a comprehensive healthcare site with high-quality content,
community features and interactive programs that help them make better informed
healthcare decisions and simplify management of their healthcare needs.
Pharmaceutical, medical device and other healthcare companies recently have
increased their efforts to influence consumer behavior with targeted advertising
and promotions. This trend has been influenced in part by new guidelines for
direct-to-consumer advertising of pharmaceuticals issued by the U.S. Food and
Drug Administration in August 1997. As a result, according to Scott-Levin,
pharmaceutical companies spent an estimated $1.3 billion on direct-to-consumer
advertising for prescription drugs in 1998, an increase of 30% over 1997.
CONVERGENCE OF THE INTERNET AND THE HEALTHCARE INDUSTRY
The Internet is an effective medium for accessing timely and relevant
medical information. Health and medical information is a rapidly growing area of
interest on the Internet. According to Cyber Dialogue, one-third of all Web
users in the United States use the Internet to locate healthcare information,
half of whom are searching for information on a specific disease or health
condition.
Physicians are using the Internet as a valuable source of the latest
medical information. According to a June 1998 PERQ/HCI report, over 52% of
physicians accessed medical information online, up from 37% in the prior year.
The Internet allows physicians to access, at their convenience, recent
healthcare articles and reports, link to authoritative medical databases and
earn continuing medical education credits.
Consumers are also using the Internet to find information that will enable
them to better understand and manage their own, their family's and their
friends' healthcare needs and to interact with other users who have similar
healthcare interests. According to Cyber Dialogue, during the 12-month period
ending June 1998, approximately 17 million adults in the United States searched
online for health and medical information. It is estimated that this number will
grow to over 33 million by 2000. We believe that community features are
particularly important to healthcare consumers, because medical information is
often complex and intimidating, and consumers value communication, information
and testimonials from peers who share similar health concerns. According to
Cyber Dialogue, 70% of consumers who access healthcare information on the
Internet feel more empowered to make healthcare decisions. In addition,
approximately 50% of such consumers make offline purchases after seeking
information on the Internet. Cyber Dialogue also reports that Web users seeking
healthcare information are typically better educated, have higher household
incomes and are more experienced with the Internet than the general population
of Internet users.
THE MEDSCAPE SOLUTION
Medscape.com is a healthcare destination site that provides medical
professionals and consumers with comprehensive, authoritative and timely medical
information and interactive programs. We believe Medscape.com is positioned to
help users make better informed healthcare decisions and change the way people
access information and communicate about healthcare.
We believe the following factors drive our success:
We provide high-quality, timely and original medical information. We
provide high-quality, timely and original content on important healthcare trends
and disease topics. Using the real-time publishing capabilities of the Internet,
we can deliver this content to our audience faster and more cost effectively
than traditional print media, which is limited by publication schedules and
physical distribution. Many of our articles are written by industry-leading
medical experts and are peer-reviewed by other physicians to insure they meet
the highest standards of medical integrity. Our experienced editorial staff is
headed by Medscape's Editor in
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Chief, Dr. George D. Lundberg, who was the Editor of the prestigious Journal of
the American Medical Association for 17 years. We supplement our extensive
original content with one of the Web's largest collections of free,
peer-reviewed, full-text medical articles, one of the Web's most extensive
libraries of continuing medical education accredited programs, and under our
agreement with Hearst Corporation, third-party Web access to the National Drug
Data File, a leading drug and disease database of Hearst Corporation's First
DataBank. Our medical specialty areas are carefully designed and their features
are regularly updated by our editorial and quality control staff.
Our sites are well organized and easy-to-use. We design our Web sites to
meet the needs of our members in a personalized and easy-to-use manner. We
organize our professional information on Medscape.com by medical specialty area,
the way physicians practice, and we plan to organize CBS.Medscape.com and our
related AOL co-branded sites by health topic like diabetes and asthma. In
addition to high-quality medical content, our consumer site will provide
community features and interactive programs to help consumers make better
informed healthcare decisions and to simplify management of their healthcare
needs. Unlike many other healthcare Web sites, by including content from our
professional site at CBS.Medscape.com and our related AOL co-branded sites, we
will allow consumers to access the same high-quality medical information as
physicians.
We provide our clients with cost-effective access to our audience. Our
membership registration profiles give us the ability to segment our audience
based on their medical specialty or healthcare interest. In addition, our
proprietary membership profile and traffic database enables us to provide
advertising and sponsored content targeted to the specific profile our clients
seek to reach. Medscape.com also offers online programs that complement many of
the pharmaceutical companies' off-line promotional and educational efforts. For
example, we expand the audience of sponsored medical conferences by making
next-day summaries of the proceedings available to members who were unable to
attend. In addition, we believe Medscape.com creates and our consumer sites will
create an attractive e-commerce environment for health-related products because
they will have a large audience with a focused interest on healthcare issues and
related products.
We have a strategic relationship with CBS. We believe that our strategic
relationship with CBS will position our consumer Web site, CBS.Medscape.com, and
our related AOL co-branded sites, as preeminent branded sources of
consumer-oriented health and wellness information on the Web. We will receive
approximately $150 million in advertising and promotion across all CBS media
properties and a license to the "CBS" trademark and "Eye" design and selected
health-related news content during the next seven years in exchange for
7,393,208 shares of our Class A Common Stock and 6,541,160 shares of our Class B
Common Stock, which will represent approximately 33% of our outstanding capital
stock upon completion of this offering. We believe that CBS's equity stake in us
aligns CBS's incentives with ours in building consumer traffic for
CBS.Medscape.com. and the AOL co-branded sites.
We have a strategic relationship with AOL. We have entered into a
strategic relationship with America Online, Inc. under which AOL has agreed to
promote, through contextual links and banners, new versions of our consumer site
to be developed and co-branded with AOL. Under the Agreement, we are obligated
to pay AOL $33 million over a 24 month period and have issued to AOL warrants to
purchase up to 2,704,316 shares of our common stock. We believe that this
promotion by AOL and our association with AOL brands will greatly enhance
recognition of our brand and consumer traffic on our Web sites.
GROWTH STRATEGY
Our objective is to operate the premier online healthcare destination Web
sites where physicians, allied healthcare professionals and consumers find
reliable and comprehensive information that enables them to make better and more
informed medical and health decisions. We believe we are positioned to become a
preferred online advertising medium and e-commerce partner in the healthcare
sector. We intend to achieve this objective by pursuing the following
strategies:
Strengthening the Medscape Brands. We intend to establish Medscape.com as
the leading single brand for online professional healthcare information and
CBS.Medscape.com, and our related AOL co-branded
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sites, as the leading brands for online consumer healthcare information. We
believe that strengthening our brand awareness is critical to attracting and
retaining members, advertisers, sponsors and strategic partners. We plan to
pursue an aggressive brand development strategy through strategic distribution
relationships, online and off-line advertising, promotions, media coverage and
word-of-mouth support. We believe our brand visibility will significantly
benefit from promotion on CBS and AOL properties.
Expanding and Enhancing Our Content. We intend to expand the content on
both our professional and consumer sites by adding new medical specialty areas,
enlarging our editorial staff and utilizing our extensive relationships with
leading medical experts. We intend to enhance the consumer experience by adding
consumer-oriented health condition and general health and wellness information,
community features and interactive programs that take advantage of our
credibility with medical professionals and our existing professional medical
specialty content.
Growing Membership. We intend to grow our medical professional membership
and increase the frequency and length of their visits to our site by
establishing Medscape.com as an integral part of the medical professional's
daily work flow and by continuing to offer compelling content, providing
interactive programs and services and building relationships with relevant
healthcare organizations. We plan to attract CBS.Medscape.com members and
visitors to our AOL co-branded sites by offering a superior consumer experience
with compelling content, community features and interactive programs that we
believe will increase member and user loyalty, repeat usage and time spent on
our site.
Developing Strategic Relationships and Enhancing Distribution. We plan to
increase traffic, market share and revenues through strategic relationships,
distribution relationships and selected acquisitions. We are pursuing
distribution relationships with high-traffic Web sites that target both medical
professionals and consumers. We are also pursuing professional distribution
relationships with healthcare companies to provide medical content to their
medical professionals and become a part of their daily work flow. For example,
we are a content provider to PhyCor Online, the private physician intranet of
PhyCor, the United States' largest physician practice management company with
over 27,000 physicians. Through our strategic relationship with National Data
Corporation, we will be the preferred content supplier to NDC's LYTEC physician
practice management product and an online distributor of some of NDC's other
clinical information products.
Developing Multiple Revenue Sources. We believe our attractive audience
demographics and high-quality content offerings provide us with significant
opportunities to develop multiple sources of revenue. In addition to advertising
and sponsorships, we have begun to generate e-commerce revenues from our online
medical bookstore, drugstore, and pay-per-view services for selected full-text
articles, and from our online market research services. We plan to expand our
e-commerce offerings to include medical supplies and other health-related
offerings. We are also developing other research products that we expect will
complement pharmaceutical companies' product detailing efforts. In addition, we
plan to introduce products and services that appeal directly to our
international and allied healthcare members.
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THE MEDSCAPE.COM SITE
MEDICAL SPECIALTY AREAS
We designed our professional Web site to meet the needs of our members in a
personalized and easy-to-use manner. We currently organize our professional
information by the following medical specialty and subject areas:
<TABLE>
<CAPTION>
<S> <C>
Cardiology Orthopedics
Diabetes and Endocrinology Pediatrics
Gastroenterology Pharmacotherapy
HIV/AIDS Primary Care
Infectious Diseases Psychiatry
Internal Medicine Respiratory Care
Managed Care Surgery
Molecular Medicine Urology
Multispecialty Women's Health
Oncology
</TABLE>
Each of the medical specialty and subject areas will have a program
director and a scientific advisory board dedicated to developing the content for
that area. We plan to expand into new medical specialty areas that appeal to our
current membership base and attract new members. Our objective is to be the
category leader in each of our medical specialty areas by delivering the highest
quality specialty-based content and selectively acquiring other high-quality
medical specialty Web sites. As part of this strategy, we acquired Healthcare
Communications Group, which operated a leading HIV Web site, in October 1998,
and Bonehome.com, a leading orthopedic site, in February 1999.
OUR CONTENT
Medscape.com offers three distinct types of high-quality content to
members:
Original, exclusive and proprietary content. Our original content is
written exclusively for Medscape by medical experts, many of whom are
internationally renowned in their specialties. This content includes:
- Next Day Summaries(SM) -- highlights of selected presentations at major
medical conferences, published on our site the day after the
presentations are delivered, providing physicians and other members with
immediate, easy-to-read authoritative summaries of new data, therapies
and procedures discussed at the meeting;
- Medscape General Medicine(SM) -- pioneering, primary-source,
peer-reviewed general medical journal launched in March 1999. Published
exclusively online and accessible free of charge to all Medscape.com
members, Medscape General Medicine will provide prompt delivery of
articles relating to important new clinical research and trials, public
health studies and other significant medical developments;
- Clinical Management Series -- interactive practice modules that include
state-of-the-art treatment information and clinical cases for particular
diseases, each of which is accredited for continuing medical education;
- Treatment Updates -- authoritative evaluations of significant new changes
in therapies; and
- eMed Journals -- peer-reviewed, electronic medical journals written
exclusively for Medscape.com covering HIV/AIDS, cardiology, oncology,
psychiatry, orthopedics, respiratory medicine and women's health. Two of
our eMed Journals, Clinical Care Options in HIV and Medscape Women's
Health, have already been indexed in Index Medicus, the National Library
of Medicine's prestigious MEDLINE database.
We have also developed innovative, proprietary interactive medical programs
that allow physicians to enter clinical data points and obtain feedback on
available treatment options. We also offer an array of
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proprietary, challenging and instructional interactive features to test a
physician's medical knowledge. Interactive self-assessment elements include:
- PicTours(R) -- image-based case challenges testing the physician's
diagnostic skills;
- Today's Question -- testing the physician's understanding of recent
developments in the physician's medical specialty; and
- ECG of the Week -- images of cardiograms with case histories testing the
physician's diagnostic skills, supplied by leading cardiologists.
High-quality, third-party content. We believe Medscape.com contains one of
the Web's largest collection of free, peer-reviewed, full-text medical articles
and one of the Web's most extensive libraries of continuing medical education
accredited programs. Medscape.com also provides third-party Web access to the
National Drug Data File, a leading drug and disease database of Hearst
Corporation's First DataBank. Numerous prestigious medical publishers,
universities, hospitals and professional organizations are part of our strategic
content partner program known as Medscape Publishers' Circle(R). Through this
program, Medscape.com aggregates, organizes, and places in context content from
over 100 medical journals, textbooks, news services and other publications, and
offers integrated, easy-to-use searching of vast medical databases, including
over nine million abstracts of medical journals available in the National
Library of Medicine's MEDLINE, AIDSLINE and TOXLINE databases. In addition,
through an agreement with Dow Jones & Company, Medscape.com provides free
searching of more than 500 leading medical publications, including the Journal
of the American Medical Association, the British Medical Journal, The Lancet,
and abstracts from the New England Journal of Medicine. Members can immediately
retrieve online a full-text copy of the article or abstract for a fee.
Non-medical content. We also provide an array of non-medical content on
subjects of particular interest to medical professionals and health-conscious
consumers. Medscape Money & Medicine offers personal finance features, including
stock quotes, portfolio tracking and business news, and valuable practice
management features that provide business information that is directly relevant
to a medical practice. Members can also learn about the developments in managed
care in a special Managed Care topic area. The Medscape Humor & Medicine section
provides readers with medical jokes, cartoons, DeFUNitions, crossword puzzles
and other entertaining features that generate traffic to and increase usage of
our site.
OUR MEMBER SERVICES
We offer a number of services that complement our high-quality content
offerings and make Medscape.com a preferred professional destination site,
including:
Continuing Medical Education. Approximately half the states require
physicians and selected other medical professionals to certify annually that
they have accumulated a minimum number of continuing medical education hours to
maintain licensure. Medscape.com offers our professional members what we believe
is one of the Web's largest libraries of continuing medical education programs.
Our extensive continuing medical education programs are produced in association
with entities accredited by the Accreditation Council for Continuing Medical
Education. From the convenience of their home or office computer, our
professional members can obtain continuing medical education credits by
accessing a variety of accredited editorial resources and programs including
online journal articles, our Next Day Summaries of medical conferences, in-depth
Treatment Updates and our state-of-the-art Clinical Management Series.
Physician Web Sites. We offer our members registered as physicians the
opportunity to create home pages for their medical practices that can be
accessed by their patients and the general public. In addition to details about
their practice, including office address, phone number, medical specialty, types
of insurance accepted, hospital affiliations and languages spoken, our Physician
Web Sites will soon permit a physician to offer links to disease-specific
information from Medscape.com as well as the general searching capability of
Medscape.com. We believe these Physician Web Sites will keep Medscape's
high-quality medical information at the center of the communication between
physician and patient, and keep the physician at the center of the healthcare
dialogue.
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e-Commerce and Services. Through a series of strategic partners, we offer
our audience the opportunity to purchase a variety of goods and services. The
Medscape MedBookstore offers members the opportunity to purchase discounted
medical texts from a collection of over 90,000 titles through our partner
MedSite Publishing Inc. The Medscape Job Center offers a comprehensive
job-listing/posting service for medical professionals through our partner
NetMed, Inc. The Medscape Drugstore offers our members the ability to purchase
online a wide range of health, beauty and wellness products through
drugstore.com. Through our strategic relationship with National Data
Corporation, we will be an online distributor of some of NDC's clinical
information products.
Community Features. Medscape Mail, a free service, enables members to send
and receive Web-based email. Medscape Mail, powered by CommTouch, is especially
useful for mobile professionals like physicians, who often require email access
from multiple locations, such as their homes, offices, clinics and hospitals or
during travel. Discussion areas on many medical articles and physician-only
discussion groups are also available. Our new Ask-the-Expert feature, which will
allow members registered as physicians to present interesting cases to leading
experts online for comments, is expected to be launched later this year.
OUR HEALTHCARE COMPANY SERVICES
We offer healthcare companies many value-added online services including:
Medscape Profiles. The Internet offers significant advantages over
traditional mail surveys and focus groups in terms of speed and cost savings.
U.S. pharmaceutical and other healthcare companies are estimated to spend as
much as $1 billion annually on custom and syndicated market research. Medscape
Profiles, our online market research division, has already successfully piloted
several custom research projects and has recruited a 1,000+ physician panel from
our member base to conduct custom and syndicated online research quickly and
efficiently. In addition, our registration and traffic pattern database provides
us with a valuable and expanding source of proprietary data about viewing habits
and usage patterns. This database helps pharmaceutical companies correlate
prescribing behavior with promotions and content seen by physicians and
consumers.
Medscape MedPyx. We plan to introduce Medscape MedPyx as an educational
research program that will assist pharmaceutical companies in better
understanding the physician's knowledge base and prescribing patterns. In 1998,
pharmaceutical company sales representatives conducted more than 59 million
details to office- and hospital-based physicians. We believe that Medscape
MedPyx will provide pharmaceutical companies with a cost-effective method of
evaluating and improving their existing detailing activities.
THE CBS.MEDSCAPE.COM AND AOL CO-BRANDED SITES
We plan to launch CBS.Medscape.com in the third quarter of 1999 and our AOL
co-branded sites during the fourth quarter of 1999 and the first quarter of
2000. We are designing our CBS.Medscape.com and AOL co-branded consumer sites to
help consumers make better informed healthcare decisions and to simplify
management of their healthcare needs. Our consumer sites will provide
personalized, authoritative medical content written for the consumer, access to
our professional content on Medscape.com and interactive personal health
management tools, such as health diaries.
In addition to general health and wellness information, CBS.Medscape.com
and the AOL co-branded sites will offer information organized around specific
health conditions, such as diabetes or asthma. In an effort to simplify the
consumer experience we plan to include convenient links to health sites operated
by the consumer's physician, employer and health insurer.
REGISTERED MEMBERS
To utilize all of the features of Medscape.com and our consumer sites,
users must register as members. This information enables us to deliver targeted
medical content based on our members' registration profiles. As of June 30,
1999, Medscape.com had over 1,200,000 registered members worldwide, an increase
of 36% from January 1, 1999 and 197% from January 1, 1998.
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The registration process enables professional members to choose a home page
tailored to their medical specialty or interest. Accordingly, a cardiologist
accessing Medscape.com is automatically directed to Medscape Cardiology, rather
than a more generic home page. Every member, however, regardless of medical
specialty or professional status, has access to the full suite of exclusive,
original and licensed content through a uniform, easy-to-use interface.
To encourage initial use, our consumer sites will allow visitors to access
selected features without registering as members. Visitors, however, will have
to register as members to have access to all the features of our consumer sites,
including the interactive programs such as health diaries.
Registration information will also enable us to deliver targeted
advertising messages to the specific audience profile our clients seek to reach
either through Medscape.com or our consumer sites, or both. For example, through
Medscape.com, an oncologist in New York can be targeted with different messages
than a cardiologist in Chicago. The same targeting capabilities will be offered
on CBS.Medscape.com and the AOL co-branded sites, where a consumer interested in
diabetes can be targeted with different messages than a consumer interested in
cancer.
EDITORIAL, DESIGN AND PRODUCTION
Our editorial staff is headed by Dr. George D. Lundberg, Medscape Editor in
Chief and the former Editor of the Journal of the American Medical Association.
As of August 31, 1999, our editorial, design and production staff consisted of
52 professionals who are all experienced medical editors, writers and producers.
We intend to significantly increase our number of editors as we add additional
medical specialty areas. We have assembled specialty-specific editorial boards
for Medscape.com and have also assembled a Medscape.com scientific advisory
board consisting of 16 of the world's leading physicians, academicians and
healthcare experts, who will also serve as the editorial board of Medscape
General Medicine, our newly launched primary source online medical journal.
We have an easy-to-use interface that incorporates original and proprietary
content written by medical experts with an extensive library of licensed content
and medical databases. Each medical specialty area is headed by a program
director responsible for building and continuously updating that area's content.
We seek to be the premier online information resource in each of our medical
specialty areas. To support this effort, we cover major medical conferences in
many specialties and plan to attend over 20 different conferences in 1999, with
our editors and medical experts summarizing and reporting on the breaking
medical research and news delivered at these events.
SALES
As of August 31, 1999, we had a direct sales organization consisting of 13
sales professionals, with an average of 14 years experience, and eleven sales
operations staff employees. We plan to hire additional sales professionals, many
of whom will be focused on selling banner advertisements and sponsorships in our
expanded CBS.Medscape.com consumer site. We generally seek to hire individuals
with significant experience selling to pharmaceutical, other healthcare and
consumer companies and their advertising agencies.
MARKETING AND PUBLIC RELATIONS
We employ a variety of methods to promote the Medscape brand and to attract
traffic and new members, including advertising on other Internet sites and in
medical journals, pharmaceutical and other healthcare publications, and other
targeted publications. To extend the Medscape brand, we encourage other
healthcare sites to integrate our branded search box directly into their
services. This feature permits a Web site viewer in another healthcare site full
searching capability across all the Medscape.com databases by clicking on our
branded search box appearing by agreement in the other site. Under our agreement
with CBS, we will receive approximately $150 million in advertising and
promotion in the United States over seven years. In addition, under our
agreement with AOL, AOL will provide us with a guaranteed number of impressions
over a three-year period through promotions like banners and contextual links to
our sites. We believe our brand visibility will significantly benefit from
promotion on CBS and AOL properties. In addition,
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CBS.Medscape.com will be the exclusive healthcare Internet site integrated into
CBS News programming. This integration will be accomplished by CBS News, when
appropriate and at its discretion, directing viewers of CBS News programs to
CBS.Medscape.com for more information regarding health-related news stories and
features.
We believe in the value of direct, in-person marketing and plan to staff a
Medscape.com booth at over 13 major medical meetings and conferences in 1999. We
use our booth presence to cross promote our Next Day Summaries(SM) of the
medical conferences. We have also effectively used Medscape Academies, in which
we offer free Internet training for physicians at major medical meetings, as a
way to introduce physicians to the power of the Internet as a communications and
educational medium, and to Medscape.com as a premier source of high-quality
medical information on the Internet.
We supplement these efforts with direct mail campaigns targeted at medical
professionals, and plan to significantly increase these activities in 1999.
Our professional distribution strategy is designed to have Medscape.com's
medical content be available within major Internet-accessible healthcare
information system platforms like hospital intranets, electronic medical record
systems and physician practice management company intranets. This strategy
integrates Medscape.com into the daily workflow of their medical professionals
with frequent reminders of and easy access to our selection of medical content.
Consistent with this strategy in 1998, we signed a content distribution
agreement with PhyCor, the largest physician practice management organization in
the United States. Most recently, we entered into a License and Product
Development Agreement with National Data Corporation under which we are the
preferred content supplier to NDC's LYTEC physician practice management product
and an online distributor of some of NDC's other clinical information products.
Our internal public relations staff oversees a comprehensive public
relations program which we believe is a key component of our marketing and brand
recognition strategy. We target key business, medical and healthcare marketing
publications, and encourage their reporters to use Medscape.com for their
medical news and research needs, in an effort to build both brand awareness and
loyalty among news organizations.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Our business is supported by a reliable, expandable and secure system
platform. Using a combination of proprietary online solutions and commercially
available licensed technologies, we have deployed systems for online content
dissemination, site analysis, and Web- and email-based member support.
We have developed a database management and online publication system to
index, retrieve and display information. This system allows for rapid searching,
viewing and distribution of content including text, photos, graphics and other
images. Our hardware and software systems are based on a distributed processing
model that allows applications to be distributed among multiple parallel
servers. Our hardware servers, storage systems, Internet connections and
networks allow our online systems to operate continuously 24 hours a day and
seven days a week. We do not maintain offsite redundant systems and facilities
but we have taken initial steps to outsource our Web-hosting. This outsourcing
will provide faster and more reliable connections to the Internet and enhanced
reliability and expandability.
COMPETITION
We face competition both in attracting visitor traffic and in generating
revenue across all our business lines. We compete with numerous companies and
organizations for the attention of medical professionals and consumers including
traditional off-line media such as print journals, conferences, continuing
medical education programs and symposia. We also face significant competition
from online information resources. There are thousands of healthcare-related
sites on the Internet. Also, several large consumer sites offer specialized
healthcare channels as part of their general services. In addition, there are
many companies that provide non-Internet based marketing and advertising
services to the healthcare industry. These competitors include advertising
agencies, consulting firms, marketing and communications companies and contract
sales
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and marketing organizations. We believe that competition for our audience and
sources of revenue will continue to increase.
Some of our current and potential competitors may have competitive
advantages compared to us, including:
- greater resources to devote to the development, promotion and sale of
their services;
- greater financial, technical and marketing resources;
- greater brand recognition and larger marketing budgets; and
- larger customer and user bases.
We believe that the principal competitive factors in attracting and
retaining members are the depth, breadth and timeliness of services and brand
recognition. Other important factors in attracting and retaining members include
ease of use, quality of service and cost. We believe that the principal
competitive factors that will continue to attract advertisers and sponsors to
Medscape.com and our consumer sites include price, the number of medical
professionals and consumers who use our Web sites, the demographics of our
member base and the creative implementation of advertisement placements.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. There can be no assurance
that we will be able to compete successfully against current and future
competitors or that the competitive pressures we face will not seriously harm
our business.
SIGNIFICANT CUSTOMERS
In 1998, we derived approximately 27% of our revenue from Genentech
Incorporated, 14% from Roche Laboratories and 7% from Johnson & Johnson.
GOVERNMENT REGULATION OF THE INTERNET AND HEALTHCARE INDUSTRIES
THE INTERNET
We are subject to various laws and regulations relating to our business.
Currently, few laws or regulations are directly applicable to access to the
Internet. Because of the Internet's popularity and increasing use, however, new
laws and regulations may be adopted. These laws and regulations may cover issues
such as:
- user privacy;
- pricing;
- content;
- copyrights and other intellectual property rights;
- distribution; and
- characteristics and quality of products and services.
Currently, U.S. privacy law consists of disparate state and federal
statutes regulating specific industries that collect personal data. Most of them
pre-date and therefore do not specifically address online activities. However,
European nations are now implementing a European Union Data Privacy Directive
regulating the transmission and storage of personal information and data. In
addition, a number of comprehensive legislative and regulatory privacy proposals
are now under consideration by federal, state and local governments in the
United States. For example, the Federal Trade Commission recently published
proposed regulations implementing the Children's On-line Privacy Protection Act
of 1998 and, under authority established in the Health Insurance Portability and
Accountability Act of 1996, regulations are being prepared by the Secretary of
Health and Human Services that will be applicable to electronically transmitted
or stored health information. These regulations are scheduled to be published in
late 1999, absent intervening Congressional action.
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<PAGE> 49
The growth of the Internet and e-commerce, coupled with publicity regarding
Internet fraud, may lead to the enactment of more stringent consumer protection
laws. These laws may impose additional burdens on our business. For example, the
Department of Commerce is actively developing safe harbors for activities in
various industry sectors to help U.S. companies meet standards for conducting
electronic commerce with EU countries as they implement the EU Data Privacy
Directive. In addition, the Federal Trade Commission has informed Congress of
its intentions to use its general consumer protection authority to protect
online consumers from deceptive practices that jeopardize online consumers'
privacy. In addition, state legislatures are considering and are likely to adopt
more protective consumer and health privacy legislation. States also may elect
to use their consumer protection statutes in ways that are analogous to the FTC
activities. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
e-commerce or otherwise adversely affect our business, financial condition and
operating results.
Laws and regulations directly applicable to e-commerce and Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress is considering laws regarding Internet taxation. These are
recent enactments, and there is uncertainty regarding their marketplace impact.
In addition, various jurisdictions already have enacted laws that are not
specifically directed to e-commerce but that could affect our business. The
applicability of many of these laws to the Internet is uncertain and could
expose us to substantial liability.
Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could negatively
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
negatively affect us.
THE U.S. FOOD AND DRUG ADMINISTRATION AND THE FEDERAL TRADE COMMISSION
Current FDA and FTC rules and enforcement actions and regulatory policies
or those that the FDA or the FTC may develop in the future could have a material
adverse effect on our ability to provide existing or future applications or
services to our audience or obtain the necessary corporate sponsorship to do so.
We believe that complying with FDA and FTC regulations may be time consuming,
burdensome and expensive and could negatively affect our ability to continue
providing some applications or services, or to introduce new applications or
services in a timely manner. If we or our sponsors and advertisers fail to
comply with applicable FDA or FTC requirements, the FDA or FTC might pursue an
enforcement action. An FDA enforcement action might include:
- warning letters or notices or adverse publicity;
- fines, injunctions, recall or seizure of products or total or partial
suspension of production;
- failure of the government to grant premarket clearance or premarket
approval for medical devices, withdrawal of marketing clearances or
approvals;
- imposition of civil or criminal liability on us or our corporate
officers; and
- direction to the advertiser or sponsor to correct or remove information
on our Website and to convey FDA required corrective information to our
audience.
An FTC enforcement action might include:
- cease and desist orders;
- corrective advertising;
- civil penalties;
- consumer redress; and
- injunctions.
The FDA and the FTC regulate the form, content and dissemination of
labeling, advertising and promotional materials, including direct-to-consumer
prescription drug and medical device advertising,
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<PAGE> 50
prepared by, or for, pharmaceutical, biotechnology, or medical device companies.
The FTC regulates over-the-counter drug advertising and, in some cases, medical
device advertising. Generally, regulated companies must limit their advertising
and promotional materials to discussions of the FDA-approved claims and, in
limited circumstances, to a limited number of claims not approved by the FDA.
Therefore, any information that promotes the use of pharmaceutical or medical
device products that is put on our Web site or our co-branded sites is subject
to the full array of the FDA and FTC requirements and enforcement actions. Areas
of our Web site or our co-branded sites that we believe are subject to FDA or
FTC regulation include banner advertisements, sponsorship links, and any
educational programs that lack independent editorial control. The FDA and the
FTC place the principal burden of compliance with advertising and promotional
regulations on the advertiser that places materials on our Web site or our
co-branded sites. If the FDA or FTC finds that any regulated information on our
site violates FDA or FTC regulations, they may take regulatory action against us
or the advertiser or sponsor of that information.
Following a public meeting in October 1996, the FDA announced it would
develop a guidance document expressing a broad set of policies dealing with the
promotion of pharmaceutical, biotechnology, and medical device products on the
Internet. Although the FDA has yet to issue that guidance document, agency
officials continue to predict its eventual release. The FDA guidance document
may reflect new regulatory policies that more tightly regulate the format and
content of promotional information on the Internet.
Another regulatory issue that we face involves increased FDA regulation of
direct-to-consumer advertising of prescription drugs. Because part of our
business involves direct-to-consumer advertising, any increase in FDA regulation
of these advertisements or the enforcement of these regulations or policies
could make it more difficult for us to provide existing or future applications
or services to our audience or obtain the necessary corporate sponsorship to do
so. In the last 15 years, the FDA has gradually relaxed its formerly restrictive
policies on direct-to-consumer advertising of prescription drugs. Companies can
now advertise prescription drugs for serious conditions to consumers in any
medium. However, physician groups and others have criticized the FDA's current
policies, and have called for restrictions on any advertising of prescription
drugs to consumers. These critics point to both public health concerns and to
the laws of many other countries that make direct-to-consumer advertising of
prescription drugs a criminal offense. In response to these critics, the FDA or
FTC may alter its present policies on the direct-to-consumer advertising of
prescription drugs or medical devices in a way that would reduce or restrict the
amount of this information available to consumers.
We also face potential regulation of software that we develop for use on
our Web sites. Some computer applications and software are considered medical
devices and are subject to regulation by the FDA. In some cases, while the FDA
has found the product to qualify as a medical device, the agency has decided to
exempt the device from most regulatory requirements. Many types of medical
software are regulated as components of or accessories to other medical devices,
like software that controls an implanted pacemaker and is regulated as a
component of the pacemaker. In some instances the FDA also has asserted
jurisdiction over stand-alone software if it is used in the diagnosis,
treatment, mitigation, prevention or cure of a disease, or is intended to affect
the structure or function of the body. While the FDA's policies regarding the
regulation of software are evolving, based on the FDA's informal policy
statements regarding the scope of its regulation of stand-alone software, we
believe that our current and intended software applications are not subject to
regulation as medical devices because they do not meet the statutory definition
of a device. However, the FDA may take the view that some of our current or
future applications or services do in fact meet the definition of a medical
device and, therefore, are subject to regulation. If the FDA does regard some of
our applications as medical devices, the level of FDA regulation would depend on
several characteristics of the programs such as the degree to which there is
competent human intervention between the software output and the diagnosis or
treatment of the patient. If the FDA finds that the software is subject to
regulation as a medical device, the applicable regulatory controls could include
both premarket and postmarket requirements and the FDA might require us:
- to obtain premarket clearance or approval of the medical device software,
which might include the conduct of supporting clinical trials or other
studies;
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<PAGE> 51
- to register ourselves as a medical device manufacturer and to list our
devices with the FDA;
- to create our software in compliance with the FDA design and
manufacturing standards;
- to permit the FDA to inspect our facilities and records; and
- to make periodic reports to the FDA.
The FDA's regulations and policies on the regulation of software products
and the transmission of medical information are evolving.
We cannot predict future changes in the regulatory environment. Changes in
existing regulatory requirements, our failure to comply with current or future
requirements or adoption of new requirements could negatively affect us. We may
face additional FDA or FTC regulation if the FDA or the FTC adopt new regulatory
policies.
INTELLECTUAL PROPERTY AND DOMAIN NAME
We protect our intellectual property through a combination of license
agreements, trademark, service mark, copyright and trade secret laws and other
methods. We obtain the majority of our content under license agreements with
publishers, through assignments or work for hire arrangements with third parties
and from internal staff development. Generally, our license agreements are for a
period of one to three years and we consider the materials obtained through
these agreements as important to the continued enhancement of the content on our
Web site. We currently have no patents or patents pending for our current online
services and do not anticipate that patents will become a significant part of
our intellectual property in the foreseeable future. We also enter into
confidentiality agreements with our employees, consultants, vendors and
customers and license agreements with third parties and we generally seek to
control access to and distribution of our technology, documentation and other
proprietary information. We currently hold the domain name Medscape.com. The
legal status of intellectual property on the Internet is currently subject to
various uncertainties. The current system for registering, allocating and
managing domain names has been the subject of litigation and proposed regulatory
reform. Additionally, legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information, such as stock quotes. This protection of databases already exists
in the European Union.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
EMPLOYEES
As of August 31, 1999, we had 146 full-time employees. None of our
employees is covered by a collective bargaining agreement. We consider our
employee relations to be good.
FACILITIES
We are headquartered in New York, New York, where we lease approximately
17,975 square feet of office space, under two leases that expire June 30, 2004
and June 30, 2009. To accommodate our rapid growth, we recently rented 5,537
square feet of office space located near our headquarters on a short-term basis.
We are in the process of renovating our New York headquarters to ensure that our
space will meet our business and technological needs as we grow in 1999. We
expect to spend approximately $250,000 in 1999 on these renovations. We are also
considering the possibility of leasing additional space at our present location
or relocating our headquarters to a larger space in New York, New York, which
might result in significant additional expenses. We have also leased offices in
Fairfield, New Jersey; Chicago, Illinois and Milford, Massachusetts. We
currently anticipate that we will require additional space as we hire more
personnel.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Shown below are the names, ages and positions of the executive officers and
directors of Medscape:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Paul T. Sheils............................. 45 President, Chief Executive Officer and
Director
Peter M. Frishauf.......................... 50 Executive Committee Chairman, Founder and
Director
Jeffrey L. Drezner, M.D., Ph.D............. 52 Executive Vice President and Director
Steven R. Kalin............................ 35 Chief Operating Officer and Chief Financial
Officer
George D. Lundberg, M.D.................... 66 Editor in Chief
Meg Walsh.................................. 36 President, Medscape Consumer
David Yakimischak.......................... 38 Chief Technology Officer
Mark E. Boulding........................... 38 General Counsel and Vice President of
Regulatory Affairs
Marc Butlein............................... 60 Director
Esther Dyson............................... 47 Director
Andrew Heyward............................. 48 Director
Alan J. Patricof........................... 64 Director, Chairman of the Board
Fredric G. Reynolds........................ 48 Director
Carlo A. von Schroeter..................... 35 Director
Oakleigh Thorne............................ 41 Director
</TABLE>
PAUL T. SHEILS, President, Chief Executive Officer and Director. Prior to
joining Medscape in February 1998, Mr. Sheils was Vice President of Dow Jones
Interactive Publishing from 1994 to 1998 and was Executive Director from 1993 to
1994. Mr. Sheils was responsible for all of Dow Jones' corporate and consumer
online businesses including The Wall Street Journal Interactive Edition, the
largest subscription-based publication on the Web, and Dow Jones Interactive, an
award-winning online business intelligence and research service. Mr. Sheils
holds a BA from Williams College and a JD from Fordham Law School.
PETER M. FRISHAUF, Executive Committee Chairman, Founder and Director. Mr.
Frishauf has over 20 years of experience in the medical information field. In
1982, Mr. Frishauf founded the predecessor of SCP Communications, Inc., a
medical publishing, education and clinical trial company, and served as SCP's
President and Chief Executive Officer until April 1996. Mr. Frishauf continues
to serve on the board of directors of SCP Communications, Inc. From April 1996
through February 1998, Mr. Frishauf served as the Chief Executive Officer of
Medscape. In addition to being a director of Medscape since it commenced
operations in 1996, he holds the executive position of Executive Committee
Chairman. Mr. Frishauf holds a BA from New York University and an MS in
Journalism from Columbia University.
JEFFREY L. DREZNER, M.D., Ph.D., Executive Vice President and
Director. Dr. Drezner practiced medicine for 14 years before founding
Integrated Care Systems, Inc., an HIV-focused, alternate-site healthcare
delivery company, in 1987. From 1992 to 1995, Dr. Drezner was Vice President of
Clinical Programs at Homedco, Inc., a home and alternate-site healthcare
delivery company. In 1995, Dr. Drezner founded Healthcare Communications Group,
LLC, which developed one of the first online continuing medical education
programs and summaries of next day medical conferences programs on the Internet,
operated the highly acclaimed Clinical Care Options for HIV and Oncology Web
sites and is now a wholly owned subsidiary of Medscape. Dr. Drezner became a
director and officer of Medscape when Medscape acquired Healthcare
Communications Group in October 1998. Dr. Drezner holds a BS from the University
of California at Berkeley, an MD degree from the University of Southern
California School of Medicine and a Ph.D. from the Southern California
Psychoanalytic Institute.
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<PAGE> 53
STEVEN R. KALIN, Chief Operating Officer and Chief Financial
Officer. Prior to joining Medscape in October 1998, Mr. Kalin was with ESPN
since 1995, most recently as Vice President of Business Development for ESPN
Internet Ventures, where he was responsible for ESPN.com's strategic
partnerships. From 1990 to 1995, Mr. Kalin was a Senior Engagement Manager with
McKinsey & Co., specializing in the media industry. Mr. Kalin holds a BA from
Brown University and an MBA from Harvard Business School.
GEORGE D. LUNDBERG, M.D., Editor in Chief. Prior to joining Medscape in
February 1999, Dr. Lundberg served as Editor of the Journal of the American
Medical Association for 17 years. Dr. Lundberg also served as the Editor in
Chief of Scientific Information and Multimedia, a publication of the American
Medical Association, from 1982 until 1999. Dr. Lundberg holds an MS degree from
Baylor University and BS and MD degrees from the University of Alabama. Dr.
Lundberg holds honorary degrees from four U.S. universities.
MEG WALSH, President, Medscape Consumer. Prior to joining Medscape in
March 1999, Ms. Walsh founded HealthTech Digital, a leading interactive consumer
healthcare agency, in 1996 and sold that company to Lowe McAdams
Healthcare/Interpublic Group in September 1997 after which she continued as
Managing Director until joining Medscape. From 1995 to 1996, Ms. Walsh was
Director of Marketing for Time Life Medical. Ms. Walsh also held positions as
Assistant V.P. of Sales for Physicians World, a professional healthcare
communications organization, from 1992 to 1995, and before that was a Sales
Manager for Johnson & Johnson. Ms. Walsh holds a BA from Rider University.
DAVID YAKIMISCHAK, Chief Technology Officer. Prior to joining Medscape in
March 1999, Mr. Yakimischak was the Director of Product Development at Dow Jones
Interactive Publishing where he was responsible for bringing all new electronic
products to market. Mr. Yakimischak had been with Dow Jones since 1994. Mr.
Yakimischak studied engineering and computer science at the University of
Toronto.
MARK E. BOULDING, General Counsel and Vice President of Regulatory
Affairs. Prior to joining Medscape in June, 1999, Mr. Boulding was a partner of
Long Aldridge & Norman LLP since 1998, specializing in healthcare and technology
law, with a particular focus on Internet-based companies and healthcare
e-commerce. From 1991 to 1998, Mr. Boulding was an associate and then a partner
with the firm of Fox, Bennett & Turner in Washington, D.C. Mr. Boulding is a
co-founder and sits on the board of directors of the Internet Healthcare
Coalition and is the co-chair of the Internet Law Subcommittee of the American
Bar Association's Cyberspace Law Committee. Mr. Boulding holds a BA from Yale
University and a JD from University of Michigan Law School.
MARC BUTLEIN, Director. Mr. Butlein is Chairman of MAS Communications, an
e-commerce consulting business. In 1989, he co-founded META Group, a leading
worldwide information technology market assessment and consulting firm. Mr.
Butlein served as Chairman of META Group until April 1998. Mr. Butlein is a
director of META Group and Aeneid, an Internet software business. Mr. Butlein
joined the Medscape board in October 1997 as a designee of Media Technology
Ventures. Mr. Butlein received a BA from the University of Connecticut and
worked on his doctorate in political science at the Maxwell School of
Citizenship and Public Affairs at Syracuse University.
ESTHER DYSON, Director. Ms. Dyson has been the Chairman of EDventure
Holdings, publisher of the newsletter Release 1.0, since 1982. Ms. Dyson is the
author of Release 2.0, an acclaimed book about cyberspace. Ms. Dyson joined the
Medscape board in June 1996. She is also interim chairman of the Internet
Corporation for Assigned Names and Numbers and is a director of three software
companies -- Accent Software, Graphisoft and Scala Business Solutions. She also
sits on the boards of directors of Uproar.com, an online game company, and PRT
Group, a systems integrator. Ms. Dyson holds a BA from Harvard College.
ANDREW HEYWARD, Director. Mr. Heyward has served as President of CBS News
since January 1996. From October 1994 until January 1996, he was Executive
Producer of "CBS Evening News with Dan Rather" and Vice President of CBS News.
From February 1993 until October 1994, Mr. Heyward served as Executive Producer
of the CBS News Magazine "Eye to Eye with Connie Chung." Prior to that time, he
was responsible for developing CBS's "48 Hours" series. Mr. Heyward holds a BA
from Harvard University.
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ALAN J. PATRICOF, Chairman of the Board. Mr. Patricof is co-Chairman of
Patricof & Co. Ventures, Inc., a venture capital firm with operations in eight
countries and over $6 billion under management, which he founded in 1969. Mr.
Patricof joined as Chairman of the Board in 1996. Mr. Patricof serves on the
boards of directors of Boston Properties, a real estate investment trust; NTL
Corp., a communications company; and CORECOMM, Inc., a telecommunications
company. In 1995, he served as Chairman of the White House Conference on Small
Business Commission. Mr. Patricof holds a BS in finance from Ohio State
University and an MS from Columbia University Graduate School of Business.
FREDRIC G. REYNOLDS, Director. Mr. Reynolds has been Executive Vice
President and Chief Financial Officer of CBS Corporation since December 1997.
Earlier, Mr. Reynolds had served as Executive Vice President and Chief Financial
Officer of Westinghouse Electric Corporation since February 1994 and,
additionally, as Chief Financial Officer of CBS, Inc. since April 1996. Prior to
joining Westinghouse in 1994, Mr. Reynolds spent 13 years at PepsiCo Inc. in
various financial positions, including Senior Vice President and Chief Financial
Officer for PepsiCo Foods International, PepsiCo's Frito-Lay unit, and Chief
Financial Officer of several other units, including Kentucky Fried Chicken,
Pepsi-Cola International and Pizza Hut. Mr. Reynolds holds a BBA from the
University of Miami.
CARLO A. VON SCHROETER, Director. Mr. von Schroeter is a General Partner
of Weston Presidio Capital, a private equity and venture capital firm. Prior to
joining Weston Presidio Capital at its inception in September 1992, Mr. von
Schroeter was a Vice President with Security Pacific Capital. Mr. von Schroeter
has served as a director of Medscape since March 1999 as a designee of Weston
Presidio Capital. Mr. von Schroeter also serves on the boards of directors of
MapQuest.com, Inc., a leading online provider of mapping and destination
information, and several private companies. Mr. von Schroeter holds a BS from
Queen's University, Canada and an MBA from Harvard Business School.
OAKLEIGH THORNE, Director. Since October 1996, Mr. Thorne has served as
the Chairman and Chief Executive Officer of TBG Information Investors, LLC, a
private equity partnership, and as the Co-President of Blumenstein/Thorne
Information Partners I, L.P., a private equity partnership. From April 1995 to
August 1996, Mr. Thorne was President and CEO, and from January 1991 to April
1995, the Executive Vice President, of Commerce Clearing House, Inc., a leading
provider of tax and business law information, software and services. Mr. Thorne
joined the Medscape board in March 1998 as TBG Information Investors LLC's
designee. He also serves as the Chairman of the Board of SCP Communications,
Inc. Mr. Thorne holds a BS from Boston University School of Journalism and an
MBA from Columbia University Graduate School of Business.
BOARD COMPOSITION
We currently have ten directors. Under our restated certificate of
incorporation, which will become effective upon the closing of this initial
public offering, the terms of office of the directors will be divided into three
classes: Class I, whose term will expire at the annual meeting of stockholders
to be held in 2000; Class II, whose term will expire at the annual meeting of
stockholders to be held in 2001; and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2002. The Class I directors will be
Paul T. Sheils, Peter M. Frishauf and Marc Butlein, the Class II directors will
be Esther Dyson, Oakleigh Thorne and Jeffrey D. Drezner, M.D., Ph.D. and the
Class III directors will be Alan J. Patricof, Carlo A. von Schroeter, Fredric
Reynolds and Andrew Heyward. At each annual meeting of stockholders after the
initial classification or special meeting held in place of an annual meeting,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following election or similar special meeting. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of one
third of the directors. This classification of our board of directors may have
the effect of delaying or preventing changes in control or management of
Medscape. CBS is entitled to designate three of our directors. CBS's current
designees are Fredric Reynolds, Andrew Heyward, and Oakleigh Thorne.
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COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee and a
compensation committee. The audit committee assists the board of directors in
fulfilling its responsibilities of ensuring that management is maintaining an
adequate system of internal controls to assure:
- that assets are safeguarded and that financial reports are properly
prepared;
- consistent application of generally accepted accounting principles; and
- compliance with management's policies and procedures.
In performing these functions, the audit committee meets periodically with
the independent auditors and management to review their work and confirm that
they are properly discharging their respective responsibilities. The audit
committee also:
- recommends an independent audit firm to audit financial statements and to
perform services related to the audit;
- reviews the scope and results of the audit with the independent
accountants;
- reviews with management and the independent accountants our annual
operating results;
- considers the adequacy of the internal accounting control procedures; and
- considers accountants' independence.
The audit committee currently consists of Oakleigh Thorne and Marc Butlein.
The primary function of the compensation committee is to determine
management and executive compensation and establish fringe benefit and other
compensation policies. The compensation committee is also responsible for the
administration of our stock option plan, including reviewing management
recommendations with respect to option grants and taking other actions as may be
required in connection with our compensation and incentive plans. The
compensation committee currently consists of Esther Dyson and Alan J. Patricof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Patricof, a member of the compensation committee, is Co-Chairman of
Patricof & Co. Ventures, Inc., that manages APA Excelsior IV, L.P., Coutts & Co.
Cayman Ltd. c/o APA Excelsior IV/Offshore L.P., Patricof Private Investment Club
and APA Excelsior Fund. In our March 5, 1999 private placement of Series D
Preferred Stock, APA Excelsior IV, L.P. purchased 71,365 shares, Coutts & Co.
Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P. purchased 12,595 shares and
Patricof Private Placement Investment Club, L.P. purchased 1,365 shares, all at
a purchase price of $11.72 per share.
DIRECTOR COMPENSATION
Medscape reimburses its directors for out-of-pocket expenses related to
attending meetings of the board of directors. Non-employee directors are also
entitled to stock option grants under our stock option plan. Medscape currently
does not intend to pay cash fees to directors for attendance at meetings.
EXECUTIVE COMPENSATION
The following table shows the total compensation paid for the year ended
December 31, 1998 for our Chief Executive Officer and the Executive Committee
Chairman, the only other executive officer whose
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annual salary and bonus exceeded $100,000 in 1998. Our Chief Executive Officer,
Paul T. Sheils, joined Medscape in February 1998. His annualized salary for 1998
was $195,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
<S> <C> <C> <C>
Paul T. Sheils.............................. $171,750 $85,000 750,000.0
President and Chief Executive Officer
Peter M. Frishauf........................... $ 80,000 -- 152,617.5
Executive Committee Chairman
</TABLE>
In accordance with the terms of his employment agreement, Mr. Frishauf
elected to receive options to purchase 152,617.5 shares of common stock instead
of a cash bonus of $35,000 to which he would have otherwise been entitled.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows grants of stock options to Medscape's Chief
Executive Officer and to the Executive Committee Chairman for the year ended
December 31, 1998. We have never granted any stock appreciation rights. The
percentages in the table below are based on options to purchase an aggregate of
1,990,117.5 shares of common stock granted under our stock option plan in the
year ended December 31, 1998 to our employees, consultants and directors. The
exercise price per share of each option was equal to the fair market value of
the common stock on the date of grant as determined by the board of directors.
Potential realizable values are net of exercise price before taxes, and are
based on the assumption that our common stock appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
ten-year term. These numbers are calculated based on the requirements of the SEC
and do not reflect our estimate of future stock price growth.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL
---------------------------------------------------------- RATES OF STOCK
NUMBER OF PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------
NAME GRANTED FISCAL YEAR(%) SHARE($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Paul T. Sheils....... 750,000.0 37.7% .172 2/15/08 $210,177 $334,593
Peter M. Frishauf.... 152,617.5 7.7 .344 12/14/08 85,516 136,173
</TABLE>
FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning stock options
held as of December 31, 1998 by our Chief Executive Officer and by the Executive
Committee Chairman. The value realized by our Executive Committee Chairman,
Peter M. Frishauf, is based on a value of $0.172 per share, the fair market
value of the common stock at August 18, 1998, as determined by the board of
directors, less the exercise
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price per share. The value of unexercised in-the-money options at fiscal
year-end is based on $0.344 per share, the assumed fair market value of the
common stock at December 31, 1998, less the exercise price per share.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED OPTIONS UNEXERCISED IN-THE MONEY
SHARES AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Paul T. Sheils....... -- -- -- 750,000 $ -- $ 258,000
Peter M. Frishauf.... 161,125 -- 162,617.5 88,375 55,940 30,401
</TABLE>
1996 STOCK OPTION PLAN
The following is a summary description of the Medscape, Inc. 1996 Stock
Option Plan. You may refer to the exhibits that are part of the registration
statement for a copy of the stock option plan.
Types of Awards. The stock option plan provides for grants of incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code of
1986 and stock options which are not intended to qualify as incentive stock
option, or nonqualified stock options.
Shares Subject to the Stock Option Plan. The total number of shares of
common stock that may be issued under the stock option plan is 8,250,000 shares.
These shares may be authorized but unissued common stock or authorized and
issued common stock that has been reacquired by Medscape and held in our
treasury. If any grant expires or for any reason is terminated or unexercised,
the shares of common stock relating to that grant again become available for
issuance with respect to grants under the stock option plan.
The compensation committee has the authority to make appropriate
adjustments to the total number of shares available for issuance under the stock
option plan and to the number of shares that may be purchased and the exercise
price applicable to outstanding stock options under the stock option plan in the
event of a merger, consolidation, reorganization, stock dividend, stock split,
or other similar change affecting our capital structure.
Eligibility. Grants may be made to any full or part-time employee of
Medscape and of our current or future subsidiaries, and to any consultant,
director or independent contractor providing services to Medscape or any of our
subsidiaries, in each case as determined by the compensation committee.
Administration. Our compensation committee administers the stock option
plan. The compensation committee has the authority to make grants under the
stock option plan, including the authority, in its discretion, to select the
individuals to receive grants, to determine, consistent with the stock option
plan, the terms of the grant, and the terms and provisions of each option
agreement under the stock option plan reflecting awards, and to prescribe rules
and make interpretations regarding the stock option plan which are final and
conclusive.
Stock Options. The compensation committee may grant incentive stock
options and nonqualified stock options to eligible persons that permit the
optionee to purchase shares of common stock from Medscape at a fixed price and
in accordance with terms, as determined by the compensation committee, relating
to, among others, option exercise price, exercisability, method of payment of
the option exercise price, and the option exercise periods applicable after the
optionee's termination of service, with all terms set forth in the option
agreement and not otherwise inconsistent with the stock option plan. The term of
any nonqualified stock option granted under the stock option plan may not exceed
15 years from the grant date.
In the case of any grant intended to constitute an incentive stock option,
the exercise price will be no less than the fair market value of the common
stock on the date of grant and the option term may not exceed 10 years from the
grant date. Further, the aggregate fair market value, determined at the date the
option is granted, of stock with respect to which incentive stock options
granted under the stock option plan are exercisable for the first time in any
calendar year by any eligible employee may not exceed $100,000.
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Unless otherwise provided in an option agreement, if we undergo a "change
in control," as defined in the stock option plan, then all outstanding options
will become fully exercisable.
Nonassignability. Except as may otherwise be provided in a option
agreement with respect to the grant of a nonqualified stock option, no grant is
assignable or transferable by an optionee other than by will or the laws of
descent and distribution and during the optionee's lifetime the grant may be
exercisable only by the optionee.
Amendment and Termination. Our board of directors may amend or discontinue
the stock option plan at any time, provided that any stock option plan amendment
that would increase the maximum number shares of common stock available for
issuance under the stock option plan, modify the eligibility requirements for
participation in the stock option plan, decrease the minimum option price, or
extend the maximum option term will require stockholder approval. In addition,
the board of directors may not change the terms of any outstanding grant if a
change would be materially adverse to the optionee without the optionee's
consent.
Federal Income Tax Consequences. The following is a brief description of
various U.S. federal income tax consequences of grants under the stock option
plan based upon the laws in effect on the date of this Prospectus.
Incentive Stock Options. No federal taxable income should be recognized by
the employee upon the grant or exercise of an incentive stock option. If the
shares of common stock acquired upon exercise of an incentive stock option are
not disposed of within two years of the date of grant or within one year after
the transfer of the shares to the employee upon exercise of the incentive stock
option, then:
- upon the sale of the shares, any amount realized in excess of the
exercise price of the option will be taxed as long-term capital gain; and
- no deduction will be allowed to us for federal income tax purposes.
The exercise of an incentive stock option may result in an alternative minimum
tax liability to the employee.
If the stock acquired upon the exercise of an incentive stock option is
disposed of prior to the expiration of the holding periods described above,
then, generally:
- the employee will recognize ordinary income in an amount equal to the
excess, if any, of the fair market value of the shares at exercise, or,
if less, the amount realized on the disposition of the shares, over the
exercise price of the option; and
- we will be entitled to a tax deduction in the same amount.
Any further gain recognized by the employee will be taxed as short-term or
long-term capital gain, depending upon the length of time the employee held the
shares, and this amount will not be deductible by Medscape.
Nonqualified Stock Options. With respect to nonqualified stock options:
- no federal taxable income should be recognized by the optionee at the
time the option is granted;
- generally upon exercise of the option, the optionee will recognize
ordinary income in an amount equal to the difference between the exercise
price of the option and the fair market value of the shares purchased on
the date of exercise and we generally will be entitled to a tax deduction
in the same amount; and
- upon disposition of the shares acquired, generally any appreciation or
depreciation after the date of exercise is treated by the optionee either
as long-term or short-term capital gain or loss, depending upon the
length of time that the optionee held the shares.
Section 162(m) Limitations. The stock option plan is subject to a special
initial public offering-related transition rule under Internal Revenue Code
Section 162(m). Medscape's tax deduction upon the exercise of a nonqualified
stock option by certain executive officers would be subject to the limitations
of Section 162(m) of the Code if a nonqualified stock option is granted after
this offering with an exercise price less than the fair market value of the
common stock on the date of grant.
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As of August 31, 1999, there were options to purchase 5,674,085 shares
outstanding and 813,792.5 shares available for future grant. As of August 31,
1999, 1,762,122.5 shares had been issued upon exercise of options granted under
the option plan.
EMPLOYMENT AGREEMENTS
Agreement with Paul T. Sheils. Under a three-year employment agreement
dated January 26, 1998, Paul T. Sheils became our President and Chief Executive
Officer on February 16, 1998 at an initial base salary of $195,000. Mr. Sheils'
base salary was increased to $225,000 effective February 16, 1999. The
employment agreement includes a $35,000 signing bonus, a 1998 performance bonus
of up to $52,500 based on reaching performance targets, and 1999 and 2000
performance bonuses, the target amounts of which cannot be less than $35,000 per
year and are based on meeting performance targets developed by our compensation
committee.
The employment agreement also granted Mr. Sheils incentive stock options to
purchase 750,000 shares of our common stock at $0.172 per share. These incentive
stock options are subject to the provisions of our stock option plan and an
incentive stock option agreement between Mr. Sheils and Medscape. One-third of
Mr. Sheils' incentive stock options vested on the first anniversary of his
employment and the remaining incentive stock options will vest after that date
in equal monthly installments until the third anniversary of Mr. Sheils'
employment. Regardless of these vesting provisions, the incentive stock options
are 100% exercisable on the date of a "corporate change," which is defined in
the stock option plan.
On February 16, 1999, Mr. Sheils was granted options to purchase an
additional 250,000 shares of common stock at an exercise price of $1.00 per
share.
If Mr. Sheils' employment is terminated for any reason other than his
death, disability or serious misconduct, he may exercise any vested incentive
stock options within 90 days of his termination. However, the incentive stock
options are forfeited if Mr. Sheils is terminated for serious misconduct. Also,
if Mr. Sheils' employment is terminated because of his death or disability, Mr.
Sheils or his estate may exercise any vested incentive stock options within one
year after termination.
Under his employment agreement, Mr. Sheils agreed not to compete with
Medscape and not to solicit our customers or employees for one year after the
termination of his employment, with limited exceptions. However, if he is
terminated without cause, the noncompetition and nonsolicitation restrictions
are limited to six months and the noncompetition restrictions will apply only to
his employment by certain healthcare-oriented Web sites. Mr. Sheils is also
entitled to six months' salary if he is terminated by us without cause, and may
himself terminate the employment agreement for any reason upon 60 days' notice.
In accordance with the terms of the employment agreement, Mr. Sheils was also
elected as a director of Medscape.
Agreement with Peter M. Frishauf. Under a three-year employment agreement
dated February 16, 1998, Peter M. Frishauf became Chairman of the executive
committee of Medscape at a base salary of $80,000. Under the employment
agreement, Mr. Frishauf has agreed to dedicate at least one-half of his business
time to Medscape. His employment agreement provides for performance bonuses of
up to $50,000 per year if performance targets are met. The performance bonuses
may be paid, at Mr. Frishauf's option in cash, in shares of our common stock,
the fair market value of which will be equal to the performance bonus amount, or
options for shares of our common stock, the fair market value of which will be
equal to 150% of the performance bonus amount. Mr. Frishauf also agreed not to
compete with Medscape and not to solicit our customers or employees for one year
following the termination of his employment, with limited exceptions. Mr.
Frishauf may terminate the employment agreement for any reason upon 60 days'
notice to us.
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TRANSACTIONS WITH RELATED PARTIES
Since January 1, 1998, there has not been nor is there currently proposed
any transaction or series of similar transactions to which Medscape or any of
its subsidiaries was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer, holder of more than 5% of
the common stock of Medscape or any member of the immediate family of any of
those people had or will have a direct or indirect material interest other than
(a) compensation agreements and other arrangements that are described above for
the named executive officers and (b) the transactions described below.
SERIES D TRANSACTION
On March 5, 1999, we sold 1,757,683 shares of Series D Preferred Stock at a
purchase price of $11.72 per share, which was paid in cash. The purchasers of
the Series D Preferred Stock included the following holders of more than 5% of
the common stock, assuming the conversion of outstanding preferred shares:
- Media Technology Ventures, L.P. -- 75,568 shares.
- MTV Entrepreneurs Fund, L.P. -- 9,757 shares.
- CSK Venture Capital Co. Ltd. (CSK-1(A)) -- 28,442 shares.
- CSK Venture Capital Co., Ltd. (CSK-1(B)) -- 28,442 shares.
- CSK Venture Capital Co., Ltd. (CSK-2) -- 28,441 shares.
- Weston Presidio Capital II, L.P. -- 255,973 shares.
- Weston Presidio Capital III, L.P. -- 406,392 shares.
- WPC Entrepreneur Fund, L.P. -- 20,229 shares.
- Highland Capital Partners IV -- 655,290 shares.
- Highland Entrepreneurs Fund IV -- 27,304 shares.
- APA Excelsior IV, L.P. -- 71,365 shares.
- Patricof Private Investment Club, L.P. -- 1,365 shares.
- Coutts & Co. Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P. -- 12,595
shares.
Alan J. Patricof, the Chairman of Medscape's board, is a Co-Chairman at
Patricof & Co. Ventures, Inc., that manages APA Excelsior IV, L.P., Coutts & Co.
Cayman Ltd. c/o APA Excelsior IV/Offshore, L.P., Patricof Private Investment
Club and APA Excelsior Fund. Carlo A. von Schroeter, a director of Medscape and
designee of Weston Presidio Capital, is a General Partner at Weston Presidio
Capital, that manages Weston Presidio Capital II, L.P., Weston Presidio Capital
III, L.P. and WPC Entrepreneur Fund, L.P. Mr. von Schroeter was elected as a
director as a condition to the investment by these entities.
ACQUISITION OF HEALTHCARE COMMUNICATIONS GROUP, LLC
In October 1998 we acquired all the membership interests of Healthcare
Communications Group, LLC for 1,825,435 shares of our Class B Common Stock, and
$1,075,000 in cash. Dr. Jeffrey L. Drezner owned the majority of the membership
interests of Healthcare Communications Group. Contemporaneously with our
acquisition of Healthcare Communication Group, we hired Dr. Drezner as Executive
Vice President with an initial base salary of $195,000 and, as a condition to
the acquisition, Dr. Drezner was elected as a director of Medscape. In
connection with Dr. Drezner's employment agreement, he purchased 1,825,435
restricted shares of Class B Common Stock in exchange for a promissory note in
the principal amount of $627,950 with 5.12% interest per annum. This note is
secured by a pledge of the stock and the principal remains outstanding. These
restricted shares will vest in yearly installments over a three year period
through December 31, 2001, based upon the achievement of targeted revenue
performance goals. Restricted shares which do not vest are subject to
forfeiture.
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SERIES C TRANSACTION
On March 17, 1998, pursuant to amendments to an earlier financing agreement
entered into by various investors in October 31, 1997 involving the purchase of
1,478,359 shares of Series C Preferred Stock at $4.60 per share, we sold an
additional 932,401 shares of Series C Preferred Stock at a purchase price of
$4.29 per share, which was paid in cash. This investment triggered anti-dilution
provisions inherent in the outstanding 1,478,359 shares of Series C Preferred
Stock, making them convertible into 1,585,186 shares of common stock upon
conversion. The 932,401 shares of Series C Preferred Stock, which are
convertible into 932,401 shares of common stock upon conversion, were
redesignated as Series C-1 Preferred Stock on March 5, 1999, in connection with
the Series D Transaction described above to distinguish their conversion rate
from that of the March 1997 investors. The purchasers of the 932,401 shares of
Series C Preferred Stock included the following holders of more than 5% of the
common stock, assuming the conversion of outstanding preferred shares:
- TBG Information Investors, LLC -- 699,301 shares.
- Media Technology Ventures, L.P. -- 206,433 shares.
- Media Technology Ventures Entrepreneurs Fund, L.P. -- 26,667 shares.
Oakleigh Thorne, a director of Medscape, is Chairman and Chief Executive
Officer of TBG Information Investors, LLC. Mr. Thorne was elected as a director
as a condition to the investment by TBG Information Investors, LLC. Marc
Butlein, a designee of Media Technology Ventures, L.P. and Media Technology
Ventures Entrepreneurs Fund, L.P., was elected as a director as a condition to
the earlier investment by Media Technology Ventures, L.P. and Media Technology
Entrepreneurs Fund, L.P. in March 1997.
TRANSACTIONS WITH SCP COMMUNICATIONS, INC.
On April 1, 1996, we entered into an agreement with SCP Communications,
Inc. for administrative and support services, including accounting, clerical,
secretarial and receptionist assistance. We renewed this agreement in each of
1997 and 1998. From April 1, 1996 until March 31, 1997, we paid SCP
Communications $35,000 per month for these services. Beginning on April 1, 1997
through June 30, 1998, as we expanded our own administrative and support
services, this amount was reduced to $12,000 per month. The service agreement
increased to $14,950 for the period July 1, 1998 to April 30, 1999 to reflect
additional services. Under this agreement, we agreed to reimburse out-of-pocket
costs incurred by SCP Communications in connection with these services. We
terminated the agreement on April 30, 1999.
On April 1, 1996, we also entered into a financing agreement with SCP
Communications that provided that they would advance funds to us under specified
circumstances. The agreement provided for financing of up to $1 million, payable
on demand, with interest at SCP Communications' borrowing rate plus 2%, payable
quarterly. We received loan proceeds of $550,000 in 1996 and further proceeds of
$1 million in 1997. In 1997 we repaid $1.15 million to SCP Communications
reducing the balance to $359,000 at December 31, 1997. We fully repaid this
balance in 1998.
Peter M. Frishauf and Oakleigh Thorne currently serve as directors of SCP
Communications. Peter M. Frishauf was the Chief Executive Officer of SCP
Communications until April 1996, and an employee of SCP Communications until
January 15, 1999. TBG Information Investors, LLC owns a majority of the
outstanding voting stock of SCP Communications. Alan J. Patricof resigned as a
director of SCP Communications, Inc. on November 25, 1997.
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RECENT TRANSACTIONS
TRANSACTIONS WITH CBS
On July 7, 1999, we entered into a common stock purchase agreement and on
August 3, 1999, in related transactions we entered into an advertising and
promotion agreement, a trademark and content agreement, a stockholders'
agreement and a registration rights agreement with CBS Corporation.
Stock Purchase Agreement. Under the stock purchase agreement, we issued
7,397,208 shares of Class A Common Stock and 6,541,160 shares of Class B Common
Stock to CBS for an aggregate purchase price of $139,383.68, which was paid in
cash, and $156,860,616.32, to be paid through the provision by CBS of
advertising services under the advertising and promotion agreement and a license
to the "CBS" trademark and "Eye" design and selected health-related news content
under the trademark and content agreement.
Advertising and Promotion Agreement. Over the term of the advertising and
promotion agreement, CBS will arrange for the placement of approximately $150
million worth of advertising and promotion in the United States for our consumer
and professional Web sites and our other products and services. The possible
media categories in which this advertising and promotion will be placed include:
- CBS television network programming;
- CBS owned and operated television and radio station programming;
- CBS outdoor billboards;
- CBS Internet sites; and
- CBS cable.
All advertising and promotional materials are subject to CBS's advertising
guidelines and preemption policies and CBS is not required to make any ad
placements if the exigencies of time or contractual obligations prevent or
restrict CBS from doing so.
The term of the advertising and promotion agreement will expire on August
3, 2006. In addition, CBS may terminate the agreement and have no further
obligation to us under the agreement if:
- we issue to a CBS competitor a number of voting securities that result in
the competitor owning or controlling 9% or more of our voting securities;
- we materially breach a material term of the advertising and promotion
agreement or any of the other agreements with CBS of the same date;
- we become insolvent or commence bankruptcy or similar proceedings, or
- CBS.Medscape.com ceases to operate for specified periods of time.
In addition, in the event of a breach by CBS of the advertising and
promotion agreement, we may terminate the agreement in which case CBS's
obligation to provide advertising and promotion would continue unless CBS elects
to pay us, over the remaining term of the agreement, the cash equivalent of the
difference between approximately $150 million and the value of advertising and
promotion already provided, or unless CBS is required to pay such amount because
it is unable to provide the advertising and promotion because the parties cannot
agree on a media plan for a contract year which is consistent with prior media
plans.
Trademark and Content Agreement. Under the trademark and content
agreement, CBS granted us a non-exclusive license to use on our consumer Web
site, CBS.Medscape.com, the "CBS" trademark and "Eye" design and selected
health-related news content contained in CBS network television news programs.
Under the agreement, CBS retains significant control over the use and
presentation of the CBS health content and CBS trademarks. For example:
- our use of the CBS health-related news content and trademarks must
conform to CBS's guidelines; and
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- CBS may refuse to deliver, or require us to cease using, content that CBS
determines conflicts with, or interferes with or is detrimental to CBS's
interests, reputation or business or which might subject CBS to legal
liability or regulatory action.
During the term of the agreement, our consumer Web site will be the
exclusive healthcare Internet site integrated into CBS News programming. This
integration will be accomplished by CBS News, when appropriate and at its
discretion, directing viewers of CBS News programs to CBS.Medscape.com for more
information regarding health-related news stories and features. In addition,
during the term of the agreement, with limited exceptions, CBS may not:
- license the CBS trademarks in connection with the branding of any
competitive Web site; or
- make available any CBS health content on any competitive Web site.
The term of the trademark and content agreement expires on August 3, 2006.
In addition, CBS may terminate the agreement if:
- we issue to a CBS competitor a number of voting securities that result in
the competitor owning or controlling 9% or more of our voting securities;
- we breach a material term of the trademark and content agreement or any
of the other agreements with CBS of the same date; or
- we become insolvent or subject to bankruptcy or similar proceedings.
The agreement provides that we and CBS can mutually decide to use a brand name
other than CBS.Medscape.com for our consumer site.
Stockholders' Agreement. The stockholders' agreement provides that CBS is
entitled to designate up to three members to our board of directors as long as
it holds at least 30% of our outstanding voting securities; two, as long as it
holds at least 20% but less than 30% of our outstanding voting securities; or
one, as long as it holds at least 12.5% but less than 20%, of our outstanding
voting securities. If CBS's holdings of our outstanding voting securities fall
below 12.5% but the reduction is not caused by the sale of any securities by
CBS, CBS will continue to have the right to designate one individual to our
board of directors. If the size of our board of directors is increased beyond
ten members, the number of individuals that CBS is entitled to designate will be
adjusted upward to reflect the percentage of our outstanding voting securities
that it holds. We have agreed to use our best efforts to cause any shares of our
stock for which our management or board of directors hold proxies or are
otherwise entitled to vote, to be voted in favor of the CBS designees. As a
condition to the closing of the transaction with CBS, substantially all holders
of more than 5% of our common stock and our Chief Executive Officer, Executive
Vice President and Executive Committee Chairman have entered into a joinder
agreement to the CBS stockholders' agreement under which they agree to the above
provisions relating to CBS's rights to designate members to our board of
directors.
In addition, if we propose to issue new voting securities, or securities
convertible into or exchangeable for voting securities that would reduce CBS's
percentage of ownership of our voting securities, CBS will have the right to
purchase for cash a number of securities on the same terms in an amount
necessary to maintain its percentage ownership of voting securities, not to
exceed a percentage equal to the percentage of the outstanding voting securities
held by CBS upon the consummation of this offering. If we receive non-cash
consideration for an issuance, the purchase price for CBS will be a per share
price equal to the "fair market value" of the non-cash consideration.
This purchase right will not apply to issuances by us in any calendar year
of:
- up to an aggregate of 7.5% of our outstanding common stock pursuant to
stock option plans approved by our board of directors, plus shares issued
upon the exercise of outstanding option and warrants, conversion of or
exchange for any outstanding convertible or exchangeable securities or
the effectuation of a stock split or dividend payable in shares of common
stock or other securities or rights convertible into our common stock;
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- up to an aggregate of 7.5% of our outstanding common stock in follow-on
public offerings, the proceeds of which are to be used for general
corporate purposes; and
- up to 5% of our outstanding common stock per acquisition in connection
with acquisitions approved by our board of directors, provided we do not
issue, in the aggregate, more than 10% of our outstanding common stock in
connection with these acquisitions in any year.
Furthermore, if we consummate an acquisition by issuing more than 5% of our
outstanding common stock and the price for our common stock is below a specified
level, we will be required to issue CBS a warrant to purchase the number of
shares of our common stock necessary to maintain CBS's then current percentage
ownership. The warrant will expire on the third anniversary of the acquisition.
Registration Rights Agreement. Under the registration rights agreement,
CBS has "piggyback" registration rights. If we propose to register any common
stock under the Securities Act, CBS may require us to include all or a portion
of its securities in the registration. However, the managing underwriter, if
any, of any common stock offering has rights to limit the number of CBS's
securities proposed to be included in the registration.
We would bear all registration expenses incurred in connection with these
registrations. CBS would pay all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of its securities.
The registration rights of CBS under the registration rights agreement will
terminate when CBS may sell all of its shares in a three-month period under Rule
144 promulgated under the Securities Act.
TRANSACTIONS WITH NATIONAL DATA CORPORATION
On August 4, 1999 we sold 400,000 shares of Series E Preferred Stock at a
purchase price of $25 per share and 1,000,000 shares of Class A Common Stock at
a purchase price of $10 per share to National Data Corporation. In exchange for
the shares, we received $10,000,000 in cash and will receive $10,000,000 of
value attributed to licensing and promotional value, product purchase amounts
and credits against future commissions due by us to NDC, to be provided under
the terms of a separate license and product development agreement, also dated
July 7, 1999.
Under the license and product development agreement:
- our Web site will be the exclusive healthcare content Web site integrated
into NDC's physician practice management product until September 30,
2000, after which we will have the right of first negotiation to extend
the exclusive arrangement;
- NDC will have the right of first negotiation to provide us with clinical
data interchange and data management services in the United States;
- we will have the right of first negotiation to provide healthcare content
to NDC's healthcare products in the United States; and
- we will work jointly with NDC to identify market opportunities and to
develop, market and sell new products.
The term of the license and product development agreement expires on July 7,
2002.
Assuming an initial offering price of at least $10, the 400,000 shares of
Series E Preferred Stock will convert into 1,000,000 shares of our common stock
upon completion of the offering. If the initial public offering price is less
than $10 per share, the number of shares of common stock issuable upon
conversion to the holders of Series E Preferred Stock would be increased to an
amount of shares equal to the quotient of $10,000,000 divided by the initial
offering price.
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TRANSACTION WITH AMERICA ONLINE, INC.
On September 3, 1999, we entered into an interactive services agreement
with America Online, Inc., under which AOL must provide us with a guaranteed
number of impressions, through promotions like banners and links to our sites on
various AOL properties, over a three-year period. An impression occurs any time
a user sees a screen that combines our name or brand with a link to one of our
co-branded sites or to an area on AOL's proprietary online service that we
program. In exchange for this promotion, we agreed to pay AOL $33 million over a
two-year period and issued AOL two seven-year warrants, each to purchase up to
1,352,158 shares of our Class A Common Stock. Of the $33 million, $3 million was
paid at the time of signing and $10 million will be due within 15 days after
completion of this offering. One of the warrants is fully vested now and has an
exercise price of $10 per share. The other will vest over the next three years
based on AOL's achievement of specified performance targets and will have
exercise prices equal to the fair market value of our common stock at the time
of vesting.
Under the agreement, we will develop separate AOL co-branded consumer sites
which will appear and be promoted on AOL, AOL.com, CompuServe Service, Netscape
Netcenter and Digital City, which are AOL properties. The content, advertising
and format of these sites must comply with AOL guidelines. If these sites are
not prepared within the time frames in the agreement, AOL may reduce the number
of impressions that it must deliver on a pro rata basis based on the number of
days of the delay. We must also mention AOL in a substantial portion of our
advertising and promotion of the consumer sites, including advertising placed
through our agreement with CBS.
Our agreement with AOL expires on September 3, 2002, but may be extended
unilaterally by AOL for nine months with no additional payments due from us. AOL
may terminate the agreement early in the event of the following:
- on, or within 90 days after, September 2, 2001 if AOL exercises its
buy-out right and pays us a specified termination fee plus the value of
any shortfall in the number of impressions delivered during the 24-month
period, in which case any unexercised performance-based warrants will be
extinguished;
- a material claim or proceeding is brought against us for professional
negligence or wrongdoing, including malpractice or practicing medicine
without the appropriate license, which on its face appears to be
meritorious and which appears to have the potential for significantly
damaging AOL's or our reputation;
- we are acquired by, or merge with, selected companies specified in the
agreement, in which case we will be required to make the next payment
installment to AOL and all of AOL's unvested warrants will automatically
vest;
- we are acquired by, or merge with, an entity other than the specified
companies referred to above in which case AOL may elect to terminate the
agreement with no further payments from us, or continue it and receive
all of the payments due to it under the agreement; or
- we do not complete preparation of the co-branded sites within 60 days of
the time frames established in the agreement.
In addition, AOL may terminate its promotional obligations if all of the
following occur:
- we no longer employ a nationally recognized high-quality editorial staff
and independent editorial board to monitor our content;
- at any time 180 days after the effective date of the agreement, our
sites, taken as a whole, are not ranked among the top five health content
and interactive tool sites, not including Dr. Koop and AOL Health, for at
least two consecutive months in terms of both traffic and audience reach;
and
- at any time our Web sites, taken as a whole, are not one of the top five
health content and interactive tool sites for at least two consecutive
months in terms of quality.
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<PAGE> 66
The agreement may also be terminated by either AOL or us in the event of a
material breach by the other, or if none of the following has occurred within
six months from the date of signing:
- an initial public offering of our securities;
- any investments or series of investments in Medscape that are $10,000,000
or more in the aggregate;
- a merger or similar transaction in which we are not the surviving entity;
- a sale or other transfer of substantially all of our assets to any third
party;
- a liquidation or dissolution of Medscape; or
- within a twelve month period, someone other than one specified major
shareholder becomes the beneficial owner of more than 35% of our voting
stock.
If the agreement is terminated because of AOL's material breach, any unexercised
performance-based warrants will be extinguished.
On the AOL co-branded sites, our agreement specifies the types of
programming that we will provide on AOL's properties, and limits us to providing
consumer healthcare content. Any of our content that appears on AOL's
proprietary online service is limited to the programming specified in our
agreement, and any new types of programming require AOL's prior written
approval. In addition, the agreement limits us to providing links to our current
suite of healthcare tools and requires AOL's approval of future healthcare
tools.
On our co-branded consumer sites, the agreement:
- prevents us from linking to or selling advertisements to any entity
reasonably construed to be competitive with AOL or any entity in a
category where there is a pre-existing exclusive relationship with AOL;
and
- requires us to design the co-branded sites so that users stay on them or
AOL properties, and are not sent to external Web sites.
On our consumer sites in general, including CBS.Medscape.com, our agreement
with AOL requires us to implement Web calendar and instant messaging systems
that are compatible with AOL's and that are not developed by an AOL competitor.
We must also offer AOL the opportunity to develop any online tools, other than
healthcare tools, for our consumer sites on commercially reasonable terms, and
if we do not use AOL, we are restricted in some aspects of our promotion and
co-branding of these tools. On our AOL co-branded sites, the agreement limits
our developmental flexibility further by prohibiting us from using some AOL
competitors for development and placing limits on our promotion of new tools.
The agreement also prevents us, in some cases, from using our television
advertising to promote some competitors of AOL.
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PRINCIPAL STOCKHOLDERS
The following table shows information with respect to beneficial ownership
of our common stock, as of August 4, 1999, after giving pro forma effect to the
preferred stock conversion and as adjusted to reflect the sale of the common
stock offered by Medscape in this offering, for:
- each person known by Medscape to beneficially own more than 5% of the
common stock;
- each director of Medscape;
- each executive officer named in the Summary Compensation Table; and
- all directors and executive officers of Medscape as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and includes voting or investment power with respect to the
securities.
Unless indicated otherwise below, the address for each listed director and
officer is Medscape, Inc., 134 West 29th Street, New York, New York 10001-5399.
Except as indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares of
common stock underlying options held by that person that are exercisable within
60 days of August 31, 1999 but excludes shares of common stock underlying
options held by any other person. Percentage of beneficial ownership is based on
36,693,533 shares of common stock outstanding as of August 31, 1999, after
giving effect to the conversion of the convertible preferred stock, and
42,093,533 shares of common stock outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
SHARES OF ------------------------------
COMMON STOCK BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
<S> <C> <C> <C>
CBS Corporation(1)................................... 13,938,368.0 38.0% 33.1%
National Data Corporation(2)......................... 1,950,000.0 5.3 4.6
Entities associated with Patricof & Co. Ventures,
Inc.(3)............................................ 3,506,062.5 9.6 8.3
Entities associated with CSK Venture Capital Co.,
Ltd.(4)............................................ 1,378,812.5 3.8 3.3
Entities associated with Highland Capital Partners,
Inc.(5)............................................ 1,706,485.0 4.7 4.1
Entities associated with Media Technology
Ventures(6)........................................ 1,961,825.0 5.3 4.7
TBG Information Investors, LLC(7).................... 1,748,252.5 4.8 4.2
Entities associated with Weston Presidio Capital
Funds(8)........................................... 1,706,485.0 4.7 4.1
Paul T. Sheils(9).................................... 416,666.5 1.1 *
Jeffrey L. Drezner, M.D., Ph.D.(10).................. 3,431,817.5 9.4 8.2
Peter M. Frishauf(11)................................ 1,794,492.5 4.9 4.3
Marc Butlein(12)..................................... 27,500.0 * *
Esther Dyson(13)..................................... 68,512.5 * *
Alan J. Patricof(14)................................. 3,614,812.0 9.9 8.6
Carlo A. von Schroeter(15)........................... 1,706,485.0 4.7 4.1
Oakleigh Thorne(16).................................. 1,769,502.5 4.8 4.2
Andrew Heyward....................................... -- * *
Fredric G. Reynolds.................................. -- * *
All executive officers and directors as a group
(15 persons)(17)................................... 12,829,788.5 35.0% 30.5%
</TABLE>
- ---------------
* Less than one percent.
(1) CBS has indicated an interest in purchasing 400,000 of the shares in the
offering which would result in them beneficially owning 14,338,368 shares
or 33.8% of the outstanding shares after the offering.
(2) Represents the number of shares of common stock into which the 975,000
shares of Class A Common Stock and 390,000 shares of Series E Preferred
Stock will convert assuming an initial offering price of
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<PAGE> 68
at least $10. If the initial public offering price is less than $10 per
share, the 975,000 shares of common stock issuable to NDC upon conversion
of the Series E Preferred Stock would be increased to an amount of shares
equal to the quotient of $9,750,000 divided by the initial offering price.
(3) Represents 665,825 shares held in record by APA Excelsior IV, L.P.,
117,502.5 shares held of record by Coutts & Co. Cayman Ltd. c/o APA
Excelsior IV/Offshore, L.P., 12,735 shares held of record by Patricof
Private Investment Club, L.P., 2,632,000 shares held of record by APA
Excelsior Fund and 78,000 shares held of record by Patricof & Co. Ventures,
Inc. APA Excelsior IV Partners, L.P. is the general partner of Coutts & Co.
Cayman Ltd., Patricof Private Investment Club, L.P. and APA Excelsior IV,
L.P. APA Excelsior IV Partners, L.P., has one general partner, Patricof &
Co. Managers, Inc. The sole shareholder of Patricof & Co. Managers, Inc. is
Alan Patricof. Mr. Patricof is also the General Partner of APA Excelsior
Fund and the Chairman of Patricof & Co. Ventures, Inc. Each of the above
funds disclaims beneficial ownership of any of the shares owned by any
other above fund. The address for Patricof & Co. Ventures, Inc. is c/o Alan
J. Patricof, 445 Park Avenue, New York, NY 10021.
(4) Represents 459,605 shares held of record by CSK Venture Capital Co., Ltd.,
as investment manager for CSK-1(B) Investment Fund, 459,602.5 shares held
of record by CSK Venture Capital Co., Ltd., as investment manager for CSK-2
Investment Fund, 459,605 shares held of record by CSK Venture Capital Co.,
Ltd., as investment manager for CSK-1(A) Investment Fund. Each of the above
funds disclaims beneficial ownership of any of the shares owned by any
other above fund. Messrs. Isao Okawa and Masahiro Aozono serve as the
representative directors of CSK Venture Capital Co., Ltd. Each of CSK
Venture Capital Co., Ltd, Isao Okawa and Masahiro Aozono disclaims
beneficial ownership of these shares except to the extent of their
pecuniary interest, if any. The address for the CSK Venture Capital Co.,
Ltd. is CSK Corporation, Kenchikukaikan, 7F, 5-26-20 Shiba, Minato-Ku,
Tokyo 108-0014, Japan.
(5) Represents 1,638,225 shares held of record by Highland Capital Partners IV
Limited Partnership and 68,260 shares held of record by Highland
Entrepreneurs' Fund IV Limited Partnership. Each of the above funds
disclaims ownership of any of the shares owned by any other above fund.
Highland Capital Partners, Inc. manages, and each of Messrs. Daniel Nova,
Robert Higgins, Paul Maeder and Wycliffe Grousbeck serve as general
partners of, Highland Capital Partners IV Limited Partnership and Highland
Entrepreneurs' Fund IV Limited Partnership. Each of Messrs. Nova, Higgins,
Maeder and Grousbeck disclaims beneficial ownership of these shares except
to the extent of their pecuniary interests, if any. The address for the
Highland Capital Partners, Inc. is Two International Place, Boston, MA
02100.
(6) Represents 1,737,455 shares held in record by Media Technology Ventures,
L.P. and 224,370 shares held of record by Media Technology Ventures
Entrepreneurs Fund, L.P. Each of the above funds disclaims ownership of any
of the shares owned by any other above fund. Media Technology Ventures,
L.P. and Media Technology Ventures Entrepreneurs Fund, L.P. are managed by
Media Technology Management, LLC of which Messrs. Robert Ackerman and
Jonathan Funck and AVI Management, LLC are managing partners. Messrs. Barry
Weinman, Peter Wolken and Brian Grossi are general partners of AVI
Management, LLC. Messrs. Ackerman, Funck, Weinman, Wolken and Grossi
disclaim beneficial ownership of these shares except to the extent of their
pecuniary interest. The address for the Media Technology Ventures entities
is One First Street, Los Angeles, CA 94022.
(7) Messrs. Jack W. Blumenstein and Oakleigh Thorne serve as managers of TBG
Information Investors, LLC. Each of Mr. Blumenstein and Mr. Thorne
disclaims beneficial ownership of the shares held by TBG Information
Investors, LLC, except to the extent of their pecuniary interest, if any.
(8) Represents 639,932.5 shares held of record by Weston Presidio Capital II,
L.P., 1,015,980 shares held of record by Weston Presidio Capital III, L.P.
and 50,572.5 shares held of record by WPC Entrepreneur Fund, L.P. Each of
the above funds disclaims beneficial ownership of any of the shares owned
by any other above fund. Weston Presidio Capital Management III, LLC, is
the general partner of Weston Presidio Capital III, L.P. and WPC
Entrepreneur Fund, L.P. The managing members of Weston
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<PAGE> 69
Presidio Capital Management III, LLC, are Messrs. Michael F. Cronin,
Michael P. Lazarus, James B. McElwee, Carlo A. von Schroeter, Philip W.
Halperin and Mark L. Bono, each of whom disclaims beneficial ownership of
the shares except to the extent of their pecuniary interests if any. Weston
Presidio Capital Management II, L.P., is the general partner of Weston
Presidio Capital II, L.P. The general partners of Weston Presidio Capital
Management II, L.P., are Messrs. Michael F. Cronin, Michael P. Lazarus,
James B. McElwee, Carlo A. von Schroeter and Philip W. Halperin, each of
whom disclaims beneficial ownership of the shares except to the extent of
their pecuniary interests, if any. The address for Weston Presidio Capital
is One Federal Street, 21st Floor, Boston, MA 02110-2004.
(9) Includes 416,666 shares of common stock issuable upon the exercise of
options exercisable within 60 days of August 31, 1999.
(10) Includes 1,825,435 shares of restricted stock issued pursuant to the terms
of Dr. Drezner's employment agreement.
(11) Includes 6,250 shares of common stock issuable upon exercise of options
exercisable within 60 days of August 31, 1999.
(12) Includes 27,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of August 31, 1999.
(13) Includes 3,750 shares of common stock issuable upon exercise of options
exercisable within 60 days of August 31, 1999.
(14) Represents 665,825 shares held in record by APA Excelsior IV, L.P.,
117,502.5 shares held of record by Coutts & Co. Cayman Ltd. c/o APA
Excelsior IV/Offshore, L.P., 12,735 shares held of record by Patricof
Private Investment Club, L.P., 2,632,000 shares held of record by APA
Excelsior Fund, 78,000 shares held of record by Patricof & Co. Ventures,
Inc. and 15,000 shares held of record by Mr. Patricof's sons. Also includes
93,749.5 shares of common stock issuable upon exercise of options
exercisable within 60 days of August 31, 1999. Mr. Patricof disclaims
beneficial ownership to the shares held of record by his sons, and
disclaims beneficial ownership of the shares held of record by the above
entities except to the extent of his pecuniary interest. The address for
all of the above is c/o Alan J. Patricof, 445 Park Avenue, New York, NY
10021.
(15) Includes 639,932.5 shares held of record by Weston Presidio Capital II,
L.P., 1,015,980 shares held of record by Weston Presidio Capital III, L.P.
and 50,572.5 shares held of record by WPC Entrepreneur Fund, L.P., for both
of which Mr. von Schroeter is a general partner of the managing partner.
Mr. von Schroeter disclaims beneficial ownership of the shares held of
record by the above entities except to the extent of his pecuniary
interest.
(16) Includes 21,250 shares of common stock issuable upon exercise of options
exercisable within 60 days of August 31, 1999. Also includes 1,748,252.5
shares held of record by TBG Information Investors, LLC, for which Mr.
Thorne serves as a manager, Chairman and CEO. Mr. Thorne disclaims
beneficial ownership of the shares held of record by TBG Information
Investors, LLC except to the extent of his pecuniary interest.
(17) Includes 569,166.5 shares issuable upon the exercise of options exercisable
within 60 days of August 31, 1999.
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<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our amended and restated certificate of
incorporation will authorize the issuance of up to 100,000,000 shares of common
stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share, the rights and preferences of which may be established
from time to time by our board of directors. As of August 31, 1999, 23,034,860.5
shares of common stock were outstanding and 5,356,643 shares of convertible
preferred stock convertible into 13,658,672.5 shares of common stock upon the
completion of this offering were issued and outstanding. As of August 31 1999,
we had 105 stockholders.
COMMON STOCK
Upon the closing of this offering, all shares of Class B Common Stock will
automatically convert on a one-for-one basis into Class A Common Stock, which
will be redesignated as common stock. Each holder of common stock is entitled to
one vote for each share on all matters to be voted upon by the stockholders and
there are no cumulative voting rights. Subject to preferences that may be
applicable to any preferred stock outstanding at the time, holders of common
stock are entitled to receive ratable dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. In the event of a liquidation, dissolution or winding up of Medscape,
holders of common stock would be entitled to share in our assets remaining after
the payment of liabilities and liquidation preferences on any outstanding
preferred stock. Holders of common stock have no preemptive or conversion rights
or other subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and shares of common stock offered by Medscape in this offering, when
issued and paid for, will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will convert into shares of common stock. Upon the closing of this
offering, the board of directors will be authorized, subject to Delaware law,
without stockholder approval, from time to time to issue up to an aggregate of
5,000,000 shares of preferred stock in one or more series. The board of
directors can fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock.
WARRANTS
Upon the completion of this offering, we will have the following
outstanding warrants to purchase shares of common stock:
- a warrant to purchase 14,887.5 shares at a weighted average exercise
price of $0.004 per share which will become exercisable on March 5, 2000
and expire on March 5, 2002.
- two warrants, each to purchase up to 1,352,158 shares. One of the
warrants is fully vested now and has an exercise price of $10 per share.
The other warrant will become exercisable over a three-year period based
on AOL meeting specified performance requirements and will have exercise
prices equal to the fair market value of our common stock at the times of
becoming exercisable. Both of these warrants are exercisable until August
31, 2006.
REGISTRATION RIGHTS
After the offering, the holders of 33,107,858 shares of our common stock
will be entitled to registration rights. Additionally, the holders of our
warrants are entitled to registration rights in connection with the 2,719,203.5
shares issuable upon exercise of their warrants. These rights include rights to
require us to include
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<PAGE> 71
their common stock in future registration statements we file with the SEC and,
in some cases, demand registration rights. The holders may also require us to
register their common stock once we are eligible to use a short-form
registration statement. However, holders of substantially all of these shares
have agreed not to exercise their registration rights until 180 days after the
date of this prospectus. Registration of shares of common stock upon the
exercise of demand registration rights would result in the covered shares
becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of this registration.
CHARTER AND BYLAW PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
Under Delaware law, we may not engage in a "business combination," which
includes a merger or sale of more than 10% of our assets, with any "interested
stockholder," namely, a stockholder who owns 15% or more of Medscape's
outstanding voting stock, as well as affiliates and associates of any of these
such persons, for three years following the time that stockholder became an
interested stockholder unless:
- the transaction in which the stockholder became an interested stockholder
is approved by our board of directors prior to the time the interested
stockholder attained that status;
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of Medscape outstanding at the time the
transaction commenced, excluding those shares owned by persons who are
directors and also officers; or
- at or after the time the stockholder became an interested stockholder the
business combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders by the affirmative vote
of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder.
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Medscape. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of Medscape.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Medscape's certificate of incorporation limits the liability of directors
to the fullest extent permitted by the Delaware law. In addition, the
certificate of incorporation and Bylaws provide that Medscape will indemnify
directors and officers of Medscape to the fullest extent permitted by Delaware
law. We believe that the provisions in our certificate of incorporation and
bylaws are necessary to attract and retain qualified persons as directors and
officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
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<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future and at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate of
42,093,533 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. As of
August 31, 1999, we had approximately 105 holders of common stock, after giving
effect to the conversion of the convertible preferred stock. Of these shares,
all of the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, unless these
shares are purchased by "affiliates" as that term is defined in Rule 144 under
the Securities Act. This leaves 36,693,533 shares eligible for sale in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
<S> <C>
61,225.................................. After 90 days from the date of this
prospectus.
19,468,765.................................. After 180 days from the date of this
prospectus (subject, in some cases, to
volume limitations).
17,163,543.................................. At various times after 180 days from the
date of this prospectus (subject, in some
cases, to volume limitations).
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors and stockholders holding substantially
all of our outstanding stock have signed lock-up agreements with our
underwriters under which they agreed not to transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into or
exercisable or exchangeable for shares of our common stock, for a period of 180
days after the date of this prospectus. Transfers or dispositions can be made
sooner with the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
Under the terms of the CBS transaction, CBS has agreed not to offer, sell
or otherwise dispose of the 13,938,368 shares of stock to be issued to it, or
any other of our securities that may be held by it, until August 3, 2000.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 420,935 shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Medscape, Inc.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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<PAGE> 73
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares 90 days after the effective
date of this offering in reliance on Rule 144, but without compliance with some
of the restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of 33,107,858 shares of our common stock,
or their transferees, will be entitled to rights with respect to the
registration of those shares under the Securities Act. Additionally, the holders
of our warrants, or their transferees, are entitled to rights with respect to
the registration of the 2,719,203.5 shares issuable upon exercise of their
warrants. After this registration, these shares of our common stock become
freely tradeable without restriction under the Securities Act. These sales could
have a material adverse effect on the trading price of our common stock.
STOCK OPTIONS
Shortly after this offering, we intend to file a registration statement on
Form S-8 covering the shares of common stock reserved for issuance under our
stock option plan. Shares of common stock registered under any registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, unless the shares are subject to
vesting restrictions or the lock-up agreements described above.
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<PAGE> 74
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated as
of August , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., Wit Capital Corporation and DLJdirect
Inc. have severally agreed to purchase from Medscape the respective number of
shares of common stock shown opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Credit Suisse First Boston Corporation......................
Bear, Stearns & Co. Inc.....................................
Wit Capital Corporation.....................................
DLJdirect Inc...............................................
---------
Total............................................. 5,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered in this prospectus require the approval by their counsel of legal
matters and other conditions. The underwriters must purchase and accept delivery
of all the shares of common stock offered through this prospectus, other than
those shares covered by the over-allotment option described below and that may
be purchased by CBS, if any are purchased.
The underwriters propose to initially offer some of the shares of common
stock directly to the public at the public offering price on the cover page of
this prospectus and some of the shares of common stock to dealers, including the
underwriters, at the public offering price less a concession not in excess of
$ per share. The underwriters may allow, and these dealers may
re-allow, to other dealers a concession not in excess of $ per share.
After the initial offering of the common stock, the representatives of the
underwriters may change the public offering price and other selling terms at any
time without notice. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
<S> <C> <C>
Per Share............................................
Total................................................
</TABLE>
We will pay the offering expenses, estimated to be $1,750,000.
An electronic prospectus is available on the Web sites maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, Wit Capital Corporation, and other dealers and selected dealers
designated by Wit Capital Corporation. Other than the prospectus in electronic
format, the information on these Web sites relating to the offering is not part
of this prospectus and has not been approved and/or endorsed by Medscape or the
underwriters, and should not be relied on by prospective investors.
In July, 1999 Donaldson, Lufkin & Jenrette Securities Corporation was hired
to serve as financial advisor to Medscape in connection with potential strategic
transactions. Medscape has agreed to pay Donaldson, Lufkin & Jenrette Securities
Corporation customary compensation in the form of a retainer fee as well as
transaction fees for rendering financial advisory services for the transaction
with CBS Corporation and the
70
<PAGE> 75
transaction with National Data Corporation. These transactions and fees are
independent of, and not contingent upon, the completion of the offering.
Wit Capital Corporation, a member of the National Association of Securities
Dealers, Inc., will participate in the offering as one of the underwriters. The
NASD approved the membership of Wit Capital on September 4, 1997. Since that
time, Wit Capital has acted as an underwriter in over 100 public offerings,
including 80 initial public offerings. Wit Capital's Chairman and co-Chief
Executive Officer has made an indirect investment in our Series C Preferred
Stock, par value $0.01, which will represent less than 1% of our outstanding
shares after this offering. Except for its participation as an underwriter in
this offering and the indirect ownership of our shares by one of its Chairman
and co-Chief Executive Officer, Wit Capital has no relationship with us or any
of our affiliates.
Credit Suisse First Boston Corporation acted as placement agent in
connection with a private placement of our Series D Preferred Stock, for which
it received customary compensation.
Medscape has granted to the underwriters an option, exercisable within 30
days after the date of this prospectus, to purchase, from time to time, in whole
or in part, up to an aggregate of 750,000 additional shares of common stock at
the public offering price less underwriting discounts and commissions. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, under conditions
specified in the underwriting agreement, to purchase its pro rata portion of the
additional shares based on that underwriter's percentage underwriting commitment
as indicated in the preceding table.
Medscape has agreed to indemnify the underwriters against liabilities
specified in the underwriting agreement, including liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make because of these liabilities.
Each of Medscape, our executive officers and directors and substantially
all of our stockholders has agreed, for a period of 180 days after the date of
this prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, not to:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
The underwriting agreement contains limited exceptions to these lock-up
agreements.
In addition, during this 180-day period, Medscape has also agreed not to
file any registration statement for, and each of its executive officers,
directors and several stockholders of Medscape has agreed not to make any demand
for, or exercise any right for, the registration of any shares of common stock
or any securities convertible into or exercisable or exchangeable for common
stock without Donaldson, Lufkin & Jenrette Securities Corporation's prior
written consent.
Prior to the offering, there has been no established trading market for the
common stock. Medscape and the underwriters negotiated the public offering price
for the shares of common stock offered by this prospectus. The factors they
considered in determining the public offering price included:
- the history of and the prospects for the industry in which Medscape
competes;
- the past and present operations of Medscape;
- the historical results of operations of Medscape;
- the prospects for future earnings of Medscape;
- the recent market prices of securities of generally comparable companies;
and
71
<PAGE> 76
- the general condition of the securities markets at the time of the
offering.
Other than in the United States, no action has been taken by Medscape or
the underwriters that would permit a public offering of the shares of common
stock offered by this prospectus in any jurisdiction where action for that
purpose is required. The shares of common stock offered through this prospectus
may not be offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisements associated with the offer and sale
of any the shares of common stock offered through this prospectus be distributed
or published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. You
should inform yourself and observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any shares
of common stock offered in this prospectus in any jurisdiction in which an offer
or a solicitation is unlawful.
As a result of the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a syndicate
short position. The underwriters may bid for and purchase shares of common stock
in the open market to cover a syndicate short position or to stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or in some other way or if Donaldson, Lufkin & Jenrette Securities
Corporation receives a report that indicates clients of such syndicate members
have "flipped" the common stock. These activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to ten percent of the shares of common stock to be sold
in this offering for sale to our employees, directors and other persons
designated by us. The number of shares available for sale to the general public
will be reduced to the extent that any reserved shares are purchased. Any
reserved shares not so purchased will be offered by the underwriters on the same
basis as the other shares offered through this prospectus.
We have reserved 400,000 shares of common stock to be offered for sale to
CBS Corporation at the initial public offering price, less underwriting fees
applicable to shares sold to the public. CBS Corporation has expressed to us
their interest in purchasing these shares, but is under no obligation to do so.
We have assumed in this prospectus that we will sell these shares to CBS
Corporation. CBS Corporation has agreed with us that it will not dispose of
these shares of our common stock for 12 months following the initial date that
it purchases shares from us. If, and to the extent that, CBS does not agree to
purchase these shares, the underwriters have agreed to purchase them and offer
them to the public at the initial public offering price on the same terms and
conditions as set forth in the underwriting agreement.
VALIDITY OF THE SHARES
The validity of the shares of common stock offered through this prospectus
will be passed upon for us by Patterson, Belknap, Webb & Tyler LLP, New York,
New York. Selected legal matters in connection with this offering will be passed
upon for the underwriters by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The financial statements of Medscape as of and for the years ended December
31, 1998, as restated, and December 31, 1997 and the nine months ended December
31, 1996, included in this prospectus, which reports express our unqualified
opinion and include an explanatory paragraph referring to the restatement of the
financial statements as of and for the year ended December 31, 1998, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing in this prospectus and are included in reliance upon the
reports of that firm given upon their authority as experts in accounting and
auditing.
72
<PAGE> 77
The financial statements of Healthcare Communications Group, LLC as of and
for the period ended October 27, 1998 and as of and for the year ended December
31, 1997 included in this prospectus, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing in this
prospectus and are included in reliance upon the reports of that firm given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
amendments to it, relating to the common stock offered by us. This prospectus
does not contain all of the information in the registration statement and its
exhibits and schedules. For further information with respect to Medscape and our
common stock, you should review the registration statement and its exhibits and
schedules. A copy of the registration statement may be inspected without charge
at the SEC's principal office in Washington, D.C. and copies of all or any part
of the registration statement may be obtained from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, the New York
Regional Office located at Seven World Trade Center, New York, New York 10048,
and the Chicago Regional Office located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of fees
prescribed by the SEC. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the SEC's Web site is http://www.sec.gov.
Medscape intends to furnish its stockholders with annual reports containing
audited financial statements certified by its independent auditors.
73
<PAGE> 78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
MEDSCAPE, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1998 (As Restated)........................... F-3
Consolidated Statements of Operations for Nine Months Ended
December 31, 1996, and for the Years Ended December 31,
1997 and December 31, 1998 (As Restated).................. F-4
Consolidated Statements of Shareholders' Equity (Deficiency)
for the Nine Months Ended December 31, 1996, and for the
Years Ended December 31, 1997 and December 31, 1998 (As
Restated)................................................. F-5
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1996, and for the Years Ended December
31, 1997 and December 31, 1998 (As Restated).............. F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31,
1998 and June 30, 1999 (unaudited)........................ F-18
Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 1998 and June 30, 1999
(unaudited)............................................... F-19
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and June 30, 1999
(unaudited)............................................... F-20
Notes to the Condensed Consolidated Financial Statements.... F-21
HEALTHCARE COMMUNICATIONS GROUP, LLC
Independent Auditors' Report................................ F-24
Balance Sheets as of December 31, 1997 and October 27,
1998...................................................... F-25
Statements of Operations for the Year Ended December 31,
1997 and the Ten Months Ended October 27, 1998............ F-26
Statements of Member's Capital for the Year Ended December
31, 1997 and the Ten Months Ended October 27, 1998........ F-27
Statements of Cash Flows for the Year Ended December 31,
1997 and the Ten Months Ended October 27, 1998............ F-28
Notes to Financial Statements............................... F-29
</TABLE>
F-1
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
Medscape, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Medscape,
Inc. and its subsidiary ("Medscape") as of December 31, 1997 and 1998, and the
related consolidated statements of operations, shareholders' equity
(deficiency), and cash flows for the nine months ended December 31, 1996 and
each of the two years in the period ended December 31, 1998. These consolidated
financial statements are the responsibility of Medscape's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Medscape at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for the nine months ended December 31, 1996 and the two years then ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 14, the accompanying 1998 financial statements have
been restated.
DELOITTE & TOUCHE LLP
New York, New York
February 12, 1999 (May 17, 1999 as to Note 13 and July 22, 1999 as to Note 14)
F-2
<PAGE> 80
MEDSCAPE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
(AS RESTATED
SEE NOTE 14)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 2)........................ $ 3,627,903 $ 1,594,939
Accounts receivable....................................... 634,200 1,350,194
Prepaid expenses and other assets......................... 31,691 92,911
----------- -----------
Total current assets.............................. 4,293,794 3,038,044
Property and equipment -- Net............................... 279,005 379,588
Intangible assets -- Net.................................... 59,831 46,144
Goodwill -- Net............................................. -- 2,409,791
----------- -----------
Total assets...................................... $ 4,632,630 $ 5,873,567
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 90,948 $ 330,402
Accrued expenses.......................................... 154,529 308,394
Accrued compensation...................................... 13,000 152,248
Accrued vacation.......................................... 56,679 28,812
Due to related party...................................... 465,918 50,862
Loan payable.............................................. 358,949 --
Deferred revenue.......................................... 803,884 799,523
----------- -----------
Total current liabilities......................... 1,943,907 1,670,241
----------- -----------
Commitments (Notes 10 and 12)
Shareholders' Equity:
Common stock, Class A -- par value $.01; 15,000,000 shares
authorized, 1,079,000 issued and outstanding........... 10,790 10,790
Common stock, Class B -- par value $.01; 15,000,000 shares
authorized, 1,726,645 and 5,792,318 issued and
outstanding............................................ 17,265 57,923
Preferred stock, Series A -- par value $.01; 1,000,000
shares authorized, 788,200 shares issued and
outstanding............................................ 7,882 7,882
Preferred stock, Series B -- par value $.01; 1,000,000
shares authorized, 0 issued and outstanding............ -- --
Preferred stock, Series C -- par value $.01; 4,000,000
shares authorized, 1,478,359 and 2,410,760 issued and
outstanding............................................ 14,784 24,108
Additional paid-in capital................................ 7,446,406 14,158,309
Deferred stock compensation............................... -- (715,436)
Treasury stock............................................ -- (3,277)
Notes receivable.......................................... -- (627,950)
Accumulated deficit....................................... (4,808,404) (8,709,023)
----------- -----------
Total shareholders' equity........................ 2,688,723 4,203,326
----------- -----------
Total liabilities and shareholders' equity........ $ 4,632,630 $ 5,873,567
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 81
MEDSCAPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1996 1997 1998
(AS RESTATED,
SEE NOTE 14)
<S> <C> <C> <C>
Revenues............................................. $ 1,015,358 $ 1,522,183 $ 3,069,045
----------- ----------- -----------
Operating expenses:
Editorial, production, content and technology...... 1,181,783 1,790,588 2,588,353
Sales and marketing................................ 278,269 1,200,745 2,356,432
General and administration......................... 830,354 1,822,595 1,987,183
Depreciation and amortization...................... 41,325 159,862 286,699
----------- ----------- -----------
Total Operating Expenses................... 2,331,731 4,973,790 7,218,667
----------- ----------- -----------
Loss from operations................................. (1,316,373) (3,451,607) (4,149,622)
Interest (income) expense.......................... 28,117 12,307 (249,003)
----------- ----------- -----------
Net loss............................................. $(1,344,490) $(3,463,914) $(3,900,619)
=========== =========== ===========
Basic net loss per share............................. $ (0.66) $ (1.26) $ (1.07)
Weighted average number of shares of common stock
outstanding........................................ 2,026,233 2,750,552 3,636,558
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 82
MEDSCAPE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIENCY) EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES A SERIES B SERIES C
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- ------------------- ---------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1996.... -- $ -- -- $ -- -- $ -- -- $ -- -- $ --
Initial capitalization --
April 1, 1996.......... 1,079,000 10,790 1,604,500 16,045 788,200 7,882 -- -- -- --
Exercise of stock
options................ -- -- 22,500 225 -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- ------- ------ -------- ------- --------- -------
Balance, December 31,
1996..................... 1,079,000 10,790 1,627,000 16,270 788,200 7,882 -- -- -- --
Issuance of Preferred B
Stock.................. -- -- -- -- -- -- (123,974) 1,240 -- --
Conversion of Preferred
Stock.................. -- -- -- -- -- -- (123,974) (1,240) 326,087 3,261
Issuance of Preferred C
Stock.................. -- -- -- -- -- -- -- -- 1,152,272 11,523
Exercise of stock
options................ -- -- 99,645 995 -- -- -- -- -- --
Contributed capital...... -- -- -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- ------- ------ -------- ------- --------- -------
Balance, December 31,
1997..................... 1,079,000 10,790 1,726,645 17,265 788,200 7,882 -- -- 1,478,359 14,784
Purchase of Treasury
Stock.................. -- -- -- -- -- -- -- -- -- --
Options issued to
nonemployees........... -- -- -- -- -- -- -- -- -- --
Deferred Stock
Compensation related to
issuance of options.... -- -- -- -- -- -- -- -- -- --
Issuance of Preferred C
Stock.................. -- -- -- -- -- -- -- -- 932,401 9,324
Issuance of Common B
Stock (acquisition).... -- -- 3,650,870 36,510 -- -- -- -- -- --
Exercise of stock
options................ -- -- 414,803 4,148 -- -- -- -- -- --
Amortization of Deferred
Stock Compensation..... -- -- -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- ------- ------ -------- ------- --------- -------
Balance, December 31, 1998
(As Restated, see Note
14)...................... 1,079,000 $10,790 5,792,318 $57,923 788,200 $7,882 -- $ -- 2,410,760 $24,108
========= ======= ========= ======= ======= ====== ======== ======= ========= =======
<CAPTION>
ADDITIONAL DEFERRED
PAID-IN ACCUMULATED TREASURY NOTES STOCK
CAPITAL DEFICIT STOCK RECEIVABLE COMPENSATION TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1996.... $ -- $ -- $ -- $ -- $ -- $ --
Initial capitalization --
April 1, 1996.......... 15,283 -- -- -- -- 50,000
Exercise of stock
options................ 18 -- -- -- -- 243
Net loss................. -- (1,344,490) -- -- -- (1,344,490)
----------- ----------- ------- --------- --------- -----------
Balance, December 31,
1996..................... 15,301 (1,344,490) -- -- -- (1,294,247)
Issuance of Preferred B
Stock.................. 1,498,760 -- -- -- -- 1,500,000
Conversion of Preferred
Stock.................. (2,021) -- -- -- -- --
Issuance of Preferred C
Stock.................. 5,288,924 -- -- -- -- 5,300,447
Exercise of stock
options................ 3,078 -- -- -- -- 4,073
Contributed capital...... 642,364 -- -- -- -- 642,364
Net loss................. -- (3,463,914) -- -- -- (3,463,914)
----------- ----------- ------- --------- --------- -----------
Balance, December 31,
1997..................... 7,446,406 (4,808,404) -- -- -- 2,688,723
Purchase of Treasury
Stock.................. -- -- (3,277) -- -- (3,277)
Options issued to
nonemployees........... 65,000 -- -- -- 65,000
Deferred Stock
Compensation related to
issuance of options.... 497,445 -- -- -- (497,445) --
Issuance of Preferred C
Stock.................. 3,990,675 -- -- -- -- 3,999,999
Issuance of Common B
Stock (acquisition).... 2,154,013 -- -- (627,950) (467,311) 1,095,262
Exercise of stock
options................ 4,770 -- -- -- 8,918
Amortization of Deferred
Stock Compensation..... -- -- -- -- 249,320 249,320
Net loss................. -- (3,900,619) -- -- -- (3,900,619)
----------- ----------- ------- --------- --------- -----------
Balance, December 31, 1998
(As Restated, see Note
14)...................... $14,158,309 $(8,709,023) $(3,277) $(627,950) $(715,436) $ 4,203,326
=========== =========== ======= ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 83
MEDSCAPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
DECEMBER 31, ---------------------------
1996 1997 1998
(AS RESTATED,
SEE NOTE 14)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $(1,344,490) $(3,463,914) $(3,900,619)
Adjustments to reconcile net loss to net cash used
in operating activities:
Deferred stock compensation expense............. -- -- 249,320
Depreciation and amortization................... 41,325 159,862 286,699
Recruiting fees -- issuance of options.......... -- -- 65,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...... (350,733) (283,467) 474,365
Increase in prepaid expenses.................... (10,431) (21,260) (6,489)
Increase in accounts payable and accruals....... 225,979 89,178 149,742
Increase (decrease) in due to related party..... 645,758 (179,840) (415,056)
Increase (decrease) in deferred revenue......... 712,224 91,660 (1,125,556)
----------- ----------- -----------
Net cash used in operating activities...... (80,368) (3,607,781) (4,222,594)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment................. (245,543) (221,850) (261,732)
Acquisition of intangible assets................... (72,632) -- --
Payments for business acquired, net of cash
acquired (note 1)............................... -- -- (1,195,330)
----------- ----------- -----------
Net cash used in investing activities...... (318,175) (221,850) (1,457,062)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from loan................................. 546,667 962,283 --
Payment of loan.................................... -- (1,150,000) (358,949)
Proceeds from issuance of preferred stock.......... 7,882 6,800,447 3,999,999
Proceeds from exercise of stock options............ 42,361 4,073 8,918
Purchase of treasury stock......................... -- -- (3,276)
Contributed capital................................ -- 642,364 --
----------- ----------- -----------
Cash provided by financing activities...... 596,910 7,259,167 3,646,692
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents..... 198,367 3,429,536 (2,032,964)
Cash and cash equivalents, beginning of period....... -- 198,367 3,627,903
----------- ----------- -----------
Cash and cash equivalents, end of period............. $ 198,367 $ 3,627,903 $ 1,594,939
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 84
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Medscape, Inc. was formed and incorporated under the laws of the State of
New York in March 1996, and commenced operations in April 1996. Medscape was
reincorporated in Delaware in December 1998. Medscape operates Medscape.com, a
healthcare Web site for physicians, allied healthcare professionals such as
pharmacists and nurses, and consumers. The Medscape Web site is a valuable
resource that enables members to make better informed healthcare decisions.
Medscape provides comprehensive, authoritative and timely medical information,
including original proprietary articles written by renowned medical experts.
Medscape sells advertising and sponsorship, market research and other services
to pharmaceutical, medical device and other healthcare companies. Medscape also
sells products, such as medical books, to physicians, allied healthcare
professionals and consumers.
Effective October 27, 1998, Medscape consummated an acquisition in
accordance with a purchase agreement with Healthcare Communications Group, LLC,
("HCG") a Maryland corporation. HCG is a medical communications/education
company that develops, produces and distributes unique live, print, digital and
Internet-based programs for healthcare professionals funded by pharmaceutical
companies. The agreement provided for the purchase of the membership interests
of HCG.
The purchase price of $2,304,671 was allocated principally to working
capital and assets, including accounts receivable and goodwill (see below).
The acquisition of HCG has been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on their respective estimated fair
values at the date of acquisition. The excess of the purchase price over the
aggregated estimated fair values of the net tangible assets acquired has been
recorded as goodwill, which is being amortized over fifteen years.
The purchase price was allocated in the following manner:
<TABLE>
<S> <C> <C>
Purchase price:
Cash at closing........................................... $ 1,075,000
Legal and accounting fees................................. 134,409
Common stock 1,825,435 shares at $0.60 (Note 8)........... 1,095,262
-----------
2,304,671
Liabilities assumed:
Accounts payable.......................................... $ 74,777
Demand note, Medscape..................................... 275,000
Deferred revenue.......................................... 1,121,193
Payroll tax liabilities................................... 5,182 1,476,152
---------- -----------
Assets purchased:
Cash...................................................... 14,081
Accounts receivable....................................... 1,190,359
Prepaid expenses.......................................... 54,730
Fixed assets.............................................. 76,777
Intangibles............................................... 5,383 (1,341,330)
---------- -----------
Total goodwill.............................................. $ 2,439,493
===========
</TABLE>
F-7
<PAGE> 85
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following presents, on a pro forma basis, Medscape's operations as if
Medscape and HCG were combined as of the beginning of the periods presented.
<TABLE>
<CAPTION>
JANUARY 1,
-------------------------
1997 1998
(UNAUDITED)
<S> <C> <C>
Total revenue.............................................. $ 4,677,687 $ 5,653,660
=========== ===========
Net loss................................................... $(3,086,341) $(3,928,202)
=========== ===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Medscape and
its subsidiary, HCG. The results of the subsidiary acquired are included from
the date of acquisition. All significant intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, Medscape considers all highly
liquid short-term cash investments purchased with maturities of three months or
less as cash and cash equivalents.
CONCENTRATION OF CREDIT RISK
Medscape's financial instruments that are exposed to concentration of
credit risks consist primarily of cash and cash equivalents and trade accounts
receivable. Medscape maintains its cash and cash equivalents in bank accounts
which, at times, exceeds federally insured limits. Medscape has not experienced
any losses in these accounts. Medscape believes it is not exposed to any
significant credit risk on cash and cash equivalents. Concentrations of credit
risks with respect to accounts receivable are limited because of Medscape's
expanding customer base and the credit worthiness of its three major customers
(see Note 11), making up the majority of the accounts receivable balance.
DEPRECIATION AND AMORTIZATION
Medscape provides for depreciation of property and equipment based on the
estimated useful lives of the applicable assets and the life of leases or the
life of the leasehold improvement if less, using the straight-line method.
Expenditures for renewals and improvements which extend the useful lives of
assets are capitalized, while maintenance and repairs are charged to operations
as incurred.
GOODWILL, INTANGIBLE ASSETS AND RELATED AMORTIZATION
Goodwill represents the excess of cost over the fair value of the net
assets acquired of HCG and is being amortized using the straight-line method
over fifteen years. Medscape periodically reviews the value of its
F-8
<PAGE> 86
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
goodwill to determine if impairment has occurred. Medscape measures the
potential impairment of recorded goodwill by comparing the undiscounted value of
estimated future cash flows to the carrying amount of goodwill. If indicated
cash flows are less than the carrying amount of goodwill, Medscape would reduce
the carrying value of goodwill. Based on its review, Medscape does not believe
an impairment of goodwill has occurred.
Intangible assets consist of trademarks and organization costs, which are
being amortized using the straight-line method over their estimated useful life.
IMPAIRMENT OF ASSETS
Medscape's long-lived assets and identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the net
carrying amount may not be recoverable. When these events occur, Medscape
measures impairment by comparing the carrying value of the long-lived asset to
the estimated undiscounted future cash flows expected to result from use of the
assets and their eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying amount of the assets, Medscape would
recognize an impairment loss. Medscape determined that, as of December 31, 1997
and 1998, there had been no impairment in the carrying value of the long-lived
assets.
REVENUE RECOGNITION
Income is derived from a variety of sources including advertising,
sponsorship of on-line journals, medical conferences, market research and
e-commerce. Revenues from advertising are recognized in the period in which the
advertisement is displayed. Revenue from sponsored programs, such as medical
conferences, are recognized when the conference is completed and the next-day
conference summary is published on the Medscape Web site. Revenues from
sponsored content is recognized on a percentage of completion basis. (At
December 31, 1998 and 1997, there were no uncompleted projects.) Revenues from
market research are recognized upon completion of the project.
DEFERRED REVENUE
Deferred revenue represents amounts billed in excess of revenues
recognized. Included in accounts receivable are amounts due (under contract)
relating to deferred revenue.
INCOME TAXES
Medscape accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
SFAS No. 109 establishes financial accounting and reporting standards for the
effect of income taxes that result from activities during the current and
preceding years. SFAS No. 109 requires an asset and liability approach for
financial reporting for income taxes.
NET LOSS PER COMMON SHARE
Basic loss per common share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Diluted loss per
common share has not been presented since the impact for options, warrants and
conversion of preferred shares would have been anti-dilutive(see notes 8 and 9).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
"SFAS" No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
F-9
<PAGE> 87
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
its components. Medscape has no elements of other comprehensive income or loss;
consequently net loss is equal to comprehensive loss. Medscape operates in one
segment in the United States.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities for Medscape's year
ended December 31, 2001. Generally, it requires that an entity recognize all
derivatives as either an asset or liability and measure those instruments at
fair value, as well as identify the conditions for which a derivative may be
specifically designated as a hedge. Medscape currently does not have any
derivative instruments and is not engaged in hedging activities.
During 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. This
statement is applicable to Medscape's 1999 financial statements and will require
Medscape to capitalize various payroll and payroll related costs and other costs
that are directly related to the development of some of the systems of Medscape.
Medscape will amortize these costs over the anticipated life of the systems.
Management is currently evaluating the effect of this statement on Medscape's
financial statements.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to the
current year presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- USEFUL LIFE
DESCRIPTION 1997 1998 (IN YEARS)
<S> <C> <C> <C>
Computers.......................................... $ 268,032 $ 601,501 3
Furnitures and fixtures............................ 62,196 66,163 5
Leasehold improvements............................. 137,163 138,855 2
--------- ---------
467,391 806,519
Less accumulated depreciation...................... (188,386) (426,931)
--------- ---------
Property and equipment -- net...................... $ 279,005 $ 379,588
========= =========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- USEFUL LIFE
DESCRIPTION 1997 1998 (IN YEARS)
<S> <C> <C> <C>
Trademarks........................................... $ 50,000 $ 55,383 15
Organization costs................................... 22,632 22,632 5
-------- --------
72,632 78,015
Less accumulated amortization........................ (12,801) (31,871)
-------- --------
Intangible assets -- net............................. $ 59,831 $ 46,144
======== ========
</TABLE>
In 1997, Medscape changed the useful life of intangible assets from 40
years for Trademarks and 15 years for Organization costs to 15 and 5 years,
respectively, to more properly reflect their expected useful lives in the
current business environment. The impact of the change was not material to
Medscape's financial statements.
F-10
<PAGE> 88
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GOODWILL
Goodwill consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, USEFUL LIFE
DESCRIPTION 1998 (IN YEARS)
<S> <C> <C>
Goodwill.................................................... $2,439,493 15
Less accumulated amortization............................... (29,702)
----------
Goodwill -- net............................................. $2,409,791
==========
</TABLE>
6. INCOME TAXES
No provision for income taxes has been made because Medscape has sustained
cumulative losses since the commencement of its operations.
At December 31, 1998, Medscape had net operating loss carryforwards
("NOLs") of approximately $8,550,000 which will be available to reduce future
taxable income. The NOLs are scheduled to expire in the following years:
<TABLE>
<S> <C>
2011..................................................... $1,344,000
2012..................................................... 3,306,000
2018..................................................... 3,900,000
</TABLE>
In accordance with SFAS No. 109, Medscape has computed the components of
deferred income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
<S> <C> <C>
Deferred tax assets........................................ $ 1,961,000 $ 3,419,911
Less valuation allowance................................... (1,961,000) (3,419,911)
----------- -----------
Net deferred tax assets.................................... $ -- $ --
=========== ===========
</TABLE>
Medscape's net operating losses primarily generated the deferred tax
assets. At December 31, 1998 and 1997, a valuation allowance is provided as the
realization of the deferred tax benefits is not likely.
7. RETIREMENT PLAN
Medscape has a 401(k) Retirement/Savings Plan (the "Plan") for all eligible
employees. Employees are eligible to participate after they have completed three
months of service. Medscape is not required to, but may match employee
contributions. In addition, Medscape may make a discretionary contribution to
the Plan. Medscape did not make any voluntary contributions to the Plan for the
year ended December 31, 1997 or December 31, 1998.
8. SHAREHOLDERS' EQUITY (DEFICIENCY)
The authorized capital stock of Medscape consists of Class A Common Stock,
Class B Common Stock (collectively the "Common Stock") and Series A, Series B
and Series C Preferred Stock (collectively the "Preferred Stock"). Class A and
Class B Common Stock have identical powers except that Class B Common Stock does
not have any voting power, including voting for the election of directors or for
any other purpose except as required by law.
The Series A Preferred Stock has a liquidation preference equivalent to
$0.02686 per share. The Series C Preferred Stock has a liquidation preference
equivalent to $4.60 per share, except that the first
F-11
<PAGE> 89
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2,517,586 shares of the Preferred Stock issued shall have a liquidation
preference of $10,800,446 plus cumulative dividends thereon at the rate of 6%
per annum. If upon liquidation, Medscape's assets are insufficient to permit the
payment of this amount, the entire assets shall be distributed ratably among the
holders of the Preferred Stock. After payment of the liquidation preference,
Medscape's remaining assets shall be distributed among the holders of the Common
and Preferred Stock according to the number of shares held by each shareholder.
The Preferred Stock is convertible at the option of the shareholder at any
time into one share of Class A Common Stock for each share of the Preferred
Stock. In the event of any stock dividend, stock split, recapitalization or like
occurrence not affecting the Common and Preferred Stock in a like manner, the
conversion ratio shall be adjusted ratably.
In January 1997, Medscape issued 123,974 shares of Series B Preferred Stock
at $12.10 per share for $1,500,000. In October 1997, Medscape issued 1,152,272
shares of Series C Preferred Stock at $4.60 per share for $5,300,447. As part of
this offering, Medscape converted all of the Series B Preferred Stock
outstanding for 326,087 shares of Series C Preferred stock at $4.60 per share.
The total capital raised in 1997 from these offerings was $6,800,447, of which
$800,000 was used to pay the principal and interest on the loan payable to SCP
Communications, Inc. ("SCP"), a related party, with the remainder used to fund
Medscape's ongoing operations.
During 1997, SCP contributed to capital $642,364 which Medscape owed to it
under an administrative services agreement (note 12).
In March 1998, Medscape issued 932,401 shares of Series C Preferred Stock
at $4.29 per share for $3,999,999. In October 1998, Medscape issued 1,825,435
shares of Class B Common Stock in connection with the acquisition of Healthcare
Communications Group. Medscape also received a note for $627,950 from the
majority shareholder in lieu of payment for an additional 1,825,435 shares of
Class B Common Stock. The note is presented in the Equity section as a contra to
shareholders' equity. Such shares vest over 3 years. The fair value in excess of
$627,950 has been included in the charge to deferred stock compensation as an
offset in the equity section of the balance sheet and is being amortized over
three years.
9. STOCK OPTION PLAN
During 1996, the Board of Directors adopted the Medscape, Inc. 1996 Stock
Option Plan (the "Plan"). Pursuant to the Plan, the Board of Directors granted
incentive stock options to certain key employees and non-qualified stock options
to certain key non-employees all at fair value. Under the Plan approved by the
Board of Directors, the total number of shares of Class B Common Stock that may
be granted is 5,500,000.
The incentive stock options granted permit the key employees the right and
option to purchase shares of Class B Common Stock. Except for a change of
control, as defined, an option may not be exercised within one year from the
date of the grant and no option will be exercisable after 10 years from the date
granted. Stock options vest over a three or four-year period, with one-third or
one-quarter of the options becoming exercisable one year from date of grant. For
options issued below fair market value, amounts for which fair market value
exceeds the amounts for which options have been granted, have been charged to
deferred stock compensation expense and are being amortized over four years, the
vesting period of the options.
The non-qualified stock options also permit certain non-employees the right
and option to purchase shares of Class B Common Stock. Except for a change of
control, as defined, an option may not be exercised within one year from the
date of the grant and no option will be exercisable after 10 years from the date
granted. Stock options vest over a four-year period, with one-quarter of the
options becoming exercisable one year from date of grant. For options issued
below fair market value, amounts for which fair market value exceeds the amounts
for which options have been granted, have been charged to deferred stock
compensation expense and are being amortized over four years, the vesting period
of the options.
F-12
<PAGE> 90
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the non-qualified stock options granted permit other
non-employees the option to purchase shares of Class B Common Stock. One-quarter
of the options are exercisable one year from date of grant. For options issued
below fair market value, amounts for which fair market value exceeds the amounts
for which options have been granted, have been charged to deferred stock
compensation expense and are being amortized over four years, the vesting period
of the options.
Transactions involving the incentive stock options granted to key employees
are summarized as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTION PRICE
SHARES PER SHARE
<S> <C> <C>
Options outstanding April 1, 1996........................... -- $ --
Granted................................................... 312,110 .011
Exercised................................................. -- --
Canceled.................................................. (27,433) --
--------- ------------
Options outstanding December 31, 1996....................... 284,677 .011
Granted................................................... 557,500 .144 & .172
Exercised................................................. (7,978) .011
Canceled.................................................. (109,977) --
--------- ------------
Options outstanding December 31, 1997....................... 724,222 .011 - .172
Granted................................................... 1,650,118 .172 & .344
Exercised................................................. (7,797) .011 & .144
Canceled.................................................. (48,125) .144 & .0172
--------- ------------
Options outstanding December 31, 1998....................... 2,318,418 .011-.344
========= ============
</TABLE>
Employee Options exercisable at December 31, 1997 and 1998 were 63,325 and
344,873, respectively. No options were exercisable at December 31, 1996.
Transactions involving non-qualified stock options granted to non-employees
are summarized as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTION PRICE
SHARES PER SHARE
<S> <C> <C>
Options outstanding April 1, 1996.......................... -- --
Granted.................................................. 1,974,918 $ .011
Exercised................................................ (22,500) .011
Canceled................................................. -- --
--------- ------------
Options outstanding December 31, 1996...................... 1,952,418 .011
Granted.................................................. 175,000 .144
Exercised................................................ (91,668) .011
Canceled................................................. (6,018) .011
--------- ------------
Options outstanding December 31, 1997...................... 2,029,732 .011 & .144
Granted.................................................. 340,000 .172 & .344
Exercised................................................ (407,005) .011 & .144
Canceled................................................. (89,678) .011 & .172
--------- ------------
Options outstanding December 31, 1998...................... 1,873,049 $.011 - .344
========= ============
</TABLE>
Non-employee options exercisable at December 31, 1997 and 1998 were
625,742.5 and 998,330, respectively. No options were exercisable at December 31,
1996.
F-13
<PAGE> 91
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 123 provides for a fair value based method of accounting for
employee options and options granted to non-employees and measures compensation
expense using an option valuation model that takes into account, as of the grant
date, the exercise price and expected life of the option, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock, and the risk-free interest rate for the expected term of the options. For
the years ended December 31, 1996 and 1997 the fair value of options granted to
non-employees were nominal as determined using the Black Scholes option pricing
model. For options granted to non-employees in 1998, an amount equal to the fair
value of the services provided aggregating $65,000 is included as a charge to
general and administrative expenses in the 1998 statement of operations.
Medscape has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related interpretations
in accounting for its employee stock options. Medscape has issued its options at
fair value at the date of grant. Under APB 25, because the exercise price of
Medscape's employee stock options equals the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma disclosures as if Medscape adopted the cost recognition
requirement under SFAS 123 is presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Net loss as reported............................. $1,344,490 $3,463,914 $3,900,619
Net loss pro forma............................... 1,344,970 3,482,361 3,975,655
</TABLE>
The fair value of options granted under the Plan for the years ended
December 31, 1997 and 1998, in complying with SFAS No. 123 was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used: no dividend yield, no expected volatility,
risk free interest rate of 5.66% as of December 31, 1997 and 4.60% as of
December 31, 1998, and expected lives of 3.25 years. Pro forma compensation cost
of options granted under the Plan is measured based on the discount from fair
value.
10. EMPLOYMENT AGREEMENTS
Medscape has employment agreements with four employees ranging from one to
five years, with commitments aggregating in each of the years, ending December
31; $571,000 in 1999, $470,000 in 2000, $211,000 in 2001, $195,000 in 2002 and
$163,000 in 2003.
11. MAJOR CUSTOMERS
Sales to two major customers for the nine months ended December 31, 1996
represent 73% and 22%. For the year ended December 31, 1997, sales to three
major customers represented 15%, 14% and 13%. For the year ended December 31,
1998, sales to two major customers represent 27% and 14%.
12. ADMINISTRATIVE SERVICES AGREEMENT
On April 1, 1996, Medscape and SCP, a company controlled by the same
stockholders, entered into a administrative services agreement under which SCP
provided Medscape with administrative, support services, and sufficient space
for Medscape to conduct its business. This agreement had been extended through
April 30, 1999.
At December 31, 1998, Medscape owed SCP an aggregate of $50,862 under this
agreement as compared to $465,916 at December 31, 1997. SCP provided services
aggregating, $740,739, $1,074,307 and $749,415
F-14
<PAGE> 92
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the years ended December 31, 1998, December 31, 1997 and the period ended
December 31, 1996, respectively. In management's opinion, all of these services
were provided and paid for at a fair market value.
Medscape and SCP have entered into a ten-year "Publishers' Circle
Agreement" whereby SCP grants Medscape the right to distribute its content on
the Web and to provide the content for worldwide on-line search and retrieval.
Additionally, SCP agrees to promote Medscape in its publications, and run
advertising in every issue of its journals. In return, SCP can sell all Medscape
products including banner advertising for which SCP will receive a commission.
13. SUBSEQUENT EVENTS
On May 17, 1999, Medscape effected a 2.5-for-one stock split for each
outstanding share of each class of common shares. In connection with the stock
split, the number of authorized shares of Class A Common Stock was increased to
an aggregate of 1,079,000, the number of authorized shares of Class B Common
Stock to an aggregate of 6,701,363 shares and the preferred stock became
convertible into 2.5 times as many shares of the Class A Common Stock and each
outstanding warrant and option became exercisable for 2.5 times as many shares
of the Class B Common Stock. The 2.5-for-one stock split described above has
been applied retrospectively for all periods presented.
14. RESTATEMENT
Subsequent to the issuance of Medscape's 1998 Consolidated Financial
Statements, Medscape's management determined that the valuation of Class B
Common Stock and related options should be revised for Class B Common Stock and
options issued after August 1, 1998. As a result, the 1998 Consolidated
Financial Statements have been restated from the amounts previously reported to
recognize additional stock based compensation expense of $257,109, deferred
compensation of $715,436 and additional goodwill of $459,523 based upon the
revised fair value of Class B Common Stock and options. Additional paid-in
capital has also been increased by $1,432,068.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
AT DECEMBER 31, 1998: REPORTED AS RESTATED
<S> <C> <C>
Goodwill -- Net........................................... $ 1,950,268 $ 2,409,791
Additional Paid-In Capital................................ 12,726,241 14,158,309
Accumulated Deficit....................................... 8,451,914 8,709,023
Deferred Stock Compensation............................... -- 715,436
</TABLE>
<TABLE>
<CAPTION>
AS PREVIOUSLY
FOR THE YEAR ENDED DECEMBER 31, 1998: REPORTED AS RESTATED
<S> <C> <C>
Editorial, Production, Content & Technology............... $ 2,563,419 $ 2,588,353
Sales and Marketing....................................... 2,343,962 2,356,432
General and Administrative................................ 1,774,649 1,987,183
Depreciation and Amortization............................. 279,528 286,699
Net Loss.................................................. 3,643,510 3,900,619
Basic net loss per share.................................. $1.00 $1.07
</TABLE>
15. SUBSEQUENT EVENTS (UNAUDITED)
SHAREHOLDERS' EQUITY
In March 1999, Medscape issued 1,757,683 shares of Series D Preferred Stock
at $11.72 per share for gross proceeds of $20,600,019.
F-15
<PAGE> 93
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 1999, 932,401 shares of Series C Preferred Stock were redesignated
as Series C-1 Preferred Stock.
In March 1999, the Board of Directors increased the authorized shares of
Class A Common Stock that can be issued to 27,500,000 and lowered the authorized
shares of Preferred Stock to 4,956,560.
The Board of Directors of Medscape has approved an increase in the total
number of Class B Common Stock that may be granted under the Medscape, Inc.,
1996 Stock Option Plan, to 8,250,000.
TRANSACTIONS WITH SOFTWATCH LTD.
On June 15, 1999, Medscape purchased 1,040,170 Series A Preferred Shares of
Softwatch Ltd. (Softwatch), an Israeli company, for $2,999,954. At the same
time, Medscape and Softwatch entered into a License and Web Site Development
Agreement pursuant to which Medscape licensed software from Softwatch to support
its consumer site and for Softwatch to provide ongoing support services for the
consumer site. On the date of the Agreement, Medscape paid $500,000 in cash of a
total $1,500,000 licensing fee. $500,000 of the remaining balance will be paid
upon delivery of the software and $500,000 upon acceptance by Medscape. Medscape
will also pay royalties under the Agreement.
TRANSACTIONS WITH CBS CORPORATION
On July 7, 1999, Medscape entered into a Common Stock Purchase agreement,
and on August 3, 1999, in related transactions, we entered into an Advertising
and Promotional Agreement, and a Trademark and Content Agreement with CBS
Corporation (CBS). Under the Stock Purchase Agreement, Medscape sold 7,397,208
shares of Class A Common Stock and 6,541,160 shares of Class B Common Stock to
CBS for an aggregate purchase price of $157,000,000, of which $139,384 was paid
in cash, and $149,860,616 is to be paid through the advertising services to be
provided by CBS in accordance with the Advertising and Promotion Agreement and
$7,000,000 is to be paid through the grant of rights under the Trademark and
Content Agreement. Over the seven year term of the Advertising and Promotion
Agreement, CBS will arrange for the placement of approximately $150 million
worth of advertising and promotion in the United States for Medscape's consumer
and professional Web sites and their other products and services.
Under the Trademark and Content Agreement, CBS granted Medscape a license
to the "CBS" trademark and "Eye" design and health-related news content for a
seven year period. Under the agreement CBS retains significant control over the
use and presentation of the CBS health content and CBS trademarks.
TRANSACTIONS WITH NATIONAL DATA CORPORATION
On August 4, 1999, Medscape sold 400,000 shares of Series E Preferred Stock
at a purchase price of $25 per share and 1,000,000 shares of Class A Common
Stock at a purchase price of $10 per share to National Data Corporation, which
included a $10,000,000 cash investment and an additional $10,000,000 attributed
to licensing and promotion to be provided by NDC and credits against future
commission amounts due by Medscape to NDC. $6,000,000 will be expensed as used
over the three-year life of the agreement, commencing August 4, 1999 and
terminating August 31, 2002. In addition, the license fee of $4,000,000 will be
amortized on a straight line basis over the life of the agreement. In accordance
with instructions by NDC, 25,000 of the 1,000,000 shares of Class A Common Stock
and 10,000 of the 400,000 shares of Series E Preferred Stock were delivered to
NDC's financial advisor in the transaction, Lazard Freres & Co., LLC.
TRANSACTION WITH AMERICA ONLINE, INC.
On September 3, 1999, Medscape entered into an agreement with America
Online, Inc., under which AOL has agreed to promote, through contextual links
and banners, on AOL, AOL.com, CompuServe Service, Netscape Netcenter and Digital
City, which are all AOL properties.Medscape has paid AOL $3 million and
F-16
<PAGE> 94
MEDSCAPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
will pay an additional $30 million over the next two years. These amounts will
be charged to earnings over the next three years, the life of the contract. In
addition, Medscape granted AOL two seven-year warrants, each to purchase up to
1,352,158 shares of Medscape's Class A Common Stock. One of the Warrants is
fully-vested now and has an exercise price of $10 per share. The other Warrant
will vest over a three-year period based on AOL meeting specified performance
requirements and will have exercise prices equal to the fair market value of
Medscape's common stock at the time of vesting. Each warrant has a value of
approximately $2,530,000, as determined using the Black Scholes option pricing
method. The value of the fully vested warrant will be charged to earnings
immediately and the warrant that vests over three years will be charged to
earnings adjusted variably over the vesting period.
F-17
<PAGE> 95
MEDSCAPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 JUNE 30,
(AS RESTATED) 1999
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................. $ 1,595 $ 12,954
Accounts receivable....................................... 1,350 2,698
Prepaid expenses and other assets......................... 93 1,112
------- --------
Total current assets.............................. 3,038 16,764
Investment in Softwatch..................................... -- 3,067
Property and equipment -- net............................... 380 960
Intangible assets -- net.................................... 46 94
Goodwill -- net............................................. 2,410 2,328
------- --------
Total assets...................................... $ 5,874 $ 23,213
======= ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable.......................................... $ 330 $ 58
Accrued expenses.......................................... 489 1,615
Due to related party...................................... 51 25
Deferred revenue.......................................... 800 2,048
------- --------
Total current liabilities......................... 1,670 3,746
------- --------
Shareholders' equity:
Common stock, Class A -- par value $.01; 15,000,000 and
27,500,000 at December 31, 1998 and June 30, 1999
shares authorized, 1,079,000 issued and outstanding.... 11 11
Common stock, Class B -- par value $.01; 15,000,000 shares
authorized, 6,995,602.5 issued and outstanding......... 58 70
Preferred stock, Series A -- par value $.01; 1,000,000 and
788,200 shares authorized at December 31, 1998 and June
30, 1999, 788,200 shares issued and outstanding........ 8 8
Preferred stock, Series C -- par value $.01; 4,000,000 and
1,478,359 shares authorized at December 31, 1998 and
June 30, 1999, 2,410,760 and 1,478,359 issued and
outstanding............................................ 24 15
Preferred stock, Series C-1 -- par value $.01; 932,401
shares at June 30, 1999, 932,401 issued and outstanding
and authorized......................................... -- 9
Preferred stock, Series D -- par value $.01; 1,757,683
shares at June 30, 1999, 1,757,683 issued and
outstanding and authorized............................. -- 17
Warrants.................................................. -- 85
Additional paid-in-capital................................ 14,158 36,223
Treasury stock............................................ (3) (3)
Notes receivable.......................................... (628) (628)
Deferred Stock Compensation............................... (715) (2,550)
Accumulated deficit....................................... (8,709) (13,790)
------- --------
Total shareholders' equity........................ 4,204 19,467
------- --------
Total liabilities and shareholders' equity........ $ 5,874 $ 23,213
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE> 96
MEDSCAPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
1998 1999
<S> <C> <C>
Revenues.................................................... $ 1,078 $ 4,930
--------- ---------
Operating expenses:
Editorial, production, content and technology............. 853 3,916
Sales and marketing....................................... 811 3,502
General and administration................................ 793 2,664
Depreciation and amortization............................. 96 225
--------- ---------
Total operating expenses.......................... 2,553 10,307
--------- ---------
Loss from operations........................................ (1,475) (5,377)
Interest income -- net.................................... (149) (296)
--------- ---------
Net loss.................................................... $ (1,326) $ (5,081)
========= =========
Basic net loss per share.................................... $ (0.47) $ (0.71)
Weighted average number of shares of common stock
outstanding............................................... 2,834,172 7,164,127
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE> 97
MEDSCAPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1998 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(1,326) $(5,081)
Adjustments to reconcile net loss to net cash used in
operating activities:
Deferred stock compensation expense.................... -- 779
Depreciation and amortization.......................... 96 225
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............. 473 (1,348)
Increase in prepaid expenses........................... (222) (1,019)
Increase in accounts payable and accruals.............. 58 854
Decrease in due to related party....................... (733) (26)
(Decrease) increase in deferred revenue................ (378) 1,248
------- -------
Net cash used in operating activities............. (2,032) (4,368)
------- -------
INVESTING ACTIVITIES
Investment in Softwatch................................... -- (3,067)
Purchase of property and equipment........................ (125) (721)
Acquisition of intangible assets.......................... -- (50)
------- -------
Net cash used in investing activities............. (125) (3,838)
------- -------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................. 4,000 19,565
------- -------
Cash provided by financing activities............. 4,000 19,565
------- -------
Increase in cash and cash equivalents....................... 1,843 11,359
Cash and cash equivalents, beginning of period.............. 3,628 1,595
------- -------
Cash and cash equivalents, end of period.................... $ 5,471 $12,954
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 98
MEDSCAPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. BASIS OF PRESENTATION
Medscape, Inc. ("Medscape") has prepared the condensed consolidated
financial statements of which these notes are part, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to these rules and
regulations; however, in the opinion of Medscape's management, the Condensed
Consolidated Financial statements include all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial information
for the six months ended June 30, 1999. These Condensed Consolidated Financial
Statements should be read in conjunction with the consolidated Financial
Statements of Medscape for the year ended December 31, 1998.
2. PRIVATE PLACEMENT OF PREFERRED STOCK
On March 5, 1999, Medscape completed a private placement of its Series D
Preferred Stock (1,757,683 shares) for which it received $19,414,547 (gross
proceeds of $20,600,019 less expenses of the private placement of $1,185,472).
In connection with this private placement, Medscape issued 14,887 warrants of
Class B Common Stock to its investment bank. Each warrant entitles the
warrantholder to purchase 1 share of common stock for $0.01 with a warrant. The
value of the warrants was determined using the Black Scholes pricing model and
was recorded in the balance sheet at June 30, 1999 at a value of $85,000.
3. SERIES C AND C-1 PREFERRED STOCK
On March 5, 1999, 932,401 shares of Series C Preferred Stock that had been
issued on February 19 and March 9, 1998 were redesignated as Series C-1
Preferred Stock.
4. INCOME TAXES
No provision for income taxes has been made because Medscape has sustained
cumulative losses since the commencement of its operations.
At June 30, 1999, Medscape had net operating loss carryforwards ("NOLs") of
approximately $13,789,000 which will be available to reduce future taxable
income. The NOLs are scheduled to expire in the following years:
<TABLE>
<S> <C>
2011..................................................... $1,344,000
2012..................................................... 3,464,000
2018..................................................... 3,900,000
2019..................................................... 5,081,000
</TABLE>
In accordance with SFAS No. 109, Medscape has computed the components of
deferred income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
<S> <C> <C>
Deferred tax assets........................................ $ 3,419,911 $ 5,646,481
Less valuation allowance................................... (3,419,911) (5,646,481)
----------- -----------
Net deferred tax assets.................................... $ -- $ --
=========== ===========
</TABLE>
F-21
<PAGE> 99
MEDSCAPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Medscape's net operating losses primarily generated the deferred tax
assets. At December 31, 1998 and June 30, 1999, a valuation allowance is
provided as the realization of the deferred tax benefits is not likely.
5. SUBSEQUENT EVENTS
The Board of Directors of Medscape has approved an increase in the total
number of Class B Common Stock that may be granted under the Medscape, Inc. 1996
Stock Option Plan, to 8,250,000.
Medscape is in the process of filing an initial public offering with the
Commission. On consummation of the offering, all Preferred Shares will convert
to Common Shares.
SHAREHOLDERS' EQUITY
On May 17, 1999, Medscape effected a 2.5-for-one stock split for each
outstanding share of each class of common shares. In connection with the stock
split, the number of authorized shares of Class A Common Stock was increased to
an aggregate of 1,079,000 shares, the number of authorized shares of Class B
common Stock was increased to an aggregate of 6,701,363 shares and the preferred
stock became convertible into 2.5 times as many shares of the Class A Common
Stock and each outstanding warrant and option became exercisable for 2.5 times
as many shares of the Class B Common Stock. The 2.5-for-one stock split
described above has been applied retrospectively for all periods presented.
In March 1999, Medscape issued 1,757,683 shares of Series D Preferred Stock
at $11.72 per share for gross proceeds of $20,600,019.
In March 1999, 932,401 shares of Series C Preferred Stock were redesignated
as Series C-1 Preferred Stock.
In March 1999, the Board of Directors increased the authorized shares of
Class A Common Stock that can be issued to 27,500,000 and lowered the authorized
shares of Preferred Stock to 4,956,560.
The Board of Directors of Medscape has approved an increase in the total
number of Class B Common Stock that may be granted under the Medscape, Inc.,
1996 Stock Option Plan, to 8,250,000.
In connection with options issued during the six months ended June 30,
1999, Medscape has charged deferred stock compensation approximately of $2.6
million (included in the offset in the equity section of the balance sheet) for
the amount that fair market value exceeds the amount the options were granted.
Such amount is being amortized over four years, the vesting period of the
options.
TRANSACTIONS WITH SOFTWATCH LTD
On June 15, 1999, Medscape purchased 1,040,170 Series A Preferred Shares of
Softwatch Ltd. (Softwatch), an Israeli company, for $2,999,954 (which is
accounted for at cost). In addition, Medscape incurred $66,701 of expenses
relating to the investment. At the same time, Medscape and Softwatch entered
into a License and Web Site Development Agreement pursuant to which Medscape
licensed software from Softwatch to support its consumer site and for Softwatch
to provide ongoing support services for the consumer site. On the date of the
Agreement, Medscape paid $500,000 in cash of a total licensing fee of
$1,500,000. The remaining $1,000,000 will be paid $500,000 upon delivery of the
software and $500,000 upon acceptance by Medscape. Medscape will also pay
royalties under the Agreement.
TRANSACTIONS WITH CBS CORPORATION
On July 7, 1999, Medscape entered into a Common Stock Purchase agreement,
and on August 3, 1999, in related transactions, entered into an Advertising and
Promotional Agreement, and a Trademark and Content Agreement with CBS
Corporation (CBS). Under the Stock Purchase Agreement, Medscape sold
F-22
<PAGE> 100
MEDSCAPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
7,397,208 shares of Class A Common Stock and 6,541,160 shares of Class B Common
Stock to CBS for an aggregate purchase price of $157,000,000, of which $139,384
was paid in cash, and $149,860,616 is to be paid through the advertising
services to be provided by CBS in accordance with the Advertising and Promotion
Agreement and $7,000,000 is to be paid through the grant of rights under the
Trademark and Content Agreement. Over the seven year term of the Advertising and
Promotion Agreement, CBS will arrange for the placement of approximately $150
million worth of advertising and promotion in the United States for Medscape's
consumer and professional Web sites and their other products and services.
Under the Trademark and Content Agreement, CBS granted Medscape a license
to the "CBS" trademark and "Eye" design and to health related news content for a
seven year period. Under the agreement CBS retains significant control over the
use and presentation of the CBS health content and CBS trademarks.
TRANSACTIONS WITH NATIONAL DATA CORPORATION
On August 4, 1999 Medscape sold 400,000 shares of Series E Preferred Stock
at a purchase price of $25 per share and 1,000,000 shares of Class A Common
Stock at a purchase price of $10 per share to National Data Corporation, which
included a $10,000,000 cash investment and an additional $10,000,000 attributed
to licensing and promotion to be provided by NDC and credits against future
commission amounts due by Medscape to NDC. $6,000,000 will be expensed as used
over the three-year life of the agreement, commencing August 4, 1999 and
terminating August 31, 2002. In addition, the license fee of $4,000,000 will be
amortized on a straight line basis over the life of the agreement. In accordance
with instructions by NDC, 25,000 of the 1,000,000 shares of Class A Common Stock
and 10,000 of the 400,000 shares of Series E Preferred Stock were delivered to
NDC's financial advisor in the transaction, Lazard Freres & Co., LLC.
TRANSACTION WITH AMERICA ONLINE, INC.
On September 3, 1999, Medscape entered into an agreement with America
Online, Inc., under which AOL has agreed to promote, through contextual links
and banners, on AOL, AOL.com, CompuServe Service, Netscape Netcenter and Digital
City, which are all AOL properties. Medscape has paid AOL $3 million and will
pay an additional $30 million over the next two years. These amounts will be
charged to earnings over the next three years, the life of the contract. In
addition, Medscape granted AOL two seven-year warrants, each to purchase up to
1,352,158 shares of Medscape's Class A Common Stock. One of the warrants is
fully vested now and has an exercise price of $10 per share. The other warrant
will vest over a three-year period based on AOL meeting specified performance
requirements and will have exercise prices equal to the fair market value of
Medscape's common stock at the time of vesting. Each warrant has a value of
approximately $2,530,000, as determined using the Black Scholes option pricing.
The value of the fully vested warrant will be charged to earnings immediately
and the warrant that vests over three years will be charged to earnings adjusted
variably over the vesting period.
F-23
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
Healthcare Communications Group, LLC
Potomac, Maryland
We have audited the accompanying balance sheets of Healthcare
Communications Group, LLC ("HCG") as of December 31, 1997 and October 27, 1998,
and the related statements of operations, members' capital, and cash flows for
the year ended December 31, 1997 and the ten months ended October 27, 1998.
These financial statements are the responsibility of HCG's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of HCG at December 31, 1997 and October 27,
1998, and the results of its operations and its cash flows for the year ended
December 31, 1997 and the ten months ended October 27, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
April 9, 1999
F-24
<PAGE> 102
HEALTHCARE COMMUNICATIONS GROUP, LLC
BALANCE SHEETS
DECEMBER 31, 1997 AND OCTOBER 27, 1998
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 27,
1997 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2)........................ $ 54,286 $ 14,081
Accounts receivable....................................... 520,388 1,190,359
Prepaid expenses and other assets......................... 116,063 54,730
-------- ----------
Total current assets.............................. 690,737 1,259,170
Property and equipment -- net (Note 3)...................... 29,875 76,777
Intangible assets -- net.................................... 6,800 5,383
-------- ----------
Total assets...................................... $727,412 $1,341,330
======== ==========
LIABILITIES AND MEMBERS' CAPITAL (DEFICIENCY IN CAPITAL)
Liabilities:
Accounts payable.......................................... $121,306 $ 23,012
Accrued expenses.......................................... 47,243 56,946
Demand note due to Medscape, Inc. (Note 4)................ -- 275,000
Deferred revenue (Note 2)................................. 190,000 1,121,193
-------- ----------
Total liabilities................................. 358,549 1,476,151
Commitments (Note 4)
Members' capital (deficiency in capital).................... 368,863 (134,821)
-------- ----------
Total liabilities and members' capital............ $727,412 $1,341,330
======== ==========
</TABLE>
See notes to financial statements.
F-25
<PAGE> 103
HEALTHCARE COMMUNICATIONS GROUP, LLC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
TEN MONTHS ENDED OCTOBER 27, 1998
<TABLE>
<CAPTION>
TEN
YEAR MONTHS
ENDED ENDED
DECEMBER 31, OCTOBER 27,
1997 1998
<S> <C> <C>
Revenues.................................................... $3,155,504 $2,584,615
---------- ----------
Operating expenses:
Editorial, production, content and technology............. 1,853,118 1,736,351
General and administration................................ 923,547 867,970
Depreciation and amortization............................. 4,231 9,419
---------- ----------
Total operating expenses.......................... 2,780,896 2,613,740
---------- ----------
Income (loss) from operations............................... 374,608 (29,125)
Interest income........................................... (2,965) (1,542)
---------- ----------
Net income (loss)........................................... $ 377,573 $ (27,583)
========== ==========
</TABLE>
See notes to financial statements.
F-26
<PAGE> 104
HEALTHCARE COMMUNICATIONS GROUP, LLC
STATEMENTS OF MEMBERS' CAPITAL (DEFICIENCY IN CAPITAL)
FOR THE TEN MONTHS ENDED OCTOBER 27, 1998 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Members' capital, January 1, 1997........................... $ 148,636
Net income for the year ended December 31, 1997........... 377,573
Distribution to members during 1997....................... (157,346)
---------
Members' capital, December 31, 1997......................... 368,863
Net loss for the ten months ended October 27, 1998........ (27,583)
Distribution to members during 1998....................... (476,101)
---------
Members' deficiency in capital, October 27, 1998............ $(134,821)
=========
</TABLE>
See notes to financial statements.
F-27
<PAGE> 105
HEALTHCARE COMMUNICATIONS GROUP, LLC
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND TEN MONTHS ENDED OCTOBER 27, 1998
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 27,
1997 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 377,573 $ (27,583)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 4,231 9,419
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............. 1,148,237 (669,971)
Decrease in prepaid expenses........................... 2,873 61,333
Increase (decrease) in accounts payable and accruals... 120,613 (88,591)
(Decrease) increase in deferred revenue................ (1,474,979) 931,193
----------- ---------
Net cash provided by operating activities......... 178,548 215,800
----------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment........................ (27,412) (54,904)
----------- ---------
Net cash used in investing activities............. (27,412) (54,904)
----------- ---------
FINANCING ACTIVITIES
Distributions to members.................................. (157,346) (476,101)
Demand note due to Medscape, Inc.......................... -- 275,000
----------- ---------
Net cash used in financing activities............. (157,346) (201,101)
----------- ---------
Decrease in cash and cash equivalents....................... (6,210) (40,205)
Cash and cash equivalents, beginning of period.............. 60,496 54,286
----------- ---------
Cash and cash equivalents, end of period.................... $ 54,286 $ 14,081
=========== =========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 106
HEALTHCARE COMMUNICATIONS GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED OCTOBER 27, 1998 AND YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND NATURE OF BUSINESS
Healthcare Communications Group, ("HCG") is a Maryland limited liability
company, founded on November 17, 1995. HCG is a medical communications/education
company that develops, produces and distributes unique live, print, digital and
Internet-based programs for healthcare professionals that are funded by
pharmaceutical companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, HCG considers all highly
liquid short-term cash investments purchased with maturities of three months or
less as cash and cash equivalents.
CONCENTRATION OF CREDIT RISK
HCG's financial instruments that are exposed to concentration of credit
risks consist primarily of cash and cash equivalents and trade accounts
receivable. HCG maintains its cash and cash equivalents in bank accounts which,
at times, exceeds federally insured limits. HCG has not experienced any losses
in these accounts. HCG believes it is not exposed to any significant credit risk
on cash and cash equivalents. Concentrations of credit risks with respect to
accounts receivable are limited because of HCG's expanding customer base and
credit worthiness of its three major customers (see Note 5), making up the
majority of the accounts receivable balance.
DEPRECIATION AND AMORTIZATION
HCG provides for depreciation of property and equipment based on the
estimated useful lives of the applicable assets and the life of leases, using
the straight-line method.
Expenditures for renewals and improvements which extend the useful lives of
assets are capitalized, while maintenance and repairs are charged to operations
as incurred.
Intangible assets consists of trademarks which are being amortized using
the straight-line method over their estimated useful life.
REVENUE RECOGNITION
Revenue from custom programs, such as on-line conference summaries and
custom modules produced by HCG, are recognized on a percentage of completion
basis. Revenues from conferences and other events produced by HCG are recognized
upon completion of the conference or event. At December 31, 1997 and October 27,
1998, there were no uncompleted projects.
F-29
<PAGE> 107
HEALTHCARE COMMUNICATIONS GROUP, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DEFERRED REVENUE
Deferred revenue represents amounts billed in excess of revenues
recognized. Included in accounts receivable are amounts due (under contract)
relating to deferred revenue.
IMPAIRMENT OF ASSETS
HCG's long-lived assets and identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the net
carrying amount may not be recoverable. When these events occur, HCG measures
impairment by comparing the carrying value of the long-lived asset to the
estimated undiscounted future cash flows expected to result from use of the
assets and their eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying amount of the assets, HCG would
recognize an impairment loss. HCG determined that, as of December 31, 1997 and
October 27, 1998, there had been no impairment in the carrying value of the
long-lived assets.
INCOME TAXES
Under present income tax regulations, HCG pays no federal, state or local
income taxes. For tax purposes, any income or loss is included in the income tax
returns of the members.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. HCG has no
elements of comprehensive income. HCG operates in one segment in the United
States.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities for HCG's year ended
December 31, 2000. Generally, it requires that an entity recognize all
derivatives as either an asset or liability and measure those instruments at
fair value, as well as identify the conditions for which a derivative may be
specifically designated as a hedge. Management is currently evaluating the
effect of this statement on HCG's financial statements.
During 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. This
statement is applicable to HCG's 1999 financial statements and will require HCG
to capitalize various payroll and payroll related costs and other costs that are
directly related to the development of some of the systems of HCG. HCG will
amortize these costs over the anticipated life of the systems. Management is
currently evaluating the effect of this statement on HCG's financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 27, USEFUL LIFE
DESCRIPTION 1997 1998 (IN YEARS)
<S> <C> <C> <C>
Computers and equipment............................ $26,441 $ 79,507 5
Furnitures and fixtures............................ 6,959 8,797 7
------- --------
33,400 88,304
Less accumulated depreciation...................... (3,525) (11,527)
------- --------
Property and equipment -- net...................... $29,875 $ 76,777
======= ========
</TABLE>
F-30
<PAGE> 108
HEALTHCARE COMMUNICATIONS GROUP, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEMAND NOTE
As of October 27, 1998, the demand note consists of $215,000 and $60,000,
borrowed on October 26 and October 23, 1998, respectively, from Medscape, Inc.
at an annual interest rate of 8% (Note 6). Under the terms of the demand note,
HCG was required to use the proceeds to pay amounts owed to vendors prior to the
acquisition by Medscape, Inc.
5. MAJOR CUSTOMERS
Sales to three major customers for the year ended December 31, 1997 and the
ten months ended October 27, 1998 represented 53% and 50% of total sales,
respectively. At December 31, 1997 and October 27, 1998, these three customers
represented 34% and 76% accounts receivable, respectively.
6. SUBSEQUENT EVENT
Effective October 27, 1998, the membership interests of HCG were purchased
by Medscape, Inc., a New York corporation.
F-31
<PAGE> 109
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[MEDSCAPE LOGO]
5,400,000 SHARES OF COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
WIT CAPITAL CORPORATION
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999, (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
The following table sets forth the expenses payable by Medscape in
connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
<S> <C>
SEC Registration Fee...................................... $ 22,226
NASD Filing Fee........................................... 8,495
Nasdaq National Market Listing Fee........................ 95,000
Accounting Fees and Expenses.............................. 350,000
Legal Fees and Expenses................................... 550,000
Printing Expenses......................................... 400,000
Blue Sky Qualification Fees and Expenses.................. 2,500
Transfer Agent's Fee...................................... 7,500
Miscellaneous............................................. 314,779
----------
Total............................................. $1,750,000
==========
</TABLE>
- ---------------
(1) The amounts set forth above, except for the SEC, NASD and Nasdaq National
Market Listing fees, are in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article V of our certificate of incorporation provides that no director of
Medscape shall be personally liable to Medscape or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1) for
any breach of the director's duty of loyalty to Medscape or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) in respect of certain unlawful
dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, our certificate of incorporation provides that if the Delaware General
Corporation Law is amended to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Article VII of our bylaws provides that we shall, to the full extent
permitted by the laws of the State of Delaware, as amended from time to time,
indemnify all directors and officers.
Medscape maintains directors and officers liability insurance that covers
its officers and directors against certain losses that may arise out of their
positions with Medscape and covers Medscape for liabilities it may incur to
indemnify its officers and directors.
Under Section Seven of the underwriting agreement filed as Exhibit 1.1 to
this registration statement, the underwriters have agreed to indemnify, under
certain conditions, Medscape, its directors, certain officers and persons who
control Medscape within the meaning of the Securities Act against certain
liabilities.
II-1
<PAGE> 111
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a description of the sale of unregistered common stock for
the last three years:
(1) On January 17, 1997, we sold 123,974 shares of Series B Preferred
Stock to CSK Venture Capital Co., Ltd. at a purchase price of $12.099
per share, which was paid in cash.
(2) On October 31, 1997, we sold 1,152,523 shares of Series C Preferred
Stock to 18 sophisticated, accredited investors at a purchase price of
$4.60 per share, which was paid in cash. In addition, we also issued
349,650 shares of Series C Preferred Stock to CSK Venture Capital Co.,
Ltd. in exchange for its 123,974 shares of Series B Preferred Stock.
(3) On February 19 and March 9, 1998, we sold 932,401 additional shares of
Series C Preferred Stock to three sophisticated, accredited investors
at a purchase price of $4.29 per share, which was paid in cash. This
purchase caused an adjustment of the purchase price of the previously
purchased Series C Preferred Stock in section (2) above from $4.60 to
$4.29. On March 5, 1999, the 932,401 shares of Series C Preferred
Stock from the February 19 and March 9, 1998 closing were redesignated
as Series C-1 Preferred Stock.
(4) On October 27, 1999, we issued 1,825,435 shares of Class B Common
Stock in exchange for the outstanding membership interests held by the
then four members of Healthcare Communications Group, LLC.
(5) On October 27, 1998, as part of an Employment and Restricted Stock
Purchase Agreement, we sold 1,825,435 restricted shares of non-voting
Class B Common Stock to Jeffrey L. Drezner, M.D., Ph.D. at a purchase
price of $.344 per share, which was paid with a promissory note
secured by a pledge of the shares.
(6) On March 5, 1999, we sold 1,757,683 shares of Series D Preferred Stock
to 15 accredited investors at a purchase price of $11.72 per share,
which was paid in cash.
(7) On March 5, 1999 we issued warrants to purchase a total of 14,667.5
shares of Class B Common Stock to Credit Suisse First Boston
Corporation with an exercise price of $.004 as part of their placement
fee in connection with the Series D financing.
(8) Since April 1996 we have granted options to purchase 7,772,927.5
shares of Class B Common Stock to a total of 239 employees,
consultants and non-employee directors at exercise prices ranging from
$0.011 to $10.00 per share.
(9) Since July 1996 we have sold 1,762,122.5 shares of Class B Common
Stock, pursuant to the exercise of some of the options described in
section (8) above, to a total of 57 employees, consultants and
non-employee directors exercise prices ranging from $0.011 to $3.40
per share.
(10) On August 3, 1999 we sold 7,397,208 shares of Class A Common Stock and
6,541,160 shares of Class B Common Stock to CBS Corporation, a large
institutional accredited investor, for an aggregate purchase price of
$157,000,000, of which $139,383.68 was paid in cash, $149,860,616.32
is to be paid through the provision by CBS of advertising and
promotion services and $7,000,000 was attributed to the license by CBS
to us of the "CBS" trademark and "Eye" design and selected
health-related news content.
(11) On August 4, 1999 we sold 400,000 shares of Series E Preferred Stock
at a purchase price of $25 per share and 1,000,000 shares of Class A
Common Stock at a purchase price of $10 per share to National Data
Corporation, a large institutional accredited investor, which included
a $10,000,000 cash investment and an additional $10,000,000 attributed
to licensing and promotion to be provided by NDC and credits against
future commission amounts due by us to NDC. In accordance with
instructions by NDC, 25,000 of the 1,000,000 shares of Class A Common
Stock and 10,000 of the 400,000 shares of Series E Preferred Stock
were delivered to NDC's financial advisor in the transaction, Lazard
Freres & Co., LLC.
II-2
<PAGE> 112
(12) On September 3, 1999 we issued two seven-year warrants, each to
purchase up to 1,352,158 shares of Medscape's Class A Common Stock to
America Online, Inc. One warrant is fully exercisable now and has an
exercise price of $10. The other warrant will vest over a three-year
period based on AOL meeting specified performance requirements and
will have an exercise price to be determined based upon the fair
market value of our common stock at the future times that the warrant
becomes exercisable.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated under Section 4(2) of the Securities
Act, or, with respect to issuances to employees, Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The recipients of
securities in each transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the Securities and appropriate legends were affixed to
the instruments representing the securities issued in these transactions. All
recipients had adequate access, through their relationships with the Company, to
information about Medscape, Inc.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1.1** Form of Underwriting Agreement.
2.1** Asset Purchase Agreement between Medscape, Inc. and SCP
Communications, Inc., dated April 1, 1996.
2.2** Administrative Services Agreement between Medscape, Inc. and
SCP Communications, Inc., dated April 1, 1996.
2.3** Financing Agreement between Medscape, Inc. and SCP
Communications, Inc., dated April 1, 1996.
2.4** Purchase Agreement between Medscape, Inc. and the holders of
all of the membership interests of Healthcare Communications
Group, L.L.C. dated October 27, 1998.
2.5** Letter Agreement between Medscape, Inc. and Ira Kirshenbaum,
M.D., dated February 2, 1999 regarding the sale of assets of
bonehome.com.
2.6** Bill of Sale between Medscape, Inc. and CompuRx and, dated
March 25, 1999.
3.1** Amended and Restated Certificate of Incorporation.
3.1.1** Amendment to the Amended and Restated Certificate of
Incorporation filed May 17, 1999.
3.1.2** Form of Amended and Restated Certificate of Incorporation to
be filed in connection with the NDC and CBS transactions.
3.1.3 Amendment, filed September 3, 1999, to the Amended and
Restated Certificate of Incorporation.
3.2** Form of Amended and Restated Certificate of Incorporation,
filed prior to the closing of the offering made under this
Registration Statement.
3.3** Bylaws.
4.1 Form of Specimen Common Stock Certificate.
4.2** Form of Warrant, dated as of March 5, 1999, entitling Credit
Suisse First Boston Corporation to purchase up to 14,667.5
shares of Medscape's Common Stock.
4.3 Warrant, dated September 3, 1999, entitling America Online,
Inc. to purchase 1,352,158 shares of Medscape's Class A
Common Stock.
4.4+ Performance Warrant, dated September 3, 1999, entitling
America Online, Inc. to purchase 1,352,158 shares of
Medscape's Class A Common Stock.
</TABLE>
II-3
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
5.1 Opinion of Patterson, Belknap, Webb & Tyler LLP as to the
validity of the securities being offered.
10.1** Agreement of Lease between Medscape, Inc. and R.A.A. Realty
Company LP dated February 1999.
10.2** Lease Assignment made by SCP Communications, Inc. made in
favor of Medscape, Inc.
10.3** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated October 7, 1996.
10.4** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated August 29, 1995.
10.5** Agreement of Lease between Surgical Care Publishing, Inc.,
and Satyanman, Inc., dated March 17, 1994.
10.6** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated August 18, 1993.
10.7** Employment Agreement between Medscape, Inc. and Paul T.
Sheils, dated January 26, 1998.
10.8** Employment Agreement between Medscape, Inc. and Steven
Kalin, dated September 30, 1998.
10.9** Employment and Restricted Stock Purchase Agreement between
Medscape, Inc. and Jeffrey L. Drezner, M.D., Ph.D., dated
October 27, 1998.
10.10** Promissory Note dated October 27, 1998, in the principal
amount of $627,949.64 made by Jeffrey L. Drezner, M.D.,
Ph.D. in favor of Medscape, Inc.
10.11** Employment Agreement between Medscape, Inc. and Peter M.
Frishauf, dated February 16, 1998.
10.12** Employment Agreement between Medscape, Inc. and George D.
Lundberg, M.D., dated February 15, 1999.
10.13** Employment Agreement between Medscape, Inc. and David
Yakimischak, dated March 15, 1999.
10.14** Employment Agreement between Medscape, Inc. and Meg Walsh,
dated March 4, 1999.
10.15** 1996 Stock Option Plan.
10.16** Form of Incentive Stock Option Agreement.
10.17** Form of Non-Qualified Stock Option Agreement.
10.18** Nonemployee Director Stock Option Plan.
10.19** Stock Purchase Agreement between Medscape, Inc. and
investors, dated October 31, 1997 in respect of the Series C
Preferred Stock.
10.20** First Amendment to Stock Purchase Agreement between
Medscape, Inc. and investors, dated February 19, 1998.
10.21** Supplemental Agreement to Amendment to Stock Purchase
Agreement and First Amendment to, and Waiver of Certain
Terms of, Stockholders' Agreement between Medscape, Inc. and
investors, dated March 9, 1998 in respect of the Series C
Preferred Stock.
10.22** Series D Preferred Stock Purchase Agreement between
Medscape, Inc. and investors, dated March 5, 1999.
10.23** Amended and Restated Stockholders' Agreement, dated March 5,
1999.
10.23.1** Amendment dated May 24, 1999, to the Amended and Restated
Stockholders' Agreement.
</TABLE>
II-4
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
10.23.2 Amendment and Restated Stockholder's Agreement, dated August
4, 1999.
10.25** Form of Letter to Authors.
10.26** Content Distribution Agreement between Medscape, Inc. and
Dow Jones & Company, Inc., dated January 22, 1999.
10.27** Interactive Publications Library Internet Gateway Agreement
between Medscape, Inc. and Dow Jones & Company, Inc., dated
July 14, 1998.
10.28** Preferred Share Purchase Agreement among Softwatch Ltd.,
Medscape, Inc. (as a purchaser) and certain other
purchasers, dated June 15, 1999.
10.29** License and Web Site Development Agreement between Medscape,
Inc. and Softwatch, Inc., dated June 15, 1999.
10.30** Employment Agreement between Medscape, Inc. and Mark
Boulding, dated June 28, 1999.
10.31** Common Stock Purchase Agreement between Medscape, Inc. and
CBS Corporation, dated as of July 4, 1999.
10.32** Form of Stockholders Agreement between Medscape, Inc. and
CBS Corporation, dated July , 1999.
10.33** Form of Joinder Agreement among certain Medscape, Inc.
shareholders, dated July , 1999, in connection with the
Stockholder Agreement dated July , 1999.
10.34** Form of Advertising and Promotion Agreement between
Medscape, Inc. and CBS Corporation, dated July , 1999.
10.35** Form of Trademark and Content Agreement between Medscape,
Inc. and CBS Corporation, dated July , 1999.
10.36** Form of Registration Rights Agreement between Medscape, Inc.
and CBS Corporation, dated July , 1999.
10.37** Stock Purchase Agreement between Medscape, Inc. and National
Data Corporation, dated July 7, 1999.
10.38+ Form of License and Product Development Agreement between
Medscape, Inc. and National Data Corporation, dated July ,
1999.
10.39** Agreement of Lease between Medscape, Inc. and 224 W 30 LLC,
dated May 26, 1999.
10.40** License Agreement between First Databank, Inc. and Medscape,
Inc., dated April 1, 1997.
10.41 Form of Subscription Agreement with CBS Corporation.
10.42+ Interactive Services Agreement between America Online, Inc.
and Medscape, Inc. dated September 3, 1999.
10.43 Agreement among America Online, Inc., CBS Corporation and
Medscape, Inc. in regard to registration rights, dated
September 3, 1999.
21.1** Subsidiaries of Medscape, Inc.
23.1 Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3** Consent of Fredric G. Reynolds, Executive Vice President and
Chief Financial Officer of CBS Corporation, to Act as a
Director of Medscape, Inc., dated July 7, 1999.
</TABLE>
II-5
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
23.4** Consent of Andrew Heyward, President of CBS News, to Act as
a Director of Medscape, Inc., dated July 7, 1999.
24.1** Powers of Attorney.
24.1.1 Powers of Attorney for Andrew Heyward and Fredric Reynolds.
</TABLE>
- ---------------
** Previously filed.
+ Confidential portions of this document are omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission.
ITEM 17. UNDERTAKINGS
1. The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Medscape, Inc. pursuant to the foregoing provisions, or otherwise, Medscape,
Inc. has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Medscape, Inc. of expenses incurred or
paid by a director, officer, or a controlling person of Medscape, Inc. in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Medscape, Inc. will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3. The undersigned registrant hereby undertakes that:
a. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by Medscape, Inc. pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
b. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Medscape, Inc.
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 7,
1999.
MEDSCAPE, INC.
By: /s/ PAUL T. SHEILS
---------------------------------------
Name: Paul T. Sheils
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
* President, Chief Executive Officer September 7, 1999
- --------------------------------------------- and Director (Principal Executive
Paul T. Sheils Officer)
* Chief Operating Officer and Chief September 7, 1999
- --------------------------------------------- Financial Officer (Principal
Steven R. Kalin Financial Accounting Officer)
* Chairman of the Board of Directors September 7, 1999
- ---------------------------------------------
Alan J. Patricof
* Executive Vice President and September 7, 1999
- --------------------------------------------- Director
Jeffrey L. Drezner,
M.D., Ph.D.
* Chairman-Executive Committee and September 7, 1999
- --------------------------------------------- Director
Peter M. Frishauf
* Director September 7, 1999
- ---------------------------------------------
Marc Butlein
* Director September 7, 1999
- ---------------------------------------------
Esther Dyson
/s/ ANDREW HEYWARD Director September 7, 1999
- ---------------------------------------------
Andrew Heyward
/s/ FREDRIC REYNOLDS Director September 7, 1999
- ---------------------------------------------
Fredric Reynolds
* Director September 7, 1999
- ---------------------------------------------
Carlo A. von Schroeter
* Director September 7, 1999
- ---------------------------------------------
Oakleigh Thorne
*By: /s/ PAUL T. SHEILS
---------------------------------------
Paul T. Sheils
Attorney-in-fact
</TABLE>
II-7
<PAGE> 117
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
1.1** Form of Underwriting Agreement.
2.1** Asset Purchase Agreement between Medscape, Inc. and SCP
Communications, Inc., dated April 1, 1996.
2.2** Administrative Services Agreement between Medscape, Inc. and
SCP Communications, Inc., dated April 1, 1996.
2.3** Financing Agreement between Medscape, Inc. and SCP
Communications, Inc., dated April 1, 1996.
2.4** Purchase Agreement between Medscape, Inc. and the holders of
all of the membership interests of Healthcare Communications
Group, L.L.C. dated October 27, 1998.
2.5** Letter Agreement between Medscape, Inc. and Ira Kirshenbaum,
M.D., dated February 2, 1999 regarding the sale of assets of
bonehome.com.
2.6** Bill of Sale between Medscape, Inc. and CompuRx, dated March
25, 1999.
3.1** Amended and Restated Certificate of Incorporation.
3.1.1** Amendment to the Amended and Restated Certificate of
Incorporation filed May 17, 1999.
3.1.2** Form of Amended and Restated Certificate of Incorporation
filed in connection with the NDC and CBS transactions.
3.1.3 Amendment, filed September 3, 1999, to the Amended and
Restated Certificate of Incorporation.
3.2** Form of Amended and Restated Certificate of Incorporation,
to be filed prior to the closing of the offering made under
this Registration Statement.
3.3** Bylaws.
4.1 Form of Specimen Common Stock Certificate.
4.2** Form of Warrant, dated as of March 5, 1999, entitling Credit
Suisse First Boston Corporation to purchase up to 14,667.5
shares of Medscape's Common Stock.
4.3 Warrant, dated September 3, 1999, entitling America Online,
Inc. to purchase 1,352,158 shares of Medscape's Class A
Common Stock.
4.4+ Performance Warrant, dated September 3, 1999, entitling
America Online, Inc. to purchase 1,352,158 shares of
Medscape's Class A Common Stock.
5.1 Opinion of Patterson, Belknap, Webb & Tyler LLP as to the
validity of the securities being offered.
10.1** Agreement of Lease between Medscape, Inc. and R.A.A. Realty
Company LP dated February 1999.
10.2** Lease Assignment made by SCP Communications, Inc. made in
favor of Medscape, Inc.
10.3** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated October 7, 1996.
10.4** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated August 29, 1995.
10.5** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated March 17, 1994.
10.6** Agreement of Lease between Surgical Care Publishing, Inc.
and Satyanman, Inc., dated August 18, 1993.
10.7** Employment Agreement between Medscape, Inc. and Paul T.
Sheils, dated January 26, 1998.
10.8** Employment Agreement between Medscape, Inc. and Steven
Kalin, dated September 30, 1998.
10.9** Employment and Restricted Stock Purchase Agreement between
Medscape, Inc. and Jeffrey L. Drezner, M.D., Ph.D., dated
October 27, 1998.
10.10** Promissory Note dated October 27, 1998, in the principal
amount of $627,949.64 made by Jeffrey L. Drezner, M.D.,
Ph.D. in favor of Medscape, Inc.
10.11** Employment Agreement between Medscape, Inc. and Peter M.
Frishauf, dated February 16, 1998.
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
10.12** Employment Agreement between Medscape, Inc. and George D.
Lundberg, M.D., dated February 15, 1999.
10.13** Employment Agreement between Medscape, Inc. and David
Yakimischak, dated March 15, 1999.
10.14** Employment Agreement between Medscape, Inc. and Meg Walsh,
dated March 4, 1999.
10.15** 1996 Stock Option Plan.
10.16** Form of Incentive Stock Option Agreement.
10.17** Form of Non-Qualified Stock Option Agreement.
10.18** Nonemployee Director Stock Option Plan.
10.19** Stock Purchase Agreement, between Medscape, Inc. and
investors dated October 31, 1997 in respect of the Series C
Preferred Stock.
10.20** First Amendment to Stock Purchase Agreement between
Medscape, Inc. and investors, dated February 19, 1998.
10.21** Supplemental Agreement to Amendment to Stock Purchase
Agreement and First Amendment to, and Waiver of Certain
Terms of, Stockholders' Agreement between Medscape, Inc. and
investors, dated March 9, 1998 in respect of the Series C
Preferred Stock.
10.22** Series D Preferred Stock Purchase Agreement between
Medscape, Inc. and investors, dated March 5, 1999.
10.23** Amended and Restated Stockholders' Agreement, dated March 5,
1999.
10.23.1** Amendment, dated May 24, 1999, to the Amended and Restated
Stockholders' Agreement.
10.23.2 Amended and Restated Stockholders' Agreement, dated August
4, 1999.
10.24** Form of Copyright Assignment.
10.25** Form of Letter to Authors.
10.26** Content Distribution Agreement between Medscape, Inc. and
Dow Jones & Company, Inc., dated January 22, 1999.
10.27** Interactive Publications Library Internet Gateway Agreement
between Medscape, Inc. and Dow Jones & Company, Inc., dated
July 14, 1998.
10.28** Preferred Share Purchase Agreement among Softwatch Ltd.,
Medscape, Inc. (as a purchaser) and certain other
purchasers, dated June 15, 1999.
10.29** License and Web Site Development Agreement between Medscape,
Inc. and Softwatch, Inc., dated June 15, 1999.
10.30** Employment Agreement between Medscape, Inc. and Mark
Boulding, dated June 28, 1999.
10.31** Common Stock Purchase Agreement between Medscape, Inc. and
CBS Corporation, dated July 4, 1999.
10.32** Form of Stockholders Agreement between Medscape, Inc. and
CBS Corporation, dated July , 1999.
10.33** Form of Joinder Agreement among certain Medscape, Inc.
shareholders, dated July , 1999, in connection with the
Stockholder Agreement dated July , 1999.
10.34** Form of Advertising and Promotion Agreement between
Medscape, Inc. and CBS Corporation, dated July , 1999.
10.35** Form of Trademark and Content Agreement between Medscape,
Inc. and CBS Corporation, dated July , 1999.
10.36** Form of Registration Rights Agreement between Medscape, Inc.
and CBS Corporation, dated July , 1999.
10.37** Stock Purchase Agreement between Medscape, Inc. and National
Data Corporation, dated July 7, 1999.
10.38+ Form of License and Product Development Agreement between
Medscape, Inc. and National Data Corporation, dated July ,
1999.
10.39** Agreement of Lease between Medscape, Inc. and 224 W 30 LLC,
dated May 26, 1999.
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
10.40** License Agreement between First Databank, Inc. and Medscape,
Inc., dated April 1, 1997.
10.41 Form of Subscription Agreement with CBS Corporation.
10.42+ Interactive Services Agreement between America Online, Inc.
and Medscape, Inc., dated September 3, 1999.
10.43 Agreement among the America Online, Inc., CBS Corporation
and Medscape, Inc. in regard to registration rights, dated
September 3, 1999.
21.1** Subsidiaries of Medscape, Inc.
23.1 Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3** Consent of Fredric G. Reynolds, Executive Vice President and
Chief Financial Officer of CBS Corporation, to Act as a
Director of Medscape, Inc., dated July 7, 1999.
23.4** Consent of Andrew Heyward, President of CBS News, to Act as
a Director of Medscape, Inc., dated July 7, 1999.
24.1** Powers of Attorney.
24.1.1 Powers of Attorney for Andrew Heyward and Fredric Reynolds.
</TABLE>
- ---------------
** Previously filed.
+ Confidential portions of this document are omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission.
<PAGE> 1
Exhibit 3.1.3
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MEDSCAPE, INC.
Paul T. Sheils hereby certifies that:
1. The name of the corporation is Medscape, Inc. (the "Corporation").
2. He is the duly elected President of the Corporation.
3. The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by striking out paragraph (A) of Article
Fourth thereof and by substituting in lieu of said paragraph (A) the
following new paragraph:
a. The total number of shares of all classes of stock which the
Corporation is authorized to issue is sixty-five million, four
hundred ninety-nine thousand, three hundred twenty seven
(65,499,327), of which thirty-eight million six hundred one
thousand five hundred twenty four (38,601,524) shares shall be
Class A Common Stock with a par value of one cent ($.01) per
share, twenty-one million five hundred forty-one thousand one
hundred sixty-one (21,541,160) shall be Class B (Non- Voting)
Common Stock with a par value of one cent ($.01) per share,
and five million three hundred fifty-six thousand six hundred
forty-three (5,356,643) shares shall be Preferred Stock with a
par value of one cent ($.01) per share.
4. The foregoing Amendment to the Amended and Restated Certificate
of Incorporation of the Corporation has been duly adopted by the
Corporations's Board of Directors and stockholders in accordance with
the provisions of Sections 228 and 242 of the General Corporation Law
of the State of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Amendment of the Amended and Restated Certificate of
Incorporation this 3rd day of September, 1999.
/s/ Paul T.Sheils
--------------------------
Paul T. Sheils
President
<PAGE> 1
Exhibit 4.1
[MEDSCAPE]
STOCK SHARES
_____________________ ___________________
COMMON STOCK CUSIP 585046 10 5
PAR VALUE $.01
SEE REVERSE FOR CERTAIN DEFINITIONS
MEDSCAPE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, OF
MEDSCAPE, INC. transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney, upon surrender of this certificate
property endorsed. This certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Certificate
of Incorporation of the Corporation as now or hereafter amended (a copy of
which Certificate is on file with the Transfer Agent), to all of which the
holder by acceptence hereof assents. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: _____________________________
MEDSCAPE, INC.
CORPORATE
SEAL
1998
/s/ MARK E. BOULDING DELAWARE
____________________________________
Secretary /s/ PAUL T. SHEILS
____________________________________
President and Chief Executive Officer
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, New York) Transfer Agent
and Registrar
By
Authorized Officer
<PAGE> 2
MEDSCAPE, INC.
The Corporation will furnish to any shareholder upon request and without
charge, a full statement of the designation, relative rights, preferences and
limitations of the shares of each class authorized to be issued.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ___________________
JT TEN - as joint tenants with right (Cust.) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors
Act
______________
(State)
Additional abbreviations may also be used though not in the above list.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
For value received _______________________ hereby sell, assign and
transfer unto __________________________________ PLEASE INSERT SOCIAL
| | SECURITY OR OTHER
| | IDENTIFYING NUMBER
|________________________________| OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ______________________
______________________________________
Signature(s) Guaranteed:
___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR, INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE 17AQ-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
EXHIBIT 4.3
FORM OF TIME WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE
1,352,158 SHARES OF CLASS A COMMON STOCK
OF
MEDSCAPE, INC.,
A DELAWARE CORPORATION
ISSUED
SEPTEMBER 3, 1999
1. GENERAL.
(a) THIS CERTIFIES that, for value received, AMERICA ONLINE, INC.
("AOL"), or assigns, is entitled to subscribe for and purchase from MEDSCAPE,
INC., a Delaware corporation (the "Corporation"), at any time or from time to
time during the period (the "Exercise Period") commencing with the date hereof
and, subject to section 1(b) below, ending on the seventh (7th) anniversary of
the date hereof, on the terms and subject to the provisions hereinafter set
forth, up to 1,352,158 shares (subject to adjustment as provided herein) (the
"Warrant Shares") of fully paid and non-assessable shares of Class A Common
Stock, $0.01 par value, of the Corporation, or shares of common stock issuable
upon conversion thereof, at a price per share (the "Warrant Price") of $10.00.
This Warrant is being issued pursuant an interactive services agreement dated as
of the date hereof (the "Agreement"), between the Corporation and AOL. All terms
used but not defined herein shall have the meanings set forth in the Agreement.
(b) In the event that there is no ICP Liquidity Event and as a result
the Agreement is terminated by either the Corporation or AOL, the Exercise
Period shall end at the completion of the tenth (10th) month after the date
hereof.
2. EXERCISE OF WARRANT. The rights represented by this Warrant
may be exercised by the holder hereof, in whole or in part, at any time or from
time to time during the Exercise Period, by the surrender of this Warrant
(properly endorsed) at the office of the Corporation at 134 West 29th Street New
York, New York 10001-5399, or at such other agency or office of the Corporation
in the United States of America as it may designate by notice in
50
<PAGE> 2
writing to the holder hereof at the address of such holder appearing on the
books of the Corporation, and by payment (either in cash, by check, by
cancellation of indebtedness and/or in shares of capital stock of the
Corporation valued at Fair Market Value (as hereinafter defined) on the date of
such exercise) to the Corporation of the Warrant Price for each Warrant Share
being purchased. In the event of the exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Shares so purchased,
registered in the name of the holder, and if this Warrant shall not have been
exercised for all of the Warrant Shares, a new Warrant, registered in the name
of the holder hereof, of like tenor to this Warrant, shall be delivered to the
holder hereof within a reasonable time, not exceeding ten days, after the rights
represented by this Warrant shall have been so exercised. The person in whose
name any certificate for Warrant Shares is issued upon exercise of this Warrant
shall for all purposes be deemed to have become the holder of record of such
shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Corporation are closed,
such person shall be deemed to have become the holder of such shares at the
close of business on the next succeeding date on which the stock transfer books
are open.
3. EXCHANGE OF WARRANT.
(a) In addition to, and independent of, the rights of
the holder of this Warrant set forth in Section 2
hereof, the holder hereof may at any time or from
time to time during the Exercise Period elect to
receive, without the payment by the holder of any
additional consideration, that number of Warrant
Shares determined as hereinafter provided in this
Section 3 by the surrender of this Warrant or any
portion hereof to the Corporation, accompanied by an
executed Notice of Exchange in substantially the form
thereof attached hereto (the "Net Issue Election").
Thereupon, the Corporation shall issue to the holder
hereof such number of fully paid and nonassessable
Warrant Shares as is computed using the following
formula:
X = Y (A-B)
-------
A
where X = the number of Warrant Shares to be issued to the holder
pursuant to this Section 3.
Y = the number of Warrant Shares covered by this Warrant in
respect of which the Net Issue Election is made pursuant to
this Section 3.
A = the Fair Market Value (as hereinafter defined) of one Warrant
Share determined at the time the Net Issue Election is made
pursuant to this Section 3 (the "Determination Date").
B = the Warrant Price in effect under this Warrant at the time the
Net Issue Election is made pursuant to this Section 3.
For purposes of the above calculation, "Fair Market Value" of one Warrant Share
as of the Determination Date shall mean:
(i) Automated Quotation National Market System, if applicable,
or the average of the last bid and
51
<PAGE> 3
asked prices of the Common Stock quoted in the over-the-counter-market,
or (B) if the Common Stock is then traded on a national securities
exchange, the average of the high and low prices of the Common Stock
listed on the principal national securities exchange on which the
Common Stock is so traded, in each case for the twenty (20) trading
days immediately preceding the Determination Date or, if such date is
not a business day on which shares are traded, the next immediately
preceding trading day;
(ii) in the case of a sale of assets, the Corporation is
liquidated immediately following such sale and the consideration paid
to the Corporation is immediately distributed to its stockholders); and
(iii) including, without limitation, recent sale and offer
prices of the capital stock of the Corporation in private transactions
negotiated at arm's length (the "Board Determination"); provided, that
the Corporation shall deliver to the Holder a written notice including
the Board Determination of Fair Market Value and the basis therefore
(the "Notice of Board Determination"); provided further that, the
holder of this Warrant shall have the right and option, in its sole and
absolute discretion, for five business days after receipt of the Notice
of Board Determination to elect by written notice to the Corporation
(the "Appraisal Notice") to have a nationally recognized independent
investment banking firm jointly selected by (A) the Corporation and the
holder of this Warrant or, (B) if such selection cannot be made within
five business days after delivery of the Appraisal Notice, by a
nationally recognized independent investment banking firm selected by
the American Arbitration Association then obtaining, determine the fair
market value per share of Common Stock, in each case at the
Corporation's expense.
The closing of any Warrant Exchange shall take place at the offices of the
Corporation on the date specified in the Notice of Exchange (the "Exchange
Date"), which shall be not less than five and not more than 30 days after the
delivery of such Notice. At such closing, the Corporation shall issue and
deliver to the holder or its designee a certificate or certificates for the
Warrant Shares to be issued upon such Warrant Exchange, registered in the name
of the holder or such designee, and if such Warrant Exchange shall not have been
for all Warrant Shares, a new Warrant, registered in the name of the holder, of
like tenor to this Warrant for the number of shares still subject to this
Warrant following such Warrant Exchange.
4. ADJUSTMENT OF WARRANT PRICE.
(a) The Warrant Price shall be subject to adjustment from time
to time as follows:
(i) If the Corporation shall at any time or from time to time
during the Exercise Period and prior to the firm underwritten initial
public offering of registered Common Stock of the Corporation, issue
any shares of Common Stock (or be deemed to have issued any shares of
Common Stock as provided herein), other than Excluded Securities (as
defined in Section 4(a)(iv)) without consideration or for a
consideration per share less than the Warrant Price in effect
immediately prior to the issuance of Common Stock, the Warrant Price in
effect immediately prior to such issuance shall forthwith be lowered to
a price equal to the quotient obtained by dividing: (x) an amount equal
to the sum of (1) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been
issued pursuant to Section 4(a)(ii)(D)) immediately prior to such
issuance multiplied by the Warrant Price in effect immediately prior to
such issuance, plus (2) the consideration received by the Corporation
upon such issuance, by (y) the total number of shares of Common Stock
outstanding (including any
52
<PAGE> 4
shares of Common Stock deemed to have been issued pursuant to Section
4(a)(ii)(D)) immediately after the issuance of such Common Stock.
(A) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting therefrom any discounts,
commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(B) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors of
the Corporation, irrespective of any accounting treatment.
(C) In the case of the issuance of Common
Stock without consideration, the consideration shall be deemed to be
$0.01 per share.
(D) In the case of the issuance of (x)
options to purchase or rights to subscribe for Common Stock, (y)
securities by their terms convertible into or exchangeable for Common
Stock or (z) options to purchase rights to subscribe for such
convertible or exchangeable securities:
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options
or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in
subdivisions (A), (B) and (C) above), if any, received by the
Corporation upon the issuance of such options or rights plus
the minimum purchase price provided in such options or rights
for the Common Stock covered thereby;
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or
such options or rights were issued and for a consideration
equal to the consideration received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of
such securities or the exercise of any related options or
rights (the consideration in each case to be determined in the
manner provided in subdivisions (A), (B) and (C) above);
53
<PAGE> 5
(3) on any change in the number of
shares or exercise price of Common Stock deliverable upon
exercise of any such options or rights or conversions of or
exchanges for such securities, other than a change resulting
from the antidilution provisions thereof, the applicable
Warrant Price shall forthwith be readjusted to such Warrant
Price as would have resulted had the adjustment made upon the
issuance of such options, rights or securities not converted
prior to such change (or options or rights related to such
securities not converted prior to such change) been made upon
the basis of such change; provided, however, that such
readjustment shall not result in a Warrant Price that is
greater than the original Warrant Price; and
(4) on the expiration of all such
options or rights, the termination of all such rights to
convert or exchange or the expiration of all options or rights
related to such convertible or exchangeable securities in each
case having been issued by the Corporation for the same
consideration (as determined pursuant to subdivision (A), (B)
and (C) above), the applicable Warrant Price shall forthwith
be readjusted to such Warrant Price as would have resulted had
the adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities not
been made; provided, however, that such readjustment shall not
result in a Warrant Price that is greater that the original
Warrant Price.
(iii) If, at any time during the Exercise
Period, the number of shares of Common Stock outstanding is increased
by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following the
record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the
Warrant Price shall be appropriately decreased and the number of shares
of Common Stock issuable upon exercise of this Warrant shall be
appropriately increased, in each case in proportion to such increase in
outstanding shares.
(iv) If, at any time during the Exercise
Period, the number of shares of Common Stock outstanding is decreased
by a combination of the outstanding shares of Common Stock, then,
following the record date for such combination, the Warrant Price shall
be appropriately increased and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be appropriately
decreased, in each case, in proportion to such decrease in outstanding
shares.
(v) For purposes of Section 4(a), the term
"Excluded Securities" shall mean (A) a number of shares of Common Stock
equal to up to twenty five percent (25%) of the outstanding capital
stock of the Corporation issued to officers, employees or directors of
Corporation, pursuant to any agreement, plan or arrangement approved by
the Board of Directors of the Corporation, or options to purchase or
rights to subscribe for such Common Stock, or securities by their terms
convertible into or exchangeable for such Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities pursuant to such agreement, plan or arrangement; (B) shares
of Common Stock issued as a stock dividend or upon any stock split or
other subdivision or combination of shares of Common Stock; or (C)
securities issued pursuant to the acquisition of another corporation or
54
<PAGE> 6
other entity by the Corporation by merger or purchase of stock or
purchase of all or substantially all of such other corporation's or
other entity's assets whereby the Corporation owns not less than a
majority of the voting power of such other corporation or other entity
following such acquisition or purchase.
(vi) All calculations under this Section 4
shall be made to the nearest one tenth (1/10) of a cent or to the
nearest one tenth (1/10) of a share, as the case may be.
(b) Whenever the Warrant Price shall be adjusted
as provided in this Section 4 the
Corporation shall forthwith file, at the
office of the Corporation or any transfer
agent designated by the Corporation for the
Common Stock, a statement, signed by its
chief financial officer, showing in detail
the facts requiring such adjustment and the
adjusted Warrant Price. The Corporation
shall also cause a copy of such statement to
be sent by first-class certified mail,
return receipt requested, postage prepaid,
to each holder of a Warrant at his or its
address appearing on the Corporation's
records. Where appropriate, such copy may be
given in advance and may be included as part
of a notice required to be mailed under the
provisions set forth immediately below.
(c) In the event the Corporation shall propose
to take any action of the types described in
Section 4(a)(iii) or (iv) or Section 12, the
Corporation shall give notice to each holder
of a Warrant in the manner set forth herein,
which notice shall specify the record date,
if any, with respect to any such action and
the date on which such action is to take
place. Such notice shall also set forth such
facts with respect thereto as shall be
reasonably necessary to indicate the effect
of such action (to the extent such effect
may be known at the date of such notice) on
the Warrant Price then in effect and the
number, kind or class of shares or other
securities or property which shall be
delivered or purchasable upon the occurrence
of such action or deliverable upon exercise
of this Warrant. In the case of any action
which would require the fixing of a record
date, such notice shall be given at least 20
days prior to the date so fixed, and in case
of all other action, such notice shall be
given at least 30 days prior to the taking
of such proposed action. Failure to give
such notice, or any defect therein, shall
not affect the legality or validity of any
such action.
5. ADJUSTMENT OF WARRANT SHARES. Upon each adjustment of the Warrant
Price as provided in Section 4, the holder hereof shall thereafter be entitled
to subscribe for and purchase, at the Warrant Price resulting from such
adjustment, the number of Warrant Shares equal to the product of (i) the number
of Warrant Shares existing prior to such adjustment and (ii) the quotient
obtained by dividing (A) the Warrant Price existing prior to such adjustment by
(B) the new Warrant Price resulting from such adjustment. No fractional shares
of Common Stock shall be issued as a result of any such adjustment, and any
fractional shares resulting from the computations pursuant to this paragraph
shall be eliminated without consideration.
6. COVENANTS AS TO COMMON STOCK. The Corporation covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant, will, upon issuance, be validly issued,
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Corporation further covenants and agrees
that the Corporation will from time to time take all such action as may be
requisite to assure that the stated or par value per share of Common Stock is at
all times equal to or less than the then effective Warrant Price per share of
Common Stock issuable upon exercise of this Warrant. The Corporation further
covenants and agrees that the Corporation will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. The
55
<PAGE> 7
Corporation further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares of Common Stock upon the
exercise of this Warrant require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon exercise, then the Corporation will in good
faith and expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Common Stock issuable upon
the exercise of the rights represented by this Warrant is listed on any national
securities exchange, the Corporation will, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such capital stock.
7. NO SHAREHOLDER RIGHTS. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Corporation.
8. RESTRICTIONS ON TRANSFER. The holder of this Warrant acknowledges
that neither this Warrant nor the Warrant Shares have been registered under the
Securities Act of 1933, as amended (the "Securities Act") and the holder of this
Warrant agrees that no sale, transfer, assignment, hypothecation or other
disposition of this Warrant or the Warrant Shares shall be made in the absence
of (a) current registration statement under the Securities Act as to this
Warrant or the Warrant Shares and the registration or qualification of this
Warrant or the Warrant Shares under any applicable state securities laws is then
in effect or (ii) an opinion of counsel reasonably satisfactory to the
Corporation to the effect that such registration or qualification is not
required. Each certificate or other instrument for Warrant Shares issued upon
exercise of this Warrant shall, if required under the Securities Act or the
rules promulgated thereunder, be imprinted with a legend substantially to the
foregoing effect.
9. ADDITIONAL RIGHTS.
(a) The Corporation hereby grants to the holder of this Warrant those
rights set forth on Exhibit A attached hereto, the provisions of which are
incorporated herein by reference and made a part hereof as if set forth herein
in their entirety.
(b) The Corporation and the other parties thereto shall have entered
into the Second Amended and Restated Stockholders Agreement among the
Corporation and the Stockholders (as defined therein) and attached hereto as
Exhibit B, on or prior to the date hereof.
10. REPRESENTATIONS AND WARRANTIES.
(A) CAPITAL STOCK; SECURITIES. The authorized stock of Corporation
consists of (a) 35,897,208 shares of Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and 21,541,160 shares of Class B
(Non-Voting) Common Stock, par value $.01 per share (the "Class B Common
Stock"), of which 9,476,208 shares of Class A Common Stock and 13,558,652.5
shares of Class B Common Stock are issued and outstanding as of the date hereof,
and (b) 5,356,643 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), of which 788,200 shares have been designated Series A
Preferred Stock, 1,478,359 shares have been designated Series C Preferred Stock,
932,401 shares have been designated Series C-1 Preferred Stock, 1,757,683 shares
have been designated Series D Preferred Stock and 400,000 shares have been
designated Series E Preferred Stock, all of which are issued and outstanding as
56
<PAGE> 8
of the date hereof. The Corporation has reserved (a) 5,674,085 shares of Class B
Common Stock for issuance upon exercise of outstanding options and warrants and
(b) 13,658,672.5 shares of Class A Common Stock for issuance upon conversion of
Preferred Stock.
(B) AUTHORITY. The execution, delivery and performance by the
Corporation of this Warrant and the consummation of the transactions
contemplated hereby and the issuance of the Warrant Shares hereunder have been
duly and validly authorized by all necessary corporate action on the part of the
Corporation; and this Warrant when executed and delivered by the Corporation
will be duly and validly executed and delivered by the Corporation and the valid
and binding obligation of the Corporation, enforceable against the Corporation
in accordance with its terms.
(C) No Conflicts. The execution, delivery and performance of this
Warrant and the consummation by the Corporation of the transactions contemplated
hereby, including the issuance of the Warrant Shares hereunder, and compliance
by the Corporation with any provision hereof will not in any material respect
conflict with, result in any violations of, cause a default under (with or
without due notice, lapse of time or both), under any term, condition or
provision of (x) any instrument, contract or agreement to which the Corporation
is a party, or by which the Corporation or any of its properties, assets or
rights may be bound, (y) any law, statute, rule, regulation, order, writ,
injunction, decree, permit, concession, license or franchise of any governmental
authority applicable to the Corporation or any of its properties, assets or
rights or (z) the Corporation's Charter or by-laws.
11. TRANSFER OF WARRANT; AMENDMENT. Subject to the restriction set
forth in Section 8, this Warrant and all rights hereunder are transferable, in
whole, or in part, at the agency or office of the Corporation referred to in
Section 2, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed, in blank, shall be deemed negotiable, and, when so endorsed the
holder hereof may be treated by the Corporation and all other persons dealing
with this Warrant as the absolute owner hereof for any purposes and as the
person entitled to exercise the rights represented by this Warrant, or to the
transfer hereof on the books of the Corporation, any notice to the contrary
notwithstanding; but until each transfer on such books, the Corporation may
treat the registered holder hereof as the owner hereof for all purposes.
12. REORGANIZATIONS, ETC. In case, at any time during the Exercise
Period, of any capital reorganization, of any reclassification of the stock of
the Corporation (other than a change in par value or from par value to no par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Corporation with or into another corporation (other than a consolidation
or merger in which the Corporation is the continuing operation and which does
not result in any change in the Common Stock) or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation, this Warrant shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which such holder
would have been entitled if he had held the Common Stock
57
<PAGE> 9
issuable upon the exercise hereof immediately prior to such reorganization,
reclassification, consolidation, merger or sale. In any such reorganization or
other action or transaction described above, appropriate provision shall be made
with respect to the rights and interests of the holder of this Warrant to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the Warrant Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Corporation will not effect
any such consolidation, merger or sale unless, prior to the consummation
thereof, the successor corporation or entity (if other than the Corporation)
resulting from such transaction or the corporation or entity purchasing such
assets shall assume by written instrument, executed and mailed or delivered to
the registered holder hereof at the last address of such holder appearing on the
books of the Corporation, the obligation to deliver to such holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase.
13. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
14. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
14. NOTICES. All notices, advices and communications to be given or
otherwise made to any party to this Agreement shall be deemed to be sufficient
if contained in a written instrument delivered in person or by telecopier or
duly sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, or by electronic mail, with a copy
thereof to be sent by mail (as aforesaid) within 24 hours of such electronic
mail, addressed to such party at the address set forth below or at such other
address as may hereafter be designated in writing by the addressee to the
addresser listing all parties:
If to the Corporation, to:
Medscape, Inc.
134 West 29th Street
New York, New York 10001-5399
General Counsel
Telecopier: ________________
e-mail address: ________________
and
If to AOL as follows:
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America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Telecopier: (703) 265-2208
e-mail address: [email protected]
Or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such delivery, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (ii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 14, "business day" shall
mean any day other than a day on which banking institutions in the Commonwealth
of Virginia are legally closed for business.
15. BINDING EFFECT ON SUCCESSORS; SURVIVAL. This Warrant shall be
binding upon any corporation succeeding the Corporation by merger, consolidation
or acquisition of all or substantially all of the Corporation's assets. All of
the obligations of the Corporation relating to the Common Stock issuable upon
the exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Corporation shall inure to
the benefit of the successors and assigns of AOL.
16. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the Commonwealth of Virginia.
17. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Corporation shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash equal
to such fraction multiplied by the then Fair Market Value of one Warrant Share.
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IN WITNESS WHEREOF, the undersigned have caused this Warrant and
Warrant Agreement to be executed by their duly authorized officers on the date
first above written.
MEDSCAPE, INC.
By: ______________________________
Name:
Title:
ATTEST: ___________________________
SECRETARY
AMERICA ONLINE, INC.
By: ______________________________
Name:
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FORM OF SUBSCRIPTION
[To be signed upon exercise of Warrant]
The undersigned, the holder of the Warrant, hereby irrevocably
elects to exercise the purchase rights represented by such Warrant for, and to
purchase thereunder, _________ shares of _________ of [ISSUER] and herewith
makes payment of $_________ therefor, and requests that the certificates for
such shares be issued in the name of and delivered to,
_________________________________, whose address is
_________________________________________________.
Dated:_____________
_________________________________
(Signature)
_________________________________
(Address)
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NOTICE OF EXCHANGE
(To be executed by the Holder in
order to exchange the Warrant.)
The undersigned hereby irrevocably elects to exchange this
Warrant into __________ shares (the foregoing number constituting the number of
Warrant Shares to be issued pursuant to Section 3 of this Warrant) of ________
of [ISSUER], minus any shares to be deducted from the foregoing number in
accordance with the terms of this Warrant, according to the conditions thereof.
The undersigned desires to consummate such exchange on ________________.
Dated:
_____________________________
Name of Holder:
By:__________________________
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<PAGE> 14
FORM OF ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and
transfers unto the right represented by the Warrant to purchase _______ shares
of _________ of [ISSUER], to which the Warrant relates, and appoints [Name of
Attorney] to transfer such right on the books of [ISSUER], with full power of
substitution in the premises.
Dated:_____________
____________________________
(Signature)
Signed in the presence of:
______________________________
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EXHIBIT A
ADDITIONAL RIGHTS
1. INFORMATION RIGHTS.
(a) [Reserved].
(b) Until such time as the Corporation becomes subject to the
periodic reporting provisions of Securities Exchange Act of 1934 (the "Exchange
Act"), the Corporation shall furnish to the holder hereof:
(i) within 30 days after the end of each month in
each fiscal year (other than the last month in each fiscal year), a
balance sheet of the Corporation and the related consolidated statement
of income, unaudited but certified by the principal financial officer
of the Corporation, such balance sheets to be as of the end of such
month and such statements of income to be for such month and for the
period from the beginning of the fiscal year to the end of such month,
in each case subject to normal year-end adjustments and without
supporting notes;
(ii) within 20 days after the end of each quarter in
each fiscal year, a balance sheet of the Corporation and the related
consolidated statement of income, unaudited but certified by the
principal financial officer of the Corporation, such balance sheets to
be as of the end of each quarter and such statements of income to be
for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, in each case subject to normal
year-end adjustments and without supporting notes;
(iii) within 90 days after the end of each fiscal
year of the Corporation, a balance sheet of the Corporation as of the
end of such fiscal year and the related statements of income, changes
in stockholders' equity and cash flows of the Corporation for the
fiscal year then ended, together with supporting notes thereto,
certified in accordance with generally accepted accounting principles,
without qualification as to scope of audit, by a firm of independent
public accountants of recognized national standing selected by the
Corporation; and
(iv) prompt notice of (A) any event of default under
any agreement with respect to material indebtedness for borrowed money
or a material purchase money obligation, and any event which, upon
notice or lapse of time or both, would constitute such an event of
default which would permit the holder of such indebtedness or
obligation to accelerate the maturity thereof, and (B) any action, suit
or proceeding at law or in equity or by or before any governmental
instrumentality or agency which, if adversely determined, would
materially impair the right of the Corporation to carry on its business
substantially as now or then conducted, or materially affect the
business, operations, properties, assets or financial condition of the
Corporation.
(c) At such time as the Corporation becomes subject to the
periodic reporting provisions of the Exchange Act, the Corporation shall provide
the holder hereof promptly upon
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filing, copies of all registration statements, prospectuses, periodic reports
and other documents filed by the Corporation with the Commission.
2. PARTICIPATION RIGHTS.
(a) The following terms have the following meanings:
(i) "Equity Securities" means (i) all shares of
capital stock of the Corporation, (ii) all securities convertible into
or exchangeable for shares of capital stock of the Corporation and
(iii) all options, warrants, or other rights to purchase or otherwise
acquire from the Corporation shares of such capital stock, or
securities convertible into or exchangeable for shares of such capital
stock.
(ii) "New Securities" means all Equity Securities
other than Excluded Securities (as defined in Section 4 of the Warrant)
(iii) "Proportionate Percentage" shall mean, that
percentage figure which expresses the ratio that (x) the number of
outstanding shares of Common Stock issued to AOL bears to (y) the
number of shares of voting capital stock of the Corporation then
outstanding.
(b) If, prior to the firm underwritten initial public offering
of registered Common Stock, the Corporation proposes to offer New Securities to
any person or entity at any time, the Corporation shall, before such offer,
deliver to AOL an offer (the "Offer") to sell, upon the terms set forth in this
Section, AOL's Proportionate Percentage of the New Securities (the "Offered
Securities") to AOL and AOL's Proportionate Percentage of any New Securities not
accepted for purchase by any other parties having similar rights to purchase the
same (as to AOL the "Over-Allotment Right"). The Offer shall state that the
Corporation proposes to issue the Offered Securities and specify their number
and terms (including purchase price). The Offer shall remain open and
irrevocable for a period of 30 days (the "Preemptive Period") from the date of
its delivery.
(c) AOL may accept the Offer by delivering to the Corporation
a notice (the "Purchase Notice") within the Preemptive Period. The Purchase
Notice shall state the number of Offered Securities AOL desires to purchase
(including whether and to what extent AOL desires to exercise its Over-Allotment
Right). The sale of Offered Securities with respect to which AOL delivered a
Purchase Notice shall be made on a mutually acceptable business day, after
expiration of the Preemptive Period on those terms and conditions of the Offer
not inconsistent with this Section.
(d) The Corporation may issue and sell the remaining Offered
Securities or any portion thereof not so subscribed for on the terms and
conditions of the Offer to any person or entity within 90 days after expiration
of the Preemptive Period. If such issuance is not made within such 90-day
period, the restrictions provided for in this Section shall again become
effective.
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(e) The obligations of the Corporation under this Section 2
shall not apply to (i) an underwritten public offering of Common Stock of the
Corporation registered pursuant to the Securities Act (an "IPO") or (ii) a
Corporate Transaction (as defined in the Warrant).
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<PAGE> 1
EXHIBIT 4.4
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
FORM OF PERFORMANCE WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
PERFORMANCE WARRANT TO PURCHASE
1,352,158 SHARES OF CLASS A COMMON STOCK
OF
MEDSCAPE, INC.,
A DELAWARE CORPORATION
ISSUED
SEPTEMBER 3, 1999
1. GENERAL.
(a) THIS CERTIFIES that, for value received, AMERICA ONLINE, INC.
("AOL"), or assigns, is entitled to subscribe for and purchase from MEDSCAPE,
INC., a Delaware corporation (the "Corporation"), at any time or from time to
time during the period (the "Exercise Period") commencing at such time as shall
be determined in accordance with Section 1(b) hereof and ending on the seventh
(7th) anniversary of the date hereof, on the terms and subject to the provisions
hereinafter set forth, up to 1,352,158 of shares (subject to adjustment as
provided herein) (the "Warrant Shares") of fully paid and non-assessable shares
of Class A Common Stock, $0.01 par value, of the Corporation, or shares of
common stock issuable upon conversion thereof, at a price per share (the
"Warrant Price") as shall be determined in accordance with Section 1(b) hereof.
This Warrant is being issued pursuant an Interactive Services Agreement dated as
of the date hereof (the "Agreement"), between the Corporation and AOL. All terms
used but not defined herein shall have the meanings set forth in the Agreement.
(b) This Warrant shall become exercisable as to that number of
Warrant Shares, and at such times, as follows:
(i) upon the first anniversary of the date of
issuance of this Warrant (the "Issuance Date"),* Warrant
Shares shall vest and become immediately exercisable if, but
only if, during the immediately preceding 12 months (the
"First Year") no fewer than 72.5 Million Page Views (as such
term is defined below) were attributable to AOL in accordance
with the terms of the Agreement (the
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<PAGE> 2
"First Threshold"), at a price per share equal to the Fair
Market Value (as defined in Section 3 hereof) as of the first
anniversary of the Issuance Date;
(ii) upon the second anniversary of the Issuance
Date, * Warrant Shares shall vest and become immediately
exercisable if, but only if, during the immediately preceding
12 months (the "Second Year") no fewer than 180 Million Page
Views were attributable to AOL in accordance with the terms of
the Agreement (the "Second Threshold"), at a price per share
equal to the Fair Market Value (as defined in Section 3
hereof) as of the second anniversary of the Issuance Date; and
(iii) upon the third anniversary of the Issuance
Date, * Warrant Shares shall vest and become immediately
exercisable if, but only if, during the immediately preceding
12 months (the "Third Year"; collectively with the First Year
and the Second Year "Years"; each of the Years separately, a
"Year") no fewer than 300 Million Page Views were attributable
to AOL in accordance with the terms of the Agreement (the
"Final Threshold"; collectively with the First Threshold and
the Second Threshold, the "Thresholds"; each of the Thresholds
separately, a "Threshold"), at a price per share equal to the
Fair Market Value (as defined in Section 3 hereof) as of the
third anniversary of the Issuance Date.
A "Page View" is a user exposure to any page or screen on the ICP
Internet Site. Whether a Threshold has been met during its respective Year shall
be assessed independently and not cumulatively with respect to prior Thresholds
or Years, such that if a Threshold has not been met during its respective Year,
the shares of Warrant Stock subject to vesting hereunder with respect to such
Year shall not otherwise be eligible to vest hereunder in subsequent Years or
under any other circumstances. Notwithstanding the foregoing, in the event the
Corporation has not accomplished Site and Content Preparation in compliance with
the one hundred twenty (120) day schedule set forth in Exhibit A-3 of the
Agreement for the completion of Phase II of the Site and Content Preparation (as
defined in the Agreement) with respect to the AOL Service, AOL.com and Netscape
Netcenter, then the Threshold targets set forth above shall be reduced on a pro
rata basis by subtracting from the Threshold the number obtained by multiplying
each such Threshold by a fraction (A) the numerator of which shall be the number
of days after such one hundred twenty (120) day period until which the
Corporation accomplishes the Site and Content Preparation contemplated in
Exhibit A-3 of the Agreement with respect to the AOL Service, AOL.com and
Netscape Netcenter and (B) the denominator of which shall be the number 365.
Notwithstanding the foregoing to the contrary, this Warrant shall vest
and become exercisable as to all of the Warrant Shares immediately upon the
occurrence of a Stipulated Event. As used herein, the term "Stipulated Event"
shall mean (a) a Corporate Transaction (as hereinafter defined) or (b) a
termination of the Agreement that results from a material breach by the
Corporation of the Agreement. As used herein, the term "Corporate Transaction"
shall mean a Change of Control (as defined in the Agreement) involving a Named
Entity (as defined in the Agreement).
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised by the holder hereof, as to those Warrant Shares for which this
Warrant is then exercisable as determined in accordance with Section 1, in whole
or in part, at any time or from time to time during the Exercise Period, by the
surrender of this Warrant (properly endorsed) at the office of the Corporation
at 134 West 29th Street New York, New York 10001-5399, or at such other agency
or office of the Corporation in the United States of America as it may designate
by notice in writing to the holder hereof at the address of such holder
appearing on the books of the Corporation, and by payment (either in cash, by
check, by cancellation of indebtedness and/or in shares of capital stock of the
Corporation valued at Fair Market Value (as hereinafter defined) on
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the date of such exercise) to the Corporation of the Warrant Price for each
Warrant Share being purchased. In the event of the exercise of the rights
represented by this Warrant, a certificate or certificates for the Warrant
Shares so purchased, registered in the name of the holder, and if this Warrant
shall not have been exercised for all of the Warrant Shares, a new Warrant,
registered in the name of the holder hereof, of like tenor to this Warrant,
shall be delivered to the holder hereof within a reasonable time, not exceeding
ten days, after the rights represented by this Warrant shall have been so
exercised. The person in whose name any certificate for Warrant Shares is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
holder of such shares at the close of business on the next succeeding date on
which the stock transfer books are open.
3. EXCHANGE OF WARRANT.
(a) In addition to, and independent of, the rights of
the holder of this Warrant set forth in Section 2
hereof, the holder hereof may at any time or from
time to time during the Exercise Period elect to
receive, without the payment by the holder of any
additional consideration, that number of Warrant
Shares determined as hereinafter provided in this
Section 3 by the surrender of this Warrant or any
portion hereof to the Corporation, accompanied by an
executed Notice of Exchange in substantially the form
thereof attached hereto (the "Net Issue Election").
Thereupon, the Corporation shall issue to the holder
hereof such number of fully paid and nonassessable
Warrant Shares as is computed using the following
formula:
X = Y (A-B)
-------
A
where X = the number of Warrant Shares to be issued to the holder
pursuant to this Section 3.
Y = the number of Warrant Shares covered by this Warrant in
respect of which the Net Issue Election is made pursuant to
this Section 3.
A = the Fair Market Value (as hereinafter defined) of one Warrant
Share determined at the time the Net Issue Election is made
pursuant to this Section 3 (the "Determination Date").
B = the Warrant Price in effect under this Warrant at the time the
Net Issue Election is made pursuant to this Section 3.
For purposes of the above calculation, "Fair Market Value" of one Warrant Share
as of the Determination Date shall mean:
(i) Automated Quotation National Market System, if
applicable, or the average of the last bid and asked prices of
the Common Stock quoted in the over-the-counter-market or (B)
if the Common Stock is then traded on a national securities
exchange, the average of the high and low prices of the Common
Stock listed on the principal national securities exchange on
which the Common
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Stock is so traded, in each case for the twenty (20) trading
days immediately preceding the Determination Date or, if such
date is not a business day on which shares are traded, the
next immediately preceding trading day;
in the case of a sale of assets, the Corporation is
liquidated immediately following such sale and the
consideration paid to the Corporation is immediately
distributed to its stockholders); and
(iii) including, without limitation, recent sale and
offer prices of the capital stock of the Corporation in
private transactions negotiated at arm's length (the "Board
Determination"); provided, that the Corporation shall deliver
to the Holder a written notice including the Board
Determination of Fair Market Value and the basis therefore
(the "Notice of Board Determination"); provided further that,
the holder of this Warrant shall have the right and option, in
its sole and absolute discretion, for five business days after
receipt of the Notice of Board Determination to elect by
written notice to the Corporation (the "Appraisal Notice") to
have a nationally recognized independent investment banking
firm jointly selected by (A) the Corporation and the holder of
this Warrant or, (B) if such selection cannot be made within
five business days after delivery of the Appraisal Notice, by
a nationally recognized independent investment banking firm
selected by the American Arbitration Association then
obtaining, determine the fair market value per share of Common
Stock, in each case at the Corporation's expense.
The closing of any Warrant Exchange shall take place
at the offices of the Corporation on the date specified in the
Notice of Exchange (the "Exchange Date"), which shall be not
less than five and not more than 30 days after the delivery of
such Notice. At such closing, the Corporation shall issue and
deliver to the holder or its designee a certificate or
certificates for the Warrant Shares to be issued upon such
Warrant Exchange, registered in the name of the holder or such
designee, and if such Warrant Exchange shall not have been for
all Warrant Shares, a new Warrant, registered in the name of
the holder, of like tenor to this Warrant for the number of
shares still subject to this Warrant following such Warrant
Exchange.
4. ADJUSTMENT OF WARRANT PRICE.
(a) The Warrant Price shall be subject to adjustment from time
to time as follows:
(i) If the Corporation shall at any time or from time to time
during the Exercise Period and prior to the firm underwritten initial
public offering of registered Common Stock of the Corporation, issue
any shares of Common Stock (or be deemed to have issued any shares of
Common Stock as provided herein), other than Excluded Securities (as
defined in Section 4(a)(iv)) without consideration or for a
consideration per share less than the Warrant Price in effect
immediately prior to the issuance of Common Stock, the Warrant Price in
effect immediately prior to such issuance shall forthwith be lowered to
a price equal to the quotient obtained by dividing: (x) an amount equal
to the sum of (1) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been
issued pursuant to Section 4(a)(ii)(D)) immediately prior to such
issuance multiplied by the Warrant Price in effect immediately prior to
such issuance, plus (2) the consideration received by the Corporation
upon such issuance, by (y) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been
issued pursuant to Section 4(a)(ii)(D)) immediately after the issuance
of such Common Stock.
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(A) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting therefrom any discounts,
commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(B) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors of
the Corporation, irrespective of any accounting treatment.
(C) In the case of the issuance of Common
Stock without consideration, the consideration shall be deemed to be
$0.01 per share.
(D) In the case of the issuance of (x)
options to purchase or rights to subscribe for Common Stock, (y)
securities by their terms convertible into or exchangeable for Common
Stock or (z) options to purchase rights to subscribe for such
convertible or exchangeable securities:
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options
or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in
subdivisions (A), (B) and (C) above), if any, received by the
Corporation upon the issuance of such options or rights plus
the minimum purchase price provided in such options or rights
for the Common Stock covered thereby;
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or
such options or rights were issued and for a consideration
equal to the consideration received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of
such securities or the exercise of any related options or
rights (the consideration in each case to be determined in the
manner provided in subdivisions (A), (B) and (C) above);
(3) on any change in the number of
shares or exercise price of Common Stock deliverable upon
exercise of any such options or rights or conversions of or
exchanges for such securities, other than a change resulting
from the antidilution provisions thereof, the applicable
Warrant Price shall
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forthwith be readjusted to such Warrant Price as would have
resulted had the adjustment made upon the issuance of such
options, rights or securities not converted prior to such
change (or options or rights related to such securities not
converted prior to such change) been made upon the basis of
such change; provided, however, that such readjustment shall
not result in a Warrant Price that is greater than the
original Warrant Price; and
(4) on the expiration of all such
options or rights, the termination of all such rights to
convert or exchange or the expiration of all options or rights
related to such convertible or exchangeable securities in each
case having been issued by the Corporation for the same
consideration (as determined pursuant to subdivision (A), (B)
and (C) above), the applicable Warrant Price shall forthwith
be readjusted to such Warrant Price as would have resulted had
the adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities not
been made; provided, however, that such readjustment shall not
result in a Warrant Price that is greater that the original
Warrant Price.
(iii) If, at any time during the Exercise Period, the
number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the Warrant Price
shall be appropriately decreased and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be appropriately
increased, in each case in proportion to such increase in outstanding
shares.
(iv) If, at any time during the Exercise Period, the
number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then, following
the record date for such combination, the Warrant Price shall be
appropriately increased and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be appropriately
decreased, in each case, in proportion to such decrease in outstanding
shares.
(v) For purposes of Section 4(a), the term "Excluded
Securities" shall mean (A) a number of shares of Common Stock equal to
up to twenty five percent (25%) of the outstanding capital stock of the
Corporation issued to officers, employees or directors of Corporation,
pursuant to any agreement, plan or arrangement approved by the Board of
Directors of the Corporation, or options to purchase or rights to
subscribe for such Common Stock, or securities by their terms
convertible into or exchangeable for such Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities pursuant to such agreement, plan or arrangement; (B) shares
of Common Stock issued as a stock dividend or upon any stock split or
other subdivision or combination of shares of Common Stock; or (C)
securities issued pursuant to the acquisition of another corporation or
other entity by the Corporation by merger or purchase of stock or
purchase of all or substantially all of such other corporation's or
other entity's assets whereby the Corporation owns not less than a
majority of the voting power of such other corporation or other entity
following such acquisition or purchase.
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(vi) All calculations under this Section 4 shall be
made to the nearest one tenth (1/10) of a cent or to the nearest one
tenth (1/10) of a share, as the case may be.
(b) Whenever the Warrant Price shall be adjusted as
provided in this Section 4 the Corporation shall
forthwith file, at the office of the Corporation or
any transfer agent designated by the Corporation for
the Common Stock, a statement, signed by its chief
financial officer, showing in detail the facts
requiring such adjustment and the adjusted Warrant
Price. The Corporation shall also cause a copy of
such statement to be sent by first-class certified
mail, return receipt requested, postage prepaid, to
each holder of a Warrant at his or its address
appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and
may be included as part of a notice required to be
mailed under the provisions set forth immediately
below.
(c) In the event the Corporation shall propose to take
any action of the types described in Section
4(a)(iii) or (iv) or Section 11, the Corporation
shall give notice to each holder of a Warrant in the
manner set forth herein, which notice shall specify
the record date, if any, with respect to any such
action and the date on which such action is to take
place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent
such effect may be known at the date of such notice)
on the Warrant Price then in effect and the number,
kind or class of shares or other securities or
property which shall be delivered or purchasable upon
the occurrence of such action or deliverable upon
exercise of this Warrant. In the case of any action
which would require the fixing of a record date, such
notice shall be given at least 20 days prior to the
date so fixed, and in case of all other action, such
notice shall be given at least 30 days prior to the
taking of such proposed action. Failure to give such
notice, or any defect therein, shall not affect the
legality or validity of any such action.
5. ADJUSTMENT OF WARRANT SHARES. Upon each adjustment of the Warrant
Price as provided in Section 4, the holder hereof shall thereafter be entitled
to subscribe for and purchase, at the Warrant Price resulting from such
adjustment, the number of Warrant Shares equal to the product of (i) the number
of Warrant Shares existing prior to such adjustment and (ii) the quotient
obtained by dividing (A) the Warrant Price existing prior to such adjustment by
(B) the new Warrant Price resulting from such adjustment. No fractional shares
of Common Stock shall be issued as a result of any such adjustment, and any
fractional shares resulting from the computations pursuant to this paragraph
shall be eliminated without consideration.
6. COVENANTS AS TO COMMON STOCK. The Corporation covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant, will, upon issuance, be validly issued,
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Corporation further covenants and agrees
that the Corporation will from time to time take all such action as may be
requisite to assure that the stated or par value per share of Common Stock is at
all times equal to or less than the then effective Warrant Price per share of
Common Stock issuable upon exercise of this Warrant. The Corporation further
covenants and agrees that the Corporation will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. The
Corporation further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares of Common Stock upon the
exercise of this Warrant require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon exercise, then the Corporation will in good
faith and expeditiously as possible endeavor to secure such registration or
approval, as the case
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<PAGE> 8
may be. If and so long as the Common Stock issuable upon the exercise of the
rights represented by this Warrant is listed on any national securities
exchange, the Corporation will, if permitted by the rules of such exchange, list
and keep listed on such exchange, upon official notice of issuance, all shares
of such capital stock.
7. NO SHAREHOLDER RIGHTS. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Corporation.
8. RESTRICTIONS ON TRANSFER. The holder of this Warrant acknowledges
that neither this Warrant nor the Warrant Shares have been registered under the
Securities Act of 1933, as amended (the "Securities Act") and the holder of this
Warrant agrees that no sale, transfer, assignment, hypothecation or other
disposition of this Warrant or the Warrant Shares shall be made in the absence
of (a) current registration statement under the Securities Act as to this
Warrant or the Warrant Shares and the registration or qualification of this
Warrant or the Warrant Shares under any applicable state securities laws is then
in effect or (ii) an opinion of counsel reasonably satisfactory to the
Corporation to the effect that such registration or qualification is not
required. Each certificate or other instrument for Warrant Shares issued upon
exercise of this Warrant shall, if required under the Securities Act or the
rules promulgated thereunder, be imprinted with a legend substantially to the
foregoing effect.
9. ADDITIONAL RIGHTS.
(a) The Corporation hereby grants to the holder of this Warrant those
rights set forth on Exhibit A attached hereto, the provisions of which are
incorporated herein by reference and made a part hereof as if set forth herein
in their entirety.
(b) The Corporation and the other parties thereto shall have entered
into the Second Amended and Restated Stockholders Agreement among the
Corporation and the Stockholders (as defined therein) and attached hereto as
Exhibit B, on or prior to the date hereof.
10. REPRESENTATIONS AND WARRANTIES.
(a) CAPITAL STOCK; SECURITIES. The authorized stock of Corporation
consists of (a) 35,897,208 shares of Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and 21,541,160 shares of Class B
(Non-Voting) Common Stock, par value $.01 per share (the "Class B Common
Stock"), of which 9,476,208 shares of Class A Common Stock and 13,558,652.5
shares of Class B Common Stock are issued and outstanding as of the date hereof,
and (b) 5,356,643 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), of which 788,200 shares have been designated Series A
Preferred Stock, 1,478,359 shares have been designated Series C Preferred Stock,
932,401 shares have been designated Series C-1 Preferred Stock, 1,757,683 shares
have been designated Series D Preferred Stock and 400,000 shares have been
designated Series E Preferred Stock, all of which are issued and outstanding as
of the date hereof. The Corporation has reserved (a) 5,674,085 shares of Class B
Common Stock for issuance upon exercise of outstanding options and warrants and
(b) 13,658,672.5 shares of Class A Common Stock for issuance upon conversion of
Preferred Stock.
(b) AUTHORITY; NO CONFLICTS. The execution, delivery and performance by
the Corporation of this Warrant and the consummation of the transactions
contemplated hereby and
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<PAGE> 9
the issuance of the Warrant Shares hereunder have been duly and validly
authorized by all necessary corporate action on the part of the Corporation; and
this Warrant when executed and delivered by the Corporation will be duly and
validly executed and delivered by the Corporation and the valid and binding
obligation of the Corporation, enforceable against the Corporation in accordance
with its terms.
(c) No Conflicts. The execution, delivery and performance of this
Warrant and the consummation by the Corporation of the transactions contemplated
hereby, including the issuance of the Warrant Shares hereunder, and compliance
by the Corporation with any provision hereof will not in any material respect
conflict with, result in any violations of, cause a default under (with or
without due notice, lapse of time or both), under any term, condition or
provision of (x) any instrument, contract or agreement to which the Corporation
is a party, or by which the Corporation or any of its properties, assets or
rights may be bound, (y) any law, statute, rule, regulation, order, writ,
injunction, decree, permit, concession, license or franchise of any governmental
authority applicable to the Corporation or any of its properties, assets or
rights or (z) the Corporation's Charter or by-laws.
11. TRANSFER OF WARRANT; AMENDMENT. Subject to the restriction set
forth in Section 8, this Warrant and all rights hereunder are transferable, in
whole, or in part, at the agency or office of the Corporation referred to in
Section 2, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed, in blank, shall be deemed negotiable, and, when so endorsed the
holder hereof may be treated by the Corporation and all other persons dealing
with this Warrant as the absolute owner hereof for any purposes and as the
person entitled to exercise the rights represented by this Warrant, or to the
transfer hereof on the books of the Corporation, any notice to the contrary
notwithstanding; but until each transfer on such books, the Corporation may
treat the registered holder hereof as the owner hereof for all purposes.
12. REORGANIZATIONS, ETC. In case, at any time during the Exercise
Period, of any capital reorganization, of any reclassification of the stock of
the Corporation (other than a change in par value or from par value to no par
value or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the Corporation with or into another corporation (other than a consolidation
or merger in which the Corporation is the continuing operation and which does
not result in any change in the Common Stock) or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation, this Warrant shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
number of shares of stock or other securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold to which such holder
would have been entitled if he had held the Common Stock issuable upon the
exercise hereof immediately prior to such reorganization, reclassification,
consolidation, merger or sale. In any such reorganization or other action or
transaction described above, appropriate provision shall be made with respect to
the rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Warrant Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any
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<PAGE> 10
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Corporation will not effect any such consolidation, merger or sale
unless, prior to the consummation thereof, the successor corporation or entity
(if other than the Corporation) resulting from such transaction or the
corporation or entity purchasing such assets shall assume by written instrument,
executed and mailed or delivered to the registered holder hereof at the last
address of such holder appearing on the books of the Corporation, the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
13. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
14. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
15. NOTICES. All notices, advices and communications to be given or
otherwise made to any party to this Agreement shall be deemed to be sufficient
if contained in a written instrument delivered in person or by telecopier or
duly sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, or by electronic mail, with a copy
thereof to be sent by mail (as aforesaid) within 24 hours of such electronic
mail, addressed to such party at the address set forth below or at such other
address as may hereafter be designated in writing by the addressee to the
addresser listing all parties:
If to the Corporation, to:
Medscape, Inc.
134 West 29th Street
New York, New York 10001-5399
General Counsel
Telecopier: 212-760-3140
e-mail address: [email protected]
and
If to AOL as follows:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Telecopier: (703) 265-2208
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<PAGE> 11
e-mail address: [email protected]
Or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such delivery, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (iii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 14, "business day" shall
mean any day other than a day on which banking institutions in the Commonwealth
of Virginia are legally closed for business.
16. BINDING EFFECT ON SUCCESSORS; SURVIVAL. This Warrant shall be
binding upon any corporation succeeding the Corporation by merger, consolidation
or acquisition of all or substantially all of the Corporation's assets. All of
the obligations of the Corporation relating to the Common Stock issuable upon
the exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Corporation shall inure to
the benefit of the successors and assigns of AOL.
17. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the Commonwealth of Virginia.
18. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Corporation shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash equal
to such fraction multiplied by the then Fair Market Value of one Warrant Share.
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned have caused this Warrant and
Warrant Agreement to be executed by their duly authorized officers on the date
first above written.
MEDSCAPE, INC.
By: ______________________________
Name:
Title:
ATTEST: ___________________________
SECRETARY
AMERICA ONLINE, INC.
By: ______________________________
Name:
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<PAGE> 13
FORM OF SUBSCRIPTION
[To be signed upon exercise of Warrant]
The undersigned, the holder of the Warrant, hereby irrevocably
elects to exercise the purchase rights represented by such Warrant for, and to
purchase thereunder, _________ shares of _________ of [ISSUER] and herewith
makes payment of $_________ therefor, and requests that the certificates for
such shares be issued in the name of and delivered to,
_________________________________, whose address is
_________________________________________________.
Dated:_____________
_________________________________
(Signature)
_________________________________
(Address)
79
<PAGE> 14
NOTICE OF EXCHANGE
(To be executed by the Holder in
order to exchange the Warrant.)
The undersigned hereby irrevocably elects to exchange this
Warrant into __________ shares (the foregoing number constituting the number of
Warrant Shares to be issued pursuant to Section 3 of this Warrant) of ________
of [ISSUER], minus any shares to be deducted from the foregoing number in
accordance with the terms of this Warrant, according to the conditions thereof.
The undersigned desires to consummate such exchange on ________________.
Dated:
_____________________________
Name of Holder:
By:__________________________
80
<PAGE> 15
FORM OF ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and
transfers unto the right represented by the Warrant to purchase _______ shares
of _________ of [ISSUER], to which the Warrant relates, and appoints [Name of
Attorney] to transfer such right on the books of [ISSUER], with full power of
substitution in the premises.
Dated:_____________
____________________________
(Signature)
Signed in the presence of:
______________________________
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<PAGE> 16
EXHIBIT A
ADDITIONAL RIGHTS
1. INFORMATION RIGHTS.
(a) [Reserved]
(b) Until such time as the Corporation becomes subject to the
periodic reporting provisions of Securities Exchange Act of 1934 (the "Exchange
Act"), the Corporation shall furnish to the holder hereof:
(i) within 30 days after the end of each month in
each fiscal year (other than the last month in each fiscal year), a
balance sheet of the Corporation and the related consolidated statement
of income, unaudited but certified by the principal financial officer
of the Corporation, such balance sheets to be as of the end of such
month and such statements of income to be for such month and for the
period from the beginning of the fiscal year to the end of such month,
in each case subject to normal year-end adjustments and without
supporting notes;
(ii) within 20 days after the end of each quarter in
each fiscal year, a balance sheet of the Corporation and the related
consolidated statement of income, unaudited but certified by the
principal financial officer of the Corporation, such balance sheets to
be as of the end of each quarter and such statements of income to be
for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, in each case subject to normal
year-end adjustments and without supporting notes;
(iii) within 90 days after the end of each fiscal
year of the Corporation, a balance sheet of the Corporation as of the
end of such fiscal year and the related statements of income, changes
in stockholders' equity and cash flows of the Corporation for the
fiscal year then ended, together with supporting notes thereto,
certified in accordance with generally accepted accounting principles,
without qualification as to scope of audit, by a firm of independent
public accountants of recognized national standing selected by the
Corporation; and
(iv) prompt notice of (A) any event of default under
any agreement with respect to material indebtedness for borrowed money
or a material purchase money obligation, and any event which, upon
notice or lapse of time or both, would constitute such an event of
default which would permit the holder of such indebtedness or
obligation to accelerate the maturity thereof, and (B) any action, suit
or proceeding at law or in equity or by or before any governmental
instrumentality or agency which, if adversely determined, would
materially impair the right of the Corporation to carry on its business
substantially as now or then conducted, or materially affect the
business, operations, properties, assets or financial condition of the
Corporation.
(c) At such time as the Corporation becomes subject to the
periodic reporting provisions of the Exchange Act, the Corporation shall provide
the holder hereof promptly upon
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<PAGE> 17
filing, copies of all registration statements, prospectuses, periodic reports
and other documents filed by the Corporation with the Commission.
2. PARTICIPATION RIGHTS.
(a) The following terms have the following meanings:
(i) "Equity Securities" means (i) all shares of
capital stock of the Corporation, (ii) all securities convertible into
or exchangeable for shares of capital stock of the Corporation and
(iii) all options, warrants, or other rights to purchase or otherwise
acquire from the Corporation shares of such capital stock, or
securities convertible into or exchangeable for shares of such capital
stock.
(ii) "New Securities" means all Equity Securities
other than Excluded Securities (as defined in Section 4 of the
Warrant).
(iii) "Proportionate Percentage" shall mean, that
percentage figure which expresses the ratio that (x) the number of
outstanding shares of Common Stock issued to AOL bears to (y) the
number of shares of voting capital stock of the Corporation then
outstanding.
(b) If, prior to the firm underwritten initial public offering
of registered Common Stock, the Corporation proposes to offer New Securities to
any person or entity at any time, the Corporation shall, before such offer,
deliver to AOL an offer (the "Offer") to sell, upon the terms set forth in this
Section, AOL's Proportionate Percentage of the New Securities (the "Offered
Securities") to AOL and AOL's Proportionate Percentage of any New Securities not
accepted for purchase by any other parties having similar rights to purchase the
same (as to AOL the "Over-Allotment Right"). The Offer shall state that the
Corporation proposes to issue the Offered Securities and specify their number
and terms (including purchase price). The Offer shall remain open and
irrevocable for a period of 30 days (the "Preemptive Period") from the date of
its delivery.
(c) AOL may accept the Offer by delivering to the Corporation
a notice (the "Purchase Notice") within the Preemptive Period. The Purchase
Notice shall state the number of Offered Securities AOL desires to purchase
(including whether and to what extent AOL desires to exercise its Over-Allotment
Right). The sale of Offered Securities with respect to which AOL delivered a
Purchase Notice shall be made on a mutually acceptable business day, after
expiration of the Preemptive Period on those terms and conditions of the Offer
not inconsistent with this Section.
(d) The Corporation may issue and sell the remaining Offered
Securities or any portion thereof not so subscribed for on the terms and
conditions of the Offer to any person or entity within 90 days after expiration
of the Preemptive Period. If such issuance is not made within such 90-day
period, the restrictions provided for in this Section shall again become
effective.
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<PAGE> 18
(e) The obligations of the Corporation under this Section 2
shall not apply to (i) an underwritten public offering of Common Stock of the
Corporation registered pursuant to the Securities Act (an "IPO") or (ii) a
Corporate Transaction (as defined in the Warrant).
<PAGE> 19
EXHIBIT J
APPROVED ICP TOOLS
The Approved ICP Tools are the following consumer oriented health management
tools that have been developed by Softwatch for the Consumer Versions launch.
ICP represents to AOL that the tools listed below are an accurate representation
of the current tools being developed for the Consumer Versions launch by
Softwatch as of the effective date of the Agreement.
A. SELF-CARE MANAGEMENT TOOLS
Diary
Weight
Medication
Doctor visits
Memos
To Dos
Peak flow
Blood pressure
Glucose level
Health journal (condition specific only)
Graphs (Chart)
Postcard functionality limited to health specific issues
B. NUTRITION MANAGEMENT TOOLS
Nutrition tracking
USDA and user contributed food database (over 10,000 foods)
BMI calculation, RDA guidelines and personal nutritional goal setting
Add new food, recipe, or meal
Interactive database search
Immediate visual feedback
Graphs and reports of nutritional information
Diary-to-go
C. EXERCISE MANAGEMENT TOOLS
Exercise and activity tracking
A database of activities
Calculations of time and energy burnt
Add new physical activity
Graphs and reports of exercise information
85
<PAGE> 1
Exhibit 5.1
[Patterson, Belknap, Webb & Tyler Letterhead]
September 7, 1999
Medscape, Inc.
134 West 29th Street
New York, New York 10001-5399
Dear Sirs:
We refer to the Registration Statement on Form S-1 (the
"Registration Statement") being filed by Medscape, Inc., a Delaware corporation
(the "Company"), with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the registration of shares of Common Stock, par value $.01 per share (the
"Shares"), of the Company. We have acted as counsel to the Company in connection
with the preparation of the Registration Statement.
In our capacity as such counsel, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records, certificates of public officials and other
instruments as we have considered necessary or advisable for the purpose of this
opinion. We have relied as to factual matters on certificates or other documents
furnished by the Company or its officers and directors and by governmental
authorities and upon such other documents and data as we have deemed
appropriate. We have assumed the authenticity of all documents submitted to us
as originals and the conformity to original documents of all documents submitted
to us as copies. We have not independently verified such information and
assumptions. We express no opinion as to the law of any jurisdiction other than
the laws of the State of New York and the General Corporation Law of the State
of Delaware.
<PAGE> 2
Medscape, Inc.
September 7, 1999
Page 2
Subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and, when issued and delivered by the Company
against payment therefor in the manner described in the Registration Statement,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm which appears in
the Prospectus constituting a part thereof under the caption "Legal Opinions."
In giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act or
the rules and regulations of the Commission thereunder.
Very truly yours,
PATTERSON, BELKNAP, WEBB & TYLER LLP
By: /s/ John P. Schmitt
----------------------
<PAGE> 1
Exhibit 10.23.2
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this
"Agreement") made as of this 4th day of August 1999, by and among MEDSCAPE,
INC., a Delaware corporation (the "Corporation"), having its principal office at
134 W. 29th Street, New York, New York 10001-5399, certain existing stockholders
of the Corporation listed on Schedule I attached hereto under "Existing
Stockholders," each having an address as indicated thereon (the "Existing
Stockholders"), the persons listed on Schedule I under "Investor Stockholders,"
each having an address as indicated on Schedule I (collectively, the "Investor
Stockholders"), and any subsequent stockholder of the Corporation who becomes a
party to this Agreement pursuant to the terms and conditions hereof (the
"Additional Stockholders", and collectively, with the Existing Stockholders and
the Investor Stockholders, the "Stockholders"). This Agreement amends and
restates in its entirety the Stockholders Agreement, dated as of October 31,
1997, as amended on February 19, 1998, October 23, 1998, March 5, 1999 and May
24, 1999, by and among the Corporation and the Existing Stockholders (the
"Antecedent Agreement").
BACKGROUND
The Corporation is a corporation duly organized and existing
under the laws of the State of Delaware with a total authorized capitalization
of 62,795,011 shares of which (a) 788,200 shares are designated as Series A
Preferred Stock, par value $.01 per share, of which 788,200 shares are issued
and outstanding as of this date; (b) 1,478,359 shares are designated as Series C
Preferred Stock, par value $.01 per share, of which 1,478,359 shares are issued
and outstanding as of this date, (c) 932,401 shares are designated as Series C-1
Preferred Stock, par value $.01 per share, of which 932,401 shares are issued
and outstanding as of this date, (d) 1,757,683 shares are designated as Series D
Preferred Stock, par value $.01 per share, of which 1,757,683 shares are issued
and outstanding as of this date, (e) 400,000 shares are designated as Series E
Preferred Stock, par value $.01 per share, of which 400,000 shares shall be
issued effective upon the Closing, (f) 35,897,208 shares are designated as Class
A Common Stock, par value $.01 per share, of which 9,476,208 shares are issued
and outstanding as of this date, 1,970,500 shares are duly reserved for issuance
in connection with the conversion of Series A Preferred Stock, 3,962,963 shares
are duly reserved for issuance in connection with the conversion of Series C
Preferred Stock, 2,331,002.5 shares are duly reserved for issuance in connection
with the conversion of the Series C-1 Preferred Stock, 4,394,207.5 shares are
duly reserved for issuance in connection with conversion of Series D Preferred
Stock and 1,000,000 shares are duly reserved for issuance in connection with
conversion of Series E Preferred Stock and (g) 21,541,160 shares are
<PAGE> 2
designated as Class B Common Stock, par value $.01 per share, of which (i)
13,871,152.5 shares are issued and outstanding as of this date and (ii)
6,175,377.5 shares are duly reserved for issuance to officers, directors and
employees of the Corporation pursuant to the Corporation's stock option plan or
other arrangements approved by the Corporation's Board of Directors. This
Agreement is being entered into in connection with the Closing to amend and
restate the Antecedent Agreement in accordance with Section 12 thereof.
Each of the Stockholders owns that number of shares of
Preferred Stock and Common Stock (together with any other shares of capital
stock of the Corporation now owned or hereafter acquired by the Stockholders and
their successors or assigns from any Person by any means, including without
limitation, any acquisition by gift, purchase, dividend, conversion, stock
split, recapitalization or otherwise, collectively, the "Shares") set forth
opposite the name of each such Stockholder on Schedule II attached hereto. It is
deemed to be in the best interest of the Corporation and the Stockholders that
provision be made for the continuity and stability of the business and policies
of the Corporation and, to that end, the Corporation and the Stockholders hereby
set forth their agreement with respect to the Shares.
NOW, THEREFORE, in consideration of the premises and of the
mutual consents and obligations hereinafter set forth, the parties hereto hereby
further agree as follows:
SECTION 1. Definitions. All capitalized terms used in this
Agreement shall have the meanings assigned to them elsewhere in this Agreement
or as specified below:
"Affiliate" of any Person shall mean any Person directly or
indirectly controlling, controlled by or under common control with such Person.
"Closing" shall mean the closing of the transactions
contemplated under the Purchase Agreement which shall take place effective as of
the first date set forth above.
"Commission" shall mean the United States Securities and
Exchange Commission.
"Common Directors" shall have the meaning set forth in Section
2(b)(vii) hereof.
"Common Stock" shall mean (a) the Corporation's Class A Common
Stock, par value $.01 per share, as authorized on the date of this Agreement,
(b) the Corporation's Class B Common Stock, par value $.01 per share, as
authorized on the date of this Agreement, (c) any other capital stock of any
class or classes (however
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<PAGE> 3
designated) of the Corporation, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
distributions after the payment of dividends and distributions on any shares
entitled to preference under the Restated Certificate of Incorporation (as the
same may be further amended from time to time after the Closing), and (d) any
other securities into which or for which any of the securities described in
clause (a), (b) or (c) of this definition may be converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
"Corporation Notice" shall have the meaning set forth in
Section 4(b) hereof.
"Designated Offering" shall mean a firmly underwritten public
offering registered under the Securities Act with an aggregate minimum gross
offering price to the public of $20,000,000 with a per share price equal to no
less than $7.03 per share (as adjusted for any stock split, stock dividend or
recapitalization after August 4, 1999).
"Equity Securities" shall have the meaning set forth in
Section 3(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.
"Exchange Act Registration Statement" shall mean a
registration statement filed pursuant to the Exchange Act, relating to any class
of equity securities of the Corporation.
"Excluded Form" shall mean a registration statement filed
pursuant to the Securities Act on Form S-8, S-4 or any similar or successor
forms.
"Excluded Securities" shall mean those securities described in
Section 3(g) hereof.
"Existing Registrable Securities" shall mean: (a) all the
shares of Common Stock of the Corporation, other than Investor Registrable
Securities, that are now owned or may hereafter be acquired by any Holder or its
permitted successors and assigns, and any other shares of Common Stock acquired
by such Holder pursuant to Sections 3 or 4 of this Agreement; and (b) any shares
of Common Stock of the Corporation issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
all such shares of Common Stock described in clause (a) of this definition;
excluding in all cases, however, (i) any Existing Registrable Securities sold
pursuant to registration under the Securities Act or (ii) any Existing
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Registrable Securities sold, subsequent to the Corporation's initial public
offering of securities registered under the Securities Act, pursuant to Rule 144
(or similar or successor rule) promulgated under the Securities Act.
"Form S-3" shall mean the form under the Securities Act as is
in effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the Commission which permit inclusion or
incorporation of substantial information by reference to other documents filed
by the Corporation with the Commission.
"Holder" shall mean any holder of Common Stock owning of
record Registrable Securities that have not been sold to the public and, for
purposes of this Agreement, a record holder of the Series C Stock, Series D
Preferred Stock or Series E Preferred Stock convertible into such Registrable
Securities shall be deemed to be the Holder of such Registrable Securities;
provided, however, that the Corporation shall in no event be obligated to
register the Series C Stock, Series D Preferred Stock or Series E Preferred
Stock, and that Holders of Registrable Securities shall not be required to
convert their shares of Series C Stock, Series D Preferred Stock or Series E
Preferred Stock into Common Stock in order to exercise the registration rights
granted under Section 6 hereof, until immediately before the closing of the
offering to which the registration relates.
"Initiating Holders" shall have the meaning set forth in
Section 6(d)(ii) hereof.
"Investor Notice" shall have the meaning set forth in Section
4(c) hereof.
"Investor Registrable Securities" shall mean: (a) all the
shares of Common Stock of the Corporation issued or issuable upon the conversion
of the shares of Series C Stock, Series D Preferred Stock or Series E Preferred
Stock that are now owned or may hereafter be acquired by any Holder or its
permitted successors and assigns, all the shares of Common Stock issued pursuant
to the Purchase Agreement and any other shares of Common Stock acquired by such
Holder pursuant to Sections 3 or 4 of this Agreement; and (b) any shares of
Common Stock of the Corporation issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
all such shares of Common Stock described in clause (a) of this definition;
excluding in all cases, however, (i) any Investor Registrable Securities sold
pursuant to registration under the Securities Act or (ii) any Investor
Registrable Securities sold, subsequent to the Corporation's initial public
offering of securities registered under the Securities Act, pursuant to Rule 144
(or similar or successor rule) promulgated under the Securities Act.
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"Investor Registrable Securities then outstanding" shall mean
the number of shares of Investor Registrable Securities that are then issued and
outstanding or are then issuable pursuant to the exercise or conversion of then
outstanding and then exercisable options, warrants or convertible securities.
"Limited Sales" shall mean, for the period of one year after
the date hereof, (a) aggregate sales of no more than 5% of the outstanding
Series A Preferred Stock and (b) aggregate sales of no more than 5% of the
outstanding Series C Stock.
"MTV Director" shall have the meaning set forth in Section
2(b)(i) hereof.
"Notice of Acceptance" shall have the meaning set forth in
Section 3(c) hereof.
"Offer" shall have the meaning set forth in Section 3(a)
hereof.
"Permitted Transfer" and "Permitted Transferee" shall have the
meanings set forth in Section 4(d) hereof.
"Person" shall mean and include an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Preferred Stock" shall mean (a) the Corporation's Series A
Preferred Stock, par value $.01 per share, as authorized on the date of this
Agreement, (b) the Corporation's Series C Preferred Stock, par value $.01 per
share, as authorized on the date of this Agreement, (c) the Corporation's Series
C-1 Preferred Stock, par value $.01 per share, as authorized on the date of this
Agreement, (d) the Corporation's Series D Preferred Stock, par value $.01 per
share, as authorized on the date of this Agreement, (e) Series E Preferred
Stock, par value $.01 per share, as authorized on the date of this Agreement,
and (f) any other securities into which or for which any of the securities
described in clause (a), (b), (c), (d) or (e) of this definition may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
"Purchase Agreement" shall mean the Stock Purchase Agreement,
dated as of July 7, 1999, between the Corporation and National Data Corporation,
as the same may be amended from time to time.
"registered" and "registration" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement.
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"Registrable Securities" shall mean, collectively, Existing
Registrable Securities and Investor Registrable Securities.
"Registration Expenses" shall have the meaning set forth in
Section 6(d) hereof.
"Remaining Securities" shall have the meaning set forth in
Section 3(d) hereof.
"Restated Certificate of Incorporation" shall mean the
Corporation's Restated and Amended Certificate of Incorporation, filed in the
Office of the Secretary of State of Delaware on July 30, 1999, a copy of which
is attached hereto as Exhibit A.
"Sale Shares" shall have the meaning set forth in Section 4(a)
hereof.
"Section 4 Shares" shall mean any shares of Common Stock or
Preferred Stock issued to the Section 4 Stockholders.
"Section 4 Shares Transfer" shall have the meaning set forth
in Section 4(a) hereof.
"Section 4 Stockholders" shall mean Jeffrey L. Drezner,
Excelsior Fund 1, Peter Frishauf, Steven Kalin and Paul Sheils.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect at the time.
"Series C Director" shall have the meaning set forth in
Section 2(b)(ii) hereof.
"Series D Director" shall have the meaning set forth in
Section 2(b)(iii) hereof.
"Series A Preferred Stock" shall mean the Corporation's
authorized and outstanding shares of Series A Convertible Preferred Stock, par
value $.01 per share, having the designations, rights, preferences and
privileges and qualifications, limitations and restrictions set forth in the
Restated Certificate of Incorporation, of which 788,200 shares are outstanding
as of the date hereof.
"Series C Preferred Stock" shall mean the Corporation's
authorized and outstanding shares of Series C Convertible Preferred Stock, par
value $.01 per share, having the designations, rights, preferences and
privileges and qualifications, limitations and restrictions set forth in the
Restated Certificate of Incorporation.
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"Series C-1 Preferred Stock" shall mean the Corporation's
authorized and outstanding shares of Series C-1 Convertible Preferred Stock, par
value $.01 per share, having the designations, rights, preferences and
privileges and qualifications, limitations and restrictions set forth in the
Restated Certificate of Incorporation.
"Series C Stock" shall mean the Series C Preferred Stock and
the Series C-1 Preferred Stock taken together.
"Series D Preferred Stock" shall mean the Corporation's
authorized and outstanding shares of Series D Convertible Preferred Stock, par
value $.01 per share, having the designations, preferences and privileges and
qualifications, limitations and restrictions set forth in the Restated
Certificate of Incorporation.
"Series E Preferred Stock" shall mean the Corporation's
authorized and outstanding shares of Series E Convertible Preferred Stock, par
value $.01 per share, having the designations, preferences and privileges and
qualifications, limitations and restrictions set forth in the Restated
Certificate of Incorporation.
"transfer" shall mean any sale, assignment, transfer,
disposition, donation, pledge, bequest, hypothecation, gift, conveyance,
encumbrance or any other disposition or transfer of a Share or any interest or
rights (legal or equitable) therein by any means whatsoever, whether direct or
indirect, absolute or conditional, voluntary or involuntary, by operation of law
(including without limitation, by operation of the laws of descent and
distribution) or otherwise.
"Transferring Stockholder" shall have the meaning set forth in
Section 4(a) hereof.
"TS Notice" shall have the meaning set forth in Section 4(a)
hereof.
"Violation" shall have the meaning set forth in Section
6(j)(i) hereof.
SECTION 2. Election of Directors.
(a) The Stockholders shall take all steps necessary, acting in
their respective capacities as stockholders, directors or officers of the
Corporation, as the case may be, to perform their obligations and agreements
hereunder, to cause the Corporation to perform its obligations and agreements
hereunder and under the Purchase Agreement and to implement and cause the
Corporation to implement the provisions of this Agreement and the Purchase
Agreement, including without limitation, the calling and holding of
stockholders' meetings for the election of directors or the election of
directors by consent in writing.
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(b) The Board of Directors of the Corporation shall consist of
a maximum of nine (9) directors. At each annual meeting of the stockholders of
the Corporation, and at each special meeting of the stockholders of the
Corporation called for the purpose of electing directors of the Corporation, and
at any time at which stockholders of the Corporation shall have the right to, or
shall, vote for or consent in writing to the election of directors of the
Corporation, then, and in each such event, the Stockholders agree that they
shall vote all Shares owned by them for the election of the Board of Directors
in the following manner:
(i) Media Technology Ventures, L.P. and Media
Technology Ventures Entrepreneurs Fund, L.P (collectively,
"MTV") shall be entitled, but not obligated, so long as MTV is
the holder of record of at least five percent (5%) of a class
of voting equity securities of the Corporation then
outstanding, to elect one (1) director (the "MTV Director");
(ii) the holders of record of shares of Series C
Stock, excluding MTV, voting together as a separate class,
shall be entitled, but not obligated, so long as such holders
are the holders of record, in the aggregate, of at least five
percent (5%) of the outstanding shares of Series C Stock
constituting at least 200,000 shares, to elect one (1)
director, who shall be nominated by the holders of record of a
majority of the shares of Series C Stock, excluding MTV, then
outstanding (the "Series C Director");
(iii) the holders of record of shares of Series D
Preferred Stock, voting together as a separate class, shall be
entitled, but not obligated, to elect one (1) director, who
shall be nominated by the holders of record of a majority of
the shares of Series D Preferred Stock then outstanding (the
"Series D Director");
(iv) TBG Information Investors, LLC ("TBG") shall be
entitled, but not obligated, so long as TBG is the holder of
record of at least five percent (5%) of a class of voting
equity securities of the Corporation then outstanding, to
elect one (1) director (the "TBG Director");
(v) upon nomination by the Board of Directors and for
so long as he is employed as Chief Executive Officer of the
Corporation, the Stockholders shall elect Paul T. Sheils as a
director of the Corporation;
(vi) upon nomination by the Board of Directors and
for so long as he is employed as Executive Vice President of
the Corporation, the Stockholders shall elect Jeffrey L.
Drezner, M.D., Ph.D., as a director of the Corporation; and
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(vii) the holders of record of shares of Class A
Common Stock and Series A Preferred Stock, voting together as
a single class, shall elect three (3) directors, two (2) of
whom shall be nominated by the holders of record of a majority
of the shares of Class A Common Stock and Series A Preferred
Stock then outstanding, and one (1) of whom shall be nominated
by a majority of the two directors so nominated pursuant this
Section 2(b)(vii) and the MTV Director (collectively, the
"Common Directors"); provided, however, that (1) Mr. Peter
Frishauf or his designee shall hold and continue to hold one
(1) of the Common Directors seats provided for in this Section
2(b)(vii) so long as Mr. Frishauf or his nominee is the holder
of record of, in the aggregate, at least five percent (5%) of
a class of voting equity securities of the Corporation and (2)
Mr. Alan Patricof or his designee shall hold and continue to
hold one (1) of the Common Directors seats provided for in
this Section 2(b)(vii) so long as The Excelsior Fund I, APA
Excelsior IV, L.P., APA Excelsior IV Offshore, L.P. or The
Patricof Private Investment Club, or their nominees, are the
holders of record of, in the aggregate, at least five percent
(5%) of a class of voting equity securities of the
Corporation.
(c) In the event that either MTV or the holders of Series C
Stock is no longer entitled to elect to the Board of Directors the MTV Director
or the Series C Director as provided in Section 2(b)(i) and 2(b)(ii) above,
respectively, then such director(s) shall be nominated by a majority vote of the
Board of Directors.
(d) At any such meeting called for the purpose of electing
directors, the presence in person or by proxy of (i) MTV or its authorized
representative, in the case of the election of the MTV Director, (ii) TBG or its
authorized representative, in the case of the election of the TBG Director,
(iii) the holders of record of a majority of the shares of Series C Stock
(excluding MTV) then outstanding, in the case of the election of the Series C
Director, (iv) the holders of record of a majority of the shares of the Series D
Preferred Stock outstanding in the case of the Series D Director, and (v) the
holders of record of a majority of the shares of the Class A Common Stock and
the Series A Preferred Stock then outstanding, in the case of the election of
the Common Directors, shall constitute a quorum for the election of directors to
be elected by such holders. The Stockholders agree to take any actions deemed
advisable by the Board to amend the Bylaws of the Corporation to reflect the
quorum conditions reflected in this Section 2(e).
(e) A vacancy in any directorship entitled to be elected by
MTV (including without limitation, a vacancy resulting from the decision during
an earlier election by MTV not to fill the directorship to be held by the MTV
Director) shall be filled only by vote or written consent of MTV, in the manner
set forth herein. A vacancy in any directorship entitled to be elected by TBG
(including without limitation, a vacancy resulting from the decision during an
earlier election by TBG not to fill the directorship to
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be held by the MTV Director) shall be filled only by vote or written consent of
MTV, in the manner set forth herein. A vacancy in any directorship entitled to
be elected by TBG (including without limitation, a vacancy resulting from the
decision during an earlier election by TBG not to fill the directorship to be
held by the TBG Director) shall be filled only by vote or written consent of
TBG, in the manner set forth herein. A vacancy in any directorship entitled to
be elected by the holders of record of shares of Series C Stock (including
without limitation, a vacancy resulting from the decision during an earlier
election by the holders of the Series C Stock not to fill the directorship to be
held by the Series C Director) shall be filled only by vote or written consent
of the holders of record of shares of Series C Stock (excluding MTV), in the
manner set forth herein. A vacancy in any directorship elected by the holders of
record of shares of Class A Common Stock and Series A Preferred Stock shall be
filled only by vote or written consent of the holders of record of shares of
Class A Common Stock and Series A Preferred Stock, in the manner set forth
herein. A vacancy in any directorship elected by the holders of record of shares
of Series D Preferred Stock shall be filled only by vote or written consent of
the holders of record of Series D Preferred Stock.
(f) Except as may otherwise be provided by law, each MTV
Director who shall have been elected as provided in this Section 2 may be
removed during his term of office, whether with or without cause, only by MTV.
Except as may otherwise be provided by law, each TBG Director who shall have
been elected as provided in this Section 2 may be removed during his term of
office, whether with or without cause, only by TBG. Except as may otherwise be
provided by law, each Series C Director who shall have been elected as provided
in this Section 2 may be removed during his term of office, whether with or
without cause, only by the holders of record of a majority of the shares of
Series C Stock (excluding MTV) then outstanding. Except as may otherwise be
provided by law, each Common Director who shall have been elected as provided in
this Section 2 may be removed during his term of office, whether with or without
cause, only by the holders of record of a majority of the shares of Class A
Common Stock and Series A Preferred Stock then outstanding. Except as may
otherwise be provided by law, each Series D Director who shall have been elected
in this Section 2 may be removed during his term of office, whether with or
without cause, only by the holders of record of a majority of the Series D
Preferred Stock then outstanding.
(g) Each MTV Director, Series C Director, Series D Director
and Common Director shall be entitled to one (1) vote on all matters which
directors are entitled to vote on. In addition to the rights granted to all
directors as contained in the Corporation's By-laws, the MTV Director, the
Series C Director and the Series D Director shall each have the right to call
meetings of the Board of Directors and management of the Corporation, upon no
less than five (5) days' prior written notice; provided, that any such meetings
are called no more frequently than once per fiscal quarter.
(h) Highland Capital Partners ("Highland") shall be entitled
to have one observer (the "Highland Observer") selected by Highland present at
all meetings of the Board and at all meetings of any committee of the Board and
such observer shall be
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notified of any such meetings, including such meetings' time and place, in the
same manner as the directors of the Corporation and the members of the
respective committee of the Board, as applicable. The Highland Observer shall
have the same access to information concerning the business and operations of
the Corporation and at the same time as the directors of the Corporation, and
shall be entitled to participate in discussions and consult with, and make
proposals and furnish advice to, the Board and the committees of the Board, but
shall not have the right to vote.
(i) Unless otherwise agreed by the respective Series D
Director or the Highland Observer, the Corporation shall pay all reasonable
travel expenses and other out-of-pocket reasonable disbursements incurred by the
Series D Director and the Highland Observer, as the case may be, in connection
with their attending meetings of the Board or of any committee thereof.
(j) The rights and obligations of the Corporation and the
Stockholders set forth in this Section 2 shall terminate upon the consummation
of a Designated Offering.
SECTION 3. Right of First Offer. So long as a Stockholder is a
holder of at least 50,000 shares of Common Stock (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like), or at least 50,000 shares Series C Stock, Series D
Preferred Stock or Series E Preferred Stock convertible into shares of Common
Stock, or any combination thereof (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), such Stockholder shall be entitled to the following right of
first offer:
(a) Except in the case of Excluded Securities, the Corporation
shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve
or set aside for issuance, sale or exchange, (i) any shares of Common Stock,
(ii) any other equity security of the Corporation, (iii) any debt security of
the Corporation which by its terms is convertible into or exchangeable for, with
or without consideration, any equity security of the Corporation, or (iv) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any equity security of the Corporation (collectively, the "Equity Securities"),
unless in each case the Corporation shall have first offered to sell to such
Stockholder the Equity Securities, at a price and on such other terms as shall
have been specified by the Corporation in writing delivered to the Stockholder
(the "Offer"), which Offer by its terms shall remain open and irrevocable for a
period of thirty (30) days from the date the Offer is received by such
Stockholder.
(b) Each such Stockholder shall have the right to purchase up
to its pro rata share of the Equity Securities. As used in this Section 3, each
such Stockholder's "pro rata share" shall be that amount of the Equity
Securities which would result in the Stockholder's owning the same percentage of
the Corporation's issued and
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outstanding Common Stock after the issuance of Equity Securities as the
Stockholder owned immediately prior to the issuance (assuming in each case the
issuance of all shares issuable upon the conversion or exercise, as the case may
be, of (i) the shares of Series A Preferred Stock, Series C Stock, Series D
Preferred Stock and Series E Preferred Stock held by such Stockholder, if any,
and (ii) the Equity Securities).
(c) Notice of a Stockholder's intention to accept, in whole or
in part, an Offer shall be evidenced by a writing signed by such Stockholder and
delivered to the Corporation at or prior to the end of the 30-day period
commencing with the date the Offer is received by such Stockholder (or, if
later, within 10 days after the giving of any written notice of a material
change in such Offer), setting forth such portion (specifying number of shares,
principal amount or the like) of the Equity Securities as such Stockholder
elects to purchase (the "Notice of Acceptance").
(d) The Corporation shall have 90 days from the expiration of
the foregoing 30-day period to sell all or any part of such Equity Securities as
to which a Notice of Acceptance has not been given by the Stockholders (the
"Remaining Securities") to any other Person or Persons, but only upon terms and
conditions in all material respects, including without limitation, unit price
and interest rates (but excluding payment of legal fees of counsel of the
purchaser), which are no more favorable, in the aggregate, to such other Person
or Persons or less favorable to Corporation than those set forth in the Offer.
Upon the closing of the sale to such other Person or Persons of all the
Remaining Securities, which shall include payment of the purchase price to the
Corporation in accordance with the terms of the Offer, if a Stockholder has
timely submitted a Notice of Acceptance, it shall purchase from the Corporation,
and the Corporation shall sell to such Stockholder, the Equity Securities in
respect of which a Notice of Acceptance was delivered to the Corporation by the
Stockholder at the terms specified in the Offer. The purchase by a Stockholder
of any Equity Securities is subject in all cases to the preparation, execution
and delivery by the Corporation and such Stockholder of a purchase agreement and
other customary documentation relating to such Equity Securities as is
satisfactory in form and substance to such Stockholder and its counsel.
(e) In each case, any Equity Securities not purchased by
eligible Stockholders or by a Person or Persons in accordance with Section 3(d)
may not be sold or otherwise disposed of until they are again offered to the
Stockholders under the procedures specified in Sections 3(a), (b), (c) and (d)
hereof.
(f) The Corporation agrees that on or before the issuance to
any Person of any Equity Securities not purchased by the Stockholders, it shall
cause such Person to agree in writing to be bound by the obligations imposed
upon Stockholders under this Agreement as if such Person were originally a
signatory to this Agreement.
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(g) The rights of the eligible Stockholders under this Section
3 shall not apply to the following securities (the "Excluded Securities"):
(i) up to 8,250,000 shares (or such higher
number of shares as may be approved from time to time by (w) a majority
in interest of the outstanding voting stock of the Corporation, (x) a
majority in interest of the Series C Stock voting separately as a
single class, (y) 66 2/3 in interest of the Series D Preferred Stock
voting separately as a single class and (z) 66 2/3 in interest of the
Series E Preferred Stock voting separately as a single class) of Common
Stock or options to purchase shares of Common Stock, issued or to be
issued to officers, employees or directors of, or consultants to, the
Corporation, pursuant to any agreement, plan or arrangement approved by
the Board of Directors of the Corporation and the Stockholders;
(ii) Common Stock issued as a stock dividend
or upon any stock split or other subdivision or combination of shares
of Common Stock;
(iii) Common Stock issued upon conversion of
any shares of Preferred Stock;
(iv) any securities issued for consideration
other than cash pursuant to a merger, consolidation, acquisition or
similar business combination;
(v) Common Stock issued or to be issued by the
Corporation pursuant to equipment lease financing with equipment
lessors, or Common Stock reissued after the repurchase thereof by the
Corporation as a result of any termination of a restricted stock
purchase agreement or other employee equity plan or arrangement to
which the Corporation is a party, which are approved by the Board of
Directors;
(vi) Common Stock issued pursuant to
transactions or agreements which have been approved by (w) a majority
in interest of the outstanding voting stock of the Corporation, (x) a
majority in interest of the Series C Stock voting separately as a
single class, (y) 66 2/3 in interest of the Series D Preferred Stock
voting separately as a single class and (z) 66 2/3 in interest of the
Series E Preferred Stock voting separately as a single class; and
(vii) warrants to purchase up to 22,500 shares
of Class A Common Stock (and the Common Stock issuable upon exercise
thereof).
(h) Notwithstanding the foregoing provisions of this Section
3, the rights of the Stockholders and the obligations of the Corporation under
this Section 3 shall be inapplicable to a Designated Offering and the provisions
of this Section 3 shall terminate upon the consummation of such Designated
Offering.
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SECTION 4. Right of First Refusal. The Corporation and the
Investor Stockholders shall be entitled to the following right of first refusal:
(a) Transfer of Shares. The Section 4 Stockholders shall not
transfer (each, a "Transferring Stockholder"), either in a single transaction or
in a series of transactions, in the aggregate, in excess of ten percent (10%) of
the Section 4 Shares or any right or interest therein then owned by him or it
except by a transfer that meets the requirements of this Section 4 and of this
Agreement generally. In the event that a Transferring Stockholder proposes to
transfer any portion of the Section 4 Shares in excess of ten percent (10%)
thereof (each, a "Section 4 Shares Transfer"), whether voluntarily or
involuntarily, other than a Permitted Transfer, then at least ninety (90) days
prior to any Section 4 Shares Transfer, such Transferring Stockholder shall give
notice (the "TS Notice") to the Corporation and the Investor Stockholders of his
or its intention to effect the Section 4 Shares Transfer. The TS Notice shall
set forth (i) the class, series and number of Section 4 Shares in excess of ten
percent (10%) thereof to be sold by the Transferring Stockholder (the "Sale
Shares"), (ii) the date or proposed date of the Section 4 Shares Transfer and
the name and address of the proposed transferee, (iii) the principal terms of
the Section 4 Shares Transfer, including the cash or other property or
consideration to be received upon such Section 4 Shares Transfer, and (iv) the
percentage which the number of Sale Shares constitutes with respect to the
aggregate number of Section 4 Shares then held by the Transferring Stockholder.
In the case of a proposed transfer by way of gift or if the nature of the
transfer is such that no readily determinable consideration is to be paid for
the transfer of the Sale Shares, then a bona fide transfer price for purposes of
this Section 4(a) shall be determined by the Board of Directors of the
Corporation promptly upon the Corporation's receipt of, and as of the date of,
the TS Notice.
(b) Corporation's Option. The Corporation shall have the
option, but not the obligation, to purchase any or all of the Sale Shares on the
same terms as specified in the TS Notice. Within thirty (30) days after the
receipt of the TS Notice, the Corporation shall give written notice to the
Transferring Stockholder and the Investor Stockholders (the "Corporation
Notice") stating whether or not it elects to exercise its option to purchase,
the number of Sales Shares, if any, it elects to purchase, and a date and time
for consummation of the purchase not more than ninety (90) days after the
receipt of the Corporation Notice by the Transferring Stockholder. The
Transferring Stockholder shall not be entitled to vote, either as a stockholder
or a director (if applicable), in connection with the decision of the
Corporation whether to exercise its option to purchase the Sale Shares,
provided, that, if his or its vote is required for valid corporate action, then
he or it shall vote, insofar as legally permissible, in accordance with the
decision of the majority of the other directors or stockholders, as the case may
be. Failure by the Corporation to give such notice within such time period shall
be deemed an election by it not to exercise its option.
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(c) Investor Stockholders' Option. If the Corporation fails to
exercise its right to purchase under subparagraph (b) hereof, or exercises its
right to purchase for less than all of the Sale Shares, then the Investor
Stockholders shall have the option, but not the obligation, to purchase, pro
rata to their ownership interest in the shares of Common Stock issued or
issuable to such stockholder upon the conversion of shares of Series C Stock,
Series D Preferred Stock and Series E Preferred Stock, any or all of the
remaining Sale Shares on the same terms as specified in the TS Notice. Not later
than thirty (30) days after the Investor Stockholders receive the Corporation
Notice, each Investor Stockholder shall give written notice to the Transferring
Stockholder and the Corporation (the "Investor Notice") stating whether or not
it elects to exercise its option to purchase, the number of the remaining Sales
Shares, if any, it elects to purchase, and a date and time for consummation of
the purchase not more than sixty (60) days after the receipt of the Investor
Notice by the Transferring Stockholder. Failure by an Investor Stockholder to
give such notice within such time period shall be deemed an election by it not
to exercise its option. If the Corporation and Investor Stockholders exercise
their respective rights to purchase for less than all the Sale Shares, then the
Transferring Stockholder shall thereafter be free to transfer the remaining Sale
Shares on the terms provided in the TS Notice (subject to the provisions of
Section 5); provided, however, that the Sale Shares shall continue to be subject
to the terms of this Agreement and any such transferee shall agree in writing to
be bound by the obligations imposed upon Stockholders under this Agreement as if
such transferee were originally a signatory to this Agreement.
(d) Definitions. For purposes of this Agreement, the term
"Permitted Transfer" shall mean a Section 4 Shares Transfer to a spouse (other
than pursuant to any divorce or separation proceedings or settlement), parents,
children (natural or adopted), stepchildren or grandchildren or a trust for any
of their benefit in the case of a Transferring Stockholder that is an individual
(each recipient being a "Permitted Transferee"); provided, however, that prior
to such Section 4 Shares Transfer, such Permitted Transferee shall agree in
writing to be bound by the obligations imposed upon Stockholders under this
Agreement as if such transferee were originally a signatory to this Agreement.
(e) Application of Provisions. In each case, any Sale Shares
not purchased by the proposed transferee in accordance with Section 4(c) hereof
may not be sold or otherwise disposed of until they are again offered to the
Corporation and the Investor Stockholders under the procedures specified in
Sections 4(a), (b) and (c) hereof.
(f) Transfers Void. Any attempted Section 4 Shares Transfer by
the Section 4 Stockholders in violation of the terms of this Section 4 shall be
ineffective to vest in any transferee any interest held by the Transferring
Stockholder in the Section 4 Shares. Without limiting the foregoing, any
purported Section 4 Shares Transfer in violation hereof shall be ineffective as
against the Investor Stockholders and the
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<PAGE> 16
Corporation, and the Corporation and the Investor Stockholders shall have a
continuing right and option (but not an obligation), until the restrictions
contained in this Section 4 terminate, to purchase the shares purported to be
transferred by the Transferring Stockholders for a price and on terms the same
as those at which the purported Section 4 Shares Transfer was effected.
(g) Termination of Restrictions. The restrictions in this
Section 4 shall terminate upon the consummation of a Designated Offering, except
that the restrictions in this Section 4 may terminate earlier with respect to
The Excelsior Fund I in the event that all of the Section 4 Shares owned by The
Excelsior Fund I are distributed to its partners.
SECTION 5. Rights to Participate in Transfer.
(a) Transfers by Transferring Stockholder. In the event the
Transferring Stockholder desires to effect a Section 4 Shares Transfer, other
than a Permitted Transfer, and all the Sale Shares have not been purchased by
the Investor Stockholders or the Corporation in the exercise of their respective
rights of first refusal in accordance with the terms of Section 4, then, upon
receipt of the TS Notice specified in Section 4(a), each Investor Stockholder
shall have the right (by written notice to the Transferring Stockholder and the
Corporation to be sent within sixty (60) days after the Investor Stockholder
receives the TS Notice) to require the Transferring Stockholder to cause to be
purchased from such Investor Stockholder the number of shares of Common Stock
issued or issuable upon conversion of shares of Series C Stock, Series D
Preferred Stock and Series E Preferred Stock then held by such Investor
Stockholder that equals (x) the number of remaining Sale Shares that the
Transferring Stockholder proposes to transfer, multiplied by (y) the percentage
determined by dividing (i) the number of shares of Series C Stock, Series D
Preferred Stock or Series E Preferred Stock (or Class A Common Stock, as the
case may be) then held by the Investor Stockholder by (ii) the sum of the number
of shares of Series C Stock, Series D Preferred Stock and Series E Preferred
Stock (or Class A Common Stock, as the case may be) then held by all of the
Investor Stockholders plus the number of Section 4 Shares then held by the
Transferring Stockholder. For purposes of this Section 5, the Series C Stock,
Series D Preferred Stock and Series E Preferred Stock shall be treated as if it
had been converted into the number of shares of Class A Common Stock then
issuable upon such conversion.
(b) Terms of Purchase. The purchase from the Investor
Stockholders pursuant to this Section 5 shall be on the same terms and
conditions, including per Share price (which shall in all events be paid by bank
cashier's or certified check) and date of Section 4 Shares Transfer, as are
received by the Transferring Stockholder and stated in the TS Notice provided to
the Investor Stockholders.
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<PAGE> 17
(c) Termination of Restrictions. The restrictions in this
Section 5 shall terminate upon the consummation of a Designated Offering, except
that the restrictions in this Section 5 may terminate earlier with respect to
The Excelsior Fund I in the event that all of the Section 4 Shares owned by The
Excelsior Fund I are distributed to its partners.
SECTION 6. Transfer of Securities; Registration Rights.
(a) Restriction on Transfer. The Shares shall not be
transferable except upon the conditions specified in this Section 6, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and applicable state securities laws in respect of the transfer
thereof.
(b) Restrictive Legend. Each certificate for the Shares issued
after the date hereof and each certificate for any such securities issued to
subsequent transferees of any such certificate or any Shares issued prior to the
date hereof shall (unless otherwise permitted by the provisions of Section 6(c))
be stamped or otherwise imprinted with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES
IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE AMENDED AND
RESTATED STOCKHOLDERS' AGREEMENT DATED AUGUST 4, 1999, AMONG
MEDSCAPE, INC. AND CERTAIN OTHER SIGNATORIES THERETO
(AS THE SAME MAY BE AMENDED AND/OR RESTATED FROM TIME TO
TIME), AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE
FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, MEDSCAPE, INC. HAS
AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT
BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY
REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF MEDSCAPE, INC."
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<PAGE> 18
(c) Notice of Transfer. The holder of any Shares, by
acceptance thereof agrees, prior to any transfer thereof, to give written notice
to the Corporation of such holder's intention to effect such transfer and to
comply in all other respects with the provisions of this Section 6(c) and the
other applicable provisions of this Agreement. Each such notice shall describe
the manner and circumstances of the proposed transfer and shall be accompanied
by (i) the written opinion, addressed to the Corporation, of counsel for the
holder of such Shares, as to whether in the opinion of such counsel (which
counsel shall be reasonably satisfactory to counsel to the Corporation) such
proposed transfer involves a transaction requiring registration of such shares
under the Securities Act, and (ii) in the case of Registrable Securities, if in
the opinion of such counsel such registration is required, a written request
addressed to the Corporation by the Holder of Registrable Securities, describing
in detail the proposed method of disposition and requesting the Corporation to
effect the registration of such Registrable Securities pursuant to the terms and
conditions of Sections 6(d), 6(e) or 6(f), as the case may be; provided,
however, that no such opinion shall be required in the case of a transfer by any
Holder of Registrable Securities (A) which is a (1) partnership to a partner of
such Holder, or a retired partner of such Holder who retires after the date
hereof, or the estate of any such partner or retired partner, if the transferee
agrees in writing to be subject to the terms of this Section 6 to the same
extent as if such transferee were originally a signatory to this Agreement, or
(2) corporation to any Affiliate of such corporation, including without
limitation, any officer, director or stockholder of such corporation, or (B) in
connection with a transaction complying with the requirements of Rule 144 (as
amended from time to time) promulgated under the Securities Act (or successor
rule thereto). If in such opinion of counsel the proposed transfer may be
effected without registration under the Securities Act, the holder shall
thereupon be entitled to transfer the Shares in accordance with the terms of the
notice delivered by it to the Corporation, subject to the other requirements of
this Agreement. Each certificate or other instrument evidencing the securities
issued upon the transfer of any Shares (and each certificate or other instrument
evidencing any untransferred balance of such securities) shall bear the legend
set forth in Section 6(b) unless (x) in such opinion of counsel registration of
future transfer is not required by the applicable provisions of the Securities
Act or (y) the Corporation shall have waived the requirement of such legend;
provided, however, that such legend shall not be required (1) on any certificate
or other instrument evidencing the securities issued upon such transfer in the
event such transfer shall be made in compliance with the requirements of Rule
144 (as amended from time to time) promulgated under the Securities Act (or
successor rule thereto) or (2) on any certificate or other instrument which is
immediately resalable (whether or not such resale is proposed) under Rule 144(k)
or successor thereto. The Corporation agrees, upon the request of a Stockholder,
to make available to such Stockholder and to any prospective transferee of its
Shares or Registrable Securities the information concerning the Corporation
described in Rule 144A(d)(4) under the Securities Act.
(d) Demand Registration.
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<PAGE> 19
(i) If the Corporation receives at any time
after six (6) months after the closing of the Corporation's first
underwritten public offering of shares pursuant to a registration
statement, a written request from (A) the Holders of at least fifty
percent (50%) of shares of the Investor Registrable Securities then
outstanding excluding Holders described in clause (B) or (C) hereof,
(B) any Holder who purchased more than 650,000 shares of Series D
Preferred Stock (a "Series D Holder") or (C) any Holder who purchased
more than 260,000 shares of Series E Preferred Stock issued pursuant to
the Purchase Agreement (a "Series E Holder"), that the Corporation file
a registration statement on Form S-1 (or similar successor forms) under
the Securities Act covering the registration of the Investor
Registrable Securities having an aggregate offering price, before
deduction of underwriter discounts and commissions, of at least
$5,000,000, then the Corporation shall, within ten (10) business days
after the receipt thereof, give written notice of such request to all
Holders, and use its best efforts to effect, as soon as practicable,
the registration under the Securities Act of all Investor Registrable
Securities which the Holders request to be registered and included in
such registration, subject only to the limitations of this Section
6(d).
(ii) If the Holders initiating the
registration request under this Section 6(d) ("Initiating Holders")
intend to distribute the Investor Registrable Securities covered by
their request by means of an underwriting, they shall so advise the
Corporation as a part of their request made pursuant to this Section
6(d) and the Corporation shall include such information in the written
notice referred to in Section 6(d)(i) hereof. In such event, the right
of any Holder to include such Holder's Investor Registrable Securities
in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Investor Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and
such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into
an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting by the
Investor Stockholders and reasonably acceptable to the Corporation.
(iii) The Corporation shall not be obligated
to effect, or take any action to effect, any such registration pursuant
to this Section 6(d):
(A) In any particular jurisdiction in
which the Corporation would be required to qualify to do business or to
execute a general consent to service of process in effecting such
registration, qualification or compliance except as may be required by
the Securities Act;
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<PAGE> 20
(B) After the Corporation has initiated
five (5) such registrations pursuant to this Section 6(d), two of which
may only be initiated by a Series D Holder, one of which may only be
initiated by a Series E Holder and two of which may only be initiated
by Holders of Registrable Securities who are not Series D Holders or
Series E Holders;
(C) During the period starting with the
date sixty (60) days prior to the Corporation's good faith estimate of
the date of filing of, and ending on a date one hundred eighty (180)
days after the effective date of, a Corporation-initiated registration;
provided that the Corporation is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective;
(D) If the Initiating Holders propose to
dispose of shares of Investor Registrable Securities which may be
immediately registered on Form S-3 pursuant to a request made under
Section 6(f) hereof;
(E) If, (1) in the good faith judgement
of the Board of Directors of the Corporation such registration would be
seriously detrimental to the Corporation and the Board of Directors of
the Corporation concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (2) the
Corporation shall furnish to the Holders a certificate signed by the
President of the Corporation stating that in the good faith judgement
of the Board of Directors of the Corporation, it would be seriously
detrimental to the Corporation for such registration statement to be
filed in the near future and that it is, therefore, essential to defer
the filing of such registration statement, then the Corporation shall
have the right to defer such filing (except as provided in clause (C)
above) for a period of not more than one hundred twenty (120) days
after receipt of the request of the Initiating Holders, and, provided
further, that the Corporation shall not defer its obligation in this
manner more than once in any twelve-month period.
(iv) All expenses incurred in connection with
any demand registration effected pursuant to this Section 6(d),
including without limitation all federal and "blue sky" registration
and qualification fees, printers' and accounting fees, and fees and
disbursements of counsel for the Corporation (but excluding
underwriters' discounts and commissions and expenses of special counsel
of selling Holders)(the "Registration Expenses") shall be borne by the
Corporation. In addition, each Holder participating in a registration
pursuant to this Section 6(d) shall bear its proportionate share of all
discounts, commissions or other amounts payable to underwriters in
connection with such offering.
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<PAGE> 21
(e) Piggyback Registrations.
(i) The Corporation shall notify all Holders
of Existing Registrable Securities and Investor Registrable Securities
in writing at least thirty (30) days prior to filing any registration
statement under the Securities Act for purposes of effecting a public
offering of securities of the Corporation (including, but not limited
to, registration statements initiated upon the request of Holders of
Investor Registrable Securities and registration statements relating to
secondary offerings of securities of the Corporation, but excluding
registration statements on an Excluded Form or relating to any employee
benefit plan or a corporate reorganization) and shall afford each such
Holder an opportunity to include in such registration statement all or
any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or
any part of the Registrable Securities held by such Holder shall,
within twenty (20) days after receipt of the above-described notice
from the Corporation, so notify the Corporation in writing, and in such
notice shall inform the Corporation of the number of Registrable
Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable
Securities in any registration statement thereafter filed by the
Corporation, such Holder shall nevertheless continue to have the right
to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Corporation
with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(ii) If the registration statement under which
the Corporation gives notice under this Section 6(e) is for an
underwritten offering, the Corporation shall so advise the Holders of
Registrable Securities. In such event, the right of any such Holder's
Registrable Securities to be included in a registration pursuant to
this Section 6(e) shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in such
customary form with the managing underwriter or underwriters selected
for such underwriting. If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Corporation and the underwriter, delivered at
least five (5) business days prior to the effective date of the
registration statement. Any Registrable Securities withdrawn from such
underwriting shall be withdrawn from the registration.
(iii) Notwithstanding any other provision of
Section 6(e)(ii), if the registration is the first registered offering
of the Corporation's securities to the general public, the Corporation
may limit, to the extent so advised by the underwriters, the amount of
securities (including the Registrable Shares) to be
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<PAGE> 22
included in the registration by the Corporation's stockholders
(including the Holders), or may exclude, to the extent so advised by
the underwriters, such underwritten securities entirely from such
registration. If the registration is the second or any subsequent
registered offering of the Corporation's securities to the general
public, the Corporation may limit, to the extent so advised by the
underwriters, the amount of securities to be included in the
registration by the Corporation's stockholders (including the Holders);
provided, however, that the aggregate value of securities (including
Registrable Securities) to be included in such registration by the
Holders may not be so reduced to less than thirty percent (30%) of the
total value of all securities included in such registration. The
Corporation shall so advise all Holders of securities requesting
registration, and the number of shares of securities that are entitled
to be included in the registration and underwriting shall be allocated
first to the Corporation for securities being sold for its own account,
second to Holders of Investor Registrable Securities pro rata based
upon the number of Registrable Securities held by any such Holder, and
thereafter as set forth in this Section 6(e). Any Registrable
Securities excluded from such underwriting shall be excluded from the
registration.
(iv) If any shares are withdrawn from the
registration or if the number of shares of Registrable Securities to be
included in such registration was previously reduced as a result of
marketing factors as provided in this Section 6(e), the Corporation
shall then offer to all persons who have retained the right to include
securities in the registration the right to include additional
securities in a subsequent registration in the aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated
among the persons requested additional inclusion in accordance with
this Section 6(e).
(v) All Registration Expenses incurred in
connection with a registration pursuant to this Section 6(e) shall be
borne by the Corporation.
(f) Form S-3 Registration. In the event that the Corporation
receives from (A) the Holders of at least thirty percent (30%) of the
Registrable Securities held by all Holders other than Series D Holders or Series
E Holders, (B) a Series D Holder or (C) a Series E Holder, a written request or
requests that the Corporation effect a registration on Form S-3, and any related
qualification or compliance with respect to all or part of the Registrable
Securities owned by such Holders, then the Corporation shall:
(i) Promptly give written notice of the
proposed registration and the Holders' request therefor, and any
related qualification or compliance, to all Holders of Registrable
Securities; and
(ii) As soon as practicable, effect such
registration and all such qualifications and compliances as may be so
requested and as would
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<PAGE> 23
permit or facilitate the sale and distribution of all or such portion
of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as
are specified in a written request given within twenty (20) days after
receipt of such written notice from the Corporation; provided, however,
that the Corporation shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section
6(f): (A) if S-3 is not available for such offering by the Holders; (B)
if the Holders propose to sell Registrable Securities at an aggregate
gross offering price to the public of less than $1,000,000.00; (C) if
the Corporation has, within the six (6)-month period preceding the date
of such request, already effected one registration for the Holders
pursuant to Section 6(e) or 6(f); or (D) in any particular jurisdiction
in which the Corporation would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(iii) The Corporation is obligated to effect
that number of registrations on Form S-3 requested by the Holders
pursuant to this Section 6(f), but shall not be obligated to effect
more than two (2) such registrations per year.
(iv) Subject to the foregoing, the Corporation
shall file a Form S-3 registration statement, as the case may be,
covering the Registrable Securities to be registered pursuant to this
Section 6(f) as soon as practicable after receipt of the request or
requests of the Holders for such registration. The Corporation shall
pay all Registration Expenses in connection with each demand for
registration pursuant to this Section 6(f).
(v) Form S-3 registrations shall not be deemed
registrations as described in Section 6(d) above.
(g) Additional Registration Rights. If the Corporation grants
registration rights to holders of any security of the Corporation which are more
favorable to such holders than the registration rights granted hereunder, then
such more favorable registration rights shall also be deemed to be granted to
the Holders of the Registrable Securities hereunder, and the Corporation
covenants and agrees to take any and all steps necessary to modify the terms of
this Agreement to so provide.
(h) Obligations of the Corporation. Whenever required to
effect the registration of any Registrable Securities under this Agreement, the
Corporation shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Commission a
registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and
remain effective;
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<PAGE> 24
(ii) Prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may
be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement and to keep such registration statement
effective, in the case of a firm commitment underwriting, until each
underwriter has completed the distribution of all securities purchased
by it and, in the case of any other offering, until the earlier of the
sale of all Registrable Securities covered thereby or one hundred
eighty (180) days after the effective date thereof; provided, however,
that such 180-day period shall be extended for a period of time equal
to the period the Holder refrains from selling any Registrable
Securities included in such registration at the request of an
underwriter of the Common Stock or if the Corporation has provided the
notice described in subparagraph (vii) below;
(iii) Furnish to the Holders such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by them that are
included in such registration;
(iv) Use its best efforts to register and
qualify the securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided, that the Corporation
shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(v) Use its best efforts to list the
securities covered by such registration statement with any securities
exchange, if any, on which the Common Stock of the Corporation is then
listed;
(vi) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under
such an agreement;
(vii) Notify each Holder of Registrable
Securities and each underwriter under such registration statement at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or
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<PAGE> 25
necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(viii) Furnish, at the request of any Holder
requesting registration of Registrable Securities, on the date that
such Registrable Securities are delivered to the underwriters for sale,
if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective, a "comfort" letter dated as of such date, from the
independent certified public accountants of the Corporation, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of the Registrable Securities; and
(ix) Make available for inspection by each
seller of Registrable Securities, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Corporation, and cause the Corporation's officers,
directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(i) Furnish Information. It shall be a condition precedent to
the obligations of the Corporation to take any action pursuant to Sections 6(d),
6(e) and 6(f) that the selling Holders shall furnish to the Corporation such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities.
(j) Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 6(d), 6(e) or 6(f):
(i) To the extent permitted by law, the
Corporation shall indemnify and hold harmless each Holder, the
partners, officers and directors of each Holder, any underwriter (as
defined in the Securities Act) for such Holder and each Person, if any,
who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise
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<PAGE> 26
out of or are based upon any of the following statements, omissions or
violations (collectively, a "Violation"):
(A) any untrue statement or alleged
untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or
supplements thereto,
(B) the omission or alleged omission to
state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or
(C) any violation or alleged violation by
the Corporation of the Securities Act, the Exchange Act, any
federal or state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the
offering covered by such registration statement,
and the Corporation shall reimburse each such Holder, or a partner,
officer or director, underwriter or controlling Person of such Holder
for any legal or other expenses reasonably incurred by them, as
incurred, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 6(j) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the
Corporation (which consent shall not be unreasonably withheld), nor
shall the Corporation be liable in any case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with
such registration by such Holder, or a partner, officer, director,
underwriter or controlling Person of such Holder.
(ii) To the extent permitted by law, each
selling Holder shall indemnify and hold harmless the Corporation, each
of its directors and officers who have signed the registration
statement, each Person, if any, who controls the Corporation within the
meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such
other Holder's partners, directors or officers or any Person who
controls such Holder within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages or liabilities (joint
or several) to which the Corporation or any such director, officer,
controlling Person, underwriter or other such Holder, or a partner,
director, officer or controlling Person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
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<PAGE> 27
actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection
with such registration; and each such Holder shall reimburse any legal
or other expenses reasonably incurred by the Corporation or any such
director, officer, controlling Person, underwriter or other Holder,
partner, officer, director or controlling Person of such other Holder
in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 6(j) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided, further, that
the total amounts payable in indemnity by a Holder under this Section
6(j)(ii) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such
Violation arises.
(iii) Promptly after receipt by an indemnified
party under this Section 6(j) of notice of the commencement of any
action (including any governmental action), such indemnified party
shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6(j), deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 6(j), but the
omission so to deliver written notice to the indemnifying party shall
not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 6(j).
(iv) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in
which either (A) any Holder exercising rights under this Agreement, or
any controlling Person of any such Holder, makes a claim for
indemnification pursuant to this Section 6(j) but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the
-27-
<PAGE> 28
last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 6(j) provides for
indemnification in such case, or (B) contribution under the Securities
Act may be required on the part of any such selling Holder or any such
controlling Person in circumstances for which indemnification is
provided under this Section 6(j), then, and in each such case, the
Corporation or such Holder shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that such Holder is
responsible for the portion represented by the percentage that the
public offering price of its Registrable Securities offered by and sold
under such registration statement bears to the public offering price of
all securities offered by and sold under such registration statement,
and the Corporation and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (1) no
such Holder shall be required to contribute any amount in excess of the
public offering price of all such Registrable Securities offered and
sold by such Holder pursuant to such registration statement; and (2) no
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent
misrepresentation.
(v) The obligations of the Corporation and
Holders under this Section 6(j) shall survive the completion of any
offering of Registrable Securities in a registration statement, and the
termination of this Agreement.
(k) "Market Stand-Off" Agreement and Coordination of Certain
Sales. Each Holder hereby agrees that it shall not, to the extent requested by
the Corporation and an underwriter of Common Stock of the Corporation, sell or
otherwise transfer or dispose of any Registrable Securities (other than
Registrable Securities being registered in such offering) for up to that period
of time following the effective date of a registration statement of the
Corporation filed under the Securities Act as is requested by the managing
underwriter(s) of such offering, not to exceed 90 days; provided, however, that
all officers, directors and ten percent (10%) or greater stockholders of the
Corporation then holding Common Stock of the Corporation shall enter into
similar agreements. Each Holder further agrees that, except for the Limited
Sales, it shall not sell or otherwise transfer or dispose of any securities of
the Corporation for a period beginning on the date hereof and ending on March 5,
2000 unless such securities are sold pursuant to an underwritten public offering
in which all Holders of Investor Registrable Securities are offered the
opportunity to participate in the registration pro rata based on the total
number of securities held by them. All Holders agree that they shall be solely
responsible for the coordination of any Limited Sales among themselves.
In order to enforce the foregoing covenant, the Corporation may impose stop
transfer instructions with respect to the then-remaining Registrable Securities
of each Holder
-28-
<PAGE> 29
(and the shares or securities of every other Person subject to the foregoing
restriction) until the end of such period.
(l) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Corporation, the Corporation agrees to:
(i) Make and keep public information available,
as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the first
registration under the Securities Act filed by the Corporation for an
offering of its securities to the general public;
(ii) File with the Commission in a timely
manner all reports and other documents required of the Corporation
under the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); and
(iii) So long as a Holder owns any Registrable
Securities, furnish to the Holder forthwith upon request a written
statement by the Corporation as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the
Corporation for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it
has become subject to the requirements of the Exchange Act), a copy of
the most recent annual or quarterly report of the Corporation, and such
other reports and documents of the Corporation as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without
registration (at any time after the Corporation has become subject to
the reporting requirements of the Exchange Act).
(m) Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Section 6, the restrictions imposed by this Section 6 upon
the transferability of any Registrable Securities shall cease and terminate when
any such Registrable Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in the registration statement or as otherwise contemplated by Section 6(c)
which does not require that the securities transferred bear the legend set forth
in Section 6(b). Whenever the restrictions imposed by this Section 6 shall
terminate as herein provided, the Holder of any Registrable Securities as to
which such restrictions have terminated shall be entitled to receive from the
Corporation, without expense, one or more new certificates not bearing the
restrictive legend set forth in Section 6(b) and not containing any other
reference to the restrictions imposed by this Section 6.
-29-
<PAGE> 30
(n) Filing of Reports Under the Exchange Act. The Corporation
shall give prompt notice to the Stockholders of:
(i) the filing of an Exchange Act Registration
Statement; and
(ii) the effectiveness of such Exchange Act
Registration Statement and the number of shares of such class of equity
securities outstanding as reported in such Exchange Act Registration
Statement, in order to enable the Stockholders to comply with any
reporting requirements under the Exchange Act or the Securities Act.
The Corporation shall, at any time after the Corporation shall register
any shares of Common Stock under the Securities Act and upon the
written request of a Stockholder, file an Exchange Act Registration
Statement relating to any class of Equity Securities of the Corporation
then held by such Stockholder, whether or not the class of equity
securities with respect to which such request is made shall be held by
at least the number of Persons which would require the filing of a
registration statement under Section 12(g)(1) of the Exchange Act. If
the Corporation shall have filed an Exchange Act Registration Statement
or a registration statement (including an offering circular under
Regulation A promulgated under the Securities Act) pursuant to the
requirements of the Securities Act (and in any event, at all times
following the initial public offering of any of the securities of the
Corporation), the Corporation shall comply with all the reporting
requirements of the Exchange Act (whether or not it shall be required
to do so), and shall comply with all other public information reporting
requirements of the Commission as a condition to the availability of an
exemption from the Securities Act (under Rule 144 thereof, as amended
from time to time, or successor rule thereto or otherwise) for the sale
of Common Stock by the Stockholders. The Corporation shall cooperate
with the Stockholders in supplying such information as may be necessary
for the Stockholders to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act (under Rule
144 thereof or otherwise) for the sale of Common Stock by the
Stockholders.
(o) Transfer or Assignment of Registration Rights. The rights
to cause the Corporation to register securities granted to a Holder by the
Corporation pursuant to this Section 6 may be transferred or assigned by a
Holder only to a transferee or assignee of not less than 50,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like), provided that the Corporation is given written notice at the time of or
within a reasonable time after said transfer and assignment, stating the name
and address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes in
writing the obligations of such Holder under this Section 6.
-30-
<PAGE> 31
(p) Termination of Registration Rights. The right of any
Holder to request registration or inclusion in any registration pursuant to
Section 6(d), 6(e) or 6(f) shall terminate on the earlier of (i) ten (10) years
after the closing of the first registered public offering of Common Stock of the
Corporation, or (ii) on such date as all shares of Registrable Securities held
or entitled to be held upon conversion or exercise by such Holder may
immediately be sold under Rule 144 during any 90-day period.
(q) Information Rights. Until the closing of the Designated
Offering, the Corporation shall either deliver to each Investor Stockholder who
owns directly or indirectly at least 85,000 shares of Series C Stock, Series D
Preferred Stock or Series E Preferred Stock (or Class A Common Stock issued upon
conversion thereof).
(i) as soon as practicable, but in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Corporation, an income statement for such fiscal year, a balance sheet of the
Corporation and a statement of stockholder's equity as of the end of such year,
and a schedule as to the sources and applications of funds for such year, such
year-end financial reports to be in reasonable detail, prepared in accordance
with generally accepted accounting principles, and audited and certified by
independent public accountants approved by the Board of Directors of the
Corporation;
(ii) as soon as practicable, but in any
event within thirty (30) days of the end of each month, an unaudited income
statement (showing actual, budget and prior month) and schedule as to the
sources and application of funds and balance sheet for and as of the end of such
month, in reasonable detail;
(iii) as soon as practicable, but in any
event within forty-five (45) days of the end of each fiscal quarter, an
unaudited income statement, schedule as to the sources and applications of funds
and balance sheet for and as of the end of each such quarter, in reasonable
detail; and
(iv) as soon as practicable, but in any
event thirty (30) days prior to the end of each fiscal year, a budget for the
next fiscal year, prepared on a monthly basis, including income statements,
balance sheets and applications of funds statements for such months and, as soon
as practicable after the adoption thereof, any revisions to such annual budget.
SECTION 7. Duration of Agreement. Except for those provisions
that, by their terms, terminate sooner, all rights and obligations of each
Stockholder under this Agreement shall terminate as to such Stockholder upon the
earlier of (a) the transfer in accordance with this Agreement of all Shares held
by such Stockholder, or (b) upon written consent of (i) the Stockholders holding
a majority of the shares of Series C Stock (or the Class A Common Stock issued
upon conversion thereof), (ii) the Stockholders holding at least 66 2/3 of the
shares of Series D Preferred Stock, (iii) the
-31-
<PAGE> 32
Stockholders holding at least 66 2/3 of the shares of Series E Preferred Stock
and (iv) the Stockholders holding a majority of the shares of Class A Common
Stock (other than those shares specified in subparagraph (i) above).
SECTION 8. Severability; Governing Law. If any provisions of
this Agreement shall be determined to be illegal and unenforceable by any court
of law, the remaining provisions shall be severable and enforceable in
accordance with their terms. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
the conflict of laws principles thereof; provided, however, in the event that
any provision of this Agreement is unenforceable under the laws of the State of
New York and is enforceable under the laws of the State of Delaware, then such
provision shall be construed in accordance with the laws of the State of
Delaware to permit the enforceability of this Agreement to the fullest extent.
SECTION 9. Conflicting Agreements. This Agreement supersedes
all other existing agreements or understandings between the stockholders of the
Corporation.
SECTION 10. Benefits of Agreement. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, legal representatives and heirs. Subject to the terms of
this Agreement, the Stockholders may transfer any or all of its rights hereunder
to any purchaser or transferee of all or a portion of its shares of Preferred
Stock or Common Stock, including any right or interest therein, without the
prior written consent of the Corporation or any Stockholder. In the event of
such transfer, such transferee shall be deemed to be the "Stockholder " and a
"Holder", as appropriate, for purposes of this Agreement, and may again transfer
such rights in accordance with, and subject to, the terms of this Agreement.
SECTION 11. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by first
class registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the addressor listing
all parties:
(a) If to the Corporation, to:
Medscape, Inc.
134 W. 29th Street
New York, NY 10001-5399
Fax (212) 760-3140
-32-
<PAGE> 33
Attention: President & CEO
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036-6710
Attention: John P. Schmitt, Esq.
(b) If to the Stockholders, at the addresses specified on
Schedule I attached hereto.
All such notices, advises and communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery and
(b) in the case of mailing, on the third day after the posting thereof.
SECTION 12. Changes. The terms and provisions of this
Agreement may not be modified or amended, or any of the provisions hereof
waived, temporarily or permanently, except pursuant to the written consent of
(a) the Corporation, (b) the Stockholders holding a majority of the shares of
Series C Stock, (c) the Stockholders holding at least 66 2/3 of the shares of
Series D Preferred Stock (or the Class A Common Stock issued upon conversion
thereof), (d) the Stockholders holding at least 66 2/3 of the shares of Series E
Preferred Stock (or the Class A Common Stock issued upon conversion thereof) and
(e) the Stockholders holding a majority of the shares of Class A Common Stock
(other than those shares specified in subparagraph (b) above). Any rights
applicable to a Stockholder may be waived by such Stockholder without the
consent of the Corporation or the other Stockholders. Any modification or
amendment pursuant to this Section may terminate any right or obligation
provided for herein whether or not deemed vested or accrued. Upon approval of
modifications or amendments by the requisite percentages of the Stockholders
hereunder, the Corporation shall not be required to independently give its
consent.
SECTION 13. Rights of Dr. Drezner as a Stockholder. Dr.
Jeffrey L. Drezner ("Dr. Drezner") shall (a) have all the rights of an Investor
Stockholder as are set forth in Sections 4, 5 and Subsection 6(e) of this
Agreement (including under Subsection 6(e) as it relates to the piggyback rights
to be included within a demand registration initiated pursuant to Subsection
6(d), and, for such purposes, it is understood that the last sentence of
Subsection 6(d)(i) shall be read as if it were amended to include at its end:
"and Section 6(e)(iii)"), (b) have the right to vote in connection with a
modification to the Stockholder Agreement in accordance with Section 12 thereof,
(c) have the rights of an Additional Stockholder with respect to all other
provisions of this Agreement, and (d) be bound by the other terms and conditions
-33-
<PAGE> 34
of this Stockholders' Agreement. It is understood and agreed that, in regard to
restricted shares issued pursuant to the Employment and Restricted Stock
Purchase Agreement, dated October 27, 1998, by and between the Corporation and
Dr. Drezner, Dr. Drezner shall only have rights under this Agreement for such
restricted shares after they have vested in accordance with the terms thereof
(such vested shares, along with the 642,553 shares issued to Dr. Drezner
pursuant to the Purchase Agreement, dated October 27, 1998, by and among the
Corporation, Dr. Drezner and certain other parties thereto, or to be acquired by
Dr. Drezner upon realization of the pledge of 36,509 shares by Jason Rosenbaum
to Dr. Drezner, the "Vested Shares"). For purposes of effectuating Dr. Drezner's
rights as an Investor Stockholder pursuant to Sections 4 and 5 of this
Agreement, to the extent that Dr. Drezner exercises his rights pursuant to
Subsections 4(c) or 5(a) thereof, (x) the Vested Shares held by Dr. Drezner
shall be counted as shares of Class A Common Stock issuable upon conversion of
the Series C Stock for purposes of the formulas set forth therein; and (y) each
of the Corporation and Dr. Drezner agrees to exchange any Vested Shares for
which Dr. Drezner seeks to require the Transferring Stockholder to cause to be
purchased in accordance with such Subsection 5(a) for a like number of shares of
Class A Common Stock, such exchange to be effective immediately prior to such
purchase (without any additional consideration) with the intent that the
purchaser receive Class A Common Stock pursuant to such transaction. In
connection with any vote pursuant to Section 12 of this Agreement, Dr. Drezner
shall vote with the holders of Series C Stock as a single class, with each
Vested Share held by Dr. Drezner having the rights to the number of votes as
each share of Class A Common Stock has under the Corporation's Amended and
Restated Certificate of Incorporation (the "Certificate"), and each share of
Series C Stock having the rights to the number of votes for such series as is
set forth in the Certificate.
SECTION 14. Captions. The captions herein are inserted for
convenience only and shall not define, limit, extend or describe the scope of
this Agreement or affect the construction hereof.
SECTION 15. Nouns and Pronouns. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms and the singular form of names and pronouns shall
include the plural and vice-versa.
SECTION 16. Merger Provision. This Agreement (as the same may
be amended from time to time) and the Purchase Agreement constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersede all prior and contemporaneous agreements therewith.
SECTION 17. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which taken together shall constitute one and the same instrument.
-34-
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Stockholders Agreement to be executed as of the date and
year first written above.
MEDSCAPE, INC.
By: /s/ Paul T. Sheils
----------------------------------
Paul T. Sheils
President and Chief Executive Officer
[Signature page to
Stockholders Agreement - 1]
<PAGE> 36
(STOCKHOLDER WITH RIGHTS UNDER SECTION 13)
/s/ Jeffrey L. Drezner
-------------------------------------
Jeffrey L. Drezner, M.D., Ph.D.
/s/ Melanie Moore
-------------------------------------
/s/ Sandra Sims
-------------------------------------
/s/ Jason Rosenbaum
-------------------------------------
[Signature page to
Stockholders Agreement - 2]
<PAGE> 37
INVESTOR STOCKHOLDERS
(EXISTING SERIES C CONVERTIBLE PREFERRED STOCK)
/s/ Esther Dyson
- -----------------------------------
ESTHER DYSON
APA EXCELSIOR IV, L.P.
By: /s/ Alan Patricof
------------------------------
Name: Alan Patricof
Title:
COUTTS & CO. (CAYMAN) LTD.,
c/o APA EXCELSIOR IV/OFFSHORE,
L.P.
By: /s/ Alan Patricof
------------------------------
Name: Alan Patricof
Title:
PATRICOF PRIVATE
INVESTMENT CLUB, L.P.
By: /s/ Alan Patricof
------------------------------
Name: Alan Patricof
Title:
CSK VENTURE CAPITAL CO., LTD.,
as investment manager for CSK-1(A)
Investment Fund
By: /s/ Kinya Nakagome
------------------------------
Name: Kinya Nakagome
Title: Managing Director
CSK VENTURE CAPITAL CO., LTD.,
as investment manager for CSK-1(B)
Investment Fund
By: /s/ Kinya Nakagome
-----------------------------
Name: Kinya Nakagome
Title: Managing Director
CSK VENTURE CAPITAL CO., LTD.,
as investment manager for CSK-2
Investment Fund
By: /s/ Kinya Nakagome
-----------------------------
Name: Kinya Nakagome
Title: Managing Director
MEDIA TECHNOLOGY VENTURES, L.P.
By: /s/ Barry Weinman
-----------------------------
Name: Barry M. Weinman
Title: Managing Member of the General
Partner
MEDIA TECHNOLOGY VENTURES
ENTREPRENEURS FUND, L.P.
By: /s/ Barry Weinman
-----------------------------
Name: Barry M. Weinman
Title: Managing Member of the General
Partner
[Signature page to
Stockholders Agreement - 3]
<PAGE> 38
ROBERT A. BERNHARD, WILLIAM L.
BERNHARD, FRANK A. WEIL, AND
LAWRENCE B. BUTTENWEISER,
TRUSTEES U/A DATED 9/3/64 F/B/O
ROBERT A. BERNHARD FAMILY
By: /s/ Robert Bernhard
----------------------------
Name: Robert A. Bernhard
Title: Trustee
ROBERT A. BERNHARD, WILLIAM L.
BERNHARD, JOHN L. LOEB, AND
BENJAMIN J. BUTTENWEISER,
TRUSTEES U/W/D DOROTHY L.
BERNHARD F/B/O ROBERT A.
BERNHARD ARTICLE 9TH
By: /s/ Robert Bernhard
----------------------------
Name: Robert A. Bernhard
Title: Trustee
WORMSER FRERES
By: /s/ Marcel Wormser
----------------------------
Name: Marcel Wormser
Title: Administrateur
Wormser Freres, Paris
CIBC WORLD MARKETS CORP.
By: /s/ David Shotland
----------------------------
Name: David Shotland
Title: Managing Director
/s/ Roger Mulvihill
- -----------------------------------
ROGER MULVIHILL
/s/ Mary Mulvihill
- -----------------------------------
MARY MULVIHILL
RHL VENTURES LLC
By: /s/ Robert H. Lessin
-------------------------------
Name: Robert H. Lessin
Title: Manager
TOLEDOT INVESTMENTS, L.P.
By: /s/ Richard Linhart
-------------------------------
RICHARD LINHART, GENERAL
PARTNER
/s/ Richard Linhart
-------------------------------
RICHARD LINHART
/s/ Victor Scaravilli
-------------------------------
VICTOR SCARAVILLI
BE PARTNERS
By: /s/ Timothy Sommerfield
-------------------------------
Name: Timothy Sommerfield
Title: Partner
/s/ Mark Braunstein
-------------------------------
MARK BRAUNSTEIN, M.D.
TBG INFORMATION INVESTORS, L.L.C.
By: /s/ Jack Blumenstein
-------------------------------
Name: Jack Blumenstein
Title: President
EXISTING STOCKHOLDERS
[Signature page to
Stockholders Agreement - 4]
<PAGE> 39
(SERIES A PREFERRED STOCKHOLDER)
APA EXCELSIOR FUND I
By: /s/ Alan Patricof
--------------------------
Name: Alan Patricof
Title:
(CLASS A COMMON STOCKHOLDER)
/s/ Peter M. Frishauf
------------------------------
PETER M. FRISHAUF
[Signature page to
Stockholders Agreement - 5]
<PAGE> 40
INVESTOR STOCKHOLDERS
SERIES D CONVERTIBLE PREFERRED STOCK
CSK VENTURE CAPITAL CO., LTD.
AS INVESTMENT MANAGER FOR
CSK-1(B) INVESTMENT FUND
By: /s/ Kinya Nakagome
---------------------------------------
Name: Kinya Nakagome
Title: Managing Director
Address: Kenchikukaikan, 7F
5-26-20 Shiba, Minato-ku
Tokyo 108-0014 Japan
CSK VENTURE CAPITAL CO., LTD.
AS INVESTMENT MANAGER FOR
CSK-2 INVESTMENT FUND
By: /s/ Kinya Nakagome
---------------------------------------
Name: Kinya Nakagome
Title: Managing Director
Address: Kenchikukaikan, 7F
5-26-20 Shiba, Minato-ku
Tokyo 108-0014 Japan
CSK VENTURE CAPITAL CO., LTD. AS
INVESTMENT MANAGER FOR
CSK-1(A) INVESTMENT FUND
By: /s/ Kinya Nakagome
---------------------------------------
Name: Kinya Nakagome
Title: Managing Director
Address: Kenchikukaikan, 7F
5-26-20 Shiba, Minato-ku
Tokyo 108-0014 Japan
HEARST COMMUNICATIONS, INC.
By: /s/ Kenneth A. Bronfin
---------------------------------------
Name: Kenneth A. Bronfin
Title: Senior Vice President
Address: 959 8th Avenue, Suite 331
New York, NY 10019
[Signature page to
Stockholders Agreement - 6]
<PAGE> 41
WORMSER FRERES
By: /s/ Marcel Wormser
---------------------------------
Name: Marcel Wormser
Title: Administrateur, Wormser Freres, Paris
Address: Banque D'Escompte
13 Blvd. Haussmann
75009 Paris France
[Signature page to
Stockholders Agreement - 7]
<PAGE> 42
MEDIA TECHNOLOGY VENTURES,
L.P.
By: /s/ Barry Weinman
------------------------
Name: Barry M. Weinman
Title: Managing Member of the General Partner
MEDIA TECHNOLOGY VENTURES
ENTREPRENEURS FUND, L.P.
By: /s/ Barry Weinman
------------------------
Name: Barry M. Weinman
Title: Managing Member of the General Partner
[Signature page to
Stockholders Agreement - 8]
<PAGE> 43
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Alan Patricof
----------------------
Name: Alan J. Patricof
Title: Chairman
COUTTS & CO. (CAYMAN) LTD.,
c/o APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Alan Patricof
----------------------
Name: Alan J. Patricof
Title: Chairman
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Alan Patricof
----------------------
Name: Alan J. Patricof
Title: Chairman
[Signature page to
Stockholders Agreement - 9]
<PAGE> 44
WESTON PRESIDIO CAPITAL II, L.P.
By: Weston Presidio Capital Management II,
LP, its General Partner
By: /s/ Carlo von Schroeter
-----------------------
Carlo von Schroeter
WESTON PRESIDIO CAPITAL III, L.P.
By: Weston Presidio Capital Management III,
LLC, its General Partner
By: /s/ Carlo von Schroeter
-----------------------
Carlo von Schroeter
WPC ENTREPRENEUR FUND, L.P.
By: Weston Presidio Capital Management III,
LLC, its General Partner
By: /s/ Carlo von Schroeter
-----------------------
Carlo von Schroeter
HIGHLAND CAPITAL PARTNERS IV
LIMITED PARTNERSHIP
By: Highland Management Partners IV LLC, its
General Partner
By: /s/ Wycliffe Grousbeck
-----------------------
Member
HIGHLAND ENTREPRENEURS' FUNDS IV,
LIMITED PARTNERSHIP
By: Highland Entrepreneurs' Fund IV LLC, its
General Partner
By: /s/ Wycliffe Grousbeck
-----------------------
Member
[Signature page to
Stockholders Agreement - 10]
<PAGE> 45
(SECTION 4 STOCKHOLDERS NOT
SIGNING IN ANOTHER CAPACITY)
/s/ Steven Kalin
- -----------------------
Steven Kalin
/s/ Paul J. Sheils
- -----------------------
Paul Sheils
[Signature page to
Stockholders Agreement - 11]
<PAGE> 46
INVESTOR STOCKHOLDERS
SERIES E CONVERTIBLE PREFERRED STOCK
AND CLASS A COMMON STOCK
NATIONAL DATA CORPORATION
By:__________________________
Name:
Title:
LAZARD FRERES & CO. LLC
By:__________________________
Name:
Title:
[Signature page to
Stockholders Agreement - 12]
<PAGE> 47
SCHEDULE I
- - Refer to Signature Page 5 for Existing Stockholders
- - Refer to Signature Pages 3-4 for Series C and Series C-1 Investor
Stockholders
- - Refer to Signature Pages 6-10 for Series D Investor Stockholders
- - Refer to Signature Page 2 for Jeffrey L. Drezner, M.D., Ph.D. who has
certain rights as an Investor Stockholder
- - Refer to Signature Page 11 for Section 4 Stockholders Not Signing in
Another Capacity
- - Refer to Signature Page 12 for Series E Investor Stockholders
- - The Addresses for all the Stockholders are maintained with the
Corporation's Stock Ledger
<PAGE> 48
SCHEDULE II
List of All Stockholders
- - See attached capitalization table.
<PAGE> 1
Exhibit 10.38
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
LICENSE AND PRODUCT DEVELOPMENT AGREEMENT
This AGREEMENT is made as of July __, 1999 (the "Effective Date"),
between MEDSCAPE, INC., a Delaware corporation with offices at 134 W. 29th
Street, New York, New York 10001-5399 ("Medscape") and NATIONAL DATA
CORPORATION, a Delaware corporation with offices at National Data Plaza,
Atlanta, Georgia 30329 ("NDC" and together with Medscape, collectively, the
"Parties," and each a "Party"). Unless otherwise specified herein, capitalized
terms used in this Agreement have the meanings defined in this Agreement and the
Schedules and Exhibits hereto.
WHEREAS, Medscape is in the business of, and has substantial
skills and experience in, developing, providing and managing on-line clinical
and healthcare information.
WHEREAS, NDC is in the business of, and has substantial skills
and experience in, electronic data interchange products and services and data
management.
WHEREAS, subject to the terms and conditions of this
Agreement, Medscape and NDC wish to cooperate (x) to market each other's
products and services, and (y) to jointly develop, market and distribute certain
clinical practice management and healthcare-related, electronic data interchange
services to physicians, allied healthcare professionals, pharmaceutical
manufacturers, consumers and pharmacists.
WHEREAS, subject to the terms and conditions of this
Agreement, Medscape and NDC further desire to set forth the terms on which (x)
NDC may act as Medscape's preferred clinical data interchange and data
management services partner, and (y) Medscape may act as NDC's preferred
healthcare clinical content and information services partner.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, and for other good and
valuable consideration the receipt of which is hereby acknowledged, the Parties
hereby agree as follows:
<PAGE> 2
ARTICLE I
DEFINED TERMS
Section 1.1 As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate," as to any Party, means any Person directly or
indirectly controlling, controlled by or under common control with such Party,
and shall include any officer, director and partner of any such Party. A Party
shall be deemed to control another Person if it owns or has the power to
exercise voting rights with respect to more than 50 percent of the voting
securities of such other Person.
"Agreement" means this License and Product Development
Agreement, as modified, supplemented, restated or amended from time to time.
"AMA" has the meaning provided in Section 2.1(f).
"AMA License" has the meaning provided in Section 15.1(b).
"AMA Sublicense" has the meaning provided in Section 2.1(a).
"Confidential Information" has the meaning provided in Section
14.2.
"EDI Services" has the meaning provided in Section 9.1
"EDI Services Commission" has the meaning provided in Exhibit
11.1
"Effective Date" has the meaning provided in the preamble
hereto.
"HCC Services" has the meaning provided in Section 9.2.
"Healthcare Clinical Content" means (i) any clinical content
derived from any Person whose primary business involves the provision of
healthcare information on the internet substantially similar to healthcare
information on any Medscape Website, or (ii) any clinical content that is
substantially similar to healthcare information offered on any Medscape Website.
"Independent Auditor" has the meaning provided in Section
11.4.
"Intellect Database" has the meaning provided in Section
2.1(a).
"Intellect License" has the meaning provided in Section
2.1(a).
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"Jointly Developed Products" has the meaning provided in
Section 6.1(a) below.
"Losses" has the meaning provided in Section 15.3.
"LYTEC," "LYTEC 99," and "LYTEC 99 Specifications" have the
respective meanings provided in Section 3.1.
"LYTEC 99 Exclusivity Period" has the meaning provided in
Section 3.2(c).
"LYTEC/Web" and "LYTEC/Web Specifications" have the respective
meanings provided in Section 4.1.
"LYTEC/Web Exclusivity Period" has the meaning provided in
Section 4.2(b).
"Medscape" has the meaning provided in the preamble hereto.
"Medscape Content" means Medscape's proprietary data and
content, including text and visual material regarding itself, Medscape products,
services, pricing, Medscape Trademarks, and any conditions of use (including
proprietary notices).
"Medscape Materials" has the meaning provided in Section 12.2.
"Medscape Reporting Period" has the meaning provided in
Section 11.3.
"Medscape Website" means any website now or hereafter owned or
operated by Medscape, including the website currently located at
www.medscape.com.
"NDC" has the meaning provided in the preamble hereto.
"NDC Distribution Commissions" has the meaning provided in
Exhibit 11.1.
"NDC Healthcare Products" means, collectively, LYTEC 99,
LYTEC/Web and the Other NDC Products, or any of them.
"NDCHIS" has the meaning provided in Section 15.1(b).
"NDC Materials" has the meaning provided in Section 12.1.
"NDC Reporting Period" has the meaning provided in Section
11.5.
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"Notified Party" has the respective meanings provided in
Section 9.1 and Section 9.2.
"Offering Party" has the respective meanings provided in
Section 9.1 and Section 9.2.
"Other NDC Products" has the meaning provided in Section 5.1.
"Party" and "Parties" have the respective meanings provided in
the preamble hereto.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, trust, business association or other
entity, including any governmental entity.
"Products" has the meaning provided in Section 7.1.
"R&D Pipeline Information" has the meaning provided in Section
6.1(c).
"Services" has the meaning provided in Section 7.1.
"Shared Materials" has the meaning provided in Section 12.3.
"Shares" has the meaning provided in the Stock Purchase
Agreement.
"Specifications" means, collectively, (i) the LYTEC 99
Specifications, (ii) the LYTEC/Web Specifications, (iii) any other
specifications agreed by the Parties pursuant to this Agreement as to a product
or service to be developed hereunder, and (iv) as the context requires, any of
them.
"Stock Purchase Agreement" means that certain Stock Purchase
Agreement, dated as of the date hereof, between Medscape and NDC, as the same is
in effect from time to time.
"Term" has the meaning provided in Section 16.1.
"Trademarks" means, collectively, trademarks, service marks,
trade names, logos and other similar proprietary rights, and as the context
requires, any of them.
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ARTICLE II
NDC INTELLECT DATABASE
Section 2.1 (a) Intellect Database License Grant. Subject to
the terms and conditions of this Agreement, NDC grants to Medscape during the
Term a non-exclusive, perpetual, fully paid, non-assessable license (the
"Intellect License") to access (via internet and/or other means), to use, and to
execute only for Medscape's and its wholly-owned subsidiaries' internal purposes
(and not for public display), all the information and data embodied in the
elements of NDC's Intellect Q&A database described on Exhibit 2.1(a)-1 (as such
information and data may be enhanced, updated, modified or corrected from time
to time, the "Intellect Database"). Medscape's use of the Intellect Database
shall be subject to the terms and conditions of the AMA license agreement
attached hereto as Exhibit 2.1(a)-2, which Medscape shall, subject to Section
2.1(f) below, execute and deliver to NDC contemporaneously with the execution of
this Agreement (the "AMA Sublicense"). Medscape shall be responsible for all of
its telecommunications charges associated with Medscape's access to the
Intellect Data via the internet or other means.
(b) Scope of License. The Intellect License does not include,
and Medscape shall not have the right of access to information and data embodied
in the Intellect Database which pertains to territories, locations, activities,
products or individuals outside of the United States of America, unless such
information and data is subsequently licensed by NDC to Medscape.
(c) Update Services NDC will update the repository for the
Intellect Database on a monthly basis. NDC will advise Medscape of the date on
which such periodic updates customarily occur, and whether the Intellect
Database will at any time become unavailable for any extended period as a result
of such updates or otherwise.
(d) Cooperation; New Market Research Products. During the
Term, NDC and Medscape agree to work together and cooperate in good faith to
identify and develop new market research products that combine Medscape's
database information and the Intellect Database. The development of any such
products shall be subject to the Parties' agreement as to Specifications as
provided in Article VIII and as to intellectual property rights as provided in
Article XII.
(e) Updates, Modifications; Copying; Corrections. During the
Term, Medscape shall be entitled to receive and/or have access to the most
current version or compilation of the Intellect Database which NDC has available
and uses for its own internal purposes, and has the right to use the same
pursuant to the terms of Section 2.1(a). Medscape may not copy the Intellect
Database except as necessary to effectuate its license under Section 2.1(a), or
for maintenance, backup, test and disaster recovery
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purposes. If, at any time during the Term, the Intellect Database (or the media
on which it is contained) (x) fails through no fault of Medscape to perform in a
reasonably effective and consistent manner, or (y) is found to contain any
material error, bug, virus or other material defect, then in either case, NDC
will correct such failure to perform, material error, bug, virus or other
material defect at no charge to Medscape or, if unable to do so, within
forty-five (45) days, will refund to Medscape a pro-rata portion of the
Intellect License Fee (such proration to be based on the Initial Term).
(f) Approval for AMA Sublicense. The Parties recognize that,
pursuant to the terms of the AMA License, the consent of the American Medical
Association ("AMA") may be required in connection with, and as a condition to
the effectiveness of, the AMA Sublicense. Promptly upon execution hereof, NDC
shall exercise (or cause its Affiliates to exercise) best efforts to obtain any
such consent, which consent shall, in all events, be sufficient, in Medscape's
sole and absolute discretion, to secure the scope of use or uses of the AMA-PPD
(as defined in the AMA Sublicense) required by Medscape. In the event that any
consent required by the AMA as a condition to the effectiveness of the AMA
Sublicense cannot be or is not obtained by July 26, 1999, or such consent is not
sufficient, in Medscape's sole and absolute discretion, to secure the scope of
use or uses which it requires, then the provisions of Section 1(b) of Exhibit
11.1 shall be applicable.
ARTICLE III.
LYTEC 99
Section 3.1 LYTEC 99. NDC will develop a new version of its
proprietary LYTEC physician practice management software (the existing software
(currently marketed as "Lytec Medical 98(TM)") is referred to as "LYTEC" in this
Agreement, and the new version thereof referred to as "LYTEC 99") that will
include Medscape Website integration capability developed in accordance with
specifications and a project timetable to be mutually developed and agreed by
the Parties (the "LYTEC 99 Specifications") by no later than August 1, 1999.
Section 3.2 LYTEC 99 Specifications and Terms. Unless NDC and
Medscape otherwise agree, the following terms shall be applicable to LYTEC 99:
(a) Release Date. LYTEC 99 will be ready for full commercial release by no
later than September 30, 1999;
(b) Integration of Medscape. LYTEC 99 will include, and the LYTEC 99
Specifications will specify, an integrated web browser function, a
direct access function (via hotlink) to a Medscape Website, and an
optional internet service provider service.
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(c) Exclusivity. From the Effective Date until September 30, 2000 (the
"LYTEC 99 Exclusivity Period"), NDC agrees that the Medscape Website
designated by Medscape will be the sole and exclusive website providing
Healthcare Clinical Content integrated into LYTEC 99. During the LYTEC
99 Exclusivity Period, NDC covenants that it will not integrate (or
permit, or enter into any discussions concerning, the integration of)
any Healthcare Clinical Content into LYTEC 99 other than the content
contained in the relevant Medscape Website designated by Medscape.
(d) Right of First Negotiation. NDC hereby grants Medscape the exclusive
right of first negotiation to extend the LYTEC 99 Exclusivity Period on
mutually agreeable terms. If Medscape wishes to extend the LYTEC
Exclusivity Period, it shall give notice to NDC to this effect not less
than one hundred and twenty (120) days prior to the end of the LYTEC 99
Exclusivity Period. Within a reasonable time after delivery of such
notice, the Parties shall in good faith meet or discuss as often as is
necessary to reach mutual agreement on specific extension terms. If no
agreement can be reached following good faith negotiations on or before
the end of the LYTEC 99 Exclusivity Period, either Party may elect by
written notice to the other to discontinue further discussions. From
the date on which Medscape gives notice of its intent to extend, and
until such time as the earlier of either the date on which the original
LYTEC Exclusivity Period Ends or the date on which good faith
negotiations between the Parties are discontinued as aforesaid, NDC
covenants and agrees that it shall not enter into any discussions with,
or make any offer to, any third party with respect to the integration
of any website providing Healthcare Clinical Content into LYTEC 99. If
Medscape does not give notice to NDC of its desire to extend the LYTEC
99 Exclusivity Period Agreement at least ninety (90) days prior to the
end of the LYTEC 99 Exclusivity Period, Medscape will be deemed to have
waived its right of first negotiation under this Section 3.2(d), and
NDC shall be free to negotiate with third parties.
Section 3.3 License. For purposes of integrating the relevant
Medscape Website in LYTEC 99, Medscape grants to NDC during the Term a
non-exclusive, royalty free, fully paid and non-assessable license, to use,
execute and display, and/or otherwise to incorporate and display within LYTEC
99, such of Medscape's computer programs (such as Java applets), Trademarks,
designs, content and other intellectual property as Medscape may deem necessary
or appropriate to fully effect the integration of such Medscape Website into
LYTEC 99. The foregoing license shall be subject to the other terms of this
Agreement and such other terms as may be agreed by the Parties in the LYTEC 99
Specifications.
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ARTICLE IV
LYTEC/WEB.
Section 4.1 LYTEC/Web. NDC intends to develop a fully
web-enabled version of LYTEC (hereinafter referred to as "LYTEC/Web") that will
include Medscape Website integration capability developed in accordance with
specifications and a project timetable to be mutually developed and agreed by
the Parties (the "LYTEC/Web Specifications").
Section 4.2 LYTEC/Web Specifications and Terms. If LYTEC/Web
is developed by NDC, the following terms shall be applicable to LYTEC/Web unless
NDC and Medscape otherwise agree:
(a) Specifications. LYTEC/Web will include, and the LYTEC/Web
Specifications will specify: (i) a direct access function (via hotlink)
to a Medscape Website designated by Medscape; (ii) in-context,
integrated links to such Medscape Website from within the point-of-care
clinical features of LYTEC/Web (e.g., relevant Medscape content will be
automatically displayed when users insert ICD-9 codes); (iii)
navigational features, such as hypertext links, permitting direct
access to LYTEC/Web from within such Medscape Website; and (iv) a
feature permitting individual users to select a Medscape Website
specialty page.
(b) Exclusivity. Subject to Section 4.2(c) below, from the Effective Date
and until September 30, 2000 (the "LYTEC/Web Exclusivity Period"), NDC
agrees that the Medscape Website which Medscape designates will be the
sole and exclusive website providing Healthcare Clinical Content
integrated into LYTEC/Web. During the LYTEC/Web Exclusivity Period, NDC
covenants that it will not integrate (or permit, or enter into any
discussions concerning, the integration of) any website providing
Healthcare Clinical Content into LYTEC/Web other than such Medscape
Website.
(c) Right of First Negotiation. NDC hereby grants Medscape the exclusive
right of first negotiation to extend the LYTEC/Web Exclusivity Period
on mutually agreeable terms. If Medscape wishes to extend the LYTEC/Web
Exclusivity Period, it shall give notice to NDC to this effect not less
than one hundred twenty (120) days prior to the end of the LYTEC/Web
Exclusivity Period. Within a reasonable time after delivery of such
notice, the Parties shall in good faith meet or discuss as often as is
necessary to reach mutual agreement on specific extension terms. If no
agreement can be reached following good faith negotiations on or before
the end of the LYTEC/Web Exclusivity Period, either Party may elect by
written notice to the other to discontinue further discussions. From
the date on which Medscape gives notice of its intent to extend, and
until such time as the earlier of either the date on which the original
LYTEC/Web Exclusivity Period Ends or the date on which good
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faith negotiations between the Parties are discontinued as aforesaid,
NDC covenants and agrees that it shall not enter into any discussions
with, or make any offer to, any third party with respect to the
integration of any website providing Healthcare Clinical Content into
LYTEC/Web. If Medscape does not give notice to NDC of its desire to
extend the LYTEC/Web Exclusivity Period at least ninety (90) days prior
to the end of the LYTEC/Web Exclusivity Period, Medscape will be deemed
to have waived its right of first negotiation under this Section
4.2(c), and NDC shall be free to negotiate with third parties.
Section 4.3 License. If LYTEC/Web is developed by NDC, for
purposes of integrating a Medscape Website to be designated by Medscape in
LYTEC/Web, Medscape agrees that it shall grant to NDC during the Term a
non-exclusive, royalty free, fully paid and non-assessable license to use,
execute and display, and/or otherwise to incorporate and display within
LYTEC/Web, such of Medscape's computer programs (such as Java applets),
Trademarks, designs, content and other intellectual property as Medscape may
deem necessary or appropriate to fully effect the integration of such designated
Medscape Website into LYTEC/Web. The foregoing license shall be subject to the
other terms of this Agreement and such other terms as may be agreed by the
Parties in the LYTEC/Web Specifications.
ARTICLE V
WEB-ENABLING OF OTHER NDC PRODUCTS.
Section 5.1 Web-Enabling of Other NDC Products. NDC also
intends to develop (or has already developed) and make available separately, or
in bundled packages, web-enabled versions of its products known as NDC Connect,
NDC Assist, Intellect Q&A, Practice Analyzer, Medication Manager, and certain
credit card services (such products as so enabled, collectively, the "Other NDC
Products"). Subject to the Parties' agreement as to Specifications pursuant to
Article VIII, and the other terms and conditions of this Agreement, the Parties
intend that any web-enabled Other NDC Products may be modified to include an
integrated function permitting users thereof to directly access a Medscape
Website designated by Medscape, and that such Medscape Website may include
navigational features, such as hypertext links, permitting direct access to
Other NDC Products.
ARTICLE VI
JOINTLY DEVELOPED PRODUCTS.
Section 6.1 Jointly Developed Products. (a) General Terms.
Subject to Article VIII and the other terms and conditions of this Agreement,
NDC and Medscape intend and agree to work together and cooperate in good faith
during the Term to jointly
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identify market opportunities and, based on such opportunities, if any, to
jointly develop, market and sell new products (collectively, the "Jointly
Developed Products"). The Parties will agree at the time of development of any
Jointly Developed Products on appropriate compensation levels, ownership
interests, and licenses for each Jointly Developed Product. Jointly Developed
Products may include (x) new, web-enabled versions of products and applications
that will be integrated with various features and functions of a Medscape
Website which Medscape designates; (y) new products and applications targeted at
the consumer market; and (z) database and data management projects and products
targeted at pharmaceutical manufacturers. The Jointly Developed Products may
include products that integrate Medscape content and databases and NDC products
and databases.
(b) Consumer Products. Jointly Developed Projects for the
consumer audience may include NDC's prescription adherence/compliance tool
called Care Alert, which the Parties acknowledge will initially target consumers
and the prescription refill market. If the Parties mutually agree, Care Alert
may also target the physicians market by leveraging other NDC and Medscape tools
and services. The Parties further acknowledge that the consumer-based Care Alert
product is currently in prototype and is expected to launch in the third quarter
of 1999.
(c) R&D Pipeline Associated with Clinical Trials. NDC agrees
to license to Medscape, and Medscape shall have the right to incorporate, R&D
Pipeline Information for use within a Medscape Website designated by Medscape,
and/or as part of a broader consumer/physician clinical trials product, possibly
in partnership with third-party clinical research organizations involved in
providing clinical trials support, services and products. As used herein, "R&D
Pipeline Information" includes information about the therapeutic use, product
name, generic name, company name, stage of development and source abstracts of,
and NDC's comments regarding, drugs in development, as more particularly
described on Exhibit 6.1(c).
ARTICLE VII
OPERATING GUIDELINES AND DEDICATED RESOURCES
APPLICABLE TO ALL PRODUCTS AND SERVICES
Section 7.1 Operating Guidelines and Dedicated Resources. The
Parties agree that the following general principles and operating guidelines
will be applicable to each of the products and services described in this
Agreement to be developed or in development by NDC, Medscape or the Parties
jointly (including LYTEC 99, LYTEC/Web, and any market research product relating
to the Intellect Database) (collectively, the "Products" and "Services"): (a)
each of the Parties will assign at least one project manager to the development
and deployment of Products and Services; (b) joint senior level management
reviews involving representatives from both Parties will be held at least
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monthly during the Term; and (c) each Party shall provide personnel and
resources at its sole cost and expense unless otherwise agreed.
ARTICLE VIII
DEVELOPMENT OF SPECIFICATIONS;
ADDITIONAL TERMS APPLICABLE TO ALL
PRODUCTS AND SERVICES.
Section 8.1 Development of Product Specifications; Agreement
as to Terms. Each Product or Service to be jointly developed pursuant to this
Agreement shall be based upon detailed, written Specifications to be mutually
agreed by the Parties, as evidenced by written agreements executed by authorized
officers of the Parties. Upon such agreement, such Specifications shall be
deemed appended to and shall form part of this Agreement, and shall be binding
on the Parties for all purposes hereof. Unless and until the relevant
Specifications for a proposed Product or Service have been agreed by the
Parties, neither Medscape nor NDC shall have any obligation under this Agreement
to undertake the development of, or otherwise incur any cost or liability in
connection with, any such proposed Product or Service. The Specifications for
each such Product or Service shall include, at a minimum, provision for the
following, and shall be in addition to any other specific terms expressly
provided with respect to such Product or Service in this Agreement:
(a) Business Plan. An initial business plan establishing, among other
things, projected funding requirements, allocation of development costs
and other expenses, schedule for product development, production and
initial product launch, and projected pricing, sales volume and revenue
for such Product or Service;
(b) Technical Specifications. A summary of the technical specifications for
such Product or Service, including the architectural and graphical
design components thereof (including specifications for any Medscape or
third party components and integration requirements); and guidelines
and specifications, based upon generally accepted technical standards
applicable to the computer program and internet industry, pertaining to
acceptance testing and performance criteria for the Product or Service;
(c) Marketing and Support Plan. Subject to the general covenants and
agreements of the Parties set forth in Article X (Marketing), a
marketing and support plan for such Product or Service;
(d) Distribution, Licensing and Exclusivity. Distribution, licensing and
exclusivity terms applicable to such Product or Service, including
distribution territories, it being
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acknowledged, however, that the initial distribution territory for the
Products and Services now contemplated by the Parties will be North
America;
(e) Branding. Subject to the general covenants and agreements of the
Parties set forth in Article XIII (Branding), the terms on which such
Product or Service will be branded;
(f) Economic Rights. The respective economic rights of, or compensation due
to, the Parties in connection with the sale, licensing or other
distribution of such Product or Service, which may be based, without
limitation, on principles of revenue sharing, royalty, or bounty;
(g) Rights on Termination; Restrictions. The respective ownership interests
of the Parties in the relevant Product or Service (to the extent
applicable), and the respective rights of the Parties in and to such
Product or Service, both during the Term and upon any termination or
other expiration of this Agreement, which rights may be subject to
reasonable restrictions on each Party's right to sell, license or
assign its respective interest in such Product or Service to third
parties, or reciprocal rights of forced sale or co-sale; and
(h) Licensing of Intellectual Property or Other Proprietary Rights. To the
extent the intellectual property or other proprietary rights of a Party
are required to be used in connection with any such Product or Service
owned or to be owned by the other Party (for example, the use of
Medscape's Trademarks and content when the same are required to be
integrated in any of NDC's proprietary computer programs), the terms on
which such Party's intellectual property or other proprietary rights
will be licensed to the other Party.
In the event of any conflict between the terms of this Agreement and the terms
of any Specifications subsequently agreed by the Parties, the terms of the
Specifications shall be controlling.
ARTICLE IX
PREFERRED PARTNER STATUS
Section 9.1 Provision by NDC of Electronic Data Interchange
Services. Medscape hereby grants to NDC, during the Term, the right of first
negotiation to provide, on a product-by-product basis, the clinical data
interchange and data management services ("EDI Services") to Medscape in the
United States. If, at any time during the Term, Medscape (in this capacity and
for this purpose, Medscape is referred to as an "Offering Party") requires EDI
Services in the United States from a third party, it shall provide written
notice to NDC (in this capacity and for this purpose, NDC is referred to as
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a "Notified Party"). Medscape's notice to NDC shall include a statement that NDC
is being offered the right to provide EDI Services to Medscape in the United
States, and setting forth the proposed terms and conditions of NDC's provision
thereof, including as relates to timing, pricing, content, quality and feature
requirements. The provisions of Section 9.3 shall thereafter be applicable.
Section 9.2 Provision by Medscape of Clinical Content and
Information Services. NDC hereby grants to Medscape during the Term the right of
first negotiation to provide Healthcare Clinical Content ("HCC Services") to NDC
Healthcare Products in the United States. If, at any time during the Term, NDC
(in this capacity and for this purpose, NDC is referred to as an "Offering
Party") requires HCC Services with respect to one or more of its Healthcare
Products in the United States from a third party, it shall provide written
notice to Medscape (in this capacity, and for this purpose, Medscape is referred
to as a "Notified Party"). NDC's notice shall include a statement that Medscape
is being offered the right to provide HCC Services with respect to the relevant
NDC Healthcare Product(s) in the United States, and setting forth the proposed
terms and conditions of Medscape's provision thereof, including as relates to
timing, pricing, content, quality and feature requirements. The provisions of
Section 9.3 shall thereafter be applicable.
Section 9.3 Terms Applicable to Medscape's and NDC's
Respective Rights of First Negotiation. Within a reasonable time after delivery
of the Offering Party's notice, the Parties shall enter into good faith
discussions for a period not to exceed thirty (30) days to determine whether the
Notified Party is able to meet the proposed terms and conditions specified in
the Offering Party's notice. If the Notified Party determines that it is unable
to provide the services requested in the Offering Party's notice on all of the
terms and conditions specified in the Offering Party's notice, or the Parties
cannot otherwise agree on different or modified terms prior to the end of such
thirty (30) day period, then either Party may elect by written notice to the
other to discontinue further discussions. From the date on which the Offering
Party gives notice to the Notified Party of the Offering Party's proposed terms
and conditions until the end of the foregoing thirty (30) day period (or, if
earlier, the date on which either Party gives notice that discussions are to be
discontinued), the Offering Party covenants and agrees that it shall not enter
into any discussions with, or make any offer to, any third party with respect to
the provision of the services specified in the Offering Party's notice. If no
agreement can be reached by the Parties by the end of the foregoing thirty (30)
day period, the Offering Party shall have the right, without any further
obligation to the Notified Party hereunder, to seek the services of and to
retain any third-party provider of the services specified in the Offering
Party's notice.
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ARTICLE X
MARKETING, PROMOTION, SUPPORT.
Section 10.1 General Marketing, Promotional and Support
Responsibilities. During the Term, each of the Parties covenants and agrees to
exercise its reasonable, good faith commercial efforts to market and promote the
products and services of the other, as well as the Products and/or Services
developed or to be developed pursuant to this Agreement. The Parties further
covenant and agree that they shall cooperate in good faith to develop and agree
upon a detailed, coordinated marketing and support plan for each of such
Products or Services, which shall include a designation of marketing, sales,
installation, and customer support responsibilities. Unless otherwise agreed by
the Parties, all costs and expenses relating to a Party's marketing and
promotional responsibilities under this Agreement shall be borne exclusively by
such Party. Without limiting the generality of the foregoing, the Parties agree
that, during the term:
(a) Medscape shall market and promote LYTEC 99, LYTEC/Web and NDC Connect
to its registered physician members with direct links from Medscape
Websites to NDC's demonstration and processing website, and NDC shall
market and promote LYTEC 99 and LYTEC/Web to all 15,000 of LYTEC's
current licensed sites (which sites support approximately 30,000
users);
(b) NDC shall market and promote Medscape and its products and services to
its existing customer base (including NDC's network of pharmacists and
third-party value-added resellers), and shall exercise good faith,
commercially reasonable efforts to promote Medscape's proprietary
clinical content to other distributors of physician practice management
software which market NDC's EDI Services; and
(c) NDC and Medscape will jointly market LYTEC 99, LYTEC/Web, NDC Connect,
NDC Assist, Medscape and an internet service provider to both Parties'
prospective customers.
Section 10.2 Agreement as to Specific Marketing Plans. In
furtherance of the foregoing Section 10.1, the Parties shall agree upon
marketing plans at the beginning of each year of the Term, including provisions
as to timing, budget, and scope, which plans shall upon agreement by the Parties
be deemed incorporated in this Agreement by reference. On or before the date
which is thirty (30) days after the Effective Date, the Parties shall cooperate
in good faith and shall agree upon a marketing plan for the initial one-year
period following the Effective Date.
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ARTICLE XI
FEES; NDC DISTRIBUTION COMMISSION; REPORTING.
Section 11.1 Fees; Payments. The Parties acknowledge and agree
that the payments, commissions, fees and credits set out in Exhibit 11.1
attached hereto shall be applicable to the transactions contemplated in this
Agreement and the relationships being established hereby and by the Stock
Purchase Agreement.
Section 11.2 Payment Terms; Taxes. All payments due by a Party
to the other Party under this Article XI are stated and payable in U.S. dollars
and shall be paid to such account and using such means as the Parties shall from
time to time notify each other in writing. Amounts subject to NDC Distribution
Commissions and received by Medscape during each Medscape Reporting Period shall
be paid to NDC within thirty (30) days after the end of such Medscape Reporting
Period, but only to the extent that amounts due and owing to NDC in any such
Medscape Reporting Period actually exceed the amount of any outstanding credit
allocable to the advance payment of NDC Distribution Commissions as provided in
Exhibit 11.1. Each such payment shall be accompanied by a copy of the report
specified in Section 11.3. Amounts subject to EDI Services Commissions and
received by NDC during each NDC Reporting Period shall be paid to NDC within
thirty (30) days after the end of such NDC Reporting Period. Each such payment
shall be accompanied by a copy of the report specified in Section 11.5.
Section 11.3 Reporting by Medscape for purposes of Calculating
NDC Distribution Commissions. Within thirty (30) days after the end of each
calendar quarter during the Term (each such quarterly period a "Medscape
Reporting Period" with the first such Medscape Reporting Period to end on the
last day of the first full calendar quarter to occur after any amounts subject
to NDC Distribution Commissions are first received by Medscape), Medscape shall
send a statement to NDC summarizing, and certifying as to, the information used
by Medscape to calculate the NDC Distribution Commissions payable to NDC for
such Medscape Reporting Period in order to confirm the actual amounts received
or projected to be received by Medscape during the applicable Medscape Reporting
Period for each category in respect of which an NDC Distribution Commission is
payable as provided in Exhibit 11.1.
Section 11.4 Audit Rights. Medscape will maintain for at least
three (3) years its records, contracts and accounts relating to each transaction
in respect of which an NDC Distribution Commission is payable by Medscape
hereunder, and will permit examination not more frequently than once per
calendar year of that information upon reasonable request and during normal
business hours by NDC and/or an independent auditor reasonably acceptable to
both Parties, who shall agree to be bound by the confidentiality obligations set
forth in Article XIV (an "Independent Auditor"). In addition, NDC shall be
entitled annually to appoint an Independent Auditor to audit the books of
account of Medscape, at NDC's expense, during normal business hours, with at
least two weeks' prior
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notice. If during the course of such audit, it is discovered that Medscape has
underpaid NDC by an amount in excess of five percent (5%) of the amount
determined to be due for the audited period, then the cost of such audit shall
be borne by Medscape. Furthermore, any error discovered by the Independent
Auditor shall be promptly remedied by Medscape after receipt of notice from NDC.
Section 11.5 Reporting by NDC for purposes of Calculating EDI
Services Commissions. Within thirty (30) days after the end of each calendar
quarter during the Term (each such quarterly period an "NDC Reporting Period"
with the first such NDC Reporting Period to end on the last day of the first
full calendar quarter to occur after any amounts subject to EDI Services
Distribution Commissions are first received by NDC), NDC shall send a statement
to Medscape summarizing, and certifying as to, the information used by NDC to
calculate the EDI Services Commissions payable to Medscape for such NDC
Reporting Period in order to confirm the actual amounts received or projected to
be received by NDC during the applicable NDC Reporting Period for each category
in respect of which an EDI Services Commission is payable as provided in Exhibit
11.1.
Section 11.6 Audit Rights. NDC will maintain for at least
three (3) years its records, contracts and accounts relating to each transaction
in respect of which an EDI Services Commission is payable by NDC hereunder, and
will permit examination not more frequently than once per calendar year of that
information upon reasonable request and during normal business hours by Medscape
and/or an Independent Auditor. In addition, Medscape shall be entitled annually
to appoint an Independent Auditor to audit the books of account of NDC, at
Medscape's expense, during normal business hours, with at least two weeks' prior
notice. If during the course of such audit, it is discovered that NDC has
underpaid Medscape by an amount in excess of five percent (5%) of the amount
determined to be due for the audited period, then the cost of such audit shall
be borne by NDC. Furthermore, any error discovered by the Independent Auditor
shall be promptly remedied by NDC after receipt of notice from Medscape.
ARTICLE XII
INTELLECTUAL PROPERTY RIGHTS
Section 12.1 NDC Owned Materials. NDC owns all copyright and
other proprietary rights in its intellectual property (including the Intellect
Database, LYTEC, LYTEC 99 and LYTEC/WEB, all other extensions and derivative
works thereof created solely by NDC), all of the other materials NDC licenses or
otherwise supplies or makes available to Medscape under this Agreement,
including all NDC Healthcare Products (but subject to Medscape's rights to any
Medscape Materials integrated therein), other computer programs, and all of
NDC's content and its Trademarks (including as may be integrated in any Medscape
Website), (the foregoing, collectively, the "NDC Materials").
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Subject to the grants of license and assignments of ownership rights made
pursuant to this Agreement, NDC retains sole and exclusive ownership of all
right, title and interest in and to the NDC Materials and all copies thereof.
Section 12.2 Medscape-Owned Materials. Medscape owns all
copyright and other proprietary rights in all of its intellectual property and
all of the materials Medscape licenses or otherwise supplies or makes available
to NDC under this Agreement, including all Medscape Websites, all computer
programs, all Medscape Content, Medscape's Trademarks (including as may be
integrated in LYTEC 99, LYTEC/WEB and any NDC Healthcare Products), and customer
and professional data (all of the foregoing, collectively, the "Medscape
Materials"). Subject to the grants of license and assignments of ownership
rights made pursuant to this Agreement, Medscape retains sole and exclusive
ownership of all right, title and interest in and to the Medscape Materials and
all copies thereof
Section 12.3 Shared Materials. Each Party shall contribute
materials pursuant to this Agreement which are to be used jointly throughout the
Term (collectively, the "Shared Materials"). Except as provided to the contrary
in Section 12.4 as to Jointly Developed Products or as otherwise agreed by the
Parties in any applicable instance (and then only to the extent agreed by the
Parties), each Party retains ownership of whatever material that Party
contributed to the Shared Materials pursuant to this Agreement both during the
Term and thereafter, and each Party may re-implement or otherwise use its
respective portion of the Shared Material both during and after the Term. Under
no circumstances will either Party use after the Term any portion of the Shared
Materials that the other Party contributed to the Shared Materials.
Section 12.4 Ownership of Jointly Developed Product; Related
Rights. Medscape and NDC shall agree in advance as to ownership of Jointly
Developed Products pursuant to Section 6.1. The Parties agree to assist each
other in making such filings, and preparing such information, as may be required
to register and protect any intellectual property rights in the Jointly
Developed Products.
Section 12.5 Trademarks and Uniform Resource Locators
("URLs"). Medscape owns all rights in its Trademarks and URLs, and NDC owns all
rights in its Trademarks and URLs.
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ARTICLE XIII
TRADEMARKS; COPYRIGHT NOTICES; BRANDING; CONTENT
Section 13.1 Branding of Joint Products. The Parties intend
and agree that NDC and Medscape will each receive prominent branding for the
Jointly Developed Products.
Section 13.2 Incorporation of Marks. Medscape and NDC shall
incorporate the other's Trademarks as they may mutually agree in good faith,
provided that each of Medscape and NDC shall comply with such restrictions and
requirements as may be notified to it from time to time by the other with
respect to the use of the same. Neither Party shall incorporate the other's
Trademarks without first submitting a sample of the use to the Trademark owner
and obtaining written consent.
Section 13.3 Mutual Covenants as to Marks and Notices. NDC
covenants and agrees that it shall not knowingly delete any Trademarks or
copyright notices of Medscape or any of its Affiliates, or otherwise use without
Medscape's consent any of Medscape's or its Affiliates' Trademarks or other
identifiers in any manner other than as is expressly provided by this Agreement.
Medscape covenants and agrees that it shall not knowingly delete any Trademarks
or copyright notices of NDC or its Affiliates, or otherwise use without NDC's
consent any of NDC's or its Affiliates' Trademarks or other identifiers in any
manner other than as is expressly provided by this Agreement. If either Party
for any reason deletes or causes the deletion of any Trademark or copyright
notice of the other Party or any of its Affiliates, such Party shall, upon
notice by the affected Party, promptly take such reasonable remedial actions as
the affected Party may request.
Section 13.4 Editorial and Artistic Control. Medscape will
have exclusive editorial and artistic control over the selection of any of its
intellectual property or other proprietary materials (including Trademarks and
Medscape Content) integrated or appearing in any of the Products or Services
developed or to be developed under this Agreement, and the determination of the
design and look and feel of all visual elements relating to such proprietary
materials (including any in-context, integrated links to any Medscape Website
from within any such Products). NDC will have exclusive editorial and artistic
control over the selection of any of its intellectual property and other
proprietary materials (including Trademarks and content) integrated or appearing
in any of the Products or Services developed or to be developed under this
Agreement, and except as provided in the immediately following sentence and the
provisos thereto, the determination of the design and look and feel of all
visual elements relating to such proprietary materials. Medscape shall have the
right, in its discretion, to determine the visual elements, the placement, and
the design and look and feel, of such of NDC's proprietary materials as may
appear or be integrated in any Medscape Website, provided that Medscape shall
have no right to request the alteration or other modification of any of NDC's
Trademarks,
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and provided further, that NDC shall have the right to approve any such
determination (which shall not be unreasonably withheld or delayed).
ARTICLE XIV
CONFIDENTIALITY; NON-COMPETE
Section 14.1 Confidentiality Obligations. Each Party
acknowledges that it and its subcontractors (if any) have had prior to the
Effective Date, and in performing its obligations under this Agreement, it and
its subcontractors (if any) will have access to or be directly or indirectly
exposed to Confidential Information. Except as may be required to comply with
any valid legal requirement, each Party covenants and agrees that it shall hold
confidential all Confidential Information and shall not use or disclose such
Confidential Information without the express consent of the disclosing Party.
Each Party shall take reasonable measures and efforts to provide protection for
the disclosing Party's Confidential Information, including measures at least as
strict as those the receiving Party uses to protect its own Confidential
Information. Such measures will include requiring employees and any independent
contractors to sign a non-disclosure agreement before obtaining access to the
disclosing Party's Confidential Information. The confidentiality obligations of
the Parties shall survive any termination or other expiration of this Agreement.
Section 14.2 Confidential Information. "Confidential
Information" means information in the possession or under the control of a Party
relating to a Party's technical, marketing, product and business affairs,
including customer, prospect, price, and other proprietary and trade secret
information, whether oral, graphic, written, electronic or in machine readable
form, and includes all computer programs (and source code therefor).
Confidential Information shall also include all proposals, plans, programs,
analyses, compilations, forecasts, studies or other documents prepared by a
Party or by them jointly relating to the subject matter of this Agreement
(including as relates to product development and deployment). In the case of
Medscape, Confidential Information includes the Medscape Content, member
information and other customer and user information, including any information
pertaining to usage of Medscape Websites. Confidential Information does not
include information which (A) was known to the receiving Party or in the public
domain before disclosure; (B) becomes part of the public domain after disclosure
by a publication or other means except by a breach of this Agreement by the
receiving Party, (C) was received from a third party under no duty or obligation
of confidentiality to the disclosing Party, or (D) was independently developed
by the receiving Party without reference to Confidential Information. Upon
termination or other expiration of this Agreement, all Confidential Information
disclosed by a Party to a receiving Party will be returned to the disclosing
Party or, upon the request of the disclosing Party, will be promptly destroyed
and certified as destroyed by the receiving Party. The disposition of
Confidential Information in which both of the Parties have proprietary or other
rights shall
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be determined by the Parties in good faith upon termination or expiration of
this Agreement.
Section 14.3 Exclusivity; Non-Competition Covenants as to NDC.
NDC hereby agrees for itself and on behalf of its Affiliates, that it shall not
independently or in connection with any other Person, directly or indirectly
until the end of the Term integrate NDC Connect or NDC Assist into any
Healtheon/WebMD service.
Section 14.4 Exclusivity; Non-Competition Covenants as to
Medscape. Medscape hereby agrees for itself and on behalf of its Affiliates,
that it shall not independently or in connection with any other Person, directly
or indirectly until the end of the Term:
(i) integrate any of Medscape's proprietary content in any Quintiles/Envoy
service (other than Quintiles business as a clinical research
organization, providing clinical trials services, goods, and support to
the pharmaceutical industry and other organizations involved medical
research) or in IMS Health; or
(ii) integrate Healtheon/WebMD EDI services into Medscape Web Sites.
Notwithstanding the foregoing, Medscape retains the right to license
its content to any other third party.
Section 14.5 Acknowledgment; Construction; Severability. Each
Party acknowledges that the other's business, insofar as its relates to
provision of content and services over the World Wide Web of the internet, is
global in scope, and that, accordingly, competition with such other Party's
business is possible from nearly every part of the world. Each Party further
acknowledges and agrees that the restrictions set forth in Section 14.3 as to
NDC and Section 14.4 as to Medscape are reasonable in scope and duration and are
necessary to protect, and to enable the other to receive the anticipated
benefits of this Agreement and the arrangements contemplated hereby. The Parties
agree that, if any of the length of time, the geographical area, the scope or
another parameter of the restrictions set forth in either or both of the
foregoing Sections 14.3 and 14.4 above is deemed to be unlawfully restrictive by
a court of competent jurisdiction, such provision shall be deemed to be amended
and shall be construed by such court to have the broadest type, scope and
duration permissible under applicable law, and if no validating construction is
possible, shall be severable from the rest of this Agreement, and the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
Section 14.6 Specific Performance. The Parties recognize that
the performance of the obligations by the Parties of their respective
obligations under this Article XIV is special, unique and extraordinary in
character. In addition to such other rights and remedies as a non-breaching
Party may have at equity or in law with respect
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to any breach of this Agreement, if a Party commits a breach of any of the
provisions of this Article XIV, the non-breaching Party shall have the right and
remedy to have such provisions specifically enforced by any court of competent
jurisdiction or to enjoin the breaching Party from performing any act being
taken by the breaching Party in violation of this Article XIV, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the non-breaching Party, its business, proprietary marks
and brands, and the goodwill associated therewith and that money damages will
not provide an adequate remedy to the non-breaching Party.
ARTICLE XV
REPRESENTATIONS, WARRANTIES, COVENANTS, AND INDEMNITIES
Section 15.1 NDC. NDC represents, warrants, and covenants (for
itself, and in the case of Section 15.1(b), for and on behalf of NDCHIS) to
Medscape as follows:
(a) NDC has full authority to enter into this Agreement, and
the person signing on behalf of NDC is authorized to sign on NDC's behalf;
(b) the license between NDC Health Information Services
(Arizona) Inc., a wholly-owned subsidiary of NDC ("NDCHIS"), and the American
Medical Association, dated as of January 1, 1998 (the "AMA License")(a true,
complete and accurate copy of which has been previously provided to Medscape) is
in full force and effect. Neither NDCHIS nor NDC is in breach or default, and
upon giving effect to the AMA Sublicense, will not be in breach or default, of
any of the material terms and conditions thereof. Upon receipt of AMA's consent
to the terms of the AMA Sublicense (if required), NDCHIS will have the right and
authority under the terms of the AMA License to sublicense its rights under the
AMA License to Medscape pursuant to the terms of the AMA Sublicense. The terms
of the AMA Sublicense do and shall comply in all respect with the terms or
conditions specified with respect thereto in the AMA License, and upon execution
of the AMA Sublicense by Medscape and NDCHIS, Medscape will be a duly authorized
sublicensee of NDCHIS, in accordance with and subject to the terms thereof and
the AMA License.
(c) NDC is the owner, or has the right to use, license,
reproduce, and distribute all materials and methodologies, including computer
programs, used, licensed or supplied by NDC to Medscape;
(d) NDC has the right to authorize Medscape to use, all
materials supplied or licensed by NDC to Medscape pursuant to this Agreement;
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(e) none of the materials that NDC supplies pursuant to this
Agreement infringes or will infringe any copyright, patent, Trademark, trade
secret or other third party proprietary right; and
(f) NDC will comply with all applicable and material federal,
state, and local laws and regulations in the performance of its obligations
under this Agreement, including laws concerning the encryption and import/export
of software products.
Section 15.2 Medscape. Medscape represents, warrants, and
covenants to NDC:
(a) Medscape has full authority to enter into this Agreement,
and the person signing on behalf of Medscape is authorized to sign on Medscape's
behalf;
(b) Medscape is the owner, or has the right to use, reproduce,
and distribute all materials and methodologies, including computer programs used
or supplied by Medscape to NDC in connection with this Agreement;
(c) Medscape has the right to authorize NDC to use all
materials supplied or licensed by Medscape to NDC pursuant to this Agreement;
(d) none of the materials that Medscape supplies to NDC
pursuant to this Agreement infringes or will infringe any copyright, patent,
Trademark, trade secret, or other third party proprietary right; and
(e) Medscape will comply will all applicable and material
federal, state and locals laws and regulations in the performance of its
obligations under this Agreement, including any applicable laws concerning the
encryption and import/export of software products.
Section 15.3 Indemnification. Each Party agrees to defend and
indemnify the other Party, its directors, officers, employees, and agents
against any claim, demand, suit, debt, liability, or costs, including reasonable
attorney's fees ("Losses"), to the extent that it is based on a claim that: (a)
constitutes a breach of the indemnifying Party's warranties, representations,
and undertakings in this Article XV; or (b) arises out of the gross negligence
or willful misconduct of the indemnifying Party in connection with this
Agreement; provided, however, that neither Party shall have any liability for
the breach of any representation or warranty, unless the aggregate of all Losses
for which the indemnifying party would, but for this proviso, be liable, exceeds
on a cumulative basis Two Hundred and Fifty Thousand Dollars ($250,000) Dollars.
Notwithstanding the foregoing:
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(x) NDC shall indemnify, defend and hold harmless Medscape for any Loss
relating to claims asserted by third parties with respect to any breach
of the representations and warranties contained in Section 15.1(a),
(b), (c), (d) and (e), regardless of whether the $250,000 threshold has
been met;
(x) Medscape shall indemnify, defend and hold harmless NDC for any Loss
relating to claims asserted by third parties with respect to any breach
of the representations and warranties contained in Section 15.2(a),
(b), (c) and (d), regardless of whether the $250,000 threshold has been
met;
(y) neither Party shall be liable to the other for Losses exceeding in the
aggregate the sum of Ten Million Dollars ($10,000,000); provided that
NDC's liability to Medscape for Losses relating to claims asserted by
third parties with respect to any breach of the representations and
warranties contained in Section 15.1(a), (b), (c), (d) and (e) shall
not be so limited, and provided further that Medscape's liability to
NDC for Losses relating to claims asserted by third parties with
respect to any breach of the representations and warranties contained
in Section 15.2(a), (b), (c) and (d) shall not be so limited.
Section 15.4 Indemnification Procedures. The Party claiming
indemnification pursuant to Section 15.3 shall notify the other Party promptly
of the claim. The indemnified Party may, at its own expense, assist in the
defense if it so chooses, provided that the indemnifying Party controls the
defense and all negotiations relative to any settlement and further provided
that any settlement intended to bind the indemnified Party is not final without
the indemnified Party's consent.
Section 15.5 Limitation of Liability. EXCEPT AS OTHERWISE
PROVIDED IN SECTION 15.3, THE CUMULATIVE LIABILITY OF EITHER PARTY FOR ALL
CLAIMS RELATING TO, ARISING UNDER, OR IN CONNECTION WITH THIS AGREEMENT, WHETHER
IN CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED $10,000,000 (TEN MILLION UNITED
STATES DOLLARS). NEITHER PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) INCLUDING LOSS OF
REVENUE, LOSS OF DATA, OR ANTICIPATED PROFITS OR LOST BUSINESS.
ARTICLE XVI
TERM AND TERMINATION
Section 16.1 Term. This Agreement will begin on the date
signed by both of the Parties, with effect as of Effective Date and, unless
sooner terminated, shall continue until the date which is three (3) years from
the Effective Date (the "Initial Term",
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and together with any subsequent extension or renewal hereof as may be agreed by
the Parties, the "Term").
Section 16.2 Termination for Breach. Either Medscape or NDC
may terminate this Agreement on thirty (30) days' notice if the other materially
breaches any of its obligations hereunder unless the breach is cured within the
thirty (30) day period. Either Party may terminate this Agreement or revert any
of the licenses granted to the other Party hereunder effective immediately upon
written notice if the other Party breaches any of its obligations under Article
XIV (Confidentiality; Non-Compete).
Section 16.3 Bankruptcy and Related Events. Notwithstanding
the provisions of Section 16.2, either Party may terminate this Agreement,
effective immediately upon written notice, if (a) all or a substantial portion
of the other Party's assets are transferred to an assignee for the benefit of
creditors or to a receiver or trustee in bankruptcy; (b) a proceeding is
commenced by or against the other Party for relief under the bankruptcy or
similar laws and such proceeding is not dismissed within thirty (30) days; or
(c) the other Party is adjudged bankrupt or insolvent.
Section 16.4 Obligations Upon Termination or Expiration. Upon
termination or expiration of this Agreement, (a) NDC shall immediately return to
Medscape all copies of the Medscape Confidential Information in NDC's possession
or control; and (b) Medscape shall immediately return to NDC all copies of the
NDC Confidential Information. In addition, each Party shall promptly pay to the
other Party any and all amounts due and owing by such Party to such other Party
for all periods up to and including the date of termination or expiration.
Section 16.5 Survival. The provisions of Section 11.4, Section
11.6, Article XII, Article XIII, Section 14.1, Section 14.2, Section 14.6,
Section 15.3, Section 15.4, Section 15.5, Section 16.4, Section 17.8, and any
other provision of this Agreement necessary for the interpretation of any of the
foregoing shall survive the termination or expiration of this Agreement.
ARTICLE XVII
GENERAL PROVISIONS
Section 17.1 No Joint Venture Created. Nothing in this
Agreement shall be construed so as to constitute NDC and Medscape as joint
venturers, partners, or agents of each other, and neither NDC nor Medscape shall
have the power to obligate or bind the other in any way whatsoever.
Section 17.2 Entire Agreement. This Agreement constitutes the
complete agreement between the Parties and supersedes all other agreements,
promises,
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representations, and negotiations, whether written or oral, between the Parties
regarding the subject matter of the Agreement. No amendment of this Agreement
shall be valid or take effect unless it is in writing and signed by all the
Parties.
Section 17.3 Assignment. Neither Party may assign this
Agreement (in whole or in part) or any of its rights or obligations hereunder
without the written consent of the other. Any assignment in violation of this
provision will be null and void.
Section 17.4 Waiver. No waiver of any term or condition or of
any breach of this Agreement or of any part of it, shall be deemed a waiver of
any other term or condition or of any later breach of the Agreement or of any
part of it.
Section 17.5 Notices. Any notice, consent, approval or
disapproval, required or permitted under this Agreement, including any change to
this Section 17.5, shall not be valid unless in writing and shall be given
either: (i) personally; (ii) by nationally-recognized express courier service,
(iii) by certified mail, return receipt requested, or (iv) by fax (with copy via
any means specified in (i), (ii) or (iii)), in each case, at the following
addresses or telephone and fax numbers:
If to Medscape:
Medscape, Inc.
134 W. 29th Street
New York, New York 10001-5399
Attn: Paul Sheils
Phone: (212) 760-3200
Fax: (212) 265-9228
with a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, New York 10036
Attn: John P. Schmitt
Phone: (212) 336-2849
Fax: (212) 336-2222
If to NDC:
National Data Corporation
National Data Plaza
Atlanta, Georgia 30329
Attention: Walter M. Hoff
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Tel: (404) 728-2988
Fax: (404) 728-2947
with a copy to:
National Data Corporation
National Data Plaza
Atlanta, Georgia 30329
Attention: Corporate Secretary
Tel: (404) 728-2000
Fax: (404) 728-2990
Notices shall be deemed effective upon receipt or upon refusal to accept receipt
documented by the U.S. Postal Service or nationally recognized courier service.
Section 17.6 Force Majeure. Neither Party shall be deemed in
default of this Agreement to the extent that performance of its obligations or
attempts to cure any breach are delayed, restricted, or prevented by reason of
any act of God or government, fire, natural disaster, labor stoppage, the
failure of necessary power systems or connections, or any other act or condition
beyond the reasonable control of the Parties, provided that the Party so
affected uses its commercially reasonable efforts to avoid or remove the causes
of non-performance and continues performance immediately after those causes are
avoided or removed. Notwithstanding this provision, any delay that exceeds (2)
two months shall entitle the Party whose performance is not affected by the
relevant event of force majeure to terminate the Agreement upon written notice
to the other Party.
Section 17.7 Publicity. A Party may use the name of the other
Party in press releases, sales material and literature only with the written
consent of the other Party. Neither Party may make any public statement or issue
any press release regarding the subject matter of this Agreement (including as
relates to new products or product launches) without the written approval of the
other Party.
Section 17.8 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of New York and of the United
States, without regard to their conflicts of laws provisions. Any controversy or
proceeding arising out of or related to this Agreement shall be brought in the
federal or state courts in the State and County of New York. The Parties
expressly submit to personal jurisdiction and venue in any of those courts and
will not object to such jurisdiction on the ground of forum non conveniens or
otherwise.
Section 17.9 Including. The word "including" shall mean
"including without limitation" and "include(s)" shall mean "include(s)" without
limitation"
26
<PAGE> 27
Section 17.10 Schedules and Exhibits. The Exhibits hereto are
an integral part of this Agreement, and any reference herein to this Agreement
shall be deemed to mean and include a reference to such Exhibits, as may be
supplemented, modified, restated or amended from time to time. The Parties agree
that each such Exhibit is hereby incorporated in this Agreement by reference,
and shall have the same force and effect as if fully set forth in the body
hereof.
Section 17.11 Captions. Headings and captions throughout this
Agreement are for convenience only and should not be considered part of the
Agreement.
Section 17.12 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same document.
Section 17.13 Right of Offset. Medscape shall have the right
to offset against any and all amounts due and owing by Medscape to NDC hereunder
any and all amounts due by NDC to Medscape hereunder. NDC shall have the right
to offset against any and all amounts due and owing by NDC to Medscape hereunder
any and all amounts due by Medscape to NDC hereunder.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
27
<PAGE> 28
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed and delivered on its behalf, as of the date and year first written
above, by its duly authorized representative.
MEDSCAPE INC.
By:
--------------------
Name:
Title:
NATIONAL DATA CORPORATION
By:
--------------------
Name:
Title:
<PAGE> 29
EXHIBIT 2.1(a)-1
to
License and
Product Development
Agreement
INTELLECT Q&A
PRODUCT OVERVIEW
Intellect Q&A allows Medscape to access Practitioner Level Detailing
from the NDC Intellect databases via a web or EICS Client Server deployment.
Users are able to select from a list of pre-written queries/reports and set
specific parameters within each report using a Windows-based, point-and-click
interface.
Through Intellect Q&A, Medscape has access to NDC Health Information
Services multi-terabyte retail prescription database. This database will
significantly aid Medscape in the targeting of Physicians as well as profiling
their writing patterns for up to a full 24 month window. The Intellect
repository is loaded with over 2.4 Billion prescriptions, collected from
approximately 36,000 pharmacies, and covering over 225,000 product variations,
and 1.2 million prescribers.
INTELLECT DELIVERABLE
The Intellect Q&A application comes complete with access to: geographic
level data and analysis, detailed level data subset of Practitioner Database
(requires contract with data agent), and subset of the Drug Database. Client to
furnish the Internet browser IE v3.02 or IE v4.01 for web based implementations,
NDC to furnish OLAP/EIS tool for Client Server implementations.
Intellect Q&A Physician Detailing application comes complete with 17
predefined reports as well as capabilities to create Medscape specific Reports,
Templates, and Filters, thus providing unique combinations of reporting to
support ongoing initiatives.
Intellect Q&A User Manual
Initial Intellect Q&A system training (2 Days)
Intellect Q&A EIS implementation (if needed)
2 Intellect Q&A user Logon ID's and 2 MicroStrategy software licenses
Note:
29
<PAGE> 30
Service is restricted to data which Medscape has purchased already from
NDC. Contracting for additional data elements outside the terms of the
clients data contract is covered in Additional Fees listed below.
INTELLECT PRE-DEFINED PRESCRIBER REPORTS
Lookup: Prescriber Lookup
Class / Specialty: Prescriber List
Class: Region Product Summary
Class: Specialty Summary
Class: State Product Summary
Class: Top 100 Prescribers
Class: Zip Product Summary
Prescriber/Product: Month Summary
Prescriber: Month Summary
Product / Specialty: Prescriber List
Product / State/ Plan : Month Summary
Product / State: Month Summary
Product / State: Pay Type Month Summary'
Product / Zip: Month Summary
Product : Region Summary
Product: Specialty Summary
Product: Top 100 Prescribers
USAGE
The Medscape price is based on 2 user ID's and a maximum of 5 hours
processing time per query, 12,000 row limit per query and 3 simultaneous queries
running per user. System usage will be captured in terms of server DSS
processing seconds, Medscape will not be accountable for system "Wall Time".
Medscape will be allocated 108,000 server DSS seconds per month.
SERVICE PARAMETERS
In providing Intellect Q&A to Medscape, NDC Health Information Services
is committed to delivering the highest level of service and quality. To meet
these service level goals, NDC has established the following basic service level
parameters:
Intellect Q&A will be available on a 5X16 basis (5 days a week, Monday
- Friday, 16 hours.
30
<PAGE> 31
NDC and Medscape will identify and designate one point of contact to
work through customer requests, comments, training issues, installation
issues, product enhancements, and general questions.
NDC will track Medscape usage at the report level. All product usage
will be reported in terms of server DSS utilization seconds.
TRAINING
Price includes 2 day of onsite training and materials in Medscape's New
York offices.
ADDITIONAL FEES
Additional User Fee
Intellect Q&A has been priced for usage by 2 Medscape users, for each
additional user, an additional charge of $5,000 will be assessed per year. The
"additional per user fee" covers the use and maintenance of the NDC Health
Information Services' proprietary Intellect Q&A application, the associated
service level, product support, and DSS software licensing.
The following components are included in the "additional per user fee:"
MicroStrategy software license (DSS Server and DSSWeb or DSS Agent)
MicroStrategy yearly software maintenance
Intellect Q&A processing capacity to support 5X16 availability
Intellect Q&A application (includes interface and predefined analysis
folders and reports)
Initial one (2) day basic user training and materials
Intellect Q&A is a subscription-based service that is driven off of
NDC's Intellect data warehouse infrastructure. The use our sophisticated
relational decision support architecture mitigates the need for our clients to
build, house and maintain an expense and cost prohibitive infrastructure of
their own. The "additional per user fees" allows NDC Health Information Services
to deliver cost effective business intelligence to our clients.
Additional CPU Seconds
Medscape will be accessed $1 US for every server DSS second over the
established threshold. NDC will be accountable for usage monitoring and
reporting to client.
31
<PAGE> 32
Additional Services
Medscape can elect to contract with NDC Health Information Services for
additional Physician Detailing services including Behavioral Segmentation, Early
Adopters Studies, and Quintiling/Deciling. Each service will be priced
independently at NDC Health Information Services most favorable partner pricing.
32
<PAGE> 33
APPENDIX A
to
Exhibit 2.1(a)-1
INTELLECT Q&A REPORT DESCRIPTIONS
LOOKUP ANALYSES
CLASS LIST
Returns a list of all Classes.
CLASS: PRODUCT LIST
Returns a list of NDC's for the selected Class.
NATIONAL: PLAN LIST
Returns a list of Health Plans that are affiliated with the selected
National Plan.
PBM: PLAN LIST
Returns a list of Health Plans that are affiliated with the selected
PBM.
PRESCRIBER LOOKUP
Returns a Prescriber list based on the First Name, Last Name and State
entered.
PRODUCT: NDC LOOKUP
Returns NDC, package size, generic name, and manufacturer code for the
selected drug name.
PRODUCT: NAME LOOKUP
Returns Drug name, package size, generic name and manufacturer code for
the entered NDC.
MARKET ANALYSES
CLASS: NATIONAL PAYER SUMMARY
Returns Rx values for all National Payers for the selected Class and
Time period.
CLASS: PBM SUMMARY
Returns Rx values for all PBM's for the selected Class and Time period.
CLASS: PLAN SUMMARY
Returns Rx values for all Health Plans for the selected Class and Time
period.
CLASS: PRODUCT MONTH SUMMARY
Returns Rx values by Product for selected Class and Time period.
CLASS: PRODUCT SHARE
Returns Rx shares by Product for selected Class and Time period.
33
<PAGE> 34
CLASS: PRODUCT TRX COUNT
Returns TRx Count by Product for the selected Class and Time period.
CLASS: PRODUCT TRX SHARE
Returns TRx Share by Product for the selected Class and Time period.
CLASS: SUMMARY
Returns Rx values for the selected Class and Time Period.
PRESCRIBER: CLASS SUMMARY
Returns all Product Rx values for the selected Class, Time period and
Prescriber ID.
PAYER ANALYSES
CLASS / PLAN: MONTH CHART
Returns TRx count by month for the selected Class, Plan and Time
period.
CLASS / PLAN: MONTH SUMMARY
Returns Rx values for the selected Plan, Class and Time period.
CLASS / PLAN: PRESCRIBER LIST
Returns Rx values for all Prescribers for the selected Class, Plan,
Time period and Specialty.
CLASS: PAYMENT TYPE MONTH SUMMARY
Returns Rx values by Payment Type (Cash, Medicaid, 3rd Party) for the
selected Class and Time period.
CLASS: TRX PAYMENT TYPE
Returns TRx Share by Payment Type (Cash, Medicaid, 3rd Party) for the
selected Class and Time period.
NATIONAL /PRODUCT: PLAN SUMMARY
Returns Rx values by affiliate Health Plan for the selected National
Plan, Product and Time period.
NATIONAL: PLAN SUMMARY
Returns Rx values for all Health Plans that are affiliates of the
selected National Plan.
NATIONAL: PRODUCT SUMMARY
Returns Rx values by Product for the selected National Plan and Time
period.
PBM/PRODUCT: PLAN SUMMARY
Returns Rx values by affiliate Health Plan for the selected PBM,
Product and Time period.
PBM: AFFILIATE PLAN SUMMARY
Returns Rx values for all Health Plans that are affiliates of the
selected PBM.
PBM: PRODUCT SUMMARY
Returns Rx values by Product for the selected PBM and Time period.
PLAN: CLASS SUMMARY
Returns Rx values for the selected Health Plan, Class and Time period.
PLAN: MONTH SUMMARY
34
<PAGE> 35
Returns Rx values for all products (summarized) for the selected Health
Plan and Time period
PLAN: PRODUCT SUMMARY
Returns Rx values by product for the selected Plan and Time period.
PRESCRIBER / CLASS: PLAN LIST
Returns Rx values for all Health Plans for the selected Product,
Prescriber and Time period.
PRESCRIBER / PRODUCT: PLAN LIST
Returns Rx values for all Health Plans for the selected Product,
Prescriber and Time period.
PRESCRIBER: PLAN LIST
Returns Rx values by Plan for all products for the selected Prescriber
and Time Period.
PAYER ANALYSES
PRODUCT / PLAN: MONTH CHART
Returns TRx count by month for the selected Product, Plan and Time
period.
PRODUCT / PLAN: MONTH SUMMARY
Returns Rx values for the selected Plan, Product and Time period.
PRODUCT / PLAN: PRESCRIBER LIST
Returns Rx values for all Prescribers for the selected Product, Plan,
Time period and Specialty.
PRODUCT: ALL PLANS
Returns Rx values for all plans for the selected Product and Time
period.
PRODUCT: PAYMENT TYPE MONTH SUMMARY
Returns Rx values by Payment Type (Cash, Medicaid, 3rd Party) for the
selected Product and Time period.
PRODUCT: TRX PAYMENT TYPE
Returns TRx Share by Payment Type (Cash, Medicaid, 3rd Party) for the
selected Product and Time period.
PRESCRIBER ANALYSES
CLASS / SPECIALTY: PRESCRIBER LIST
Returns Rx values by Prescriber for the selected Class, Time period and
Specialty.
CLASS: SPECIALTY SUMMARY
Returns Rx values and Prescriber Counts by Specialty for the selected
Class and Time period.
CLASS: TOP 100 PRESCRIBERS
Returns Rx values for the Top 100 Prescribers for the selected Class
and Time period.
PRESCRIBER/PRODUCT: MONTH SUMMARY
Returns Rx values for the selected Prescriber, Product and Time period.
PRESCRIBER: MONTH SUMMARY
Returns Rx values by Product for the selected Prescriber and Time
period.
35
<PAGE> 36
PRODUCT / SPECIALTY: PRESCRIBER LIST
Returns Rx values by Prescriber for the selected Product, Time period
and Specialty.
PRODUCT: SPECIALTY SUMMARY
Returns Rx values and Prescriber Counts by Specialty for the selected
Product and Time period.
PRODUCT: TOP 100 PRESCRIBERS
Returns Rx values for the Top 100 Prescribers for the selected Product
and Time period.
PRESCRIBER GEOGRAPHY ANALYSES
CLASS: REGION PRODUCT SUMMARY
Returns Rx values by product for the selected Class, Prescriber Region
and Time period.
CLASS: STATE PRODUCT SUMMARY
Returns Rx values by product for the selected Class, Prescriber State
and Time period.
CLASS: ZIP PRODUCT SUMMARY
Returns Rx values by product for the selected Class, Prescriber State
and Time period.
PRODUCT / STATE/ PLAN: MONTH SUMMARY
Returns Rx values for the selected Product, Prescriber State, Plan and
Time period.
PRODUCT / STATE: MONTH SUMMARY
Returns Rx values for the selected Product, Prescriber State and Time
period.
PRODUCT / STATE: PAY TYPE MONTH SUMMARY
Returns Rx values by Payment Type for the selected Product, Prescriber
State and Time period.
PRODUCT / ZIP: MONTH SUMMARY
Returns Rx values for the selected Product, Prescriber Zip and Time
period.
PRODUCT: REGION SUMMARY
Returns Rx values by Region for the selected Product and Time period.
RX ANALYSES
CLASS: MONTH SUMMARY W/PRSCR COUNT
Returns Rx values and Prescriber counts by month for the selected Class
and Time period.
PRODUCT / STRENGTH: MONTH SUMMARY
Returns Rx values and Prescriber Counts for the selected Product,
Strength and Time period.
PRODUCT: MONTH SUMMARY
Returns Rx values by month for the selected Product and Time period.
PRODUCT: MONTH SUMMARY W/PRSCR COUNT
Returns Rx values and Prescriber counts by month for the selected
Product and Time period.
PRODUCT: NDC SUMMARY
Returns Rx values and Prescriber Counts by month for the selected NDC
and Time period.
PRODUCT: TRX OVER TIME
36
<PAGE> 37
Returns TRx Count by month for the selected Product and Time period.
37
<PAGE> 38
EXHIBIT 6.1(c)
to
License and
Product Development
Agreement
---------
R&D PIPELINE INFORMATION
------------------------
Data Elements:
- --------------
Company Name
Product Name
Generic Name
Therapeutic Use
Stage of Development
Source of Abstracts
Comments
Approval Date
Prior Approval Date
Company Address
Company Phone Number
Company Fax
Company Web Site
39
<PAGE> 39
EXHIBIT 11.1
to
License and
Product Development
Agreement
FEES, COMMISSIONS, PAYMENTS AND CREDITS
The following fees, commissions, payments and credits shall be
applicable to the transactions contemplated by the License and Product
Development Agreement between Medscape and NDC, dated as of July __, 1999 ( (the
"Agreement"). Capitalized terms used herein without definition have the meanings
provided in the Agreement. The terms of this Exhibit 11.1 are an integral part
of the Agreement and shall be subject to all of the terms and conditions
thereof.
1. Intellect License Fee. (a) Allocation. For and in
consideration of the Intellect License grant, Medscape shall pay to NDC a
one-time authorization fee equal to *
(the "Intellect License Fee"). The Parties acknowledge
and agree that an amount equal to the Intellect License Fee has been allocated
to a portion of the non-cash consideration being given by NDC to Medscape in
exchange for NDC's acquisition, and Medscape's sale, of Shares pursuant to and
as contemplated in the Stock Purchase Agreement. Accordingly, NDC hereby
acknowledges payment by, and receipt of value from, Medscape of an amount equal
to the Intellect License Fee and further agrees that Medscape's obligation to
pay the Intellect License Fee is satisfied and discharged in full. The
components of the Intellect License Fee are as follows:
(1) * attributable to the
perpetual Intellect License grant contemplated in Section 2.1(a) of the
Agreement; and
(2) * attributable to
NDC's grant to Medscape of the right to access and use, subject to the
terms of the Intellect License, monthly updates for the Intellect
Database during the Initial Term, as contemplated in Section 2.1(c) of
the Agreement.
(b) Review; AMA Consent. At any time on or prior to August 1,
1999, the Parties may agree to reallocate all or any portion of the dollar
amount specified in clause (2) above * to the dollar amount
allocable to the ad hoc consulting services referred to in Section 6 below. The
Parties agree that any discussions concerning such reallocation shall be
conducted in good faith with due regard for the respective economic interests of
the Parties. Notwithstanding the foregoing, if any consent required by the AMA
41
<PAGE> 40
as a condition to the effectiveness of the AMA Sublicense cannot be or is not
obtained by July 26, 1999, or such consent is not sufficient, in Medscape's sole
and absolute discretion, to secure the scope of use or uses of the AMA-PPD (as
defined in the AMA Sublicense) which Medscape requires, then Medscape shall have
the right, exercisable in its sole and absolute discretion, to elect to
unilaterally reallocate all or any portion of the dollar amount specified in
clause (2) above * to the dollar amount allocable to the ad hoc
consulting services referred to in Section 6 below. If Medscape duly exercises
its right to make such election, NDC shall execute and deliver such amendatory
documents as Medscape may deem reasonably necessary or appropriate to give full
effect to the reallocation specified by Medscape.
2. LYTEC Distribution/Preferred Status Fee. For and in
consideration of NDC's agreement, subject to the terms and conditions of the
Agreement, to designate Medscape (x) as the exclusive website providing
Healthcare Clinical Content integrated in LYTEC 99, (y) as the exclusive website
providing Healthcare Clinical Content integrated into LYTEC/Web, and (z) a
preferred partner of NDC as contemplated in Article IX of the Agreement,
Medscape shall pay to NDC an aggregate amount equal to *
(the "LYTEC
Distribution/Preferred Status Fee"). The Parties acknowledge and agree that an
amount equal to the LYTEC Distribution/Preferred Status Fee has been allocated
to a portion of the non-cash consideration being given by NDC to Medscape in
exchange for NDC's acquisition, and Medscape's sale, of Shares pursuant to and
as contemplated in the Stock Purchase Agreement. Accordingly, NDC hereby
acknowledges payment by, and receipt of value from, Medscape of an amount equal
to the LYTEC Distribution/ Preferred Status Fee and further agrees that
Medscape's obligation to pay the LYTEC Distribution/ Preferred Status Fee is
satisfied and discharged in full. The components of the LYTEC
Distribution/Preferred Status Fee are as follows:
(a) *
attributable to modifications and integration efforts relating
to Medscape Content; and
(b) *
attributable to the designations referred to above.
3. Marketing and Promotion. For and in consideration of NDC's
marketing and promotion of LYTEC 99, LYTEC/Web and such other products and
services as the Parties may agree as contemplated in Article II of the
Agreement, Medscape shall pay to NDC an amount equal to *
(the "Marketing and Promotion
Fee"). The Parties acknowledge and agree that an amount equal to the Marketing
and Promotion Fee has been allocated to a portion of the non-cash consideration
being given by NDC to Medscape in exchange for NDC's acquisition, and Medscape's
sale, of Shares pursuant
42
<PAGE> 41
to and as contemplated in the Stock Purchase Agreement. Accordingly, NDC hereby
acknowledges payment by, and receipt of value from, Medscape of an amount equal
to the Marketing and Promotion Fee, and further agrees that Medscape's
obligation to pay the Marketing and Promotion Fee is satisfied and discharged in
full. The components of the Marketing and Promotion Fee are as follows:
(a) * attributable to the LYTEC 99
product launch, including in connection with a 100,000 Piece
VAR Catalog Mailing and a 250,000 Piece Pharmacy and
Physicians Mailing; and
(b) * attributable to
future product launches.
4. NDC Distribution Commission. During the Term, Medscape will
pay to NDC the following amounts (collectively, "NDC Distribution Commissions"):
(a) a bounty equal to * for each New
Medscape Member;
(b) * percent * of the Net Advertising Revenue attributable to the
number of Medscape page views which are generated when New Medscape
Members access any Medscape Website; and
(c) * percent * of Medscape's Net Revenue attributable to electronic
commerce purchases by each New Medscape Member, as reported by
Medscape's electronic commerce partners, but only to the extent tracked
and reported by such commerce partners.
For purposes of this Paragraph 4, the following terms have the
following meanings:
"Net Advertising Revenue" means all advertising revenue
actually received by Medscape less all related sales credits, rebates,
and third-party ad sales commissions, paid or issued by Medscape.
"Net Revenue" means all revenue, less any and all rebates,
credits, returns and charge backs.
"New Medscape Member" means either:
(i) a user of any Medscape Website who was not previously
registered as a Medscape member and subsequently registers on
his or her own behalf as a Medscape member either as a result
of (x) a link integrated into an NDC Healthcare Product, or
(y) NDC's direct sales effort; or
43
<PAGE> 42
(ii) a user of a Medscape Website who was previously registered as
a Medscape member but has not accessed the relevant Medscape
Website in the nine (9) month period prior to such user's
first access on his or her own behalf to such Medscape Website
from a link integrated into an NDC Healthcare Product.
5. Credit Against NDC Distribution Commissions. The Parties
acknowledge and agree that an amount equal to *
* (the "NDC Commissions Credit") has been allocated to a portion
of the non-cash consideration being given by NDC to Medscape in exchange for
NDC's acquisition, and Medscape's sale, of Shares pursuant to and as
contemplated in the Stock Purchase Agreement and, specifically, to the advance
payment of NDC Distribution Commissions payable by Medscape to NDC during the
Initial Term. Accordingly, NDC agrees that (i) Medscape's obligation to pay NDC
Commissions during the Initial Term up to an amount equal to the NDC Commissions
Credit is satisfied and discharged in full, and (ii) Medscape shall have no
obligation to pay any NDC Distribution Commission to NDC during the Initial Term
except and to the extent that the aggregate amount of all NDC Distribution
Commissions payable to NDC during the Initial Term exceeds the amount of the NDC
Commissions Credit.
6. Credit Against NDC Healthcare Products Purchases. The
Parties acknowledge and agree that an amount equal to *
* (the "NDC Healthcare Products
Credit") has been allocated to a portion of the non-cash consideration being
given by NDC to Medscape in exchange for NDC's acquisition, and Medscape's sale,
of Shares pursuant to and as contemplated in the Stock Purchase Agreement and,
specifically, to the advance payment by Medscape of purchases of NDC Healthcare
Products and related consulting or other ad hoc services. Accordingly, NDC
agrees that (i) Medscape's obligation to pay for purchases of NDC Healthcare
Products and related consulting or other ad hoc services up to an amount equal
to the NDC Healthcare Products Credit is satisfied and discharged in full, and
(ii) Medscape shall have no obligation to pay any funds for purchases of NDC
Healthcare Products or related consulting services or other ad hoc services
until the aggregate amount of such purchases (net of applicable taxes,
discounts, credits and returns), related consulting or other ad hoc services
exceeds the amount of the NDC Healthcare Products Credit. The terms of
Medscape's right to purchase and distribute NDC Healthcare Products and its
status as a reseller are as provided in Annex 1 attached hereto and made a part
hereof.
7. Review. On the date which is twelve (12) months after the
Effective Date, the Parties agree to commence good faith discussions (with due
regard being given to the respective economic interests of the Parties) to
review and to reconsider, as may be appropriate, the allocation of the dollar
amounts specified in, and as between, Paragraphs 5 and 6 above.
44
<PAGE> 43
8. EDI Services Commission. During the Term, *
for each electronic data interchange
transaction of the type identified in Annex 2 attached hereto which is processed
by NDC or on its behalf for any individual or entity brought to NDC through
Medscape's marketing efforts (the "EDI Services Commission").
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
45
<PAGE> 44
EXHIBIT 11.1
ANNEX 1
RESELLER STATUS FOR MEDSCAPE
1. NDC authorizes Medscape to identify itself as a reseller of the NDC
Healthcare Products, and to act as an intermediary in sales of NDC
Healthcare Products to third parties.
2. In all such sales by Medscape, the third party will license the NDC
Healthcare Products from NDC directly, and NDC (or an affiliate or
value-added reseller selected by NDC) will provide all support and
services directly to the third party purchaser at applicable rates.
3. Medscape will receive a discount of up to * off of
the then current retail price of NDC Healthcare Products where its acts
as reseller. Medscape will pay NDC's shipping costs for Medscape's
purchases.
4. Medscape will submit orders for products for third parties in
accordance with NDC's then current end user support policies.
46
<PAGE> 45
EXHIBIT 11.1
ANNEX 2
EDI SERVICES
(1) Claims (electronic transmission of HCFA 1500 forms).
(2) Eligibility (electronic transmission of patient-specific demographic
information to determine if patient is an eligible member).
(3) Referrals (electronic transmission of patient demographic information
to another participating provider for request of treatment).
(4) Claim Status (electronic request to verify the status of a previously
submitted claim).
(5) Remittance Advice (electronic acceptance of payable information for a
previously submitted claim).
47
<PAGE> 1
Exhibit 10.41
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of August ___, 1999 (the "Agreement"),
between MEDSCAPE, INC., a Delaware corporation (the "Company"), and CBS
CORPORATION, a Pennsylvania corporation (the "Investor").
WHEREAS, the Company intends to effect an initial public offering (the
"IPO") of its common stock, $.01 par value per share (the "Common Stock"),
pursuant to Registration Statement No. 333-77665 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the"Act");
WHEREAS, on the date set forth above, the Company is executing an
Underwriting Agreement with respect to the IPO, a copy of which is attached
hereto as Exhibit A (the "Underwriting Agreement"), with Donaldson Lufkin &
Jenrette Securities Corporation, Credit Suisse First Boston Corporation, Bear,
Stearns & Co., Inc., Wit Capital Corporation and DLJdirect Inc., as
representatives of the Underwriters named therein (the "Underwriters");
WHEREAS, the Investor has previously indicated to the Company its
interest in acquiring directly from the Company certain of the shares of Common
Stock that have been registered pursuant to the Registration Statement, and the
Company has agreed to issue and sell such shares to the Investor, on the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows;
ARTICLE I
PURCHASE AND SALE
Section 1.1 Subscription for Securities. The Investor hereby subscribes
for the purchase of 400,000 shares of Common Stock (the "Shares") at a purchase
price of $[____] per Share (which amount the Company represents is the Price to
the Public set forth on the cover page of the Company's Prospectus (as defined
in the Underwriting Agreement), less underwriting discounts and commissions),
for an aggregate purchase price of [_________________ dollars ($_________)] (the
"Purchase Price").
Section 1.2 Purchase and Sale of Shares. Subject to the terms and
conditions of this Agreement, at the Closing (as hereinafter defined), the
Investor agrees to purchase from the Company, and the Company agrees to issue
and sell to the Investor, the Shares.
<PAGE> 2
ARTICLE II
CLOSING
Section 2.1 Closing Place and Date. The closing of the purchase and
sale of the Shares (the "Closing") shall take place at the offices of Hogan &
Hartson L.L.P., counsel for the Underwriters, 885 Third Avenue, 26th Floor, New
York, New York 10022 on the "Closing Date," as such term is defined in the
Underwriting Agreement (the "Closing Date").
Section 2.2 Deliveries at Closing. At the Closing, the Company shall
issue and deliver to the Investor a certificate or certificates representing the
Shares, against payment of the Purchase Price therefor by bank cashier's check
or wire transfer of immediately available funds.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
To induce the Investor to purchase the Shares, the Company hereby
represents and warrants to and covenants with the Investor as follows:
Section 3.1 Incorporation by Reference. The representations and
warranties of the Company set forth in Section 6 of the Underwriting Agreement
are hereby incorporated by reference as if made set forth in full herein and
made to and for the benefit of the Investor.
Section 3.2 Issuance of the Shares. The Shares have been duly
authorized and, when issued and delivered to the Investor against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights. The Shares will be subject to restrictions on
transfer under the lock up agreement, in the form attached hereto as Exhibit B,
to be entered into by the Investor on the date hereof in connection with the IPO
and applicable securities laws.
Section 3.3 No Violation. The execution, delivery and performance of
this Agreement by the Company, the compliance by the Company with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not (i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as may
be required under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations promulgated thereunder or the securities or
Blue Sky laws of the various states), (ii) violate any of the terms or
provisions of the charter, articles of organization, by-laws or operating
agreement, as the case may be, of the Company or its subsidiary or conflict with
or constitute a breach of, or a default under, any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which the Company or its
subsidiary is a party or by which the Company or its subsidiary or their
respective property is bound, which conflict, breach or default is reasonably
likely to have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiary, taken as a
whole, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having
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<PAGE> 3
jurisdiction over the Company, its subsidiary or their respective property or
(iv) result in the suspension, termination or revocation of any Authorization
(as defined in the Underwriting Agreement) of the Company or its subsidiary or
any other impairment of the rights of the holder of any such Authorization.
Section 3.4 Authorization. This Agreement has been duly authorized,
executed and delivered by the Company.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
To induce the Company to accept the Investor's subscription and to
issue and sell the Shares, the Investor hereby represents and warrants to and
covenants with the Company as follows:
Section 4.1 Authorization. This Agreement has been duly authorized,
executed and delivered by the Investor.
Section 4.2 Purchase for Investor's Own Account. The Shares are being
acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a current view to the resale or distribution of any part
thereof; and the Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to the person or to any third person, with
respect to any of the Shares.
Section 4.3 Disclosure of Information. The Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares, including but not limited to the delivery by the
Company of the Company's Preliminary Prospectus dated July 26, 1999.
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1 Conditions to the Investor's Obligations. The obligations
of the Investor hereunder to purchase the Shares from the Company shall be
subject to (i) receipt by the Investor of evidence that the conditions set forth
in Section 8 of the Underwriting Agreement have been satisfied (or waived by the
representatives of the Underwriters), (ii) delivery of the Company's final
Prospectus dated August ___, 1999 and (iii) receipt by the Investor of an
opinion of the Company's counsel, Patterson, Belknap, Webb & Tyler LLP, with
respect to the matters set forth in Sections 8(e) of the Underwriting Agreement
and an opinion of Mark Boulding, General Counsel and Vice President, Regulatory
Affairs, of the Company with respect to matters set forth in Section 8(f) of the
Underwriting Agreement. In addition, in order to evidence closing of the IPO and
as a condition to the Investor's obligation to purchase the Shares,
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<PAGE> 4
the Company shall send written confirmation by facsimile to the Investor (the
"Notice") that it has received the proceeds from the sale of the Firm Shares
offered in the IPO. The Company's Chief Financial Officer shall also notify the
Investor's designated agent of the same by telephone message after sending the
Notice.
Section 5.2 Conditions to the Company's Obligations. The obligations of
the Company hereunder and the Closing of the sale of the Shares shall be subject
to the occurrence, concurrently with the Closing hereunder, of the closing of
the purchase by the Underwriters of the "Firm Shares" in accordance with the
Underwriting Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Governing Law. This Agreement and its validity,
construction and performance shall be governed in all respects by the internal
laws of the State of New York (without reference to the conflict of laws
provisions or principles thereof).
Section 6.2 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
representatives, administrators, successors and assigns. Neither party may
assign this Agreement or any of its rights or obligations hereunder without the
written consent of the other party, which consent shall not be unreasonably
withheld.
Section 6.3 Entire Agreement; Amendment; Waiver. This Agreement
supersedes any and all prior agreements, understandings, discussions,
assurances, promises, representations or warranties among the parties with
respect to the subject matter hereof; and contains the entire agreement among
the parties with respect to the subject matter hereof. This Agreement shall not
be changed, modified or amended in any respect except by the mutual written
agreement of the parties hereto. Any provision of this Agreement may be waived
in writing by the party which is entitled to the benefits thereof. No waiver of
any provision of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall any such
waiver constitute a continuing waiver.
Section 6.4 Severability. Any term or provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction only, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 6.5 No Third Party Beneficiaries. This Agreement and the
rights, benefits, privileges, interests, duties and obligations contained or
referred to herein shall be solely for the benefit of the parties hereto and no
third party shall have any rights or benefits hereunder as a third-party
beneficiary or otherwise hereunder.
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<PAGE> 5
Section 6.6 Survival of Warranties. The warranties and representations
of the parties contained in or made pursuant to this Agreement shall survive any
investigation made by the Investor and shall survive the execution and delivery
of this Agreement and the Closing.
Section 6.7 Headings. The captions, headings and titles herein are for
convenience of reference only and shall not effect the construction, meaning or
interpretation of this Agreement or any term or provision hereof.
Section 6.8 Counterparts. This Agreement may be executed, including
facsimile signature, in one or more counterparts each of which shall be deemed
an original and all of which shall be considered one and the same agreement
notwithstanding that all parties are not signatories to the same counterpart. A
facsimile copy of an original signature to this Agreement shall have the same
force and effect, for all purposes, as the original signature.
Section 6.9 Expenses. Each party shall bear all of their expenses that
are incurred with respect to the negotiation, execution, delivery and
performance of this Agreement.
Section 6.10 Further Assurances. Each party hereto agrees to do all
acts and to make, execute and deliver such written instruments as shall from
time to time be reasonably required to carry out the terms and provisions of
this Agreement.
Section 6.11 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by telefacsimile or
mailed by registered or certified mail, postage prepaid, return receipt
requested, or otherwise delivered by hand or by messenger, addressed (a) if to
the Investor, at CBS Corporation, 51 West 52nd Street, New York, NY 10019,
Attention: Chief Financial Officer, Fax: 212-975-9191, with a copy to CBS
Corporation, 51 West 52nd Street, New York, NY 10019, Attention: General
Counsel, Fax: 212-597-4031, or at such other address as the Investor shall have
furnished to the Company in writing, or (b) if to the Company, at Medscape,
Inc., 134 West 29th Street, New York, NY 10001, Attention: President, Fax:
212-760-3140, with copies to Medscape, Inc., 134 West 29th Street, New York, NY
10001, Attention: General Counsel, Fax: 212-760-3140, and Patterson, Belknap,
Webb & Tyler LLP, 1133 Avenue of the Americas, New York, NY 10036-6710,
Attention: John P. Schmitt, Fax: 212-336-2222, or at such other address as the
Company shall have furnished to the Investor. If notice is provided via
facsimile, it must be simultaneously confirmed via telephone and it shall be
deemed to be given when the transmission is received. If notice is provided by
U.S. mail, notice shall be deemed to be given three (3) days after proper
deposit in a U.S. mailbox, postage prepaid.
IN WITNESS WHEREOF, the Company and the Investor have each duly
executed this Agreement as of August ___ 1999.
MEDSCAPE, INC.
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<PAGE> 6
By: ___________________
Name:
Title:
CBS CORPORATION
By: ____________________
Name: Frederic G. Reynolds
Title: Executive Vice President and
Chief Financial Officer
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<PAGE> 7
Exhibit B
August __, 1999
Medscape, Inc.
134 West 29th Street
New York, New York 10001-5399
Donaldson, Lufkin & Jenrette Securities Corporation
Credit Suisse First Boston
Bear, Stearns & Co. Inc.
Wit Capital Corporation
DLJdirect Inc.
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
The undersigned understands that Donaldson, Lufkin & Jenrette
Securities Corporation, Credit Suisse First Boston, Bear, Stearns & Co. Inc.,
Wit Capital Corporation, and DLJdirect Inc. as Representatives of the several
underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement with Medscape, Inc. (the "Company"), providing for the initial public
offering (the "Initial Public Offering") of common stock, par value $.01 per
share (the "Common Stock") of the Company.
To induce the Underwriters that may participate in the Initial Public
Offering to continue their efforts in connection with the Initial Public
Offering, the undersigned, during the period commencing on the date of the final
prospectus relating to the Initial Public Offering and ending 180 days after
such date:
(i) agrees not to (x) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (including, without
limitation, shares of Common Stock or securities convertible into or exercisable
or exchangeable for Common Stock which may be deemed to be beneficially owned by
the undersigned in accordance with the rules and regulations of the Securities
and Exchange Commission) or (y) enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of
<PAGE> 8
whether any of the transactions described in clause (x) or (y) is to be settled
by the delivery of Common Stock, or such other securities, in cash or
otherwise), without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, provided, however, that the undersigned may transfer
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock to an affiliate of the undersigned without the
consent of Donaldson, Lufkin & Jenrette Securities Corporation if such affiliate
delivers to Donaldson, Lufkin & Jenrette Securities Corporation a signed lock-up
agreement, identical in form to this agreement, prior to any such transfer;
(ii) agrees not to make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation;
and
(iii) authorizes the Company to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books and
records of the Company with respect to any shares of Common Stock and any
securities convertible into or exercisable or exchangeable for Common Stock for
which the undersigned is the record holder and, in the case of any such shares
or securities for which the undersigned is the beneficial but not the record
holder, agrees to cause the record holder to cause the transfer agent to decline
to transfer and/or to note stop transfer restrictions on such books and records
with respect to such shares or securities.
The foregoing restrictions shall be of no further force and effect if
the Closing Date (as defined in the underwriting agreement for the Initial
Public Offering) does not occur on or prior to September 30, 1999.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into the agreements set forth herein, and
that, upon request, the undersigned will execute any additional documents
necessary or desirable in connection with the enforcement hereof. All authority
herein conferred or agreed to be conferred shall survive the death or incapacity
of the undersigned and any obligations of the undersigned shall be binding upon
the heirs, personal representatives, successors, and assigns of the undersigned.
Very truly yours,
CBS Corporation
By: ________________________
Name: Frederic G. Reynolds
Title: Executive Vice President and
Chief Financial Officer
EIN: 25-0877540
<PAGE> 1
Exhibit 10.42
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE OMISSIONS.
CONFIDENTIAL
INTERACTIVE SERVICES AGREEMENT
This Interactive Services Agreement (this "Agreement"), effective as of
September 3, 1999 (the "Effective Date"), is made and entered into by and
between America Online, Inc. ("AOL"), a Delaware corporation, with its principal
offices at 22000 AOL Way, Dulles, Virginia 20166, and Medscape, Inc.
("Interactive Content Provider" or "ICP"), a Delaware corporation, with its
principal offices at 134 West 29th Street New York, New York 10001-5399 (each a
"Party" and collectively the "Parties").
INTRODUCTION
AOL and ICP each desires that AOL provide access to the ICP Internet
Site and ICP Programming through the AOL Network, subject to the terms and
conditions set forth in this Agreement. Defined terms used but not otherwise
defined in this Agreement shall be as defined on Exhibit B attached hereto.
TERMS
1. DISTRIBUTION; PROGRAMMING
1.1 PROGRAMMING AND DISTRIBUTION. Beginning on a mutually agreed
upon date(s) after the Effective Date, AOL shall provide ICP
with the promotions set forth on Exhibit A-1. The promotions
described on Exhibit A-1 and any other promotions provided by
AOL to ICP shall be referred to as the "Promotions." Subject
to ICP's reasonable approval, AOL will have the right to
fulfill its promotional commitments with respect to any of the
foregoing by providing ICP comparable promotional placements
in appropriate alternative areas of the AOL Network. In
addition, if AOL is unable to deliver any particular
Promotion, AOL will work with ICP to provide ICP, as its sole
remedy, a comparable promotional placement. Except to the
extent expressly described herein, the exact form, placement
and nature of the Promotions shall be determined by AOL in its
reasonable editorial discretion. ICP shall comply with the
programming requirements and provide the Content set forth on
Exhibit A and AOL's provision of Promotions in connection with
any particular AOL Property shall be conditioned upon ICP's
compliance with the programming requirements and provision of
the Content set forth on Exhibit A for such AOL Property.
1.2 CONTENT. The ICP Programming (a) shall consist of the Content
described on the programming plan attached as Exhibit A-2 (the
"PROGRAMMING PLAN"), (b) shall not contain any pointers or
links to any other area on or outside the AOL Network, other
than as expressly described on Exhibit A-2 with respect to
such ICP Programming without AOL's prior written consent, (c)
shall not contain any direct pointers or links to any products
or services which ICP sells in accordance with Section 4.4,
without AOL's prior written consent, and (d) shall not contain
any pointers or links to an area that is promoting any ICP
Tools without AOL's prior written consent. The ICP Internet
Site shall only consist of Content principally focused on
consumer healthcare issues and shall initially focus on those
areas described in the Programming Plan. The ICP Internet Site
shall not contain any pointers or links to an area that is
promoting any ICP Tools other than the Approved ICP Tools. ICP
shall inform AOL of relevant search terms and terminology
associated with popular areas and functionality within the ICP
Internet Site and ICP Programming for AOL's promotional and
Content integration purposes. The inclusion of any additional
Content for distribution through the AOL Network (including,
without limitation, any features, functionality or technology)
not expressly described on Exhibit A shall be subject to AOL's
prior written approval.
1.3 LICENSE. ICP hereby grants AOL (including but not limited to
CompuServe, Digital City, Netscape, ICQ and MovieFone) a
worldwide license to use, market, store, distribute,
reproduce, display, adapt, communicate, perform, transmit, and
promote the ICP Internet Site, the ICP
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Programming and the Licensed Content (or any portion thereof)
through the AOL Network as AOL may determine in its sole
discretion, including without limitation the right to
integrate Content from the ICP Internet Site and/or ICP
Programming by linking to specific areas thereon, provided
that the link to any such Content on the AOL Network shall
conform to the specifications of an ICP Presence. Any Linked
Consumer Versions shall be subject to the foregoing license.
In addition, any Linked ICP Interactive Sites shall be subject
to the foregoing license to the extent consistent with
Medscape's underlying rights to materials on such sites.
1.4 MANAGEMENT. ICP shall design, create, edit, manage, review,
update (as close to daily as commercially reasonable or as
otherwise specified herein), and maintain the ICP Internet
Site, ICP Programming and the Licensed Content in a timely and
professional manner and in accordance with the terms of this
Agreement and shall keep the Licensed Content current,
materially accurate and well-organized at all times. ICP shall
ensure that the Licensed Content within the ICP Internet Site
and ICP Programming is equal to or better than any comparable
Content distributed by ICP through any other ICP Interactive
Site in all material respects, including without limitation,
quality, breadth, timeliness, functionality, features, prices
of products and services and terms and conditions, except to
the extent inclusion of such Content would otherwise violate
this Agreement and except as otherwise expressly stated on
Exhibit A. Except as specifically provided for herein, AOL
shall have no obligations of any kind with respect to the ICP
Internet Site or ICP Programming. ICP shall be responsible for
any hosting or communication costs associated with the ICP
Internet Site and ICP Programming (including any Linked
Interactive Sites), including, without limitation, the costs
associated with (i) any agreed-upon direct connections between
the AOL Network and the ICP Internet Site or ICP Programming
or (ii) a mirrored version of the ICP Internet Site.
Notwithstanding any other terms of this Agreement, AOL Members
shall not be required to go through a registration process (or
any similar process) in order to access and use the ICP
Internet Site, ICP Programming or the Licensed Content. AOL
(consistent with AOL's privacy policies and terms of service)
will make available the data necessary to authenticate AOL
Members on the ICP Internet Site. ICP may ask AOL Members for
additional, optional information for the purpose of
customizing the ICP Programming, ICP Internet Site, or the
Licensed Content. During the Term and for the two (2) year
period after the expiration or termination thereof, ICP shall
allow AOL Members to access and use any ICP Interactive Site
on terms and conditions no less favorable than the terms and
conditions available to other users of such ICP Interactive
Site. In the event ICP fails to comply with any material term
of this Agreement, including without limitation ICP's
obligations under this Section 1.4 or its promotional
obligations under Section 2, AOL will have the right (in
addition to any other remedies available to AOL hereunder) to
decrease the promotion it provides to ICP hereunder and/or to
decrease or cease any other contractual obligation of AOL
hereunder until such time as ICP corrects its non-compliance,
in which event AOL will be relieved of the proportionate
amount of any promotional commitment made to ICP by AOL
hereunder corresponding to such decrease in promotion.
1.5 IMPRESSIONS TARGET. AOL shall provide ICP with at least
* Impressions from ICP's presence on the AOL Network (the
"Impressions Target") during the Term. On or about each
anniversary of the Effective Date (or more frequently as the
Parties desire), AOL and ICP shall discuss (a) whether AOL is
on track to meet the Impressions Target (taking into account
variations in Impressions delivery (e.g., front-loading of
impressions with launch of the ICP Internet Site, account
ramp-up, seasonality, promotional events, technical problems,
new Content acquired) of ICP promotion on the AOL Network) and
(b) future plans to ensure that the Impressions Target is met
or mutually altered. AOL shall use reasonable efforts to
implement any such mutually agreed plan in accordance
therewith. In the event AOL provides an excess of any annual
Impressions target in any year, the Impressions target for the
subsequent year shall be reduced by the amount of such excess.
Any shortfall in Impressions at the end of a year will not be
deemed a breach of this Agreement by AOL; instead such
shortfall will be added to the Impressions target for the
subsequent year. In addition, AOL, shall use reasonable
efforts to ensure that Impressions
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delivery amounts due in any year shall be spread evenly across
such year other than the first year of the Agreement (when
Impressions may be front-loaded for launch of the ICP Internet
Site, at AOL's discretion). For the purposes of this
Agreement, ICP's presence on an AOL screen shall conform to
the specifications of an ICP Presence, provided that only
screens that contain a Link to the ICP Internet Site or ICP
Programming will count against the Impressions Target. Any
shortfall in Impressions from a particular AOL Property or
area within an AOL Property may be made up by overdelivery of
Impressions in another AOL Property or area. In the event that
the Impressions Target is not met (or will not, in AOL's
reasonable judgment, be met) during the Term, then as ICP's
sole remedy, at AOL's option (i) the Term shall be extended
for up to six (6) months without additional carriage fees
payable by ICP, and during such extension period, AOL shall
provide ICP with the remaining Impressions in the form of
advertising space within the AOL Network of comparable value
to the undelivered Impressions (as reasonably determined by
AOL), provided that if AOL still has not met the Impressions
Target after such six (6) month period, AOL will provide a
pro-rata refund based on the amount of undelivered
Impressions, (ii) AOL shall, from time to time during the
Term, provide ICP with the remaining Impressions in the form
of advertising space within the AOL Network of comparable
value to the undelivered Impressions (as reasonably determined
by AOL), (iii) AOL shall pay ICP an amount equal to the value
of the undelivered Impressions in the form of advertising
credits or cash at the then-current rate card, or (iv) some
combination thereof.
2. CROSS-PROMOTION
2.1 COOPERATION. Each Party shall cooperate with and reasonably
assist the other Party in supplying material for marketing and
promotional activities. When promoting ICP or for any ICP
Presence, AOL will use commercially reasonable efforts to
comply with the requirements of EXHIBIT D with respect to use
of ICP's name and marks.
2.2 CROSS-PROMOTION - CONSUMER VERSIONS. Within the Consumer
Versions, ICP shall include (collectively, the "AOL Promos"),
at AOL's discretion, either (i) a prominent "Try AOL" or "Try
CompuServe" feature (at least 90 x 30 pixels or 70 x 70 pixels
in size), with placement on the standard/personalized home
page (i.e. the first screen if no splash screen) at ICP's
reasonable discretion, through which users can obtain
promotional information about AOL products or services
designated by AOL and, at AOL's option, download or order the
then-current version of client software for such AOL products
or services; or (ii) a prominent promotional button (at least
90 x 30 pixels or 70 x 70 pixels in size), with placement of
the button at ICP's reasonable discretion, on the
standard/personalized home page of the Consumer Versions, to
promote such AOL products or services as AOL may designate
(for example, the America Online brand service, the CompuServe
brand service, the AOL.com site, the Digital City services or
the AOL Instant Messenger service). AOL shall pay ICP
then-standard AOL online bounty rates for qualified new AOL
and CompuServe members that are acquired through Try AOL and
Try CompuServe buttons. AOL will provide the creative content
to be used in the AOL Promos. ICP shall post (or update, as
the case may be) the creative content supplied by AOL within
the spaces for the AOL Promos within five days of its receipt
of such content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, ICP shall provide
AOL with monthly written reports specifying the number of
impressions to the pages containing the AOL Promos during the
prior month. In the event that AOL elects to serve the AOL
Promos to the Consumer Versions from an ad server controlled
by AOL or its agent, ICP shall take all reasonable operational
steps necessary to facilitate such ad serving arrangement,
including, without limitation, inserting HTML code designated
by AOL on the pages of the Consumer Versions on which the AOL
Promos will appear. In addition, within any Consumer Versions,
ICP shall provide prominent promotion for the relevant AOL
Keyword(TM) Search Terms associated with the ICP Internet Site
and links from the Consumer Versions to the relevant topic
areas on AOL's AOL.com site on any page/screen on the Consumer
Versions where ICP mentions or promotes its partners.
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2.3 OTHER MEDIA. In ICP's advertisements and promotions (not
including news programming drop-ins that are at CBS's
editorial discretion) of its Consumer Versions in any media,
ICP will include specific references or mentions (orally where
possible) of the availability of the ICP Internet Site through
the America Online(R) brand service (or other AOL Property as
mutually agreed to by the Parties) at least * of the time
within each campaign and each type of promotion (i.e. at least
* of each print campaign, at least * of each radio campaign,
at least * of each television campaign, etc.) (the "ICP
Mentions Commitment"). Such references or mentions shall be
reasonably prominent in any (a) print or "out of home" (e.g.,
buses, billboards, point-of-purchase, and other "place based"
promotions) promotions, television advertisements and radio
advertisements. In any event, such references or mentions
shall be at least as prominent as any references that ICP
makes to any ICP Interactive Site (by way of site name,
related company name, URL or otherwise). Without limiting the
generality of the foregoing, ICP's listing of the "URL" for
any Consumer Versions pursuant to this Section will be
accompanied by a reasonably prominent listing of the "keyword"
term on AOL for the ICP Internet Site (e.g. "America Online
Keyword: Medscape"), which listing shall conform to the
keyword guidelines attached hereto as Exhibit G. All such
references or mentions of AOL, and the use of AOL's
trademarks, trade names and service marks in connection
therewith, shall be in accordance with Section II of Exhibit
C. In those instances where ICP's advertisements and
promotions of its Consumer Versions do not include specific
references or mentions of the availability of the ICP Internet
Site through AOL, ICP agrees that it shall not promote,
reference or mention any Named Entity with respect to any
television advertisements and promotions on CBS. In the event
that ICP is unable to consistently deliver the ICP Mentions
Commitment over any particular time period, in addition to any
other remedies that AOL may have under this Agreement, AOL, at
its election, can require that ICP compensate for such
shortfall either by: (i) extending the Term for up to six (6)
months without additional carriage fees payable by ICP, and
during such extension period, ICP shall provide AOL with the
remaining ICP Mentions Commitment in the form of space in
ICP's promotions or advertising of comparable value to the
undelivered ICP Mentions Commitment (as reasonably determined
by ICP), provided that if ICP still has not met the ICP
Mentions Commitment after such six (6) month period, ICP will
pay AOL an amount equal to the value of the undelivered ICP
Mentions Commitment in the form of cash at the then-current
comparable rate cards based on the amount of undelivered ICP
Mentions Commitment, (ii) ICP shall, from time to time during
the Term, provide AOL with the remaining ICP Mentions
Commitment in the form of space on its advertising or
promotional campaigns of comparable value to the undelivered
ICP Mentions Commitment (as reasonably determined by ICP), or
(iii) some combination thereof. In addition, ICP shall use
commercially reasonable efforts to include in its
advertisements and promotions of the ICP Interactive Sites in
any media specific references or mentions of AOL in connection
with ICP's relationship with AOL.
2.4 PREFERRED ACCESS PROVIDER. When promoting AOL, ICP shall
promote AOL as an online services partner through which a user
can access the ICP Internet Site (and ICP shall not implement
or authorize any other promotions on behalf of any third
parties which are inconsistent with the foregoing).
2.5 COMPONENT PRODUCTS.
2.5.1 Consumer Versions. ICP agrees to the following
conditions for integration, use or promotion of the
following tools or functionality on the Consumer
Versions:
A. ICP shall use the AOL namespace for all user
registration on the ICP Internet Site and ICP shall
connect its own registration system to the AOL
registration systems through standard integration
mechanisms in manner that is mutually acceptable to
the parties. In addition, with respect to AOL
namespace and user registration technology, and
consistent with the Privacy Policies of the parties
(i) ICP agrees to collect the data requested by AOL
and transfer such data to AOL in a real time data
transfer, and (ii) AOL shall have
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the right to pass-through applicable data (e.g. AOL
screennames) to ICP to the extent necessary for
proper functionality and performance of such
namespace and user registration technology.
B. Subject to paragraph D below, ICP, to the extent
such AOL's tools and functionalities satisfy ICP's
reasonable calendar functionality requirements, shall
integrate its customized health diary functionality
with AOL's Web-hosted calendaring functionality and
tools to provide customized calendars to all users of
the Consumer Versions. As part of such integration,
ICP will create all events in event data format
compatible with the AOL calendar so that health
events and events added to ICP's customized health
diary can also, at the option of the user, be
automatically added to the AOL calendar.
C. Subject to paragraph D below, to the extent that
ICP includes a real time instant online messaging
functionality on the Consumer Versions, ICP will use
AOL Instant Messenger(TM) and/or ICQ(TM) for such
functionality.
D. ICP may develop, integrate, use or promote its own
specific tools and/or functionalities or those
developed by Softwatch Ltd. ("Softwatch") or another
third party within a subcategory of paragraphs B or C
above other than any third party tools and/or
functionalities by any Interactive Service and/or
Named Entity provided that (i) AOL does not
then-currently offer such tool or functionality that
meets ICP's reasonable system requirements, (ii) ICP
first provides AOL with the opportunity to do such
development work on commercially reasonable terms and
conditions, (iii) any instant messaging tools or
functionalities developed shall use AOL's back-end
system and protocols, (iv) with respect to any
calendaring functionalities, events created shall, at
the option of the user, have the ability to be
automatically added to AOL calendar. Notwithstanding
paragraphs B and C above, with respect to the
Consumer Versions, not including the ICP Internet
Site, ICP may integrate and use the instant
messaging, chat, buddy list and discussion forum
self-contained tools and functionalities that have
been developed by Softwatch as of the Effective Date
on the Consumer Versions other than the ICP Internet
Site, provided however, that ICP will integrate
instant messaging functionalities with AOL's instant
messaging tools and functionalities before ICP's next
release of the Consumer Versions but in no event
later than 6 months after the Effective Date.
E. With regard to consumer oriented health management
tools, including but not limited to PMR Service, ICP,
on the ICP Internet Site, shall not integrate, use or
promote any such health management tools other than
the Approved ICP Tools without AOL's prior written
consent, not to be unreasonably withheld. If ICP
chooses to create or modify an ICP Tool to add
backend connectivity functionality, and that
functionality involves the same provider of backend
connectivity as any other health management tool
offered or distributed on the AOL Network, AOL agrees
that it would be unreasonable not to approve such an
ICP Tool solely on the basis of its backend
connectivity features. In addition, AOL agrees to use
its commercially reasonable efforts to ensure that
any provider of backend connectivity available on or
distributed through the AOL Network offers ICP a
reasonable opportunity to negotiate for the provision
of the same backend connectivity to ICP on the
Consumer Versions.
F. In the event ICP wishes to integrate, use or
promote tools and functionalities other than the
tools and functionalities in paragraphs A, B, C and E
above (including but limited to (i)
community/communications tools (e.g., chat, message
boards, voice message, IP telephony, email, address
book, web-based email and greeting cards but
specifically excluding real time instant online
messaging functionality), (ii) navigation services
(e.g., search and directory products, white pages,
and yellow pages); (iii)
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personalization services (e.g., homesteading,
hosting, and data exchange ); and (iv)
commerce/content aggregation services, ICP agrees
that (a) AOL shall have a commercially reasonable
opportunity to provide AOL's tools and
functionalities on commercially reasonable terms and
conditions prior to the integration and/or use of any
non-AOL tools and functionality, and (b) with respect
only to the ICP Internet Site, it will not promote or
co-brand with any third party tools and/or
functionalities of any Interactive Service and/or
Named Entity as long as AOL offers a reasonably
competitive product
G. In addition, to the extent required by underlying
ownership of the relevant intellectual property, AOL
hereby grants ICP a non-exclusive license to use and
promote all tools and functionalities developed by
AOL for ICP under this Agreement during the Term and
for a period of 4 years following any termination of
this Agreement, solely to the limited extent and for
the express purposes contemplated hereunder, with
terms and conditions of the license to be mutually
agreed upon during the term.
2.5.2. ICP Interactive Sites. In the event ICP wishes to
integrate, use or promote tools and functionalities
in the categories identified in this Section on the
ICP Interactive Sites other than the Consumer
Versions, ICP agrees that AOL shall have a
commercially reasonable opportunity to provide AOL's
tools and functionalities on commercially reasonable
terms and conditions prior to the integration and/or
use of any non-AOL tools and functionality.
3. REPORTING; PAYMENT;
3.1 AOL USAGE REPORTING. AOL shall make available to ICP a
detailed monthly report specifying for the prior month
aggregate usage and Impressions with respect to ICP's presence
on the AOL Network, which are similar in substance and form to
the reports provided by AOL to other content partners similar
to ICP.
3.2 ICP INTERNET SITE REPORTING. ICP will supply AOL (i) with
monthly reports which reflect total impressions by AOL Members
to the ICP Internet Site during the prior month, (ii) to the
extent applicable under this Agreement, the number of and
dollar value associated with the transactions involving AOL
Members and, to the extent consistent with applicable laws,
regulations, and privacy policies, any registration
information obtained from AOL Members (including but not
limited to the information obtained pursuant to Section 1.4)
at the ICP Internet Site during the period in question. ICP
represents that all URLs related to the ICP Internet Site are
listed on Exhibit A-2 and ICP shall provide AOL with an update
of such list promptly upon any change thereto.
3.3 CROSS-PROMOTIONAL COMMITMENTS. ICP shall provide to AOL a
monthly report documenting its compliance with any promotional
commitments it has undertaken pursuant to this Agreement in
the form attached as Exhibit E hereto, and ICP shall provide
AOL with "click-through" data with respect to the promotions
specified in Section 2 for the prior quarter.
3.4 CARRIAGE AND PROMOTIONAL FEE. ICP shall pay AOL $33,000,000
(the "Guaranteed Payment") as follows: $3,000,000 is due on
the Effective Date, and (A) in the event that an ICP Liquidity
Event does not occur within three (3) months of the Effective
Date, then $3,000,000 is due on the third (3rd) month
anniversary of the Effective Date, $9,000,000 is due the
earlier of (a) within 15 days of an ICP Liquidity Event, or
(b) the nine (9) month anniversary of the Effective Date,
$9,000,000 is due on the twelfth (12th) month anniversary of
the Effective Date, and $9,000,000 is due on the 24 month
anniversary of the Effective Date; or (B) in the event that an
ICP Liquidity Event does occur within three (3) months of the
Effective Date, then $10,000,000 is due within 15 days of an
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ICP Liquidity Event, $10,000,000 is due on the twelfth (12th)
month anniversary of the Effective Date, and $10,000,000 is
due on the 24 month anniversary of the Effective Date. In the
event that an ICP Liquidity Event does not occur within three
(3) months of the Effective Date, then ICP may elect to
terminate the Agreement upon written notice within five (5)
days of the three (3) month anniversary of the Agreement to
AOL (the "ICP Termination Notice") and on such termination ICP
(i) shall not be obligated to make any further payments
pursuant to this Section 3.4 (including the $3,000,000 payment
otherwise due on the third (3rd) month anniversary of the
Effective Date), and (ii) AOL's rights under any unvested
portion of the Performance Warrant described in Section 3.6.2
will be extinguished; provided, however, that AOL, at its sole
discretion, upon receipt of the ICP Termination Notice can
provide notice to ICP within fifteen (15) days of receipt of
the ICP Termination Notice electing to forego payment of the
second $3,000,000 payment due and the Agreement shall not be
terminated and shall continue until otherwise terminated under
the terms hereunder and such $3,000,000 payment shall be due
and payable upon an ICP Liquidity Event to AOL. In the event
that an ICP Liquidity Event does not occur within six (6)
months of the Effective Date, then either Party may terminate
the Agreement upon written notice within fifteen (15) days of
the six (6) month anniversary of the Agreement to the other
Party, and on such termination ICP (i) shall not be obligated
to make any further payments pursuant to this Section 3.4, and
(ii) AOL's rights under any unvested portion of the
Performance Warrant described in Section 3.6.2 will be
extinguished. In the event the Agreement is terminated at the
six (6) month anniversary the additional $3,000,000 payment
shall only remain due and payable to AOL if there is an ICP
Liquidity Event within twelve (12) months from the Effective
Date.
3.5 PAYMENT TERMS. All payments by ICP hereunder shall be paid in
immediately available, non-refundable U.S. funds wired to the
"America Online" account, at the account and bank information
previously supplied to ICP prior to the Effective Date, or
such other account of which AOL shall give ICP reasonable
prior written notice.
3.6 WARRANTS. ICP shall grant to AOL two (2) separate warrants to
purchase shares of common stock of ICP, forms of which are
attached hereto as Exhibits H and I. In accordance with the
terms and conditions contained therein, the two warrants which
shall be executed and delivered contemporaneously herewith
shall provide as follows:
3.6.1 in partial consideration for AOL's execution and
delivery of this Agreement, ICP shall grant to AOL a
fully-vested warrant (the "TIME WARRANT") to purchase
up to 1,352,158 shares of common stock of ICP
("COMMON STOCK") at an exercise price of $10.00 per
share;
3.6.2 in partial consideration for the accomplishment of
certain Performance thresholds, ICP shall grant to
AOL a warrant (the "PERFORMANCE WARRANT") to purchase
up to 1,352,158 shares of Common Stock at an exercise
price and vesting schedule in accordance with the
Performance Warrant terms; and
3.6.3 in the event of any early termination of the
Agreement due to a termination by a material breach
by AOL under Section 7.2 or a termination of the
Agreement under Section 7.3, AOL's rights under any
unvested portion of the Performance Warrant will be
extinguished.
3.7 ALTERNATIVE REVENUE STREAMS. In the event ICP or any of its
affiliates creates or desires to create, as a direct result of
any Promotions, any new revenue stream, not including any
revenue streams of ICP from market or clinical research
activities, as a result of such Promotions other than
Transaction Revenues or revenues from advertising and
sponsorships (an "ALTERNATIVE REVENUE STREAM"), ICP will
promptly inform AOL in writing of ICP's desire to market
products and/or services through the AOL Service, AOL.com,
Netscape Netcenter, the CompuServe
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Service, Digital City and/or CompuServe.com, which would
produce an Alternative Revenue Stream, and the Parties will
negotiate in good faith regarding whether ICP will be allowed
to market such new products and/or services through the
Promotions, and if so, the equitable portion of revenues from
such Alternative Revenue Stream (if applicable) that will be
shared with AOL pursuant to this Agreement.
4. ADVERTISING AND MERCHANDISING
4.1 ADVERTISING SALES. AOL owns all right, title and interest in
and to the advertising and promotional spaces within the AOL
Network (including, without limitation, advertising and
promotional spaces on any AOL forms or pages preceding or
framing the ICP Internet Site or ICP Programming and any AOL
pages on which ICP Programming resides). The specific
advertising inventory within any such AOL forms or pages shall
be as reasonably determined by AOL.
4.2 INTERACTIVE COMMERCE. To the extent ICP directly sells any
merchandise directly through the ICP Internet Site and/or ICP
Programming, such merchandise shall be subject to (i) the
then-current requirements of AOL's merchant certification
program, and (ii) AOL's standard terms and conditions
applicable to its interactive marketing partners. In the event
AOL objects to any products, goods or services directly
offered through the ICP Internet Site and/or the ICP
Programming, AOL shall notify ICP of those products, goods or
services to which AOL objects, and ICP hereby agrees to
discontinue offering such products, goods or services directly
through the ICP Internet Site and/or the ICP Programming upon
receipt of such notice. ICP will take all reasonable steps
necessary to conform its promotion and sale of products
directly through the ICP Internet Site and ICP Programming (if
any) (the "Products") to the then-existing technologies
identified by AOL which are optimized for the applicable AOL
Property including, without limitation, any "quick checkout"
tool which AOL may implement to facilitate purchase of
Products by AOL Members directly through the ICP Internet
Site. ICP shall not conduct any merchandising directly through
the ICP Internet Site or ICP Programming through auctions,
clubs or any method other than a direct sales format without
AOL's prior written consent. ICP will provide AOL with a
monthly report in a mutually agreed upon format to be
delivered to AOL in an automated manner, detailing the sales
activity during such period. To the extent applicable, such
sales reports shall contain information substantially similar
to the following (and any other information reasonably
required for measuring revenue activity by ICP through the ICP
Internet Site(s) or reasonably requested by AOL): (i) summary
sales information by day (date, number of Products, number of
orders, total Transaction Revenues); and (ii) detailed sales
information (order date/timestamp (if technically feasible),
purchaser name and screen-name, SKU or Product description).
Further, to the extent ICP directly sells any merchandise
through the ICP Internet Site and/or ICP Programming that is
similar to merchandise sold directly on the Consumer Versions,
ICP will generally promote through the ICP Internet Site any
special or promotional offers for such merchandise made
available by or on behalf of ICP through the Consumer Versions
or any other distribution channel targeted at consumers. In
addition, if ICP directly sells any merchandise through the
ICP Internet Site or the ICP Programming, ICP shall promote
through the ICP Internet Site on a regular and consistent
basis special offers exclusively available to AOL Members
("AOL EXCLUSIVE OFFERS"). ICP shall, at all applicable times,
feature at least one AOL Exclusive Offer for AOL Members
(except as otherwise mutually agreed upon by the Parties). The
AOL Exclusive Offer made available by ICP shall provide a
substantial member benefit to AOL Members, either by virtue of
a meaningful price discount, product enhancement, unique
service benefit or other special feature. ICP will provide AOL
with reasonable prior notice of AOL Exclusive Offers and other
special offers so that AOL can, in its editorial discretion,
market the availability of such offers.
5. CUSTOMIZED ICP PROGRAMMING AND ICP INTERNET SITE
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5.1 PERFORMANCE. ICP shall optimize all ICP Programming and the
ICP Internet Site for distribution hereunder according to AOL
specifications and guidelines (including, without limitation,
any HTML publishing guidelines) and the Operating Standards
set forth on Exhibit F attached hereto.
5.2 CUSTOMIZATION. ICP shall customize all ICP Programming and the
ICP Internet Site for AOL Members as follows:
5.2.1 ICP shall customize and co-brand the ICP Internet
Site for distribution over certain AOL Properties as
more particularly described on Exhibit A-3. The
customization and co-branding described in Exhibit
A-3 represents the manner in which AOL currently
contemplates that such customization and co-branding
will appear. ICP shall make any reasonable changes to
the customization and/or co-branding requirements of
any AOL Property that may occur during the Term.
5.2.2 ICP shall ensure that AOL Members accessing the ICP
Programming or linking to the ICP Internet Site do
not receive any advertisements, promotions, links, or
pointers (i) for any entity reasonably construed to
be in competition with AOL or any AOL Property, (ii)
for any entity in an Exclusive Category without AOL's
prior written consent, or (iii) otherwise in
violation of the applicable AOL Property's
then-standard advertising policies.
5.2.3 ICP shall provide continuous navigational ability for
AOL Members to return to an agreed-upon point on the
applicable AOL Property (for which AOL shall supply
the proper address) from ICP Internet Site or ICP
Programming (e.g., the point on the applicable AOL
Property from which such site is linked), which, at
AOL's option, may be satisfied through the use of a
hybrid browser format. ICP shall ensure that
navigation back to the AOL Network from the ICP
Internet Site, whether through a particular pointer
or link, the "back" button on an Internet browser,
the closing of an active window, or any other return
mechanism, shall not be interrupted by ICP through
the use of any intermediate screen or other device
not specifically requested by the user, including
without limitation through the use of any html pop-up
window or any other similar device. Rather, such AOL
traffic shall be pointed directly back to the AOL
Network as designated by AOL.
5.3 LINKS ON ICP INTERNET SITE. The Parties will work together on
mutually acceptable links (including links back to AOL) within
the ICP Internet Site in order to create a robust and engaging
AOL member experience. ICP shall take reasonable efforts to
ensure that AOL traffic is generally either kept within the
ICP Internet Site or ICP Programming or channeled back into
the AOL Network. To the extent that AOL notifies ICP in
writing that, in AOL's reasonable judgment, links from the ICP
Internet Site or ICP Programming cause an excessive amount of
AOL traffic to be diverted outside of such site and the AOL
Network in a manner that has a detrimental effect on the
traffic flow of the AOL audience, then ICP shall immediately
reduce the number of links out of such site(s). In the event
that ICP cannot or does not so limit diverted traffic from
such site, AOL reserves the right to terminate such links from
the AOL Network to such site.
5.4 REVIEW. ICP shall allow appropriate AOL personnel to have
access, upon reasonable notice and at reasonable times, to all
ICP Programming and the ICP Internet Site for the purpose of
reviewing such sites to determine compliance with the
provisions of this Section 5.
6. PARTNER MARKETING
During the 90 day period following the Effective Date, ICP shall use
commercially reasonable efforts to provide AOL with information and
data reasonably requested by AOL for determining the feasibility and
likely success of a marketing test for AOL and CompuServe CD-ROM
distribution. In the event that, at any time during the Term, ICP
proposes to market, bundle, or proposes to enter into an agreement
with, or
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solicit, a third party with respect to the marketing of, a US-based,
internet service provider (including both narrow and broad-band
providers) targeted at users of the Consumer Versions (e.g., through a
CD-ROM distribution, software download, or otherwise) ("Other ISPs")
other than the AOL Service or the CompuServe Service, then ICP shall
notify AOL and offer AOL the right of first negotiation for ICP to
market the AOL Service and CompuServe, upon terms to be mutually agreed
to by the Parties after good faith negotiations, provided that the AOL
Service and/or the CompuServe Service offers comparable services to
Other ISPs. In the event that AOL fails to accept the offer to exercise
such right of first negotiation within thirty (30) days after ICP makes
such offer to AOL, then ICP and AOL shall reduce to writing the latest
terms on which ICP was willing to offer AOL the right to market
exclusively the AOL Service and/or CompuServe Service, after good faith
negotiations between AOL and ICP. Thereafter, ICP may offer such rights
to a third party on the written terms described in the preceding
sentence; provided, however, that if ICP proposes to enter into an
agreement with such third party on any term or provision which is more
favorable to the third party than as set forth in such written terms,
then prior to such agreement ICP shall, by written notice to AOL, offer
such right to AOL on the same terms and conditions offered to such
third party. AOL shall have thirty (30) days from the date it receives
such revised offer to accept or reject such revised offer. Failure by
AOL to notify ICP of its acceptance or rejection of such revised offer
within the thirty (30) day period shall be deemed a rejection of such
revised offer. The rights granted to AOL in this Section 6 shall be
irrevocable during the Term.
7. TERM, TERMINATION, SITE AND CONTENT PREPARATION, PRESS RELEASES.
7.1. TERM. Unless earlier terminated as set forth herein, the
initial term of this Agreement shall commence on the Effective
Date and expire three (3) years from the Effective Date. This
Agreement may be extended by mutual written agreement of the
Parties. AOL shall also have the right to extend this
Agreement for one (1) additional nine (9) month period
following expiration of the initial term ( the "Extension
Term"). AOL shall exercise its option to extend this Agreement
by providing ICP with written notice of such election no later
than thirty (30) days prior to the expiration of the initial
term. During the Extension Term: (i) ICP will not be required
to pay any additional carriage or promotional fees in excess
of the Guaranteed Payments pursuant to Section 3.5; (ii) AOL
will not be required to undertake any promotional/placement
obligations hereunder; and (iii) all other terms and
conditions of this Agreement shall remain in full force and
effect during the Extension Term. Upon the expiration or
earlier termination of this Agreement, AOL may, at its
discretion, continue to promote one or more "pointers" or
links from the AOL Network to an ICP Interactive Site and
continue to use ICP's trade names, trade marks and service
marks in connection therewith (collectively, a "Continued
Link").
7.2 TERMINATION FOR BREACH. Either Party may terminate this
Agreement at any time in the event of a material breach by the
other Party which remains uncured after thirty (30) days
written notice thereof.
7.3 BUY-OUT RIGHT. At any time during the ninety (90) day period
beginning twenty four (24) months after the Effective Date
(the "Buy-Out Period"), AOL shall have the right to terminate
this Agreement by providing ICP written notice (the "Buy-Out
Right"). In the event AOL elects to exercise its Buy-Out
Right, AOL shall pay ICP * (the "Buy-Out Fee"), within thirty
(30) days of the date of such exercise, provided, that if
there is a shortfall in the amount of Impressions that were
projected to be delivered as of the date AOL exercises its
Buy-Out Right (based upon an even, straight-line distribution
of the Impressions Target), AOL shall increase the Buy-Out Fee
by an amount equal to the value of such Impressions. The
Parties acknowledge and agree that the payment contemplated by
this Section 7.3 is solely a termination fee agreed to by the
Parties, and shall not be used to determine any damages
payable by either Party to the other Party hereunder, which
shall be determined in accordance with the remainder of this
Agreement (including, without limitation, Section VI of
Exhibit C hereof) and applicable law.
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7.4 SPECIAL TERMINATION BY AOL. AOL shall have the right to
terminate this Agreement immediately by providing ICP written
notice in the event any material claim or proceeding is
brought against ICP for professional negligence or wrongdoing,
including without limitation, regarding malpractice or
practicing medicine without the appropriate license(s), which
claim appears on its face to be potentially meritorious and
appears to have the potential for significantly damaging or
tarnishing the reputation of the ICP or AOL, provided that any
such termination right is exercised within one hundred twenty
(120) days after AOL has knowledge of any such material claim
or proceeding hereunder.
7.5 TERMINATION FOR BANKRUPTCY/INSOLVENCY OR CHANGES IN BUSINESS.
Either Party may terminate this Agreement immediately
following written notice to the other Party if the other Party
(i) ceases to do business in the normal course, (ii) becomes
or is declared insolvent or bankrupt, (iii) is the subject of
any proceeding related to its liquidation or insolvency
(whether voluntary or involuntary) which is not dismissed
within ninety (90) calendar days or (iv) makes an assignment
for the benefit of creditors.
7.6 TERMINATION ON CHANGE OF CONTROL.
7.6.1 In the event of a Change of Control of ICP to a Named
Entity during the Initial Term, AOL shall have the
right to terminate the Agreement by providing fifteen
(15) days prior written notice and AOL will receive
its next Guaranteed Payment installment, if any, and
any Performance Warrants, if not already vested,
shall automatically vest.
7.6.2 In the event of a Change of Control of ICP to any
third party other than a Named Entity during the
Initial Term not including * . AOL, at its option,
(i) can elect to terminate the Agreement and receive
no further payments; or (ii) can elect to continue
the Agreement, provided that AOL will receive the
entire remainder of the Guaranteed Payment due under
this Agreement.
7.6.3 Any termination right arising under this Section 7.6
must be exercised within ninety (90) days of the
effective date of such Change of Control.
7.7 ADDITIONAL CONDITIONS. AOL shall have the right to terminate,
in whole or in part, AOL's promotional obligations hereunder
and the programming rights granted to ICP hereunder if :
7.7.1 ICP no longer employs a nationally recognized
high-quality editorial staff and independent
editorial board to monitor its content;
7.7.2 At any time 180 days after the Effective Date, the
Consumer Versions, taken as a whole, are not one of
the top five (5) ranked health Content and tools
Interactive Sites, not including Dr.Koop and AOL
Health, for at least two (2) consecutive months in
terms of both traffic (as measured by page views or
active registered users) and audience reach (as
measured by share or percentage of Internet online
users) based on statistics as reported by Media
Metrix or similar organization reasonably determined
by the Parties as long as AOL is providing ICP the
Impressions Target under the terms of this Agreement;
and
7.7.3 At any time the Consumer Versions, taken as a whole,
are not one of the top five (5) health Content and
tools Interactive Sites for at least two (2)
consecutive months, in terms of quality (x) based on
a cross-section of independent third-party reviewers
who are recognized authorities in the healthcare
industry, and (y) with respect to all material
quality averages or standards in such industry,
including without limitation, quality, breadth,
depth, timeliness, accuracy, reliability of the
Content; privacy and security; functionality,
features, ease of use and user interface of the site;
and prices and terms and conditions of Products
offered on the site as long as AOL is providing ICP
the Impressions Target under the terms of this
Agreement.
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7.8 SITE AND CONTENT PREPARATION. ICP shall achieve Site and
Content Preparation for each property listed in Exhibit A
within the time frames specified in Exhibit A-3. "Site and
Content Preparation" shall mean that ICP shall have completed
all necessary production work for the relevant ICP Internet
Site or ICP Programming and any other related areas or screens
(including programming all Content thereon); customized and
configured the relevant ICP Internet Site or ICP Programming
in accordance with this Agreement; and completed all other
necessary work (including, without limitation, undergone all
AOL site testing set forth on Exhibit F) to prepare the
relevant ICP Internet Site or ICP Programming and any other
related areas or screens to launch on the AOL Network as
contemplated hereunder. In the event ICP has not achieved Site
and Content Preparation within the applicable time frame, then
in addition to any other remedies available, the Impressions
Target set forth in Section 1.5 shall be reduced on a pro rata
basis based on the number of days after such time period that
ICP achieves Site and Content Preparation divided by 365. In
the event ICP has not achieved Site and Content Preparation
within sixty (60) days after the expiration of applicable time
period, then in addition to any other remedies available, AOL
shall have the right to terminate this Agreement by giving ICP
written notice thereof. If ICP is delayed in achieving Site
and Content Preparation due to a failure by AOL to perform its
obligations under this Agreement and ICP notifies AOL in
writing of such failure and the resulting delay, then the time
periods referenced in this Section shall each be extended by
the amount of time of ICP's delay solely attributable to such
failure by AOL.
7.9 PRESS RELEASES. Each Party will submit to the other Party, for
its prior written approval, which will not be unreasonably
withheld or delayed, any press release or any other public
statement ("Press Release") prepared by such Party regarding
the transactions contemplated hereunder. Once approved, a
press release or statement may continue to be distributed
without additional approval so long as its contents remain
relevant (e.g. timely), truthful and not misleading.
Notwithstanding the foregoing, either Party may issue Press
Releases and other disclosures as required by law or as
reasonably advised by legal counsel without the consent of the
other Party and in such event, the disclosing Party will
provide at least five (5) business days prior written notice
of such disclosure unless a shorter time frame is required by
law or in the reasonable opinion of counsel. The failure to
obtain the prior written approval of the other Party where
required shall be deemed a material breach of this Agreement.
8. ADDITIONAL OPPORTUNITIES
If AOL elects to distribute a version of the AOL Service through a
broadband distribution channel, AOL shall use reasonable efforts to
discuss an opportunity for ICP to distribute ICP's content in such
broadband version. In addition, during the Term, ICP shall use best
efforts to (i) use the e-commerce application software and
infrastructure software developed by Netscape Communications
Corporation and/or the Sun-Netscape Alliance, and (ii) enter into any
relevant agreements with Netscape Communications Corporation and/or the
Sun-Netscape Alliance as soon as commercially practicable after
signing, provided that (i) such software and agreements are competitive
and appropriate for ICP integration; (ii) that AOL uses commercially
reasonable efforts to obtain pricing for ICP that is no less favorable
than the pricing generally available to AOL, and (iii) conversion costs
from existing platforms used by ICP are not commercially unreasonable.
In addition, ICP shall fully discuss in good faith with AOL any
concerns or issues that would prevent ICP from using the e-commerce
application software and infrastructure software developed by Netscape
Communications Corporation and/or the Sun-Netscape Alliance.
9. TERMS AND CONDITIONS. The terms and conditions set forth on the
Exhibits attached hereto are hereby made a part of this Agreement.
[the following page is signature page]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
AMERICA ONLINE, INC. MEDSCAPE, INC.
<TABLE>
<S> <C>
By: _______________________________ By: __________________________
Print Name: ________________________ Print Name: ___________________
Title: ______________________________ Title: _______________________
Date: ______________________________ Date: ________________________
Tax ID/EIN#: __________________
</TABLE>
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EXHIBIT A-1: CARRIAGE PLAN
Three Year Term
<TABLE>
<CAPTION>
CHANNEL AREA TYPE IMPRESSIONS
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<S> <C> <C> <C> <C>
LEVEL ONE: CONTENT *
INTEGRATION
AOL, AOL.com, CompuServe, Health As detailed in attached Permanent placements and
Netcenter, Digital City programming plans integrated content
(Exhibit A-2)
LEVEL TWO: CONTEXTUAL All placements listed *
INTEGRATION below are rotations, not
permanent links
AOL Lifestyles ROS
Families
Womens
Sports
Health
Other comparable As mutually agreed by the
promotions parties.
Netscape Lifestyles Womens, Mens and other Contextual link
Families Teens, Senior Contextual link
Womens
Sports Sports Medicine Contextual link
Health
Other comparable As mutually agreed by the
promotions parties.
LEVEL THREE: BROAD REACH *
AOL Run of Service Banner rotation
E-mail Banner rotation
People Connection Banner rotation
Member Directory Banner rotation
Other comparable As mutually agreed by the
promotions parties.
AOL.com Home Page Banner rotation
Run of Hometown Banner rotation
Run of Service Banner rotation
CHANNEL AREA TYPE IMPRESSIONS
Instant Messenger Banner rotation
Other comparable As mutually agreed by the
promotions parties.
CompuServe Run of Service Banner rotation
CompuServe.com Run of Banner rotation
Service
Other comparable As mutually agreed by the
promotions parties.
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Netcenter Netcenter Run of Service Banner rotation
Other comparable As mutually agreed by the
promotions parties.
Digital City City Main Page Banner rotation
Run of Service Banner rotation
Other comparable As mutually agreed by the
promotions parties.
</TABLE>
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A-3: CUSTOMIZATION AND CO-BRANDING REQUIREMENTS
ICP INTERNET SITES. ICP shall create, at its sole expense, a fully customized
site for each of the AOL Properties in the time frames specified below and
warrants that it also shall implement, at its sole expense, any appropriate
infrastructure additions to the ICP Internet Site to support the projected
traffic growth on such ICP Internet Sites. Such customization shall include,
without limitation:
(a) Standard Customization
(i) the inclusion of a toolbar (the parameters, specifications and
format of which are listed below) at the top and bottom of
each page of the ICP Internet Site, which, among other things,
will provide navigation back to the AOL Network;
(ii) various additional co-branding elements as specified below;
(iii) the creation of links in connection with communication
services on the ICP Internet Sites to the corresponding or
equivalent communication services or areas of the ICP Internet
Site of the appropriate AOL Property (e.g., chat from the ICP
Internet Site of the AOL Service will link to the chat area on
the AOL Service); and
(iv) the linking of each ICP Internet Site to an URL which contains
the location code for the appropriate AOL brand (e.g.,
www.medscape.aol.com) or any such other URL as determined by
AOL in its sole discretion).
(b) AOL Service. Please see attached co-branding mockup. Phase I Launch (all
Phase I content available) by 60 days after ISA Launch Date; Phase II by 120
days after the Effective Date.
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[GRAPHIC OMITTED]
Graphic shows guidelines for the customization and co-branding of sites created
by Medscape for each of the AOL properties. The graphic includes guidelines for
the AOL cobrand eyebrow relating to typographic art, positioning, spacing and
type specifications.
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(c) AOL.com
ICP shall create a version of the ICP Internet Site customized for distribution
through AOL.com (the "ICP-AOL.com Site") by (w) developing the ICP-AOL.com Site
as a "cul de sac" site containing no links outside of the ICP-AOL.com Site other
than to AOL.com, other AOL or third party Content determined by AOL, or
advertisements permitted under this Agreement, (x) displaying on each page of
the ICP-AOL.com Site headers and footers of size and type determined by AOL and
which contain both AOL.com and ICP branding, links to AOL.com, a Netfind search
box and one promotional space to be programmed by AOL pursuant to this
Agreement, (y) programming each page of the ICP-AOL.com Site with a co-branded
domain name (e.g., medscape.aol.com) and (z) matching the look and feel of
AOL.com on the ICP-AOL.com Site. ICP will, in accordance with the Programming
Plan, and subject to the terms of this Agreement, (1) provide AOL with Content
for the areas and screens of AOL.com described in the Programming Plan, and (2)
program and manage the Content on the ICP-AOL.com Site for distribution through
AOL.com. All terms and conditions of this Agreement applicable to the ICP
Internet Site shall apply to the ICP-AOL.com Site except as expressly otherwise
stated. Phase I Launch by 60 days after the ISA Launch Date; Phase II by 120
days after the Effective Date.
(d) CompuServe Service
ICP/CompuServe co-branded as follows: (a) the ICP-CompuServe Site will be framed
on each page across the top and along the left side using the then-current
navigation of the CompuServe Health Channel and the left side navigation will
comprise the Health Channel navigation bar; (b) ICP shall eliminate the use of
"pop-up" windows, screens and similar types of functionality in connection with
the display of advertising, promotions or sponsorships on the ICP-CompuServe
Site; (c) ICP shall program each page of the ICP-CompuServe Site with a
co-branded domain name (e.g., medscape.compuserve.com) and (e) ICP shall match
the look and feel of CompuServe Service Health Channel on the ICP-CompuServe
Site. Phase I Launch by 90 days after the ISA Launch Date; Phase II by 150 days
after the Effective Date.
(e) Netscape Netcenter. ICP/Netscape Netcenter co-branded as follows: (x)
displaying on each page of the ICP-Netcenter Site headers, footers and
navigation sidebar of size and type determined by AOL and which contain both
Netscape and ICP branding, links to Netscape Netcenter, a search box, one
promotional space to be programmed by AOL pursuant to this Agreement, and
advertising space as desired by ICP ; (y) programming each page of the
ICP-Netcenter Site with a co-branded domain name (e.g., medscape.netscape.com)
and (z) matching the look and feel of Netscape Netcenter on the ICP-Netcenter
Site. Within navigation sidebar, where subdepartments exist under Netcenter
Department headings, these will be broken out for navigational purposes. Launch
by 60 days after the ISA Launch Date; Phase II by 120 days after the Effective
Date.
(f) Digital City. ICP/Digital City co-branded as follows: (x) displaying on each
page of the ICP-Digital City Site headers and footers of size and type
determined by AOL and which contain both Digital City and ICP branding, and
links to Digital City; (y) programming each page of the ICP-Netcenter Site with
a co-branded domain name (e.g., medscape.digitalcity.com) and (z) matching the
look and feel of Digital City on the ICP-Digital City Site. Launch by 120 days
after ISA Launch Date; Phase II by 150 days after the Effective Date, provided
that with respect to the local content programming, ICP shall have an additional
thirty (30) days to complete Phase II.
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EXHIBIT B -- DEFINITIONS
DEFINITIONS. The following definitions shall apply to this Agreement:
AFFILIATE. Any agent, distributor or franchisee of AOL, or an entity in which
AOL holds at least a nineteen percent (19%) equity interest.
AOL.COM. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) any
international versions of such site, (c) CompuServe.com, Netscape Netcenter, any
other CompuServe or Netscape products or services or interactive sites, (d)
"ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)" or any
similar independent product or service offered by or through such site or any
other AOL Interactive Site, (e) any programming or Content area offered by or
through such site over which AOL does not exercise complete operational control
(including, without limitation, Content areas controlled by other parties and
member-created Content areas), (f) any programming or Content area offered by or
through the U.S. version of the America Online(R) brand service which was
operated, maintained or controlled by the former AOL Studios division, (g) any
yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through such site or any other AOL Interactive
Site, (h) any property, feature, product or service which AOL or its affiliates
may acquire subsequent to the Effective Date and (i) any other version of an
America Online Interactive Site which is materially different from AOL's primary
Internet-based Interactive Site marketed under the "AOL.COM(TM)" brand, by
virtue of its branding, distribution, functionality, Content or services,
including, without limitation, any co-branded versions and any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
AOL LOOK AND FEEL. The distinctive and particular elements of graphics, design,
organization, presentation, layout, user interface, navigation, trade dress and
stylistic convention (including the digital implementations thereof) within the
AOL Network and the total appearance and impression substantially formed by the
combination, coordination and interaction of these elements.
AOL MEMBER(S). Authorized users (including any sub-accounts under an authorized
master account) of the AOL Network.
AOL NETWORK. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe Service, (iv)
CompuServe.com, (v) Netscape Netcenter (vi) Digital City and (vii) any other
product or service owned, operated, distributed or authorized to be distributed
by or through AOL or its Affiliates worldwide through which such party elects to
offer the ICP Internet Site, ICP Programming and/or Licensed Content (which may
include, without limitation, AOL-related Internet sites, "offline" information
browsing products, MovieFone, or ICQ).
AOL PROPERTY. Any product, service or property owned, operated, marketed,
distributed, or authorized to be distributed by or through AOL or its
Affiliates, including, without limitation, the AOL Service, AOL.com, and
CompuServe Service, CompuServe.com, Digital City and Netscape Netcenter.
AOL PURCHASER. (i) Any person or entity who enters the ICP Internet Site or the
ICP Programming from the AOL Network including, without limitation, from any
third party area therein (to the extent entry from such third party area is
traceable through both Parties' commercially reasonable efforts), and generates
Transaction Revenues (regardless of whether such person or entity provides an
e-mail address during registration or entrance to the ICP Internet Site which
includes a domain other than an "AOL.com" domain); and (ii) any other person or
entity who, when purchasing a product, good or service through ICP Programming
or an ICP Internet Site, provides an AOL.com domain name as part of such person
or entity's e-mail address and provided that any person or entity who has
previously satisfied the definition of AOL Purchaser will remain an AOL
Purchaser, and any subsequent purchases by such person or entity (e.g., as a
result of e-mail solicitations or any off-line means for receiving orders
requiring purchasers to reference a specific promotional identifier or tracking
code) will also give rise to Transaction Revenues hereunder (and will not be
conditioned on the person or entity's satisfaction of clauses (i) or (ii)
above).
AOL SERVICE. The narrow-band U.S. version of the America Online(R) brand
service, specifically excluding (a) AOL.com and any other AOL Interactive Site,
(b) the international versions of an America Online service (e.g., AOL Japan),
(c) the CompuServe(R) brand service and any other CompuServe products or
services, (d) Netscape Netcenter(TM) and any other Netscape(R) products or
services, (e) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM),"
"Digital City(TM)," "NetMail(TM)," "Real Fans", "Love@AOL", "Entertainment
Asylum," "AOL Hometown" or any similar independent product, service or property
which may be offered by, through or with the U.S. version of the America
Online(R) brand service, (f) any programming or content area offered by or
through the U.S. version of the America Online(R) brand service over which AOL
does not exercise complete operational control (including, without limitation,
Content areas controlled by other parties and member-created Content areas), (g)
any yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through the U.S. version of the America
Online(R) brand service, (h) any property, feature, product or service which AOL
or its affiliates may acquire subsequent to the Effective Date and (i) any other
version of an America Online service which is materially different from the
narrow-band U.S. version of the America Online brand service, by virtue of its
branding, distribution, functionality, Content or services, including, without
limitation, any co-branded version of the service and any version distributed
through any broadband distribution platform or through any platform or device
other than a desktop personal computer.
APPROVED ICP TOOLS. Those tools listed on Exhibit J, which ICP may amend upon
mutual agreement of the Parties and those tools developed by ICP or a third
party in conformance with the requirements of Section 2.5(D) and Section 2.5 (F)
of this Agreement.
BACKEND. The engine and management system that interface with PMR Service and
those portions that interface and connect from such engine and management
systems to back-end, non-consumer users/suppliers/vendors for the PMR Service.
CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a party (provided that a reorganization, merger or consolidation in which the
stockholders of ICP immediately prior to such reorganization, merger or
consolidation hold at least a majority of the total voting power of all classes
of voting stock of ICP upon consummation of such reorganization, merger or
consolidation shall not constitute a "Change of Control") or (b) the acquisition
by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more
than 50% of either (i) the then outstanding shares of common stock of such
party; or (ii) the combined voting power of the then outstanding voting
securities of such party entitled to vote generally in the election of
directors. An initial public offering (IPO) of equity securities in ICP or a
private placement for the exclusive purpose of providing operating funds to ICP
shall not constitute a Change of Control.
COMPUSERVE SERVICE. The standard HTML version of the narrow-band U.S. version of
the CompuServe brand service, specifically excluding (a) any international
versions of such service (e.g., NiftyServe), (b) any web-based service including
"compuserve.com", "cserve.com" and "cs.com", or any similar product or service
offered by or through the U.S. version of the CompuServe brand service, (c)
Content areas owned, maintained or controlled by CompuServe affiliates or any
similar "sub-service," (d) any programming or Content area offered by or through
the U.S. version of the CompuServe brand service over which CompuServe does not
exercise complete or substantially complete operational control (e.g.,
third-party Content areas), (e) any yellow pages, white pages, classifieds or
other search, directory or review services or Content (f) any co-branded or
private label branded version of the U.S. version of the CompuServe brand
service, (g) any version of the U.S. version of the CompuServe brand service
which offers Content, distribution, services or functionality materially
different from the Content, distribution, services or functionality associated
with the standard, narrow-band U.S. version of the CompuServe brand service,
including, without limitation, any version of such service distributed through
any platform or device other than a desktop personal computer, (h) any property,
feature, product or service which CompuServe or its affiliates may
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acquire subsequent to the Effective Date, (i) the America Online brand service
and any independent product or service which may be offered by, through or with
the U.S. version of the America Online brand service and (j) the HMI versions of
the CompuServe brand service.
COMPUSERVE.COM. CompuServe's primary Internet-based Interactive Site marketed
under the "CompuServe.com(TM)" brand, specifically excluding (a) the CompuServe
Service and AOL Service, (b) any international versions of such site, (c)
AOL.com, Netscape Netcenter, any other AOL or Netscape products or services or
interactive sites, (d) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "NetMail(TM)" or any similar independent product or service
offered by or through such site or any other AOL or CompuServe Interactive Site,
(e) any programming or Content area offered by or through such site over which
AOL does not exercise complete operational control (including, without
limitation, Content areas controlled by other parties and member-created Content
areas), (f) any programming or Content area offered by or through the U.S.
versions of the America Online(R) brand service or CompuServe brand service
which was operated, maintained or controlled by the former AOL Studios division,
(g) any yellow pages, white pages, classifieds or other search, directory or
review services or Content offered by or through such site or any other AOL or
CompuServe Interactive Site, (h) any property, feature, product or service which
AOL or its affiliates may acquire subsequent to the Effective Date and (i) any
other version of an AOL or CompuServe Interactive Site which is materially
different from CompuServe's primary Internet-based Interactive Site marketed
under the "CompuServe.com(TM)" brand, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any
co-branded versions and any version distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer.
CONSUMER VERSIONS. Those versions of the ICP Interactive Site and the Medscape
Site, together with any associated ICP Tools, that are developed, customized,
maintained and/or promoted towards the consumer market including all versions
related to ICP's relationship with CBS (e.g, CBS Medscape), excluding, however,
those versions of the ICP Interactive Site and the Medscape Site that are
developed, customized, maintained and/or promoted exclusively for the
professional and industrial market (e.g. MedscapeRN, Medscape Allied Health
Professional, etc.)
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course
of this Agreement, which is, or should be reasonably understood to be,
confidential or proprietary to the disclosing Party, including, but not limited
to, the material terms of this Agreement, information about AOL Members,
technical processes and formulas, source codes, product designs, sales, cost and
other unpublished financial information, product and business plans, projections
and marketing data. "Confidential Information" shall not include information (a)
already lawfully known to or independently developed by the receiving Party, (b)
disclosed in published materials, (c) generally known to the public, or (d)
lawfully obtained from any third party.
CONTENT. Text, images, video, audio (including, without limitation, music used
in time relation with text, images, or video), and other data, products,
services, advertisements, promotions, links, pointers, technology and software.
DIGITAL CITY. The standard, narrow-band U.S. version of Digital City's local
content offerings marketed under the Digital City(R) brand name, specifically
excluding (a) the AOL Service, AOL.com or any other AOL Interactive Site, (b)
any international versions of such local content offerings, (c) the
CompuServe(R) brand service and any other CompuServe products or services (d)
"Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital
City," "NetMail(TM)," "Electra", "Thrive", "Real Fans", "Love@AOL",
"Entertainment Asylum," "AOL Hometown," "My News" or any similar independent
product, service or property which may be offered by, through or with the
standard narrow band version of Digital City's local content offerings, (e) any
programming or Content area offered by or through such local content offerings
over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any yellow pages, white pages, classifieds or other search,
directory or review services or Content offered by or through such local content
offerings, (g) any property, feature, product or service which AOL or its
affiliates may acquire subsequent to the Effective Date, (h) any other version
of a Digital City local content offering which is materially different from the
narrow-band U.S. version of Digital City's local content offerings marketed
under the Digital City(R) brand name, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any
co-branded version of the offerings and any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer, and (i) Digital City-branded offerings in any local
area where such offerings are not owned or operationally controlled by AOL, Inc.
or DCI (e.g., Chicago, Orlando, South Florida, and Hampton Roads).
EXCLUSIVE CATEGORY. Telecommunications services (including long distance,
wireless, prepaid calling card, post-paid calling card, on-line sign-up, online
billing information, IP Telephony, click-to-call, and universal massaging),
brokerage services, and credit/charge Cards.
ICP INTERACTIVE SITE. Any interactive site or area (other than ICP Programming),
including without limitation the Medscape Site and any publicly-available,
customized, mirrored or private-labeled site or area (e.g., versions for local
hospitals and broadcast affiliates), which is managed, maintained or owned by
ICP or its agents or to which ICP provides and/or licenses information, content
or other materials, including, by way of example and without limitation, (i) an
ICP site on the World Wide Web portion of the Internet or (ii) a channel or area
delivered through a "push" product such as the Pointcast Network or interactive
environment such as Microsoft's proposed Active Desktop. ICP Interactive Site
specifically excludes (a) any international versions of such site, (b) any third
party sites that by contract do not permit ICP to place advertising or
promotional materials on such sites (e.g., a hospital intranet), and (c) any
interactive site distributed through any broadband distribution platform or
through any platform or device other than a desktop personal computer.
ICP INTERNET SITE. Each of the Consumer Versions customized for distribution
through the AOL Network in accordance with this Agreement.
ICP LIQUIDITY EVENT. (a) An initial public offering (IPO) of equity securities
in ICP; (b) any investment or series of investments, including debt and equity
investments, of $10,000,000 or above in the aggregate; (c) a merger,
consolidation, business combination or other transaction (a "MERGER
TRANSACTION") in which ICP is not the surviving entity; (d) sale, spin-off or
other transfer of all or substantially all of ICP's assets to any third party;
(e) a liquidation or dissolution of ICP; or (f) within any period of twelve (12)
consecutive months, any "person" or "group" (each as defined in Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) not
including *, who becomes the "beneficial owner" (as defined in Rule 13 d-3
under the Exchange Act) of more than thirty-five percent (35%) of the total
voting power of all classes of voting stock of the Company.
ICP PRESENCE. Any (a) ICP trademark or logo, (b) headline or picture from ICP
Content, (c) teaser, icon, or link to the ICP Internet Site or ICP Programming
and/or (d) other Content which originates from, describes or promotes ICP or
ICP's Content.
ICP PROGRAMMING. Any (a) area within the AOL Network or outside the AOL Network
but exclusively available to AOL Members, which area is developed, programmed,
and/or managed by ICP, in whole or in part, pursuant to this Agreement and all
Content thereon (including, without limitation, message boards, chat and other
AOL Member-supplied content areas contained therein) including, without
limitation, any co-branded site or page, and community centers, and (b) Content
provided to AOL by ICP pursuant to this Agreement for distribution on or through
the AOL Network other than on the ICP Internet Site.
ICP TOOL. An interactive utility other than a standard web page owned, operated,
marketed, distributed, or authorized to be distributed by or through ICP or its
agents as a functional part of the ICP Interactive Site that displays results
based on data entered by an end-user, including but not limited to the PMR
Service.
IMPRESSION. User exposure to an ICP Presence, as such exposure may be reasonably
determined and measured by AOL in accordance with its standard methodologies and
protocols.
INTERACTIVE SERVICE. An entity offering one or more of the following: (i)
online/Internet connectivity services (e.g., an Internet service provider such
as AT&T Worldnet, Mindspring, etc.); (ii) an interactive site or service
featuring a broad selection of aggregated third party interactive content (or
navigation thereto) (e.g., an online service or search and directory service
such as Yahoo, Excite, Alta Vista, etc.) and/or marketing a broad selection of
products and/or services across numerous interactive commerce categories (e.g.,
an online mall or other leading online commerce site such as Amazon.com); (iii)
communications software capable of serving as the principal means through which
a user creates, sends or receives electronic mail or real time or "instant"
online messages (whether by telephone,
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computer, two empty soup cans strung together on a wire, or other means) (e.g.,
Microsoft instant messaging, WebChat, etc.), including without limitation,
electronic greeting cards; or (iv) ) a persistent desktop client designed to
allow access to (i), (ii) or (iii).
INTERACTIVE SITE. Any interactive site or area, including, by way of example and
without limitation, (i) an ICP site on the World Wide Web portion of the
Internet or (ii) a channel or area delivered through a "push" product such as
the Pointcast Network or interactive environment such as Microsoft's Active
Desktop.
ISA LAUNCH DATE. The date that is the earlier of (a) fifteen (15) days from the
Effective Date, or (b) the date of launch of any Consumer Versions.
KEYWORD(TM) SEARCH TERMS. The Keyword(TM) online search terms made available on
the AOL Service for use by AOL Members, combining AOL's Keyword(TM) online
search modifier with a term or phrase specifically related to ICP (and
determined in accordance with the terms of this Agreement).
LINKED CONSUMER VERSIONS. Any Consumer Version which is also a site or area
outside of the AOL Network which is linked to ICP Programming (through a
"pointer" or similar link) subject to approval by AOL in accordance with the
terms and conditions of this Agreement
LINKED INTERACTIVE SITE. Any site or area outside of the AOL Network which is
linked to ICP Programming (through a "pointer" or similar link) subject to
approval by AOL in accordance with the terms and conditions of this Agreement.
LINKED ICP INTERACTIVE SITE. Any ICP Interactive Site which is also a Linked
Interactive Site.
LICENSED CONTENT. All Content provided by ICP or its agents through the ICP
Internet Site and/or the AOL Network in connection with the subject matter of
this Agreement, including without limitation all ICP Programming.
MEDSCAPE SITE. The Internet site and Content, currently located at
URL:http://www.medscape.com and all related URLs (including without limitation
any publicly-available third party affiliated versions of such site (e.g.,
customized, mirrored, private labeled sites (e.g., versions for private
hospitals, broadcast affiliates)), which are managed, maintained or owned by ICP
or its agents or to which ICP licenses information, content or other materials.
Medscape Site specifically excludes (a) any international versions of such site,
(b) any third party sites that by contract do not permit ICP to place
advertising or promotional materials on such sites (e.g., a hospital intranet),
and (c) any interactive site distributed through any broadband distribution
platform or through any platform or device other than a desktop personal
computer
NAMED ENTITY. The following entities: *
NETSCAPE NETCENTER. AOL's primary Internet-based Interactive Site marketed under
the "Netscape Netcenter(TM)" brand and located at www.netscape.com or such other
URL as AOL may designate specifically excluding (a) the AOL Service and AOL.com
(b) any international versions of such site, (c) CompuServe.com, any other
CompuServe products or services or interactive sites, "ICQ," "AOL NetFind(TM),"
"AOL Instant Messenger(TM)," "NetMail(TM)" or any similar independent product or
service offered by or through the Netcenter site or any other AOL Interactive
Site, (d) any programming or Content area offered by or through such site over
which AOL does not exercise complete operational control (including, without
limitation, Content areas controlled by other parties and member-created Content
areas), (e) any programming or Content area offered by or through the U.S.
version of the America Online(R) brand service which was operated, maintained or
controlled by the former AOL Studios division, (f) any yellow pages, white
pages, classifieds or other search, directory or review services or Content
offered by or through such site or any other AOL Interactive Site, (g) any
property, feature, product or service which AOL or its affiliates may acquire
subsequent to the Effective Date and (h) any other version of an America Online
Interactive Site which is materially different from AOL's primary Internet-based
Interactive Site marketed under the Netscape Netcenter brand, by virtue of its
branding, distribution, functionality, Content or services, including, without
limitation, any co-branded versions and any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer.
PMR SERVICE. An application and related tools and utilities that collect and/or
display and/or communicate personalized healthcare information, communicates
and/or act as a repository or database of personal healthcare information and/or
personal medical records, and/or permit users to input data into such repository
or database and/or manage, transmit or organize any of the foregoing. The PMR
Service includes, without limitation, any software programs and business logic
that effectuate any collection, manipulation, and/or storage of data and/or any
transfer of data to and from the consumer user interface of the PMR Service and
the data repository of the PMR Service.
PRIVACY POLICIES. AOL's standard privacy policies, available on the AOL Service
at the keyword term "Privacy" and Medscape's standard privacy policies,
available on the Medscape Site by following the hyperlink "Privacy Policy."
PRODUCT. Any product, good or service which ICP (or others acting on its behalf
or as distributors) offers, sells, provides, distributes or licenses to AOL
Members directly or indirectly through (i) the ICP Internet Site (including
through any Interactive Site linked thereto) or ICP Programming (including any
Linked Interactive Site), (ii) any other electronic means directed at AOL
Members (e.g., e-mail offers), or (iii) an "offline" means (e.g., toll-free
number) for receiving orders related to specific offers within the ICP Internet
Site or ICP Programming requiring purchasers to reference a specific promotional
identifier or tracking code, including, without limitation, products sold
through surcharged downloads (to the extent expressly permitted hereunder).
TERM. The period beginning on the Effective Date and ending upon the expiration
or earlier termination of this Agreement.
TRANSACTION REVENUES. Aggregate amounts paid by AOL Purchasers in connection
with the sale, licensing, distribution or provision of any Products, including,
in each case, handling, shipping, service charges, and excluding, in each case,
(a) amounts collected for sales or use taxes or duties and (b) credits and
chargebacks for returned or canceled goods or services, but not excluding cost
of goods sold or any similar cost.
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EXHIBIT C -- STANDARD LEGAL TERMS AND CONDITIONS
I. AOL NETWORK
CONTENT. ICP represents, warrants and covenants that all Content contained
within the ICP Internet Site and ICP Programming and all Licensed Content (i)
does and will conform to AOL's applicable Terms of Service, the terms of this
Agreement and any other standard, written policy of AOL and any applicable AOL
Property, as provided to ICP by AOL or made generally available to the public,
(ii) does not and will not infringe on or violate any copyright, trademark, U.S.
patent, rights of publicity, moral rights or any other third party right,
including without limitation, any music performance or other music related
rights, and (iii) does not and will not contain any Content which violates any
applicable law or regulation ((i), (ii) and (iii) collectively, the "RULES"). In
the event that AOL notifies ICP in writing that any such Content, as reasonably
determined by AOL, does not comply or adhere to the Rules, then ICP shall use
its commercially reasonable best efforts to block access by AOL Members to such
Content. In the event that ICP cannot, through its commercially reasonable best
efforts, block access by AOL Members to such Content in question, then ICP shall
provide AOL prompt written notice of such fact. AOL may (in addition AOL's other
rights under this Agreement, at law or in equity) then, at its option, either
(i) restrict access from the AOL Network to the Content in question using
technology available to AOL or (ii) in the event access cannot be restricted,
direct ICP to remove any such Content. ICP will cooperate with AOL's reasonable
requests to the extent AOL elects to implement any such access restrictions.
HEALTH AND MEDICAL INFORMATION CONTENT. ICP represents, warrants and covenants
that: (a) ICP will not engage in or facilitate any practice or service on or
through the ICP Programming or the ICP Internet Site that would constitute the
illegal or unlicensed practice of medicine, the practice of pharmacy, or other
regulated professional practice in the health care area, as defined by
applicable state and federal laws, rules and government regulations and/or the
regulations, policies or guidelines of any applicable professional or
accrediting organization; (b) ICP possesses all necessary governmental
authorizations, approvals, consents, licenses, permits, certificates or other
rights and permissions to conduct its business as contemplated by this
Agreement; (c) if any of the Licensed Content professes to provide expert,
professional or other specialty advice or Content (such as, without limitation,
medical or psychological, religious, financial, etc.), ICP shall ensure that all
such Licensed Content is prepared or reviewed by licensed, insured and qualified
practitioners/professionals in such field with expertise on the particular topic
and such Licensed Content complies with applicable standards of the applicable
profession and all applicable laws and regulations; (d) any physicians used to
answer questions from visitors to the ICP Internet Site will be experienced,
qualified and competent to provide answers to the questions posed to them, and
possess any necessary special qualifications, training, or certification
appropriate in the areas in which they answer questions, and will be properly
licensed by the appropriate governing body of each jurisdiction where the nature
of heir conduct through the ICP Internet Site would require such licensing; and
(e) it will promptly provide AOL with such information as AOL may from time to
time reasonably request for the purpose of verifying ICP's compliance with its
obligations under this paragraph. In the event AOL reasonably determines that
there has been a violation of any of the foregoing covenants or if AOL
reasonably determines that any Content within the ICP Programming or the ICP
Internet Site may reasonably be expected to expose AOL or its Affiliates to
legal or financial liability or other adverse consequences, then AOL may (in
addition AOL's other rights under this Agreement, at law or in equity), at its
option, either (i) restrict access from the AOL Network to the Content in
question using technology available to AOL or (ii) in the event access cannot be
restricted, direct ICP to remove any such Content. ICP will cooperate with AOL's
reasonable requests to the extent AOL elects to implement any such access
restrictions.
AOL NETWORK DISTRIBUTION. The distribution, placements and/or promotions
described in this Agreement or otherwise provided to ICP by AOL shall be used by
ICP solely for its own benefit, will link to and promote solely the Licensed
Content within the ICP Internet Site or ICP Programming expressly described on
Exhibit A and will not be resold, traded, exchanged, bartered, brokered or
otherwise offered or transferred to any third party or contain any branding
other than ICP's branding. Further, the Content of all such distribution,
placements and promotions shall be subject to AOL's policies relating to
advertising and promotion, including those relating to AOL's exclusivity
commitments and other contractual preferences to third parties; provided that
the foregoing shall not be deemed to limit AOL's obligations to ICP hereunder.
CHANGES TO AOL PROPERTIES. AOL reserves the right to redesign or modify the
organization, structure, "look and feel," navigation and other elements of the
AOL Service, AOL.com, CompuServe Service, CompuServe.com, Digital City, Netscape
Netcenter or any other AOL Property, including without limitation, by adding or
deleting channels, subchannels and/or screens. If AOL eliminates or modifies an
area on an AOL Property in a manner that substantially modifies the nature of
the distribution required under this Agreement in a material adverse fashion,
AOL will work with ICP in good faith to provide ICP with comparable distribution
reasonably satisfactory to ICP.
ACCESSIBILITY; KIDS & TEEN POLICIES. AOL reserves the right, in its reasonable
discretion at any time, to designate the ICP Internet Site, ICP Programming and
all linked Interactive Sites, or any portions thereof, as Content targeted to
Kids (children ages 12 and under), Young Teens (children 13-15) and/or Mature
Teens (16-17). In the event ICP disagrees with AOL's designation, ICP shall not
distribute or provide the Content in question on or through the ICP Internet
Site or ICP Programming until the Parties agree upon the proper designation of
such Content. ICP shall ensure that all Content (including all advertising)
distributed on or through the ICP Internet Site or ICP Programming which is
targeted to the above age groups, including but not limited to Content
designated as such by AOL, complies with any relevant AOL policy (Kids, Young
Teens, Mature Teens) including any viewruling obligations. Without limiting the
generality of the foregoing or any other provision of this Agreement, ICP shall
(i) provide clear and prominent notice of collection practices and all possible
uses of information before collecting personal identifying information from
Kids, Young Teens or Mature Teens online; (ii) never post personal identifying
information about Kids, Young Teens or Mature Teens online or sell or otherwise
disclose such information to third parties; (iii) all advertorial advertising
and sponsorships shall be clearly labeled as "advertorial" or with similar
language and (iv) ensure that all chat rooms and message boards are monitored on
a daily basis by staff that has undergone AOL Community Leader training; and
each chat room shall (a) open and close in accordance with a posted schedule
(i.e., no 24/7 access), and (b) have a special "help" area for Kids, Young Teens
and/or Mature Teens, as applicable. ICP shall notify AOL in writing whenever it
intends to distribute Content for these age groups on or through the ICP
Internet Site and/or ICP Programming to ensure proper age restriction
categorization.
MEMBER PAGE. AOL will have no obligation with respect to the Content and
services available on or through any Member Page including, but not limited to,
any duty to review or monitor any such Content and services. AOL expressly
disclaims any liability to ICP for the Content and services contained in any
Member Page or any expense, claim, demand, costs, loss or damage arising out of
any use of the ICP-provided Content available from, without limitation, a
Community Center or the ICP Internet Site. ICP agrees to release AOL and its
affiliates, including partners, directors, officers, employees and agents from
any and all claims, rights and recourses for such loss or damage.
CONTESTS. ICP shall ensure that any contest, sweepstakes or similar promotion
conducted or promoted through the ICP Internet Site and/or ICP Programming (a
"CONTEST") complies with all applicable laws and regulations, except for
Contests sponsored by AOL. ICP shall provide AOL with (i) at least thirty (30)
days prior written notice of any Contest and (ii) upon AOL's request, an opinion
from ICP's counsel confirming that the Contest complies with all applicable
federal, state and local laws and regulations.
DISCLAIMERS. Upon AOL's request, AOL agrees to include within the ICP Internet
Site and/or ICP Programming a disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that all Content (including any
products and services) is provided solely by ICP and not AOL, and any
transactions are solely between ICP and AOL Members using or purchasing such
Content and AOL is not responsible for any loss, expense or damage arising out
of the Licensed Content or services provided through the ICP Internet Site or
ICP Programming. In addition, ICP shall prominently provide a notice/disclaimer
on all areas and features in the ICP Programming substantially as follows: "We
provide this area and its features for educational and entertainment purposes
only, and not as a substitute for your physician or other health care
professional. If you need medical or psychological services, please contact a
qualified, licensed health care professional in your area. You should always
follow the advice of your physician or other health care professional, rather
than any information contained on our service." ICP shall not in any manner
state that AOL recommends or endorses ICP or its Content. The Parties will
review
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the above disclaimer from time to time with the intent of minimizing each
Party's exposure to liability.
INSURANCE. At all times during the Term, ICP shall maintain insurance coverage
no less than: $2 million commercial general liability per occurrence; $2 million
commercial general liability insurance in the aggregate; $5 million errors &
omissions liability per occurrence and aggregate; and either $5 million in
additional umbrella insurance (i.e., covering commercial general liability and
errors & omissions) or as much such umbrella insurance that ICP may obtain by
spending $24,250 for annual premiums; provided that ICP hereby agrees to
increase its spending for such annual premium by $5,000 for each year of the
Term (until ICP reaches such $5 million coverage threshold). ICP shall include
AOL as a named insured party on all such policy or policies. ICP shall provide
AOL with a copy of such policy or policies within sixty (60) days after the
Effective Date, failing which, in addition to all other available remedies, AOL
shall be entitled to delay the launch of the Licensed Content on the AOL
Network. From time to time upon AOL's request, ICP shall provide AOL with
certificates from the respective insurance company(ies) confirming ICP's
compliance with this paragraph. ICP shall promptly notify AOL of any material
adverse change in such policy or policies.
REWARDS PROGRAMS. ICP shall not offer, provide, implement or otherwise make
available on the ICP Internet Site or ICP Programming any promotional programs
or plans that are intended to provide customers with rewards or benefits in
exchange for, or on account of, their past or continued loyalty to, or patronage
or purchase of, the products or services of ICP or any third party (e.g., a
promotional program similar to a "frequent flier" program), unless such
promotional program or plan is provided exclusively through AOL's "AOL Rewards"
program, accessible on the AOL Service at Keyword: "AOL Rewards."
NAVIGATION. In cases where an AOL Member performs a search for ICP through any
search or navigational tool or mechanism that is accessible or available through
the AOL Network (e.g., promotions, Keyword Search Terms, or any other
navigational tools), AOL shall have the right to direct such AOL Member to the
ICP Internet Site, or any other ICP Interactive Site determined by AOL in its
reasonable discretion.
AOL LOOK AND FEEL. ICP acknowledges and agrees that AOL shall own all right,
title and interest in and to the AOL Look and Feel. In addition, AOL shall
retain editorial control over the portions of the AOL pages and forms which
frame the ICP Internet Site or ICP Programming (the "AOL FRAMES"). AOL may, at
its discretion, incorporate navigational icons, links and pointers or other
Content into such AOL Frames.
OPERATIONS. AOL shall be entitled to require reasonable changes to the ICP
Internet Site and ICP Programming to the extent such site will, in AOL's good
faith judgment, adversely affect operations of the AOL Network; provided that
this sentence shall not be deemed to grant AOL any editorial control with
respect to the ICP Internet Site and ICP Programming.
CLASSIFIEDS. ICP shall not implement or promote any classifieds listing features
through ICP Programming without AOL's prior written approval. Such approval may
be conditioned upon, among other things, ICP's conformance with any
then-applicable service-wide technical or other standards related to online
classifieds.
MESSAGE BOARDS; CHAT ROOMS AND COMPARABLE VEHICLES. Any Content submitted by ICP
or its agents within message boards, chat rooms or any comparable vehicles will
be subject to the license grant relating to submissions to "public areas" set
forth in the AOL Terms of Service. ICP acknowledges that it has no rights or
interest in AOL Member submissions to message boards, chat rooms or any other
vehicles through which AOL Members may make submissions within the AOL Network.
ICP will refrain from editing, deleting or altering, without AOL's prior
approval, any opinion expressed or submission made by an AOL Member within ICP
Programming except in cases where ICP has a good faith belief that the Content
in question violates an applicable law, regulation, third party right or the
applicable AOL Property's Terms of Service.
DUTY TO INFORM. ICP shall promptly inform AOL of any information related to the
ICP Internet Site, ICP Programming or the Licensed Content which could
reasonably lead to a claim, demand or liability of or against AOL and/or its
Affiliates by any third party.
RESPONSE TO QUESTIONS/COMMENTS; CUSTOMER SERVICE. ICP shall respond promptly and
professionally to questions, comments, complaints and other reasonable requests
regarding the ICP Internet Site, ICP Programming or the Licensed Content by AOL
Members or on request by AOL, and shall cooperate and assist AOL in promptly
answering the same. ICP shall have sole responsibility for customer service
(including, without limitation, order processing, billing, shipping, etc.) and
AOL shall have no responsibility with respect thereto. ICP shall comply with all
applicable requirements of any federal, state or local consumer protection or
disclosure law.
PRODUCTION WORK. In the event that ICP requests any AOL production assistance,
ICP shall work with AOL to develop detailed production plans for the requested
production assistance (the "PRODUCTION PLAN"). Following receipt of the final
Production Plan, AOL shall notify ICP of (i) AOL's availability to perform the
requested production work, (ii) the proposed fee or fee structure for the
requested production work and (iii) the estimated development schedule for such
work. To the extent the Parties reach agreement regarding implementation of
agreed-upon Production Plan, such agreement shall be reflected in a separate
work order signed by the Parties. All fees to be paid to AOL for any such
production work shall be paid in advance. To the extent ICP elects to retain a
third party provider to perform any such production work, work produced by such
third party provider must generally conform to AOL's production standards
available at Keyword "Styleguide." The specific production resources which AOL
allocates to any production work to be performed on behalf of ICP shall be as
determined by AOL in its sole discretion. With respect to any routine
production, maintenance or related services which AOL reasonably determines are
necessary for AOL to perform in order to support the proper functioning and
integration of the Anchor Tenant Button and the ICP Internet Site ("ROUTINE
SERVICES"), ICP will pay the then-standard fees charged by AOL for such Routine
Services.
PRODUCTION TOOLS. AOL shall determine in its sole discretion, which of its
proprietary publishing tools (each a "PUBLISHING TOOL") shall be made available
to ICP in order to develop and implement the Licensed Content during the Term
(e.g., to build Rainman sites). ICP shall be granted a nonexclusive license to
use any such Tool, which license shall be subject to: (i) ICP's compliance with
all rules and regulations relating to use of the Publishing Tools, as published
from time to time by AOL, (ii) AOL's right to withdraw or modify such license at
any time, and (iii) ICP's express recognition that AOL provides all Publishing
Tools on an "as is" basis, without warranties of any kind.
LAUNCH DATE. In the event that any terms contained herein relate to or depend on
the launch date of the ICP Internet Site or other property contemplated by this
Agreement, which launch date is later than the Effective Date, then it is the
intention of the Parties to record such launch date in a written instrument
signed by both Parties promptly following such launch date; provided that, in
the absence of such a written instrument, the launch date shall be as reasonably
determined by AOL based on the information available to AOL.
KEYWORDS. Any Keyword Search Terms to be directed to the ICP Internet Site shall
be (i) subject to availability for use by ICP and (ii) limited to the
combination of the Keyword(TM) search modifier combined with a registered
trademark of ICP. AOL reserves the right to revoke at any time ICP's use of any
Keyword Search Terms which do not incorporate registered trademarks of ICP. ICP
acknowledges that its utilization of a Keyword Search Term will not create in
it, nor will it represent it has, any right, title or interest in or to such
Keyword Search Term, other than the right, title and interest ICP holds in ICP's
registered trademark independent of the Keyword Search Term. Without limiting
the generality of the foregoing, ICP will not: (a) attempt to register or
otherwise obtain trademark or copyright protection in the Keyword Search Term;
or (b) use the Keyword Search Term, except for the purposes expressly required
or permitted under this Agreement; provided that the foregoing shall not be
deemed to limit ICP in obtaining trademark or copyright protection in any term
or phrase not incorporating the AOL Keyword(TM) search modifier. This Section
shall survive the completion, expiration, termination or cancellation of this
Agreement.
ACCOUNTS. To the extent AOL has granted ICP any accounts on the AOL Service, ICP
will be responsible for the actions taken under or through its accounts, which
actions are subject to AOL's applicable Terms of Service and for any surcharges,
including, without limitation, all premium charges, transaction charges, and any
applicable communication surcharges incurred by any account issued to ICP, but
ICP will not be liable for charges incurred by any account relating to AOL's
standard monthly usage fees and standard hourly charges, which charges AOL will
bear. Upon the termination of this Agreement, all accounts, related screen names
and any associated usage credits or similar rights, will automatically
terminate. AOL will have no liability for loss of any data or content related to
the proper termination of any such account.
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II. TRADEMARKS
TRADEMARK LICENSE. In designing and implementing any marketing, advertising, or
other promotional materials (expressly excluding Press Releases) related to this
Agreement and/or referencing the other Party and/or its trade names, trademarks
and service marks (the "PROMOTIONAL MATERIALS") and subject to the other
provisions contained herein, ICP shall be entitled to use the following trade
names, trademarks and service marks of AOL: the "America Online(R)" brand
service, "AOL(TM)" service/software and AOL's triangle logo and, in connection
therewith, ICP shall comply with the AOL styleguide available at keyword: "style
guide"; and AOL and its Affiliates shall be entitled to use the trade names,
trademarks and service marks of ICP (collectively, together with the AOL marks
listed above, the "MARKS"); provided that each Party: (i) does not create a
unitary composite mark involving a Mark of the other Party without the prior
written approval of such other Party and (ii) displays symbols and notices
clearly and sufficiently indicating the trademark status and ownership of the
other Party's Marks in accordance with applicable trademark law and practice.
This Section II shall survive the completion, expiration, termination or
cancellation of this Agreement.
RIGHTS. Each Party acknowledges that its utilization of the other Party's Marks
will not create in it, nor will it represent it has, any right, title or
interest in or to such Marks other than the licenses expressly granted herein.
Each Party agrees not to do anything contesting or impairing the trademark
rights of the other Party.
QUALITY STANDARDS. Each Party agrees that the nature and quality of its products
and services supplied in connection with the other Party's Marks shall conform
to quality standards communicated in writing by the other Party for use of its
trademarks. Each Party agrees to supply the other Party, upon request, with a
reasonable number of samples of any Materials publicly disseminated by such
Party which utilize the other Party's Marks. Each Party shall comply with all
applicable laws, regulations and customs and obtain any required government
approvals pertaining to use of the other Party's Marks.
PROMOTIONAL MATERIALS. Each Party will submit to the other Party, for its prior
written approval, which shall not be unreasonably withheld or delayed, any
Promotional Materials; provided, however, that after initial public announcement
of the business relationship between the Parties in accordance with the approval
and other requirements contained herein, either Party's subsequent factual
reference in Promotional Materials to the existence of a business relationship
between AOL and ICP, including, without limitation, the availability of the
Licensed Content through the AOL Network, or use of screen shots relating to the
distribution under this Agreement (so long as the AOL Network is clearly
identified as the source of such screen shots) for promotional purposes shall
not require the approval of the other Party. Once approved, the Promotional
Materials may be used by a Party and its affiliates for the purpose of promoting
the distribution of the Licensed Content through the AOL Network and reused for
such purpose until such approval is withdrawn with reasonable prior notice. In
the event such approval is withdrawn, existing inventories of Promotional
Materials may be depleted.
INFRINGEMENT PROCEEDINGS. Each Party agrees to promptly notify the other Party
of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party shall have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party,
at such other Party's expense, with its reasonable cooperation and assistance
with respect to any such infringement proceedings.
III. REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other Party that: (i) such Party has
the full corporate right, power and authority to enter into this Agreement, to
grant the licenses granted hereunder and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not materially violate any material agreement to which such Party is a
party or by which it is otherwise bound; (iii) when executed and delivered by
such Party, this Agreement will constitute the legal, valid and binding
obligation of such Party, enforceable against such Party in accordance with its
terms; (iv) such Party's Promotional Materials will neither infringe on any
copyright, U.S. patent or any other third party right nor violate any applicable
law or regulation and (v) such Party acknowledges that the other Party makes no
representations, warranties or agreements related to the subject matter hereof
which are not expressly provided for in this Agreement.
IV. CONFIDENTIALITY
Each Party acknowledges that Confidential Information may be disclosed to the
other Party during the course of this Agreement. Each Party agrees that it will
take reasonable steps, at least substantially equivalent to the steps it takes
to protect its own proprietary information, during the term of this Agreement,
and for a period of three years following expiration or termination of this
Agreement, to prevent the disclosure of Confidential Information of the other
Party, other than to its employees, or to its other agents who must have access
to such Confidential Information for such Party to perform its obligations
hereunder, who will each agree to comply with this section. Notwithstanding the
foregoing, either Party may issue a press release or other disclosure containing
Confidential Information without the consent of the other Party, to the extent
such disclosure is required by law, rule, regulation or government or court
order. In such event, the disclosing Party will provide at least five (5)
business days prior written notice of such proposed disclosure to the other
Party (unless a shorter period is required by an applicable legal requirement)..
Further, in the event such disclosure is required of either Party under the
laws, rules or regulations of the Securities and Exchange Commission or any
other applicable governing body, such Party will (i) redact mutually agreed-upon
portions of this Agreement to the fullest extent permitted under applicable
laws, rules and regulations and (ii) submit a request to such governing body
that such portions and other provisions of this Agreement receive confidential
treatment under the laws, rules and regulations of the Securities and Exchange
Commission or otherwise be held in the strictest confidence to the fullest
extent permitted under the laws, rules or regulations of any other applicable
governing body.
V. RELATIONSHIP WITH AOL MEMBERS
SOLICITATION OF SUBSCRIBERS. (a) During the term of this Agreement and for a two
year period thereafter, ICP will not use the AOL Network (including, without
limitation, the e-mail network contained therein) to solicit AOL Members on
behalf of another Interactive Service. More generally, ICP will not send
unsolicited, commercial e-mail (i.e., "spam") or other online communications
through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "PRIOR BUSINESS RELATIONSHIP"
will mean that the AOL Member to whom commercial e-mail or other online
communication is being sent has voluntarily either (i) engaged in a transaction
with ICP or (ii) provided information to ICP through a contest, registration, or
other communication, which included clear notice to the AOL Member that the
information provided could result in commercial e-mail or other online
communications being sent to that AOL Member by ICP or its agents. Any
commercial e-mail or other online communications to AOL Members which are
otherwise permitted hereunder will (a) include a prominent and easy means to
"opt-out" of receiving any future commercial e-mail communications from ICP and
(b) shall also be subject to AOL's then-standard restrictions on distribution of
bulk e-mail (e.g., related to the time and manner in which such e-mail can be
distributed through or into the AOL product or service in question).
(b) ICP shall ensure that its collection, use and disclosure of information
obtained from AOL Members under this Agreement ("MEMBER INFORMATION") complies
with (i) all applicable laws and regulations and (ii) AOL's standard privacy
policies, available on the AOL Service at the keyword term "Privacy" (or, in the
case of the ICP Internet Site, ICP's standard privacy policies so long as such
policies are prominently published on the site and provide adequate notice,
disclosure and choice to users regarding ICP's collection, use and disclosure of
user information). ICP will not disclose Member Information collected hereunder
to any third party in a manner that identifies AOL Members as end users of an
AOL product or service or use Member Information collected under this Agreement
to market another Interactive Service.
(c) AOL shall ensure that its collection, use and disclosure of information
obtained from Medscape with respect to Medscape members under this Agreement
complies with (i) all applicable laws and regulations and (ii) Medscape's
standard privacy policies, available on the Medscape Site by following the
hyperlink "Privacy Policy."
EMAIL NEWSLETTERS. With the exception of Medscape's MedPulse, which is provided
on an opt-out basis to registered members of Medscape's professional service,
any email newsletters sent to AOL Members by ICP or its agents during the Term
shall (i) be subject to AOL's policies on use of the email functionality,
including but not limited to AOL's policy on unsolicited bulk email, (ii) be
sent only to AOL Members requesting to
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receive such newsletters, (iii) not contain Content which violates AOL's Terms
of Service, and (iv) not contain any advertisements, marketing or promotion for
any other Interactive Service.
AOL MEMBER COMMUNICATIONS. With the exception of communications to registered
members of its professional site, to the extent ICP is otherwise permitted to
send communications to AOL Members during the Term (in accordance with the other
requirements contained herein): in any such communications initiated by ICP to
AOL Members on or off the ICP Internet Site (including, without limitation,
e-mail solicitations), ICP will limit the subject matter of such communications
to those categories of products, services and/or content that are specifically
contemplated by this Agreement and will not actively encourage AOL Members to
take any action inconsistent with the scope and purpose of this Agreement,
including without limitation, the following actions: (i) using an Interactive
Site other than the ICP Internet Site for the purchase of Products, (ii) using
Content other than the Licensed Content; (iii) bookmarking of Interactive Sites;
or (iv) changing the default home page on the AOL browser. Additionally, with
respect to such AOL Member communications, in the event that ICP encourages an
AOL Member to purchase products through such communications, ICP shall ensure
that (a) the AOL Network is expressly promoted as the primary means through
which the AOL Member can access the ICP Internet Site (including without
limitation by stating the applicable Keyword Search Term and including direct
links to specific offers within the ICP Internet Site) and (b) any link to the
ICP Internet Site will link to a page which indicates to the AOL Member that
such user is in a site which is affiliated with the AOL Network.
CUSTOMER DATA; AOL DATA. Any data generated from ICP Programming or ICP Tools
located on the ICP Internet Site, including, without limitation, customer names,
addresses and medical information frequency but excluding credit card
information and AOL screennames (the "CUSTOMER DATA"), shall be and remain the
joint property of both Parties. ICP agrees that AOL may use and have reasonable
access to the Customer Data subject to the terms of this Agreement and the
Privacy Policies; provided that both Parties shall use customer-specific medical
profile information on a customer-by-customer basis in accordance with the
Privacy Policies and any applicable laws or regulations. AOL agrees that ICP may
use and have reasonable access to the Customer Data subject to the terms of this
Agreement and the Privacy Policies; provided that ICP (a) shall comply with the
foregoing paragraphs of this Section V of this Exhibit C, (b) shall provide
users the right to have their Customer Data deleted from any database created by
or on behalf of ICP, and (c) shall not have the right to use the Customer Data
to market or promote any consumer direct information, services or products
reasonably construed to be in competition with AOL or any AOL Property. Any data
provided by AOL to ICP (e.g., usage reports) (the "AOL DATA") shall be and
remain the property of AOL, and the AOL Data will be promptly returned to AOL by
ICP in the form in which such data is maintained by ICP or, if AOL so elects,
will be destroyed, upon (i) AOL's request, (ii) expiration or termination of
this Agreement for any reason, or (iii) with respect to any particular AOL Data,
on such earlier date that the same is no longer required by ICP in order to
provide the services required hereunder. ICP will not use the AOL Data for any
purpose other than that of providing such services, nor will the AOL Data, or
any part thereof, be disclosed, sold, assigned, leased, or otherwise disposed of
to third parties by ICP or commercially exploited by or on behalf of ICP, its
employees or agents. ICP will not possess or assert any lien or other right
against or to the AOL Data. The Parties agree to amend the provisions of this
paragraph from time to time to in good faith to the extent necessary to comply
with applicable law, rule or regulation; provided that if any such amendment to
the provisions of this paragraph has, or is likely to have, an adverse effect on
either Party, then such Party may refer such matter to the Management Committee
for resolution.
VI. TREATMENT OF CLAIMS
LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM BREACH OF THIS AGREEMENT, THE USE OF OR INABILITY TO USE
THE AOL NETWORK OR ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS
(COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT THE FOREGOING SHALL NOT
RESTRICT A PARTY'S RIGHTS FOR INDEMNIFICATION FOR THIRD PARTY CLAIMS AS SET
FORTH IN THE "INDEMNITY" SECTION BELOW. EXCEPT AS PROVIDED BELOW IN THE
"INDEMNITY" SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE
THAN ONE FOURTH OF THE GUARANTEED PAYMENT; PROVIDED THAT EACH PARTY SHALL REMAIN
LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER
PARTY UNDER THE PROVISIONS OF THIS AGREEMENT; AND PROVIDED FURTHER THAT THE
FOREGOING LIABILITY CAP SHALL NOT APPLY TO (1) EITHER PARTY'S BREACH OF THIS
AGREEMENT INVOLVING FRAUD, INTENTIONAL MISCONDUCT OR GROSS NEGLIGENCE OR (2)
EITHER PARTY'S ACTION OR FAILURE TO ACT THAT IT KNEW, OR SHOULD HAVE KNOWN,
WOULD CONSTITUTE A BREACH OF ANY TERM, CONDITION OR OBLIGATION UNDER THIS
AGREEMENT.
NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK,
ANY AOL PUBLISHING TOOLS, OR THE LICENSED CONTENT, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED
WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, EACH OF AOL AND ICP SPECIFICALLY
DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF AOL NETWORK OR THE ICP
INTERNET SITE.
INDEMNITY. Each Party will defend, indemnify, save and hold harmless the other
Party and the officers, directors, agents, affiliates, distributors, franchisees
and employees of the other Party from any and all third party claims, demands,
liabilities, costs or expenses, including reasonable attorneys' fees
("LIABILITIES"), resulting from the indemnifying Party's material breach of any
obligation, representation, or warranty of this Agreement.
If a Party entitled to indemnification hereunder (the "INDEMNIFIED PARTY")
becomes aware of any matter it believes is indemnifiable hereunder involving any
claim, action, suit, investigation, arbitration or other proceeding against the
Indemnified Party by any third party (each an "ACTION"), the Indemnified Party
shall give the other Party (the "INDEMNIFYING PARTY") prompt written notice of
such Action. Such notice shall (i) provide the basis on which indemnification is
being asserted and (ii) be accompanied by copies of all relevant pleadings,
demands, and other papers related to the Action and in the possession of the
Indemnified Party. The Indemnifying Party shall have a period of ten (10) days
after delivery of such notice to respond. The Indemnified Party shall cooperate,
at the expense of the Indemnifying Party, with the Indemnifying Party and its
counsel in the defense and the Indemnified Party shall have the right to
participate fully, at its own expense, in the defense of such Action. If a
dispute arises over whether the Party requesting indemnification hereunder is so
entitled, the Party requesting indemnification shall be free, without prejudice
to any of such Party's rights hereunder, to compromise or defend (and control
the defense of) such Action. Any compromise or settlement of an Action shall
require the prior written consent of both Parties hereunder, such consent not to
be unreasonably withheld or delayed.
ACKNOWLEDGMENT. AOL AND ICP EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS
AGREEMENT WERE NEGOTIATED TO REFLECT AN INFORMED, VOLUNTARY ALLOCATION BETWEEN
THEM OF ALL RISKS (BOTH KNOWN AND UNKNOWN) ASSOCIATED WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER. THE LIMITATIONS AND DISCLAIMERS RELATED TO WARRANTIES
AND LIABILITY CONTAINED IN THIS AGREEMENT ARE INTENDED TO LIMIT THE
CIRCUMSTANCES AND EXTENT OF LIABILITY. THE PROVISIONS OF THIS SECTION VI SHALL
BE ENFORCEABLE INDEPENDENT OF AND SEVERABLE FROM ANY OTHER ENFORCEABLE OR
UNENFORCEABLE PROVISION OF THIS AGREEMENT.
VII. ARBITRATION
(a) The Parties shall act in good faith and use commercially reasonable efforts
to promptly resolve any claim, dispute, claim, controversy or disagreement (each
a "DISPUTE") between the Parties or any of their respective subsidiaries,
affiliates, successors and assigns under or related to this Agreement or any
document executed pursuant to this Agreement or any of the transactions
contemplated hereby. If the Parties cannot resolve the Dispute within such
timeframe, the Dispute shall be submitted to the
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<PAGE> 43
Management Committee for resolution. For ten (10) days after the Dispute was
submitted to the Management Committee, the Management Committee shall have the
exclusive right to resolve such Dispute; provided further that the Management
Committee shall have the final and exclusive right to resolve Disputes arising
from any provision of this Agreement which expressly or implicitly provides for
the Parties to reach mutual agreement as to certain terms. If the Management
Committee is unable to amicably resolve the Dispute during the ten (10) day
period, then the Management Committee will consider in good faith the
possibility of retaining a third party mediator to facilitate resolution of the
Dispute. In the event the Management Committee elects not to retain a mediator,
the Dispute will be subject to the resolution mechanisms described below.
"MANAGEMENT COMMITTEE" shall mean a committee made up of a senior executive from
each of the Parties for the purpose of resolving Disputes under this Section and
generally overseeing the relationship between the Parties contemplated by this
Agreement. Neither Party shall seek, nor shall be entitled to seek, binding
outside resolution of the Dispute unless and until the Parties have been unable
to amicably resolve the dispute as set forth in this paragraph (a) and then,
only in compliance with the procedures set forth in this Section.
(b) Except for Disputes relating to issues of (i) proprietary rights, including
but not limited to intellectual property and confidentiality, and (ii) any
provision of this Agreement which expressly or implicitly provides for the
Parties to reach mutual agreement as to certain terms (which shall be resolved
by the Parties solely and exclusively through amicable resolution as set forth
in paragraph (a)), any Dispute not resolved by amicable resolution as set forth
in paragraph (a) shall be governed exclusively and finally by arbitration. Such
arbitration shall be conducted by the American Arbitration Association ("AAA")
in Washington, D.C. and shall be initiated and conducted in accordance with the
Commercial Arbitration Rules ("COMMERCIAL RULES") of the AAA, including the AAA
Supplementary Procedures for Large Complex Commercial Disputes ("COMPLEX
PROCEDURES"), as such rules shall be in effect on the date of delivery of a
demand for arbitration ("DEMAND"), except to the extent that such rules are
inconsistent with the provisions set forth herein. Notwithstanding the
foregoing, the Parties may agree in good faith that the Complex Procedures shall
not apply in order to promote the efficient arbitration of Disputes where the
nature of the Dispute, including without limitation the amount in controversy,
does not justify the application of such procedures.
(c) The arbitration panel shall consist of three arbitrators. Each Party shall
name an arbitrator within ten (10) days after the delivery of the Demand. The
two arbitrators named by the Parties may have prior relationships with the
naming Party, which in a judicial setting would be considered a conflict of
interest. The third arbitrator, selected by the first two, shall be a neutral
participant, with no prior working relationship with either Party. If the two
arbitrators are unable to select a third arbitrator within ten (10) days, a
third neutral arbitrator will be appointed by the AAA from the panel of
commercial arbitrators of any of the AAA Large and Complex Resolution Programs.
If a vacancy in the arbitration panel occurs after the hearings have commenced,
the remaining arbitrator or arbitrators may not continue with the hearing and
determination of the controversy, unless the Parties agree otherwise.
(d) The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law, shall
govern the arbitrability of all Disputes. The arbitrators shall allow such
discovery as is appropriate to the purposes of arbitration in accomplishing a
fair, speedy and cost-effective resolution of the Disputes. The arbitrators
shall reference the Federal Rules of Civil Procedure then in effect in setting
the scope and timing of discovery. The Federal Rules of Evidence shall apply in
toto. The arbitrators may enter a default decision against any Party who fails
to participate in the arbitration proceedings.
(e) The arbitrators shall have the authority to award compensatory damages only.
Any award by the arbitrators shall be accompanied by a written opinion setting
forth the findings of fact and conclusions of law relied upon in reaching the
decision. The award rendered by the arbitrators shall be final, binding and
non-appealable, and judgment upon such award may be entered by any court of
competent jurisdiction. The Parties agree that the existence, conduct and
content of any arbitration shall be kept confidential and no Party shall
disclose to any person any information about such arbitration, except as may be
required by law or by any governmental authority or for financial reporting
purposes in each Party's financial statements.
(f) Each Party shall pay the fees of its own attorneys, expenses of witnesses
and all other expenses and costs in connection with the presentation of such
Party's case (collectively, "ATTORNEYS' FEES"). The remaining costs of the
arbitration, including without limitation, fees of the arbitrators, costs of
records or transcripts and administrative fees (collectively, "ARBITRATION
COSTS") shall be born equally by the parties. Notwithstanding the foregoing, the
arbitrators may modify the allocation of Arbitration Costs and award Attorneys'
Fees in those cases where fairness dictates a different allocation of
Arbitration Costs between the Parties and an award of Attorneys' Fees to the
prevailing Party as determined by the arbitrators.
(g) Any Dispute that is not subject to final resolution by the Management
Committee or to arbitration under this Section or law (collectively,
"NON-ARBITRATION CLAIMS") shall be brought in a court of competent jurisdiction
in the State of New York. Each Party irrevocably consents to the exclusive
jurisdiction of the courts of the State of New York and the federal courts
situated in the State of New York, over any and all Non-Arbitration Claims and
any and all actions to enforce such claims or to recover damages or other relief
in connection with such claims or to enforce a judgment rendered in an
arbitration proceeding.
VIII. MISCELLANEOUS
AUDITING RIGHTS. Each Party shall maintain complete, clear and accurate records
of all expenses, revenues, fees, transactions and related documentation
(including agreements) in connection with the performance of this Agreement
("RECORDS"). All such Records shall be maintained for a minimum of five (5)
years following termination of this Agreement. For the sole purpose of ensuring
compliance with this Agreement, AOL shall have the right, at its expense, to
direct an independent certified public accounting firm subject to strict
confidentiality restrictions to conduct a reasonable and necessary copying and
inspection of portions of the Records of ICP that are directly related to
amounts payable to AOL pursuant to this Agreement. For the sole purpose of
ensuring compliance with this Agreement, ICP shall have the right, at its
expense, to direct an independent certified public accounting firm subject to
strict confidentiality restrictions to conduct a reasonable and necessary
copying and inspection of portions of the Records of AOL that are directly
related to amounts payable to ICP pursuant to this Agreement. Any such audit may
be conducted after twenty (20) business days prior written notice, subject to
the following. Such audits shall not be made more frequently than once every
twelve months. No such audit of AOL shall occur during the period beginning on
June 1 and ending October 1. No such audit of ICP shall occur during the period
beginning on December 1 and ending April 1.
EXCUSE. Neither Party shall be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
INDEPENDENT CONTRACTORS. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or partner of the other
Party. Neither Party shall have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement shall not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
NOTICE. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered by electronic mail on the AOL Network (to screenname "AOLNotice" in
the case of AOL or [email protected] in the case of ICP) or by
confirmed facsimile; (ii) on the delivery date if delivered personally to the
Party to whom the same is directed; (iii) one business day after deposit with a
commercial overnight carrier, with written verification of receipt; or (iv) five
business days after the mailing date, whether or not actually received, if sent
by U.S. mail, return receipt requested, postage and charges prepaid, or any
other means of rapid mail delivery for which a receipt is available. In the case
of AOL, such notice will be provided to both the Senior Vice President for
Business Affairs (fax no. 703-265-1206) and the Deputy General Counsel (fax no.
703-265-1105), each at the address of AOL set forth in the first paragraph of
this Agreement. In the case of ICP, such notice will also be provided to the
General Counsel of ICP (fax 212-760-3140). Except as otherwise specified herein,
ICP's notice address shall be the address for ICP set forth in the first
paragraph of this Agreement or such other address specified in writing by ICP,
with the other relevant notice information, including the recipient for notice
and, as applicable, such recipient's fax number or AOL e-mail address, to be as
reasonably identified by AOL.
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NO WAIVER. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same shall be
and remain in full force and effect.
RETURN OF INFORMATION. Upon the expiration or termination of this Agreement,
each Party shall, upon the written request of the other Party, return or destroy
(at the option of the Party receiving the request) all confidential information,
documents, manuals and other materials specified by the other Party.
SURVIVAL. Sections IV, V, VI, VII and VIII of this Exhibit C, shall survive the
completion, expiration, termination or cancellation of this Agreement. In
addition, all relevant payment terms of this Agreement and any provision which,
by its nature, must survive the completion, expiration, termination or
cancellation of this Agreement, shall survive the completion, expiration,
termination or cancellation of this Agreement.
ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and supersedes
any and all prior agreements of the Parties with respect to the transactions set
forth herein. Neither Party shall be bound by, and each Party specifically
objects to, any term, condition or other provision which is different from or in
addition to the provisions of this Agreement (whether or not it would materially
alter this Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be bound thereby
specifically agrees to such provision in writing.
AMENDMENT. No change, amendment or modification of any provision of this
Agreement shall be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment.
FURTHER ASSURANCES. Each Party shall take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by the other Party for the implementation or continuing
performance of this Agreement.
ASSIGNMENT. Neither Party shall assign this Agreement or any right, interest or
benefit under this Agreement without the prior written consent of the other
Party. Assumption of this Agreement by any successor to either Party (including,
without limitation, by way of merger or consolidation) shall be subject to the
other Party's prior written approval. Subject to the foregoing, this Agreement
shall be fully binding upon, inure to the benefit of and be enforceable by the
Parties hereto and their respective successors and assigns.
SUBCONTRACTORS. To the extent ICP utilizes consultants or subcontractors to
perform a material portion of its obligations under this Agreement, such
consultants and/or subcontractors shall be subject to AOL's prior written
approval and ICP shall provide AOL with direct contact information for the
employees of such consultants and/or subcontractors who are responsible for
performing such obligations, which employees shall be available during business
hours for consultation with AOL. AOL specifically acknowledges and approves
ICP's existing contract with Softwatch, Ltd., for web development services, and
with Exodus Communications for web hosting services.
CONSTRUCTION; SEVERABILITY. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed or if any
such provision is held invalid by a court with jurisdiction over the Parties to
this Agreement, (i) such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the Parties in accordance with
applicable law, and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect.
REMEDIES. Except where otherwise specified, the rights and remedies granted to a
Party under this Agreement are cumulative and in addition to, and not in lieu
of, any other rights or remedies which the Party may possess at law or in
equity.
APPLICABLE LAW. This Agreement shall be interpreted, construed and enforced in
all respects in accordance with the laws of the State of New York except for its
conflicts of laws principles.
EXPORT CONTROLS. Both parties shall adhere to all applicable laws, regulations
and rules relating to the export of technical data and shall not export or
re-export any technical data, any products received from the other Party or the
direct product of such technical data to any proscribed country listed in such
applicable laws, regulations and rules unless properly authorized.
HEADINGS. The captions and headings used in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same document.
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EXHIBIT D
USE OF ICP MARKS
MEDSCAPE
[GRAPHIC OMITTED]
Graphic shows pages from
document establishing basic
guidelines for the use of the
Medscape Corporate Logo
<PAGE> 46
EXHIBIT E
CERTIFICATION OF COMPLIANCE WITH COMMITMENTS
REGARDING PROMOTIONS
Pursuant to Section 3.3 of the Interactive Services Agreement between
______________ ("ICP") and America Online, Inc. ("AOL"), dated as of
_________________, 1999 (the "Agreement"), the following report is delivered to
AOL for the period beginning _____________ and ending __________ (the "Period"):
I. PROMOTIONAL COMMITMENTS
ICP hereby certifies to AOL that ICP completed the following promotional
commitments during the Period:
<TABLE>
<CAPTION>
TYPE OF PROMOTION DATE(S) OF DURATION/CIRCULATION OF RELEVANT CONTRACT
PROMOTION PROMOTION SECTION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.
- -----------------------------------------------------------------------------------------------
2.
- -----------------------------------------------------------------------------------------------
3.
</TABLE>
IN WITNESS WHEREOF, this Certificate has been executed this ___ day of
___________, 199_.
___________________________________
By: _______________________________
Print Name: ________________________
Title: ______________________________
Date: ______________________________
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EXHIBIT F
OPERATING STANDARDS
1. ICP Internet Site Infrastructure. ICP will be responsible for all
communications, hosting and connectivity costs and expenses associated
with the ICP Internet Site. ICP will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet
traffic demands on the ICP Internet Site from the AOL Network. ICP will
design and implement the network between the AOL Service and ICP Internet
Site such that (i) no single component failure will have a materially
adverse impact on AOL Members seeking to reach the ICP Internet Site from
the AOL Network and (ii) no single line under ICP's reasonable control
will run at more than 70% average utilization for a 5-minute peak in a
daily period. In this regard, ICP will provide AOL, upon request, with a
detailed network diagram regarding the architecture and network
infrastructure supporting the ICP Internet Site. In the event that ICP
elects to create a custom version of the ICP Internet Site in order to
comply with the terms of this Agreement, ICP will bear responsibility for
all aspects of the implementation, management and cost of such customized
site.
2. Optimization; Speed. ICP will use commercially reasonable efforts to
ensure that: (a) the functionality and features within the ICP Internet
Site are optimized for the client software then in use by AOL Members; and
(b) the ICP Internet Site is designed and populated in a manner that
minimizes delays when AOL Members attempt to access such site. At a
minimum, ICP will ensure that the ICP Internet Site's data transfers
initiate within fewer than fifteen (15) seconds on average. Prior to
commercial launch of any material promotions described herein, ICP will
permit AOL to conduct performance and load testing of the ICP Internet
Site (in person or through remote communications), with such commercial
launch not to commence until such time as AOL is reasonably satisfied with
the results of any such testing.
3. Technical Problems. ICP agrees to use commercially reasonable efforts to
address material technical problems (over which ICP exercises control)
affecting use by AOL Members of the ICP Internet Site (an "ICP Technical
Problem") promptly following notice thereof. In the event that ICP is
unable to promptly resolve an ICP Technical Problem following notice
thereof from AOL (including, without limitation, infrastructure
deficiencies producing user delays), AOL will have the right to regulate
the promotions it provides to ICP hereunder until such time as ICP
corrects the ICP Technical Problem at issue.
4. Monitoring. ICP will ensure that the performance and availability of the
ICP Internet Site is monitored on a continuous (24 X 7) basis. ICP will
provide AOL with contact information (including e-mail, phone, pager and
fax information, as applicable, for both during and after business hours)
for ICP's principal business and technical representatives, for use in
cases when issues or problems arise with respect to the ICP Internet Site.
5. Security. ICP will utilize Internet standard encryption technologies
(e.g., Secure Socket Layer - SSL) to provide a secure environment for
conducting transactions and/or transferring private member information
(e.g. credit card numbers, banking/financial information, and member
address information) to and from the ICP Internet Site. ICP will
facilitate periodic reviews of the ICP Internet Site by AOL in order to
evaluate the security risks of such site. ICP will promptly remedy any
security risks or breaches of security as may be identified by AOL's
Operations Security team.
6. Technical Performance.
i. ICP will design the ICP Internet Site to support the AOL-Client
embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX
browsers (Windows and Macintosh), the Netscape Browser 4.XX and make
commercially reasonable efforts to support all other AOL browsers
listed at: "http://webmaster.info.aol.com."
ii. To the extent ICP creates customized pages on the ICP Internet Site
for AOL Members, ICP agrees to develop and employ a methodology to
detect AOL Members (e.g., examine the HTTP User-Agent field in order
to identify the "AOL Member-Agents" listed at: http://webmaster.
info.aol.com" and referenced under the heading "Browser Detection.")
iii. ICP will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
iv. ICP will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 and to adhere to AOL's parameters for refreshing
or preventing the caching of information in AOL's proxy system as
outlined in the document provided at the following URL:
http://webmaster.info.aol.com. ICP is responsible for the
manipulation of these parameters in web based objects so as allow
them to be cached or not cached as outlined in RFC 1945.
v. Prior to releasing material, new functionality or features through
the ICP Internet Site ("New Functionality"), ICP will use
commercially reasonable efforts to either (i) test the New
Functionality to confirm its compatibility with AOL Service client
software and (ii) provide AOL with written notice of the New
Functionality so that AOL can perform tests of the New Functionality
to confirm its compatibility with the AOL Service client software.
Should any new material, new functionality or features through the
ICP Internet Site be released without notification to AOL, AOL will
not be responsible for any adverse member experience until such time
that compatibility tests can be performed and the new material,
functionality or features qualified for the AOL Service.
7. AOL Internet Services Partner Support. AOL will provide ICP with access to
the standard online resources, standards and guidelines documentation,
technical phone support, monitoring and after-hours assistance that AOL
makes generally available to similarly situated web-based partners. AOL
support will not, in any case, be involved with content creation on behalf
of ICP or support for any technologies, databases, software or other
applications which are not supported by AOL or are related to any ICP area
other than the ICP Internet Site. Support to be provided by AOL is
contingent on ICP providing to AOL demo account information (where
applicable), a detailed description of the ICP Internet Site's software,
hardware and network architecture and access to the ICP Internet Site for
purposes of such performance and the coordination load testing as AOL
elects to conduct.
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8. ICP Programming. The terms and conditions of this Exhibit applicable to
the ICP Internet Site shall apply equally to any ICP Programming that is
(a) programmed in HTML or (b) web-based.
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EXHIBIT G
KEYWORD GUIDELINES
PRINT/GRAPHIC
- - Preferred listing: (AOL Logo appears) America Online Keyword: Medscape
America Online Keyword: Medscape
- - If necessary, due to space constraints, listing may (pending approval)
appear as follows:
AOL KEYWORD: MEDSCAPE
- - Every effort should be made to have 'America Online' spelled out
- - Capitalization - listing should appear in initial caps only
Note: When America Online is abbreviated to AOL - AOL must appear in
all caps.
K of Keyword must always be capitalized
- - Font, Font style and Size must all be consistent
- - Listing size must be of equal prominence to that of any/all other URLs
featured
BROADCAST/RADIO
- - America Online Keyword must announced entirely (even if an accompanying
graphic is set with AOL versus America Online)
Example voiceover would read:
"For more information, please visit America Online Keyword: Medscape"
- AOL must approve all uses prior to usage
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<PAGE> 1
Exhibit 10.43
MEDSCAPE, INC.
134 WEST 29TH STREET
NEW YORK, NEW YORK 10001-5399
September 3, 1999
CBS Corporation
51 West 52nd Street
New York, New York 10019
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Ladies and Gentlemen:
We refer to the following:
i. the Amended and Restated Stockholders' Agreement (the "Stockholders'
Agreement"), dated as of August 4, 1999 (as amended), among Medscape,
Inc., a Delaware corporation (the "Company"), and the Stockholders (as
defined in the Stockholders' Agreement);
ii. the Amendment (the "Amendment"), dated as of August 25, 1999, to the
Stockholders' Agreement;
iii. the Stockholders' Agreement (the "CBS Stockholders' Agreement"), dated
as of August 3, 1999, between the Company and CBS Corporation, a
Pennsylvania corporation ("CBS"); and
iv. the Registration Rights agreement (the "CBS Registration Rights
Agreement"), dated as of August 3, 1999, between the Company and CBS.
The undersigned hereby agree and accept the following, as applicable:
1. CBS Waiver of Section 3 Rights: CBS hereby acknowledges its receipt of
this notice and waiver, and hereby waives irrevocably all of its rights
under Section 2, Participation Rights, of the CBS Stockholders'
Agreement with respect to the issuance by the Company to America Online,
Inc., a Delaware corporation ("AOL"), of Warrants to Purchase 2,704,316
shares of Class A Common Stock (subject to adjustment in certain events)
and all shares of Class A Common Stock to be issued upon exercise
thereof.
2. AOL Waiver of Section 4 Rights: AOL hereby waives irrevocably all of its
rights under Section 4, Amendment to Section 6 - Transfer of Securities;
Registration Rights, of the Amendment and the Company releases AOL from
any obligations under the Agreement.
<PAGE> 2
3. Joinder of AOL to the CBS Registration Rights Agreement: The Company,
AOL and CBS hereby agree that AOL shall be joined, effective as of the
date hereof, as a party to the CBS Registration Rights Agreement.
4. Amendment to the CBS Registration Rights Agreement: The Company, AOL and
CBS hereby agree that the CBS Registration Rights Agreement shall be
amended as follows:
a. Section 1.1 shall be amended by the addition of the following:
"(h) the term "Warrant Shares" means the 2,704,316 shares
of Common Stock, as such may be adjusted, underlying Warrants
issued by the Company to America Online, Inc., or, to the extent
a Warrant has not vested in full, such lesser amount of shares as
shall underly the vested portion of the Warrants."
b. Section 1.1(e) of the CBS Registration Rights Agreement shall be
deleted in its entirety and replaced by the following:
"(e) The term "Registrable Securities" means the Common
Stock sold and issued to the Investor and the Warrant Shares."
5. This letter agreement may be signed in multiple counterparts, each of
which shall be deemed an original and all of which shall constitute one
document.
Very truly yours,
MEDSCAPE, INC.
By: /s/ Paul T. Sheils
----------------------
Name:
Title:
AGREED AND ACCEPTED
CBS CORPORATION
By: /s/ Fredric G. Reynolds
------------------------
Name:
Title:
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
33-77665 of Medscape, Inc. on Form S-1 of our report dated February 12, 1999
(May 17, 1999 as to Note 13 and July 22, 1999 as to Note 14) relating to the
consolidated financial statements of Medscape, Inc. and of our report dated
April 9, 1999 relating to the financial statements of Healthcare Communications
Group, LLC appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
September 7, 1999
<PAGE> 1
Exhibit 24.1.1
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints each
of Paul T. Sheils, Peter M. Frishauf and Steven Kalin, such person's true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to Medscape, Inc.'s Form S-1 registration statement, to be filed
with the Securities and Exchange Commission in connection with its initial
public offering of shares pursuant to Section 12 of the Securities Exchange Act
of 1934 (or to any other registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933), and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that any said
attorney-in-fact and agent, or any substitute or substitutes of any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have caused this Power of Attorney to
be executed as of this 31st day of August, 1999.
/s/ Fredric G. Reynolds
----------------------------
Fredric G. Reynolds
/s/ Andrew Heyward
----------------------------
Andrew Heyward
