<PAGE>
===============================================================================
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14C-5(D)(2))
[X] Definitive Information Statement
Mediconsult.com, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[Insert Mediconsult Logo] [Insert POL Logo]
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
To the Stockholders of Mediconsult.com, Inc. and Physicians' Online, Inc.:
The boards of directors of Mediconsult.com, Inc., Physicians' Online, Inc.
and certain stockholders of Mediconsult, representing in excess of 50% of
Mediconsult's outstanding common stock, have approved a merger agreement that
will result in Physicians' Online becoming a wholly-owned subsidiary of
Mediconsult.
If the merger is completed:
<TABLE>
<C> <S>
(right arrow) Mediconsult stockholders will continue to own their existing
shares of Mediconsult common stock; and
(right arrow) each share of Physicians' Online common stock and Physicians'
Online preferred stock will be converted into the right to
receive shares of Mediconsult common stock in accordance with
the conversion formula described in detail on page 54 of this
joint Information/Proxy Statement/Prospectus.
</TABLE>
As a group, the Physicians' Online stockholders will receive approximately
17.8 million shares of Mediconsult common stock after deductions for
Physicians' Online's transaction expenses and an add back for the aggregate
exercise price of the outstanding Physicians' Online options that are
unexercised at the time of the merger. Under the merger agreement, options to
purchase Physicians' Online stock that are outstanding immediately before the
effective time of the merger will be converted into options to purchase
Mediconsult common stock in accordance with the conversion formula described in
detail on page 54.
It is estimated that Physicians' Online stockholders will receive, in the
aggregate, approximately 17.8 million shares of Mediconsult common stock in the
merger, or approximately 38% of the issued and outstanding shares of
Mediconsult common stock following the merger. It is estimated that each share
of Physicians' Online common stock (including shares issuable upon conversion
of the outstanding Physicians' Online preferred stock) will receive
approximately 2.41 shares of Mediconsult common stock. In addition, the holders
of Physicians' Online preferred stock will receive a number of shares of
Mediconsult common stock in respect of the aggregate liquidation price of such
preferred stock. These estimates are based on an assumed average closing price
of $6.825 (the average closing price per share of the Mediconsult common stock
on the Nasdaq National Market for the ten trading days ending on November 17,
1999, the most recent practicable date prior to the mailing of this joint
Information/Proxy Statement/Prospectus), estimated transaction expenses of
approximately $2.4 million, and an estimated aggregate exercise price of
unexercised Physicians' Online options of approximately $1.3 million. The exact
conversion ratio will be determined immediately prior to the closing and may be
higher or lower than 2.41 shares and the total number of shares issued to the
Physicians' Online stockholders may be greater or lesser than 17.8 million.
In addition, upon exercise of their options and payment of the exercise
price after the merger, the holders options to purchase Physicians' Online
common stock will be eligible to receive, in the aggregate, approximately 2
million additional shares of Mediconsult common stock.
By approving the merger agreement, Physicians' Online stockholders will
agree that 10% of the total number of shares of Mediconsult common stock issued
in the merger will be available to satisfy certain
<PAGE>
indemnification obligations under the merger agreement. An escrow arrangement
will be established at closing to hold this 10% amount. This escrow will be
Mediconsult's sole recourse for such indemnification obligation, with each
stockholder being at risk for no more than its pro rata share of the escrow.
A vote in favor of the merger agreement and the related issuance of
Mediconsult common stock will be effective whether or not the actual number of
shares of Mediconsult common stock to be issued in the merger or the actual
conversion ratio falls within the ranges described above. Mediconsult common
stock is quoted on the Nasdaq National Market under the symbol "MCNS".
The merger cannot be completed unless Physicians' Online's stockholders
approve the merger agreement by the required percentage. Physicians' Online has
scheduled a special meeting for Physicians' Online stockholders to vote on the
merger agreement. Whether or not you plan to attend a special meeting, please
take the time to vote by completing and mailing the enclosed proxy card to us.
Your vote is very important.
Robert A. Jennings, the Chief Executive Officer and a director of
Mediconsult, JHC Limited, an entity controlled by Mr. Jennings, Ian Sutcliffe,
the President and a director of Mediconsult since 1996, Michel Bazinet, the
medical director of Mediconsult since 1996, and Nazem & Company IV, L.P.
Transatlantic Fund C.V., together, representing in excess of 50% of the
outstanding shares of Mediconsult common stock (Mediconsult's controlling
stockholders), have approved the issuance of stock in connection with the
merger and certain other actions by signing an irrevocable written consent of
stockholders. No further vote of Mediconsult stockholders is necessary to
approve the issuance of stock in connection with the merger or the other
actions already acted upon and described in this joint Information/Proxy
Statement/Prospectus.
MEDICONSULT STOCKHOLDERS ARE NOT BEING ASKED FOR A PROXY. IF YOU ARE A
MEDICONSULT STOCKHOLDER, YOU ARE REQUESTED NOT TO SEND US A PROXY.
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully. In particular,
please see the section entitled "Risk Factors" on page 8 of this document for a
discussion of risks associated with the merger.
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<S> <C>
Robert A. Jennings David D. Richards
Chairman and Chief Executive Officer Chairman and Chief Executive
Mediconsult.com, Inc. Officer, Physicians' Online, Inc.
</TABLE>
Neither the United States Securities and Exchange Commission (SEC) nor any
state securities commission has approved or disapproved of the Mediconsult
common stock to be issued in the merger or determined if this joint
Information/Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
This joint Information/Proxy Statement/Prospectus dated, November 19, 1999
is first being mailed to Physicians' Online and Mediconsult stockholders on or
about November 24, 1999.
<PAGE>
MEDICONSULT.COM, INC.
1330 Avenue of the Americas
17th Floor
New York, New York 10019
INFORMATION STATEMENT/PROSPECTUS
To our Stockholders:
Notice is hereby given that Mediconsult's controlling stockholders, Robert
A. Jennings, the Chief Executive Officer and a director of Mediconsult, JHC
Limited, an entity controlled by Mr. Jennings, Ian Sutcliffe, the President and
a director of Mediconsult since 1996, Michel Bazinet, the medical director of
Mediconsult since 1996, and Nazem & Company IV, L.P. Transatlantic Fund C.V.,
together representing in excess of 50% of the outstanding shares of Mediconsult
common stock, have approved items 1, 2, 4 and 5 below and have agreed to
approve, after the distribution of this joint Information/Proxy
Statement/Prospectus, item 3 below, in each case, by signing an irrevocable
written consent of stockholders:
1. the merger transaction pursuant to the terms of the merger agreement,
as amended, including the necessary issuance of up to 20,500,000 shares of
Mediconsult common stock;
2. an amendment to the Mediconsult certificate of incorporation to
increase the authorized common stock of Mediconsult from 50,000,000 shares
to 100,000,000 shares;
3. an amendment to the Mediconsult 1996 Stock Option Plan to authorize
an additional 3,500,000 shares of Mediconsult common stock for issuance
thereunder and to provide for an independent compensation committee to
administer certain option grants;
4. the assumption and adoption of the Physicians' Online stock option
plan, with certain amendments providing for the issuance of Mediconsult
common stock, in accordance with the conversion ratio, upon exercise of the
outstanding Physicians' Online options; and
5. the ratification of an amendment to the Mediconsult bylaws increasing
the size of the company's board to 10 to facilitate the placement of four
Physicians' Online nominees on the Mediconsult Board as required by the
merger agreement.
NO VOTE OF MEDICONSULT STOCKHOLDERS IS NECESSARY TO APPROVE AND ADOPT THE
MERGER AGREEMENT OR THE MERGER OR THE OTHER ACTIONS DESCRIBED ABOVE.
MEDICONSULT STOCKHOLDERS ARE NOT BEING ASKED FOR A PROXY. IF YOU ARE A
MEDICONSULT STOCKHOLDER, YOU ARE REQUESTED NOT TO SEND US A PROXY.
By Order of the Board of
Directors,
Robert A. Jennings
Chairman and Chief Executive
Officer
November 19, 1999
<PAGE>
PHYSICIANS' ONLINE, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On December 15, 1999
----------------
To the Stockholders of Physicians' Online, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of PHYSICIANS'
ONLINE, INC., a Delaware corporation, will be held on December 15, 1999, at
10:00 a.m., local time, at the offices of Physicians' Online, whose address is
560 White Plains Road, Tarrytown, New York for the following purposes:
1. To approve and adopt an agreement and plan of merger, dated as of
September 7, 1999, by and among Physicians' Online, certain stockholders of
Physicians' Online parties thereto, Mediconsult.com Inc., a Delaware
corporation, and PMCI, Inc., a Delaware corporation and wholly-owned
subsidiary of Mediconsult, as amended, providing for, among other things,
the merger of PMCI with and into Physicians' Online that will result in
Physicians' Online becoming a wholly-owned subsidiary of Mediconsult. By
voting in favor of the merger agreement, you also approve the appointment
of Jason Fisherman, currently a director of Physicians' Online, as the
representative of the stockholders of Physicians' Online (and the
appointment of Bradford Burnham, also currently a director of Physicians'
Online, in the event Mr. Fisherman is unable to continue as stockholder
representative) to act on behalf of the Physicians' Online stockholders in
connection with the merger and the escrow agreement referred to in the
merger agreement; and
2. To transact such other business as may properly come before the
Physicians' Online special meeting or any adjournment or postponement of
the Physicians' Online special meeting, including without limitation,
potential adjournments or postponements of the Physicians' Online special
meeting for the purpose of soliciting additional proxies in order to
approve the proposed merger.
The board of directors of Physicians' Online has unanimously adopted a
resolution approving the merger agreement and the transactions contemplated by
it and declaring the merger agreement advisable and in the best interests of
the stockholders and recommends that you vote FOR approval of the adoption of
the merger agreement. We have described the proposed merger in more detail in
the accompanying joint Information/Proxy Statement/Prospectus, which you should
read in its entirety before voting. A copy of the merger agreement is attached
as Annex A to the accompanying joint Information/Proxy Statement/Prospectus.
The close of business on November 19, 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Physicians' Online special meeting or any adjournment or postponement of
the meeting. Only holders of record of Physicians' Online common and preferred
stock at the close of business on the record date may vote at the Physicians'
Online special meeting.
The approval and adoption of the proposed merger agreement will require (i)
the affirmative vote of the holders of at least a majority of the votes
represented by the outstanding stock of Physicians' Online entitled to vote and
(ii) at least 66 2/3% of the votes represented by the shares of Physicians'
Online Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock, voting together on an as if converted basis
with the votes represented by the shares of common stock held by the following
founding stockholders of Physicians' Online: Steven Hochberg, Christian Mayaud,
M.D., William Greenberg, M.D., Jonathan Edelson, M.D., the Hochberg Family
Limited Partnership, the Edelson Investment Trust f/b/o Zachary Edelson, the
Edelson Investment Trust f/b/o Eli Edelson and the Mayaud Family Limited
Partnership (collectively, the Physicians' Online founders).
All holders of Physicians' Online preferred and common stock are cordially
invited to attend the Physicians' Online special meeting in person. However, to
ensure your representation at the Physicians' Online special meeting, you are
urged to complete, sign and return the enclosed proxy card as promptly as
possible in
<PAGE>
the enclosed postage-prepaid envelope. You may revoke your proxy in the manner
described in the accompanying joint Information/Proxy Statement/Prospectus at
any time before it is voted at the Physicians' Online special meeting. Executed
proxies with no instructions indicated thereon will be voted "FOR" approval of
the merger agreement. If you fail to return a properly executed proxy card or
to vote in person at the Physicians' Online special meeting, the effect will be
a vote against the proposed agreement and plan of merger.
David D. Richards
Chairman and Chief Executive
Officer, Physicians' Online, Inc.
November 19, 1999
THE BOARD OF DIRECTORS OF PHYSICIANS' ONLINE RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, AS AMENDED.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
SUMMARY................................................................... 1
The Companies........................................................... 1
The Merger.............................................................. 1
Votes Required.......................................................... 1
Our Recommendations to Stockholders..................................... 2
What Holders of Physicians' Online Common Stock Will Receive............ 2
Treatment of Physicians' Online Stock Options........................... 3
Conditions to the Merger................................................ 3
Indemnification......................................................... 4
No Solicitation by Physicians' Online................................... 4
Termination of the Merger Agreement..................................... 4
Opinion of Mediconsult's Financial Advisor.............................. 5
Interests of Executive Officers and Directors of Physicians' Online in
the Merger............................................................. 5
Accounting Treatment.................................................... 5
Resales of Mediconsult Common Stock Issued in the Merger; Affiliates
Agreements............................................................. 5
Material United States Federal Income Tax Consequences.................. 6
Physicians' Online Stockholders' Right of Appraisal..................... 6
How the Rights of Physicians' Online Stockholders Will Differ as a
Mediconsult Stockholder................................................ 6
Forward-Looking Statements May Prove Inaccurate......................... 6
Mediconsult Price Information........................................... 7
RISK FACTORS.............................................................. 8
Risks Relating to the Merger............................................ 8
Risks Relating to Mediconsult........................................... 10
Risks Relating to Physicians' Online.................................... 20
SELECTED HISTORICAL FINANCIAL DATA........................................ 25
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 28
MARKET PRICE INFORMATION.................................................. 33
Mediconsult............................................................. 33
Physicians' Online...................................................... 33
CERTAIN INFORMATION ABOUT THE ACTIONS TAKEN BY THE MEDICONSULT CONTROLLING
STOCKHOLDERS............................................................. 34
General................................................................. 34
Matters Acted Upon and to be Acted Upon................................. 34
Record Date............................................................. 34
Actions Taken and to be Taken by the Mediconsult Controlling
Stockholders........................................................... 35
Amendments to the Plan.................................................. 36
Description of the Plan................................................. 36
New Plan Benefits....................................................... 37
Amendments to the Plan.................................................. 37
Description of the Plan................................................. 38
New Plan Benefits....................................................... 39
THE PHYSICIANS' ONLINE SPECIAL MEETING.................................... 40
General................................................................. 40
Matters to be Considered................................................ 40
Physicians' Online Board of Directors Recommendation.................... 40
Record Date and Voting.................................................. 40
Voting and Revocable Proxies............................................ 41
THE MERGER................................................................ 43
Background of the Merger................................................ 43
</TABLE>
i
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Page
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Joint Reasons for the Merger............................................ 45
Action of the Board of Directors of Mediconsult; Actions of the
Controlling Mediconsult Stockholders................................... 45
Mediconsult's Reasons for the Merger.................................... 45
Recommendation of the Board of Directors of Physicians' Online.......... 46
Physicians' Online's Reasons for the Merger............................. 46
Opinion of Mediconsult's Financial Advisor.............................. 47
Interests Of Executive Officers And Directors Of Physicians' Online In
The Merger............................................................. 52
TREATMENT OF PHYSICIANS' ONLINE COMMON STOCK AND PREFERRED STOCK.......... 54
ACCOUNTING TREATMENT OF THE MERGER........................................ 55
RESALES OF MEDICONSULT COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER;
AFFILIATES AGREEMENTS.................................................... 56
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................... 57
NASDAQ NATIONAL MARKET QUOTATION.......................................... 60
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 60
THE MERGER AGREEMENT...................................................... 62
General................................................................. 62
Conversion of Shares.................................................... 62
Creation of Escrow...................................................... 63
Treatment of Physicians' Online Stock Options........................... 63
Exchange of Stock Certificates.......................................... 63
Representations and Warranties.......................................... 64
Certain Covenants....................................................... 65
Related Matters After the Merger........................................ 68
Indemnification of Mediconsult by Stockholders.......................... 68
Conditions to Obligations to Effect Merger.............................. 69
Termination; Fees and Expenses.......................................... 72
Amendment and Waiver.................................................... 73
OTHER AGREEMENTS.......................................................... 74
Voting Agreements....................................................... 74
Escrow Agreement........................................................ 74
DESCRIPTION OF MEDICONSULT'S BUSINESS..................................... 75
Our Web Sites........................................................... 75
The Internet Healthcare User............................................ 76
Client Services......................................................... 76
Our Strategy............................................................ 77
Legal Proceedings....................................................... 77
Management's Discussion and Analysis of Mediconsult..................... 77
DESCRIPTION OF PHYSICIANS' ONLINE'S BUSINESS.............................. 86
Management's Discussion and Analysis of Physicians' Online.............. 86
MANAGEMENT OF MEDICONSULT................................................. 90
Directors, Executive Officers and Significant Employees................. 90
CERTAIN TRANSACTIONS...................................................... 96
SECURITY OWNERSHIP OF MANAGEMENT OF MEDICONSULT........................... 98
SECURITY OWNERSHIP OF MANAGEMENT OF MEDICONSULT AFTER THE MERGER.......... 99
DESCRIPTION OF MEDICONSULT CAPITAL STOCK.................................. 101
Common Stock............................................................ 101
Preferred Stock......................................................... 101
Warrants................................................................ 101
Registration Rights..................................................... 102
Anti-takeover Effects of Provisions of By-laws.......................... 103
</TABLE>
ii
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Page
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Limitation of Liability and Indemnification Matters...................... 103
APPRAISAL RIGHTS........................................................... 104
Rights of Dissenting Stockholders of Physicians' Online.................. 104
COMPARISON OF STOCKHOLDER RIGHTS........................................... 106
General.................................................................. 106
Capitalization........................................................... 106
Voting Rights............................................................ 106
Number and Classification of Directors................................... 106
Removal of Directors..................................................... 107
Filling Vacancies on the Board of Directors.............................. 107
Charter Amendments....................................................... 107
Amendments to By-Laws.................................................... 107
Action by Written Consent................................................ 108
Notice of Stockholder Actions............................................ 108
Right to Call Special Meeting of Stockholders............................ 108
Limitation of Personal Liability of Directors............................ 108
Dividends................................................................ 109
Conversion and Redemption................................................ 109
Liquidation.............................................................. 109
REPRESENTATION AT SPECIAL MEETING.......................................... 110
LEGAL MATTERS.............................................................. 110
EXPERTS.................................................................... 111
ANNEXES:
ANNEX A--Merger Agreement (including Amendment No. 1 thereto)
ANNEX B--Opinion of Warburg Dillon Read LLC
ANNEX C--Delaware General Corporation Law Sec. 262 Appraisal Rights
ANNEX D--Amended and Restated Mediconsult 1996 Stock Option Plan
ANNEX E--Amended and Restated Physicians' Online 1994 Stock Option Plan
ANNEX F--Escrow Agreement
</TABLE>
iii
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document. We have included page
references parenthetically to direct you to a more complete description of the
topics in this summary.
The Companies
Mediconsult
Mediconsult is a leading provider of patient-oriented healthcare information
and services on the World Wide Web. Our Web sites provide a trusted source of
comprehensive and easy to understand medical information and are designed to
empower consumers through increased education related to medical conditions and
treatment alternatives. Our Web sites also provide a destination on the
Internet where visitors can interact with others in a community environment. We
facilitate this environment through a well-organized, easy to navigate format
and an array of complementary services, including moderated on-line support
groups and discussion forums. By fostering communities centered around
prevalent medical conditions and health issues, we believe we create
significant opportunities for pharmaceutical and other healthcare companies to
reach a highly targeted consumer audience using Internet-based marketing and
advertising sponsorship programs.
Physicians' Online
Physicians' Online is an Internet online service that provides medical
information, communications, and a transactions network for physicians. It is a
secure, physicians-only environment featuring access to medical databases,
daily medical news, continuing medical education credits, clinical symposia, e-
mail accounts, Internet access, discussions with colleagues, secure
prescription transactions, market research and recruiting services, among other
services. Membership is free so long as the member does not use Physicians'
Online as its Internet Service Provider. Physicians' Online's services are
principally supported by pharmaceutical and direct-to-consumer advertising
sponsors as well as subscription fees from its members using it as an Internet
Service Provider and MDDirect, a physician recruitment business.
The Merger
Through the merger, Physicians' Online will become a wholly-owned subsidiary
of Mediconsult. Physicians' Online stockholders will receive Mediconsult common
stock in exchange for their shares of Physicians' Online stock. The merger
agreement is attached to this joint Information/Proxy Statement/Prospectus as
Annex A. We encourage you to read the merger agreement as it is the legal
document that governs the merger.
Votes Required
Mediconsult
The Mediconsult charter provides that any action taken by the stockholders
may be taken by written consent in lieu of a meeting, without prior notice or
vote, of at least the number of holders necessary to authorize such action.
Mediconsult's controlling stockholders have already approved the issuance of
stock in connection with the merger and certain other actions by signing an
irrevocable written consent of stockholders. No vote of Mediconsult
stockholders is necessary to approve the issuance of stock in connection with
the merger or the other actions already acted upon and described in this joint
Information/Proxy
<PAGE>
Statement/Prospectus. After the distribution of this joint Information/Proxy
Statement/Prospectus, the Mediconsult controlling stockholders will also act to
approve the amendments to the Mediconsult 1996 Stock Option Plan.
Physicians' Online
The approval and adoption of the proposed merger agreement will require (i)
the affirmative vote of the holders of at least a majority of the outstanding
stock of Physicians' Online entitled to vote and (ii) at least 66 2/3% of the
votes represented by the shares of Physicians' Online Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series D preferred
stock, voting together on an as if converted basis with the votes represented
by the shares of common stock held by the Physicians' Online founders.
Certain holders of Physicians' Online common stock, Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock who collectively beneficially own approximately 91% of the
outstanding voting power of Physicians' Online have agreed to vote in favor of
the merger and have given proxies to Mediconsult to vote in favor of the merger
agreement.
Our Recommendations to Stockholders
To Mediconsult stockholders:
On September 7, 1999, the Mediconsult board of directors voted to approve
the merger and the merger agreement and the proposed issuance of Mediconsult
common stock in connection with the merger. Mediconsult's controlling
stockholders have approved the issuance of stock in connection with the merger
and certain other actions by signing an irrevocable written consent of
stockholders. No further vote of Mediconsult stockholders is necessary to
approve the issuance of stock in connection with the merger or the other
actions already acted upon and described in this joint Information/Proxy
Statement/Prospectus. The Mediconsult board believes that the merger is
advisable and in your best interests.
To Physicians' Online stockholders:
Also on September 7, 1999, the Physicians' Online board of directors
unanimously voted to approve the merger agreement and the transactions
contemplated thereby. The Physicians' Online board believes that the merger is
advisable and in your best interests and recommends that you vote FOR the
proposal to approve the merger agreement and the transactions contemplated
thereby.
What Holders of Physicians' Online
Common Stock Will Receive
It is estimated that Physicians' Online stockholders will receive, in the
aggregate, approximately 17.8 million shares of Mediconsult common stock in the
merger, or approximately 38% of the issued and outstanding shares of
Mediconsult common stock following the merger. It is estimated that each share
of Physicians' Online common stock (including shares issuable upon conversion
of the outstanding Physicians' Online preferred stock) will receive
approximately 2.4 shares of Mediconsult common stock. In addition, the holders
of Physicians' Online preferred stock will receive a number of shares of
Mediconsult common stock in respect of the aggregate liquidation price of such
preferred stock. These estimates are based on an assumed average closing price
of $6.825 (the average closing price per share of the Mediconsult common stock
on the Nasdaq National Market for the ten trading days ending on November 17,
1999, the most recent practicable date prior to the mailing of this joint
Information/Proxy Statement/Prospectus), estimated transaction expenses
2
<PAGE>
of approximately $2.4 million, and an estimated aggregate exercise price of
unexercised Physicians' Online options of approximately $1.3 million. The exact
conversion ratio will be determined immediately prior to the closing and may be
higher or lower than 2.4 shares and the total number of shares issued to the
Physicians' Online stockholders may be greater or lesser than 17.8 million.
A vote in favor of the merger agreement will be effective whether or not the
actual number of shares of Mediconsult common stock to be issued in the merger
or the actual conversion ratio falls within the ranges described above.
Mediconsult will not issue fractional shares of Mediconsult common stock in
connection with the merger. Instead, cash will be paid with respect to
fractional shares.
By approving the merger agreement, Physicians' Online stockholders will
agree that 10% of the total number of shares of Mediconsult common stock issued
in the merger will be available to satisfy certain indemnification obligations
under the merger agreement. An escrow arrangement will be established at
closing to hold this 10% amount. This escrow will be Mediconsult's sole
recourse for such indemnification obligation, with each stockholder being at
risk for no more than its pro rata share of the escrow.
Treatment of Physicians' Online Stock Options
At the effective time of the merger, each outstanding option to purchase
shares of Physicians' Online common stock, whether vested or unvested and
whether or not exercisable, will be converted into an option to purchase, for
the same aggregate exercise price, the number of shares of Mediconsult common
stock that the holder of such option would have received had such holder
exercised such option immediately prior to the effective time, with no change
to the vesting period and with no other change to the terms of such option. Any
fractional shares of Mediconsult common stock resulting from such adjustment
will be rounded to the nearest whole number of shares. In connection with the
merger, Mediconsult is assuming the Physicians' Online option plan, as amended
to provide for the issuance of Mediconsult common stock upon the issuance of
outstanding Physicians' Online options, as described above.
Conditions to the Merger
The completion of the merger depends upon meeting a number of conditions,
including the following:
. the approval of the merger by (a) at least two-thirds of the votes
entitled to be cast by the holders of Physicians' Online preferred stock
and of the Physicians' Online founders, as holders of Physicians' Online
common stock, voting as a single class and (b) at least a majority of
the votes entitled to be cast by the Physicians' Online stockholders;
. the issuance of shares of Mediconsult common stock;
. the holders of not more than 10% of the outstanding voting stock of
Physicians' Online shall have voted against the merger agreement and
exercised rights of appraisal under the DGCL;
. the shares of Mediconsult common stock being issued in the merger having
been authorized for listing on the Nasdaq National Market;
. the receipt of a legal opinion regarding material tax consequences of
the merger; and
. other customary contractual conditions specified in the merger
agreement.
Certain of the conditions to the merger may be waived by the party entitled
to assert the condition.
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Indemnification
By voting in favor of the merger agreement or by accepting Mediconsult
common stock in the merger, all stockholders of Physicians' Online who have not
perfected dissenter's rights of appraisal under the DGCL will be deemed to have
agreed to the terms of the escrow agreement referred to in the merger agreement
to secure Mediconsult's rights to indemnification. The merger agreement
provides that Mediconsult will be indemnified out of the escrow against damages
due to (1) breach of any representation or warranty of Physicians' Online
contained in the merger agreement, (2) the breach or other failure by
Physicians' Online to perform any covenant, agreement or other obligation of
Physicians' Online contained in the merger agreement, (3) the incurring of fees
and expenses by Physicians' Online in connection with the merger in excess of
the amount set forth in a certificate delivered two business days prior to the
closing date to Mediconsult, and (4) any and all actions, suits, proceedings,
demands, judgments, costs and legal and other expenses incident to any of the
matters referred to above. This obligation to indemnify Mediconsult is limited
to 10% of the total number of shares of Mediconsult common stock issued in the
merger, with each stockholder being at risk for no more than its pro rata share
of the escrow. An escrow arrangement will be established at closing to hold
this 10% amount. If the stockholders approve of the merger agreement, Jason
Fisherman, currently a director of Physicians' Online, is deemed to be
appointed by the stockholders as the stockholder representative to administer
the escrow on behalf of all former Physicians' Online stockholders. The escrow
and indemnification obligations will end one year after closing. At that time,
if Mediconsult has made a claim for the escrowed property, the escrowed
property in excess of the claim will be released to the former Physicians'
Online stockholders.
The merger agreement provides that the stockholder representative will not
be liable to the Physicians' Online stockholders in connection with the
performance of his duties under the merger agreement and escrow agreement
provided his actions are not fraudulent or taken in bad faith. The stockholder
representative will be indemnified by the Physicians' Online stockholders
solely out of distributions from the escrow against any loss, claim, liability,
cost, expense or other damage incurred by him in connection with any claim to
which the stockholder representative is made a party in connection with the
merger agreement or the escrow agreement, as well as for all out-of-pocket
expenses incurred by the stockholder representative while performing his duties
under the merger agreement and the escrow agreement. The stockholder
representative's right to be indemnified by the Physicians' Online stockholders
is subordinate to Mediconsult's right to be indemnified from the escrow.
No Solicitation by Physicians' Online
Physicians' Online has agreed that it will not directly or indirectly
through its officers, directors, employees, representatives and agents initiate
or engage in any discussion regarding a business combination of Physicians'
Online with any other party.
Termination of the Merger Agreement
The merger agreement may be terminated in the following ways at any time
prior to the time of the merger:
Mediconsult and Physicians' Online may terminate the merger agreement by mutual
consent;
. Mediconsult or Physicians' Online may terminate the merger agreement if
the other party is in breach of any representation, warranty or covenant
contained in the merger agreement and such breach is not remedied within
10 days of delivery of written notice and such breach would result in a
material adverse effect;
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. Mediconsult or Physicians' Online may terminate the merger agreement if
the requisite vote of the stockholders of Physicians' Online is not
obtained at the Physicians' Online special meeting (including any
adjournment or postponement thereof);
. Mediconsult or Physicians' Online may terminate the merger agreement at
any time after January 31, 2000, if for any reason the merger has not
been consummated by such date and such failure to consummate the merger
is not caused by a breach of the merger agreement by the terminating
party; or
. Mediconsult or Physicians' Online may terminate the merger agreement if
any court of competent jurisdiction or other competent governmental or
regulatory authority has issued an order making illegal or otherwise
restricting, preventing or prohibiting the merger and such order has
become final and nonappealable.
Opinion of Mediconsult's Financial Advisor
The Mediconsult board of directors has received a written opinion from
Warburg Dillon Read LLC as to the fairness, from a financial point of view, of
the aggregate stock consideration to be paid by Mediconsult in the merger. The
full text of Warburg Dillon Read's written opinion dated September 7, 1999 is
attached to this document as Annex B. We encourage you to read this opinion
carefully in its entirety for a description of the assumptions made, procedures
followed, matters considered and limitations on the review undertaken. Warburg
Dillon Read's opinion is directed to the Mediconsult board and does not
constitute a recommendation to any stockholder with respect to any matter
relating to the merger.
Interests of Executive Officers and Directors of Physicians' Online in the
Merger
In considering the recommendation of the Physicians' Online board, you
should be aware of the interests that executive officers and directors of
Physicians' Online have in the merger. These include:
. Certain executive officers of Physicians' Online have employment
agreements with Physicians' Online and will continue in their employment
following the merger;
. Four persons nominated by certain principal stockholders of Physicians'
Online will be appointed to Mediconsult's board following the merger;
and
. Certain principal stockholders of Physicians' Online hold promissory
notes in the aggregate amount of $5,334,548 issued to them by
Physicians' Online which are expected to be paid following the merger in
accordance with their terms.
Accounting Treatment
We expect the merger to qualify as a pooling of interests under United
States generally accepted accounting principles, which means that for
accounting and financial reporting purposes, Mediconsult will treat Mediconsult
and Physicians' Online as if they had always been a combined entity.
Resales of Mediconsult
Common Stock Issued in the
Merger; Affiliates Agreements
Mediconsult common stock issued in connection with the merger will be freely
transferable except that shares of Mediconsult common stock received by persons
who are deemed to be "affiliates," as such term is
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defined by Rule 144 under the Securities Act of 1933, as amended (the
Securities Act), of Physicians' Online at the effective time of the merger may
be resold by them only in transactions permitted by the resale provisions of
Rule 145 under the Securities Act or as otherwise permitted under the
Securities Act. Each executive officer and director and other person who may be
an affiliate of Physicians' Online has executed a written affiliates agreement
providing, among other things, that such person will not offer, sell, transfer
or otherwise dispose of any of the shares of Mediconsult common stock obtained
as a result of the merger except in compliance with the Securities Act and the
rules and regulations of the SEC thereunder. Each affiliates agreement also
provides that the affiliate covered by such agreement may not take a number of
action that would jeopardize the accounting treatment of the merger as a
pooling of interests.
Material United States
Federal Income Tax Consequences
The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes so that, in general, no gain or loss should be recognized
by Physicians' Online stockholders for United States federal income tax
purposes on the exchange of shares of Physicians' Online stock for shares of
Mediconsult common stock. For a more detailed description of the material
United States federal income tax consequences of the merger, see "The Merger--
Material United States Federal Income Tax Consequences."
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
Physicians' Online Stockholders'
Right of Appraisal
Under Delaware law, Physicians' Online stockholders who do not vote in favor
of the merger and who comply with notice requirements and other procedures will
have the right to receive the "fair value" of their shares in cash rather than
the Mediconsult common stock specified in the merger agreement. "Fair value"
will be determined by a Delaware court and may be more than, the same as, or
less than the value of the consideration to be paid to other Physicians' Online
stockholders. In addition to reading "Appraisal Rights," see Annex C which sets
forth Section 262 of the DGCL.
How the Rights of Physicians' Online Stockholders
Will Differ as a Mediconsult Stockholder
The rights of investors as stockholders of Mediconsult after the merger will
be governed by Mediconsult's charter and by-laws. Those rights differ from
rights of Physicians' Online stockholders under Physicians' Online's charter
and by-laws.
Forward-Looking Statements
May Prove Inaccurate
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations
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of Mediconsult and Physicians' Online, including the anticipated cost savings
and revenue enhancements from the merger. Also, when we use words such as
"believes", "expects", "anticipates" or similar expressions, we are making
forward-looking statements. Stockholders should note that many factors could
affect the future financial results of Mediconsult and Physicians' Online, and
could cause these results to differ materially from those expressed in our
forward-looking statements. These factors include the following:
. the risk that we are unable to achieve anticipated cost savings and
revenue enhancements;
. the risk that we encounter greater than expected costs and difficulties
related to the integration of the businesses of Mediconsult and
Physicians' Online;
. the risk that we are unable to firmly develop, introduce and gain
customer acceptance of new distribution channels for education, sales
and marketing;
. economic, political and competitive forces affecting our businesses; and
. the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
Mediconsult Price Information
Shares of Mediconsult common stock are listed on the Nasdaq National Market.
On September 3, 1999, the last full trading day prior to the public
announcement of the proposed merger, Mediconsult common stock closed at $8.3125
per share. On, November 17, 1999, the most recent practicable day prior to the
mailing of this joint Information/Proxy Statement/Prospectus, Mediconsult
common stock closed at $9.00 per share.
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RISK FACTORS
You should carefully consider the following risk factors relating to the
merger before you decide whether to vote to approve and adopt the merger
agreement and the proposed issuance of Mediconsult common stock in connection
with the merger. You should also consider the other information in this joint
Information/Proxy Statement/Prospectus.
Risks Relating to the Merger
Tax Free Treatment of Merger
Although the merger is intended to qualify as a tax-free reorganization for
federal income tax purposes, there can be no assurance that the Internal
Revenue Service will treat the merger as tax-free. If the Internal Revenue
Service were to successfully challenge the federal income tax treatment of the
merger discussed herein, each Physicians' Online stockholder would be required
to recognize taxable gain or loss with respect to the Physicians' Online stock
surrendered in the merger. See "The Merger--Material United States Federal
Income Tax Consequences."
Failure to qualify for pooling of interests accounting treatment may harm our
future operating results.
Under pooling of interests accounting treatment, the accounts of Mediconsult
will be combined with those of Physicians' Online at their historical carrying
amounts, and Mediconsult's financial statements for all prior periods will be
restated to reflect its accounts as if the two companies had been combined for
all periods.
After completion of the merger, if events occur that cause the merger to no
longer qualify for pooling of interests accounting treatment, the purchase
method of accounting would apply. Under that method, we would record the
estimated fair value of Mediconsult common stock issued in the merger as the
cost of acquiring the business of Physicians' Online. That cost would be
allocated to the individual assets acquired and liabilities assumed according
to their respective fair values, with the excess of the estimated fair value of
Mediconsult common stock over the fair value of net assets acquired recorded as
goodwill, to be amortized over a period of up to 40 years. The estimated fair
value of Mediconsult common stock to be issued in the merger is much more than
the historical net book value at which Physicians' Online carries its assets in
its accounts. Therefore, purchase accounting treatment could have a material
adverse effect on the reported operating results of the combined company
compared to pooling of interests accounting treatment.
Physicians' Online Stockholders May Never Receive 10% of the Shares of
Mediconsult Common Stock Issued in the Merger.
Ten percent of the shares of Mediconsult common stock that would otherwise
be received by Physicians' Online stockholders in the merger will be placed in
escrow. The escrow will terminate one year after the date of the merger,
subject to any claims for indemnification outstanding at such date. Mediconsult
may recover damages out of this escrow resulting from breaches by Physicians'
Online of representations, warranties, covenants, agreements and other
obligations contained in the merger agreement and the stockholder
representative will be indemnified by the Physicians' Online stockholders
against any loss, claim, liability, cost, expense or other damage incurred by
him in connection with any claim to which the stockholder representative is
made a party, as well as for all out-of-pocket expenses incurred by the
stockholder representative while performing his duties under the merger
agreement and the escrow agreement. Therefore, Physicians' Online stockholders
may never receive the 10% of the shares of Mediconsult common stock issued in
the merger and placed into escrow.
Mediconsult May Face Challenges in Integrating Mediconsult and Physicians'
Online and, as a Result, May Not Realize the Expected Benefits of the
Anticipated Merger.
Integrating the operations and personnel of Mediconsult and Physicians'
Online will be a complex process, and Mediconsult is uncertain that the
integration will be completed rapidly or that it will achieve the anticipated
benefits of the merger. The successful integration of our companies will
require, among other things, integration of our sales and marketing groups and
coordination of our development efforts, our systems and our
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technology. The diversion of the attention of our management and any
difficulties encountered in the process of combining our companies could cause
the disruption of, or a loss of momentum in, the activities of the combined
company's business. Further, the process of combining our companies could
negatively affect employee morale and the ability of the combined company to
retain some of its key employees after the merger. The inability to
successfully integrate the operations and personnel of Mediconsult and
Physicians' Online, or any significant delay in achieving integration, could
have a material adverse effect on the business, financial condition and
operating results of the combined company after the merger.
Mediconsult's Stock Price is Volatile and the Value of the Mediconsult Common
Stock Issued in the Merger Will Depend on Its Market Price at the Time of The
Merger, and No Adjustment Will Be Made as a Result of Changes in the Market
Price of Mediconsult's Common Stock.
Increases in the value of Mediconsult's common stock will result in a
higher price being paid by Mediconsult for Physicians' Online and more value
being received by Physicians' Online stockholders in the merger. Decreases in
the value of Mediconsult's common stock will result in a lower price being
paid by Mediconsult for Physicians' Online and less value being received by
Physicians' Online stockholders in the merger. It is likely that you will not
know the value of Mediconsult's common stock to be issued in the merger at the
time of the Physicians' Online special meeting of stockholders. Under the
merger agreement, neither Mediconsult nor Physicians' Online will have the
right to terminate or renegotiate the merger agreement or to resolicit proxies
as a result of any increase or decrease in the value of Mediconsult's common
stock. The market price of Mediconsult's common stock, like that for the
shares of many other high technology and Internet companies, has been and may
continue to be volatile. For example, from October 15, 1998 to September 3,
1999, the Mediconsult common stock traded as high as $22.58 per share and as
low as $0.625 per share. Moreover, Mediconsult's common stock has only been
listed on the Nasdaq National Market since April of this year. Before that,
Mediconsult's common stock was traded in the over-the-counter market.
Recently, the stock market in general and the shares of Internet companies in
particular have experienced significant price fluctuations. The market price
may continue to fluctuate significantly in response to various factors,
including:
. quarterly variations in operating results or growth rates;
. the announcement of technological innovations;
. the introduction of new products by Mediconsult and its competitors;
. changes in estimates by securities analysts;
. market conditions in the industry;
. announcements and actions by competitors;
. regulatory and judicial actions; and
. general economic conditions.
Significant Merger-Related Charges Against Earnings Will Increase
Mediconsult's Losses in the Quarter in Which We Consummate the Merger and
During the Post-merger Integration Period.
We expect to incur charges of approximately $4.6 million in connection with
the merger which relates to fees, legal and accounting services and other
integration costs. These costs may be higher or lower than we anticipate. In
addition, we may incur other additional unanticipated merger costs. These
costs may delay the anticipated benefits of the merger. Some of these
nonrecurring costs will be charged to operations in the fiscal quarter in
which the merger is consummated while others will be expensed as incurred
during the post-merger integration period.
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Risks Relating to Mediconsult
We Have Only Been in Business For A Short Period of Time, So Your Basis For
Evaluating Us Is Limited.
We began operations in April 1996 when we launched a limited, initial Web
site. We launched a more extensive Web site in September 1996. As a result,
there is a limited history of operations for evaluating our business. You must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, including the Internet market
and the direct-to-consumer advertising market. Some of these risks and
uncertainties relate to our ability to:
. design, develop and implement effective marketing and sponsorship
programs for existing clients and new clients;
. maintain and expand our relationship with Novartis;
. attract additional pharmaceutical and other healthcare sponsors in order
to generate significant revenue;
. build our organizational and technical infrastructures to manage our
growth effectively;
. maintain our current strategic relationships and develop new ones;
. respond effectively to actions taken by our competitors;
. attract a larger audience to our Web sites;
. increase awareness of our brand and continue to develop visitor loyalty;
. integrate acquired and managed businesses, technologies and services;
and
. attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
We Have Lost Money in Every Quarter and Year, And We Expect these Losses to
Continue in The Future.
Since we began our operations in 1996, we have lost money in every quarter
and year. As of September 30, 1999, we had an accumulated deficit of
approximately $11.8 million. We intend to increase the amount of our expenses
significantly in the future in order to expand our operations and our employee
base. We do not expect that we will generate sufficient revenue to cover these
expenses through at least the year 2000. If our revenue does not increase and
we cannot adjust our level of spending adequately, we may not generate
sufficient revenue to become profitable. Even if we do become profitable, we
may not be able to sustain or increase profitability on a quarterly or annual
basis in the future. Our ability to generate revenue depends primarily upon
our ability to attract visitors to our Web sites and to attract pharmaceutical
and other healthcare advertisers as clients and sponsors.
We Are Dependent On Novartis For a Significant Portion of Our Revenue.
Approximately 55% of our revenue for the year ended December 31, 1997 and
65% of our revenue for the year ended December 31, 1998 resulted from
engagements by various independent divisions of Novartis AG. We anticipate
that these and other divisions will account for a substantial portion of our
revenue for the foreseeable future. We currently have an agreement with one
division of Novartis, Novartis Consumer Health Canada, to manage its Habitrol
smoking cessation Web site, which we designed, developed and implemented. We
are evaluating and working with Novartis Pharma to design, develop and manage
additional Web sites. We are also discussing with Novartis other possible
marketing and sponsorship programs. We cannot predict
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whether we will be engaged to perform any services as a result of these
discussions. Novartis may elect to terminate our agreements or engagements or
it may demand changes to the terms of these agreements or engagements that are
less favorable to us than existing terms. We do not have written agreements
with Novartis for most of these engagements. If we lose Novartis as a customer
or the relationship becomes less favorable to us, our business, financial
condition and results of operations will be materially and adversely affected.
Novartis may also choose to change or limit the products that it advertises
on the Internet or on our Web sites. If they do, this change could materially
and adversely impact our sponsorship revenue. In addition, our relationship
with Novartis could be negatively affected by any business or financial
developments that impact Novartis, such as a delay or failure to obtain or
maintain FDA approval of pharmaceutical products, a general downturn in its
business or a reduction in its direct-to-consumer advertising budget.
We May Have Difficulty Managing our Expanding Operations.
We are currently engaged in a significant expansion of our operations. Also
to date, a portion of our software development and all of our technical
support, network and hardware operations have been outsourced to a third party.
Our network and technical support were previously managed by a third party.
Recently, we established a facility in Toronto, Canada, where our software
development and technical and network support are now located.
We recently acquired pharminfo.com, a Web site providing information on
pharmaceutical products and clinical trials for pharmacists, physicians and
consumers, cyberdiet.com, a Web site providing tailored nutritional information
and programs, Cyber-Tech, Inc., which operates Heartinfo.org., and inciid.org,
a Web site providing information on infertility and we acquired Mood Sciences,
a mental health oriented web site that utilizes a proprietary tool to diagnose
and track states of depression online. In addition, we are considering
establishing an office in Parsippany, New Jersey in the near future, in
connection with our proposed joint venture with CommonHealth.
As part of our expansion, we will have to implement additional operational
and financial systems, procedures and controls to maintain appropriate
coordination among our technical, accounting, finance, marketing, sales and
editorial staffs. If these systems and controls are not adequate, we will have
significant difficulty managing the various business functions of our
operations from multiple locations. We will also need to recruit, train and
retain a significant number of employees, particularly employees with
technical, marketing, sales and healthcare backgrounds. Individuals with these
backgrounds are in high demand and we are not certain that we will be able to
attract the staff we need. In addition, many of our senior management personnel
have recently joined Mediconsult and have not yet become integrated into and
experienced with our operations, policies, personnel and clients. In connection
with the transition of our technical operations, difficulties may arise that
could cause disruptions in the operation of our Web sites. Any of the risks
described above could have a material and adverse effect on our business,
financial condition and results of operations.
Because Our Business Model Is Unproven, We May Not Be Successful.
There are various ways to sell advertising on the Internet, the most common
means being through simple advertisements on Web sites, known as banner
advertisements. Our business depends upon the sale of in depth Internet-based
marketing programs to, and developing sponsorship relationships with,
pharmaceutical and other healthcare companies. Sales of these programs usually
depend upon a prospective client first deciding to engage in direct-to-consumer
advertising, then deciding to adopt an Internet-based marketing or advertising
strategy and finally implementing that strategy by developing a marketing
program for a particular drug or other healthcare product. This typically
involves a significant commitment of time and money from the client and, we
believe, requires us to establish a closer relationship with the client than in
the case of banner advertisements. Based on our experience, it typically takes
six weeks to nine months to finalize an agreement with a potential customer. In
addition, our business depends upon our ability to design, develop and
implement a customized marketing and advertising program calculated to achieve
the specific client's marketing objectives. Our
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business, financial condition and results of operations will be materially and
adversely affected if the business model we have adopted is not attractive to
our prospective clients and if we are unable to adapt to other business models
for generating Internet advertiser/sponsorship revenue.
We currently intend to develop sponsorship relationships for our Web sites
solely with pharmaceutical and other healthcare companies. Accordingly, our
target customer base is limited. Most of our current or potential sponsors have
little or no experience using the Internet for marketing and advertising and
have allocated only a limited portion of their marketing and advertising
budgets to the Internet. The adoption of Internet marketing and advertising by
entities that have historically relied upon traditional media for marketing and
advertising requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. These customers
may find Internet advertising to be less effective than traditional advertising
media for promoting their products and services. In addition, direct-to-
consumer pharmaceutical advertising is a relatively new concept and, as a
result, we cannot assure you that it will increase, or if so, to what extent it
will increase, generally or through the Internet.
We Will Not Be Successful if the Use of the Internet for Advertising Does Not
Continue to Increase.
A significant percentage of our revenue will be derived from Internet
marketing and sponsorship relationships for the foreseeable future. Since the
Internet advertising market is new and rapidly evolving, we cannot yet gauge
its acceptance as an effective media by advertisers. Our business, financial
condition and results of operations will be materially and adversely affected
if the Internet advertising market develops more slowly than we expect.
Moreover, "filter" software programs that limit or prevent advertising from
being delivered to an Internet visitor's computer are available. Widespread
adoption of this software could adversely affect the commercial viability of
Internet advertising and as a result would materially and adversely affect our
business, financial condition and results of operations.
Advertisers may choose not to sponsor our Web sites or may pay less for
advertising on our Web sites if they do not perceive the visitor measurements
of our Web sites to be reliable. No standards have been widely accepted to
measure the effectiveness of Internet advertising or to measure the
demographics of our visitor base. Third parties currently provide these
measurement services for us. If they are unable to provide these services in
the future, we would be required to perform them ourselves or obtain them from
another provider. This could cause us to incur additional costs or cause
interruptions in our business while we replace these services. In addition, we
are implementing additional systems designed to record demographic data of
visitors. If we do not implement these systems successfully, we may not be able
to accurately evaluate the demographic characteristics of the visitors.
We Depend on the Continued Growth of the Internet for our Services.
The Internet is relatively new and is rapidly evolving. Our business,
financial condition and results of operations will be materially and adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited for a number of reasons:
. demands placed on the Internet infrastructure and the potential decline
in performance and reliability as usage grows;
. security and authentication concerns with respect to the transmission
over the Internet of confidential information, like credit card numbers
and medical information, and attempts by unauthorized computer visitors,
known as hackers, to penetrate online security systems; and
. privacy concerns, including those related to the placement by Web sites
of certain information to gather visitor information, known as cookies,
on a visitor's hard drive without the visitor's knowledge or consent.
We must adapt as the Internet continues to evolve. To be successful, we must
adapt to the changing technologies in our rapidly evolving market by
continually enhancing our Web sites and introducing new
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services to address our customers' changing demands. This will entail a
continuous level of development and capital spending and we could incur
substantial additional costs if we need to modify our services or
infrastructure. Our business, financial condition and results of operations
will be materially and adversely affected if we incur significant costs to
adapt, or cannot adapt, to these changes.
You Should Not Rely on our Quarterly Operating Results as an Indication of How
we will Do in the Future.
Our quarterly operating results may vary significantly in the foreseeable
future due to a number of factors that could affect our revenue, expenses or
prospects during any particular quarter. These factors include:
. the demand for direct-to-consumer healthcare advertising on the Internet
in general and on our Web sites in particular;
. visitor traffic levels on our Web sites;
. our ability to retain our significant clients, particularly Novartis;
. our ability to attract and retain other sponsors that are seeking in-
depth Internet-based marketing and advertising programs;
. changes in rates paid for Internet advertising resulting from
competition or other factors;
. technical difficulties or system downtime affecting the Internet or the
operation of our Web sites;
. the amount and timing of our costs related to our marketing and sales
efforts;
. costs we may incur as we expand our operations;
. seasonality in sponsorship agreements and Internet usage;
. our ability to price our marketing and sponsorship programs profitably;
. costs related to the acquisition and integration of other businesses,
technologies and services; and
. economic conditions specific to the healthcare and pharmaceutical
industries and to the Internet.
The timing of our ability to develop sponsorship relationships is one of the
most significant factors affecting quarterly results. The time between the date
of initial contact with a potential advertiser and the execution of a contract
with the advertiser typically ranges from six weeks for smaller agreements to
nine months for larger agreements. These contracts are also subject to delays
over which we have little or no control, including customers' budgetary
constraints, their internal acceptance reviews, whether or when regulatory
approval of their products is given by the FDA or other regulatory authority,
the possibility of cancellation or delay of projects by advertisers and any
post-approval actions taken by the FDA or other regulatory authority, including
product recalls. During the selling process, we may expend substantial funds
and management resources and yet not obtain adequate sponsorship revenue. Once
a contract is executed, a significant portion of our revenue is derived from
customized Web site development and implementation projects, rather than from
recurring fees. As a result, we cannot predict with certainty when we will
perform the work necessary to receive payment for these projects.
In any given quarter, we may not be able to adjust spending in a timely
manner to compensate for any unexpected shortfall in our revenue. Any
significant shortfall would have an immediate material and adverse effect on
our business, financial condition and results of operations. Since we have a
limited operating history, we cannot yet determine whether seasonal factors
will affect our quarterly operating results. Traffic levels on Web sites have
typically fluctuated during the summer and year-end vacation and holiday
periods, and this could result in a decrease in user traffic on our Web sites
during these periods.
Similar seasonal or other patterns may develop in the Internet advertising
industry. Due to all of the foregoing factors, and the other risks discussed in
this section, you should not rely on quarter-to-quarter
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comparisons of our results of operations as an indication of future
performance. It is possible that in some future periods our operating results
will be below the expectations of public market analysts and investors. In
this event, the price of our common stock would likely fall.
There Are Many Competitors in the Healthcare Segment of the Internet Market
and We May Not be Able to Compete Effectively Against Them.
There are many companies that provide Internet and non-Internet based
marketing and advertising services to the healthcare industry. All of these
companies compete with us for advertisers, and Internet healthcare companies
also compete with us for visitor traffic. We expect competition to continue to
increase as there are no substantial barriers to entry in our market.
Increased competition could result in reductions in the fees we receive for
our marketing and sponsorship relationships, lower margins, loss of clients,
reduced visitor traffic to our Web sites, or loss of market share. Any of
these occurrences could materially and adversely affect our business,
financial condition and results of operations. Competition is also likely to
increase significantly, not only as new entities enter the market, but also as
current competitors expand their services. Our principal competitors include:
. advertising agencies and consulting firms, such as Young & Rubicam and
Agency.com, that develop marketing and advertising programs for
pharmaceutical and other healthcare companies;
. Web sites that deliver consumer healthcare information, either as their
sole focus or as part of a more broadly-based site, such as Health
Oasis, InteliHealth, iVillage, OnHealth, Thrive Online and WebMD;
. general purpose consumer on-line service providers, such as America
Online and Microsoft Network;
. Web site development firms, such as USWeb/CKS; and
. publishers and distributors of television, radio and print, such as CBS,
Disney, NBC and Time Warner.
Our ability to compete depends on a number of factors, many of which are
outside of our control. These factors include quality of content, ease of use,
timing and market acceptance of new and enhanced services, and level of sales
and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition,
existing relationships with pharmaceutical and other healthcare companies and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive development efforts, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, sponsors and alliance partners.
Our competitors may develop services that are equal or superior to those we
provide or that achieve greater market acceptance and brand recognition than
we achieve. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase their ability to address the needs of sponsors. It is possible
that new competitors may emerge and rapidly acquire significant market share.
We may not be able to compete successfully or competitive pressures may have a
material adverse effect on our business, results of operations and financial
condition. If advertisers perceive the Internet generally or our Web sites to
be a relatively limited or ineffective advertising medium, advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising or to become sponsors of our Web sites.
We Must Continually Enhance and Develop the Content And Features of our Web
Sites to Attract Visitor Traffic and Sponsors.
We produce only a portion of the editorial content available on our Web
sites and rely on third-party firms and organizations for most of our content.
Much of the information on our Web sites is easily available from
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other sources. Other Web sites may present the same or similar content in a
superior manner to our Web sites, which would adversely affect our visitor
traffic. To remain competitive, we must continue to enhance and improve our
content. In addition, we must continually improve the responsiveness,
functionality and features of our Web sites and develop other products and
services attractive to visitors and sponsors. Changes to our Web sites may
contain undetected programming errors that require significant design
modifications, which may result in a loss of consumer confidence and user
support and a decrease in the value of our brand name. We plan to develop and
introduce new features, functions, content, products and services that will
require the development or licensing of increasingly complex technologies. We
may not succeed in developing or introducing features, functions, products and
services that will attract visitors and sponsors, which would be likely to
materially and adversely affect our business, financial condition and results
of operations.
We Need to Create a Mediconsult Brand Identity to Be Successful.
In order to build and align our brand awareness, we must succeed in our
marketing efforts, provide high-quality services and increase the number of
visitors to our Web sites. In addition, healthcare consumers must, among other
things, perceive us as offering relevant, reliable healthcare information from
trustworthy sources. We intend to increase significantly our marketing
expenditures as part of our brand-building efforts. If these efforts are
unsuccessful and we cannot increase our brand identity and increase revenue,
our business, financial condition and results of operations will be materially
and adversely affected.
We Are Subject to the Risks of Integrating and Successfully Funding Our Joint
Ventures and Acquisitions.
We have in the past developed joint ventures with and acquired complementary
businesses, technologies, services or products, including topic-specific Web
sites, and may continue to do so in the future. In February 1999, we executed a
memorandum of agreement outlining the principal terms of a joint venture with
CommonHealth, a healthcare advertising agency specializing in traditional media
advertising, to offer multimedia solutions to pharmaceutical and other
healthcare companies. We and CommonHealth have agreed on the outline of a
business plan and are in the process of developing more formal documentation
for the joint venture. We intend to commit a significant amount of personnel
and financial resources to the joint venture. The joint venture may not be
successfully established. If the joint venture is established, the operation of
the joint venture could be a significant distraction for our management and
require significant resources. In addition, issues may arise between the
parties as to whether the joint venture or one of the venturers has the right
to market and perform particular services for specific clients.
We recently acquired pharminfo.com, a Web site providing information on
pharmaceutical products and clinical trials for pharmacists, physicians and
consumers, cyberdiet.com, a Web site providing tailored nutritional information
and programs, Cyber-Tech, Inc., which operates Heartinfo.org., and entered into
an agreement to merge with inciid.org, a Web site providing information on
infertility and we acquired Mood Sciences, a mental health oriented web site
that utilizes a proprietary tool to diagnose and track states of depression
online. We may not receive a positive return on our investment in these Web
sites and may not realize other benefits anticipated from these transactions.
We may have difficulty assimilating these Web sites and their operations with
our existing Web sites, and this could result in a loss of visitor traffic and
revenue.
We may not be able to identify suitable acquisition candidates or joint
venture and alliance partners in the future. Even if we do identify suitable
candidates, we may not be able to enter into transactions with these candidates
on commercially acceptable terms. If we make other acquisitions or enter into
these other arrangements, we could have difficulty in integrating the acquired
products, services or technologies into our operations. These difficulties
could disrupt ongoing business, distract management and employees, increase our
expenses and materially and adversely affect our business, financial condition
and results of operations. We may incur significant amortization charges from
the goodwill resulting from acquisitions. We may also incur indebtedness or
issue equity securities to pay for future acquisitions or management or
sponsorship rights. The
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issuance of equity securities could be dilutive to our existing stockholders.
The issuance of the Mediconsult stock in connection with the merger will result
in immediate and substantial dilution to existing Mediconsult stockholders.
Aspects of our Web Sites May Subject us to Regulatory Oversight and Other
Concerns.
Under the "MediXpert" service offered through mediconsult.com, visitors pay
a fee and ask a licensed physician particular medical questions. A number of
states have enacted laws which prohibit what is known as the corporate practice
of medicine. These laws are designed to prevent interference in the medical
decision-making process from anyone who is not licensed in that state. Although
we have attempted to structure this service in a manner that will not
constitute the practice of medicine, if the specialist is deemed to be
practicing medicine, the specialist may be required to be licensed as a
physician in the jurisdiction where the visitor resides, or we may be forced to
cease providing the "MediXpert" service. In addition, if our specialists are
deemed to be practicing medicine without a license, we may be subject to a
lawsuit alleging the aiding or abetting of the unlicensed practice of medicine
or potentially a medical malpractice lawsuit. We have attempted to design the
"MediXpert" service to avoid the claim that we or our specialists are
practicing medicine. The specialists provide general information in response to
hypothetical questions. No medical opinions or diagnoses are provided and no
patient-specific recommendations are made. We instruct the specialist to
recommend that a visitor consult with his/her physician, and state that all
information provided is for educational purposes only. Based on these
limitations, we believe that the services provided by our specialists do not
constitute practicing medicine. In the event that some state or other
regulatory agency determines that we or our specialists are practicing medicine
without a license, we will be required to revise or terminate this portion of
our business and we could be subject to possible liability. We are considering
whether to discontinue the "MediXpert" service.
Numerous state and federal laws also govern the delivery of healthcare
services and goods. Healthcare licensing laws and laws prohibiting the offer,
payment or receipt of remuneration to induce referrals to entities providing
healthcare services or goods, many of which are being actively enforced, apply
to Internet healthcare applications as well. In the event some state or federal
regulatory agency determined that our relationship with one or more of our
advertisers that deliver healthcare services or goods violate any such laws,
then we could be subjected to fines and other costs and could be required to
revise or terminate that portion of our business. Our pharmaceutical clients
are also subject to review by the FDA for compliance with regulations governing
the information that can be provided to consumers on a pharmaceutical product.
These regulations, for example, limit recommended uses to the specific uses
approved by the FDA. The FDA also monitors compliance with direct-to-consumer
advertising regulations. If the FDA adopts regulations specifically aimed at
pharmaceutical advertising on the Internet or takes action with respect to a
particular client's advertising program, our existing marketing and advertising
programs for clients and future opportunities could be materially and adversely
affected.
Our Key Personnel are Very Important to Our Success.
Our future success depends on the services of our senior management
personnel. We do not have key person life insurance on any of our personnel.
Loss of any one or more of our senior management personnel would have a
material adverse effect on our business, financial condition and results of
operations. To be successful, we will also need to attract and retain
individuals with expertise in the areas of marketing and sales and technology.
In addition, the successful staffing and integration of our in-house
programming operations will depend on our ability to attract and retain
qualified employees. Competition for qualified personnel is intense, and the
loss of key personnel, or the inability to attract, train and retain the
additional highly skilled personnel required for the expansion of our
activities, would materially and adversely affect our business, financial
condition and results of operations.
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We are Controlled By Management Stockholders Whose Interests May Differ From
Other Stockholders.
Mr. Robert A. Jennings, our Chief Executive Officer, currently owns as an
individual and through affiliated entities controls 45.6% of the outstanding
shares of our common stock, and after the merger will own and through
affiliated entities control approximately 26.9% of the outstanding shares of
our common stock. Together with Mr. Jennings, the management stockholders of
Mediconsult will own or control approximately 36.9% of Mediconsult's
outstanding common stock after the merger. Accordingly, pursuant to Delaware
corporate law, the Mediconsult management stockholders will effectively control
the election of all of our directors and, in general, have sufficient voting
power to determine (without the consent of our other stockholders) the outcome
of any corporate transaction or other matter submitted to the stockholders for
approval. These include mergers, consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or cause a
change in control. The interests of the management stockholders may differ from
the interests of other stockholders.
We Are Subject to Risks Associated with International Operations.
Our business is conducted through operations and employees in Bermuda,
Canada and the United States. Our international operations and activities
subject us to a number of risks, which include the risk of complying with
multiple complex regulatory requirements, like European Community regulations
affecting Internet operations, and the risks of political and economic
instability, difficulty in managing foreign operations, potentially adverse
taxes, higher expenses and difficulty in collection of accounts receivable. In
addition, we receive most of our revenue in U.S. dollars, but a substantial
portion of our payroll and other expenses are paid in the currency of the
country where our employees reside or operations are located. Because our
financial results are reported in U.S. dollars, they are affected by changes in
the value of the various foreign currencies that we use to make payments in
relation to the U.S. dollar. We do not cover known or anticipated operating
exposures through foreign currency exchange option or forward contracts.
The Internet is Subject to Many Governmental Regulations which May Impact our
Ability to Conduct Business.
There is, and will be, an increasing number of laws and regulations
pertaining to the Internet. These laws or regulations may relate to liability
for information received from or transmitted over the Internet, online content
regulation, user privacy, taxation and quality of products and services. In
addition, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. Any new law or regulation, or the adverse application
or interpretation of existing laws, may decrease the growth in the use of the
Internet or our Web sites. This could decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, financial condition or results of operations.
We May Be Subject to Claims Based on the Content We Provide on the Internet.
Because visitors to our Web sites may distribute our content to other
people, third parties might sue us for defamation, negligence, product
liability, copyright, or trademark infringement, or other matters. These types
of claims have been brought, sometimes successfully, against other on-line
services in the past. We may also incur liability for the content on other Web
sites that are linked to our Web sites or for content and materials that may be
posted by visitors in chat rooms or bulletin boards. Our e-mail services may
also subject us to potential claims resulting from unsolicited e-mail, lost or
misdirected messages, illegal or fraudulent use of e-mail or interruptions or
delays in e-mail service. We also enter into agreements with commerce partners
that entitle us to receive a share of any revenue from the purchase of goods
and services through direct links from our Web sites to their Web sites. These
arrangements may subject us to additional claims, including product liability
or personal injury related to these products and services, because we provide
access to these products or services, even if we do not provide the products or
services ourselves.
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Satisfactory Performance of our Web Sites is Critical to our Business and
Reputation.
The performance of our Web sites is critical to our business and reputation
and to our ability to attract visitors and sponsors to our Web sites. We are
dependent upon the continuous, reliable and secure operation of Internet
servers and related hardware and software. To the extent that service is
interrupted or delayed, we could experience a decrease in traffic and revenue.
We do not at present have any back up "off-site" systems or a formal disaster
recovery plan, nor do we have insurance coverage for business interruption.
Substantially all of our communications hardware and some of our other computer
hardware operations are located in Toronto, Canada. Fire, floods, earthquakes,
power loss, telecommunications failures, break-ins and similar events could
damage these systems. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our Web sites.
Our Web sites must accommodate a high volume of traffic and deliver
information that is updated frequently. Our Web sites have in the past and may
in the future experience slower response times or decreased traffic for a
variety of reasons. In addition, our visitors depend on Internet Service
Providers, online service providers and other Web site operators for access to
our Web sites. Many of them have experienced significant outages in the past
and could experience outages, delays and other difficulties due to system
failures unrelated to our systems in the future.
The on-going enhancement of our Web site is dependent upon the success of
development efforts that will be performed by in-house employees and by
contractors. To the extent that these development efforts are delayed or
unsuccessful, we will incur additional development expenses and may not remain
competitive in the design and use of our Web sites.
A Lack of Security Over the Internet May Impact our Business.
A significant barrier to electronic commerce and confidential communications
over the Internet has been the need for secure transmission of confidential
information. Internet usage could decline if any well-publicized compromise of
security occurred. We may incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by such breaches.
Experienced programmers could attempt to penetrate our network security.
Programmers who are able to penetrate our network security could misappropriate
proprietary information or cause interruptions in our services, and we could be
required to expand capital and resources to protect against or to alleviate
problems caused. Purposeful security breaches could have a material adverse
effect on our business, results of operation and financial condition.
We Are Dependent on our Intellectual Property.
Trademarks, copyrights and other proprietary rights are important to our
success and our competitive position. Third parties may infringe or
misappropriate our trademarks, copyrights and other proprietary rights, which
could have a material and adverse effect on our business, financial condition
and results of operations. In addition, we do not know how extensive our
intellectual property protection is since the validity, enforceability and
scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.
We license some of our content from third parties. It is possible that we
could become subject to infringement actions based upon the content obtained
from these third parties. In addition, others may use this content and we may
be subject to claims from our licensors. These claims, with or without merit,
could subject us to costly litigation and the diversion of our financial
resources and technical and management personnel. We have entered into
confidentiality agreements with our key employees and independent consultants
and we have instituted procedures to control access to and distribution of our
technology, documentation and other proprietary information and the proprietary
information of others from which we have licensed content or technology.
Despite our efforts to protect our proprietary rights, parties may attempt to
disclose, obtain or use our content or technologies. There can be no assurance
that the steps we have taken will prevent misappropriation of our content or
technologies.
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Year 2000 Problems may Disrupt our Business.
It is generally anticipated that many organizations will experience
operational difficulties at the beginning of the year 2000 as a result of the
fact that many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. The costs of
defending and resolving year 2000-related disputes, and any liability of
Mediconsult for year 2000-related damages, including consequential damages,
could have a material adverse effect on our business, financial condition and
results of operations. Based on our assessment to date, we believe that our
internal systems are year 2000 compliant and will not produce erroneous
results, fail to function, or interrupt performance. Despite our testing, our
systems may contain undetectable errors or defects associated with the year
2000 and operational difficulties may result. To the extent that our assessment
is finalized without identifying any additional material non-compliant
information technology systems or non-information technology systems that we
operate or that are operated by third parties, the most reasonably likely worst
case year 2000 scenario is a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure. Such a failure
could prevent us from operating our business, prevent visitors from accessing
our Web sites, or change the behavior of consumers accessing our Web sites. We
believe that the primary business risks, in the event of such a failure, would
include lost sponsorship revenue, increased operating costs, loss of visitors
to our Web site, or other business interruptions of a material nature, as well
as claims of mismanagement, misrepresentation, or breach of contract, any of
which could have a material adverse effect on our business, results of
operations and financial condition. We have not made any contingency plans to
address such risks.
Future Sales of our Common Stock by our Existing Stockholders could have an
Adverse Effect on the Market Price of our Common Stock.
The market price of our common stock could decline as a result of sales by
our existing stockholders and the former stockholders of Physicians' Online of
a large number of shares of common stock in the market after the merger, or the
perception that these sales may occur. These 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. In addition, certain holders of Mediconsult's
common stock and certain holders of warrants exercisable for shares of
Mediconsult's common stock have registration rights. If these shares are
registered, sales of the shares also could adversely affect Mediconsult's stock
price. Please see "Description of Mediconsult Capital Stock--Registration
Rights".
Our Stock Price is Volatile and Could continue to be Volatile.
Following the merger, investment interest in Mediconsult may not sustain an
active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes for many Internet
companies fluctuate widely for reasons that may be unrelated to their business
or results of operations. The market price of our common stock may decline
below the value of the Mediconsult common stock at the time of the merger.
General economic, market and political conditions could also materially and
adversely affect the market price of our common stock and investors may be
unable to resell their shares of common stock at or above the value of the
Mediconsult common stock at the time of the merger.
Forward Looking Statements; Market Data
A number of statements made in this prospectus, including under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Mediconsult", "Management's Discussion and Analysis of Physicians' Online" and
"Description of Mediconsult's Business" and "Description of Physicians'
Online's Business" are forward-looking statements. These forward-looking
statements are not historical facts. Because these forward-looking statements
involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements, including those discussed under "Risk Factors."
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This prospectus contains market data related to Mediconsult and the
Internet. This data has been included in the studies prepared by the Internet
market research firms of Cyber Dialogue, Jupiter Communications and Media
Metrix. This market data includes projections that are based on a number of
assumptions. The assumptions include that: (1) no catastrophic failure of the
Internet will occur; (2) the number of people who use the Internet and the
total number of hours spent online will increase significantly over the next
five years; (3) the value of online sponsorship dollars spent for each hour a
visitor is online will increase; (4) the speed at which content can be
downloaded from the Internet will increase dramatically; and (5) Internet
security and privacy concerns will be adequately addressed.
This prospectus also contains market data related to direct-to-consumer
advertising. This data has been included in the studies prepared by Consumer
Health Information Corporation and Med Ad News. This market data includes
projections that are based on a number of assumptions. The assumptions include
that: (1) there will be no adverse changes in existing direct-to-consumer
advertising regulations; (2) direct-to-consumer advertising spending will
continue to be accepted by pharmaceutical companies as an attractive vehicle
for advertising; (3) the number of pharmaceutical products covered by direct-
to-consumer advertising will continue to increase; and (4) advertisers will
increasingly use the Internet as a forum for direct-to-consumer advertising.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ from the projections given by these firms. These markets may
not grow at the rates projected by the firms named above or at all. The failure
of these markets to grow at such projected rates could have a material adverse
effect on our business, financial condition and results of operations, and the
market price of our common stock.
Risks Relating to Physicians' Online
Physicians' Online Expects To Incur Future Losses.
Physicians' Online incurred net losses of $4,148,321 for the year ended
December 31, 1996, $6,858,454 for the year ended December 31, 1997 and
$10,066,502 for the year ended December 31, 1998. As of September 30, 1999,
Physicians' Online had an accumulated deficit of $45,045,086. Physicians'
Online has not achieved profitability and as an independent company Physicians'
Online would expect to incur net losses for the foreseeable future as it would
continue to incur significant product development, sales and marketing, and
administrative expenses. As a result, Physicians' Online would need to generate
significant revenues to achieve and maintain profitability. Our ability to
generate revenue depends primarily upon our ability to:
. attract additional pharmaceutical and other healthcare and non-
healthcare sponsors in order to generate significant revenue;
. maintain existing physician members and continue to attract new
physician members;
. maintain our current strategic relationships and develop new ones;
. respond effectively to actions taken by our competitors;
. attract a larger audience to our Web site;
. increase awareness of our Physicians' Online Network and continue to
develop visitor loyalty; and
. attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
We Will Not Be Successful If The Use Of The Internet For Advertising Does Not
Continue To Increase.
A significant percentage of our revenue will be derived from Internet
marketing and sponsorship relationships for the foreseeable future. Since the
Internet advertising market is relatively new and rapidly
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evolving, we cannot yet gauge its acceptance as an effective media by
advertisers. Our business, financial condition and results of operations will
be materially and adversely affected if the Internet advertising market
develops more slowly than we expect. Moreover, "filter" software programs that
limit or prevent advertising from being delivered to an Internet visitor's
computer are available. Widespread adoption of this software could adversely
affect the commercial viability of Internet advertising and as a result would
materially and adversely affect our business, financial condition and results
of operations.
Advertisers may choose not to sponsor our Web site or may pay less for a
sponsorship relationship with us if they do not perceive the visitor
measurements of our Web site to be reliable. No standards have been widely
accepted to measure the effectiveness of Internet advertising or to measure the
demographics of our visitor base. Third parties currently provide these
measurement services for us. If they are unable to provide these services in
the future, we would be required to perform them ourselves or obtain them from
another provider. This could cause us to incur additional costs or cause
interruptions in our business while we replace these services.
We Depend On The Continued Growth Of The Internet For Our Services.
The Internet is relatively new and is rapidly evolving. Our business,
financial condition and results of operations will be materially and adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited for a number of reasons:
. demands placed on the Internet infrastructure and the potential decline
in performance and reliability as usage grows;
. security and authentication concerns with respect to the transmission
over the Internet of confidential information, like credit card numbers
and medical information, and attempts by unauthorized computer visitors,
known as hackers, to penetrate online security systems; and
. privacy concerns, including those related to the placement by Web sites
of certain information to gather visitor information, known as cookies,
on a visitor's hard drive without the visitor's knowledge or consent.
We must adapt as the Internet continues to evolve. To be successful, we must
adapt to the changing technologies in our rapidly evolving market by
continually enhancing our Web site and introducing new services to address our
physician members' changing demands. This will entail a continuous level of
development and capital spending and we could incur substantial additional
costs if we need to modify our services or infrastructure. Our business,
financial condition and results of operations will be materially and adversely
affected if we incur significant costs to adapt, or cannot adapt, to these
changes.
There Are Many Competitors In The Healthcare Segment Of The Internet Market
And We May Not Be Able To Compete Effectively Against Them.
There are many companies that provide Internet services geared towards
physicians as well as Internet and non-Internet based marketing and advertising
services to the healthcare industry. All of these companies compete with us for
member physicians, visitor traffic and advertising sponsors. We expect
competition to continue to increase as there are no substantial barriers to
entry in our market. Increased competition could result in reductions in the
fees we receive for our marketing and sponsorship relationships, lower margins,
loss of sponsors, reduced visitor traffic to our Web site, reduced membership
or loss of market share. Any of these occurrences could materially and
adversely affect our business, financial condition and results of operations.
Competition is also likely to increase significantly, not only as new entities
enter the market, but also as current competitors expand their services. Our
principal competitors include:
. Web sites that provide medical information and a communication network
for physicians, either as their sole focus or as part of a more broadly-
based site, such as Medscape, Inc., CareInsite, Inc., Cybear, Inc.,
WebMD, Inc., Healtheon Corporation and drkoop.com, Inc.
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. general purpose consumer on-line service providers, such as America
Online, Inc. and Microsoft Network(TM);
. non-Internet based medical associations, such as Medical Economics
Company, MediPromotions, Inc. and Triple-I Systems, Inc.; and
Our ability to compete depends on a number of factors, many of which are
outside of our control. These factors include quality of content, ease of use,
timing and market acceptance of new and enhanced services, and level of sales
and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition,
existing relationships with pharmaceutical and other healthcare companies and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive development efforts, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, advertisers, sponsors and alliance partners.
Our competitors may develop services that are equal or superior to those we
provide or that achieve greater market acceptance and brand recognition than we
achieve. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase their ability to address the needs of sponsors. It is possible that
new competitors may emerge and rapidly acquire significant market share. We may
not be able to compete successfully or competitive pressures may have a
material adverse effect on our business, results of operations and financial
condition. If advertisers perceive the Internet generally or our Web site to be
a relatively limited or ineffective advertising medium, advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising or to become sponsors of our Web site.
Aspects Of Our Web Site May Subject Us To Regulatory Oversight And Other
Concerns.
Numerous state and federal laws also govern the delivery of healthcare
services and goods. Healthcare licensing laws and laws prohibiting the offer,
payment or receipt of remuneration to induce referrals to entities providing
healthcare services or goods, many of which are being actively enforced, apply
to Internet healthcare applications as well. In the event some state or federal
regulatory agency determined that our relationship with one or more of our
advertisers that deliver healthcare services or goods violates any such laws,
then we could be subjected to fines and other costs and could be required to
revise or terminate that portion of our business. Our pharmaceutical sponsors
are also subject to review by the FDA for compliance with regulations governing
the information that can be provided to consumers of a pharmaceutical product.
These regulations, for example, limit recommended uses to the specific uses
approved by the FDA. The FDA also monitors compliance with FTC advertising
regulations. If the FDA adopts regulations specifically aimed at pharmaceutical
advertising on the Internet or takes action with respect to a particular
advertiser's program, our existing marketing and advertising programs for
sponsors and future opportunities could be materially and adversely affected.
Our Key Personnel Are Very Important To Our Success.
Our future success depends on the services of our senior management
personnel. We do not have key person life insurance on any of our personnel.
Competition for qualified personnel is intense, and the loss of key personnel,
or the inability to attract, train and retain the additional highly skilled
personnel required for the expansion of our activities, would materially and
adversely affect our business, financial condition and results of operations.
The Internet Is Subject To Many Governmental Regulations Which May Impact Our
Ability To Conduct Business.
There is, and will be, an increasing number of laws and regulations
pertaining to the Internet. These laws or regulations may relate to liability
for information received from or transmitted over the Internet, online
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content regulation, user privacy, taxation and quality of products and
services. In addition, the applicability to the Internet of existing laws
governing intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment, personal privacy and
other issues is uncertain and developing. Any new law or regulation, or the
adverse application or interpretation of existing laws, may decrease the growth
in the use of the Internet or our Web site. This could decrease the demand for
our services, increase our cost of doing business or otherwise have a material
adverse effect on our business, financial condition or results of operations.
We May Be Subject To Claims Based On The Content We Provide On The Internet.
Because visitors to our Web site may distribute our content to other people,
third parties might sue us for defamation, negligence, product liability,
copyright, or trademark infringement, or other matters. These types of claims
have been brought, sometimes successfully, against other on-line services in
the past. We may also incur liability for the content on other Web site that
are linked to our Web site or for content and materials that may be posted by
visitors in chat rooms or bulletin boards. Our e-mail services may also subject
us to potential claims resulting from unsolicited e-mail, lost or misdirected
messages, illegal or fraudulent use of e-mail or interruptions or delays in e-
mail service. We also enter into agreements with commerce partners that entitle
us to receive a share of any revenue from the purchase of goods and services
through direct links from our Web site to their Web site. These arrangements
may subject us to additional claims, including product liability or personal
injury related to these products and services, because we provide access to
these products or services, even if we do not provide the products or services
ourselves.
Satisfactory Performance Of Our Web Site Is Critical To Our Business And
Reputation.
The performance of our Web site is critical to our business and reputation
and to our ability to attract new members, visitors to, and sponsors of, our
Web site. We are dependent upon the continuous, reliable and secure operation
of Internet servers and related hardware and software. To the extent that
service is interrupted or delayed, we could experience a decrease in traffic
and revenue. We do not at present have any back up "off-site" systems or a
formal disaster recovery plan, nor do we have insurance coverage for business
interruption. Substantially all of our communications hardware and some of our
other computer hardware operations are located in Tarrytown, New York. Fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events could damage these systems. Computer viruses, electronic break-
ins or other similar disruptive problems could also adversely affect our Web
site.
Our Web site must accommodate a high volume of traffic and deliver
information that is updated frequently. Our Web site has in the past and may in
the future experience slower response times or decreased traffic for a variety
of reasons. In addition, our visitors either depend on us as an Internet
Service Provider or on a third party Internet Service Provider for access to
our Web site. Internet Service Providers have experienced significant outages
in the past and could experience outages, delays and other difficulties due to
system failures unrelated to our systems in the future.
The on-going enhancement of our Web site is dependent upon the success of
development efforts that will be performed by in-house employees and by
contractors. To the extent that these development efforts are delayed or
unsuccessful, we will incur additional development expenses and may not remain
competitive in the design and use of our Web site.
A Lack Of Security Over The Internet May Impact Our Business.
A significant barrier to electronic commerce and confidential communications
over the Internet has been the need for secure transmission of confidential
information. Internet usage could decline if any well-publicized compromise of
security occurred. We may incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by such breaches.
Experienced programmers could attempt to penetrate our network security.
Programmers who are able to penetrate our network security could
23
<PAGE>
misappropriate proprietary information or cause interruptions in our services,
and we could be required to expand capital and resources to protect against or
to alleviate problems caused. Purposeful security breaches could have a
material adverse effect on our business, results of operation and financial
condition.
We Are Dependent On Our Intellectual Property.
Trademarks, copyrights, software, domain names and other proprietary rights
are important to our success and our competitive position. Third parties may
infringe or misappropriate our trademarks, copyrights, domain names and other
proprietary rights, which could have a material and adverse effect on our
business, financial condition and results of operations. In addition, we do not
know how extensive our intellectual property protection is since the validity,
enforceability and scope of protection of proprietary rights in Internet-
related industries is uncertain and still evolving. In addition, in the past,
we have not entered into confidentiality agreements with our employees.
We license some of our content from third parties. It is possible that we
could become subject to infringement actions based upon the content obtained
from these third parties. In addition, others may use this content and we may
be subject to claims from our licensors. These claims, with or without merit,
could subject us to costly litigation and the diversion of our financial
resources and technical and management personnel. We have instituted procedures
to control access to and distribution of our technology, documentation and
other proprietary information and the proprietary information of others from
which we have licensed content or technology. Despite our efforts to protect
our proprietary rights, parties may attempt to disclose, obtain or use our
content or technologies. There can be no assurance that the steps we have taken
will prevent misappropriation of our content or technologies.
Year 2000 Problems May Disrupt Our Business.
It is generally anticipated that many organizations will experience
operational difficulties at the beginning of the year 2000 as a result of the
fact that many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. The costs of
defending and resolving year 2000-related disputes, and any liability of
Physicians' Online for year 2000-related damages, including consequential
damages, could have a material adverse effect on our business, financial
condition and results of operations. We have not fully tested our systems, nor
do we have confirmation from all our vendors that their systems will be year
2000 compliant. Despite our testing, our systems may contain undetectable
errors or defects associated with the year 2000 and operational difficulties
may result. To the extent that our assessment is finalized without identifying
any additional material non-compliant information technology systems or non-
information technology systems that we operate or that are operated by third
parties, the most reasonably likely worst case year 2000 scenario is a systemic
failure beyond our control, such as a prolonged Internet, telecommunications or
electrical failure. Such a failure could prevent us from operating our
business, prevent members and visitors from accessing our Web site, or change
the behavior of consumers accessing our Web site. We believe that the primary
business risks, in the event of such a failure, would include lost sponsorship
revenue, increased operating costs, loss of members and visitors to our Web
site, or other business interruptions of a material nature, as well as claims
of mismanagement, misrepresentation, or breach of contract, any of which could
have a material adverse effect on our business, results of operations and
financial condition.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables show financial results actually achieved by each of
Mediconsult and Physicians' Online.
Mediconsult
Mediconsult historical figures as of and for the years ended December 31,
1996, 1997 and 1998 have been derived from its consolidated financial
statements and related notes. Mediconsult's financial statements as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 have been audited by PricewaterhouseCoopers.
Mediconsult's historical figures as of and for the nine months ended
September 30, 1998 and 1999 have been derived from, and should be read in
conjunction with, Mediconsult's unaudited financial statements that have been
prepared on the same basis as the audited financial statements and, in the
opinion of Mediconsult's management, include all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
financial data for the periods presented. The financial data for the interim
periods are not necessarily indicative of results that may be expected for any
other interim period or for the year as a whole.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
---------------------------------- September 30,
Income Statement Data 1996 1997 1998 1999
- --------------------- ---------- ---------- ---------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues..................... -- 256,374 1,030,934 3,887,832
---------- ---------- ---------- -----------
Operating expenses
Product and content
development................. -- 765,864 1,316,188 4,641,565
Marketing, sales and client
service..................... 435,637 1,130,340 1,811,710 4,338,948
General and administrative... 403,794 792,213 1,012,719 2,546,874
Depreciation................. -- 132,768 170,439 1,392,204
Fair value of options
granted to employees...... -- 40,235 275,145 1,695,425
Fair value of options
granted to consultants.... -- -- 1,354,000 2,269,104
---------- ---------- ---------- -----------
Total operating expenses..... 839,431 2,861,420 5,940,201 16,884,120
---------- ---------- ---------- -----------
Loss from operations......... (839,431) (2,605,046) (4,909,267) (12,996,288)
---------- ---------- ---------- -----------
Interest income (expense),
net......................... (22,667) (20,000) -- 1,168,308
---------- ---------- ---------- -----------
Net loss..................... (862,098) (2,625,046) (4,909,267) 11,827,980
========== ========== ========== ===========
Net loss per share
Basic and diluted............ (0.08) (0.16) (0.27) (0.48)
Weighted average shares--
basic....................... 11,137,662 16,729,900 17,910,898 24,882,258
<CAPTION>
As of December 31, As of
---------------------------------- September 30,
1996 1997 1998 1999
---------- ---------- ---------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash....................... 393,130 400,949 135,053 33,947,811
Working Capital............ (58,811) 372,522 (593,159) 35,683,968
Total Assets............... 760,028 751,763 1,142,383 62,797,192
Stockholders' equity....... 146,487 565,526 278,381 60,840,219
</TABLE>
25
<PAGE>
Physicians' Online
The selected balance sheet data of Physicians' Online as of December 31,
1997 and 1998 and the selected statement of operations data for the years ended
December 31, 1996, 1997 and 1998 have been derived from our audited financial
statements included elsewhere in this joint Information/Proxy
Statement/Prospectus. The selected balance sheet data as of September 30, 1999
and the statement of operations data for the nine months ended September 30,
1998 and 1999 have been derived from unaudited financial statements included
elsewhere in this joint Information/Proxy Statement/Prospectus. The selected
balance sheet data as of December 31, 1996, 1995 and 1994 is derived from our
audited financial statements not included in this prospectus and the selected
statement of operations data for the year ended December 31, 1995 and 1994 are
derived from our audited financial statements not included in this joint
Information/Proxy Statement/Prospectus.
The unaudited financial statements include all adjustments, consisting only
of normal recurring adjustments, which, in the opinion of management, are
necessary for the fair presentation of our financial position and the results
of operations for those periods. Results of operations for the nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the entire year or for any future period.
You should read the following discussion of our financial condition and
results of operations in conjunction with "Management's Discussion and Analysis
of Physicians' Online" and the audited financial statements and the notes to
those statements included elsewhere in this joint Information/Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Nine
Months
Ended
Year Ended December 31, September 30,
----------------------------------------------------------------- -------------
1994 Actual 1995 Actual 1996 Actual 1997 Actual 1998 Actual 1999 Actual
----------- ------------ ----------- ----------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of
Operations Data:
Revenues................ $ 1,010,998 $ 7,730,529 $12,634,879 $10,904,792 $ 6,054,371 $ 4,238,793
Direct salaries and
costs.................. 385,151 1,687,613 2,646,621 4,136,631 4,047,678 3,303,679
----------- ------------ ----------- ----------- ------------ -----------
Gross profit........... 625,847 6,042,916 9,988,258 6,768,161 2,006,693 935,114
Operating Expenses:
General and
administrative...... 2,685,588 9,434,626 9,925,592 8,376,531 6,986,188 5,309,493
Sales and marketing.. 1,765,687 3,623,156 3,067,184 3,384,402 2,893,435 1,776,372
Depreciation and
amortization........ 196,325 976,008 1,303,840 1,462,124 1,026,482 452,333
----------- ------------ ----------- ----------- ------------ -----------
Total operating
expenses............... 4,647,600 14,033,790 14,296,616 13,223,057 10,906,105 7,538,198
----------- ------------ ----------- ----------- ------------ -----------
Restructuring charge.... -- 2,404,769 -- -- -- --
----------- -----------
Operating loss.......... (4,021,753) (10,395,643) (4,308,358) (6,454,896) (8,899,412) (6,603,084)
Other income (expense),
net.................... (13,303) 84,122 160,037 (403,558) (1,167,090) (1,096,283)
----------- ------------ ----------- ----------- ------------ -----------
Net loss................ $(4,035,056) $(10,311,521) $(4,148,321) $(6,858,454) $(10,066,502) $(7,699,367)
=========== ============ =========== =========== ============ ===========
Basic and diluted net
income (loss) per
common share........... $ (2.86) $ (6.74) $ (2.64) $ (4.14) $ (5.83) $ (4.28)
=========== ============ =========== =========== ============ ===========
Weighted average shares
and diluted outstanding
used in basic net
income (loss) per
common share
calculation............ 1,412,250 1,530,471 1,572,832 1,656,458 1,726,485 $(1,799,081)
=========== ============ =========== =========== ============ ===========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------------------ -------------
1994 1996 1997 1999
Actual 1995 Actual Actual Actual 1998 Actual Actual
---------- ----------- ---------- ---------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $4,518,938 $ 1,255,910 $2,424,124 $3,277,610 $ 1,520,854 $ 1,021,443
Working capital
(deficit).............. (598,744) (12,139,942) (2,369,116) (1,088,207) (8,958,633) (18,444,315)
Total assets............ 5,757,408 3,776,175 9,149,220 6,544,461 3,222,198 2,983,959
Notes payable, excluding
current portion........ -- 104,155 1,462,397 809,569 2,334,548 --
Capital leases,
excluding current
installments........... -- 102,744 15,322 -- -- --
Total stockholders'
equity (deficit) ..... 227,282 (10,029,680) (1,557,054) (281,074) (10,338,393) (17,940,540)
</TABLE>
27
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the merger using the pooling-of-interests method of accounting,
after giving effect to the pro forma adjustments as described in the
accompanying notes. These unaudited pro forma combined condensed financial
statements have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of
Mediconsult.com, Inc. and Physicians Online, Inc., which are attached hereto as
pages F-3 through F-30.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
positions that would have occurred had the merger been consummated at the dates
indicated, nor is it necessarily indicative of the future operating results or
financial positions of the merged companies.
Unaudited pro forma income statement items, including related per share
amounts have been prepared as if the merger had occurred at the beginning of
the earliest period presented. These amounts do not include non-recurring items
directly attributable to the merger, including change in control costs and fees
for investment bankers, accountants, and attorneys.
An adjustment to record the fair value of Physicians' Online, Inc. employee
stock option expense in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" has been made to
conform the related accounting policies of Mediconsult.com, Inc. and
Physicians' Online, Inc.
No other adjustments to conform the accounting policies of Mediconsult.com,
Inc. and Physicians' Online, Inc. or to eliminate transactions between the two
companies have been separately presented as any such adjustments would not be
significant in the opinion of management.
28
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
Mediconsult
Nine Months Ended Physicians' Pro Forma Pro Forma
September 30, 1999 Mediconsult Online Adjustments Combined
------------------ ----------- ----------- ----------- -----------
(1), (2),
(3)
<S> <C> <C> <C> <C>
Revenues.................. 3,887,832 4,238,793 489,402 8,616,027
Operating expenses
Product and content
development.............. 4,641,565 3,303,679 15,254 7,960,498
Other operating expenses.. 8,278,026 7,538,198 1,184,632 17,000,856
Fair value of options
granted to employees..... 1,695,425 -- 130,519 1,825,944
Fair value of options
granted to consultants... 2,269,104 -- -- 2,269,104
----------- ---------- ---------- -----------
Total operating expenses.. 16,884,120 10,841,877 1,330,405 29,056,402
----------- ---------- ---------- -----------
Loss from operations...... (12,996,288) (6,603,084) (841,003) (20,440,375)
----------- ---------- ---------- -----------
Other income (expense),
net...................... 1,168,308 (1,096,283) 11,639 83,664
----------- ---------- ---------- -----------
Net loss.................. (11,827,980) (7,699,367) (829,364) (20,356,711)
=========== ========== ========== ===========
Net loss per share
Basic and diluted......... (0.48) (4.28) -- (0.48)
Weighted average shares--
basic and diluted........ 24,882,258 1,799,081 16,014,969 42,696,306
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
Mediconsult
Year Ended December 31, Physicians' Pro Forma Pro Forma
1998 Mediconsult Online Adjustments Combined
----------------------- ----------- ----------- ----------- -----------
(1), (2),
(3)
<S> <C> <C> <C> <C>
Revenues.................. 1,030,934 6,054,371 1,028,419 8,113,724
---------- ----------- ---------- -----------
Operating expenses
Product and content
development.............. 1,316,188 4,047,678 115,109 5,478,975
Other operating expenses.. 2,994,868 10,906,105 2,360,911 16,261,884
Fair value of options
granted to employees..... 275,145 -- 160,924 436,069
Fair value of options
granted to consultants... 1,354,000 -- -- 1,354,000
---------- ----------- ---------- -----------
Total operating expenses.. 5,940,201 14,953,783 2,636,944 23,530,928
---------- ----------- ---------- -----------
Loss from operations...... (4,909,267) (8,899,412) (1,608,525) (15,417,204)
---------- ----------- ---------- -----------
Other income (expense),
net...................... -- (1,167,090) 2,867 (1,164,223)
---------- ----------- ---------- -----------
Net loss.................. (4,909,267) (10,066,502) (1,605,658) (16,581,427)
========== =========== ========== ===========
Net loss per share
Basic and diluted......... (0.27) (5.83) -- (0.46)
Weighted average shares--
basic and diluted........ 17,910,898 1,726,485 16,087,565 35,724,948
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
Mediconsult
Nine Months Ended September Physicians' Pro Forma Pro Forma
30, 1998 Mediconsult Online Adjustments Combined
- --------------------------- ----------- ----------- ----------- -----------
(1), (2),
(3)
<S> <C> <C> <C> <C>
Revenues................... 658,972 4,502,981 771,314 5,933,267
---------- ----------- ---------- ----------
Operating expenses
Product and content
development............... 911,085 2,803,414 86,333 3,800,832
Other operating expenses... 1,616,166 7,923,428 1,770,683 11,310,277
Fair value of options
granted to employees...... 95,406 -- 120,693 216,099
Fair value of options
granted to consultants.... -- -- -- --
---------- ----------- ---------- ----------
Total operating expenses... 2,622,657 10,726,842 1,977,709 15,327,208
---------- ----------- ---------- ----------
Loss from operations....... (1,963,685) (6,223,861) (1,206,395) (9,393,941)
---------- ----------- ---------- ----------
Other income (expense),
net....................... -- (198,127) 2,150 (195,977)
---------- ----------- ---------- ----------
Net loss................... (1,963,685) $(6,421,988) (1,204,245) (9,589,918)
========== =========== ========== ==========
Net loss per share
Basic and diluted.......... (0.11) (3.73) (0.27)
Weighted average shares--
basic and diluted......... 17,763,525 1,719,881 16,094,169 35,577,575
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
Mediconsult
Year Ended December 31, Physicians' Pro Forma Pro Forma
1997 Mediconsult Online Adjustments Combined
- ----------------------- ----------- ----------- ----------- -----------
(1), (2)
<S> <C> <C> <C> <C>
Revenues................... 256,374 10,904,792 -- 11,161,166
---------- ---------- ---------- ----------
Operating expenses
Product and content
development............... 765,864 4,136,631 -- 4,902,495
Other operating expenses... 2,055,321 13,223,057 -- 15,278,378
Fair value of options
granted to employees...... 40,235 -- 133,356 173,591
Fair value of options
granted to consultants.... -- -- -- --
---------- ---------- ---------- ----------
Total operating expenses... 2,861,420 17,359,688 133,356 20,354,464
---------- ---------- ---------- ----------
Loss from operations....... (2,605,046) (6,454,896) (133,356) (9,193,298)
---------- ---------- ---------- ----------
Other income (expense),
net....................... (20,000) (403,558) -- (423,558)
---------- ---------- ---------- ----------
Net loss................... (2,625,046) (6,858,454) (133,356) (9,616,856)
========== ========== ========== ==========
Net loss per share
Basic and diluted.......... (0.16) (4.14) (0.26)
Weighted average shares--
basic and diluted......... 16,729,900 1,656,458 16,157,592 34,543,750
</TABLE>
30
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
Mediconsult
Year Ended December 31, Physicians' Pro Forma Pro Forma
1996 Mediconsult Online Adjustments Combined
----------------------- ----------- ----------- ----------- -----------
(1), (2)
<S> <C> <C> <C> <C>
Revenues................... -- 12,634,879 -- 12,634,879
Operating expenses
Product and content
development............... -- 2,646,621 -- 2,646,621
Other operating expenses... 839,431 14,296,616 -- 15,136,047
Fair value of options
granted to employees...... -- -- 91,235 91,235
Fair value of options
granted to consultants.... -- -- -- --
---------- ---------- ---------- ----------
Total operating expenses... 839,431 16,943,237 91,235 17,873,903
---------- ---------- ---------- ----------
Loss from operations....... (839,431) (4,308,358) (91,235) (5,239,024)
---------- ---------- ---------- ----------
Other income (expense),
net....................... (22,667) 160,037 -- 137,370
---------- ---------- ---------- ----------
Net loss................... (862,098) (4,148,321) (91,235) (5,101,654)
========== ========== ========== ==========
Net loss per share
Basic and diluted.......... (0.08) (2.64) (0.18)
Weighted average shares--
basic and diluted......... 11,137,662 1,572,832 16,241,218 28,951,712
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Mediconsult
Physicians' Pro Forma Pro Forma
As of September 30, 1999 Mediconsult Online Adjustments Combined
------------------------ ----------- ------------ ----------- -----------
(1), (4)
<S> <C> <C> <C> <C>
Assets:
- ---------------------------
Cash and cash equivalents.. 33,947,811 1,021,443 -- 34,969,254
Accounts receivable........ 545,560 744,558 -- 1,290,118
Work in progress........... 2,241,850 -- -- 2,241,850
Prepaid expenses and other
current assets............ 905,720 714,183 -- 1,619,903
---------- ------------ ----------- ----------
Total current assets....... 37,640,941 2,480,184 -- 40,121,125
Tangible fixed assets and
software.................. 1,185,947 503,775 -- 1,689,722
Advance to Physicians'
Online, Inc............... 10,096,438 -- (10,096,438) --
Goodwill................... 13,873,866 -- -- 13,873,866
---------- ------------ ----------- ----------
Total assets............... 62,797,192 2,983,959 (10,096,438) 55,684,713
========== ============ =========== ==========
Liabilities and
Stockholders' Equity:
- ---------------------------
Accounts payable and
accrued liabilities....... 1,956,973 4,726,071 -- 6,683,044
Short-term notes payable... -- 15,334,548 (10,096,438) 5,238,110
Current portion of capital
lease obligation.......... -- 222,187 -- 222,187
Deferred revenue........... -- 641,693 -- 641,693
---------- ------------ ----------- ----------
Total liabilities.......... 1,956,973 20,924,499 (10,096,438) 12,785,034
---------- ------------ ----------- ----------
Total stockholders'
equity.................... 60,840,219 (17,940,540) -- 42,899,679
---------- ------------ ----------- ----------
Total liabilities and
stockholders' equity...... 62,797,192 $ 2,983,959 (10,096,438) 55,684,713
========== ============ =========== ==========
</TABLE>
31
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Represents adjustments to record the fair value of Physicians' Online, Inc.
employee stock option expense in accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" to
conform the related accounting policies of Mediconsult.com, Inc. and
Physicians' Online, Inc. Expenses recognized for the fair value of options
in these unaudited pro forma combined condensed financial statements was
$130,519, $160,924, $120,693, $133,356 and $91,235 for the nine months
ended September 30, 1999, the year ended December 31, 1998, the nine months
ended September 30, 1998, and the years ended December 31, 1997 and 1996,
respectively. The total deferred compensation expense at September 30, 1999
would have been $198,923.
(2) Per share data was adjusted to reflect the weighted average number of
shares of common stock as a result of the merger.
(3) In June 1999 Mediconsult completed acquisitions of CyberDiet, LLC and
Cyber-Tech, Inc. in two transactions accounted for as purchase business
combinations. Adjustments to reflect the results of operations of these
companies, and the amortization of the excess of the purchase price over
the assets and liabilities acquired have been made as though the
acquisitions occurred on January 1, 1998. The total excess of the purchase
price over the assets and liabilities acquired of $9,282,723 is amortized
over five years. The assets and liabilities of these companies, and the
related goodwill recorded, are reflected in the June 30, 1998 Mediconsult
financial statements.
(4) Represents the adjustment to eliminate the $10 million advance from
Mediconsult for repayment of the $10 million short-term notes to Medical
Manager Corporation and IDX Systems Corporation in accordance with the
Agreement and Plan of Merger.
32
<PAGE>
MARKET PRICE INFORMATION
Mediconsult
Mediconsult common stock traded on the Nasdaq over the counter market under
the symbol "MCNS" from October 15, 1996 until April 6, 1999 and has traded on
the Nasdaq National Market under that symbol since April 6, 1999.
The table below sets forth, for the periods indicated, the reported high and
low sale prices of Mediconsult common stock on the Nasdaq National Market and
the over the counter market, as applicable.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Year ended December 31, 1997
First Quarter ...................................... $ 2.09375 $1.609375
Second Quarter ..................................... 2.4375 1.3125
Third Quarter ...................................... 3.00 1.375
Fourth Quarter...................................... 1.6875 1.046875
Year ended December 31, 1998
First Quarter....................................... $ 2.09375 $1.00
Second Quarter...................................... 1.90625 1.25
Third Quarter....................................... 1.6875 .635
Fourth Quarter...................................... 9.5625 .49
Year ended December 31, 1999
First Quarter....................................... $22.625 $6.1875
Second Quarter...................................... 19.6875 9.6875
Third Quarter....................................... 13.75 6.25
</TABLE>
On September 3, 1999, the last full trading day prior to the public
announcement of the proposed merger, the last reported sale price of
Mediconsult common stock on the Nasdaq National Market was $8.3125 per share.
On November 17, 1999, the most recent practicable date prior to the mailing of
this joint Information/Proxy Statement/Prospectus, the last reported sale price
of Mediconsult common stock on the Nasdaq National Market was $8.875 per share.
Because the market price of Mediconsult common stock may fluctuate, the
market price per share of the shares of Mediconsult common stock that holders
of Physicians' Online stock will receive in the merger may increase or decrease
prior to the merger.
We urge Physicians' Online stockholders to obtain a current market quotation
for Mediconsult common stock.
Physicians' Online
Physicians' Online common stock is not publicly traded. At the record date,
there were 93 Physicians' Online stockholders of record. Physicians' Online has
not paid any cash dividends since its inception.
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CERTAIN INFORMATION ABOUT THE ACTIONS
TAKEN BY THE MEDICONSULT CONTROLLING STOCKHOLDERS
General
Mediconsult's controlling stockholders have approved the issuance of stock
in connection with the merger and certain other actions by signing an
irrevocable written consent of stockholders. No vote of Mediconsult
stockholders is necessary to approve the issuance of stock in connection with
the merger.
MEDICONSULT STOCKHOLDERS ARE NOT BEING ASKED FOR A PROXY. IF YOU ARE A
MEDICONSULT STOCKHOLDER, YOU ARE REQUESTED NOT TO SEND US A PROXY.
Matters Acted Upon and to be Acted Upon
Mediconsult's controlling stockholders have taken action to approve items 1,
2, 4, and 5 below and will, after the distribution of this joint
Information/Proxy Statement/Prospectus, take action to approve item 3 below.
1. the merger transaction pursuant to the terms of the merger agreement,
including the necessary issuance of up to 20,500,000 shares of Mediconsult
common stock;
2. an amendment to the Mediconsult certificate of incorporation to
increase the authorized capital stock of Mediconsult from 50,000,000 shares
to 100,000,000 shares;
3. an amendment to the Mediconsult 1996 Stock Option Plan to authorize
an additional 3,500,000 shares of Mediconsult common stock for issuance
thereunder and to provide for an independent compensation committee to
administer certain option grants;
4. the assumption and adoption of the Physicians' Online stock option
plan, with certain amendments providing for the issuance of Mediconsult
common stock, in accordance with the conversion ratio, upon exercise of the
outstanding Physicians' Online options; and
5. the ratification of an amendment to the Mediconsult bylaws increasing
the size of the company's board to ten to facilitate the placement of the
Physicians' Online nominees on the Mediconsult Board.
NO VOTE OF MEDICONSULT STOCKHOLDERS IS NECESSARY TO APPROVE AND ADOPT THE
MERGER AGREEMENT OR THE MERGER OR THE OTHER ACTIONS DESCRIBED ABOVE.
Record Date
Holders of record of shares of Mediconsult common stock at the close of
business on November 18, 1999, referred to in this joint Information/Proxy
Statement/Prospectus as the Mediconsult record date, are entitled to notice of
the action taken by the Mediconsult stockholders. On the record date,
Mediconsult had issued and outstanding 28,940,665 shares of common stock.
The Mediconsult charter provides that any action taken by the stockholders
may be taken by written consent in lieu of a meeting, without prior notice or
vote, of the number of holders necessary to authorize such action.
Mediconsult's controlling stockholders have already approved the issuance of
stock in connection with the merger and certain other actions by signing an
irrevocable written consent of stockholders. No further vote of Mediconsult
stockholders is necessary to approve the issuance of stock in connection with
the merger or the other actions already acted upon and described in this joint
Information/Proxy Statement/Prospectus.
Under the rules of the Nasdaq National Market, the affirmative vote of a
majority of the total votes cast was necessary to approve the issuance of
Mediconsult common stock. Under Section 242 of the DGCL, the affirmative vote
of a majority of the outstanding stock entitled to vote was required to approve
the charter amendment. Mediconsult's bylaws provide that the affirmative vote
of a majority of the shares present in person or represented by proxy at a
meeting and entitled to vote on the subject matter were necessary to
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approve the amendment to Mediconsult's 1996 Stock Option Plan, the assumption
and adoption of the Physicians' Online Stock Option Plan and the ratification
of the amendment to Mediconsult's bylaws. Because theses actions were or will
be taken by written consent of the Mediconsult's controlling stockholders,
abstentions and broker non-votes are not applicable to the vote.
Actions Taken and to be Taken by the Mediconsult Controlling Stockholders
Action 1
Mediconsult's controlling stockholders considered and approved the following
resolution:
"Resolved: The issuance of up to 20,500,000 shares of Mediconsult common
stock in connection with the merger is hereby ratified and approved."
It is estimated that Physicians' Online stockholders will receive, in the
aggregate, approximately 17.8 million shares of Mediconsult common stock in the
merger, or approximately 38% of the issued and outstanding shares of
Mediconsult common stock following the merger. It is estimated that each share
of Physicians' Online common stock (including shares issuable upon conversion
of the outstanding Physicians' Online preferred stock) will receive
approximately 2.4 shares of Mediconsult common stock. In addition, the holders
of Physicians' Online preferred stock will receive a number of shares of
Mediconsult common stock in respect of the aggregate liquidation price of such
preferred stock. These estimates are based on an assumed average closing price
of $6.825 (the average closing price per share of the Mediconsult common stock
on the Nasdaq National Market for the ten trading days ending on November 17,
1999, the most recent practicable date prior to the mailing of this joint
Information/Proxy Statement/Prospectus), estimated transaction expenses of
approximately $2.4 million, and an estimated aggregate exercise price of
unexercised Physicians' Online options of approximately $1.3 million. The exact
conversion ratio will be determined immediately prior to the closing and may be
higher or lower than 2.4 shares and the total number of shares issued to the
Physicians' Online stockholders may be greater or lesser than 17.8 million.
In addition, upon exercise of their options and payment of the exercise
price after the merger, the holders options to purchase Physicians' Online
common stock will be eligible to receive, in the aggregate, approximately 2
million additional shares of Mediconsult common stock.
Action 2
Mediconsult's controlling stockholders considered and approved the following
resolution:
"Resolved: The amendment of the Mediconsult charter increasing the
authorized capital stock of Mediconsult from 50,000,000 shares to 100,000,000
is hereby ratified and approved.
The purpose of the charter amendment is to increase the authorized capital
stock of Mediconsult so that Mediconsult will have sufficient authorized
capital to issue the shares in connection with the merger.
Action 3
After the distribution of this joint Information/Proxy Statement/Prospectus,
Mediconsult's controlling stockholders will consider and approve certain
amendments to Mediconsult's 1996 Stock Option Plan to:
. increase the number of shares of common stock reserved thereunder for
issuance from 3,500,000 to 7,000,000; and
. to provide for an independent compensation committee to administer
certain option grants
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Amendments to the Plan
Mediconsult believes it to be in Mediconsult's best interests to have
options available to provide incentives to key employees of companies who may
be acquired in the future as well as continuing employees.
On November 18, 1999, the board of directors authorized 3,500,000 additional
shares to be reserved for Physicians' Online option holders, for recent awards
and for future awards, subject to stockholder approval. The 3,500,000
additional shares for which approval is sought represents approximately 1.2% of
Mediconsult's outstanding shares of common stock at November 17, 1999 and
approximately 10.7% of Mediconsult's outstanding shares on a fully diluted
basis on that date. As of November 17, 1999, the market value of the securities
underlying the additional 3,500,000 shares of common stock authorized for
issuance under the 1996 Plan was $31,062,500.
In addition, on November 18, 1999, the board of directors approved certain
amendments to Mediconsult's 1996 Stock Option Plan to provide that a
compensation committee comprised solely of two or more outside directors, who
will also be Non-Employee Directors (as such term is defined in Rule 16b-3
under the Exchange Act), will have the full and exclusive authority to grant
options to any senior officer of the Company and to take any other action
relative to such a grant of options to such senior officers.
In addition, the board approved an amendment increasing the maximum option
grant which may be made to an employee or other plan participant in any
calendar year from 250,000 to 1,000,000 shares, subject to equitable adjustment
in the event of a recapitalization event and to provide an overall maximum
option grant to any employee or other plan participant over the life of the
plan of not more than 3,000,000.
Description of the Plan
Unless sooner terminated, the 1996 plan will terminate in April 2006. The
complete text of the 1996 plan is attached as Annex D hereto and the
description contained herein is qualified in its entirety by the full text of
the 1996 plan.
As of September 30, 1999, Mediconsult had 3,500,000 shares of common stock
reserved for issuance under the 1996 plan. At such date, no shares were
reserved for issuance subject to options available for grant under the plan and
3,500,000 were reserved for issuance subject to options then exercisable or
subject to vesting.
The 1996 plan is administered by the board of directors except that that a
compensation committee comprised solely of two or more outside directors, who
will also be Non-Employee Directors (as such term is defined in Rule 16b-3
under the Exchange Act), will have the full and exclusive authority to grant
options to any senior officer of Mediconsult and to take any other action
relative to such a grant of options to such senior officers. The board or the
compensation committee, as the case may be, has the authority to determine to
whom options shall be granted (subject to certain eligibility requirements for
grants of incentive stock options), whether the option is to be an incentive
stock option or non-qualified option, the number of shares covered by each such
grant, the exercise or purchase price per share, the time or times at which
options shall be granted, and other terms and provisions governing options, as
well as the restrictions, if any, applicable to shares of common stock issuable
upon exercise of options. The board of directors may, from time to time, adopt
amendments, certain of which are subject to stockholder approval, and may
terminate the 1996 plan at any time (although such action shall not affect
options previously granted). Holders of options are protected against dilution
in the event of a stock dividend, recapitalization, stock split, merger or
similar transactions.
Any salaried employee, officer, director or consultant that the board, in
its sole discretion, designates is eligible to participate in the plan may
receive compensation thereunder. The compensation committee shall have full and
exclusive power to determine which senior officers of the company will
participate in the plan. The maximum option grant to any single employee or
other plan participant in any calendar year cannot exceed 1,000,000. The
maximum option grant to any single employee or other plan participant over the
entire term of
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the plan cannot exceed 3,000,000. The plan will expire no later than April
2006. The exercise price of any option grant cannot be less than 100% of the
fair market value of the shares subject to the option on the date of grant.
The 1996 plan requires that each option shall expire on the date specified
by the board of directors, but not more than ten years from its date of grant.
However, in the case of any incentive stock option granted to an employee or
officer owning more than 10% of the total combined voting power of all classes
of stock of Mediconsult, or any related corporation, the incentive stock option
expires no more than five years from its date of grant.
Exercise of any option, in whole or in part, is effected by a written notice
of exercise delivered to the Company at its principal office together with
payment for the common stock in full, or, at the discretion of the board or the
compensation committee, as the case may be, (i) by the delivery of shares of
common stock of Mediconsult, valued at fair market value, a promissory note, or
any combination thereof, or (ii) through an exercise notice payment procedure.
The 1996 plan contains terms providing for the exercise of options by or on
behalf of former and deceased employees. Incentive stock options granted
pursuant to the 1996 plan are not assignable or transferable other than by will
or by the laws of descent and distribution and are exercisable during the
optionee's lifetime only by the optionee.
New Plan Benefits
Mediconsult is unable to determine the dollar value and number of options or
shares of common stock that will be issued under the amendments to the 1996
plan to (i) any of the executive officers, (ii) the current executive officers
as a group, (iii) the current directors who are not executive officers as a
group, (iv) each nominee for election as a director and (v) the employees who
are not executive officers as a group, because, except for non-discretionary
option grants to non-employee directors described above, options are granted on
a discretionary basis. The company is unable to determine the benefits or
amounts which would have been received by or allocated to any such persons or
groups for fiscal 1998 if the amendment to the 1996 plan had been in effect
throughout such year.
Action 4
Mediconsult's controlling stockholders considered and approved the adoption
of the Physicians' Online Stock Option plan with certain amendments.
Under the merger agreement, options to purchase Physicians' Online stock
that are outstanding immediately before the effective time of the merger will
be converted into options to purchase Mediconsult common stock in accordance
with the conversion formula. Because of the shares to be made available to
Physicians' Online option holders, Mediconsult believes it to be in
Mediconsult's best interests to adopt and assume the Physicians' Online Stock
Option Plan.
Amendments to the Plan
Immediately after adopting the Physicians' Online Stock Option Plan,
Mediconsult will amend the plan to add the following provision to Section 16 of
the plan:
"(c) The Mediconsult/Physicians' Online Merger. Each outstanding option to
purchase shares of Physicians' Online common stock, whether vested or
unvested and whether or not exercisable, issued under this plan before the
effective time of the Merger shall, at the effective time of the merger, be
exercisable, for the same aggregate exercise price, for that number of
shares of Mediconsult common stock that the holder of such option would
have received had such holder exercised such option immediately prior to
the effective time of the Merger, with no change to the vesting period and
with no other change to the terms of such option. Any fractional shares of
Mediconsult common stock resulting
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<PAGE>
from such adjustment will be rounded to the nearest whole number of shares.
The "Merger" means the merger that results in Physicians' Online becoming a
wholly owned subsidiary of Mediconsult."
The board and the Mediconsult controlling stockholders will also approve
certain other conforming amendments to the Physicians' Online Stock Option Plan
which are indicated in bold face type in the full text of the plan attached to
this joint Information/Proxy Statement/Prospectus as Annex E.
Description of the Plan
Unless sooner terminated, the Physicians' Online Stock Option Plan will
terminate in February, 2006. The description contained herein is qualified in
its entirety by the full text of the Physicians' Online Stock Option Plan.
As of November 19, 1999, the Physicians' Online Stock Option Plan had
924,835 shares of common stock reserved for issuance. At such date, an
aggregate of 86,681 shares were reserved for issuance subject to options
available for grant under the plan and 590,529 were reserved for issuance
subject to options then exercisable and 247,625 shares were reserved for
issuance subject to options not yet vested. After giving effect to the
estimated conversion factor of 2.41 applied pursuant to the amendments
described above, there will be an aggregate of approximately 2,228,852 shares
of Mediconsult common stock reserved for issuance including approximately
208,901 shares reserved for issuance subject to options available for grant
under the plan and approximately 1,423,175 shares reserved for issuance subject
to options then exercisable, and 596,776 shares reserved for issuance subject
to options not yet vested.
After its adoption, the Physicians' Online Stock Option Plan will be
administered by the board of directors of Mediconsult which will have the power
to delegate certain of its power to a committee of Non-Employee Directors, as
such term is defined in Rule 16b-3 of the Exchange Act. The board or the
committee, as the case may be, will have authority to determine to whom options
shall be granted (subject to certain eligibility requirements for grants of
incentive stock options), whether the option is to be an incentive stock option
or non-qualified option, the number of shares covered by each such grant, the
exercise or purchase price per share, the time or times at which options shall
be granted, and other terms and provisions governing options, as well as the
restrictions, if any, applicable to shares of common stock issuable upon
exercise of options. The aggregate number of shares that may be granted to any
one person under the plan in a calendar year cannot exceed 25% of the maximum
aggregate number of shares issuable under the plan. The board of directors may,
from time to time, adopt amendments, certain of which are subject to
stockholder approval, and may terminate the Physicians' Online Stock Option
Plan at any time (although such action shall not affect options previously
granted). Holders of options are protected against dilution in the event of a
stock dividend, recapitalization, stock split, merger or similar transactions.
The Physicians' Online Stock Option Plan requires that the exercise price
for each option shall be no less than the fair market value of the common stock
on the date the option is granted, and that each option shall expire on the
date specified by the board of directors, but not more than ten years from its
date of grant. However, in the case of any incentive stock option granted to an
employee or officer owning more than 10% of the total combined voting power of
all classes of stock of the company or any related corporation, the incentive
stock option expires no more than five years from its date of grant.
Exercise of any option, in whole or in part, is effected by a written notice
of exercise delivered to Mediconsult at its principal office together with
payment for the common stock in full, or, at the discretion of the board, (i)
by the delivery of shares of common stock of Mediconsult, valued at fair market
value, (ii) by any other means the board of directors may allow consistent with
Rule 16b-3 and Regulation T promulgated by the federal reserve board, or (iii)
by a combination of such methods of payment. The Physicians' Online Stock
Option Plan contains terms providing for the exercise of options by or on
behalf of former and deceased employees. Incentive stock options granted
pursuant to the Physicians' Online Stock Option Plan are not
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assignable or transferable other than by will or by the laws of descent and
distribution and are exercisable during the optionee's lifetime only by the
optionee.
New Plan Benefits
Mediconsult is unable to determine the dollar value and number of options or
shares of common stock that will be issued under the assumed and adopted
Physicians' Online Stock Option Plan to (i) any of the executive officers, (ii)
the current executive officers as a group, (iii) the current directors who are
not executive officers as a group, (iv) each nominee for election as a director
and (v) the employees who are not executive officers as a group, because
options are granted on a discretionary basis. The company is unable to
determine the benefits or amounts which would have been received by or
allocated to any such persons or groups for fiscal 1998 if the amendment to the
Physicians' Online Stock Option Plan had been in effect throughout such year.
Action 5
Mediconsult's controlling stockholders considered and voted upon the
following proposal to ratify the board of directors' amendment of the
Mediconsult bylaws:
"Resolved: The amendment of Article IV, Section 1 of the Bylaws,
increasing the maximum number of directors of Mediconsult to 10, is hereby
ratified and approved."
The purpose of the Bylaw amendment is to allow the Mediconsult directors to
appoint four Physicians' Online nominees to the Mediconsult board of directors
in accordance with the terms of the merger agreement. Mediconsult has agreed to
take all action necessary so that, effective as of the effective time of the
merger, the size of its board of directors will be increased to ten. Four
persons nominated by certain principal stockholders of Physicians' Online will
be appointed to Mediconsult's board to fill the vacancies created by such
increase. Such persons will serve until the next annual meeting of stockholders
of Mediconsult.
Mediconsult has agreed to take all action necessary to nominate for election
to its board at its next annual meeting one person for each 10% of outstanding
Mediconsult common stock beneficially owned by the principal stockholders of
Physicians' Online and their affiliates (or nominees), as of the record date
for such annual meeting (rounded up to the next whole number) but in no event
more than four persons, to serve until the next succeeding annual meeting of
stockholders of Mediconsult. Until the 2001 annual meeting of Mediconsult,
Mediconsult has agreed that it will not increase the number of directors
constituting its whole board above ten without the consent of a majority of the
Physicians' Online directors serving on the Mediconsult board at the time of
any such increase. In the event of any vacancy on the Mediconsult board,
whether caused by a director's resignation, removal, death or otherwise,
Mediconsult has agreed to take all action necessary to ensure that the
successor to any Physicians' Online director whose absence from the Mediconsult
board caused such vacancy will be a Physicians' Online director.
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THE PHYSICIANS' ONLINE SPECIAL MEETING
General
This joint Information/Proxy Statement/Prospectus is being furnished to
stockholders of Physicians' Online, as part of the solicitation of proxies by
the Physicians' Online board of directors for use at a special meeting of
stockholders of Physicians' Online to be held on December 15, 1999, at 10:00
am, local time, at the offices of Physicians' Online, whose address is 560
White Plains Road, Tarrytown, New York and at any adjournment or postponement
of such meeting. This joint Information/Proxy Statement/Prospectus and the
enclosed form of proxy are first being mailed to stockholders of Physicians'
Online on or about November 24, 1999.
Matters to be Considered
The purpose of the Physicians' Online special meeting is:
1. To approve and adopt the agreement and plan of merger, dated as of
September 7, 1999, by and among Physicians' Online, certain stockholders of
Physicians' Online parties thereto, as amended, Mediconsult and PMCI, Inc.,
a wholly owned subsidiary of Mediconsult, that will result in Physicians'
Online becoming a wholly-owned subsidiary of Mediconsult.
By approving the merger agreement, Physicians' Online stockholders will
agree that 10% of the total number of shares of Mediconsult common stock
issued in the merger will be available to satisfy certain indemnification
obligations under the merger agreement. An escrow arrangement will be
established at closing to hold this 10% amount. This escrow will be
Mediconsult's sole recourse for such indemnification obligation, with each
stockholder being at risk for no more than its pro rata share of the
escrow.
2. To transact such other business as may properly come before the
Physicians' Online special meeting or any adjournment or postponement of
the Physicians' Online special meeting, including without limitation,
potential adjournments or postponements of the Physicians' Online special
meeting for the purpose of soliciting additional proxies in order to
approve and adopt the merger agreement.
Physicians' Online Board of Directors Recommendation
The Physicians' Online board of directors, after careful consideration, has
unanimously approved the merger agreement and has unanimously declared the
merger agreement advisable and in the best interests of Physicians' Online and
its stockholders. By voting in favor of the merger agreement or receiving
Mediconsult stock in the merger, you approve the appointment of Jason
Fisherman, currently a director of Physicians' Online, as the representative of
the stockholders of Physicians' Online (and the appointment of Bradford
Burnham, also currently a director of Physicians' Online, in the event Mr.
Fisherman is unable to continue as stockholder representative) to act on behalf
of the Physicians' Online stockholders in connection with the merger agreement
and the escrow agreement referred to in the merger agreement. The Physicians'
Online board of directors recommends a vote FOR the approval and adoption of
the merger agreement and the transactions contemplated thereby.
Record Date and Voting
Holders of shares of Physicians' Online common stock, Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock at the close of business on November 19, 1999, referred to in
this joint Information/Proxy Statement/Prospectus as the Physicians' Online
record date, are entitled to notice of and to vote at the Physicians' Online
special meeting. At such date there were 1,880,795; 722,850; 448,932;
1,433,408, and 623,500 outstanding shares of Physicians' Online common stock,
Series A preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock, respectively. Each share of Physicians' Online
common stock, Series A preferred stock, Series B preferred stock, and Series D
preferred stock will be entitled to one vote. Each share of Physicians' Online
Series C preferred stock will be entitled to
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approximately 1.41 votes. The representation, in person or by properly executed
proxy, of a majority of all of the shares of common stock and the Series A
preferred stock, Series B preferred stock, Series C preferred stock and Series
D preferred stock, voting together, on an as if converted basis, with the
shares of common stock, entitled to vote at the Physicians' Online special
meeting is necessary to constitute a quorum at the Physicians' Online special
meeting.
The approval and adoption of the proposed merger agreement will require (i)
the affirmative vote of the holders of at least a majority of the votes
represented by the outstanding stock of Physicians' Online entitled to vote and
(ii) at least 66 2/3% of the votes represented by the shares of Physicians'
Online Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock, voting together on an as if converted basis
with the shares of common stock held by the Physicians' Online founders. Shares
of Physicians' Online common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock
represented in person or by proxy will be counted for the purposes of
determining whether a quorum is present at the Physicians' Online special
meeting. All shares with respect to which holders abstain from voting as to the
proposal to adopt the merger agreement will be treated as shares that are
present and entitled to vote at the Physicians' Online special meeting for
purposes of determining whether a quorum exists, but abstentions will have the
same effect as votes against approval of the merger agreement.
The Physicians' Online founders and the holders of Physicians' Online
preferred stock have executed the merger agreement wherein they have agreed to
vote an aggregate of 1,351,288 shares of Physicians' Online common stock and
3,228,690 shares of Physicians' Online preferred stock, representing
approximately 91% of the votes entitled to vote at the Physicians' Online
special meeting, in favor of the approval and adoption of the merger agreement.
In addition, each of the Physicians' Online founders and preferred stockholders
has agreed to vote in favor of the adoption of the merger agreement and has
executed an irrevocable proxy appointing an officer of Mediconsult as his or
its proxy to vote all of his or its shares of capital stock of Physicians'
Online in favor of the merger agreement at the special meeting.
Voting and Revocable Proxies
All shares of Physicians' Online stock that are entitled to vote and are
represented at the Physicians' Online special meeting by properly executed
proxies received prior to or at such meeting, and not revoked, will be voted at
such meeting in accordance with the instructions indicated on such proxies. If
no instructions are indicated, such proxies will be voted for each proposal.
The Physicians' Online board of directors does not know of any matters other
than those described in the notice of the Physicians' Online special meeting
that are to come before such meeting. If any other matters are properly
presented at the Physicians' Online special meeting for consideration,
including, among other things, consideration of a motion to adjourn or postpone
such meeting to another time and/or place (including, without limitation, for
the purposes of soliciting additional proxies or allowing additional time for
the satisfaction of conditions to the merger), the persons named in the
enclosed forms of proxy and acting thereunder generally will have discretion to
vote on such matters in accordance with their best judgment. Notwithstanding
the foregoing, proxies voting against the merger agreement may not be used by
the persons named in the proxies to vote for adjournment or postponement of the
meeting for the purpose of giving management additional time to solicit votes
to approve the merger agreement.
Any proxy given in connection with this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Physicians' Online, at or before the taking of the
vote at the Physicians' Online special meeting, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a later dated proxy
relating to the same shares and delivering it to the Secretary of Physicians'
Online before the taking of the vote at the Physicians' Online special meeting
or (iii) attending the Physicians' Online special meeting and voting in person
(although attendance at the Physicians' Online special meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to Physicians' Online, 560 White Plains
Road, Tarrytown, New
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York 10591, Attention: Secretary, or hand delivered to the Secretary of
Physicians' Online at or before the taking of the vote at the Physicians'
Online special meeting.
All expenses of Physicians' Online's solicitation of proxies for the
Physicians' Online special meeting will be borne by Physicians' Online
stockholders, except that Mediconsult shall bear and pay all of the printing
and mailing costs and filing fees associated with the Registration Statement on
Form S-4 and the joint Information/Proxy Statement/Prospectus. In addition to
solicitation by use of the mails, proxies may be solicited from Physicians'
Online stockholders by directors, officers and employees of Physicians' Online
in person or by telephone, facsimile or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation.
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THE MERGER
Background of the Merger
Mediconsult is regularly involved in the review of private and public
companies with which it may form strategic partnerships to further its
objectives in the Internet healthcare market. In the Spring of 1999, at the
suggestion of McFarland Dewey, one of Mediconsult's financial advisors, Robert
Jennings of Mediconsult met with David Richards of Physicians' Online. The
senior executives of Mediconsult and Physicians' Online discussed generally
their respective businesses and engaged in exploratory discussions regarding
the ways in which the companies' respective strategies and technologies might
be combined. The executives settled on no particular transaction during these
discussions.
Beginning in the fall of 1998 through the first half of 1999, Physicians'
Online management sought to obtain financing or a strategic partner for
Physicians' Online. In March of 1999, Physicians' Online raised an aggregate of
$10,000,000 in loans from IDX Systems Corporation and Medical Manager
Corporation. Physicians' Online did not subsequently enter into an acquisition
agreement with these companies as contemplated at the time of the loans because
Medical Manager entered into a transaction with Synetic, Inc.
On July 10, 1999 Physicians' Online retained J.P. Morgan & Co. Incorporated
to act as its exclusive financial advisor to assist Physicians' Online in its
consideration of financial and strategic alternatives to maximize stockholder
value. Beginning July 12, 1999, J.P. Morgan contacted a number of potential
merger partners, including Mediconsult.
In August 1999, Mediconsult retained Warburg Dillon Read LLC and McFarland
Dewey to act as its financial advisors in connection with a possible
transaction with Physicians' Online. Mediconsult signed a confidentiality
agreement with Physicians' Online dated July 10, 1999 and received materials
summarizing Physicians' Online's operations.
Throughout July and August 1999, Mediconsult's management and advisors
discussed Physicians' Online's operations with senior executives of Physicians'
Online and with J.P. Morgan. In addition, due diligence materials were made
available by Physicians' Online to Mediconsult and its advisors, which were
reviewed and discussed with Physicians' Online and its advisors. Throughout
July and August 1999, Physicians' Online continued its discussions with other
potential merger partners in addition to Mediconsult.
On August 5, 1999, at a regularly scheduled meeting of Mediconsult's board
of directors, the directors of Mediconsult were informed of the status of the
discussions with Physicians' Online and of the nature of a possible transaction
with Physicians' Online.
On August 8, 1999, advisors to Physicians' Online and Mediconsult discussed
in general the proposed terms of a possible transaction between Physicians'
Online and Mediconsult. On August 17, 1999, Mediconsult submitted its comments
on Physicians' Online's proposed merger agreement to Physicians' Online's
advisors.
On September 1, 1999, Mediconsult was invited to negotiate the merger
agreement with Physicians' Online. Negotiations between Mediconsult and
Physicians' Online, and their respective advisors, took place from September 2,
1999 through September 7, 1999. These discussions included the development by
senior management of Mediconsult and Physicians' Online of a business plan for
Physicians' Online.
On September 5, 1999, Physicians' Online's board of directors held a special
telephonic meeting in which its legal and financial advisors participated. The
board discussed the terms of the proposed merger with Mediconsult and the
alternatives to accepting Mediconsult's proposal. Representatives of J.P.
Morgan reviewed with the Physicians' Online board the auction it had conducted
on behalf of Physicians' Online and set forth a comparison of the terms and
conditions of the competing alternatives negotiated by the management of
Physicians' Online. The board approved in principle the merger with
Mediconsult, subject to further
43
<PAGE>
negotiations of certain provisions contained in the merger agreement. Following
Physicians' Online's board meeting, David Richards contacted Robert Jennings to
inform him of the results of the meeting.
On September 5, 1999, following Physicians' Online's board meeting,
Mediconsult's board of directors held a special telephonic meeting in which its
legal and financial advisors participated. The board was informed of the
principal terms of the proposed merger agreement and the status of the
discussions with Physicians' Online. The board also was informed that senior
management of Mediconsult intended to discuss the proposed transaction with
certain managerial employees of Physicians' Online during the succeeding 24 to
48 hours in order to determine whether those employees would be willing to
continue in Physicians' Online's employ following a merger. The board also was
informed that one of the principal stockholders of Physicians' Online had not
yet agreed to sign the merger agreement and was continuing to evaluate its
terms. Warburg Dillon Read reviewed with the board the financial terms of the
proposed merger and a summary of the methodologies used by Warburg Dillon Read
to evaluate the proposed merger consideration. Warburg Dillon Read then
informed the board that it expected to be in a position to deliver to the board
a written opinion upon execution of the merger agreement as to the fairness,
from a financial point of view, to Mediconsult of the aggregate stock
consideration to be paid by Mediconsult in the merger. Discussion then ensued
among the board and its advisors regarding, among other things, the nature of
Physicians' Online's business, the terms of the proposed merger, the potential
synergies that could result from the merger, the ability of Mediconsult to
pursue certain business strategies without acquiring Physicians' Online, the
dilutive effect the issuance of shares to Physicians' Online's stockholders
would have on Mediconsult, the funding obligations to Physicians' Online that
Mediconsult would assume under the merger agreement, and the risks associated
with the merger. The board deferred making any decision regarding the merger
pending further discussions between Mediconsult and Physicians' Online's
managerial group with respect to employment agreements and confirmation that
all Physicians' Online's principal stockholders would sign the merger
agreement.
From September 5 through 7, senior management of Mediconsult met with
certain employees of Physicians' Online. These employees were requested to
enter into employment agreements with Physicians' Online, which had been
prepared by Mediconsult. The employment agreements included certain obligations
not to compete with Physicians' Online. In addition, during this period, the
final terms of the merger agreement were negotiated.
On September 6, 1999, the board of directors of Physicians' Online held a
special telephone meeting at which its legal and financial advisers were
present and reported on the results of the negotiation of the final open points
in the merger agreement.
On September 7, 1999, the entire board of directors of Physicians' Online
held a special telephonic meeting at which its legal and financial advisors
were present. Following a recapitulation of the board's meetings on September 5
and 6, 1999, and a discussion of the final terms of the merger agreement, the
board unanimously approved the merger and the merger agreement and declared it
advisable and in the best interests of the Physicians' Online Stockholders.
On September 7, 1999, the board of directors of Mediconsult held a special
telephonic meeting to discuss the final terms of the merger agreement and the
discussions that had taken place between Mediconsult's senior management and
certain employees of Physicians' Online. Following these discussions and a
summary of the board's September 5, 1999 meeting, the board unanimously
approved the merger and the merger agreement, subject to receipt of Warburg
Dillon Read's written opinion. On September 7, 1999, Warburg Dillon Read
delivered to the board its written opinion, dated September 7, 1999, to the
effect that, as of that date and based on and subject to the matters described
in its opinion, the aggregate stock consideration to be paid by Mediconsult in
the merger was fair, from a financial point of view, to Mediconsult.
On September 7, 1999 the merger agreement and Mediconsult stockholder voting
agreements were signed. Immediately following execution of the merger
agreement, Mediconsult issued a press release announcing the transaction.
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<PAGE>
Joint Reasons for the Merger
The Mediconsult board and the Physicians' Online board each believe that the
combined company will have potential for greater financial strength, market
power and growth potential than either Mediconsult or Physicians' Online would
have on its own. The Mediconsult board and the Physicians' Online board
identified a number of potential benefits to the merger which they believe
could contribute to the success of the combined company and thus benefit
stockholders of both companies, including the following:
. the merger may enhance the opportunity for the potential realization of
the strategic objective of the combined company to expand its market
share and increase the combined company's ability to compete effectively
in the highly competitive Internet healthcare market, the pharmaceutical
data market and the direct-to-consumer advertising market.
. the broadening of the companies' client base and product lines resulting
from the merger may enable the combined company to offer a more
comprehensive, competitive solution to clients, pharmaceutical companies
and advertisers seeking information regarding medical conditions, drugs,
therapies and prescription drug usage.
. the merger may provide the combined company with the enhanced
opportunities to expand the scope of the combined company's distribution
channels and to obtain efficiencies in education, development and
marketing.
. the combined experience, financial resources, size, client base, and
breadth of product offerings of the combined company may allow it to
respond more quickly and effectively to technological change, increased
competition, and market demands in an industry experiencing rapid
innovation and change.
. combined financial and technological resources may allow the combined
company to compete more effectively in a rapidly consolidating Internet
healthcare market with enhanced ability to develop new and greater
functionality for existing and future clients and products.
. an opportunity to leverage our respective strengths--Mediconsult's
patient and caregiver visitor communities and Physicians' Online's large
network of member physicians.
Action of the Board of Directors of Mediconsult; Actions of the Controlling
Mediconsult Stockholders
THE MEDICONSULT BOARD HAS APPROVED THE MERGER AND MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, MEDICONSULT AND ITS STOCKHOLDERS.
THE MEDICONSULT CONTROLLING STOCKHOLDERS HAVE ALREADY ACTED TO APPROVE THE
ISSUANCE OF MEDICONSULT STOCK IN CONNECTION WITH THE MERGER.
Mediconsult's Reasons for the Merger
In reaching its conclusion to approve the merger and merger agreement, the
Mediconsult board considered the factors described above under "Joint Reasons
for the Merger," as well as the opportunity of the Mediconsult stockholders to
participate in the potential growth of the combined company after the merger.
The Mediconsult board also considered and reviewed with management the
additional positive factors listed below in reaching its decision to approve
the merger and the merger agreement and to recommend that Mediconsult's
stockholders vote to approve the proposed issuance of Mediconsult common stock
in connection with the merger:
. the merger will provide Mediconsult with access to Physicians' Online's
extensive network of member physicians, including Physicians' Online's
valuable in-office network of hardware and software that would take
Mediconsult a significant period of time to develop independently;
45
<PAGE>
. the merger will provide Mediconsult with greater opportunity to derive
revenues from the pharmaceutical industry and to increase revenues
generally; and
. the merger will create greater opportunity for Mediconsult to develop
distribution channels for education, sales and marketing.
Recommendation of the Board of Directors of Physicians' Online
THE PHYSICIANS' ONLINE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, PHYSICIANS' ONLINE AND ITS
STOCKHOLDERS. THE PHYSICIANS' ONLINE BOARD RECOMMENDS A VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
Physicians' Online's Reasons for the Merger
In reaching its decision to approve the merger agreement and the
transactions contemplated by it, the board of directors of Physicians' Online
consulted with Physicians' Online legal, accounting and financial advisors as
well as with Physicians' Online's management. In addition to the anticipated
joint benefits described above, the board of directors of Physicians' Online
believed that the proposed merger would result in synergies to the combined
company and therefore an increase in the value of the shares currently held by
Physicians' Online stockholders who wish to continue their investment in
Mediconsult. The Physicians' Online board also believed that the terms and
conditions of the merger agreement provided a strong likelihood that the
proposed merger would reach a closing. In addition to these reasons, the
Physicians' Online board also considered a number of other factors. The
following discussion of other factors considered by the Physicians' Online
board is not intended to be exhaustive. These factors included:
. The Physicians' Online board's assessment of Physicians' Online's
alternatives to obtain the highest value reasonably available to the
Physicians' Online stockholders and conclusion that the proposed merger
presents the most favorable opportunity to do so;
. The need for immediate access to additional capital;
. The consideration to be paid to Physicians' Online's stockholders in the
merger will be shares of Mediconsult common stock, which are securities
that are publicly traded on the Nasdaq National Market and are more
readily marketable than shares of Physicians' Online stock;
. Information regarding historical market prices and other information
with respect to the common stock of Mediconsult, including its
volatility and public float;
. Mediconsult's ability to complete the merger, including the associated
financing of Physicians' Online's operations in the interim period;
. The terms and conditions of the merger, including the termination rights
of Mediconsult, the indemnification rights of and directors' and
officers' liability insurance for the officers and directors of
Physicians' Online following the merger, Mediconsult's invitation for
four nominees of certain principal stockholders of Physicians' Online to
join Mediconsult's board, and the expectation that the promissory notes
issued to the principal stockholders by Physicians' Online will be paid
following the merger in accordance with their terms;
. Advice from Physicians' Online's financial advisor, J.P. Morgan,
regarding the auction for Physicians' Online and the terms of the
proposed merger with Mediconsult and competing alternatives;
. The competitive pressures faced by Physicians' Online; and
. The time required to complete the merger.
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<PAGE>
Although a wide variety of factors were considered in connection with its
evaluation of the merger, obtaining the highest value reasonably available to
the Physicians' Online stockholders was the Physicians' Online board's primary
objective.
Opinion of Mediconsult's Financial Advisor
On September 5, 1999, at a meeting of the Mediconsult board held to evaluate
the proposed merger, Warburg Dillon Read reviewed with the Mediconsult board
Warburg Dillon Read's financial analysis of the merger consideration and
informed the board that it expected to be in a position to deliver to the board
its written opinion upon execution of the merger agreement as to the fairness,
from a financial point of view, to Mediconsult of the aggregate stock
consideration to be paid by Mediconsult in the merger. On September 7, 1999,
the date of execution of the merger agreement, Warburg Dillon Read delivered to
the Mediconsult board its written opinion, dated September 7, 1999, to the
effect that, as of that date and based on and subject to the matters described
in its opinion, the aggregate stock consideration to be paid by Mediconsult in
the merger was fair, from a financial point of view, to Mediconsult.
The full text of Warburg Dillon Read's opinion describes, among other
things, the assumptions made, procedures followed, matters considered and
limitations on the review undertaken by Warburg Dillon Read. This opinion is
attached as Annex B and is incorporated into this document by reference.
Warburg Dillon Read's opinion is directed to the Mediconsult board and
addresses only the fairness, from a financial point of view, to Mediconsult of
the aggregate stock consideration to be paid by Mediconsult in the merger. The
opinion does not address Mediconsult's underlying business decision to effect
the merger or constitute a recommendation to any holder of Mediconsult common
stock as to how to vote with respect to any matter relating to the proposed
merger. Holders of Mediconsult common stock are encouraged to read this opinion
carefully in its entirety. The summary of Warburg Dillon Read's opinion
described below is qualified in its entirety by reference to the full text of
its opinion.
In arriving at its opinion, Warburg Dillon Read, among other things:
. reviewed publicly available business and historical financial
information relating to Mediconsult;
. reviewed internal financial information and other data relating to the
businesses and financial prospects of Mediconsult and Physicians' Online
and the potential incremental revenues, cost savings and other synergies
anticipated to result from the merger, including estimates and financial
forecasts prepared by the managements of Mediconsult and Physicians'
Online, that were provided to Warburg Dillon Read by Mediconsult and
Physicians' Online and were not publicly available;
. conducted discussions with members of the senior managements of
Mediconsult and Physicians' Online;
. reviewed publicly available financial and stock market data with respect
to other companies in lines of business that Warburg Dillon Read
believed to be generally comparable to those of Mediconsult and
Physicians' Online;
. compared the financial terms of the merger with the publicly available
financial terms of other transactions that Warburg Dillon Read believed
to be generally relevant;
. reviewed the merger agreement; and
. conducted other financial studies, analyses and investigations, and
considered other information, as Warburg Dillon Read deemed necessary or
appropriate.
In connection with its review, with Mediconsult's consent, Warburg Dillon
Read did not assume any responsibility for independent verification of any of
the information that Warburg Dillon Read was provided or reviewed for the
purpose of its opinion and, with Mediconsult's consent, Warburg Dillon Read
relied on that information being complete and accurate in all material
respects. In addition, at Mediconsult's direction,
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<PAGE>
Warburg Dillon Read did not make an independent evaluation or appraisal of any
of the assets or liabilities, contingent or otherwise, of Mediconsult or
Physicians' Online, and was not furnished with any evaluation or appraisal.
With respect to the financial forecasts and estimates that it reviewed, Warburg
Dillon Read assumed, at Mediconsult's direction, that they were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the managements of Mediconsult and Physicians' Online as to the
future financial performance of Mediconsult and Physicians' Online and the
potential incremental revenues, cost savings and other synergies anticipated to
result from the merger, including the amount, timing and achievability of those
potential synergies. Warburg Dillon Read's opinion is necessarily based on
economic, monetary, market and other conditions existing, and information
available to Warburg Dillon Read, on the date of its opinion.
In connection with its engagement, Warburg Dillon Read was not asked to, and
did not, participate in the negotiation or structuring of the merger and, at
Mediconsult's direction, was not asked to, and did not, offer any opinion as to
the material terms of, or the obligations under, the merger agreement or the
form of the merger. Warburg Dillon Read expressed no opinion as to the value of
Mediconsult common stock when issued in the merger or the price at which
Mediconsult common stock will trade or otherwise be transferable after the
merger. In rendering its opinion, Warburg Dillon Read assumed, with
Mediconsult's consent, that each of Mediconsult, PMCI, Inc., Physicians' Online
and the principal stockholders of Physicians' Online would comply with all
material terms of the merger agreement and that the merger would be validly
consummated in accordance with its terms. No other instructions or limitations
were imposed by Mediconsult's board upon Warburg Dillon Read with respect to
the investigations made or the procedures followed by Warburg Dillon Read in
rendering its opinion.
In connection with rendering its opinion to Mediconsult's board, Warburg
Dillon Read performed a variety of financial analyses which are summarized
below. The following summary is not a complete description of all of the
analyses performed and factors considered by Warburg Dillon Read in connection
with its opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. With respect to the analysis of selected
publicly traded companies and the analysis of selected transactions summarized
below, no company or transaction used as a comparison is either identical or
directly comparable to Mediconsult, Physicians' Online or the merger. These
analyses necessarily involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
public trading or transaction values of the companies or transactions
concerned.
Warburg Dillon Read believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying Warburg Dillon
Read's analyses and opinion. None of the analyses performed by Warburg Dillon
Read was assigned a greater significance by Warburg Dillon Read than any other.
Warburg Dillon Read arrived at its ultimate opinion based on the results of all
analyses undertaken by it and assessed as a whole. Warburg Dillon Read did not
draw, in isolation, conclusions from or with regard to any one factor or method
of analysis.
The estimates of future performance of Mediconsult and Physicians' Online
provided by the managements of Mediconsult and Physicians' Online in or
underlying Warburg Dillon Read's analyses are not necessarily indicative of
future results of values, which may be significantly more or less favorable
than those estimates. In performing its analyses, Warburg Dillon Read
considered industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Mediconsult and
Physicians' Online. Estimates of the financial value of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
actually may be sold.
The type and amount of the aggregate stock consideration payable in the
merger was determined through negotiation between Mediconsult and Physicians'
Online. The decision to enter into the merger was solely that of Mediconsult's
board. Warburg Dillon Read's opinion and financial analyses were only two of
many factors
48
<PAGE>
considered by Mediconsult's board in its evaluation of the merger and should
not be viewed as determinative of the views of Mediconsult's board or
management with respect to the merger or the aggregate stock consideration
payable in the merger.
The following is a brief summary of the material analyses performed by
Warburg Dillon Read and reviewed with Mediconsult's board in connection with
its opinion dated September 7, 1999. The financial analyses summarized below
include information presented in tabular format. In order to fully understand
Warburg Dillon Read's financial analyses, the tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data set forth below
without considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Warburg Dillon Read's financial
analyses.
Analysis of Selected Public Companies.
Warburg Dillon Read compared selected financial information and operating
statistics for Physicians' Online with corresponding financial information and
operating statistics of the following 14 selected publicly held companies in
the content, connectivity and specialized content portals sectors of the
Internet industry:
<TABLE>
<CAPTION>
Specialized Content
Content Connectivity Portals
------- ------------ -------------------
<S> <C> <C>
. OnHealth Network Co. .AHT Corporation .CNET, Inc.
. Drkoop.com, Inc. .Cybear, Inc. .MarketWatch.com, Inc.
. Mediconsult.com, Inc. .CareInsite, Inc. .Sportsline USA, Inc.
. A.D.A.M. Software, Inc. .Claimsnet.com Inc. .TheStreet.com, Inc.
.Healtheon Corporation .VerticalNet, Inc.
</TABLE>
Warburg Dillon Read reviewed enterprise values, calculated as equity value,
plus debt, less cash, as a multiple of latest quarter annualized and estimated
calendar years 1999 and 2000 revenue. Warburg Dillon Read then compared the
implied multiples derived for the selected companies with the multiples implied
in the merger for Physicians' Online, both before and after giving effect to
the potential incremental revenues, cost savings and other synergies
anticipated by the management of Mediconsult to result from the merger. All
multiples were based on closing stock prices on September 3, 1999. Estimated
financial data for the selected companies were based on publicly available
research analysts' estimates and estimated financial data for Physicians'
Online were based on internal estimates of the managements of Mediconsult and
Physicians' Online, as adjusted by Mediconsult. This analysis indicated the
following implied enterprise value multiples for the selected companies, as
compared to the multiples for Physicians' Online implied in the merger, based
on the aggregate stock consideration payable in the merger and the closing
stock price of Mediconsult common stock on September 3, 1999:
<TABLE>
<CAPTION>
Implied Implied
Multiples of Multiples of
Implied Multiples of Selected Companies Physicians' Online Physicians' Online
---------------------------------------- in the Merger in the Merger
Enterprise Values: Low Mean Median High (without synergies) (with synergies)
- ------------------ -------- --------- --------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Latest quarter
annualized revenue..... 8.9x 49.4x 37.8x 166.6x 31.5x 31.5x
Estimated calendar year
1999 revenue........... 8.0x 39.4x 32.3x 97.1x 30.4x 30.4x
Estimated calendar year
2000 revenue........... 1.7x 19.6x 13.3x 96.0x 19.9x 8.0x
</TABLE>
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<PAGE>
Warburg Dillon Read also compared the following implied enterprise value
multiples for the selected companies in the content sector of the Internet
industry with the implied multiples for Mediconsult based on the closing stock
price of Mediconsult common stock on September 3, 1999:
<TABLE>
<CAPTION>
Implied Multiples of
Selected
Companies in the Content
Sector
------------------------- Implied Multiples
Enterprise Values: Low Mean Median High of Mediconsult
- ------------------ ----- ----- ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Latest quarter annualized
revenue.......................... 19.9x 69.8x 46.3x 166.6x 44.7x
Estimated calendar year 1999
revenue.......................... 28.4x 53.7x 35.6x 97.1x 35.6x
Estimated calendar year 2000
revenue.......................... 5.9x 14.6x 16.6x 21.2x 16.6x
</TABLE>
Analysis of Selected Precedent Transactions.
Warburg Dillon Read reviewed the purchase prices and implied transaction
multiples in the following seven selected transactions in the portal/content
sector of the Internet industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
. Walt Disney Company .Infoseek Corporation
. Healtheon Corporation .WebMD, Inc.
. Synetic Inc. .Medical Manager Corporation
. Yahoo! Inc. .Broadcast.com Inc.
. Yahoo! Inc. .GeoCities
. At Home Corp. .Excite, Inc.
. America Online, Inc. .Netscape Communications Corporation
</TABLE>
Warburg Dillon Read reviewed enterprise values in the selected transactions
as a multiple of latest quarter annualized and one-year forward and two-year
forward revenue. Warburg Dillon Read then compared the implied multiples
derived from the selected transactions with the multiples implied in the merger
for Physicians' Online, both before and after giving effect to the potential
incremental revenues, cost savings and other synergies anticipated by the
management of Mediconsult to result from the merger. All multiples were based
on publicly available information at the time of announcement of the relevant
transaction. This analysis indicated the following implied enterprise value
multiples in the selected transactions, as compared to the implied multiples
for Physicians' Online based on the aggregate stock consideration payable in
the merger and the closing stock price of Mediconsult common stock on September
3, 1999:
<TABLE>
<CAPTION>
Implied Multiples Implied Multiples
Implied Multiples of of Physicians' of Physicians'
Selected Companies Online in the Online
------------------------- Merger (without in the Merger
Enterprise Values: Low Mean Median High synergies) (with synergies)
- ------------------ ---- ------ ------ ------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Latest quarter
annualized revenue..... 7.0x 104.6x 40.3x 318.5x 31.5x 31.5x
One-year forward
revenue................ 5.6x 59.0x 28.5x 144.3x 30.4x 30.4x
Two-year forward
revenue................ 4.1x 33.3x 26.1x 81.2x 19.9x 8.0x
</TABLE>
Discounted Enterprise Value Analysis.
Warburg Dillon Read performed an analysis of the present value of the
implied enterprise value of Physicians' Online on a standalone basis, both
before and after giving effect to the potential incremental revenues, cost
savings and other synergies anticipated by the management of Mediconsult, based
on internal estimates of the managements of Mediconsult and Physicians' Online,
as adjusted by Mediconsult. Warburg Dillon Read applied calendar year 2001
forward revenue multiples of 15.0x, 17.5x, 20.0x, 22.5x, 25.0x, 27.5x and 30.0x
to estimated calendar year 2002 revenues and used discount rates of 30.0%,
35.0%, 40.0%, 45.0% and 50.0%. This analysis yielded an enterprise reference
range for Physicians' Online of approximately $99.9 million to $285.8 million,
without synergies, and approximately $295.2 million to $846.2 million, with
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<PAGE>
synergies, as compared to the enterprise value implied for Physicians' Online
in the merger of approximately $179.0 million based on the aggregate stock
consideration payable in the merger and the closing stock price of Mediconsult
common stock on September 3, 1999.
Contribution Analysis.
Warburg Dillon Read analyzed the respective contributions of Mediconsult and
Physicians' Online to the estimated revenue, gross profits and earnings before
interest, taxes, depreciation and amortization, commonly known as EBITDA, of
the combined company for calendar years 1999 through 2002, based on internal
estimates of the managements of Mediconsult and Physicians' Online, as adjusted
by Mediconsult, both before and after giving effect to the potential
incremental revenues, cost savings and other synergies anticipated by the
management of Mediconsult to result from the merger. This analysis indicated
the following relative contributions of Mediconsult and Physicians' Online:
<TABLE>
<CAPTION>
1999 2000 2001 2002
----- ----- ------- -----
<S> <C> <C> <C> <C>
Revenue:
Without Synergies:
Mediconsult......................................... 52.5% 63.3% 73.7% 83.3%
Physicians' Online.................................. 47.5% 36.7% 26.3% 16.7%
With Synergies:
Mediconsult......................................... 52.5% 40.8% 53.8% 62.7%
Physicians' Online.................................. 47.5% 59.2% 46.2% 37.3%
Gross Profit:
Without Synergies:
Mediconsult......................................... 32.9% 56.1% 67.5% 78.4%
Physicians' Online.................................. 67.1% 43.9% 32.5% 21.6%
With Synergies:
Mediconsult......................................... 32.9% 36.2% 51.6% 62.4%
Physicians' Online.................................. 67.1% 63.8% 48.4% 37.6%
EBITDA:
Without Synergies:
Mediconsult......................................... NM NM NM 68.6%
Physicians' Online.................................. NM NM NM 31.4%
With Synergies:
Mediconsult......................................... NM NM (87.4)% 39.9%
Physicians' Online.................................. NM NM 187.4% 60.1%
</TABLE>
- --------
"NM" indicates that the data is not meaningful.
Based on the aggregate stock consideration payable by Mediconsult in the
merger, current stockholders of Mediconsult and Physicians' Online would own,
upon consummation of the merger, approximately 58.7% and 41.3%, respectively,
of the equity value of the combined company.
Accretion/Dilution Analysis.
Warburg Dillon Read analyzed the potential pro forma financial effects
resulting from the merger, including the impact of the merger on Mediconsult's
estimated net income and earnings per share, commonly known as EPS, for
calendar years 1999 through 2003, based on internal estimates of the management
of Mediconsult, both before and after giving effect to the potential
incremental revenues, cost savings and other synergies anticipated by the
management of Mediconsult to result from the merger. The results of the pro
forma merger analysis suggested that the merger could be dilutive, or represent
a reduction, in calendar year 1999, and accretive, or represent an addition, in
calendar years 2000 and 2001 to Mediconsult's estimated net income
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and EPS, in each case both before and after giving effect to potential
synergies and, dilutive before giving effect to potential synergies, and
accretive, after giving effect to potential synergies, to Mediconsult's
estimated net income and EPS in calendar year 2002. The actual results achieved
by the combined company may vary from projected results and the variations may
be material.
Miscellaneous.
Mediconsult has agreed to pay Warburg Dillon Read for its services upon
completion of the merger an aggregate financial advisory fee of $1.5 million.
In addition, Mediconsult has agreed to reimburse Warburg Dillon Read for its
reasonable expenses, including reasonable fees and disbursements of its
counsel, and to indemnify Warburg Dillon Read and related parties against
liabilities, including liabilities under federal securities laws, relating to,
or arising out of, its engagement.
Mediconsult selected Warburg Dillon Read as financial advisor in connection
with the merger because Warburg Dillon Read is an internationally recognized
investment banking firm with substantial experience in similar transactions.
Warburg Dillon Read is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, leveraged
buyouts, negotiated underwritings, competitive bids, secondary distributions of
listed and unlisted securities and private placements.
In the ordinary course of business, Warburg Dillon Read, its successors and
affiliates may actively trade the securities of Mediconsult for their own
accounts and the accounts of their customers and, accordingly, may at any time
hold a long or short position in these securities.
Interests Of Executive Officers And Directors Of Physicians' Online In The
Merger
You should be aware of the interests that executive officers and directors
of Physicians' Online have in the merger. These interests are different from
and in addition to your and their interests as stockholders. These include:
. Employment agreements with executive officers of Physicians' Online;
. Appointment of four Physicians' Online nominees to Mediconsult's board
following the merger; and
. Promissory notes in the aggregate amount of $5,334,548 issued to certain
principal stockholders of Physicians' Online by Physicians' Online which
are expected to be paid following the merger in accordance with their
terms.
Employment Agreements. Certain executive officers of Physicians' Online have
employment agreements with Physicians' Online and are expected to continue in
their employment following the merger. These persons include Jean-Louis
Ecochard, President and Chief Operating Officer of Physicians' Online and Beth
Nash, Chief Medical Officer of Physicians' Online. The employment agreements of
Mr. Ecochard and Dr. Nash provide for an initial employment term of two years
and four years, respectively, commencing as of September 7, 1999, and contain a
non-competition provision that survives for one year following the employee's
termination. Pursuant to their employment agreements, Dr. Nash received a
$50,000 signing bonus and Mr. Ecochard is guaranteed an annual bonus equal to
20% of his salary. Furthermore, the employment agreements for Mr. Ecochard and
Dr. Nash provide for participation in Physicians' Online's performance
incentive plan. In the event of the termination without cause of the employment
of Mr. Ecochard or Dr. Nash, such employee will be entitled to receive a cash
severance payment.
David D. Richards, Chairman and Chief Executive Officer of Physicians'
Online, will be retained by Mediconsult to serve as a consultant and will be
appointed to the board of directors of Mediconsult following the merger, but
will not continue in his employment with Physicians' Online following the
merger. Pursuant to an employment agreement entered into between Physicians'
Online and Mr. Richards in April 1998, Mr. Richards is subject to a non-
competition provision which survives for one year following his termination of
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employment with Physicians' Online. The employment agreement granted Mr.
Richards' options to purchase 300,000 shares of common stock of Physicians'
Online of which 135,000 shares are currently vested and exercisable. If Mr.
Richards is terminated by Mediconsult after a change in control of Physicians'
Online, the remainder of his stock options immediately vest and become
exercisable for a period of one year after such termination. Mr. Richards'
employment agreement provides for a cash severance payment equal to three-
quarters of his current annual base salary upon termination of his employment
by Physicians' Online without cause.
Board of Directors. Four persons nominated by certain principal stockholders
of Physicians' Online will be appointed to Mediconsult's board following the
merger. The persons designated by such principal stockholders to be the
Mediconsult board nominees are R. Bradford Burnham, Jason S. Fisherman, James
L. Bierman and David D. Richards, each of whom serves as a director on the
board of Physicians' Online. Mr. Burnham, Mr. Fisherman and Mr. Bierman hold
positions with companies that are principal stockholders of Physicians' Online.
Mr. Burnham is a general partner of Venture Fund I, L.P. and a manager of
Venture Management, LLC, which is the general partner of AT&T Ventures Fund II,
L.P., and Mr. Fisherman is Vice President of Advent International Corporation.
Mr. Bierman serves as Senior Vice President of Corporate Development of
Quintiles Transnational Corp.
Promissory Notes. Certain principal stockholders of Physicians' Online hold
promissory notes in the aggregate amount of $5,334,548 issued to them by
Physicians' Online which are to be paid following the merger in accordance with
their terms. The principal stockholders holding promissory notes issued to them
by Physicians' Online have subordinated the debt owing to them under such
promissory notes to the debt owed by Physicians' Online to Mediconsult.
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TREATMENT OF PHYSICIANS' ONLINE COMMON STOCK AND PREFERRED STOCK
If the merger is completed:
<TABLE>
<C> <S>
(right arrow) Mediconsult stockholders will continue to own their existing
shares of Mediconsult common stock;
(right arrow) Physicians' Online stockholders will receive approximately
17.8 million shares of Mediconsult common stock after
deductions for Physicians' Online's transaction expenses
estimated to be approximately $2.4 million plus a number of
shares of Mediconsult common stock equal in value to the
aggregate exercise price of the outstanding Physicians'
Online options that are unexercised at the time of the
merger, estimated to be approximately $1.3 million.
(right arrow) Specifically, the preferred stockholders will receive a
number of shares of Mediconsult common stock equal to the
liquidation preference of each series of Physicians' Online
preferred stock divided by the Mediconsult average closing
price (described below). The liquidation preferences on the
preferred stock are as follows: $2.67 for each share of
series A preferred stock, $8.91 for each share of series B
preferred stock, $9.00 for each share of series C preferred
stock and $14.03 for each share of series D preferred stock.
The common stockholders will receive as a liquidation
preference for each share of Physicians' Online common stock
a fraction of a share of Mediconsult common stock equal to
$.01 divided by the Mediconsult average closing price. The
aggregate amount of these preferences equals approximately
$27,600,000. Following the distribution of the aggregate
liquidation preference of all outstanding Physicians' Online
shares, the common and preferred stockholders will receive
the balance of consideration described in the paragraph
above, pro rata, as if the preferred stock were converted
into common stock.
</TABLE>
The Mediconsult average closing price will be equal to the average closing
price per share of the Mediconsult common stock on the Nasdaq National Market
for the ten trading days immediately prior to the second day prior to the
effective time of the merger.
It is estimated that Physicians' Online stockholders will receive, in the
aggregate, approximately 17.8 million shares of Mediconsult common stock in the
merger, or approximately 38% of the issued and outstanding shares of
Mediconsult common stock following the merger. It is estimated that each share
of Physicians' Online common stock (including shares issuable upon conversion
of the outstanding Physicians' Online preferred stock) will receive
approximately 2.4 shares of Mediconsult common stock. In addition, the holders
of Physicians' Online preferred stock will receive a number of shares of
Mediconsult common stock in respect of the aggregate liquidation price of such
preferred stock. These estimates are based on an assumed average closing price
of $6.825 (the average closing price per share of the Mediconsult common stock
on the Nasdaq National Market for the ten trading days ending on November 17,
1999, the most recent practicable date prior to the mailing of this joint
Information/Proxy Statement/Prospectus), estimated transaction expenses of
approximately $2.4 million, and an estimated aggregate exercise price of
unexercised Physicians' Online options of approximately $1.3 million. The exact
conversion ratio will be determined immediately prior to the closing and may be
higher or lower than 2.4 shares and the total number of shares issued to the
Physicians' Online stockholders may be greater or lesser than 17.8 million.
In addition, upon exercise of their options and payment of the exercise
price after the merger, the holders options to purchase Physicians' Online
common stock will be eligible to receive, in the aggregate, approximately 2
million additional shares of Mediconsult common stock.
By approving the merger agreement, Physicians' Online stockholders will
agree that 10% of the total number of shares of Mediconsult common stock issued
in the merger will be available to satisfy certain indemnification obligations
under the merger agreement. An escrow arrangement will be established at
closing to hold this 10% amount. This escrow will be Mediconsult's sole
recourse for such indemnification obligation, with each stockholder being at
risk for no more than its pro rata share of the escrow.
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A vote in favor of the merger agreement will be effective whether or not the
actual number of shares of Mediconsult common stock to be issued in the merger
or the actual conversion ratio falls within the ranges described above.
Mediconsult will not issue fractional shares of Mediconsult common stock in
connection with the merger. Instead, cash will be paid with respect to
fractional shares.
ACCOUNTING TREATMENT OF THE MERGER
The merger is intended to qualify as a pooling of interests for financial
reporting purposes under U.S. GAAP. Under this method of accounting, the
recorded assets and liabilities of Physicians' Online will be carried forward
to Mediconsult at their recorded amounts, the operating results of Mediconsult
will include the operating results of Physicians' Online for the entire year in
which the combination occurs and the reported operating results of the separate
companies for periods prior to the year in which the combination occurs will be
combined and restated as the operating results of Mediconsult.
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RESALES OF MEDICONSULT COMMON STOCK ISSUED
IN CONNECTION WITH THE MERGER;
AFFILIATES AGREEMENTS
Mediconsult common stock issued in connection with the merger will be freely
transferable, except that shares of Mediconsult common stock received by
persons who are deemed to be "affiliates," as such term is defined by Rule 144
under the Securities Act, of Physicians' Online at the effective time of the
merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act or as otherwise permitted under
the Securities Act. The executive officers and directors and other persons who
are affiliates of Physicians' Online have executed a written affiliates
agreement providing, among other things, that such person will not offer, sell,
transfer or otherwise dispose of any of the shares of Mediconsult common stock
obtained as a result of the merger except in compliance with the Securities Act
and the rules and regulations of the SEC thereunder.
In general, under Rule 145, for one year following the consummation of the
merger, a Physicians' Online affiliate (together with certain related persons)
could sell publicly Mediconsult common shares acquired in connection with the
merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares an affiliate may sell
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 may not exceed the
greater of 1% of the outstanding Mediconsult common shares or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. An affiliate could only avail himself of Rule 145, however, if
Mediconsult remained current with its informational filings with the SEC under
the Securities Exchange Act of 1934 (the Exchange Act). After the end of one
year from the consummation of the merger, a Physicians' Online affiliate may
sell Mediconsult common shares received in the merger without such manner of
sale or volume limitations provided that Mediconsult is then current with its
Exchange Act informational filings and such affiliate is not then an affiliate
of Mediconsult. Two years after the consummation of the merger, an affiliate of
Physicians' Online may sell such Mediconsult common shares without any
restrictions so long as such affiliate has not been an affiliate of Mediconsult
for at least three months prior thereto.
The executive officers and directors and persons who may be affiliates of
Mediconsult have executed a written agreement providing that the affiliate
covered by such agreement may not take actions that would jeopardize the
accounting treatment of the merger as a pooling of interests.
SEC guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales of shares of Mediconsult and Physicians' Online by
their affiliates. The pooling of interests method of accounting will generally
not be challenged by the SEC on the basis of sales by affiliates if they do not
dispose of any of the shares of Mediconsult or Physicians' Online during the
period beginning 30 days before the merger and ending when financial results
covering at least 30 days of post-merger operations of Mediconsult have been
published.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Generally. The following discussion summarizes certain material United
States federal income tax consequences generally applicable to United States
holders of Physicians' Online common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock
(collectively, "Physicians' Online stock") who, pursuant to the merger,
exchange their Physicians' Online stock solely for Mediconsult common stock.
The discussion is based on and subject to the existing provisions of the
Internal Revenue Code of 1986, as amended (the Code), and related Treasury
Regulations, administrative interpretations and court decisions, all of which
are subject to change (possibly with retroactive effect) and all of which are
subject to differing interpretation.
The discussion below does not purport to deal with all aspects of federal
income taxation that may affect particular stockholders in light of their
individual circumstances, and they do not address any tax consequences for
stockholders subject to special treatment under the federal income tax law
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign individuals or entities, stockholders who
hold their stock as part of a hedge, appreciated financial position, straddle
or conversion transaction, stockholders who do not hold their stock as capital
assets and stockholders who have acquired their stock upon the exercise of
employee stock options or otherwise as compensation). In addition, the
discussion below does not consider the effect of any applicable state, local or
foreign laws.
Each Physicians' Online stockholder is urged to consult its tax advisor with
respect to the specific tax consequences of the merger to them, including the
effect of United States federal, state and local, and foreign and other tax
rules, and the effect of possible changes in such tax laws.
It is a condition to the obligation of Physicians' Online to effect the
merger that Physicians' Online receive an opinion from its special counsel,
Richards & O'Neil, LLP, to the effect that the merger constitutes a
reorganization within the meaning of Section 368(a) of the Code for federal
income tax purposes. Assuming the merger qualifies as a reorganization within
the meaning of Section 368(a) of the Code, the following tax consequences will
result:
Tax Consequences to Physicians' Online Stockholders. For federal income tax
purposes, (i) no gain or loss will be recognized by a stockholder of
Physicians' Online that exchanges shares of Physicians' Online stock for shares
of Mediconsult common stock pursuant to the merger, except with respect to
cash, if any, received in lieu of a fractional share of Mediconsult common
stock (which will be taxable as described below), (ii) the aggregate tax basis
of the shares of Mediconsult common stock received pursuant to the merger will
be the same as the stockholder's aggregate tax basis in the Physicians' Online
stock surrendered in the exchange, reduced by the amount of any tax basis in
the Physicians' Online stock allocable to fractional shares of Mediconsult
common stock for which cash is received, and (iii) the holding period for
shares of Mediconsult common stock received in exchange for shares of
Physicians' Online stock will include the stockholder's holding period for such
shares of Physicians' Online stock.
Cash received by a stockholder of Physicians' Online in lieu of a fractional
share of Mediconsult common stock will be treated as received and exchanged for
such fractional share and, provided that the payment is not treated as a
dividend pursuant to Section 302 of the Code, such stockholder will recognize
gain or loss equal to the difference between the amount of cash received and
such stockholder's tax basis in the fractional share.
The consequences described above do not apply to stockholders of Physicians'
Online who exercise appraisal rights. A holder of Physicians' Online stock who
exercises appraisal rights with respect to the merger and receives cash in
exchange for shares of Physicians' Online stock generally will recognize
capital gain or loss measured by the difference between the amount of cash
received and the stockholder's basis in those shares, provided that the payment
is not treated as a dividend pursuant to Section 302 of the Code or otherwise.
A sale of shares based on an exercise of appraisal rights generally will not be
treated as a dividend if the stockholder exercising appraisal rights owns no
shares of Mediconsult immediately after the merger, after giving effect to the
constructive ownership rules pursuant to the Code. The amount of any capital
gain or loss will be long-term capital gain or loss if the stockholder's
holding period in the shares is more than one year.
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Moreover, the consequences described above will be based on certain
assumptions and Richards & O'Neil, LLP will receive and rely upon
representations, unverified by counsel, contained in certificates of
Mediconsult, Physicians' Online and possibly others in delivering its opinion.
The inaccuracy of any of those assumptions or representations might jeopardize
the validity of such opinion and such opinion will neither bind the Internal
Revenue Service (IRS) nor preclude the IRS from adopting positions contrary to
those expressed above, and no assurance can be given that contrary positions
will not be asserted successfully by the IRS or adopted by a court if the
issues are litigated. Neither Mediconsult nor Physicians' Online intends to
obtain a ruling from the IRS with respect to the tax consequences of the
merger.
If the IRS were to successfully challenge the federal income tax treatment
of the merger as discussed herein, each Physicians' Online stockholder would be
required to recognize taxable gain or loss with respect to the Physicians'
Online stock surrendered, measured by the difference between (i) the fair
market value, as of the time of the merger, of the Mediconsult common stock
received in the merger plus any cash received in lieu of a fractional share of
Mediconsult common stock and (ii) the stockholder's tax basis in the
Physicians' Online stock surrendered therefor in the merger. In such event, a
stockholder's aggregate basis in the Mediconsult common stock so received would
equal its fair market value as of the time of the merger and the holding period
for such stock would begin the day after the merger.
Taxation of Escrowed Shares. Under the merger agreement, each Physicians'
Online stockholder (other than a stockholder validly asserting appraisal
rights) will receive outright, upon surrender of its shares of Physicians'
Online stock, shares of Mediconsult common stock equal to 90% of the whole
number of shares of Mediconsult common stock for which the shares of
Physicians' Online stock surrendered by the stockholder are to be exchanged.
The remaining 10% of the whole number of shares of Mediconsult common stock for
which the Physicians' Online stock is to be exchanged will be placed in escrow
as security for indemnification obligations incurred by the Physicians' Online
stockholders pursuant to the merger agreement. Each Physicians' Online
stockholder will be credited with the number of shares placed in escrow on its
behalf. See""--Indemnification."
Because the Physicians' Online stockholders will be entitled to receive all
dividends paid with respect to the escrowed shares and will be able to vote the
escrowed shares (through Mr. Fisherman, the representative of the Physicians'
Online stockholders), the Physicians' Online stockholders will be considered
the beneficial owners of the escrowed shares for federal income tax purposes.
As a result, each Physicians' Online stockholder will allocate its basis in its
shares of Physicians' Online stock (net of the amount of basis allocable to
fractional shares of Mediconsult common stock for which cash will be received)
among all of the shares of Mediconsult common stock received by the stockholder
as a result of the merger, including both shares of Mediconsult common stock
received outright and shares of Mediconsult common stock placed in escrow on
the stockholder's behalf.
Each Physicians' Online stockholder will be subject to United States federal
income tax on all amounts earned on property held by the escrow agent and
credited to that stockholder. Any dividends paid on the escrowed Mediconsult
common stock will be distributed currently to the Physicians' Online
stockholders, subject to limited exceptions. Any other earnings with respect to
property held in the escrow will be retained by the escrow agent and will
remain subject to indemnification claims, notwithstanding that the Physicians'
Online stockholders are subject to United States federal income tax on these
amounts.
No gain or loss will be recognized by a Physicians' Online stockholder upon
the distribution of escrowed shares of Mediconsult common stock, or earnings on
escrowed property, to the stockholder upon termination of the escrow
arrangement.
If the stockholder representative elects to sell any of the escrowed shares
of Mediconsult common stock, each stockholder will recognize gain or loss at
the time of sale in an amount equal to the difference, if any, between that
stockholder's basis in the escrowed shares that are sold on his behalf
(determined under clause (ii) of the first paragraph under the heading "--Tax
Consequences to Physicians' Online Stockholders,"
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above) and the amount realized upon the sale, notwithstanding that the escrow
agent will retain the proceeds of the sale. No further gain or loss will be
recognized by a Physicians' Online stockholder upon the receipt of any such
sale proceeds that are distributed to the stockholder upon termination of the
escrow agreement. In the event that some or all of the proceeds from any sales
of escrowed shares on behalf of a stockholder, or earnings on escrowed
property, are distributed to Mediconsult in satisfaction of an indemnification
claim, the amount of such proceeds will be allocated among and added to the
stockholder's tax basis in the stockholder's remaining shares of Mediconsult
common stock.
If shares of escrowed Mediconsult common stock are distributed to
Mediconsult on behalf of a Physicians' Online stockholder in satisfaction of
indemnification claims, such Physicians' Online stockholder should be able to
take the position that gain or loss should not be recognized. However, it
should be noted that the tax consequences to a Physicians' Online stockholder
in such a situation are not entirely free from doubt because of the absence of
legislative, judicial or administrative, or other authority directly on point
and it is possible that the IRS may assert that gain or loss should be
recognized. Stockholders should consult their tax advisors for advice and more
information on this point.
In the event that some or all of the shares of escrowed stock are
distributed to Mediconsult in satisfaction of an indemnification claim, the
stockholder's tax basis in such escrowed shares that have been returned to
Mediconsult will be allocated among and added to the stockholder's tax basis in
the stockholder's remaining shares of Mediconsult common stock (unless gain or
loss has already been recognized on those shares, see above, in which case the
adjustment to basis may differ).
Backup Withholding. Physicians' Online stockholders may be subject to backup
withholding at a rate of 31% with respect to cash payments received in
connection with the merger and on the payment of dividends on, and any proceeds
received from the disposition of, the escrowed shares. Backup withholding will
apply only if a Physicians' Online stockholder (i) fails to furnish its
taxpayer identification number (TIN) which, for an individual, would be his
social security number, (ii) furnishes an incorrect TIN, (iii) is notified by
the IRS that it has failed to properly report payments of interest and
dividends, or (iv) fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments. The
amount of any backup withholding withheld from a payment to a Physicians'
Online stockholder will be allowed as a credit against such stockholder's
federal income tax liability and may entitle such stockholder to a refund,
provided that the required information is furnished to the IRS. Physicians'
Online stockholders should consult their tax advisors regarding the application
of the backup withholding rules to their particular circumstances.
Information Reporting Related to the Merger. Physicians' Online stockholders
will be required to attach a statement to their tax returns for the year of the
merger that contains the information listed in Treasury Regulation Section
1.368-3(b). Such statement must include the stockholder's tax basis in the
stockholder's Physicians' Online stock and a description of the Mediconsult
common stock received therefor. Physicians' Online stockholders are urged to
consult their tax advisors with respect to this statement and any other tax
reporting requirements.
Tax Consequences to Mediconsult, PMCI, Inc. and Physicians' Online. For
federal income tax purposes, no gain or loss will be recognized by Mediconsult,
PMCI, Inc. or Physicians' Online upon the conversion of Physicians' Online
stock into shares of Mediconsult common stock pursuant to the merger.
We intend this discussion to provide only a summary of the material federal
income tax consequences of the merger. We do not intend that it be a complete
analysis or description of all potential federal income tax consequences of the
merger. We do not address certain categories of stockholders, and we do not
address state, local or foreign tax consequences. In addition, as noted above,
we do not address tax consequences that may vary with, or are contingent upon,
individual circumstances. We strongly urge you to consult your tax advisor to
determine your particular United States federal, state, local or foreign income
or other tax consequences resulting from the merger, in light of your
individual circumstances.
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NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the closing of the merger that the shares of
Mediconsult common stock to be issued pursuant to the merger agreement be
listed on the Nasdaq National Market. Mediconsult will file a notification form
for listing of additional shares on or before the effective time of the merger.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Mediconsult and Physicians' Online believe this document contains "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are subject to risks and uncertainties and
are based on the beliefs and assumptions of management of Mediconsult and
Physicians' Online, based on information currently available to each company's
management. When we use words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "should," "likely" or similar expressions, we
are making forward-looking statements. Forward-looking statements include the
information concerning possible or assumed future results of operations of
Mediconsult set forth under "Summary," "Selected Historical and Unaudited Pro
Forma Combined Financial Data," "Risk Factors," "The Merger--Background of the
Merger," "Mediconsult's Reasons for the Merger," "Physicians' Online's Reasons
for the Merger," "--Opinion of Financial Advisor to Mediconsult," and
"Unaudited Pro Forma Condensed Combined Financial Statements"; and under
"Management's Discussion and Analysis of Mediconsult and Physicians' Online"
and "Business".
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Mediconsult or Physicians' Online may differ materially from those expressed
in the forward-looking statements. Many of the factors that will determine
these results and values are beyond our ability to control or predict.
Stockholders are cautioned not to put undue reliance on any forward-looking
statements. For those statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
For a discussion of some of the factors that may cause actual results to
differ materially from those suggested by the forward-looking statements,
please read carefully the information under "Risk Factors" beginning on page
. In addition to the risk factors and other important factors discussed
elsewhere in the documents, you should understand that the following important
factors could affect the future results of Mediconsult and could cause results
to differ materially from those suggested by the forward-looking statements:
. increased competitive pressures, both domestically and internationally,
which may affect the ability of the combined company to compete in the
Internet healthcare market and to develop distribution channels for
education, sales and marketing;
. changes in United States, global or regional economic conditions which
may affect the ability of the combined company to develop distribution
channel for education, sales and marketing;
. the inability of Mediconsult to successfully integrate Physicians'
Online or other acquisitions or to successfully implement business plans
and strategies;
. changes in United States financial and equity markets, including
significant interest rate fluctuations, which may increase the cost of
external financing for Mediconsult's operations and may negatively
impact Mediconsult's reportable income;
. problems arising from the potential inability of computers to properly
recognize and process date-sensitive information beyond January 1, 2000
which may result in an interruption in, or a failure of, normal business
activities or operations of Mediconsult, its sponsors and customers;
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. changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies which may
adversely affect Mediconsult's business or ability to compete; and
. other risks and uncertainties as may be detailed from time to time in
Mediconsult's public announcements and SEC filings.
This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which (together with amendment No. 1 thereto) is attached
as Annex A to this joint Information/Proxy Statement/Prospectus and is
incorporated by reference into this summary. The summary is not complete and is
qualified in its entirety by reference to the merger agreement. We urge all
stockholders of Mediconsult and Physicians' Online to read the merger agreement
in its entirety for a more complete description of the terms and conditions of
the merger. The amendment to the merger agreement was executed in order to
provide that the shareholders of Physicians' Online will reimburse the
stockholder representative for his out of pocket expenses from the escrow.
General
Following the adoption of the merger agreement by the stockholders of
Physicians' Online and the satisfaction or waiver of the other conditions to
the merger, a wholly-owned subsidiary of Mediconsult, PMCI, Inc., will be
merged into Physicians' Online. Physicians' Online will survive the merger as a
wholly-owned subsidiary of Mediconsult. If all conditions to the merger are
satisfied or waived, the merger will become effective at the time of the filing
by the surviving corporation of a duly executed certificate of merger with the
Secretary of State of the State of Delaware.
Conversion of Shares
If the merger is completed:
<TABLE>
<C> <S>
(right arrow) Mediconsult stockholders will continue to own their existing
shares of Mediconsult common stock;
(right arrow) each share of Physicians' Online common stock and preferred
stock, other than dissenting shares, will be converted into
the right to receive certain shares of Mediconsult common
stock.
</TABLE>
As a group, the Physicians' Online stockholders, other than dissenting
stockholders, will receive approximately 17.8 million shares of Mediconsult
common stock after deductions for Physicians' Online's transaction expenses and
an add back for the aggregate exercise price of the outstanding Physicians'
Online options that are unexercised at the time of the merger.
Please refer to "Treatment of Physicians' Online Common Stock and Preferred
Stock" set forth on page of this joint Information/Proxy
Statement/Prospectus for a detailed description of the conversion formula. In
accordance with the formula, it is estimated that Physicians' Online
stockholders will receive, in the aggregate, approximately 17.8 million shares
of Mediconsult common stock in the merger, or approximately 38% of the issued
and outstanding shares of Mediconsult common stock following the merger. It is
estimated that each share of Physicians' Online common stock (including shares
issuable upon conversion of the outstanding Physicians' Online preferred stock)
will receive approximately 2.4 shares of Mediconsult common stock. In addition,
the holders of Physicians' Online preferred stock will receive a number of
shares of Mediconsult common stock in respect of the aggregate liquidation
price of such preferred stock. These estimates are based on an assumed average
closing price of $6.825 (the average closing price per share of the Mediconsult
common stock on the Nasdaq National Market for the ten trading days ending on
November 17, 1999, the most recent practicable date prior to the mailing of
this joint Information/Proxy Statement/Prospectus), estimated transaction
expenses of approximately $2.4 million, and an estimated aggregate exercise
price of unexercised Physicians' Online options of approximately $1.3 million.
The exact conversion ratio will be determined immediately prior to the closing
and may be higher or lower than 2.4 shares and the total number of shares
issued to the Physicians' Online stockholders may be greater or lesser than
17.8 million.
In addition, upon exercise of their options and payment of the exercise
price after the merger, the holders of options to purchase Physicians' Online
common stock will be eligible to receive, in the aggregate, approximately 2
million additional shares of Mediconsult common stock.
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Ten percent of all shares to be received by the Physicians' Online
stockholders in the merger will be placed in escrow to cover indemnification
obligations under the merger agreement to Mediconsult.
Creation of Escrow
By approving the merger, the Physicians' Online stockholders will authorize
the creation of the escrow and the appointment of Jason Fisherman, currently a
director of Physicians' Online, as their stockholder representative (and the
appointment of Bradford Burnham, also currently a director of Physicians'
Online, in the event Mr. Fisherman is unable to continue as stockholder
representative) with respect to indemnification matters and the administration
of the escrow.
Treatment of Physicians' Online Stock Options
At the effective time of the merger, each outstanding option to purchase
shares of Physicians' Online common stock, whether vested or unvested and
whether or not exercisable, will be converted into an option to purchase, for
the same aggregate exercise price, the number of shares of Mediconsult common
stock that the holder of such option would have received had such holder
exercised such option immediately prior to the effective time of the merger,
with no change to the vesting period and with no other change to the terms of
such option. Any fractional shares of Mediconsult common stock resulting from
such adjustment will be rounded to the nearest whole number of shares.
Exchange of Stock Certificates
Fractional Shares. Mediconsult will not issue any fractional shares of
Mediconsult common stock in the merger. Instead, each holder of shares of
Physicians' Online common stock or Physicians' Online preferred stock exchanged
pursuant to the merger who would otherwise have been entitled to receive a
fraction of a share of Mediconsult common stock will be entitled to receive a
cash payment in an amount equal to the product of such fractional part of
Mediconsult common stock, rounded to the nearest whole cent, multiplied by the
average closing price per share of Mediconsult common stock.
Surrender of Shares of Physicians' Online Common Stock and Physicians'
Online Preferred Stock; Stock Transfer Books. Prior to the effective time of
the merger, Mediconsult will mail a transmittal form to each record holder of
certificates representing Physicians' Online common stock and Physicians'
Online preferred stock advising the holders of the anticipated effectiveness of
the merger and the instructions for surrendering the certificates for
Mediconsult common stock and for payment in lieu of fractional shares. Holders
of certificates who properly surrender their certificates in accordance with
the instructions in the notice will receive certificates representing the
number of shares of Mediconsult common stock (other than the shares placed in
the escrow) and cash in lieu of any fractional shares of Mediconsult common
stock. The surrendered certificates will be canceled.
No Further Registration or Transfer of Physicians' Online Common Stock and
Physicians' Online Preferred Stock. At the effective time of the merger, the
stock transfer books of Physicians' Online will be closed and there will be no
further transfers of shares of Physicians' Online common stock or Physicians'
Online preferred stock on the records of Physicians' Online. After the
effective time of the merger, the holders of Physicians' Online stock
certificates will cease to have any rights with respect to such shares of
Physicians' Online common stock and Physicians' Online preferred stock except
as otherwise provided for in the merger agreement or by applicable law.
Holders of Physicians' Online common stock or Physicians' Online preferred
stock should not send in their certificates until they receive a transmittal
form from Mediconsult.
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Representations and Warranties
The merger agreement contains representations and warranties of Mediconsult,
Physicians' Online and PMCI, Inc.
These relate to:
. their organization, existence, good standing, corporate power and
similar corporate matters;
. their capitalization;
. their authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters;
. required governmental approvals and filings;
. the absence of conflicts, violations and defaults under their corporate
charters and by-laws and other agreements, orders and documents;
. their financial statements;
. Year 2000 compliance;
. accounting and tax matters; and
. brokers and finders.
Physicians' Online has also represented and warranted as to:
. the absence of certain changes in its business since December 31, 1998;
. the absence of undisclosed liabilities;
. litigation;
. taxes and tax returns;
. its employee benefit plans;
. its material contracts, properties and leases;
. insurance;
. compliance with laws;
. intellectual property;
. its minute books;
. accounts payable and receivable;
. its related party transactions; and
. trade relations.
Both Mediconsult and Physicians' Online have also represented and warranted
as to the accuracy and completeness of information furnished by each company
set forth in this joint Information/Proxy Statement/Prospectus.
The principal stockholders of Physicians' Online have also represented and
warranted as to:
. their authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters;
. required governmental approvals and filings; and
. the absence of conflicts, violations and defaults under any agreements,
orders and other documents.
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Certain Covenants
Conduct of Business Prior to the Merger. Physicians' Online has agreed that
it will carry on its business in the ordinary course substantially in
accordance with its business plan and past practice, except as contemplated by
the merger agreement. Specifically, Physicians' Online has agreed not to,
without the prior written consent of Mediconsult:
. amend its charter or bylaws;
. borrow or agree to borrow any funds or mortgage or pledge any of its
assets;
. voluntarily incur, assume or become subject to any material obligation
or liability;
. cancel or agree to cancel any material debts owned to Physicians' Online
or any valuable claim or right;
. lease, sell, transfer, encumber or write down, agree to lease, sell
transfer, encumber or write down, or grant or agree to grant any
preferential rights to lease or acquire, any of its assets, property or
rights;
. with certain exceptions, grant any increase in compensation or benefits,
or make, pay or accrue any bonuses, pension, profit sharing or similar
payment to any director, officer or employee of Physicians' Online;
. acquire any interest in any other corporation, association, joint
venture, partnership, business trust or other business entity, or in any
of the assets of such entities;
. merge, consolidate or otherwise combine with any other corporation or
enter into any agreement providing for such merger, consolidation or
combination;
. hire any additional professional personnel or make any change in the
responsibilities or office of any officer of Physicians' Online;
. change Physicians' Online's independent public accountants or make any
change in accounting methods or policies;
. enter into any material contract or agreement or materially modify any
existing material agreement;
. declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock, or retire or redeem any such capital
stock, or take any action which would have an equivalent effect;
. with certain exceptions, issue or sell any share of its capital stock,
any options or any other securities convertible into or exchangeable
for, any capital stock; and
. with certain exceptions, pay, accrue or make any commitment for capital
expenditures in excess of $100,000, individually, or $300,000, in the
aggregate.
Mediconsult and Physicians' Online have each agreed to use its commercially
reasonable efforts to take all actions and to do all things necessary, proper
or advisable to consummate the transactions contemplated by the merger
agreement.
Solicitation of Transactions by Physicians' Online. Until the earlier of the
termination of the merger agreement or consummation of the merger, Physicians'
Online has agreed that it will not, directly or indirectly, initiate, solicit
or encourage, or engage, participate in negotiations with, or provide any
nonpublic information or data to, any person or entity (other than Mediconsult)
relating to any acquisition or disposition, tender offer, exchange offer,
merger, consolidation, acquisition of beneficial ownership of 10% or more of
total voting power, sale of all or any significant portion of material assets,
dissolution, or other business combination involving Physicians' Online.
Physicians' Online has agreed that it will immediately notify Mediconsult in
detail about inquiries, discussions or negotiations of the nature described
above.
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Combinations of Mediconsult. Subject to the exercise of the fiduciary duties
of Mediconsult's board, under applicable law as advised in writing by
independent counsel, and until the earlier of the termination of the merger
agreement or the consummation of the merger, Mediconsult has agreed not to
directly or indirectly through any representative or otherwise initiate,
solicit, encourage or consummate (a) a merger or acquisition in which
Mediconsult is not the surviving entity or (b) the sale, transfer or other
disposition of all or substantially all of the assets of Mediconsult unless, in
either case, the surviving entity or transferee agrees in writing (subject to
consummation of such transaction) to assume, or cause Mediconsult to perform,
the obligations of Mediconsult under the merger agreement.
However, the Mediconsult board may furnish information to or enter into
discussions or negotiations with any person or entity that makes an unsolicited
bona fide proposal to consummate a transaction described above if:
. the Mediconsult board determines in good faith that such action may be
required by its fiduciary obligations under applicable law as advised in
writing by independent counsel;
. Mediconsult provides written notice to Physicians' Online to the effect
that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity; and
. Mediconsult keeps Physicians' Online informed of the status and all
material information with respect to any such discussions or
negotiations.
The Mediconsult board may also approve or recommend a transaction described
above in which the surviving entity or transferee does not assume in writing
Mediconsult's obligations under the merger agreement if the Mediconsult board
determines in good faith that such action is required by its fiduciary
obligations under applicable law as advised in writing by independent counsel.
Indemnification. If the merger agreement is approved and the merger occurs,
all stockholders of Physicians' Online who have not perfected dissenter's
rights of appraisal under the DGCL, by receipt of Mediconsult common stock in
the merger, will be deemed to have agreed to the terms of the escrow agreement
referred to in the merger agreement and to indemnify Mediconsult against
damages due to (1) a breach of any representation or warranty of Physicians'
Online contained in the merger agreement which would result in a material
adverse effect, (2) the breach or other failure by Physicians' Online to
perform any covenant, agreement or other obligation of Physicians' Online
contained in the merger agreement which would result in a material adverse
effect, (3) the incurring of fees and expenses by Physicians' Online in
connection with the merger in excess of the amount set forth in a certificate
delivered two business days prior to the closing date to Mediconsult, and (4)
any and all actions, suits, proceedings, demands, judgments, costs and legal
and other expenses incident to any of the matters referred to above. This
obligation to indemnify Mediconsult is limited to 10% of the total number of
shares of Mediconsult common stock issued in the merger with each Stockholder
being at risk for no more than its pro rata share of the escrow. An escrow
arrangement will be established at closing to hold this 10% amount. Pursuant to
the merger agreement, Jason Fisherman, currently a director of Physicians'
Online, will serve as the stockholder representative to administer the escrow
on behalf of all former Physicians' Online stockholders. The escrow and
indemnification obligations will end one year after closing. At that time, if
Mediconsult has not made a claim for the escrowed property, the escrowed
property will be released to the former Physicians' Online stockholders.
The merger agreement provides that the stockholder representative will not
be liable to the Physicians' Online stockholders in connection with the
performance of his duties under the merger agreement and escrow agreement
provided his actions are not fraudulent or taken in bad faith. The stockholder
representative will be indemnified by the Physicians' Online stockholders
solely out of distributions from the escrow against any loss, claim, liability,
cost, expense or other damage incurred by him in connection with any claim to
which the stockholder representative is made a party in connection with the
merger agreement or the escrow agreement, as well as for all out-of-pocket
expenses incurred by the stockholder representative while performing his duties
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under the merger agreement and the escrow agreement. The stockholder
representative's right to be indemnified by the Physicians' Online stockholders
is subordinate to Mediconsult's right to be indemnified from the escrow.
Consents, Approvals and Filings. Physician' Online and Mediconsult have
agreed to use their respective commercially reasonable efforts to obtain all
approvals, authorizations, registrations, consents, licenses, clearances or
orders of governmental and regulatory authorities which are necessary to be
obtained by them to consummate the merger.
Notes of Principal Stockholders of Physicians' Online and Mediconsult
Loans. Each principal stockholder of Physicians' Online has agreed to waive any
and all defaults or events of default, or rights to prepayment or acceleration
of any amount owing, under any promissory note issued to it by Physicians'
Online, arising, directly or indirectly, as a result of (a) the execution or
delivery of the merger agreement by Physicians' Online, (b) the existence of a
default under the promissory notes of Physicians' Online issued to IDX Systems
Corporation and Medical Manager Corporation on March 11, 1999 in the aggregate
principal amount of $10,000,000 or (c) the payment by Physicians' Online of any
amounts due under such notes specified in (b) above.
Until the termination of the merger agreement and if requested by
Physicians' Online, Mediconsult has agreed to loan to Physicians' Online on
commercially reasonable terms (with the same security and seniority as the
IDX/Medical Manager notes) from time to time upon reasonable prior notice such
funds as Physicians' Online reasonably requires to continue to operate its
business so long as:
. Physicians' Online is in substantial compliance with the business plan
developed by Physicians' Online and Mediconsult; and
. such loans by Mediconsult commence on the date Physicians' Online's cash
balances do not exceed $750,000.
To date, Mediconsult has loaned Physicians' Online an aggregate principal
amount of $1,761,000 for Physicians' Online to continue its business
operations. Mediconsult also agreed to loan to Physicians' Online any funds
Physicians' Online required to pay the IDX/Medical Manager notes if the lenders
under such notes required such repayment as a result of the merger agreement.
On September 22, 1999, Mediconsult loaned $10,096,438 to Physicians' Online to
repay the IDX/Medical Manager notes, representing principal of $5,000,000 for
each note plus accrued and unpaid interest. This loan by Mediconsult is at the
same interest rate, security and seniority as the IDX/Medical Manager notes and
contains other terms mutually agreed between Physicians' Online and
Mediconsult.
Upon the termination of the merger agreement, all such loans by Mediconsult,
including the loans for Physicians' Online to continue its business operation,
will become due and payable 180 days after the date of termination, subject to
an earlier due date if there is an event of default under such notes. The
principal stockholders of Physicians' Online have agreed to subordinate the
notes issued to them by Physicians' Online to any such loans by Mediconsult on
the same basis that their notes were subordinate to the IDX/Medical Manager
notes, and, at the request of Mediconsult, have entered into agreements with
Mediconsult containing provisions relating to such subordination.
Board of Directors. Mediconsult has agreed to take all action necessary so
that, effective as of the effective time of the merger, the size of its board
of directors will be increased to 10. Four persons nominated by certain
principal stockholders of Physicians' Online will be appointed to Mediconsult's
board to fill the vacancies created by such increase. Such persons will serve
until the next annual meeting of stockholders of Mediconsult.
Mediconsult has agreed to take all action necessary to nominate for election
to its board at the next annual meeting one person for each 10% of outstanding
Mediconsult common stock beneficially owned by the principal stockholders of
Physicians' Online and their affiliates (or nominees), as of the record date
for such
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annual meeting (rounded up to the next whole number) but in no event more than
four persons, to serve until the next succeeding annual meeting of stockholders
of Mediconsult. Until the 2001 annual meeting of Mediconsult, Mediconsult will
not increase the number of directors constituting its whole board above 10,
without the consent of a majority of the Physicians' Online directors serving
as such at the time of any such increase. In the event of any vacancy on the
board, whether caused by a director's resignation, removal, death or otherwise,
Mediconsult has agreed to take all action necessary to ensure that the
successor to any Physicians' Online director whose absence from the board
caused such vacancy will be a Physicians' Online director.
Pooling. Immediately prior to the effective time of the merger, Physicians'
Online has agreed to deliver to Mediconsult a certificate identifying all
persons who are, to Physicians' Online's knowledge, "affiliates" of Physicians'
Online for purposes of "pooling of interests" and will use its reasonable
efforts to cause each such person to deliver to Mediconsult on or before the
closing date an affiliates agreement, which, among other things, restricts the
ability of such person to sell, assign or transfer any Mediconsult common stock
received in connection with the merger. As of the date hereof, the principal
stockholders of Physicians' Online who are "affiliates" have entered into such
affiliates agreements.
Each of Mediconsult and Physicians' Online will not, and will use all
reasonable efforts to cause its respective stockholders not to, without the
prior written consent of the other party, knowingly take any action intended or
reasonably likely to prevent the merger from qualifying as a tax-free
reorganization within the meaning of the Internal Revenue Code Mediconsult will
deliver representation letters or certificates as to such matters as
Physicians' Online's tax counsel may reasonably request in order to enable
Physicians' Online's tax counsel to deliver to Physicians' Online an opinion as
to the tax-free nature of the merger.
Physicians' Online Voting Agreements. The preferred stockholders and the
Physicians' Online founders, who collectively beneficially own approximately
91% of the outstanding voting power of Physicians' Online, have agreed in the
merger agreement to vote all of their shares in favor of the adoption of the
merger agreement at the Physicians' Online special meeting. In addition, the
preferred stockholders and the Physicians' Online founders have executed
irrevocable proxies appointing a Mediconsult officer to vote their shares in
favor of the merger agreement at the Physicians' Online special meeting.
Related Matters After the Merger
At the time of the merger, PMCI, Inc. will be merged into Physicians' Online
and Physicians' Online will be the surviving corporation in the merger as a
wholly-owned subsidiary of Mediconsult. Each share of PMCI, Inc. common stock
issued and outstanding immediately prior to the merger will be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the surviving corporation. The certificate of incorporation of
PMCI, Inc., as in effect immediately prior to the time of the merger, will
become the certificate of incorporation of the surviving corporation, except
that the name shall be changed to the name of Physicians' Online. The bylaws of
PMCI, Inc. will become the bylaws of the surviving corporation until amended in
accordance with applicable law.
Indemnification of Mediconsult by Stockholders
The merger agreement provides that the Physicians' Online stockholders who
receive Mediconsult common stock in the merger will indemnify Mediconsult for
any and all damages, subject to the limitations described below, Mediconsult
may suffer as a result of any of the following:
. any breach of any representation or warranty of Physicians' Online
contained in the merger agreement;
. the breach or other failure by Physicians' Online to perform any
covenant, agreement or other obligation of Physicians' Online contained
in the merger agreement;
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. any fees and expenses incurred by Physicians' Online in connection with
the merger agreement and the transactions contemplated by the merger
agreement to the extent such expenses exceed those set forth in a
certificate delivered two business days prior to the closing date to
Mediconsult pursuant to the merger agreement; and
. any and all actions, suits, proceedings, demands, judgments, costs and
legal and other expenses incident to any of the matters referred to
above.
The representations and warranties contained in the merger agreement
continue in effect for one year following the closing. To secure the
indemnification obligations of the Physicians' Online stockholders, 10% of the
Mediconsult common stock that would otherwise be payable to the Physicians'
Online stockholders at the closing will be held in escrow.
The total liability of the Physicians' Online stockholders for their
indemnification obligations will not exceed the fair market value of amounts
held in escrow (at the time liability is determined), and the Physicians'
Online stockholders will not be liable until the aggregate claim for damages
exceeds $1,000,000, at which time the Physicians' Online stockholders will be
liable for the full amount of such damages, except with respect to damages for
any breaches of representations and warranties of Physicians' Online assessed
as of the closing, in which case, the Physicians' Online stockholders will be
liable for damages in excess of $1,000,000.
Conditions to Obligations to Effect Merger
The respective obligations of Mediconsult and Physicians' Online to effect
the merger are subject to the satisfaction or waiver of the following
conditions:
. the approval of the merger by (a) at least two-thirds of the votes
entitled to be cast by the holders of Physicians' Online preferred stock
and of the Physicians' Online founders, as holders of Physicians' Online
common stock, voting as a single class and (b) at least a majority of
the votes entitled to be cast by the Physicians' Online stockholders;
. the issuance of Mediconsult shares of common stock;
. all approvals and authorizations from relevant governmental and
regulatory authorities must have been obtained;
. no order of any court or administrative agency has been in effect which
restrains or prohibits any transaction contemplated by the merger
agreement or which would limit or otherwise affect in any respect
Mediconsult's ownership of Physicians' Online;
. no suit, action, or proceeding by any governmental body or other person
or entity, has been pending against Mediconsult, PMCI, Inc., Physicians'
Online or any principal stockholder of Physicians' Online, which
challenges the validity or legality, or seeks to restrain the
consummation, of any transaction contemplated by the merger agreement or
which seeks to limit or otherwise affect the merger, provided, however,
such suit, action or proceeding by any non-governmental body must be a
material suit, action or proceeding which could have a material adverse
effect; and
. a registration statement (including any post-effective amendment to such
registration statement) with respect to the Mediconsult common stock to
be issued in connection with the merger must be effective under the
Securities Act, and no proceedings must be pending or to the knowledge
of Mediconsult threatened by the Commission to suspend the effectiveness
of such registration statement.
The obligations of Mediconsult and PMCI, Inc. to effect the merger are
subject to the satisfaction or waiver of the following additional conditions:
. the representations and warranties of Physicians' Online and the
principal stockholders of Physicians' Online in the merger agreement
must be true and correct in all material respects as of the date of the
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merger agreement and at the closing of the merger except such
representations and warranties related to Physicians' Online's
capitalization and to the validity of outstanding and issued Physicians'
Online preferred and common stock which must be true and correct in all
respects (however, this condition will be deemed satisfied even if such
representations and warranties are not true and correct unless such
failure to be true and correct has had or is reasonably likely to have a
material adverse effect, subject to certain qualifications described
below, on the condition (financial or otherwise), business, assets or
results of operations of Physicians' Online or on the ability of
Physicians' Online to consummate the transactions contemplated by the
merger agreement);
. Physicians' Online and the principal stockholders of Physicians' Online
must have performed in all material respects all covenants required to
be performed under the merger agreement at or prior to the closing of
the merger;
. a material adverse effect, subject to certain qualifications described
below, on the condition (financial or otherwise), business, assets or
results of operations of Physicians' Online or on the ability of
Physicians' Online to consummate the transactions contemplated by the
merger agreement must not have occurred since the date of the merger
agreement;
. Mediconsult must have received a certificate executed on behalf of
Physicians' Online and each of the principal stockholders of Physicians'
Online making representations as required by the merger agreement;
. the holders of not more than ten percent of the total outstanding voting
stock of Physicians' Online shall have voted against the approval of the
merger agreement and exercised rights of appraisal;
. Physicians' Online must have executed and delivered to Mediconsult and
PMCI, Inc. the certificate of merger to be filed with the Secretary of
State of Delaware in connection with the merger;
. the stockholder representative must have executed and delivered the
escrow agreement;
. Mediconsult must have received an opinion of Physicians' Online's
counsel, dated as of the closing date and addressed to Mediconsult, as
to certain matters described in an exhibit to the merger agreement; and
. Mediconsult must have received affiliates agreements from the principal
stockholders of Physicians' Online that are "affiliates" and each other
person identified as an affiliate by Physicians' Online.
The obligation of Physicians' Online to effect the merger is subject to the
satisfaction of the following additional conditions:
. the representations and warranties of Mediconsult and PMCI, Inc. in the
merger agreement must be true and correct in all material respects as of
the date of the merger agreement and at the closing of the merger except
such representations and warranties related to the validity of
outstanding and issued shares of Mediconsult capital stock and to the
beneficial ownership of all of the authorized shares of PMCI, Inc. by
Mediconsult which must be true and correct in all respects (however,
this condition will be deemed satisfied even if such representations and
warranties are not true and correct unless such failure to be true and
correct has had or is reasonably likely to have a material adverse
effect, subject to certain qualifications described below, on the
condition (financial or otherwise), business, assets or results of
operations of Mediconsult and its subsidiaries as a whole, or on the
ability of Mediconsult and PMCI, Inc. to consummate the transactions
contemplated by the merger agreement);
. Mediconsult and PMCI, Inc. must have performed in all material respects
all covenants required to be performed under the merger agreement at or
prior to the closing of the merger;
. a material adverse effect, subject to certain qualifications described
below, on the condition (financial or otherwise), business, assets or
results of operations of Mediconsult and its subsidiaries as a whole, or
on the ability of Mediconsult and PMCI, Inc. to consummate the
transactions contemplated by the merger agreement must have not occurred
since the date of the merger agreement;
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. Physicians' Online must have received an opinion from counsel for
Mediconsult and PMCI, Inc. as to certain matters described in an exhibit
to the merger agreement;
. counsel for Physicians' Online must have delivered to Physicians' Online
and its principal stockholders an opinion, dated the closing date,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing on the closing date, the merger should be
treated for federal income tax purposes as a reorganization within the
meaning of the Internal Revenue Code and the gain, if any, realized by
the holders of Mediconsult common stock as a result of such merger,
should be recognized by each such holder, but in an amount not in excess
of the amount of cash received;
. Physicians' Online must have received a certificate executed on behalf
of Mediconsult and PMCI, Inc. making representations as required by the
merger agreement;
. if necessary, Mediconsult must have amended its existing stock option
plan to include, or adopted a new plan with respect to, the Mediconsult
options issuable upon conversion of Physicians' Online options pursuant
to the merger agreement and such options must have been registered under
the Securities Act and the shares of Mediconsult common stock underlying
such options must have been authorized for listing on the Nasdaq
National Market, subject to official notice of issuance;
. Mediconsult and PMCI, Inc. must have executed and delivered to
Physicians' Online the certificate of merger to be filed with the
Secretary of State of Delaware in connection with the merger;
. the shares of Mediconsult common stock to be issued in the merger must
have been authorized for listing on the Nasdaq National Market; and
. no event outside the control of Physicians' Online must have occurred
between the date of the merger agreement and the closing date, so as to
jeopardize the treatment of the transaction contemplated by the merger
as a reorganization within the meaning of the Internal Revenue Code.
For purposes of certain conditions above related to a material adverse
effect of either Mediconsult or Physicians' Online, the occurrence of any of
the following events or circumstances, in and of themselves and in combination
with any of the others, will not constitute a material adverse effect of either
party:
. any litigation or threat of litigation (including stockholder
litigation) filed or made after the date of the merger agreement
challenging any of the transactions contemplated by the merger
agreement;
. any adverse change, event or effect that is demonstrated to be caused
primarily by conditions generally affecting the United States economy;
. any adverse change, event or effect that is demonstrated to be caused
primarily by conditions generally affecting the healthcare, technology,
Internet or services industries; and
. any adverse change attributable primarily to the announcement or
discovery of the merger agreement and the merger transaction, including
employee attrition or any loss of business resulting from termination or
modification of any vendor, customer or other business relationships,
unless such change resulted from a breach by the other party of its
obligations under the merger agreement.
The occurrence of any of the following additional events or circumstances,
in and of themselves and in combination with any of the others (including the
events or circumstances described above), will not constitute a material
adverse effect of Physicians' Online:
. the termination or modification of any relationship with a
pharmaceutical sponsor and any corresponding loss of revenue or planned
revenue;
. with certain exceptions, a decrease of 25% or less in the four week
average of the aggregate number of physician users of Physicians'
Online's services calculated with respect to the number of users for the
four week period ending August 28, 1999; and
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. circumstances, changes in, or effects on Physicians' Online or its
business caused by (a) changes in Physician' Online's business plan or
methods of operations made at the request of Mediconsult or in
accordance with the business plan developed by Physicians' Online and
Mediconsult or (b) actions taken or decisions made by Mediconsult.
Termination; Fees and Expenses
The merger agreement may be terminated in the following ways at any time
prior to the time of the merger:
(1) Mediconsult and Physicians' Online may terminate the merger
agreement by mutual consent;
(2) Mediconsult or Physicians' Online may terminate the merger agreement
if the other party is in breach of any representation, warranty or covenant
contained in the merger agreement and such breach is not remedied within
ten days of delivery of written notice and such breach would result in a
material adverse effect;
(3) Mediconsult or Physicians' Online may terminate the merger agreement
if the requisite vote of the stockholders of Mediconsult is not obtained at
the Mediconsult special meeting (including any adjournment or postponement
thereof);
(4) Mediconsult or Physicians' Online may terminate the merger agreement
if the requisite vote of the stockholders of Physicians' Online is not
obtained at the Physicians' Online special meeting (including any
adjournment or postponement thereof);
(5) Mediconsult or Physicians' Online may terminate the merger agreement
at any time after January 31, 2000, if for any reason the merger has not
been consummated by such date and such failure to consummate the merger is
not caused by a breach of the merger agreement by the terminating party; or
(6) Mediconsult or Physicians' Online may terminate the merger agreement
if any court of competent jurisdiction or other competent governmental or
regulatory authority has issued an order making illegal or otherwise
restricting, preventing or prohibiting the merger and such order has become
final and nonappealable.
If Physicians' Online terminates the merger agreement pursuant to reasons
(2) or (3) above, Mediconsult must pay Physicians' Online a termination fee
equal to the sum of Physicians' Online's out-of-pocket expenses incurred in
connection with the transactions contemplated by the merger agreement and a
termination fee equal to $7,500,000 as liquidated damages in full satisfaction
of any and all claims Physicians' Online may have against Mediconsult for
damages, provided that the payment of such amount will not impair Physicians'
Online's right to specific performance or any other remedy in equity.
If Mediconsult terminates the merger agreement pursuant to reasons (2) or
(4) above, Physicians' Online must pay Mediconsult a termination fee equal to
the sum of Mediconsult's out-of-pocket expenses incurred in connection with the
transactions contemplated by the merger agreement and a termination fee equal
to $7,500,000 as liquidated damages in full satisfaction of any and all claims
Mediconsult may have against Physicians' Online for damages, provided that the
payment of such amount will not impair Mediconsult's right to specific
performance or any other remedy in equity.
Whether or not the merger is consummated, all fees, costs and expenses
incurred in connection with the merger agreement and the transactions
contemplated thereby will be paid by the party incurring the expenses.
Mediconsult will pay all expenses incurred in relation to the printing and
mailing and filing fees of this joint Information/Proxy Statement/Prospectus.
Within two business days prior to the closing of the merger, Physicians'
Online will deliver to Mediconsult, a certificate signed by the chief executive
officer of Physicians' Online, setting forth an itemized
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list in reasonable detail of Physicians' Online's fees and expenses in
connection with the merger, including but not limited to the fees and expenses
of Physicians' Online's financial advisor, J.P. Morgan, and all legal and
accounting fees and expenses of Physicians' Online. At the effective time of
the merger, the merger consideration to be received by Physicians' Online
stockholders will be reduced by the amount of such fees and expenses. See
"Treatment of Physicians' Online Common Stock and Preferred Stock." Physicians'
Online's financial advisor has agreed to take its fees in shares of Mediconsult
common stock.
Amendment and Waiver
Amendments must be in writing and signed by Mediconsult, PMCI, Inc. and
Physicians' Online and, if required by the DGCL, approved by Mediconsult's
stockholders and Physicians' Online's stockholders.
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OTHER AGREEMENTS
Voting Agreements
The preferred stockholders and the Physicians' Online founders, who
collectively beneficially own approximately 91% of the outstanding voting power
of Physicians' Online, have agreed in the merger agreement to vote all of their
shares in favor of adoption of the merger agreement at the Physicians' Online
special meeting. In addition, the preferred stockholders and the Physicians'
Online founders have executed irrevocable proxies appointing a Mediconsult
officer to vote their shares in favor of the merger agreement at the
Physicians' Online special meeting.
In connection with the execution of the merger agreement, certain executive
officers, directors and stockholders of Mediconsult owning approximately 51% of
the outstanding common stock of Mediconsult as of September 7, 1999 entered
into voting agreements. Pursuant to the voting agreements, such stockholders
have agreed to vote all of their shares of Mediconsult common stock in favor of
the merger transaction pursuant to the terms of the merger agreement, including
the necessary issuance of Mediconsult common stock, and have granted
Physicians' Online irrevocable proxies to vote their shares in favor of the
issuance of the Mediconsult stock in connection with the merger. In addition
the Mediconsult controlling stockholders have already acted to approve actions
1, 2, 4, and 5, and will act to approve action 3 after the distribution of this
joint Information/Proxy Statement/Prospectus, in each case, by executing a
written consent.
Escrow Agreement
Mediconsult will deposit in escrow with Wilmington Trust Company, the escrow
agent, certificates representing 10% of the shares of Mediconsult common stock
issued in the merger for the purpose of securing the indemnification
obligations of the Physicians' Online stockholders pursuant to the merger
agreement. The escrow shares will be issued in the name of Jason Fisherman, the
representative of the Physicians' Online stockholders. During the term of the
escrow agreement each Physicians' Online stockholder shall have the right to
vote such stockholder's escrow shares by instructing the stockholder
representative accordingly. In the absence of such instructions, the
stockholder representative may not vote such shares. Under the escrow
agreement, a Physicians' Online stockholder may through the stockholder
representative request release of such stockholder's shares held in the escrow
following the publication by Mediconsult of results of at least 30 days of
combined operations of Mediconsult and Physicians' Online, provided that the
stockholder replaces the released shares with an amount of cash necessary to
maintain the value of the escrow at 10% of the merger consideration less any
amounts paid to Mediconsult in satisfaction of claims against the escrow. The
escrow will terminate one year after the closing subject to claims for
indemnification outstanding at such time.
Promptly following the termination of the escrow, the escrow agent will
promptly deliver to the stockholder representative for the benefit of
Physicians' Online stockholders the escrow. Mediconsult will cause its transfer
agent to issue and deliver to the stockholder representative in exchange for
the escrowed shares certificates of Mediconsult common stock representing each
Physicians' Online stockholder's pro rata share of the escrow based on each
stockholder's percentage interest in the escrow, provided that any stockholder
who has had shares released and replaced them with cash shall receive such cash
(rather than shares) upon distribution of such stockholder's pro rata share of
the escrow. The stockholder representative will distribute the Mediconsult
share certificates and cash to the appropriate Physicians' Online stockholders.
Mediconsult shall be liable for certain fees and expenses of the escrow agent.
The full text of the escrow agreement is attached to this joint
Information/Proxy Statement/Prospectus as Annex F.
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DESCRIPTION OF MEDICONSULT'S BUSINESS
Mediconsult is a leading provider of patient-oriented healthcare information
and services on the World Wide Web. Our Web sites provide a trusted source of
comprehensive and easy to understand medical information and are designed to
empower consumers through increased education related to medical conditions and
treatment alternatives. Our Web sites also provide a destination on the
Internet where visitors can interact with others in a community environment. We
facilitate this environment through a well-organized, easy to navigate format
and an array of complementary services, including moderated on-line support
groups and discussion forums. By fostering communities centered around
prevalent medical conditions and health issues, we believe we create
significant opportunities for pharmaceutical and other healthcare companies to
reach a highly targeted consumer audience using Internet-based marketing and
advertising programs.
Our Web Sites
Since our inception in 1996, we have focused on becoming the leading
independent provider of medical information to consumers on the World Wide Web.
Our main Web site, mediconsult.com, includes comprehensive information on more
than 60 chronic medical conditions and health issues. We believe that in the
United States the chronic medical conditions covered on this Web site affect
more than 90 million people and represent a significant portion of healthcare
spending. We estimate that 62% of the visitors to mediconsult.com have been
diagnosed with or believe they have a chronic medical condition and that an
additional 21% are friends, family or caregivers. Our Web sites are intended to
educate patients on particular medical conditions, increase their awareness of
treatment options, describe the benefits of various treatments and generally
increase compliance with treatment protocols. Topics of greatest interest on
mediconsult.com include arthritis, asthma, attention deficit disorder, breast
cancer, depression, diabetes, eating disorders, fitness, heart disease,
hypertension, prostate cancer and smoking cessation. For most topics, visitors
can access a variety of resources, including:
. comprehensive and easy to understand medical information from a variety
of independent sources;
. a community of visitors with an interest or experience in the topic;
. an on-line moderated support group;
. our MediXpert service, which provides customized on-line medical reports
from medical specialists; and
. a selection of recommended books and other healthcare products for
purchase on-line.
To improve the depth and breadth of our medical content and to increase
visitor traffic, we have recently completed strategic initiatives to purchase,
manage or sponsor the following Web sites:
. pharminfo.com, a leading Web site providing information on
pharmaceutical products and clinical trials for pharmacists, physicians
and consumers;
. cyberdiet.com, a Web site providing tailored nutritional information and
programs; and
. inciid.org, a Web site providing information on infertility.
We also seek to increase our visitor traffic by licensing our content to,
and supporting Web sites established by, healthcare organizations and other
third parties. We believe that our Web sites collectively represent one of the
most highly trafficked consumer healthcare information sites on the Internet.
In January 1999 (on a pro forma basis as if acquired, managed or sponsored on
the first day of the month) our owned, managed and sponsored Web sites had more
than 1.3 million visitors viewing over 9.2 million pages of information.
Mediconsult.com has received "best of web" awards from over 30 independent
organizations, including Encyclopedia Britannica and Popular Science, and was
nominated for a "Webby" award in January 1999 by the International Academy of
Digital Arts and Sciences.
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The Internet Healthcare User
The Internet provides an effective method for consumers to access large
quantities of reliable and independent information on medical conditions,
treatments and potential outcomes. We believe that access to this information,
together with support groups and interaction with medical experts on-line,
leads to a greater understanding of health issues and improved patient
compliance with treatment protocols. Cyber Dialogue estimates that, for the 12
months ended July 1998, approximately 17 million adults in the United States
searched on-line for health-related information. Cyber Dialogue data indicates
that these users are better educated, have higher household incomes, are more
often female and are more experienced with the Internet than the general
population of Internet users. The demographics of the Internet healthcare user,
combined with the Internet's interactive nature, make the Internet an
attractive medium for targeted healthcare marketing and advertising programs.
Client Services
Our main source of revenue is through the development and implementation of
on-line marketing and sponsorship programs for pharmaceutical and other
healthcare companies. Due to recent regulatory changes regarding the type of
information that may be disclosed to consumers in pharmaceutical advertising
and increased demand for healthcare information by consumers, direct-to-
consumer advertising of prescription pharmaceuticals has increased from $590
million in 1996 to an estimated $1.8 billion in 1998 and is projected to grow
to $7.5 billion in 2005. We believe that the Internet will capture an
increasing portion of this market as pharmaceutical companies recognize the
value of this medium for their products. We structure our programs to provide
our clients with a measurable return on investment by tracking the level of
interest and interactive responses of visitors. Our marketing programs use a
broad range of on-line strategies and resources to deliver a message consistent
with our clients' global marketing strategies, including one or more of the
following:
--banner advertisements, visitor polls and surveys, and live events, to
build brand awareness;
--condition-specific content to educate the targeted visitor group;
--calls to action and other visitor interactions, such as requests for
product samples;
--design and development of customized Web sites focused on a particular
product, treatment or medical condition;
--development of product positioning strategies and initiation of on-line
program launches; and
--Web site management and support and visitor services.
We are working with a number of pharmaceutical and other healthcare
companies to develop marketing and sponsorship programs. In June 1998, we
launched a comprehensive on-line program for the Habitrol smoking cessation
product of Novartis Consumer Health Canada. We are also developing programs for
a number of branded pharmaceutical products of Novartis Pharma, the worldwide
pharmaceutical division of Novartis. In addition, we have completed assessment
programs for Bristol Myers Squibb, Glaxo Wellcome and Astra Merck.
To broaden our marketing initiatives with the pharmaceutical industry, in
February 1999, we entered into a memorandum agreement to form a joint venture
with CommonHealth, the leading healthcare advertising firm worldwide and an
affiliate of Ogilvy & Mather and J. Walter Thompson. The joint venture is being
formed to offer innovative multimedia solutions to pharmaceutical and other
healthcare companies, based on our Internet expertise and CommonHealth's
experience in traditional media. Also, in order to enhance our content
licensing initiatives and generate additional revenue, we have entered into
marketing alliances with a number of organizations, including the healthcare
division of IBM, GeoAccess, a software development company focused on managed
care organizations, and the Ontario Hospital Association, an association of
approximately 185 not-for-profit hospitals.
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Our Strategy
Our strategy is to be the leading provider of healthcare information to
consumers on the Internet and to use this position to provide targeted
marketing and sponsorship programs for pharmaceutical and other healthcare
companies. The key elements of this strategy are to:
--enhance visitor experience and sense of on-line community;
--increase targeted traffic through strategic acquisitions and
relationships, and content licensing;
--broaden relationships with pharmaceutical advertisers; and
--build strong brand awareness.
Legal Proceedings
There are no pending material legal proceedings in which Mediconsult is a
party, and Mediconsult is not aware of any threatened material legal
proceedings involving Mediconsult.
Management's Discussion and Analysis of Mediconsult.
Unless otherwise noted, references to "we," "our," and "us" refer to
Mediconsult and its subsidiaries.
Overview
Mediconsult is a leading provider of patient-oriented healthcare
information and services on the World Wide Web. Our Web sites provide a
trusted source of comprehensive and easy to understand medical information and
are designed to empower consumers through increased education related to
medical conditions and treatment alternatives. The Web sites also provide a
destination on the Internet where visitors can interact with others in a
community environment. We facilitate this environment through a well-
organized, easy to navigate format and an array of complementary services,
including moderated on-line support groups and discussion forums. By fostering
communities centered around over 60 prevalent chronic medical conditions and
health issues, we believe that Mediconsult creates significant opportunities
for pharmaceutical and other healthcare companies to reach a highly targeted
consumer audience using Internet-based marketing and advertising programs.
Background
For the period from the inception of our operations in April 1996 through
January 1997, our operating activities related primarily to the initial
development of the mediconsult.com Web site and operating infrastructure, and
also the recruitment of employees. Since the launch of mediconsult.com in
1996, we have focused on developing and organizing content in an easy to
navigate format, and improving the functionality of mediconsult.com. We have
added new sites through subsequent acquisitions including cyberdiet.com and
heartinfo.com, and new Internet-based healthcare tools through the acquisition
of Mood Sciences. We continue to refine our strategy of creating targeted on-
line marketing and advertising programs for large pharmaceutical and other
healthcare organizations. We continue to develop and implement these types of
programs for our clients. We structure our programs to provide advertisers
with a measurable return on their investment by tracking the level of interest
and interactive responses of visitors. Our programs utilize a broad range of
on-line strategies and resources to deliver a message consistent with the
advertisers' global marketing strategy.
In the third quarter we expanded our focus on long term strategic
relationships with major pharmaceutical manufacturers to include other
Internet-based initiatives in addition to marketing programs. The initial
relationship in this new strategic direction was entered into with Bristol-
Myers Squibb Company in which we are working with Bristol-Myers to develop
innovative new approaches to electronic medical education.
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Revenue Sources
Our main source of revenue is through client services related to the
development and support of on-line marketing and advertising programs for
pharmaceutical and other healthcare companies. These services typically include
the design, development and management of customized Web sites relating to a
particular pharmaceutical or other health-related product. Client services also
include marketing research, focus group testing and on-line testing of
visitors' preferences. Revenue from client services is recognized over the
period that the services are performed. Revenue from support services,
principally the management of Web sites that we develop for our clients, is
recognized ratably over the management periods, generally on a monthly basis.
Payments received from clients prior to the performance of client services are
recorded as unearned revenue.
We also provide advertising services involving the sale of advertising space
on Web sites we own, manage or sponsor. These services can be provided
separately or as part of a more comprehensive suite of client services.
Advertising services include banner advertisements, polls, surveys,
registration programs, coupons and other interactive forms of advertising.
Revenue from advertising sales is recognized ratably over the period in which
the advertisement is displayed, if no significant obligations remain. In
certain cases, advertising revenue from the sale of advertising space is
related to the delivery of impressions or click-throughs from pages viewed by
visitors to our Web sites. In these cases, we may guarantee a minimum number of
impressions or click-throughs by visitors over a specific period of time. To
the extent that revenue is related to the number of impressions or click-
throughs, we defer recognition of this revenue until the required impressions
or click-throughs are achieved. Payments received from advertisers prior to
displaying their advertisements are recorded as deferred revenue. Mediconsult
does not recognize revenue from barter transactions with respect to its
advertising services. We recently announced that effective October 1, 1999 we
will no longer sell banner advertising on our consumer Web sites. As a result,
this source of revenue may decline in future periods even though we will
continue to sell such advertising on our professional sites such as Physicians'
Online.
We also derive revenue from licensing our mediconsult.com content and
providing Web site support to healthcare and other organizations. These client
organizations make our content available to visitors to their Web sites or to
Web sites of their clients. Revenue from content licensing is recognized over
the period of the license. In certain cases, we design and develop these Web
sites. The portion of licensing revenue related to up-front customized design
work is recognized over the period that the work is performed. In certain
cases, we realize additional revenue from management of the Web site or its
content. Revenue from management services is recognized rateably over the
period the services are performed, generally on a monthly basis. We may also
retain the right to place advertising on a Web site that hosts our content.
Although we have certain electronic commerce alliances with merchants of
healthcare-oriented books and products, revenue from these revenue-sharing
arrangements has not been material. Revenue from our share of the proceeds from
electronic commerce partners' sales is recognized by Mediconsult upon
notification from our commerce partners of sales attributable to our Web sites.
Marketing and Sales Initiatives
In late 1997, we initiated our first significant marketing and advertising
program. The Company was engaged by Novartis Consumer Health Canada to develop
a comprehensive on-line smoking cessation program for its Habitrol brand,
focused on Canadian consumers. We developed the Web site for this program
during early 1998, for which we received payment as services were performed. We
receive revenue for maintaining and upgrading this program (beginning with its
launch in June 1998), and receive monthly advertising revenue for referring
visitor traffic to the Habitrol Web site. We are currently expanding the
Habitrol program to provide French and professional healthcare versions of the
Web site.
We have also generated revenue from developing programs for a number of
branded pharmaceutical products for Novartis Pharma, the worldwide
pharmaceutical division of Novartis. We are developing the Web sites for these
programs and receiving payment as services are performed. We are developing a
custom version
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of an electronic medical education product for Bristol-Myers Squibb. In 1998,
revenue from Novartis represented $0.7 million or 65% of the Company's total
revenue. In the nine months ended September 30, 1999, revenue from Novartis and
Bristol Myers Squibb represented $3.4 million or 86% of the Company's total
revenue. We have also completed assessment programs for Glaxo Wellcome and
Astra Merck. The loss of Novartis or Bristol Myers Squibb as a customer or any
changes to the existing relationships that are less favorable to us, or any
significant reduction in traffic on or through the Web sites that we manage,
will materially and adversely affect our business, financial condition and
results of operations.
To date, our revenue has been generated primarily by our own internal sales
organization, Pharma Marketing, LLC. and, to a lesser extent, by third party
advertising representatives. As of September 30, 1999, we had an internal
marketing, sales and program design organization of 50 professionals, compared
to 28 at June 30, 1999. We believe that we need to further increase the size of
our internal marketing and sales organization in order for us to execute
successfully our growth strategy and, accordingly, we intend to hire additional
marketing and sales professionals in 1999.
To complement our direct sales force, in February 1999, we entered into a
memorandum of agreement outlining the principal terms of a 50/50 joint venture
with CommonHealth LLP, the leading healthcare advertising firm worldwide.
CommonHealth is an affiliate of Ogilvy & Mather and J. Walter Thompson.
In order to enhance our content licensing initiatives and generate
additional revenue, we have entered into marketing alliances with a number of
companies and organizations. These include the healthcare division of IBM,
GeoAccess, a software development company focused on the managed care sector,
and the Ontario Hospital Association, an association of approximately 185 not-
for-profit hospitals.
Visitor Traffic
To improve the depth and breadth of our medical content and to increase
visitor traffic, we recently completed strategic initiatives to purchase,
manage or sponsor the following Web sites:
. Heartinfo.org, a leading Web site that provides high quality content and
tools focused on heart disease and related areas that have attracted a
large and growing number of visitors to the www.heartinfo.com Web site.
We acquired Cyber-Tech, Inc., which operates Heartinfo.org for
consideration of $3.32 million and 267,000 shares of common stock. The
fair value of these shares of common stock was $3.75 million. Cyber-
Tech, Inc. had net tangible assets of $19,000 at the acquisition date.
The intangible component of consideration, $7.1 million, was capitalized
and will be amortized over five years.
. PharmInfo.com, a leading Web site providing information on
pharmaceutical products and clinical trials for pharmacists, physicians
and consumers. We acquired PharmInfo.com in December 1998, in exchange
for 100,000 shares of our common stock. The fair value of these shares
of common stock was $0.8 million, which was capitalized and will be
amortized over three years.
. Cyberdiet.com, a Web site providing tailored nutritional information and
programs. In May 1999, we completed the acquisition of CyberDiet Inc.,
in exchange for 400,000 shares of Mediconsult common stock. The fair
value of these shares of common stock was $3.2 million and CyberDiet
Inc. had a net tangible deficiency at the acquisition date of $63,000.
The resulting intangible value of $3.3 was capitalized and will be
amortized over five years.
. INCIID.org, a Web site providing information on infertility. In February
1999, we entered into an exclusive sponsorship agreement with the
InterNational Counsel of Infertility Information Dissemination, a not-
for-profit organization, relating to INCIID.org and granting us the sole
right to place advertisements on the Web site, to link traffic, and to
manage the content on the Web site. In connection with this agreement,
we have committed to pay INCIID $0.5 million per year beginning in 1999,
for three years in equal quarterly instalments, in cash or common stock
as we determine with respect to each quarter. We have paid $375,000 in
cash to September 30, 1999.
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We believe that Mediconsult's Web sites together represent one of the most
highly trafficked consumer healthcare information sites on the Internet. During
the second quarter, our Web sites attracted 6.2 million visitors who viewed
35.4 million pages. On average, viewers spent 15 minutes per session on
Mediconsult.com's Web sites.
Stock Options and Warrants
Stock options granted to consultants and employees are expensed over their
vesting period, based on their fair value at the date of grant, under Statement
of Financial Accounting Standards No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION." As more fully described below in "Results of Operations," we
have recorded compensation expense in connection with the vesting of stock
options during the nine month periods ended September 30, 1999 and 1998, as
well as deferred compensation expense for the value of options granted that
were not vested as of such dates. We recorded expense of $1.12 million and
$0.03 million regarding the fair value of stock options granted for the three
months ended September 30, 1999 and 1998 respectively. In the nine months ended
September 30, 1999, we recorded an expense of $1.70 million, compared to $0.10
million for the corresponding period in the prior year. We currently expect to
amortize $2.65 million in 1999 and $2.55 million in 2000 as deferred
compensation expense in respect of options outstanding at September 30, 1999.
Pursuant to an agreement dated July 28, 1998 with Arnhold and S.
Bleichroeder, Inc. to provide us with investment advisory services, we have
issued to this firm 100,000 shares of our common stock and warrants to purchase
an aggregate of 400,000 shares of common stock with an exercise price of $1.22
per share, which was the closing price of our common stock on the contract
date. Of this amount, warrants for 200,000 shares of common stock were
delivered upon initial filing of a prospectus and warrants for 200,000 shares
of common stock are deliverable in 2000, if certain conditions are met.
Delivery of the warrants on April 6, 1999 resulted in the recognition of an
expense in the statement of operations equal to the fair value of the warrants,
which was estimated at $1.10 million. In addition, we have recognized deferred
expense of $1.10 million, representing the value of warrants that had not
vested as of September 30, 1999.
On February 26, 1999, the Company granted to Nazem & Company IV, L.P.
Transatlantic Fund C.V. and certain other individual investors, warrants
exercisable for five years to purchase 224,000 shares of the Company's senior
preferred stock. The warrants are exercisable at $6.32 per share. We have
recognized an expense in the statement of operations equal to the fair value of
the warrants which was estimated at $1.18 million.
Results of Operations
Revenue. Revenue consists of fees received for the design, development and
implementation of on-line marketing and advertising programs, including Web
site development and implementation, advertising services, licensing our
content and Web site support. Revenue was $1.98 million for the quarter ended
September 30, 1999 compared to $0.24 million for the quarter ended September
30, 1998. Revenue was $3.89 million for the nine months ended September 30,
1999 and $0.66 million for the nine months ended September 30, 1998. The
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period-to-period growth in revenue was primarily attributable to an increase in
(i) the number of visits to our Web sites, (ii) the number of clients, (iii)
the number of marketing and advertising programs developed and implemented for
those clients, and (iv) the acquisition of the Pharminfo.com, CyberDiet.com and
HeartInfo.org web sites.
Product and Content Development. Product and content development costs
include expenses we incur to develop, enhance, manage, monitor and operate our
Web sites. These costs consist primarily of salaries and fees paid to employees
and consultants to develop and maintain the software and information contained
on the Mediconsult.com Web sites. For the quarter ended September 30, 1999,
these costs were $2.37 million and for the quarter ended September 30, 1998,
these costs were $0.40 million. These costs related primarily to the
development of healthcare content and interactive services. Product and content
development was $4.64 million for the nine months ended September 30, 1999 and
$0.91 million for the nine months ended September 30, 1998. The increase in
1999 expenses compared to 1998 reflects increased staffing required to meet the
expanding volume of business that the Company has secured.
Marketing, Sales, and Client Services. Marketing, sales and client services
costs include expenses we incur to obtain and maintain client relationships.
These costs include salaries and fees paid to employees and consultants, and
programming costs. For the quarter ended September 30, 1999, these costs were
$2.76 million, consisting primarily of costs associated with the development
and implementation of specific client marketing programs and of new prototype
marketing and advertising programs. For the quarter ended September 30, 1998,
marketing, sales and client services costs were $0.23 million. Marketing, sales
and client services expense was $4.34 million for the nine months ended
September 30, 1999 and $0.91 million for the nine months ended September 30,
1998. The increase in marketing, sales and client services reflects an
expansion of the Company's sales and marketing activities including additional
staff and new promotion and advertising campaigns.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for general corporate
functions, including finance, accounting and legal expenses, and fees for other
professional services. For the quarter ended September 30, 1999, general and
administrative expenses were $1.23 million and for the quarter ended September
30, 1998 these costs were $0.18 million. The increase in general and
administrative expenses was primarily attributable to increased salaries and
related expenses associated with hiring additional personnel to support the
growth of our operations. General and administrative expense was $2.55 million
for the nine months ended September 30, 1999 and $0.49 million for the nine
months ended September 30, 1998. General and administrative expenses increased
as the Company's operations grew. The increase in expense also reflects the
additional professional and reporting costs now that the Company is listed on
NASDAQ.
Depreciation and Amortization Expense. Depreciation and amortization expense
reflects depreciation of tangible assets and software was $0.22 million and
amortization of intangible assets was $0.67 million, for the quarter ended
September 30, 1999, compared to $0.04 million and $nil respectively for the
corresponding period in 1998. Depreciation of tangible assets and software was
$0.39 million and amortization of intangible assets was $1.00 million for the
nine months ended September 30, 1999, compared to $0.21 million and $nil for
the nine months ended September 30, 1998.
The increase in depreciation expense reflects the increased investment in
capital assets as now we have expanded our office facilities and have installed
Web and network servers. The increase in amortization expense is due to the
acquisition of Pharminfo.Net in December 1998, the acquisition of Cyberdiet,
Cyber-Tech in May 1999 and June 1999 respectively and the acquisition of an
interest in Pharma Marketing, LLC in September 1999. Intangible value
associated with these transactions, represented by the excess of purchase price
over net tangible assets, is being amortized over three to five years.
Fair Value of Options Granted to Employees. We recorded compensation expense
in connection with the vesting of employee stock options of $1.12 million
during the quarter ended September 30, 1999, and $0.03
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million during the quarter ended September 30, 1998. Compensation expense for
the fair value of employee options was $1.70 million for the nine months ended
September 30, 1999 and $0.10 million for corresponding period in the prior
year. Compensation expense represents the amortization of deferred
compensation, which is measured based on the fair value of the options granted.
These amounts are amortized over the vesting period of the applicable options.
We have recorded deferred compensation for the value of options granted that
are not yet vested of $8.98 million as of September 30, 1999.
Fair Value of Options Granted to Others. We recorded expense in connection
with the vesting of warrants to Arnhold & S. Bleichroeder Inc. and Nazem &
Company IV, L.P. Transatlantic Fund C.V. and certain other individual investors
as described above. Compensation expense was $2.27 million for the nine months
ended September 30, 1999. There was no corresponding expense in 1998.
Interest Income. During the quarter ended September 30, 1999, the company
earned interest income of $0.59 million as compared to $nil in the quarter
ended September 30, 1998. Interest income in the nine months ended September
30, 1999 was $1.17 million compared to $nil in the corresponding period in the
prior year. The increase in interest income over the prior year reflects
increased cash on hand as a result of the net proceeds from the offering that
was completed in April of this year.
Factors That Could Cause Actual Results To Differ Materially From Those
Projected
The information and data contained in this quarterly report includes all
necessary adjustments, consisting only of normal recurring adjustments
necessary for fair presentation of this data. The results of operations for any
quarter are not necessarily indicative of the results of operations for any
future period.
We have a limited operating history upon which to evaluate our business and
predict revenue and planned operating expenses. Our quarterly operating results
may vary significantly in the foreseeable future due to a variety of factors,
many of which are outside of our control. The timing of advertising sales is
one of the most significant factors affecting quarterly results. The time
between the date of initial contact with a potential advertiser and the
execution of a contract with the advertiser typically ranges from six weeks for
smaller agreements to nine months for larger agreements. These contracts are
also subject to delays over which we have little or no control, including
customers' budgetary constraints, their internal acceptance reviews, whether or
when regulatory approval of their products is given by the FDA or other
regulatory authority, the possibility of cancellation or delay of projects by
advertisers and any post-approval actions taken by the FDA or other regulatory
authority, including product recalls. During the selling process, we may expend
substantial funds and management resources and yet not obtain adequate
advertising revenue. Once a contract is executed, a significant portion of our
revenue is derived from customized Web site development and implementation
projects, rather than from recurring fees. As a result, we cannot predict with
certainty when we will perform the work necessary to receive payment for these
projects. In addition, traffic levels on Web sites have typically fluctuated
during the summer, and during year-end and holiday periods, and we could
experience a decrease in visitor traffic to our Web sites during these periods.
Liquidity And Capital Resources
Since inception, we have financed our operations primarily through the
placement of equity securities and advances from our principal stockholder. In
April 1999, we received net proceeds of $58.1 million from a public offering of
equity securities. Issue costs associated with this offering, which have been
offset against the net proceeds of the offering, were $1.1 million. As of
September 30, 1999, we had $33.9 million in cash and cash equivalents.
We have incurred substantial costs to design, develop and implement
Internet-based marketing and advertising programs for our clients, to build
brand awareness and to grow our business. As a result, we have incurred
operating losses and negative cash flows from operations in each quarter since
we commenced
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operations. As of September 30, 1999, we had an accumulated deficit of $20.2
million. These losses have been partially funded through private and public
placements of equity securities.
To date, we have experienced negative cash flows from operating activities.
For the nine months ended September 30, 1999 and September 30, 1998, net cash
used in operating activities was $8.4 million and $1.9 million, respectively.
Net cash used reflected several factors, including (1) increased operating
expenses as our business volume increased; (2) a higher level of work in
progress due to growth of marketing and advertising program revenue; and (3)
increases in accounts payable and accrued expenses, which partially offset the
increases.
For the nine months ended September 30, 1999, the increase in net cash used
in operating activities was primarily attributable to our net operating loss of
$11.8 million. The net loss for the quarter was partially offset by certain
non-cash items of $5.4 million in the aggregate, comprised of deferred
compensation expense of $4.0 million related to stock options granted to
employees and warrants, and depreciation and amortization of $1.4 million.
For the nine months ended September 30, 1999, net cash used in investing
activities was $19.2 million compared to $0.3 million in the corresponding
period in 1998. In the first nine months of 1999, $1.5 million was used to
acquire capital assets, primarily the acquisition of computer equipment and
software, $7.6 million was used to acquire the issued capital stock of
Cyberdiet, Inc. and Cyber-Tech, Inc. and to make an equity investment in Pharma
Marketing, LLC and $10.1 million was advanced to Physicians' Online, Inc.
For the nine months ended September 30, 1999, net cash provided by financing
activities was $61.5 million. Net cash proceeds from financing activities for
the first nine months of the year were primarily attributable to the April
public offering of equity securities.
As of September 30, 1999, we had no material capital commitments
outstanding, although we expect to undertake further capital spending as we
establish offices and other facilities in the United States and Canada.
In connection with our joint venture with CommonHealth, we expect to advance
approximately $0.3 million to the joint venture as our share of its initial
capitalization. Under our agreement with CommonHealth, we may borrow this
amount from CommonHealth. If we do borrow this amount, we must repay it from
25% of our portion of the net profits of the joint venture, if any, and in any
event within three years from the formation of the joint venture or sooner if
the joint venture is terminated.
In connection with our sponsorship and management of INCIID.org, we have
committed to pay INCIID.org $0.5 million per year for three years, beginning in
1999. The payments are made in equal quarterly installments, in cash or common
stock as we determine with respect to each quarter. In the nine months ended
September 30, 1999 we had advanced $0.38 million to INCIID.
Our ability to generate significant revenue is uncertain. We incurred net
losses of approximately $5.8 million for the quarter ended September 30, 1999.
We expect losses from operations and negative cash flow to continue for the
foreseeable future, and at least through the year 2000, as a result of our
expansion plans and our expectation that operating expenses will increase
significantly in the next several years. The rate at which these losses will be
incurred may increase from current levels. Although we have experienced revenue
growth in recent periods, our revenue may not remain at its current level or
increase in the future. If our revenue does not increase and if our spending
levels are not adjusted accordingly, we may not generate sufficient revenue to
achieve profitability, which would have a material, adverse effect on our
business, financial condition and results of operations. Even if we achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future.
Our working capital requirements depend on numerous factors. We have
experienced a substantial increase in our expenditures since inception,
consistent with growth in our operations and staffing, and anticipate that
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this will continue for the foreseeable future. We anticipate incurring
additional expenses to increase our marketing and sales efforts, for content
development and for technology and infrastructure development. Additionally, we
will continue to evaluate possible investments in businesses, products and
technologies, the expansion of our marketing and sales programs and more
aggressive brand promotions. If we experience a shortfall in revenue in
relation to expenses, or if our expenses precede increased revenue, our
business, financial condition and results of operation and could be materially
and adversely affected.
We currently anticipate that available cash resources combined with the net
proceeds from the April equity offering and revenue from client contracts will
be sufficient to meet our anticipated needs for working capital and capital
expenditures through December 31, 2000. We may need to raise additional funds,
however, in order to fund more rapid expansion, to develop new or enhance
existing services or products, to respond to competitive pressures or to
acquire complementary products, businesses or technologies. There can be no
assurance that any required additional financing will be available on terms
favorable to us, or at all. If additional funds are raised by the issuance of
equity securities, stockholders may experience dilution of their ownership
interest and these securities may have rights senior to those of the holders of
the common stock. If additional funds are raised by the issuance of debt, we
may be subject to certain limitations on our operations, including limitations
on the payment of dividends. If adequate funds are not available or are not
available on acceptable terms, we may be unable to fund our expansion,
successfully promote our brand name, take advantage of acquisition
opportunities, develop or enhance services or respond to competitive pressures,
any of which could have a material adverse effect on our business, financial
condition and results of operations.
Although a significant portion of our revenue is derived from activities
conducted outside the United States, fees paid to us have been and are expected
to continue to be paid in U.S. dollars. However, a substantial portion of our
payroll is paid and it is expected that rent under leases of office facilities
outside the United States will be paid, in currencies other than U.S. dollars.
Because our financial results are reported in U.S. dollars, they are affected
by changes in the value of the various foreign currencies in which we make
payments in relation to the U.S. dollar. We do not cover known or anticipated
currency fluctuation exposures through foreign currency exchange option or
forward contracts. The primary currency for which we have foreign currency
exchange rate exposure is the Canadian dollar. Our financial instruments,
including cash, accounts receivable, accounts payable and accrued liabilities
are carried at cost which approximates their fair value because of the short-
term maturity of these instruments.
Year 2000
Some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches and are commonly referred to as the year 2000 problem.
Significant uncertainty exists in the software and Internet industries
concerning the scope and magnitude of problems associated with the year 2000
problem.
Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations to determine if they will be year 2000
compliant. Based on our assessment to date, we presently believe that our
internal computer systems are year 2000 compliant. Nevertheless, we continue to
test our internal systems, on a system by system basis, as we complete our
ongoing compliance efforts with respect to non-information technology systems.
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of our offices and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems,
elevators and other common devices may be affected by the year 2000 problem. We
have completed the assessment of the potential effect of, and costs of
remediating, any year 2000 problem related to
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this equipment and estimate that our total cost of completing any required
modifications, upgrades or replacements of these internal systems will not be
material.
Suppliers. We have been gathering information from and have initiated
communications with our service and content providers to identify and, to the
extent possible, resolve issues involving the year 2000 problem. However, we
have limited or no control over the actions of our service and content
providers. Thus, while we expect that we will be able to resolve any
significant year 2000 problems with our systems, we cannot guarantee that our
service and content providers will resolve any or all year 2000 problems with
their systems before the occurrence of a material disruption to our business.
Any failure of these third parties to resolve year 2000 problems with their
systems in a timely manner could have a material adverse effect on our
business, financial condition and results of operations.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all year 2000 problems that could materially adversely affect our
business, financial condition or operating results. However, we believe that it
is not possible to determine with complete certainty that all year 2000
problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related
to the year 2000 problem will occur or the severity, duration or financial
consequences of such failures. As a result, we could possibly suffer the
following consequences:
. a significant number of operational inconveniences and inefficiencies
for us, our service and content providers and our visitors that may
divert our time and attention and financial and human resources from our
ordinary business activities; and
. a lesser number of serious system failures that may require significant
efforts by us, our service and content providers or our visitors to
prevent or alleviate material business disruptions.
In addition, there can be no assurance 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 of 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, which could also prevent us from operating our business, prevent
visitors from accessing our Web sites, or change the behavior of consumers
accessing our Web sites, which could have a material adverse effect on our
business, financial condition and results of operations.
Contingency Plans. As discussed above, we are engaged in an ongoing year
2000 assessment. We have not yet developed any contingency plans. The results
of our year 2000 simulation testing and the responses received from third party
vendors and service providers will be taken into account in determining the
nature and extent of any needed contingency plans. To date, the costs of this
ongoing assessment have not been material.
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DESCRIPTION OF PHYSICIANS' ONLINE'S BUSINESS
Physicians' Online is an Internet online service that provides medical
information, communications, and a transactions network for physicians. It is a
secure, physicians-only environment featuring access to medical databases,
daily medical news, continuing medical education credits, clinical symposia, e-
mail accounts, Internet, discussions with colleagues, secure prescription
transactions, market research and recruiting services, among other services.
Membership is free.
Since its inception, Physicians' Online has gained the membership of more
than 200,000 United States physicians, which Physicians' Online believes is the
largest authenticated physician community on the World Wide Web. To ensure a
private physician community, Physicians' Online requires each new member to
provide verification of his or her physician credentials. Every physician's
name, date of birth, medical education number and/or DEA number is matched
electronically against a database consisting of American Medical Association
information to verify qualification for membership. Physicians' Online offers
current and prospective members toll-free access to a team of technical
specialists to help them get online and take full advantage of the network
services. Once online, Physicians' Online intranets provide additional security
for physician users to connect to professional medical associations, health
plans, institutions, pharmaceutical advertisers and other sectors of the
healthcare industry.
Physicians' Online's services are principally supported by pharmaceutical
and direct-to-consumer advertising sponsors as well as subscription fees from
its members using it as an Internet Service Provider and MDDirect, a physician
recruitment business. Physicians' Online physicians are able to hyperlink to a
sponsor's content. Physicians' Online's authenticated physician membership
eliminates the need for pharmaceutical sponsors to require physicians to
register at their Web sites. Physicians' Online provides sponsors with
advertising space on its always-visible, rotating banner window that appears on
the bottom of the screen when users enter the Physicians' Online site and that
travels with users throughout the site. The technique helps ensure that an ad
is not hidden or lost when a viewer leaves a page. Physicians' Online's
technology also facilitates the use of banners that are context-sensitive and
programmed to appear when physicians link to specific sites. Sponsors are able
to receive detailed reports on how many and for how long physicians interact
with their sites.
Physicians' Online forms partnerships and strategic alliances to enhance
physician members' experiences and add value to the Physicians' Online service.
Some examples follow:
. An agreement with Claimsnet.com provides physicians and their
administrative staffs online healthcare claims processing, eligibility
verification, patient statement services and reporting capabilities.
. An agreement with Elixis Corporation provides physicians access to
Elixis' WEBCODER, the only completely Internet-based clinical
documentation tool providing online access to electronic medical
records.
Physicians' Online was incorporated in Delaware in April 1992. Physicians'
Online's executive offices are located at 560 White Plains Road, Tarrytown, New
York 10591. Its telephone number is 914-332-6100, and its Internet web site is
located at http://www.po.com.
Management's Discussion and Analysis of Physicians' Online
Period Ended September 30, 1999 Compared To Period Ended September 30, 1998
Revenue. Revenue consists of advertising fees from pharmaceutical and
direct-to-consumer sponsors, subscription fees from members using Physicians'
Online as an Internet Service Provider, and fees from medical institutions
utilizing MD Direct, a physician recruiting business. Physicians' Online's
revenues decreased $0.3 million, or 6.7%, to $4.2 million for the nine months
ended September 30, 1999 from $4.5
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million for the nine months ended September 30, 1998. This decrease in revenue
was primarily due to a loss of advertising dollars from key pharmaceutical
sponsors.
Cost of Revenue. Cost of revenue includes expenses for communication costs
for internet access for members and annual license fees for content providers.
Physicians' Online's cost of revenues increased $0.5 million, or 17.9%, to $3.3
million for the nine months ended September 30, 1999 from $2.8 million for the
nine months ended September 30, 1998. As a percentage of revenues, cost of
revenues increased to 78.6% for the nine months ended September 30, 1999 from
62.2% for the nine months ended September 30, 1998. The increase in cost of
revenues in absolute dollar terms and as a percentage of revenues was a result
of increased communication costs as membership increased and licensing fees for
additional content providers.
Sales And Marketing. Sales and marketing consists of expenses relating to
the selling of banner advertisements to pharmaceutical clients and marketing of
the Physicians' Online web site to the marketplace. Costs includes salaries for
sales and marketing staff, costs of advertising campaigns in prominent
publications, and costs of welcome kits to members. Physicians' Online's sales
and marketing costs decreased $0.4 million, or 18.2%, to $1.8 million for the
nine months ended September 30, 1999 from $2.2 million for the nine months
ended September 30, 1998. As a percentage of revenues, sales and marketing
expenses decreased to 42.9% for the nine months ended September 30, 1999 from
48.9% for the nine months ended September 30, 1998. The decrease in sales and
marketing costs in absolute dollar terms and as a percentage of revenues was
the result of minimum cash spent on advertising campaigns.
General And Administrative. General and administrative expenses consist
primarily of salaries and related costs for accounting and legal services.
Costs also include office expense and depreciation expense. Physicians'
Online's general and administrative expenses remained the same--$5.8 million
for the nine months ended September 30, 1999 and $5.8 million for the nine
months ended September 30, 1998. As a percentage of revenues, general and
administrative expenses increased to 135.9% for the nine months ended September
30, 1999 from 127.9% for the nine months ended September 30, 1998. The increase
in general and administrative expenses as a percentage of revenues was a result
of lower revenue in 1999 in comparison to general and administrative expenses.
Other Expenses. Other expenses includes interest expense on loans and notes
payable. Physicians' Online's other expenses increased $0.8 million, or 450%,
to $1.0 million for the nine months ended September 30, 1999 from $0.2 million
for the nine months ended September 30, 1998. As a percentage of revenues,
other expenses increased to 25.9% for the nine months ended September 30, 1999
from 4.4% for the nine months ended September 30, 1998. The increase in other
expenses in absolute dollar terms and as a percentage of revenues was primarily
due to interest expense on a shareholder loan ($4.5m) received September 1998,
a loan ($10m) received March 1999, and a shareholder loan ($3m) received July
1999.
Income Taxes. During the nine months ended September 30, 1999, Physicians'
Online had a benefit for income taxes of $3.1 million on pre-tax losses of $7.7
million, however the Company recorded a full valuation allowance against the
benefit. During the nine months ended September 30, 1998, Physicians' Online
had a benefit for income taxes of $2.6 million on pre-tax losses of $6.4
million, however the Company recorded a full valuation allowance against the
benefit. The effective income tax rate was 40% and 40% for the nine months
ended September 30, 1999 and September 30, 1998, respectively. The effective
rates were not materially different from the federal and state statutory rates.
As of September 30, 1999, the Company had net operating loss carryforwards of
approximately $42.0 million and $19.1 million for book and tax purposes.
Liquidity And Capital Resources. Physicians' Online believes that its market
risk exposures are immaterial as Physicians' Online does not have instruments
for trading purposes and reasonably possible near-term changes in market rates
or prices will not result in material near-term losses in earnings, material
changes in fair values or cash flows for all other instruments. Physicians'
Online's net cash used by operating activities was $8.5 million for the nine
months ended September 30, 1999 compared to net cash used by operating
activities of approximately $5.0 million for the nine months ended September
30, 1998. Physicians' Online's
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net cash used in investing activities was $.0 million for the nine months ended
September 30, 1999 compared to net cash used in investing activities of
approximately $0.4 million for the nine months ended September 30, 1998.
Physicians' Online's net cash used by financing activities was $8.0 million for
the nine months ended September 30, 1999 compared to net cash used of
approximately $4.3 million for the nine months ended September 30, 1998.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Revenue. Revenues decreased $4.8 million, or 44%, to $6.1 million for the
year ended December 31, 1998 from $10.9 million for the year ended December 31,
1997. This decrease in revenue was primarily due to a loss of advertising
dollars from pharmaceutical sponsors.
Cost of Revenue. Cost of revenues decreased $0.1 million, or 2.4%, to $4.0
million for 1998 from $4.1 million for 1997. As a percentage of revenues, cost
of revenue increased to 65.5% during 1998 from 37.9% during 1997. The decrease
in cost of revenue in absolute dollar terms was primarily a result of lower
communication costs and licensing fees. The increase in cost of revenue as a
percentage of revenues was primarily a result of lower revenues in 1998 as
compared with 1997.
Sales and Marketing. Sales and marketing expenses decreased $0.5 million, or
14.7%, to $2.9 million for 1998 from $3.4 million in 1997. As a percentage of
revenues, sales and marketing expenses increased to 47.8% during 1998 from 31%
during 1997. The decrease in sales and marketing expenses in absolute dollar
terms was primarily due to a minimum cash flow to spend on advertising
campaigns. The increase in sales and marketing expenses as a percentage of
revenues was the result of lower revenue in 1998 as compared to 1997.
General and Administrative. General and administrative expenses decreased
$1.8 million, or 18.2%, to $8.1 million in 1998 from $9.9 million in 1997. As a
percentage of revenues, general and administrative expenses increased to 132.3%
during 1998 from 90.2% in 1997. The decrease in general and administrative
expenses in absolute dollar terms was primarily the result of a decrease in
outside legal expense due to the hiring of an in-house counsel and a decrease
in severance payments being paid to terminated employees. The increase in
general and administrative expenses as a percentage of revenues was primarily
due to lower revenues in 1998 decreasing more than general and administrative
expenses in 1998 as compared to 1997.
Other Expenses. Other expenses increased $0.8 million, or 200%, to $1.2
million for 1998 from $0.4 million in 1997. As a percentage of revenues, other
expenses increased to 19.3% during 1998 from 3.7% during 1997. The increase in
other expenses in absolute dollar terms and as a percentage of revenues was
primarily the result of interest expense on a stockholder loan of $2.3 million
received in June 1998.
Income Taxes. During the fiscal year ended December 31, 1998, Physicians'
Online had a benefit for income taxes of $4.1 million on pre-tax losses of
$10.1 million, however the Company recorded a full valuation allowance against
such benefit. During the fiscal year ended December 31, 1997, Physicians'
Online had a benefit for income taxes of $2.6 million on pre-tax losses of $6.9
million, however the Company recorded a full valuation allowance against such
benefit. The effective income tax rate was 41% and 38% for the year ended
December 31, 1998 and December 31, 1997, respectively. The effective rates were
not materially different from the federal and state statutory rates.
Liquidity and Capital Resources. Physicians' Online believes that its market
risk exposures are immaterial because Physicians' Online does not have
instruments for trading purposes and reasonably possible near-term changes in
market rates or prices will not result in material near-term losses in earnings
or material changes in fair values or cash flows for all other instruments.
Physicians' Online's net cash used by operating activities was $7.5 million for
1998 compared to net cash used in operating activities of approximately $5.8
million for 1997. The net cash used in operating activities of $7.5 million in
1998 was primarily due to a decrease in accounts receivable and an increase in
accrued expenses and current liabilities. The net cash used in operating
activities of $5.8 million in 1997 was primarily due to a decrease in deferred
revenue and a decrease
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in accounts receivable. Net cash used in investing activities was $0.4 million
for 1998 compared to net cash used in investing activities of approximately
$0.8 million for 1997. Net cash used in investing activities in 1998 and 1997
was primarily used for purchases of computer equipment for Physicians' Online
data center. Physicians' Online's net cash provided by financing activities was
$6.1 million and approximately $7.4 million for 1998 and 1997, respectively.
This decrease was primarily the result of no issuance of preferred stock in
1998 as compared to the issuance of Series D preferred stock in 1997. Revenues
for the fiscal years ended December 31, 1998 and 1997 were insufficient to fund
Physicians' Online's operating activities for such years. Physicians' Online's
liquidity requirements have been significant. Management has taken certain
actions to generate funding necessary for Physicians' Online's operations,
which have included obtaining loans, issuing preferred stock and selling the
company.
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996
Revenue. Revenues decreased $1.7 million, or 13.5%, to $10.9 million for
1997 from $12.6 million for 1996. This decrease in revenues was primarily due
to the loss of pharmaceutical sponsorship sponsors.
Cost of Revenues. Cost of revenues increased $1.5 million, or 57.7%, to $4.1
million for 1997 from $2.6 million for 1996. As a percentage of revenues, cost
of revenues increased to 37.9% during 1997 from 20.9% during 1996. The increase
in cost of revenues in absolute dollar terms and as a percentage of revenues
was primarily the result of increased communication costs and licensing fees.
Sales and Marketing. Sales and marketing expenses increased $0.4 million or
13.3%, to $3.4 million during 1997 from $3.0 million for 1996. As a percentage
of revenues, sales and marketing expenses increased to 31% during 1997 from
24.3% in 1996. The increase in sales and marketing expenses in absolute dollar
terms and as a percentage of revenues was primarily due to an increased volume
of welcome kits provided to members and an increase in advertising
expenditures.
General and Administrative. Physicians' Online's general and administrative
expenses increased $1.7 million, or 11.6%, to $9.9 million for 1997 from $11.2
million for 1996. As a percentage of revenues, general and administrative
expenses increased to 90.2% during 1997 from 88.9% during 1996. The increase in
general and administrative expenses in absolute dollar terms and as a
percentage of revenues was primarily due to an increase in personnel hired and
increased telephone and rent expenses.
Other Expenses. Physicians' Online's other expenses increased $0.6 or 300%,
to $0.4 million during 1997 from ($0.2) million for 1996. The increase in other
expenses in absolute dollar terms and as a percentage of revenues was the
result of there being no stockholder loans or notes payable in 1996.
Income Taxes. During the fiscal year ended December 31, 1997, Physicians'
Online had a benefit for income taxes of $2.6 million on pre-tax losses of $6.9
million, however the Company recorded a full valuation allowance against such
benefit. During the fiscal year ended December 31, 1996, Physicians' Online had
a benefit for income taxes of $2.2 million on pre-tax losses of $4.1 million,
however the Company recorded a full valuation allowance against such benefit.
The effective income tax rates were 38% and 52% for the years ended December
31, 1997 and December 31, 1996, respectively. The differences in the effective
tax rate for the years ended December 31, 1997 and December 31, 1996 from the
federal and state statutory rates were primarily the result of certain
restructuring and severance accruals.
Liquidity and Capital Resources. Physicians' Online believes that its market
risk exposures are immaterial because Physicians' Online does not have
instruments for trading purposes and reasonably possible near-term changes in
market rates or prices will not result in material near-term losses in earnings
or material changes in fair values or cash flows for all other instruments. Net
cash used in operating activities was approximately $9.6 million in 1996. Net
cash used in investing activities was approximately $1.3 million in 1996. Net
cash provided by financing activities was approximately $12 million in 1996.
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MANAGEMENT OF MEDICONSULT
Directors, Executive Officers and Significant Employees
The following table sets forth, as of November 17, 1999, the name, age and
position of Mediconsult's directors, executive officers and other significant
employees.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Jennings (1).. 42 Chairman and Chief Executive Officer
Ian Sutcliffe (1)....... 46 President and Director
David J. Austin......... 43 Chief Operating Officer
E. Michael Ingram....... 47 General Counsel, Chief Financial Officer and Secretary
Michel Bazinet, M.D..... 43 Medical Director
Timothy J. McIntyre..... 44 President, Pharma
Debora A. Falk.......... 40 Vice President, Client Services
David M. Haselwood...... 24 Vice President, Business Development
John N. Buchanan (2).... 42 Director
Barry J. Guld (3)(2).... 43 Director
Michael E. F. Treacy,
Ph.D. (3)(1)........... 43 Director
James L. Bierman........ 47 Director Nominee
R. Bradford Burnham..... 49 Director Nominee
Jason S. Fisherman...... 43 Director Nominee
David R. Richards....... 40 Director Nominee
</TABLE>
- --------
(1) Member of the nominating committee
(2) Member of the audit committee
(3) Member of the compensation committee
Robert A. Jennings has served as our Chairman and Chief Executive Officer
since our inception in 1996. From 1993 to 1997, Mr. Jennings acted as an
advisor to a number of companies on general business matters, including
Triathlon Limited. Beginning in 1997, Mr. Jennings began to work on a full-time
basis on Mediconsult matters. Mr. Jennings is a chartered accountant and was
employed by Coopers & Lybrand in Canada and England for nine years.
Ian Sutcliffe has served as our President and a Director since 1996. He has
17 years of experience as a management consultant, primarily in the high-tech
sector. Most recently, from 1993 to 1996, he was a consultant specializing in
re-engineering marketing and sales processes worldwide for IBM. From 1989 to
1993, Mr. Sutcliffe was a partner at BDO Dunwoody, a consulting organization
which he joined in 1989 upon the merger of his consulting firm, Sutcliffe &
Associates, with BDO Dunwoody. Mr. Sutcliffe is a chartered accountant and was
employed by Coopers & Lybrand in Canada and Europe for six years.
David J. Austin has served as our Chief Operating Officer since 1998. He has
18 years of experience in developing and executing strategies for high-tech
business development. From 1995 to 1998, Mr. Austin was the President and Chief
Executive Officer of Triant Technologies Inc., a publicly traded software
company. From 1980 to 1995, he held various management roles in operations,
business development and marketing at IBM Canada Ltd.
E. Michael Ingram has served as our General Counsel since April 1999 and has
served as our Chief Financial Officer and Secretary since May 1999. Prior to
joining us and since 1980, Mr. Ingram held several legal positions with
National Data Corporation. Most recently since 1988, he was Senior Vice
President, General Counsel and Secretary of National Data Corporation. Mr.
Ingram earned his J.D. degree from the University of Georgia School of Law and
his L.L.M. in taxation from Emory University School of Law.
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Michel Bazinet, M.D. has served as our Medical Director since April 1996. He
is a urologist specializing in uro-oncology and practiced medicine at McGill
University in Montreal from 1987 to 1996. His responsibilities with Mediconsult
include the supervision of the overall medical content of our Web site. He
completed his medical and specialty training at Sherbrooke and McGill
Universities in Canada and completed a fellowship in uro-oncology at the
Memorial Sloan Kettering Cancer Center in New York.
Timothy J. McIntyre has served as President of Pharma, the marketing
division of Mediconsult, since September of 1999. He has over 20 years of
experience in marketing and advertising, primarily in the healthcare sector.
From 1997 until 1999, he held several executive positions, including President
and Chief Operating Officer, with Boron Lepore & Associates, a pharmaceutical
marking company. From 1994 until 1997, Mr. McIntyre was President and Chief
Executive Officer of McIntyre & McIntyre, Inc., another pharmaceutical
marketing company.
Debora A. Falk has served as our Vice President, Client Services since June
1998 and was formerly our Vice President, Marketing and Sales from September
1996 until May 1998. From 1985 until 1996, she was employed by IBM Canada in
several technical and marketing positions, including Canadian Market Management
Process Manager.
David M. Haselwood has served as our Vice President, Business Development
since July 1999. From September 1997 to July 1999, he was in the corporate
finance group of Volpe Brown Whelan & Co., LLC, an investment bank. From
January 1996 to September 1997, he was a research analyst at Santa Barbara
Cottage Health System, a multi-hospital health system. Mr. Haselwood earned his
B.A. in Natural Sciences in 1995 from The Johns Hopkins University.
John N. Buchanan has been a Director of Mediconsult since October 1998.
Since 1993, he has been President & CEO of Retek Information Systems Inc., a
wholly owned subsidiary of HNC Software Inc. Retek develops, markets and
supports predictive software solutions to the enterprise software industry.
Barry J. Guld has been a Director of Mediconsult since October 1998. Since
1995, he has served in his current position as President of 365 Sail View
Ventures Ltd. From 1990 to 1994, Mr. Guld co-founded and served as President of
Zadall Systems Group, a leading vendor of pharmacy software systems, which was
sold to National Data Corporation. From 1994 to 1999, he was a consultant to
National Data Corporation.
Michael E. F. Treacy, Ph.D. has been a Director of Mediconsult since July
1998. Since 1995, he has been the Managing Director of Treacy & Co. which
provides strategic consulting services in a number of industries and leads that
firm's business and practice development. From 1981 to 1989, he was a professor
of management science at the MIT Sloan School of Management, after which he
formed his own consulting firm. Mr. Treacy earned his Ph.D. from the MIT Sloan
School of Management.
James L. Bierman has served as a director on the board of Physicians' Online
since April 1999. Mr. Bierman currently serves as Senior Vice President of
Corporate Development at Quintiles Transnational Corp. where he directs all
merger and acquisition activity. Prior to joining Quintiles Transnational Corp.
in June 1998, Mr. Bierman spent 22 years with Arthur Andersen L.L.P. where, as
a partner of this international professional services organization, he worked
with a diversified broad-base of companies solving complex business problems.
Mr. Bierman received a B.A. in Economics and History from Dickinson College and
a M.B.A. from Cornell University's Johnson Graduate School of Management. Mr.
Bierman is a Certified Public Accountant and a member of the American Institute
of Certified Public Accountants and the North Carolina Association of Certified
Public Accountants.
R. Bradford Burnham has served as a director on the board of Physicians'
Online since April 1996. Mr. Burnham is currently a General Partner at AT&T
Ventures, where he invests in early stage companies that are building
businesses in electronic commerce, Internet infrastructure, and communications
services. Prior to
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joining AT&T Ventures in September of 1993, Mr. Burnham was founder and, for
three years, Chief Executive Officer of Echo Logic, a software development
firm. From January of 1979 to May of 1990, Mr. Burnham held a variety of sales
and marketing positions at AT&T. In addition to serving on the Physicians'
Online board, Mr. Burnham is currently a director of one public company,
Audible (ADBL), and four private companies, Peoplelink, Paytrust, Dash, and
Avesta Technologies. Mr. Burnham holds a B.A. in Political Science from
Wesleyan University.
Jason S. Fisherman, MD has served as a director on the board of Physicians
Online since February 1996. Dr. Fisherman is also a director on the boards of
Exelixis Pharmaceuticals, Ganera Bioscience, ILEX Oncology, IntroGene, Managed
Healthcare Associates, Scriptgen Pharmaceuticals and Vectis. Dr. Fisherman is
currently a Partner at Advent International Corp., one of the world's largest
private equity investment firms, where he concentrates on investments in the
biotechnology, pharmaceutical and health care information and service sectors.
Prior to joining Advent in March of 1994, Dr. Fisherman served as Senior
Director of Medical Research for Enzon, Inc. from 1991 to 1994. Dr. Fisherman
received a B.A. in Molecular Biophysics and Biochemistry from Yale University,
a M.D. from the University of Pennsylvania and a M.B.A. from the Wharton
Graduate School of Business.
David D. Richards has served as a director on the board of Physicians'
Online since February 1998, and prior to that from 1994 to 1995. Mr. Richards
also currently serves as the Chairman of the Board of Directors and the Chief
Executive Officer of Physicians' Online. Mr. Richards was a Vice President of
Landmark Communications from June 1997 to April 1998 as well as from June 1993
to May 1995 where he was responsible for new media investments at this
privately held media and communications company. From 1995 to 1997, Mr.
Richards served as the Chief Executive Officer and President of InfiNet, an
Internet services company providing a broad array of Internet Service Provider,
hosting and software development for United States based media companies. While
at InfiNet, Mr. Richards focused on developing the strategic direction of the
company and overseeing its execution. Mr. Richards received a B.A. in Political
Science from Williams College and a M.B.A. from the Darden Graduate School of
Business at the University of Virginia .
Board of Directors and Committees
Our by-laws provide for not less than one and not more than six directors.
We currently have five directors. Directors are elected by the stockholders and
all directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. In accordance with
the merger agreement, we will increase the size of the board to ten and appoint
Messrs. Bierman, Burnham, Fisherman and Richards, who have been designated by
certain principal stockholders of Physicians' Online, to fill the resulting
vacancies.
The Audit Committee of the board of directors was established in October
1998, and reviews, acts on and reports to the board of directors with respect
to various auditing and accounting matters, including the recommendation of our
independent auditors, the scope of annual audits, fees to be paid to the
independent auditors, the performance of our independent auditors and our
accounting practices. The current members of our Audit Committee are Messrs.
Guld and Buchanan.
The Compensation Committee of the board of directors was established in
October 1998 and determines the salaries and benefits for our employees,
consultants, directors and other individuals we compensate. The Compensation
Committee also administers our compensation plans. The current members of the
Compensation Committee are Messrs. Guld and Treacy.
The Nominating Committee of the board of directors was established on
January 15, 1999, and recommends individuals for director positions. The
members of the Nominating Committee are Messrs. Jennings, Sutcliffe and Treacy.
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Director Compensation
Our directors do not receive any fees for their services as directors. Each
director, however, is reimbursed for all reasonable and necessary costs and
expenses incurred as a result of being a director, such as expenses incurred
for attendance at meetings of the board of directors.
In November 1998, we entered into a services agreement with Treacy & Co., an
entity of which Michael Treacy, one of our directors, is a principal, under
which we received various services from Treacy & Co. in consideration of the
grant of options to acquire 2,000,000 shares of our common stock at an exercise
price of $0.003 per share. All of the options have vested and expire on
November 16, 2003. The services provided included marketing, sales and client
services advice, strategic planning and seconding Mr. Michael Swanson, then a
principal of Treacy & Co., to act in the capacity of our Vice President, Sales.
We have no obligation to grant additional options to Treacy & Co.
In addition, on October 31, 1998, John Buchanan and Barry Guld each received
options to purchase 100,000 shares of our common stock at an exercise price of
$1.50 per share, which vest at a rate of 5,000 shares per month beginning on
October 30, 1998 for their services on the board of directors.
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee currently consists of Messrs. Treacy and Guld.
None of the members of the Compensation Committee has been an officer or
employee of Mediconsult at any time since its inception. None of our executive
officers or employees serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or Compensation Committee. Prior
to the formation of the Compensation Committee, the board of directors as a
whole made decisions relating to compensation of our executive officers. Mr.
Jennings did not receive a salary from us in 1998, but he is now entitled to
receive a salary pursuant to his employment agreement, which became effective
as of January 1, 1999. Mr. Jennings has not participated in board discussions
regarding his own compensation.
Employment Agreements
Robert Jennings, Ian Sutcliffe, David Austin and Debora Falk each has an
employment agreement with Mediconsult or one of our subsidiaries. Each
agreement is effective as of January 1, 1999, and expires on December 31, 2001,
and will be automatically renewed for 12 month periods after that date unless
either party gives the other written notice of termination at least three
months prior to the expiration of the initial or any subsequent term. The
annual salary for each of these executives is as follows: Robert Jennings,
$275,000; Ian Sutcliffe, $240,000; David Austin, $198,000 CDN; and Debora Falk,
$198,000 CDN. In addition, David Austin has received options to purchase
100,000 shares of our common stock, 10,000 of which have vested upon the
signing of his agreement and 8,000 vest each month beginning February 1, 1999
and ending November 1, 1999. Mr. Austin is entitled to receive a cash
equivalent of 12% of his base salary until he joins the applicable employee
benefit plans and programs. Also, each of these executives is entitled to
participate in a team-based performance bonus plan, with awards based upon
predetermined deliverables being developed by Mediconsult and may receive
options to purchase shares of our common stock in the future. The employment
agreements can be terminated upon delivery of written notice from us, with or
without cause. Upon termination without cause, Robert Jennings, Ian Sutcliffe,
David Austin and Debora Falk are each entitled to 12 months salary and any
bonus earned in the preceding 12 months.
E. Michael Ingram has an employment agreement with Mediconsult, effective as
of April 1, 1999 and expiring on March 31, 2003. This agreement will be
automatically renewed for 12 month periods after that date unless either party
gives the other written notice of termination at least three months prior to
the expiration of the initial or any subsequent term. The annual salary for Mr.
Ingram is $200,000. In addition, Mr. Ingram is entitled to a non-accountable
expense allowance of $50,000 per year for the first two years, Mr. Ingram
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received options to purchase 200,000 shares of our common stock at an exercise
price of $13.00 per share. Mr. Ingram's options vest at the rate of 50,000
option shares per year beginning on the first anniversary of the date of grant.
Upon termination without cause, Mr. Ingram is entitled to 12 months salary and
any bonus earned in the preceding 12 months, except that upon termination by
Mediconsult without cause or by Mr. Ingram for good reason within 12 months
after a change of control of Mediconsult, Mr. Ingram is entitled to 24 months
salary and any bonus earned in the preceding 24 months.
Each of the executives with an employment agreement has agreed not to
compete or solicit clients or other employees during their severance period.
Each of the executives is also bound by a nondisclosure and invention
assignment agreement, which prohibits such executive from, among other things,
disseminating or using confidential information about our business or clients
in any way that would be adverse to Mediconsult.
The employment arrangements of David D. Richards, Chairman and Chief
Executive Officer of Physicians' Online, are described on page of this joint
Information/Proxy Statement/Prospectus. See "The Merger--Interests of Executive
Officers and Directors of Physicians' Online in the Merger." The employment
arrangements of Timothy J. McIntyre, the President of Pharma, the marketing
division of Mediconsult, are described on page 97 of this joint
Information/Proxy Statement/Prospectus. See "Certain Transactions."
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our most highly compensated executive
officers, other than the Chief Executive Officer (the "Named Executive
Officers") whose total annual salary and bonus exceeded $100,000 for the years
ended December 31, 1998, 1997 and 1996 for services rendered in all capacities
in these years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------- ------------
Securities
Underlying All Other
Name and Position Year Salary Bonus Options (#) Compensation
- ----------------- ---- -------- ------ ------------ ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Robert A. Jennings ......... 1998 $ -- $ -- -- $ --
Chief Executive Officer 1997 -- -- -- --
1996 55,000 -- 790,000 --
Ian Sutcliffe............... 1998 240,000 -- -- $ --
President 1997 240,000 -- -- --
1996 120,000 -- 250,000 --
Debora A. Falk.............. 1998 100,200 -- 48,000 $ --
Vice President, Client
Services 1997 100,200 -- 96,000 --
1996 25,050 5,400 --
</TABLE>
Option Grants in the Last Fiscal Year
The Named Executive Officers did not receive any option grants during the
year ended December 31, 1998.
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<PAGE>
Option Exercises and Year-End Holdings
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers at
December 31, 1998.
Aggregated Option Exercises in the Year Ended December 31, 1998 and Year-End
Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year End Fiscal Year End (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert A. Jennings.......... -- -- $ -- $ --
Ian Sutcliffe............... -- -- -- --
Debora A. Falk.............. 96,000 -- 781,440 --
</TABLE>
- --------
(1) Options are In-the-Money if the market value of the shares covered thereby
is greater than the option exercise price. This calculation is based on the
fair market value of the common stock at December 31, 1998, of $8.19 per
share, less the exercise price.
Mediconsult's Stock Option Plans
Please see "Certain Actions taken by the Mediconsult Controlling
Stockholders--Description of the Plan" for a description of the Mediconsult
stock option plans.
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CERTAIN TRANSACTIONS
Recently, The Mediconsult Trust, which has been our majority stockholder and
is controlled by Robert Jennings, our Chairman and Chief Executive Officer,
transferred its interest in Mediconsult to JHC Limited, a Bermuda corporation
also controlled by Mr. Jennings. As a result, JHC Limited now is our majority
stockholder. The Mediconsult Trust has from time to time advanced funds to
Mediconsult on an interest-free basis. On September 30, 1998, the board of
directors approved the conversion of these advances to us up to that date into
shares of junior preferred stock with a $10 liquidation preference. In
connection with this conversion, we amended our certificate of incorporation to
provide, among other things, that the outstanding junior preferred stock will
be automatically converted into 8.33 shares of common stock, subject to
adjustment, upon the occurrence of a "Conversion Event." Mediconsult's public
offering in April 1999 was a Conversion Event and the shares of junior
preferred stock then outstanding were converted into 3,732,752 shares of common
stock, including shares of junior preferred stock issuable in respect of
dividends accruing since September 30, 1998. Since September 30, 1998, The
Mediconsult Trust advanced an additional $713,000 to Mediconsult as an interest
free loan. Of this amount approximately $200,000 was repaid from the proceeds
of the private placement of senior preferred stock referred to below and the
balance was repaid from the proceeds of Mediconsult's public offering in April
of 1999.
We are a party to a strategic consulting interim agreement dated November
16, 1998, with Treacy & Co. and The Mediconsult Trust. The agreement provides
that in consideration for consulting services rendered by Treacy & Co. to
Mediconsult in connection with marketing, sales and client services advice,
strategic planning and the seconding of Mr. Swanson to act in the capacity of
our Vice President, Sales, we granted Treacy & Co. immediately exercisable
options to purchase 2,000,000 shares of common stock, at an exercise price of
$0.003 per share, which expire on November 16, 2003. The agreement gives Treacy
& Co. registration rights in the event of a public offering. Treacy & Co.'s
registration rights were waived in connection with Mediconsult's public
offering in April of 1999.
We granted options to purchase 100,000 shares of common stock to Messrs.
Guld and Buchanan on October 31, 1998 for their services on our board of
directors.
On February 26, 1999, we sold in a private placement an aggregate of 506,329
shares of our newly designated senior preferred stock and warrants exercisable
for five years to purchase 224,000 shares of senior preferred stock to Nazem &
Company IV, L.P., Transatlantic Venture Fund C.V. (a joint venture of Nazem &
Company and Banque Nationale de Paris) and other individual investors, for an
aggregate of $3.2 million. The purchase price and the conversion price of the
senior preferred stock was, and exercise price of the warrants is, $6.32 per
share, an amount equal to 85% of the average bid and ask price of our shares on
the OTC Bulletin Board for the relevant 30-day period preceding the closing.
The shares of senior preferred stock were automatically converted into an equal
number of shares of common stock upon closing our public offering in April of
this year. The former holders of the senior preferred stock have the right to
nominate a member of our board of directors so long as they maintain at least
50% of their original share position. In connection with the private placement,
we agreed to provide the holders of senior preferred stock and common stock
issuable upon the conversion of senior preferred stock demand and piggyback
registration rights, the right to tag-along with our founders in certain sales
of their shares. So long as the investors hold at least 50% of their original
share position, we agreed not to effect any material change in the direction of
our business unless approved by at least two-thirds of the board of directors
and then only after consultation with the investors.
We entered into a membership investment agreement, effective September 7,
1999, with Pharma Marketing, LLC, to purchase 35% of the aggregate membership
interests of Pharma for $1,250,000 and 200,000 shares of Mediconsult common
stock. Timothy J. McIntyre owns the remaining 65% of Pharma. We, together with
Mr. McIntyre, are the managing members of Pharma. Under the operating agreement
among Mediconsult, Pharma and Mr. McIntyre, the $1,250,000 that we contributed
to Pharma, and 100,000 of the 200,000 shares that we issued to Pharma, were
distributed to Mr. McIntyre in September 1999. In connection with our
investment in Pharma, we agreed to file a registration statement on Form S-3,
covering the sale of the 100,000 shares of common stock distributed to Mr.
McIntyre.
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Mediconsult.com, Limited, one of our subsidiaries, has entered into a
service agreement with Pharma. Under that agreement, Pharma agrees to provide
pharmaceutical sales and marketing services to Mediconsult.com, Limited and its
affiliates for an initial term ending December 31, 2003, renewable on a yearly
basis thereafter. Under the service agreement, Pharma is entitled to receive a
monthly retainer and commissions based on revenues generated under contracts
that Pharma assists in obtaining. The service agreement is terminable by
Mediconsult.com, Limited due to Pharma's nonperformance or the failure to have
certain minimum levels of contracts in place at agreed dates. If
Mediconsult.com, Limited terminates the service agreement for cause, it has the
right to purchase the shares that we initially issued to Pharma at a price
equal to the lower of the value of the stock as of September 7, 1999 and its
average trading value at the time of such termination. Certain payment
obligations of Pharma may continue following a termination of the service
agreement.
Pharma has entered into an employment agreement with Mr. McIntyre for an
initial term ending December 31, 2003, renewable on a yearly basis thereafter.
Under his employment agreement, Mr. McIntyre is principally responsible for
performing the services under Pharma's service agreement with Mediconsult.com,
Limited. Under his employment agreement, Mr. McIntyre is entitled to receive a
salary of $250,000 per year through December 31, 2000 and $350,000 per year
thereafter. Among other benefits, Mr. McIntyre is entitled to receive a non-
accountable expense allowance of $100,000 per year through September 7, 2001
and an amount equal to up to 100% of the commissions paid under the
Mediconsult.com, Limited agreement, with a minimum of $200,000 per year through
September 7, 2001. Pharma has the right to terminate the employment agreement
for cause, for the failure to have a minimum level of contracts in place under
the Mediconsult.com, Limited service agreement or without cause. Depending on
the grounds on which his employment is terminated, Mr. McIntyre has the right
to receive certain ongoing payments from Pharma.
Subject to certain conditions, Pharma is obligated to distribute to Mr.
McIntyre, in four equal, annual installments (beginning September 7, 2000) the
remaining 100,000 shares that we issued to Pharma. This distribution is subject
to acceleration based on financial performance. Pharma has paid Mr. McIntyre
approximately $405,000 to cover certain taxes payable by him with respect to
the cash and stock distributions made to him in September 1999 and is required
to pay up to an additional $300,000 to cover future taxes with respect to
future distributions of shares. Under the Pharma operating agreement, we
guaranteed the payment by Pharma of these and other amounts, including Pharma's
obligations under its employment agreement with Mr. McIntyre. Subject to
certain conditions described in the operating agreement, the members of Pharma,
other than Mediconsult, have the right to put their Pharma membership interests
to us in exchange for shares of our common stock, at a price per share ranging
from the trading value of our shares at September 7, 1999 to $25.
Pharma also has entered into an employment agreement with James McIntyre,
the brother of Mr. McIntyre, for an initial term ending December 31, 2001,
renewable thereafter on an annual basis. Under his employment agreement, James
McIntyre received a signing bonus of $30,000 and has the right to receive a
salary of $150,000 per year. In addition to other benefits, he is entitled to
receive a non-accountable expense allowance of $15,000 per year plus certain
bonuses. We have guaranteed the payment of Pharma's obligations to James
McIntyre under his employment agreement (other than the payment of certain
bonuses).
In connection with the Physicians' Online merger, we expect Mr. McIntyre to
sign an affiliates agreement pursuant to which he will agree not to sell,
transfer or otherwise dispose of his shares (including those being registered)
until at least 30 days after we publish the combined results of operations of
Physicians' Online and Mediconsult.
During the three months ended September 30, 1999, an employee repaid an
advance of $32,550 made in June 1999 to fund the purchase of shares under our
stock option plan.
During the three months ended September 30, 1999, we paid or accrued sales
and marketing expenses of $425,697 in respect of Pharma Marketing, LLC, and
advanced $10,096,438 to Physicians' Online, Inc.
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SECURITY OWNERSHIP OF MANAGEMENT OF MEDICONSULT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of November 17, 1999 by (1) each
person (or group of affiliated persons) who we know to beneficially own 5% or
more of our common stock, (2) each of our directors and executive officers and
(3) all of our directors and executive officers as a group. Unless otherwise
indicated below, to our knowledge, all persons listed below have sole voting
and investment power with respect to their shares. Unless otherwise indicated
below, to our knowledge, all persons listed below have sole voting and
investment power with respect to their shares.
<TABLE>
<CAPTION>
Percent Beneficial
Name and Address of Beneficial Owner (1) Shares Ownership (2)
---------------------------------------- ---------- ------------------
<S> <C> <C>
Robert A. Jennings(3)..................... 13,097,752 45.3%
Michael E. F. Treacy(4)................... 2,000,000 6.9
Michel Bazinet............................ 775,000 2.68
Ian Sutcliffe............................. 250,000 *
Timothy J. McIntyre(5).................... 200,000 *
David J. Austin(6)........................ 100,000 *
Debora A. Falk(7)......................... 96,000 *
John Buchanan(8).......................... 70,000 *
Barry Guld(9)............................. 70,000 *
David M. Haselwood........................ -- --
E. Michael Ingram......................... -- --
JHC Limited(10)........................... 12,307,752 42.53
All Directors and Officers as a group (11
persons)................................. 17,017,085 58.80
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Under the rules of the SEC, a person is deemed to be the beneficial owner
of a security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. Unless otherwise indicated, the
address for each person listed in the table is in the care of
Mediconsult.com, Inc., 1330 Avenue of the Americas, New York, New York
10019.
(2) Applicable percentage of ownership is based on 28,940,665 shares
outstanding prior to the issuance of shares in connection with the merger.
(3) Includes 12,307,752 shares owned by JHC Limited and 790,000 shares owned
by Mr. Jennings. Mr. Jennings controls JHC Limited.
(4) Includes 2,000,000 shares of common stock issuable upon the exercise of a
currently exercisable option granted to Treacy & Co., LLC, of which Mr.
Treacy is a principal, on November 16, 1998, with an exercise price of
$0.003 per share.
(5) Includes 100,000 shares owned by Pharma Marketing, LLC, which is
controlled by Mr. McIntyre.
(6) Represents currently exercisable options and options which vest within 60
days at an exercise price of $3.50 per share.
(7) Represents currently exercisable options at an exercise price of $0.05 per
share.
(8) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share.
(9) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share.
(10) Mr. Jennings controls JHC Limited, a Bermuda company.
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SECURITY OWNERSHIP OF MANAGEMENT
OF MEDICONSULT AFTER THE MERGER
The following table sets forth certain pro forma information as to the
number of shares of Mediconsult common stock that will be beneficially owned by
(i) each person that beneficially owns more than 5% of the outstanding shares
of Mediconsult common stock (ii) each director and executive officer of
Mediconsult and (iii) Mediconsult executive officers and directors as a group
assuming the merger had been consummated on November 1, 1999. Except as
indicated by the notes to the following table, the holders listed below will
have sole voting power and investment power over the shares beneficially held
by them.
<TABLE>
<CAPTION>
Percent Beneficial
Name and Address of Beneficial Owner (1) Shares Ownership (2)
---------------------------------------- ---------- ------------------
<S> <C> <C>
Robert A. Jennings(3)..................... 13,097,752 27.9%
Michael E. F. Treacy(4)................... 2,000,000 4.25
Michel Bazinet............................ 775,000 1.6
Ian Sutcliffe............................. 250,000 *
Timothy J. McIntyre(5).................... 200,000 *
David J. Austin(6)........................ 100,000 *
Debora A. Falk(7)......................... 96,000 *
John Buchanan(8).......................... 70,000 *
Barry Guld(9)............................. 70,000 *
James L. Bierman.......................... -- --
R. Bradford Burnham....................... -- --
Jason S. Fisherman........................ -- --
David M. Haselwood........................ -- --
E. Michael Ingram......................... -- --
David D. Richards(10)..................... 324,000 *
JHC Limited(11)........................... 12,307,752 26.2
All Directors and Officers as a group (15
persons)................................. 17,341,085 36.9
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Under the rules of the SEC, a person is deemed to be the beneficial owner
of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial
owner of any securities if that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person
may be deemed to be a beneficial owner of the same securities. Unless
otherwise indicated, the address for each person listed in the table is
in the care of Mediconsult.com, Inc., 1330 Avenue of the Americas, New
York, New York 10019.
(2) Applicable percentage of ownership is based on an estimated 46,989,332
shares outstanding after the issuance of stock in connection of the
merger. This estimate is based on an average closing price of $6.825,
estimated transaction expenses of $2.4 million and an aggregate exercise
price of unexercised options of $1.3 million.
(3) Includes 12,307,752 shares owned by JHC Limited and 790,000 shares owned
by Mr. Jennings. Mr. Jennings controls JHC Limited.
(4) Includes 2,000,000 shares of common stock issuable upon the exercise of a
currently exercisable option granted to Treacy & Co., LLC, of which Mr.
Treacy is a principal, on November 16, 1998.
(5) Includes 100,000 shares owned by Pharma Marketing, LLC, which is
controlled by Mr. McIntyre.
(6) Represents currently exercisable options and options which vest within 60
days at an exercise price of $3.50 per share.
(7) Represents currently exercisable options at an exercise price of $0.05
per share.
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(8) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share.
(9) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share.
(10) Mr. Richards has the option to purchase 300,000 shares of common stock of
Physicians' Online, of which 135,000 shares are currently vested,
convertible into approximately 324,000 shares of Mediconsult common stock
after the merger. This estimate is based on an estimated conversion ratio
of 2.4 shares of Mediconsult common stock for each share of Physicians'
Online common stock.
(11) Mr. Jennings controls JHC Limited, a Bermuda company.
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DESCRIPTION OF MEDICONSULT CAPITAL STOCK
The following summary description of our capital stock does not purport to
be complete and is subject to the provisions of our certificate and by-laws,
and applicable law.
We are authorized to issue capital stock of 100,000,000 shares of common
stock, $0.001 par value per share (after giving effect to the charter amendment
approved by the Mediconsult controlling stockholders), and 5,000,000 shares of
preferred stock with $0.001 par value per share. We have designated 1,000,000
shares of this as junior preferred stock and 1,000,000 shares as senior
preferred stock. As of November 17, 1999 there were 28,940,665 shares of common
stock issued and outstanding and no shares of preferred stock outstanding.
After the issuance of the Mediconsult common stock in connection with the
merger, there will be approximately 46,989,332 shares of common stock
outstanding. This estimate is based on and average closing price of $6.825,
estimated transaction expenses of approximately $2.4 million and an aggregate
exercise price of unexercised options of approximately $1.3 million. In
addition, as of November 17, 1999, 716,000 shares of common stock will be
issuable upon exercise of outstanding options at that time pursuant to the 1996
plan, an aggregate of 624,000 shares will be issuable upon the exercise of
warrants outstanding, an aggregate of 2,000,000 shares of common stock will be
issuable upon exercise of options held by Michael Treacy, and approximately
2,011,570 shares of common stock will be issuable to former Physicians' Online
option holders under the Physicians' Online Stock Option Plan, as assumed by
Mediconsult. Under the merger agreement, Mediconsult has agreed to file a
registration statement on Form S-8 to cover the shares issued to former
Physicians' Online option holders. In addition, on October 27, 1999 we issued
200,000 shares of common stock in connection with the acquisition of Mood
Sciences. The 200,000 shares is subject to increase by 15,000 shares based upon
the closing price of our common stock for the 20 trading days ending February
1, 2000.
Common Stock
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders and they do not have cumulative voting
rights. Accordingly, holders of a majority of the shares voting for the
election of directors can elect all of the directors. In such an event, the
holders of the remaining shares of common stock will not be able to elect any
directors. Holders of the common stock are entitled to receive such dividends
as may be declared from time to time by the board of directors out of funds
legally available for that purpose. We have never declared or paid cash
dividends on our capital stock and expect to retain future earnings, if any,
for use in the operation and expansion of our business, and do not anticipate
paying any cash dividends in the foreseeable future. In the event of the
liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets legally available for distribution
after payment of all debts and other liabilities and subject to the prior
rights of any holders of preferred stock then outstanding.
Preferred Stock
The board of directors is authorized to issue the preferred stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights (into common stock or other preferred stock), voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by our stockholders. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of Mediconsult without further action by the
stockholders and may adversely affect the market price of, and the voting and
other rights of, the holders of shares of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. We have no current plans to issue any shares of preferred
stock.
Warrants
We have issued warrants to purchase an aggregate of 224,000 shares of senior
preferred stock in connection with the private placement by Mediconsult of $3.2
million of senior preferred stock. Each of these
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warrants entitles the registered holder to purchase one share of senior
preferred stock or common stock issuable upon conversion of senior preferred
stock at a purchase price of $6.32 per share, at any time prior to March 1,
2004. The warrants may be exercised by payment of the purchase price in cash,
by cancellation of indebtedness and/or delivery of shares of our common stock,
and the holders have the right to make a net issue election. The exercise price
and number and kind of shares or other securities and property issuable upon
exercise of these warrants are subject to adjustment upon a stock split, stock
dividend or subdivision. In addition, an adjustment will be made upon the sale
of all or substantially all of our assets in order to enable holders of these
warrants to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable in such event by a holder of the number
of shares of common stock that might otherwise have been purchased upon
exercise of the warrants. The warrants do not confer upon the holder any voting
or any other right of a stockholder. The holders of the warrants have
registration rights described below.
In addition, we also have outstanding warrants to purchase 400,000 shares of
common stock at an exercise price of $1.22 per share, which were issued to
Arnhold and S. Bleichroeder, Inc. in consideration of investment advisory
services. These warrants have been delivered or are being held in escrow and
are deliverable in tranches, as follows: 200,000 upon initial filing of
Mediconsult's secondary offering prospectus in April of this year; 100,000 on
March 15, 2000; and 100,000 on September 15, 2000. The delivery of the
remaining 200,000 warrants is subject to the continued performance of financial
advisory services for us by a particular individual on behalf of this firm.
These warrants, which expire on March 1, 2004, have net issue election and
anti-dilution provisions comparable to the senior preferred stock warrants, and
registration rights described below. These warrants do not confer upon the
holder any voting or any other right of a stockholder.
Registration Rights
Pursuant to a consulting agreement dated November 16, 1998 between
Mediconsult and Treacy & Co., Treacy & Co. is entitled to require us to
register the shares of our common stock it owns at any time. Treacy & Co.'s
registration rights are subject to customary restrictions and limitations.
Treacy & Co. waived its registration rights in connection with Mediconsult's
public offering in April.
In connection with an agreement we have with Arnhold and S. Bleichroeder,
Inc. (ASB) to provide investment advisory services, we have agreed that ASB
shall have piggyback registration rights with respect to the 100,000 shares it
owns and any shares issuable upon the exercise of warrants issued to ASB.
Pursuant to this agreement, ASB has been issued warrants for an aggregate of
400,000 shares, exercisable at $1.22 per share. We agreed to include 100,000
shares owned by ASB in Mediconsult's public offering in partial satisfaction of
our registration obligation under such agreement, and have also agreed to
piggyback registration for all other shares and warrant shares owned by ASB.
Pursuant to a registration rights agreement, the owners of 506,329 shares
common stock and 224,000 warrants to purchase senior preferred stock have the
right to demand that we register their common stock and the commons stock
issuable upon the conversion of the senior preferred stock on two occasions
(or, subject to certain limitations, up to two registration statements per year
on Form S-3) at any time until October 15, 1999, and provided that the shares
requested to be registered have a minimum anticipated aggregate gross offering
price of at least $5.0 million. In addition, these holders have piggyback
registration rights. Notwithstanding the foregoing, the demand registration
rights of each stockholder will terminate at such time as such holder may sell
immediately all shares issuable to such holder upon the conversion of the
senior preferred stock under Rule 144 without limitation as to volume. We will
bear the expense of the registration of the shares, except any underwriting
discounts and commissions.
The CyberDiet stockholders are entitled to have up to the greater of 65,000
shares or shares with an expected offering price of $1 million registered
pursuant to a registration statement to be filed by Mediconsult after the
effective date of the registration statement of which this prospectus forms a
part. The Cyberdiet stockholders are entitled to additional piggyback and
limited demand registration rights. We will bear the expense of the
registration of these shares, except any underwriting discounts and
commissions.
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In connection with our investment in Pharma, we are obligated to file a
registration statement on Form S-3, covering the sale of the 100,000 shares of
common stock distributed to Mr. McIntyre. In addition, in connection with the
merger, we expect Mr. McIntyre to sign an affiliate agreement pursuant to which
he will agree not to sell, transfer or otherwise dispose of his shares until at
least 30 days after we publish the combined results of operations of
Physicians' Online and Mediconsult.
The exercise of these registration rights may hinder our efforts to arrange
future financings, and may have an adverse effect on our market price.
Anti-takeover Effects of Provisions of By-laws
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the president, the board of directors, the holders of not
less than one-tenth of all shares entitled to vote at the meeting or legal
counsel of the corporation as last designated by resolution of the board of
directors, the Chairman of the board of directors or our Chief Executive
Officer.
Limitation of Liability and Indemnification Matters
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (1) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for acts in violation
of Section 174 of the DGCL, or (4) for any transaction from which the director
derived an improper personal benefit pursuant to section 102(b)(7) of the DGCL.
The DGCL provides further that the indemnification permitted thereunder shall
not be deemed exclusive of any other rights to which the directors and officers
may be entitled under a corporation's by-laws, any agreement, a vote of
stockholders or otherwise. The certificate of incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the DGCL and provides that we may fully indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that such person is or
was our director or officer or is or was serving at our request as a director
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate. We are not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
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APPRAISAL RIGHTS
Rights of Dissenting Stockholders of Physicians' Online
If the merger is consummated, a holder of record of Physicians' Online stock
on the date of making a demand for appraisal, as described below, who (1)
continues to hold those shares through the time of the merger; (2) strictly
complies with the procedures set forth under Section 262 of the DGCL; and (3)
has not voted in favor of the merger will be entitled to have those shares
appraised by the Delaware General Court of Chancery under Section 262 of the
DGCL and to receive payment for the "fair value" of these shares in lieu of the
consideration provided for in the merger agreement. This joint
Information/Proxy Statement/Prospectus is being sent to all holders of record
of Physicians' Online stock on the record date for the Physicians' Online
special meeting and constitutes notice of the appraisal rights available to
those holders under Section 262. The statutory right of appraisal granted by
Section 262 requires strict compliance with the procedures set forth in Section
262. Failure to follow any of such procedures may result in a termination or
waiver of dissenters' rights under Section 262. The following is a summary of
the principal provisions of Section 262. The following summary is not a
complete statement of Section 262 of the DGCL, and is qualified in its entirety
by reference to Section 262 which is incorporated herein by reference, together
with any amendments to the laws that may be adopted after the date of this
joint Information/Proxy Statement/Prospectus. A copy of Section 262 is attached
as Annex C to this joint Information/Proxy Statement/Prospectus.
A holder of Physicians' Online stock electing to exercise appraisal rights
under Section 262 must deliver a written demand for appraisal of such
stockholder's shares of Physicians' Online prior to the vote on the merger. The
written demand must identify the stockholder of record and state the
stockholder's intention to demand appraisal of his or her shares. All demands
should be delivered to Physicians' Online, Attention: David Richards, Chief
Executive Officer, 560 White Plains Road, Tarrytown, New York 10591.
Only a holder of shares of Physicians' Online stock on the date of making a
written demand for appraisal who continuously holds those shares through the
time of the merger is entitled to seek appraisal. Demand for appraisal must be
executed by or for the holder of record, fully and correctly, as that holder's
name appears on the holder's stock certificates representing shares of
Physicians' Online stock. If Physicians' Online stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, the demand
should be made in that capacity, and if Physicians' Online stock is owned of
record or more than one person, as in a joint tenancy or tenancy in common, the
demand should be made by or for all owners of record. An authorized agent,
including one or more joint owners, may execute the demand for appraisal for a
holder of record; that agent, however, must identify the record owner or owners
and expressly disclose in the demand that the agent is acting as agent for the
record owner or owners of the shares.
A record holder such as a broker who holds shares of Physicians' Online
stock as a nominee for beneficial owners, some of whom desire to demand
appraisal, must exercise appraisal rights on behalf of those beneficial owners
with respect to the shares of Physicians' Online stock, held for those
beneficial owners. In that case, the written demand for appraisal should set
forth the number of shares of Physicians' Online stock covered by it. Unless a
demand for appraisal specifies a number of shares, the demand will be presumed
to cover all shares of Physicians' Online stock held in the name of the record
owner.
Beneficial owners who are not record owners and who intend to exercise
appraisal rights should instruct the record owner to comply with the statutory
requirements with respect to the exercise of appraisal rights before the date
of the Physicians' Online special meeting.
Within ten days after the time of the merger, the surviving corporation is
required to send notice of the effectiveness of the merger to each stockholder
who prior to the time of the merger complies with the requirements of Section
262.
Within 120 days after the time of the merger, the surviving corporation or
any stockholder who has complied with the requirements of Section 262 may file
a petition in the Delaware Court of Chancery
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demanding a determination of the fair value of the shares of Physicians' Online
stock held by all stockholders seeking appraisal. A dissenting stockholder must
serve a copy of the petition on the surviving corporation. If no petition is
filed by either the surviving corporation or any dissenting stockholder within
the 120-day period, the rights of all dissenting stockholders to appraisal will
cease. Stockholders seeking to exercise appraisal rights should not assume that
the surviving corporation will file a petition with respect to the appraisal of
the fair value of their shares or that the surviving corporation will initiate
any negotiations with respect to the fair value of those shares. The surviving
corporation is under no obligation to and has no present intention to take any
action in this regard. Accordingly, stockholders who wish to seek appraisal of
their shares should initiate all necessary action with respect to the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. Failure to file the petition on a timely basis will
cause the stockholder's right to an appraisal to cease.
Within 120 days after the time of the merger, any stockholder who has
complied with subsections (a) and (d) of Section 262 is entitled, upon written
request, to receive from the surviving corporation a statement setting forth
the aggregate number of shares of Physicians' Online stock not voted in favor
of the merger with respect to which demands for appraisal have been received by
Physicians' Online and the number of holders of those shares. The statement
must be mailed within 10 days after the written request has been received by
Physicians' Online or within ten days after expiration of the time for delivery
of demands for appraisal under subsection (d) of Section 262, whichever is
later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
Physicians' Online stock owned by those stockholders, determining the fair
value of those shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, to be paid, if any, upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more than, the same
as, or less than, the value of the consideration provided for in the merger
agreement without the exercise of appraisal rights. The cost of the appraisal
proceeding may be determined by the Court of Chancery and assessed against the
parties as the Court deems equitable in the circumstances. Upon application of
a dissenting stockholder, the Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding (including, without limitation, reasonable attorney's fees
and the fees and expenses of experts) be charged pro rata against the value of
all shares of Physicians' Online stock entitled to appraisal. In the absence of
such a determination or assessment, each party bears its own expenses.
Any stockholder who has demanded appraisal in compliance with Section 262
will not, after the time of the merger, be entitled to vote such stock for any
purpose or receive payment of dividends or other distributions, if any, on the
Physicians' Online stock, except for dividends or distributions, if any,
payable to stockholders of record at a date prior to the merger.
A stockholder may withdraw a demand for appraisal and accept the Mediconsult
common stock at any time within 60 days after the time of the merger, or
thereafter may withdraw such a demand with the written approval of the
surviving corporation. If an appraisal proceeding is properly instituted, such
proceeding may not be dismissed as to any stockholder without the approval of
the Delaware Court of Chancery, and any such approval may be conditioned on the
Court of Chancery's deeming the terms to be just. If, after the merger, a
holder of Physicians' Online stock who had demanded appraisal for the holder's
shares fails to perfect or loses his right to appraisal, those shares will be
treated under the merger agreement as if they had been converted as of the time
of the merger into Mediconsult common stock.
In view of the complexity of these provisions of the Delaware corporate law,
any Physicians' Online stockholder who is considering exercising appraisal
rights should consult a legal advisor.
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COMPARISON OF STOCKHOLDER RIGHTS
General
Both Mediconsult and Physicians' Online are corporations organized under the
laws of Delaware and are therefore subject to the DGCL. However, there are
differences in the charters and by-laws of Mediconsult and Physicians' Online.
Capitalization
Mediconsult. Mediconsult is authorized to issue 50,000,000 shares of
common stock and 1,000,000 shares of junior preferred stock On November 17,
1999, 28,940,665 shares of Mediconsult common stock were issued and outstanding
and no shares of preferred stock were issued and outstanding. Mediconsult's
board has the authority, without stockholder approval, to issue shares of
authorized preferred stock from time to time in one or more series and to fix
the rights and preferences, including voting rights, of each series of
preferred stock, which rights and preferences may be superior to that of
Mediconsult common stock.
Physicians' Online. Physicians' Online is authorized to issue 7,350,000
shares of common stock and 3,978,690 shares of preferred stock, of which
722,850 shares are designated series A convertible preferred stock, 488,932
shares are designated series B convertible preferred stock, 1,433,408 are
designated series C convertible preferred stock, 623,500 are designated series
D preferred stock and 750,000 shares are designated series E convertible
preferred stock. On November 19, 1999 1,880,795 shares of Physicians' Online
common stock were issued and outstanding, all authorized shares of Series A, B,
C and D are issued and outstanding and no shares of Series E convertible
preferred stock are issued or outstanding. Physicians' Online's board has the
authority, without stockholder approval, to issue shares of Series E
convertible preferred stock from time to time and to fix the rights,
preferences, privileges and restrictions, which rights and preferences may be
superior to that of Physicians' Online common stock.
Voting Rights
Mediconsult. Each holder of Mediconsult common stock is entitled to one
vote for each share and may not cumulate votes for the election of directors.
Except as otherwise provided in the Mediconsult charter or by-laws, the holders
of Mediconsult preferred stock and Mediconsult common stock vote together as a
single class on all matters voted on by the Mediconsult stockholders.
Physicians' Online. Each holder of Physicians' Online common stock is
entitled to one vote for each share and may not cumulate votes for the election
of directors. The Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock are entitled to the number of
shares of common stock into which each series is then convertible. Except as
otherwise provided in the Physicians' Online charter or by-laws or as required
by law, the holders of Physicians' Online preferred stock and common stock vote
together as a single class on all matters voted on by the Physicians' Online
stockholders.
Number and Classification of Directors
Mediconsult. Mediconsult's by-laws, as amended in connection with the
merger, provide that the number of directors may not be less than one nor more
than ten. Directors do not need to be stockholders of Mediconsult nor Delaware
residents. A single class of directors is elected at the annual meeting of
stockholders (or any adjournment thereof) and hold office until the next annual
meeting of stockholders and until their successors are elected and qualified.
The board of directors may increase or decrease the number of directors by
resolution. In addition, Mediconsult agreed to appoint to its board of
directors, as of the effective time of the Merger, four Physicians' Online
nominees. At the Mediconsult 2000 annual meeting, the directors of Mediconsult
have agreed to nominate and recommend the election of one Physicians' Online
nominee for each 10 percent of common stock of Mediconsult then held by the
former Physicians' Online stockholders, not to exceed a total of four.
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Physicians' Online. The number of directors constituting the Physicians'
Online board is seven. Directors do not need to be stockholders. Each director
holds office until the next annual meeting of stockholders and until his
successor is elected and qualifies, provided, a director may resign at any
time.
Removal of Directors
Mediconsult. Mediconsult's by-laws provide that a director may be removed
from office at any time, with or without cause, in the manner provided in the
Delaware Corporation Law.
Physicians' Online. Physicians' Online's by-laws provide that a director
may be removed with or without cause at any time by the affirmative vote of
stockholders holding of record in the aggregate at least a majority of the
outstanding shares of stock of Physicians' Online.
Filling Vacancies on the Board of Directors
Mediconsult. Mediconsult's by-laws provide that a vacancy on the board of
directors may be filled by the affirmative vote of a majority of the remaining
directors even if less than a quorum. A director elected to fill a vacancy
serves the remainder of his predecessor's term and until his successor is
elected and qualified. A vacancy caused by an enlargement of the board may be
filled by the affirmative vote of the majority of the directors then in office,
an election at a general meeting, or at a special meeting of the stockholders
called for that purpose. A director chosen to fill such a position shall hold
office only until the next election of directors by the stockholders. In
connection with the merger, Mediconsult has agreed to increase the size of the
board to 10 and to fill the resulting vacancies with four Physicians' Online
nominees.
Physicians' Online. Physicians' Online's by-laws provide that a vacancy or
newly created directorship resulting from an increase in the authorized number
of directors on the board of directors may be filled by a majority of the
directors then in office or by a sole remaining director. A director elected to
fill a vacancy holds office until the next annual election of directors by the
stockholders and until his successor is duly elected and qualified.
Charter Amendments
Mediconsult. In accordance with Section 242 of the DGCL, after the board
of directors has adopted a resolution declaring the advisability of the
amendment, the Mediconsult charter may be amended by a vote of the majority of
the stockholders entitled to vote thereon, except any amendment to Article 11
of the Mediconsult charter, pertaining to the indemnification of officers and
directors of Mediconsult, requires a vote of two-third of the voting power of
Mediconsult.
Physicians' Online. In accordance with Section 242 of the DGCL, after the
board of directors has adopted a resolution declaring the advisability of the
amendment, the Physicians' Online charter may be amended by a vote of the
majority of the stockholders entitled to vote thereon.
Amendments to By-Laws
Mediconsult. Mediconsult's by-laws provide that the by-laws may be amended
by a majority of the Directors present at any meeting of the board of directors
at which a quorum is present. Under the DGCL, the stockholders also have the
power to amend Mediconsult's bylaws but the Mediconsult charter provides that
any amendment made to the by-laws by the stockholders requires the vote of at
least two-thirds of the total voting power.
Physicians' Online. The board of directors of Physicians' Online may amend
the by-laws of the corporation at any regular or special meeting of the board,
provided that paragraph (c) of section 3.3 and section 7.4(b) of the by-laws
may be altered only be action of the stockholders as provided for in the by-
laws.
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Any amendment of the by-laws adopted by action of the stockholders cannot be
amended by the board of directors. The by-laws of Physicians' Online may also
be amended by the vote of a majority in interest of the stockholders
represented and entitled to vote on the election of directors.
Action by Written Consent
Mediconsult. Mediconsult's charter provides that any action taken by the
stockholders may be taken by written consent in lieu of a meeting, without
prior notice or vote, of the number of holders necessary to authorize such
action.
Physicians' Online. Physicians' Online's by-laws provide that any action
taken by the stockholders may be taken by written consent in lieu of a meeting,
without prior notice or vote, of the number of holders necessary to authorize
such action.
Notice of Stockholder Actions
Mediconsult. Mediconsult's by-laws require written notice stating the place,
day and hour of any meeting no less than ten and no more than sixty days before
the date of the meeting. In the case of a special meeting, the purpose of such
meeting must also be stated.
Physicians' Online. Physicians' Online's by-laws require written notice
stating the place, day and hour of any meeting no less than ten and no more
than sixty days before the date of the meeting. In the case of a special
meeting, the purpose of such meeting must also be stated.
Right to Call Special Meeting of Stockholders
Mediconsult. Mediconsult's by-laws provide that special meetings of the
stockholders for any purpose may be called by the President, the board of
directors, holders of not less than one tenth of all the shares entitled to
vote at the meeting, or legal counsel as last designated by resolution of the
board of directors.
Physicians' Online. Physicians' Online's by-laws provide that special
meetings of the stockholders for any purpose may be called by the Chairman of
the board of directors, the President, the board of directors or by holders of
a majority of the issued and outstanding shares of common stock.
Limitation of Personal Liability of Directors
The DGCL, provides that a corporation's charter may include a provision
limiting the personal liability of a director to the corporation or its
stockholders for monetary damage for breach of fiduciary duty as a director.
However, no such provision can eliminate or limit the liability of a director
for:
. any breach of the director's duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
. willful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock; or
. any transaction from which the director devised an improper personal
benefit
Mediconsult. The Mediconsult charter provides that except to the extent that
the DGCL prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director shall be personally liable to
Mediconsult or its stockholders for monetary damages for any breach of
fiduciary duty as director, notwithstanding any provision of law imposing such
liability.
108
<PAGE>
Physicians' Online. The Physicians' Online charter provides that except to
the extent that the DGCL prohibits the elimination or limitation of liability
of directors for breaches of fiduciary duty, no director shall be personally
liable to Physicians' Online or its stockholders for monetary damages for any
breach of fiduciary duty as director, notwithstanding any provision of law
imposing such liability.
Dividends
Mediconsult. Mediconsult's by-laws provide that the board of directors may
declare dividends whenever, and in such amounts as the Board sees advisable.
Mediconsult's charter provides that dividends in cash, property or shares of
Mediconsult may be paid upon the preferred and common stock, as and when
declared by the board of directors, out of funds of Mediconsult to the extent
and in the manner permitted by law. If at any time it has outstanding more than
one class of shares, it may pay dividends on its shares to the holders of any
class of shares, without the vote of stockholders of the class in which the
payment is to be made.
Physicians' Online. Physicians' Online's by-laws provide that, subject to
provisions of the charter, the board of directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends on the
capital stock as and when the board deems expedient. Physicians' Online's
charter provides that the holders of shares of common stock of Physicians'
Online and Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock may be paid dividends if declared
by the board of directors. Dividends on the preferred stock will be paid prior
and in preference to any declaration or payment of any dividend on the common
stock.
Conversion and Redemption
Mediconsult. The Mediconsult charter give the board of directors "blank
check" power to issue preferred stock with such conversion and redemption
powers as it deems appropriate. Holders of Mediconsult common stock have no
right to convert their shares into any other shares of capital stock of
Mediconsult or any other securities. No shares of Mediconsult preferred stock
are currently outstanding.
Physicians' Online. Holders of Physicians' Online common stock have no right
to convert their shares into any other shares of capital stock of Physicians'
Online. Each share of series A, series B and series D preferred stock is
convertible, at the option of the holder, into one share of common stock. Each
share of Series C preferred stock is convertible, at the option of the holder,
into approximately 1.41 shares of common stock.
On the written consent of holders of 66 2/3% of the outstanding shares of a
series of preferred stock, each share of such series of preferred stock will be
automatically converted into shares of common stock based on the conversion
ratios set forth above.
At the election of the holders of at least 66 2/3% of the outstanding shares
of series C preferred stock and series D preferred stock voting as a class,
Physicians' Online is required to redeem pro rata from all such holders on each
January 1 of each 2000, 2001 and 2002, one-third of the shares of series C
preferred stock and series D preferred stock outstanding on December 31, 1999.
If the series C preferred stock and series D preferred stock elect to have
their shares redeemed, the holder of series A preferred stock and series B
preferred stock, on the vote of at least 66 2/3% of the outstanding shares of
either series, have the right to elect to have the same proportion of their
shares redeemed as is redeemed from the holders of shares of series C preferred
stock and series D preferred stock. The redemption prices are as follows: $2.67
for the series A preferred stock; $8.91 for the series B preferred stock; $9.00
for the series C preferred stock and $14.03 for the series D preferred Stock.
Liquidation
Mediconsult. Mediconsult's charter provides that upon any liquidation,
dissolution or winding up of the company, and after the payment of all of its
obligations, including any preferences granted to preferred stock,
109
<PAGE>
the remainder of Mediconsult, a portion of its assets, in cash or in property,
subject to the limitations in the DGCL, shall be distributed to the
stockholders of Mediconsult. Any such partial liquidation may be made without
the vote or approval of the stockholders. Mediconsult may also make purchases
of its common or preferred stock, directly or indirectly, to the extent of
unreserved and unrestricted earned surplus available, without the vote or
approval of stockholders.
Physicians' Online. Physicians' Online's charter provides that upon any
liquidation, dissolution or winding up of Physicians' Online, the holders of
shares of series C preferred stock and series D preferred stock are entitled to
receive, prior to any distribution of any assets of Physicians' Online, an
amount per share of $9.00 in the case of the series C preferred stock and
$14.03 in the case of the series D preferred stock. After such distribution to
the holders of the series C and series D preferred stock, holders of shares of
series A preferred stock and series B preferred stock are entitled to receive,
prior to any other distribution of any assets of Physicians' Online, an amount
per share of $2.67 in the case of the series A preferred stock and $8.91 in the
case of the series B preferred stock. After the payment of the obligations due
to the preferred stockholders, the common stockholders are entitled to receive
an aggregate amount equal to the sum of the stated capital plus additional
paid-in-capital properly allocable to the common stock, which aggregate amount
is to be distributed ratably among the common stockholders.
The remaining assets of Physicians' Online available for distribution to
stockholders are to be distributed among the holders of series A preferred
stock, series B preferred stock, series C preferred stock, series D preferred
stock and the common stock pro rata based on the number of shares of common
stock held by each stockholder and issuable to each stockholder upon conversion
of all such series A, B, C and D preferred stock.
Pursuant to Physicians' Online's charter, a liquidation, dissolution or
winding up of Physicians' Online is deemed to be occasioned by, or to include,
among other things, the acquisition of Physicians' Online by another entity by
means of any transaction or series of related transactions. The merger of
Physicians' Online and Mediconsult is thus a deemed liquidation event,
entitling each series of preferred stock to its liquidation preferences set
forth above.
REPRESENTATION AT SPECIAL MEETING
A representative of Arthur Andersen will be present at the Physicians'
Online Special Meeting, will have an opportunity to make a statement if he or
she so desires and will be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the shares of Mediconsult common stock to be issued in
connection with the merger will be passed upon for Mediconsult by Covington &
Burling.
110
<PAGE>
EXPERTS
The consolidated audited financial statements of Mediconsult as of September
30, 1999, included in this joint Information/Proxy Statement/Prospectus have
been audited by PricewaterhouseCoopers, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The audited financial statements of Physicians' Online, Inc. included in
this joint Information/Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
You should rely only on the information contained in this joint
Information/Proxy Statement/Prospectus to vote on the merger. We have not
authorized anyone to provide you with information that is different from what
is contained in this joint Information/Proxy Statement/Prospectus. This joint
Information/Proxy Statement/Prospectus is dated November 19, 1999. You should
not assume that the information contained in this joint Information/Proxy
Statement/Prospectus is accurate as of any date other than, November 19, 1999,
and neither the mailing of the joint Information/Proxy Statement/Prospectus to
stockholders nor the issuance of Mediconsult common stock in the merger shall
create any implication to the contrary.
111
<PAGE>
MEDICONSULT.COM INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
F-1
<PAGE>
Report of Independent Accountants
To the Shareholders of
Mediconsult.com Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Mediconsult.com Inc. and its subsidiaries at December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Chartered Accountants
Hamilton, Bermuda
February 26, 1999
[ PWC LOGO ]
F-2
<PAGE>
MEDICONSULT.COM INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1998 AND 1997
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1998 1997
$ $
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash.................................................. 135,053 400,949
Accounts receivable................................... 135,790 157,810
---------- ----------
Total current assets................................ 270,843 558,759
---------- ----------
Non-current assets
Tangible fixed assets................................. 52,790 193,004
Intangible fixed assets............................... 818,750 --
---------- ----------
Total non-current assets............................ 871,540 193,004
---------- ----------
Total assets.......................................... 1,142,383 751,763
========== ==========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities.............. 243,413 42,399
Advances from stockholder............................. 513,589 143,838
Unearned revenue...................................... 107,000 --
---------- ----------
Total liabilities................................... 864,002 186,237
========== ==========
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized,
1,000,000 shares designated, 250,000 and 430,000
shares issued and outstanding at December 31, 1998
and 1997, respectively............................... 4,300,000 2,500,000
Common stock, $.001 par value, 50,000,000 shares
authorized, 17,291,400 and 18,519,950 shares issued
and outstanding at December 31, 1998 and 1997,
respectively......................................... 18,520 17,291
Additional paid-in capital............................ 5,242,981 1,651,256
Deferred compensation................................. (884,109) (113,277)
Retained deficit...................................... (8,399,011) (3,489,744)
---------- ----------
Total stockholders' equity.......................... 278,381 565,526
---------- ----------
Total liabilities and stockholders' equity............ 1,142,383 751,763
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MEDICONSULT.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................. 1,030,934 256,374 --
---------- ---------- ----------
Operating expenses
Product and content development........... 1,316,188 765,864 --
Marketing, sales and client service....... 1,811,710 1,130,340 435,637
General and administrative................ 1,012,719 792,213 403,794
Depreciation.............................. 170,439 132,768 --
Fair value of options granted to
employees................................ 275,145 40,235 --
Fair value of options granted to
consultants.............................. 1,354,000 -- --
---------- ---------- ----------
Total operating expenses................ 5,940,201 2,861,420 839,431
---------- ---------- ----------
Loss from operations...................... (4,909,267) (2,605,046) (839,431)
---------- ---------- ----------
Interest expense, net..................... -- (20,000) (22,667)
---------- ---------- ----------
Net loss.................................. (4,909,267) (2,625,046) (862,098)
========== ========== ==========
Net loss per share
Basic and diluted......................... (0.27) (0.16) (0.08)
Weighted average shares--basic............ 17,910,898 16,729,900 11,137,662
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDICONSULT.COM INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Deferred
stock stock capital compensation Deficit Total
$ $ $ $ $ $
--------- ------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 1,
1996................... -- 2,700 -- -- (2,600) 100
Issuance of common
stock.................. -- 13,009 982,976 -- -- 995,985
Options exercised....... -- 500 12,000 -- -- 12,500
Net loss................ -- -- -- -- (862,098) (862,098)
--------- ------ --------- ---------- ---------- ----------
Balance--December 31,
1996................... -- 16,209 994,976 -- (864,698) 146,487
Conversion of
debentures............. -- 1,000 499,000 -- -- 500,000
Options exercised....... -- 82 3,768 -- -- 3,850
Stockholder advances
converted to shares.... 2,500,000 -- -- -- -- 2,500,000
Deferred compensation... -- -- 153,512 (153,512) -- --
Amortization of deferred
compensation........... -- -- -- 40,235 -- 40,235
Net loss................ -- -- -- -- (2,625,046) (2,625,046)
--------- ------ --------- ---------- ---------- ----------
Balance--December 31,
1997................... 2,500,000 17,291 1,651,256 (113,277) (3,489,744) 565,526
Shares issued in
exchange for services.. -- 100 119,900 -- -- 120,000
Shares issued for
acquisition of
PharmInfoNet........... -- 100 818,650 -- -- 818,750
Stockholder advances
converted to shares.... 1,800,000 -- -- -- -- 1,800,000
Stock options
exercised.............. -- 1,029 253,199 -- -- 254,228
Compensation to non-
employees.............. -- -- 1,354,000 -- -- 1,354,000
Deferred compensation to
employees.............. -- -- 1,045,976 (1,045,976) -- --
Amortization of deferred
compensation........... -- -- -- 275,144 -- 275,144
Net loss................ -- -- -- -- (4,909,267) (4,909,267)
--------- ------ --------- ---------- ---------- ----------
Balance--December 31,
1998................... 4,300,000 18,520 5,242,981 (884,109) (8,399,011) 278,381
========= ====== ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MEDICONSULT.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss................................... (4,909,267) (2,625,046) (862,098)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation of fixed assets............. 170,439 132,768 --
Services received in exchange for common
stock................................... 120,000 -- --
Fair value of options granted............ 1,629,144 40,235 --
Changes in assets and liabilities
Accounts receivable...................... 22,020 (157,810) --
Deferred medical content costs........... -- 161,600 (161,600)
Accounts payable and accrued
liabilities............................. 201,014 3,366 39,033
Unearned revenue......................... 107,000 -- --
Interest payable......................... -- (22,667) 22,667
---------- ---------- ---------
Net cash used in operating activities.... (2,659,650) (2,467,554) (961,998)
---------- ---------- ---------
Cash flows from investing activities
Fixed assets purchases..................... (30,225) (120,474) (205,298)
---------- ---------- ---------
Net cash used in investing activities.... (30,225) (120,474) (205,298)
---------- ---------- ---------
Cash flows from financing activities
Advances from shareholder.................. 2,169,751 2,591,997 51,841
Issuance of common stock................... 254,228 3,850 1,008,585
Issuance of notes payable.................. -- -- 500,000
---------- ---------- ---------
Net cash provided by financing
activities.............................. 2,423,979 2,595,847 1,560,426
---------- ---------- ---------
(Decrease) increase in cash................ (265,896) 7,819 393,130
Cash--Beginning of year.................... 400,949 393,130 --
---------- ---------- ---------
Cash--End of year.......................... 135,053 400,949 393,130
========== ========== =========
Non-cash financing activities (note 3)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
1. Organization.
Mediconsult.com, Inc. (the "Company") was originally incorporated under the
laws of the State of Colorado in October 1989. In April 1996, the Company
purchased Mediconsult.com Limited, a Bermuda corporation ("MCL"), through a
merger in which MCL became a wholly-owned subsidiary, resulting in 90% of the
outstanding stock of Mediconsult.com, Inc. being held by the former
stockholders of MCL--The Mediconsult Trust, controlled by Mr. Robert Jennings
and Michel Bazinet. In December 1996, the Company consummated a
reincorporation merger pursuant to which it became a Delaware corporation.
Mediconsult conducts its business primarily through MCL.
The Company is a provider of patient-oriented healthcare information and
services on the World Wide Web. The Company's sites provide a source of
medical information and are designed to empower consumers through increased
consumer education regarding medical conditions and treatment alternatives.
The Company's sites also provide a destination on the Internet where visitors
can interact with others in communities centered around chronic medical
conditions and other health issues. The Company facilitates this environment
through an array of complementary services such as moderated on-line support
groups and discussion forums.
2. Need for future capital.
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue for the foreseeable
future. At December 31, 1998, the Company has an accumulated deficit of
$8,399,011. The implementation of the Company's business plan is dependent on
obtaining additional financing through public or private sources, strategic
relationships or other arrangements. The Company's current cash resources and
anticipated cash flow from operating activities are not expected to be
sufficient to meet its anticipated need for working capital. The Company has a
commitment from its majority stockholder to provide additional funds, as
needed, to cover its working capital needs through February 2000. However, the
Company will require additional funds to implement its business plan and
growth plans. There can be no such assurance that such additional financing
will be available on terms attractive to the Company, or at all.
3. Significant accounting policies.
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
following is a summary of the Company's significant accounting policies:
(a) Basis of presentation. The consolidated financial statements have
been prepared on a going concern basis with the assumption that the Company
will secure additional financing through a private or public share offering
or from the principal shareholders to fund cash flow deficiencies and the
Company will ultimately become profitable.
(b) Use of estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
(c) Basis of consolidation. These consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated on
consolidation.
(d) Concentration of credit risk. Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
primarily of cash, short- and long-term investments and accounts
receivable. Substantially all of the Company's cash, short- and long-term
investments are managed by one financial institution. Accounts receivable
are typically unsecured and are derived from revenues earned from customers
primarily located in the United States. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit
losses; historically such losses have been immaterial and within
management's expectations. At December 31, 1998, two customers accounted
for 43% and 12% of the accounts receivable balance, respectively. During
1998 and 1997, one customer accounted for 65% and 55% of net revenues,
respectively.
(e) Revenue recognition. The Company's revenues are derived from the
development and implementation of online marketing and advertising programs
for pharmaceutical and other healthcare companies. Such revenues are
recognized ratably over the period that the development work is performed.
Development work could include marketing research, focus group testing,
online testing of visitor preferences and development of customized client
Web sites.
Revenue from the sale of banner advertisements are recognized ratably in
the period in which the advertisement is displayed, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include guarantees of
a minimum number of "impressions", or times that an advertisement appears
in pages viewed by users of the Company's online properties. To the extent
minimum guaranteed impressions are not met, the Company defers recognition
of the corresponding revenues until the remaining guaranteed impression
levels are achieved.
Revenues from the licensing of the Company's content are recognized
ratably over the period of the license agreement.
A number of the Company's agreements provide that the Company receive
revenues from electronic commerce transactions. These revenues are
recognized by the Company upon notification of revenues earned by the
Company and, to date, have not been material.
(f) Tangible fixed assets. Property and equipment, mainly comprising
purchased computer equipment and software, are recorded at cost and
depreciated using the straight-line method over their estimated useful
lives of two years. The carrying amounts and accumulated depreciation for
fixed assets sold or retired are eliminated from the respective accounts
and gains or losses realized on disposition are reflected in the
accompanying consolidated statements of operations.
(g) Intangible fixed assets. Intangible fixed assets comprise content and
design of PharmInfo.com (note 4). Intangible fixed assets are recorded at
cost and amortized using the straight-line method over their estimated
useful lives of two years. No amortization was recorded in the year ended
December 31, 1998, as PharmInfo.com was acquired on December 31, 1998. The
recoverability of these assets is continually evaluated by comparing the
remaining unamortized cost to the estimated future cash flows of the
associated assets. Provisions for estimated losses are recorded in the
period in which such losses are determined.
(h) Marketing and advertising. Advertising production costs are recorded
as expense the first time an advertisement appears. All other advertising
costs are expensed as incurred. The Company does not incur any direct
response advertising costs.
F-8
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
(i) Product and content development costs. The cost of development and
enhancement of the technology used in the Company's Web sites is expensed
as incurred.
(j) Employee stock option compensation. Stock options for common stock
granted to employees are expensed over their vesting period based on their
fair value at the date of the grant under Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The
fair value of stock options is estimated using an option-pricing model that
takes into account the exercise price, expected life of the options,
current market price of the common stock and its expected volatility,
expected dividends on the common stock, and the risk-free interest rate
based on zero-coupon U.S. government issues with a remaining term equal to
the expected life of the options.
(k) Basic and diluted net loss per share. The Company adopted SFAS No.
128, "Earnings per Share," during the year ended December 31, 1997 and
retroactively restated all prior periods. Basic earnings per share is
computed using the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of the incremental
common shares issuable upon conversion of the convertible preferred stock
(using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method). Common
equivalent shares are excluded from the computation if their effect is
anti-dilutive.
(l) Comprehensive income. In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period from
non-owner sources. The disclosure prescribed by SFAS No. 130 must be made
for the Company's year ended December 31, 1998. For the years presented,
the Company's comprehensive income was equal to net income.
(m) Segments. Additionally, in June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information
about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The disclosures prescribed by SFAS
No. 131 will be effective for the year ended December 31, 1998 consolidated
financial statements. The Company believes that it does not operate in more
than one segment.
(n) Fair value of financial instruments. SFAS No. 107, "Disclosure about
the Fair Value of Financial Instruments," requires disclosure about the
fair value of certain financial instruments. The Company's financial
instruments, including cash, accounts receivable, accounts payable and
accrued liabilities, and advances from shareholder are carried at cost
which approximates their fair value because of the short-term maturity of
these instruments.
(o) Organization costs. All costs associated with start-up activities and
organization costs are expensed as incurred.
(p) Recent pronouncements. In March 1998, the Accounting Standards
Executive Committee ("AcSEC") issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP provides guidance on accounting for the costs of
computer software developed or obtained for internal use. SOP 98-1
identifies the characteristics of internal-use software and provides
examples to assist in determining when computer software is for internal
use and whether it should be expensed or capitalized. The SOP is effective
for financial statements for fiscal years
F-9
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
beginning after December 15, 1998. Management believes that the Company
currently complies with the provisions of this standard and, therefore,
believes that the adoption of this standard will not have a significant
impact on the Company's business, financial condition and results of
operations.
The AcSEC SOP 98-5 "Reporting Costs of Start-UP Activities", is effective
for fiscal years beginning after December 15, 1998. This SOP requires costs
of start-up activities and organization costs to be expensed as incurred.
Currently, the Company expenses such costs as incurred and, consequently,
management believes that the adoption of this SOP will not have an impact
on the Company's business, financial condition and results of operations.
4. Acquisition of PharmInfo.com.
On December 31, 1998 the Company acquired the content and design of the
PharmInfo.com Web site in exchange for 100,000 shares of the Company. The
acquisition of PharmInfo.com was completed through the contribution of the
PharmInfo.com Web site, including its content and design, to a company formed
for the purpose of the transaction and merger of such newly-formed company
into PharmInfoNet, Inc., a newly-formed subsidiary of the Company. The content
and design of PharmInfo.com was recorded for $818,750, equivalent to the
quoted market price of the Company's shares on December 31, 1998. The value
will be amortized over an estimated useful life of two years.
5. Non-cash financing activities.
On June 30, 1997, notes payable of $500,000 were converted to 1,000,000
shares of common stock. On August 1, 1998 the Company issued 100,000 shares of
common stock to Arnhold and S. Bleichroeder, Inc. as a fee for corporate
finance advisory services. On December 31, 1998 the Company issued 100,000
shares of common stock to acquire PharmInfo.com. Also, during the years ended
December 31, 1998 and 1997, $1.8 million and $2.5 million of advances from
shareholder, respectively, were exchanged for 180,000 and 250,000 shares of
Preferred Stock.
6. Fixed assets.
Fixed assets comprise:
<TABLE>
<CAPTION>
1998
-----------------------------
Accumulated Net book
Cost depreciation value
$ $ $
------- ------------ --------
<S> <C> <C> <C>
Computer equipment................................ 132,626 103,152 29,474
Computer programming.............................. 223,371 200,055 23,316
------- ------- -------
Total fixed assets................................ 355,997 303,207 52,790
------- ------- -------
<CAPTION>
1997
-----------------------------
Accumulated Net book
Cost depreciation value
$ $ $
------- ------------ --------
<S> <C> <C> <C>
Computer equipment................................ 102,401 44,397 58,004
Computer programming.............................. 223,371 88,371 135,000
------- ------- -------
Total fixed assets................................ 325,772 132,768 193,004
------- ------- -------
</TABLE>
F-10
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
7. Advances from shareholder.
Advances from shareholder are interest free and repayable on demand.
8. Capital stock.
(a) Authorized capital stock. During the years ended December 31, 1998
and 1997, 250,000 and 750,000 shares of $.001 par value preferred stock,
respectively, were designated as a series called "$10 Non-Cumulative
Preferred Stock." The Certificate of Designation was amended on September
30, 1998 to, among other things, change the $10 Non-Cumulative Preferred
Stock to a cumulative preferred stock and change the name to "Preferred
Stock."
At December 31, 1998 and 1997, authorized capital stock comprises:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Liquidation Liquidation
Number of value Number of value
shares $ shares $
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Preferred Stock
$.001 par value preferred
stock....................... 4,000,000 4,000 4,750,000 4,750
Preferred Stock.............. 1,000,000 10,000,000 250,000 2,500,000
---------- ---------- ---------- ---------
5,000,000 10,004,000 5,000,000 2,504,750
---------- ---------- ---------- ---------
Common stock, $.001 par
value....................... 50,000,000 50,000 50,000,000 50,000
---------- ---------- ---------- ---------
</TABLE>
(b) Share rights
i) $.001 par value preferred stock. The preferred stock may be issued
from time to time in series as determined by the Board of Directors.
The Board of Directors is authorized to fix and determine the
variations in the relative rights and preferences as between series.
The preferred stock may have limited, contingent or no voting powers;
may have such designations, preferences, dividends and relative,
participating, optional or other special rights; and be subject to such
qualifications, limitations and restrictions as the Board of Directors
shall determine. The preferred stock may be subject to redemption by
the Company or at the options of the holders thereof and may be
convertible into common stock or exchangeable for other securities of
the Company. So long as no shares of any class or series established by
resolution of the Board of Directors have been issued, the voting
rights, designations, preferences and relative, optional, participating
or other rights of these shares may be amended by resolution of the
Board of Directors.
ii) Preferred Stock. In September 1998, the Board of Directors and
the stockholders, respectively, approved an amendment (the "Amendment")
to the Certificate of Designation of the Preferred Stock to, among
other things, change the existing $10 Non-Cumulative Preferred Stock to
a cumulative preferred stock and change the name to "Preferred Stock."
Under the amendment each issued and outstanding share of Preferred
Stock entitles the holder of record to receive cumulative dividends
payable in additional shares of Preferred Stock at the rate of 8% per
annum, payable semi-annually. Each share of Preferred Stock is
automatically convertible into 8.33 shares of common stock, subject to
an amendment, upon certain occurrences. The conversion rate of the
Preferred Stock has
F-11
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
standard anti-dilution protections in the event of stock splits,
dividends, combinations, mergers and reorganizations, but is not
protected from issuances below the base conversion rate. No dividends
were declared during the year ended December 31, 1997 or prior to
September 30, 1998, when dividends on such shares became cumulative. In
the year ended December 31, 1998 accumulated dividends were 8,600
preferred shares which are convertible into 71,666 common shares.
(c) Issued capital stock. On April 23, 1996, 55,000 common stock were
issued in exchange for the entire share capital of Mediconsult.com
Limited. An additional 5,197 shares of common stock were issued on May
24, 1996 for $25,985. On August 12, 1996, a 20-for-1 share split took
place, which resulted in issued common stock of 1,473,940 shares. On
October 25, 1996, a 10-for-1 share split took place, which resulted in
issued common stock of 14,739,400 shares. On November 13, 1996, stock
options for 500,000 shares of common stock were exercised for $12,500.
On November 20, 1996, the Company issued 970,000 shares of common stock
for $970,000.
On June 30, 1997, notes payable of $500,000 were converted to
1,000,000 shares of common stock. During the year ended December 31,
1997, stock options for 82,000 shares of common stock were exercised
for $3,850 in total. During 1998, 100,000 shares of common stock were
issued as a corporate finance advisory fee valued at $120,000 at the
date of issuance and 100,000 shares of common stock were issued to
acquire PharmInfo.com, including rights to content, valued at $818,750
at the date of issuance in non-cash financing activities (see note 5).
Also, during the year ended December 31, 1998, stock options for
790,000, 16,000, and 222,550 common stock were exercised for $19,750,
$800 and $233,678 in total, respectively.
During the years ended December 31, 1998 and 1997, 180,000 and
250,000 shares of the $10 Non-Cumulative Preferred Stock were issued on
conversion of advances from shareholder of $1.8 million and $2.5
million, respectively.
At December 31, 1998 and 1997 issued capital stock comprises:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Number of Value Number of Value
shares $ shares $
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Preferred Stock, $10
liquidation value............ 430,000 4,300,000 250,000 2,500,000
Common stock, $.001 par
value........................ 18,519,950 2,854,424 17,291,400 1,512,435
--------- ---------
Total capital stock........... 7,154,424 4,012,435
--------- ---------
</TABLE>
9. Stock options.
The Company has a 1996 Stock Option Plan (the "Plan") to provide incentives
to employees, directors and consultants. The maximum term of options granted
under the Plan is ten years. The Board of Directors has the exclusive power
over the granting of options and their vesting provisions. During the year
ended December 31, 1998, the number of common stock covered by the Plan was
increased from 1,000,000 to 2,500,000.
During 1998, the Company entered into an agreement with Treacy & Co., LLC
that granted options for 2 million shares to Treacy & Co., LLC for consulting
services provided. The options granted have an exercise price of $0.003 and
were vested immediately upon granting.
F-12
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
Stock options for common stock comprise:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
Weighted Weighted
average average
Number of exercise price Number of exercise price
shares $ shares $
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding--Beginning of
year.................... 1,150,000 0.25 980,000 0.03
Granted during the year.. 2,605,050 0.38 252,000 1.03
Exercised during the
year.................... (1,028,550) 0.23 (82,000) 0.05
Cancelled during the
year.................... (10,500) 0.29 -- --
---------- ---- --------- ----
Outstanding--End of
year.................... 2,716,000 0.37 1,150,000 0.25
---------- ---- --------- ----
Exercisable--End of
year.................... 2,318,800 0.12 967,000 0.28
---------- ---- --------- ----
</TABLE>
<TABLE>
<CAPTION>
Range of effective prices
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding--December 31, 1998
Stock options for number of
common stock................... 2,000,000 96,000 320,000 200,000 100,000
Weighted average exercise price
contractual life (years)....... $ 0.003 $ 0.05 $ 1.05 $ 1.50 $ 3.50
Average remaining............... 4.75 0.75 1.75 1.75 2.0
<CAPTION>
Range of effective prices
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Exercisable--December 31, 1998
Stock options for number of
common stock................... 2,000,000 96,000 185,800 30,000 10,000
Exercise price.................. $ 0.003 $ 0.05 $ 1.05 $ 1.50 $ 3.50
</TABLE>
During the years ended December 31, 1998 and 1997, the fair values of the
options granted were $1,045,976 and $153,572, respectively. The weighted
average exercise price and weighted average fair value of options whose
exercise price exceeded the market value at the grant date during 1998 were
$1.24 and $0.23, respectively. The weighted average exercise price and
weighted average fair value of options whose exercise price was less than the
market value at the grant date during 1998 were $0.18 and $1.03, respectively.
The fair values of the options were estimated using an option-pricing model
based on the weighted average risk-free interest rates ranging between 4.231%
and 5.470%, an expected life of the options of two years, an expected
volatility of the common stock ranging between 105.1% and 185.4% and no
expected dividends on the common stock.
10. Advertising.
During the years ended December 31, 1998, 1997 and 1996 the Company incurred
$314,400, $252,400 and $Nil of advertising expenses, respectively.
11. Related party transactions.
During the years ended December 31, 1998 and 1997, advances from
shareholders of $2,169,751 and $2,591,997, respectively, were made to the
Company, of which $1,800,000 and $2,500,000, respectively, were converted to
common stock and $30,000 and $Nil, respectively, were repaid.
F-13
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
On October 1, 1998, options to acquire 2 million shares of common stock were
granted to Treacy & Co., LLC. Michael Treacy is both a director in the Company
and a principal in Treacy & Co., LLC.
The Company is headquartered in Hamilton, Bermuda, occupying space in the
office of Robert A. Jennings, Chief Executive Officer and shareholder, at no
cost.
12. Taxation.
The Company's operations are conducted by its Bermuda subsidiary. The
subsidiary has received an undertaking from the Bermuda Government exempting
it from all local income, profits and capital gains taxes until the year 2016.
At the present time, no such taxes are levied in Bermuda. The Company is a
Delaware holding company and is currently not subject to taxation in the
United States.
13. Subsequent events.
On February 26, 1999, the Company sold, in a private placement, an aggregate
of 506,329 shares of the newly designated voting senior preferred stock and
warrants exercisable for five years to purchase 224,000 shares of the senior
preferred stock to Nazem & Company IV, L.P. Transatlantic Venture Fund C.V. (a
joint venture of Nazem & Company and Banque Nationale de Paris) and certain
other individual investors, for an aggregate of $3.2 million. The purchase
price and the conversion price of the senior preferred stock and exercise of
the warrants was $6.32 per share. The shares of the senior preferred stock are
convertible at any time at the option of the holder into an equal number of
shares of common stock, subject to adjustment, and will be automatically
converted into an equal number of shares of common stock upon closing of the
public offering.
On February 25, 1999, the Company amended its agreement to grant 400,000
warrants to Arnhold and S. Bleichroeder, Inc. As a result, the Company
delivered warrants to purchase 200,000 shares upon initial filing of its
offering prospectus for a public offering of the Company's common stock. The
remaining 200,000 warrants are deliverable in 2000 and are subject to
continued performance of financial advisory services by a particular
individual on behalf of Arnhold and S. Bleichroeder, Inc. The warrants have an
exercise price of $1.22, expire on March 1, 2004 and have cash-less exercise
provisions and anti-dilution provisions comparable to the senior preferred
stock warrants.
In February 1999, the Company entered into a memorandum of agreement
outlining the principal terms of an exclusive management arrangement with
CyberDiet, LLC, the owner of Cyberdiet.com, a Web site providing tailored
nutritional information and programs, that granted the Company the sold right
to place advertisements on the Web site, to link traffic and to manage the
content of the Web site. The Company has an option to purchase CyberDiet, LLC
and CyberDiet, LLC has, under certain circumstances, the right to cause the
Company to purchase it in exchange for 400,000 shares of the Company's common
stock.
In February 1999, the Company entered into an exclusive sponsorship
agreement with the InterNational Council of Infertility Information
Dissemination, a not-for-profit organization, relating to INCIID.org that
granted the Company the sole right to place advertisements on the Web site, to
link traffic and to manage the content on the Web site. In connection with
this agreement, the Company made commitments to pay the InterNational Council
of Infertility Information Dissemination $0.5 million per year beginning in
1999, for three years in equal quarterly installments, in cash or common
stock, at the option of the Company.
F-14
<PAGE>
MEDICONSULT.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
(expressed in U.S. dollars)
In February 1999, the Company entered into a memorandum of agreement
outlining the principle terms of a 50/50 joint venture with CommonHealth LLP,
a healthcare advertising firm. The Company expects to advance approximately
$0.3 million to the joint venture for the initial capitalization. Under the
terms of the agreement, the Company may borrow the initial capitalization
amount from CommonHealth LLP, which would be repaid through 25% of the
Company's share of profits from the joint venture.
F-15
<PAGE>
PHYSICIANS' ONLINE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Physicians' Online, Inc.:
We have audited the accompanying balance sheets of Physicians' Online, Inc.
(a Delaware corporation) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' (deficit) and cash flows for the years
ended December 31, 1998, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Physicians' Online, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years ended December 31, 1998, 1997 and 1996 in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
July 19, 1999
F-17
<PAGE>
PHYSICIANS' ONLINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1997 1998 1999
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 3,277,610 $ 1,520,854 $ 1,021,443
Accounts receivable................ 1,537,532 619,322 744,558
Prepaid expenses and other current
assets............................ 112,617 127,234 714,183
------------ ------------ ------------
Total current assets............. 4,927,759 2,267,410 2,480,184
PROPERTY AND EQUIPMENT, net (Note
3).................................. 1,609,289 954,788 503,775
OTHER ASSETS......................... 7,413 -- --
------------ ------------ ------------
Total assets..................... $ 6,544,461 $ 3,222,198 $ 2,983,959
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ 2,109,768 $ 2,442,625 $ 3,387,416
Accrued expenses and other current
liabilities....................... 1,090,917 2,082,544 1,338,655
Short-term notes payable........... -- 4,500,000 15,334,548
Current portion of capital lease
obligations....................... 15,322 809,567 222,187
Current portion of long-term debt
(Note 6).......................... 686,645 -- --
Deferred revenue (Note 4).......... 2,113,314 1,391,307 641,693
------------ ------------ ------------
Total current liabilities........ 6,015,966 11,226,043 20,924,499
LONG-TERM DEBT (Note 6).............. 809,569 2,334,548 --
------------ ------------ ------------
Total liabilities................ 6,825,535 13,560,591 20,924,499
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes
9 and 10)
SHAREHOLDERS' (DEFICIT):
Preferred stock, $.01 par value:
3,978,690 shares authorized as of
September 30, 1999, December 31,
1998 and 1997, respectively;......
722,850 Series A shares issued
and outstanding as of September
30, 1999, December 31, 1998 and
1997, respectively; liquidation
value of $1,927,600;............ 7,229 7,229 7,229
448,933 Series B shares issued
and outstanding as of September
30, 1999, December 31, 1998 and
1997, respectively; liquidation
value of $3,999,986;............ 4,490 4,490 4,490
1,433,408 Series C shares issued
and outstanding as of September
30, 1999, December 31, 1998 and
1997, respectively; liquidation
value of $12,900,672;........... 14,334 14,334 14,334
623,500 Series D shares issued
and outstanding as of September
30, 1999, December 31, 1998 and
1997, respectively; liquidation
value of $8,749,643............. 6,235 6,235 6,235
Common stock, $.01 par value:
7,350,000 shares authorized,
1,855,884, 1,736,677 and 1,712,875
shares issued and outstanding as
of September 30, 1999, December
31, 1998 and 1997, respectively... 17,128 17,366 18,531
Additional paid-in capital......... 26,948,727 26,957,672 27,053,727
Accumulated (deficit).............. (27,279,217) (37,345,719) (45,045,086)
------------ ------------ ------------
Total shareholders' (deficit).... (281,074) (10,338,393) (17,940,540)
------------ ------------ ------------
Total liabilities and
shareholders' (deficit)......... $ 6,544,461 $ 3,222,198 $ 2,983,959
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-18
<PAGE>
PHYSICIANS' ONLINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine-Months
For the Years Ended December 31, Ended September 30,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $12,634,879 $10,904,792 $ 6,054,371 $ 4,502,981 $ 4,238,793
Cost of revenue......... 2,646,621 4,136,631 4,047,678 2,803,414 3,303,679
----------- ----------- ------------ ----------- -----------
Gross profit.......... 9,988,258 6,768,161 2,006,693 1,699,567 935,114
General and
administrative
expense................ 9,925,592 8,376,531 6,986,188 4,951,785 5,309,493
Sales and marketing
expense................ 3,067,184 3,384,402 2,893,435 2,163,819 1,776,372
Depreciation and
amortization........... 1,303,840 1,462,124 1,026,482 807,824 452,333
----------- ----------- ------------ ----------- -----------
Operating loss........ (4,308,358) (6,454,896) (8,899,412) (6,233,861) (6,603,084)
Other (expense) revenue,
net.................... 160,037 (403,558) (1,167,090) (198,127) (1,096,283)
Provision for income
taxes.................. -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Net loss.............. $(4,148,321) $(6,858,454) $(10,066,502) $(6,421,988) $(7,699,367)
----------- ----------- ------------ ----------- -----------
PER SHARE INFORMATION:
Net loss per share--
Basic and diluted... $ (2.64) $ (4.14) $ (5.83) $ (3.73) $ (4.28)
=========== =========== ============ =========== ===========
Weighted average
common shares
outstanding--
Basic and diluted... 1,572,832 1,656,458 1,726,485 1,719,881 1,799,081
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
PHYSICIANS' ONLINE, INC.
STATEMENTS OF SHAREHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
Series A Series B Series C Series D Additional
Preferred Stock Preferred Stock Preferred Stock Preferred Stock Common Stock
----------------- ----------------- ------------------- ----------------- -------------------- Paid-in
Shares Par Value Shares Par Value Shares Par Value Shares Par Value Shares Par Value Capital
------- --------- ------- --------- --------- --------- ------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January
1, 1996.......... 772,850 $7,229 448,933 $4,490 -- $ -- -- $ -- 1,546,206 $15,462 $ 6,215,581
Issuance of
Series D
Preferred Stock,
net of stock
issuance costs
of $139,181..... -- -- -- -- 1,433,408 14,334 -- -- -- -- 12,747,157
Purchase and
retirement of
treasury stock
(Note 7)........ -- -- -- -- -- -- -- -- (123,456) (1,235) (183,949)
Exercise of
stock options
(Note 7)........ -- -- -- -- -- -- -- -- 3,275 33 4,879
Issuance of
Common Stock.... -- -- -- -- -- -- -- -- 389,433 3,894 150,740
Costs to obtain
shares from a
former officer,
including legal
expenses........ -- -- -- -- -- -- -- -- (216,000) (2,160) (112,746)
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------ --------- ------- ------- ------ --------- ------- -----------
BALANCE, December
31, 1996......... 722,850 7,229 448,933 4,490 1,433,408 14,334 -- -- 1,599,458 15,994 18,821,662
Issuance of
Series D
Preferred Stock,
net of stock
issuance costs
of $732,647..... -- -- -- -- -- -- 623,500 6,235 -- -- 8,010,761
Exercise of
stock options
(Note 7)........ -- -- -- -- -- -- -- -- 113,417 1,134 172,116
Costs to obtain
shares from a
former officer,
including legal
expenses........ -- -- -- -- -- -- -- -- -- -- (55,812)
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------ --------- ------- ------- ------ --------- ------- -----------
BALANCE, December
31, 1997......... 722,850 7,229 448,933 4,490 1,433,408 14,334 623,500 6,235 1,712,875 17,128 26,948,727
Exercise of
stock options
(Note 7)........ -- -- -- -- -- -- -- -- 23,802 238 44,437
Costs to obtain
shares from a
former officer,
including legal
expenses and
other........... -- -- -- -- -- -- -- -- -- -- (35,492)
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------ --------- ------- ------- ------ --------- ------- -----------
BALANCE, December
31, 1998......... 722,850 7,229 448,933 4,490 1,433,408 14,334 623,500 6,235 1,736,677 17,366 26,957,672
Exercise of
stock options
(Note 7)........ -- -- -- -- -- -- -- -- 116,480 1,165 183,895
Costs to obtain
shares from a
former officer,
including legal
expenses and
other........... -- -- -- -- -- -- -- -- -- -- (87,840)
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------ --------- ------- ------- ------ --------- ------- -----------
BALANCE,
September 30,
1999
(unaudited)...... 722,850 $7,229 448,933 $4,490 1,433,408 $14,334 623,500 $6,235 1,853,157 $18,531 $27,053,727
======= ====== ======= ====== ========= ======= ======= ====== ========= ======= ===========
<CAPTION>
Accumulated
(Deficit) Total
------------- -------------
<S> <C> <C>
BALANCE, January
1, 1996.......... $(16,272,442) $(10,029,680)
Issuance of
Series D
Preferred Stock,
net of stock
issuance costs
of $139,181..... -- 12,761,491
Purchase and
retirement of
treasury stock
(Note 7)........ -- (185,184)
Exercise of
stock options
(Note 7)........ -- 4,912
Issuance of
Common Stock.... -- 154,634
Costs to obtain
shares from a
former officer,
including legal
expenses........ -- (114,906)
Net loss........ (4,148,321) (4,148,321)
------------- -------------
BALANCE, December
31, 1996......... (20,420,763) (1,557,054)
Issuance of
Series D
Preferred Stock,
net of stock
issuance costs
of $732,647..... -- 8,016,996
Exercise of
stock options
(Note 7)........ -- 173,250
Costs to obtain
shares from a
former officer,
including legal
expenses........ -- (55,812)
Net loss........ (6,858,454) (6,858,454)
------------- -------------
BALANCE, December
31, 1997......... (27,279,217) (281,074)
Exercise of
stock options
(Note 7)........ -- 44,675
Costs to obtain
shares from a
former officer,
including legal
expenses and
other........... -- (35,492)
Net loss........ (10,066,502) (10,066,502)
------------- -------------
BALANCE, December
31, 1998......... (37,345,719) (10,338,393)
Exercise of
stock options
(Note 7)........ -- 185,060
Costs to obtain
shares from a
former officer,
including legal
expenses and
other........... -- (87,840)
Net loss
(unaudited)..... (7,699,367) (7,699,367)
------------- -------------
BALANCE,
September 30,
1999
(unaudited)...... $(45,045,086) $(17,940,540)
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
PHYSICIANS' ONLINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years For the Nine-Months
Ended December 31, Ended September 30,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(4,148,321) $(6,858,454) $(10,066,502) $(6,421,988) $(7,699,367)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Depreciation and
amortization......... 1,303,840 1,462,124 1,026,482 807,824 452,355
Changes in assets and
liabilities--
(Increase) decrease
in accounts
receivable.......... (4,113,173) 2,575,641 918,210 716,064 (485,676)
(Increase) decrease
in prepaid expenses
and other current
assets.............. (119,038) 209,525 (14,617) (94,420) (226,509)
(Increase) decrease
in other assets..... (18,572) 11,159 7,413 -- --
Increase in accounts
payable............. 627,389 356,904 332,857 292,577 1,023,599
Increase (decrease)
in accrued expenses
and other current
liabilities......... 522,732 519,461 991,627 22,209 (789,085)
Decrease in
restructuring
reserve............. (1,253,579) -- -- (208,830) (33,612)
Decrease in deferred
revenue............. (2,402,235) (4,039,566) (722,007) (133,827) (749,614)
----------- ----------- ------------ ----------- -----------
Net cash used in
operating
activities......... (9,600,957) (5,763,206) (7,526,537) (5,020,391) (8,507,909)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment, net... (1,257,888) (800,204) (371,981) (386,158) (1,342)
----------- ----------- ------------ ----------- -----------
Net cash used in
investing
activities......... (1,257,888) (800,204) (371,981) (386,158) (1,342)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of capital
lease obligations.... (125,722) (87,423) (15,322) (15,322) --
Repayment of affiliate
loan................. (407,000) -- -- -- --
Proceeds from short-
term notes payable... 74,110 5,000,000 4,500,000 -- 13,000,000
Repayment of short-
term notes payable... (29,357) (5,044,753) -- -- --
Proceeds from long-
term debt............ 2,250,000 -- 2,334,548 4,924,165 --
Repayment of long-term
debt................. (355,919) (585,362) (686,647) (511,548) (5,087,380)
Repayment of Senior
Convertible Notes.... (2,000,000) -- -- -- --
Net proceeds from
issuance of Series B
Preferred Stock...... -- 8,016,996 -- -- --
Net proceeds from
issuance of Series C
Preferred Stock...... 12,761,491 -- -- -- --
Purchase of treasury
stock................ (185,184) -- -- -- --
Exercise of stock
options.............. 159,546 173,250 44,675 36,613 185,060
Costs to obtain common
shares............... (114,906) (55,812) (35,492) (52,841) (87,840)
----------- ----------- ------------ ----------- -----------
Net cash provided by
financing
activities......... 12,027,059 7,416,896 6,141,762 4,381,067 8,009,840
----------- ----------- ------------ ----------- -----------
Net increase
(decrease) in cash
and cash
equivalents........ 1,168,214 853,486 (1,756,756) (1,115,099) (499,411)
CASH AND CASH
EQUIVALENTS, beginning
of year (period)...... 1,255,910 2,424,124 3,277,610 3,277,610 1,520,854
----------- ----------- ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
year (period)......... $ 2,424,124 $ 3,277,610 $ 1,520,854 $ 2,162,511 $ 1,021,443
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
year for interest.... $ 116,000 $ 504,000 $ 1,252,693 $ 148,595 $ 370,755
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
PHYSICIANS' ONLINE, INC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. Organization and Business:
Physicians' Online, Inc. (the "Company"), a Delaware corporation, was
incorporated on April 20, 1992. The Company provides on-line medical
information and communication services, as well as advertising to on-line
users.
Through December 31, 1998, the Company has incurred significant cumulative
losses and has a net capital deficiency as of December 31, 1998. In addition,
the Company's liquidity requirements have been and will continue to be
significant. Management has developed a detailed plan and has taken certain
actions in order to generate the funding necessary for the Company's
operations, including: (1) a plan for increased utilization of the Company's
extensive base of customers in the medical industry; (2) raising additional
capital through the issuance of additional equity and/or debt (Note 11); (3)
hiring and retaining key employees; (4) effective cost control; and (5)
selling the Company (Note 12). Management of the Company believes that these
plans will be adequate to fund the Company's operations at least through July
2000.
2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and highly liquid investments
with maturities of three months or less when purchased.
Revenue Recognition
The Company earns revenue for subscription to its on-line service and for
advertising from pharmaceutical companies and vendors of medical and other
products whose market audience includes the users of the Company's on-line
services. The Company accounts for advance subscription and advertising
payments, if applicable, as deferred revenue when received, and recognizes
revenue ratably over the subscription period or over the period of time during
which the advertising is delivered to the Company's users.
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized on a
straight-line basis over three years for equipment or the lease term for
leasehold improvements.
Accounting for Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." This statement
establishes financial accounting and reporting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed. Management has performed a review of
all long-lived assets and
F-22
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
has determined that no impairment of the respective carrying values has
occurred as of June 30, 1999 (unaudited) and December 31, 1998 and 1997.
Income Taxes
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", which requires recognition of deferred tax liabilities and assets for
the estimated future tax effects of events that have been recognized in the
financial statements or income tax returns. Under this method, deferred tax
liabilities and assets are determined based on differences between the
financial accounting and income tax bases of assets and liabilities, and the
use of carryforwards, if any, using enacted tax rates in effect for the years
in which the differences and carryforwards are expected to reverse and be
utilized.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term maturity of
these instruments. The carrying amounts of long-term debt and capital lease
obligations, including current portions, approximate fair value.
Business Concentrations and Credit Risk
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's customers are
primarily concentrated in the United States. The Company performs ongoing
credit evaluations, generally does not require collateral, and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of customers, historical trends and other information.
The Company had 1 significant customer which accounted for 14% of accounts
receivable as of September 30, 1999 (unaudited). The Company had no
significant customers for each of the three years ended December 31, 1998 and
had no accounts receivable in excess of 10% of total accounts receivable to
any customer as of December 31, 1998 and 1997.
Net Income (Loss) Per Common Share
The Company computes net income (loss) per common share in accordance with
SFAS No. 128, "Earnings Per Share." Under the provisions of SFAS No. 128,
basic net income (loss) per common share ("Basic EPS") is computed by dividing
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per common share ("Diluted EPS") is computed by
dividing net income (loss) by the weighted average number of common shares and
dilutive common share equivalents then outstanding.
Diluted EPS for the periods ended September 30, 1999 and 1998 (unaudited)
and for each of the three years ended December 31 1998, does not include the
impact of convertible preferred stock or stock options then outstanding, as
the effect of their inclusion would be antidilutive.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation". This statement establishes
financial accounting and reporting standards for
F-23
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
stock-based employee compensation plans. SFAS No. 123 encourages entities to
adopt a fair value based method of accounting for stock compensation costs. If
the fair value based method of accounting is not adopted, SFAS No. 123
requires pro forma disclosures of net income and earnings per share in the
notes to financial statements. The Company adopted this standard in 1996, and
has elected to continue the accounting set forth in pre-existing
pronouncements and to provide the necessary pro-forma disclosures (Note 8).
Comprehensive Income
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. The
Company's comprehensive loss was equal to its net loss for the periods ended
September 30, 1999 and 1998 (unaudited) and for each of the three years ended
December 31, 1998.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way the public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement
is effective for financial statements for periods beginning after December 15,
1997 and need not be applied to interim periods in the initial year of
application. In the initial year of application, comparative information for
earlier years must be restated. Management has determined that it does not
have any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not currently
engage in derivative activity and does not expect the adoption of this
standard to have a material effect on the Company's results of consolidated
operations, financial position or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
Unaudited Financial Statements
The unaudited financial information included herein as of September 30, 1999
and for the nine months ended September 30, 1998 and 1999, have been prepared
in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of the Company, these unaudited financial
statement, reflect all adjustments necessary, consisting of normal recurring
adjustments, for a fair presentation of such data on a basis consistent with
that of the audited data presented herein. The consolidated results for
interim periods are not necessarily indicative of the results expected for a
full year.
F-24
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
3. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Office equipment.......................... $ 755,787 $ 774,332 $ 783,728
Computer equipment........................ 3,808,785 4,162,221 4,137,106
Leasehold improvements.................... 165,843 165,843 165,843
Computer equipment under capital leases... 596,780 596,780 596,780
---------- ---------- ----------
5,327,195 5,699,176 5,683,457
Less: Accumulated depreciation and
amortization............................. 3,717,906 4,744,388 5,179,682
---------- ---------- ----------
Property and equipment, net............. $1,609,289 $ 954,788 $ 503,775
---------- ---------- ----------
</TABLE>
Depreciation and amortization expense was $452,355 and $807,824 for the nine
months ended September 30, 1999 and 1998 (unaudited) and $1,026,482,
$1,462,124 and $1,303,840 for each of the three years ended December 31, 1998,
respectively.
4. Deferred Revenue:
Deferred revenue at September 30, 1999 (unaudited), December 31, 1998 and
1997, of $641,693, $1,391,306 and $2,113,314, respectively, represents advance
customer payments for future advertising services to be provided within one
year.
5. Short-Term Debt:
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1997 1998 1999
---- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Promissory notes payable, bearing interest at
prime rate plus 3 points, due in entirety on
December 31, 1998 (Note 11)..................... $-- $4,500,000 $ --
Shareholder loans payable bearing interest at
prime rate plus 3 points, due in entirety....... -- -- 2,334,548
Promissory note payable, bearing interest at
prime rate (Notes 11 and 12).................... -- -- 10,000,000
Shareholder loans payable bearing interest at
prime rate plus 3 points, due in entirety on
February 28, 2000 (Note 11)..................... -- -- 3,000,000
---- ---------- -----------
Total short-term debt............................ $-- $4,500,000 $15,334,548
==== ========== ===========
</TABLE>
F-25
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
6. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Promissory note payable for equipment financing, bearing
interest at 15.175%, due in monthly installments through
September 1999.......................................... $1,496,214 $ --
Shareholder loan payable bearing interest at prime rate
plus 3 points, due in its entirety on October 31, 2000.. -- 2,334,548
Less: current portion.................................... 686,645 --
---------- ----------
Long-term debt........................................... $ 809,569 $2,334,548
========== ==========
</TABLE>
There was no long-term debt outstanding as of September 30, 1999.
7. Income Taxes:
Income (loss) before income taxes and minority interest and the provision
(benefit) for taxes on income (loss) consisted of the following:
<TABLE>
<CAPTION>
Nine-Months
Year Ended December 31,
------------------------------------- Ended September 30,
1996 1997 1998 1999
----------- ----------- ----------- -------------------
(unaudited)
<S> <C> <C> <C> <C>
Provision (benefit) for
taxes on loss:
Current--
Federal............... $(1,884,825) $(2,334,734) $(3,585,216) $(2,627,750)
State and local....... (332,616) (412,011) (632,685) (463,721)
Deferred--
Federal............... 47,434 102,161 64,199 1,698
State and local....... 8,371 18,028 11,329 300
----------- ----------- ----------- -----------
$(2,161,636) $(2,626,556) $(4,142,373) $(3,089,473)
=========== =========== =========== ===========
</TABLE>
A reconciliation of the difference between the statutory U.S. Federal Income
Tax Rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Nine-Months
Year Ended December 31,
------------------------------------- Ended September 30,
1996 1997 1998 1999
----------- ----------- ----------- -------------------
(unaudited)
<S> <C> <C> <C> <C>
Statutory federal income
tax rate............... $(1,410,429) $(2,331,874) $(3,422,611) $(2,617,785)
State and local taxes on
income, net of federal
income tax benefit..... (248,899) (411,507) (603,990) (461,962)
Depreciation and
amortization........... (37,771) 26,613 (18,047) (1,902)
Restructuring and
severance.............. (427,358) 69,122 (121,394) (15,762)
Other................... (37,179) 21,090 23,669 7,938
----------- ----------- ----------- -----------
Effective rate.......... $(2,161,636) $(2,626,556) $(4,142,373) $(3,089,473)
=========== =========== =========== ===========
</TABLE>
F-26
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
The tax effects of temporary differences that give rise to a significant
portion of the deferred income taxes are as follows:
<TABLE>
<CAPTION>
Nine-Months
December 31,
-------------------------- Ended September 30,
1997 1998 1999
------------ ------------ -------------------
(unaudited)
<S> <C> <C> <C>
Deferred income tax assets
(liabilities) net:
Depreciation and
amortization............... $ 375,209 $ 354,654 $ 352,489
Restructuring and
severance.................. 174,173 35,905 17,952
Net operating loss.......... 10,874,459 15,592,622 19,113,806
Other....................... 1,071 1,116 1,116
Less: valuation allowance... (11,424,912) (15,984,297) (19,485,363)
------------ ------------ ------------
Total deferred income
taxes, net............... $ -- $ -- $ --
============ ============ ============
</TABLE>
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and
liabilities. Deferred tax assets result principally from recording certain
expenses in the financial statements, which are not currently deductible for
tax purposes. Deferred tax liabilities result principally from expenses which
are currently deductible for tax purposes, but have not yet been expensed in
the financial statements.
8. Shareholders' Equity (Deficit):
Preferred Stock
In February 1996, the Company's shareholders authorized an increase in the
number of shares of preferred stock from 2,700,000 to 3,978,690 with a par
value of $.01. The Company has designated and sold 722,850 shares as Series A
Preferred Stock, 448,933 shares as Series B Preferred Stock, 1,433,408 shares
as Series C Preferred Stock and 623,500 shares as Series D Preferred Stock.
The Series A and B Preferred Stock are convertible into an equal number of
common shares at the holder's option, subject to adjustment for antidilution.
Each share of the series C Preferred Stock is convertible into 1.4 shares of
common shares at the holder's option, subject to adjustment for antidilution.
The holders of Series A, B and C Preferred Stock are entitled to receive
dividends as and if declared by the Board of Directors. In the event of
liquidation or dissolution of the Company, the holders of Series A, B and C
Preferred Stock are entitled to receive all accrued dividends, if applicable,
plus the liquidation price of $2.67, $8.91 and $9.00 per share, respectively.
Subject to certain provisions, registration rights, as defined in the
agreement, may be exercised after the earlier of (a) July 31, 1998, or (b) the
effective date of the first registration statement for a public offering of
securities of the Company.
Series D Preferred Stock
On November 21, 1997, the Company sold 623,500 shares of Series D Preferred
Stock for net proceeds of $8,016,996. The Series D Preferred Stock is
convertible into an equal number of common shares at the holder's option,
subject to adjustment for antidilution, and is automatically converted to
common stock in the event of a public offering of securities of the Company.
The holders of Series D Preferred Stock are entitled to receive
F-27
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
dividends as and if declared by the Board of Directors. In the event of
liquidation or dissolution of the Company, the holders of Series D Preferred
Stock are entitled to receive all accrued dividends, if applicable, plus a
liquidation price per share of $14.03.
Subject to certain provisions, registration rights, as defined in the
agreement, may be exercised after the earlier of (a) July 31, 1998, or (b) the
effective date of the first registration statement for a public offering of
securities of the Company.
Common Stock:
Authorized Shares
During 1997, the Company's Board of Directors and its shareholders approved
an increase in authorized shares of common stock from 6,000,000 to 7,350,000.
Restricted Stock
In 1993, the Company issued 984,000 shares to the Company's founders. In the
opinion of the Company's management and Board of Directors, these shares were
issued at their fair market value at the time of issuance. As set forth in the
terms and agreements under the Company's sale of Series A Preferred Stock, all
restrictions on these shares were to lapse after four years or on an
accelerated basis based on the achievement of certain milestones. In
connection with the sale of Series C Preferred Stock in 1996, these vesting
restrictions and related milestones were eliminated and all restricted shares
were fully vested.
Private Placement
The Company has previously sold 131,250 common shares for $350,000 pursuant
to a private placement agreement dated March 22, 1993. In accordance with this
agreement, the holders of these shares shall have the right, on two occasions,
to participate on a "piggy-back" basis in a registration by the Company under
the Securities Act of 1933, as amended, subject to certain restrictions, for a
period ending on May 28, 1998, and commencing twelve months from the closing
of an initial public offering of the securities of the Company.
Purchase of Treasury Stock
The Company previously terminated two employees who were formerly owners of
the acquired entity and initiated a pre-emptive suit against these
individuals, which resulted in a counter-suit. On February 9, 1996, the
Company paid $900,000 to these individuals, as part of a settlement of the
suit and counter-suit, to (i) repurchase the 123,456 shares of the Company's
common stock issued in the acquisition at an aggregate price of $185,184 and
(ii) settle additional amounts due to these individuals. The Company retired
the treasury stock acquired in this transaction in 1996.
Common Stock Options
On March 11, 1994, the Company's Board of Directors approved the Physicians'
Online, Inc. Stock Option Plan (the "Plan") to enable the Company to attract,
retain and motivate key employees, directors and consultants. The Plan
provides both for the granting of both qualified incentive stock options to
employees of the Company and for the granting of nonqualified stock options to
persons other than employees. The Plan is administered by the Board of
Directors, which selects participants based on the optionee's capacity to
contribute in a substantial
F-28
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
manner to the Company's success. Options granted may not have terms exceeding
10 years (5 years for incentive stock options granted to a holder of more than
10% of the total combined voting power of all stock of the Company) and may
not provide for an option exercise price of less than 100% of the fair market
value (110% of the fair market value for incentive options granted to a holder
of more than 10% of the total combined voting power of all stock of the
Company) of the Company's common stock on the date of grant. Options are
neither assignable nor transferable. The Plan will terminate on March 11, 2004
unless terminated earlier by the Board of Directors or at such time as no
shares of stock remain available for issuance under the Plan.
In April 1996, the Company's Board of Directors and its shareholders
approved an amended and restated Stock Option Plan and, in October 1996,
further amended the Plan, pursuant to which options may be granted to purchase
up to 1,501,242 shares of the Company's common stock. As of December 31, 1997,
options to purchase shares of the Company's common stock had been issued at an
exercise price of $1.50 and $2.75 per share, which management believes to be
the fair market value of such shares at the date of grant.
The Company accounts for these plans under APB Opinion No. 25 "Accounting
for Stock Issued to Employees" and accordingly, no compensation cost has been
recognized.
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net loss would have been the following pro forma
amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net loss:
As Reported........................................ $(6,858,454) $(10,066,502)
Pro Forma.......................................... (6,991,810) (10,227,426)
Loss per share:
As Reported........................................ $ (4.14) $ (5.83)
Pro Forma.......................................... (4.22) (5.92)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
A summary of the status of the Amended and Restated 1994 Plan at December
31, 1998 and 1997, and changes during the years then ended, is presented in
the table and narrative below:
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
Wtd. Avg. Wtd. Avg.
Shares Ex Price Shares Ex Price
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.. 1,071,417 $1.50 769,500 $ 1.55
Granted......................... 30,000 2.75 458,500 1.67
Exercised....................... (111,667) 1.50 (23,802) (1.88)
Forfeited....................... (2,625) 1.73 (11,664) (2.23)
Expired......................... (217,625) 1.50 (47,836) (2.69)
---------- ----------
Outstanding at end of year........ 769,500 1.56 1,144,698 1.60
========== ==========
Exercisable at end of year........ 18,000 n/a 323,308 n/a
========== ==========
Weighted average fair value of
options granted.................. $ 0.41 n/a $ 0.41 n/a
========== ==========
</TABLE>
F-29
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: risk-free interest
rates of 5.56% and 6.43%, respectively; expected dividend yields of 0%;
expected lives of 5 years; expected stock price volatility of 0%.
9. Litigation:
The Company is a defendant in a lawsuit in which a former officer and
director alleges, among other things, that the Company violated securities
laws in selling stock to the former officer and that the Company breached its
employment agreement with the former officer. This action is currently in the
United States District Court in New York.
The Company has made a motion in the United States District Court action
seeking dismissal of the action. By Order dated August 14, 1997, United States
District Court Judge for the Southern District of New York (a) dismissed the
first two counts of the former officer's Amended Complaint alleging violation
of certain provisions of the Securities Act of 1933 with prejudice, and (b)
dismissed the third, fourth and sixth counts of the former officer's Amended
Complaint alleging securities fraud, common law fraud and negligent
misrepresentation; with leave to replead. By letter dated November 4, 1997,
the former officer notified the Court of the former officer's decision not to
replead the former officer's third, fourth and sixth counts at this time.
Management, based on the advice of its legal counsel, believes that the
ultimate outcome of this action will not have a material adverse effect on the
Company's results of operations.
On July 22, 1997, a suit was filed against the Company in the Los Angeles,
California State Superior Court alleging that the Company, its former
subsidiary and two former officers of the Company breached a contract with and
committed fraud against the Entertainment Industry Development Corporation
("EIDC"). The suit relates to an alleged contract entered into by the former
subsidiary in 1995; the former subsidiary was merged into the Company and its
operations were substantially closed prior to June 30, 1996.
In July 1998, the Company entered into a Settlement and Mutual Release
Agreement with EIDC, which did not have a materially adverse effect on the
Company's results of operations.
10. Commitments and Contingencies:
As of December 31, 1998, the Company has leased 26,600 square feet of office
space in Tarrytown, New York. Leases for this space run through March 31,
2000, and provide for annual rent with immaterial escalations through the end
of the lease terms. The Company has an additional lease in Glendale,
California, which expires on March 31, 2000.
The Company has also entered into several operating leases for office
equipment.
Future minimum payments for operating leases at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Years ending December 31:
-------------------------
<S> <C>
1999.......................................................... $759,789
2000.......................................................... 190,779
</TABLE>
Rental expense for each of the three years ended December 31, 1998 was
$555,705, $539,011 and $481,928, respectively.
F-30
<PAGE>
PHYSICIANS' ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 and 1997
11. Subsequent Events
On March 9, 1999, the Company signed a letter of intent with two entities
acting as potential buyers of the Company subject to certain financing
conditions including loans to the Company in the aggregate of $10 million,
repayable in full on February 28, 2000, plus interest at the rate of 14% per
annum payable beginning on September 1, 1999. The Company utilized this loan
to repay a $4,500,000 short-term note payable that was outstanding as of
December 31, 1998. On July 9, 1999, the letter of intent expired with the
potential buyers and no further transactions were consummated with these
entities.
On July 16, 1999, the Company entered into several note payable agreements
with certain shareholders for total aggregate proceeds of $3,000,000. The
notes bear interest at the prime rate plus three percent and are due in full
on February 28, 2000.
12. Events Occurring Subsequent to the date of the Auditors' Report
(Unaudited)
Mediconsult.com, Inc.
On September 7, 1999, the Company announced that it had entered into a
definitive agreement to merge with Mediconsult.com, Inc. ("Mediconsult"). Each
share and option of the Company's common stock and preferred stock will be
converted into the right to receive shares of Mediconsult common stock in
accordance with the conversion formula.
Repayment of Short-Term Loans
In connection with the above merger agreement, Mediconsult repaid
outstanding loans payable of the Company in the aggregate amount of
$10,000,000 to two entities, which were formerly potential buyers of the
Company.
F-31
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
MEDICONSULT.COM, INC.,
PMCI, INC.,
PHYSICIANS' ONLINE, INC.
and
CERTAIN SHAREHOLDERS PARTIES HERETO
dated as of September 7, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1. THE MERGER........................................................ A-7
1.2. CONVERSION OF SHARES.............................................. A-7
SURRENDER OF CERTIFICATES; PAYMENT OF MERGER CONSIDERATION;
1.3. DISSENTING SHARES................................................. A-9
1.4. ESCROW............................................................ A-10
1.5. CLOSING........................................................... A-11
1.6. FURTHER ASSURANCES................................................ A-11
ARTICLE II
THE SURVIVING CORPORATION
2.1. CERTIFICATE OF INCORPORATION...................................... A-11
2.2. BY-LAWS........................................................... A-11
2.3. BOARD OF DIRECTORS................................................ A-11
2.4. OFFICERS.......................................................... A-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1. COMPANY'S ORGANIZATION AND GOOD STANDING.......................... A-11
3.2. POWER AND AUTHORITY; EXECUTION AND DELIVERY....................... A-12
3.3. CAPITALIZATION.................................................... A-12
3.4. SUBSIDIARIES...................................................... A-12
3.5. VALID ISSUANCE OF PREFERRED AND COMMON STOCK...................... A-12
3.6. FINANCIAL STATEMENTS.............................................. A-13
3.7. CHANGES........................................................... A-13
3.8. GOVERNMENTAL APPROVALS AND FILINGS................................ A-14
3.9. LITIGATION........................................................ A-14
3.10. PATENTS AND TRADEMARKS............................................ A-14
3.11. NO CONFLICT....................................................... A-15
3.12. AGREEMENTS........................................................ A-15
3.13. TITLE TO PROPERTY AND ASSETS...................................... A-16
3.14. LABOR AGREEMENTS AND ACTIONS; EMPLOYEE BENEFITS................... A-16
3.15. TAX MATTERS....................................................... A-17
3.16. MINUTE BOOKS...................................................... A-18
3.17. POOLING OF INTERESTS.............................................. A-18
3.18. CERTAIN INFORMATION............................................... A-18
3.19. YEAR 2000 COMPLIANCE.............................................. A-18
3.20. COMPLIANCE WITH LAWS.............................................. A-19
3.21. RELATED PARTY TRANSACTIONS........................................ A-19
3.22. INSURANCE......................................................... A-19
3.23. TRADE RELATIONS................................................... A-19
3.24. PAYABLES AND RECEIVABLES.......................................... A-19
3.25. BROKERS AND FINDERS............................................... A-19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND THE MERGER SUBSIDIARY
4.1. PARENT'S AND MERGER SUBSIDIARY'S ORGANIZATION AND GOOD STANDING... A-20
4.2. POWER AND AUTHORITY; EXECUTION AND DELIVERY....................... A-20
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
4.3. GOVERNMENTAL APPROVALS AND FILINGS................................. A-20
4.4. NO CONFLICT........................................................ A-20
4.5. MERGER CONSIDERATION............................................... A-21
4.6. REPORTS AND FINANCIAL STATEMENTS................................... A-21
4.7. CAPITALIZATION OF PARENT; OWNERSHIP OF MERGER SUBSIDIARY........... A-21
4.8. CERTIFICATES OF INCORPORATION AND BY-LAWS.......................... A-21
4.9. NO PRIOR ACTIVITIES................................................ A-22
4.10. POOLING OF INTERESTS............................................... A-22
4.11. OPINION OF FINANCIAL ADVISOR....................................... A-22
4.12. CERTAIN INFORMATION................................................ A-22
4.13. YEAR 2000 COMPLIANCE............................................... A-22
4.14. BROKERS AND FINDERS................................................ A-22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS
5.1. CAPACITY AND AUTHORITY............................................. A-22
5.2. GOVERNMENT APPROVALS AND FILINGS................................... A-22
5.3. NO CONFLICT........................................................ A-23
ARTICLE VI
COVENANTS OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
6.1. REGULAR COURSE OF BUSINESS......................................... A-23
6.2. RESTRICTED ACTIVITIES AND TRANSACTIONS............................. A-23
6.3. APPROVAL OF SHAREHOLDERS........................................... A-24
6.4. NO-SALE AGREEMENTS................................................. A-24
6.5. CONSENTS, APPROVALS AND FILINGS.................................... A-24
6.6. ACCESS TO BOOKS, RECORDS AND OTHER INFORMATION..................... A-24
6.7. NO SOLICITATION OF TRANSACTIONS.................................... A-25
6.8. SHAREHOLDER NOTES.................................................. A-25
6.9. TAXES.............................................................. A-25
6.10. CONFIDENTIALITY.................................................... A-25
ARTICLE VII
COVENANTS OF THE PARENT
7.1. CONSENTS, APPROVALS AND FILINGS.................................... A-26
7.2. INDEMNIFICATION.................................................... A-26
7.3. CURRENT PUBLIC INFORMATION......................................... A-26
7.4. PRESERVATION OF TAX-FREE MERGER.................................... A-26
7.5. CERTAIN EMPLOYEE MATTERS........................................... A-26
7.6. APPROVAL OF SHAREHOLDERS........................................... A-26
7.7. COMBINATIONS....................................................... A-27
7.8. PARENT LOANS....................................................... A-27
7.9. BOARD OF DIRECTORS................................................. A-27
ARTICLE VIII
MUTUAL COVENANTS
8.1. PROXY STATEMENT; REGISTRATION STATEMENT............................ A-28
8.2. PAYMENT OF EXPENSES................................................ A-28
8.3. PUBLIC ANNOUNCEMENTS............................................... A-29
8.4. POOLING OF INTERESTS AND REORGANIZATION............................ A-29
8.5. ADDITIONAL AGREEMENTS.............................................. A-29
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE PARENT
<C> <S> <C>
9.1. REPRESENTATIONS AND WARRANTIES TRUE............................. A-29
9.2. PERFORMANCE OF COVENANTS........................................ A-29
9.3. NO CLOSING MATERIAL ADVERSE EFFECT.............................. A-29
9.4. OPINION OF COUNSEL.............................................. A-30
9.5. SHAREHOLDER APPROVALS........................................... A-30
9.6. OTHER APPROVALS AND CONSENTS.................................... A-30
9.7. NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION............... A-30
9.8. CERTIFICATE OF THE COMPANY...................................... A-31
9.9. DISSENTING SHARES............................................... A-31
9.10. CERTIFICATE OF MERGER........................................... A-31
9.11. REGISTRATION STATEMENT.......................................... A-31
9.12. ESCROW AGREEMENT................................................ A-31
9.13. AFFILIATE AGREEMENTS............................................ A-31
ARTICLE X
CONDITIONS TO OBLIGATIONS OF THE COMPANY
10.1. REPRESENTATIONS AND WARRANTIES TRUE............................. A-31
10.2. PERFORMANCE OF COVENANTS........................................ A-31
10.3. NO CLOSING MATERIAL ADVERSE EFFECT.............................. A-31
10.4. OPINIONS OF COUNSEL............................................. A-32
10.5. SHAREHOLDER APPROVALS........................................... A-32
10.6. OTHER APPROVALS AND CONSENTS.................................... A-32
10.7. NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION............... A-32
10.8. CERTIFICATE OF PARENT AND THE MERGER SUBSIDIARY................. A-32
10.9. PARENT OPTIONS.................................................. A-32
10.10. REGISTRATION STATEMENT.......................................... A-33
10.11. CERTIFICATE OF MERGER........................................... A-33
10.12. TAX-FREE MERGER................................................. A-33
10.13. LISTING OF PARENT SHARES........................................ A-33
ARTICLE XI
TERMINATION
11.1. TERMINATION..................................................... A-33
11.2. EFFECT OF TERMINATION........................................... A-33
11.3. TERMINATION FEE................................................. A-33
ARTICLE XII
SHAREHOLDER REPRESENTATIVE
12.1. DESIGNATION..................................................... A-34
12.2. AUTHORITY....................................................... A-34
12.3. RESIGNATION..................................................... A-35
12.4. RELIANCE BY THIRD PARTIES ON THE SHAREHOLDER REPRESENTATIVE'S
AUTHORITY....................................................... A-35
12.5. EXCULPATION AND INDEMNIFICATION................................. A-35
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE XIII
INDEMNIFICATION
<S> <C> <C>
13.1. INDEMNIFICATION...................................................... A-35
13.2. SURVIVAL............................................................. A-37
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1. NOTICES, ETC......................................................... A-37
14.2. ENTIRE AGREEMENT; AMENDMENT.......................................... A-38
14.3. INDIVIDUAL PROVISIONS................................................ A-38
14.4. REMEDIES............................................................. A-38
14.5. GENERAL.............................................................. A-38
14.6. GOVERNING LAW; CONSENT TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.. A-38
</TABLE>
A-5
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 7, 1999, by and among
Mediconsult.com, Inc., a Delaware corporation (the "Parent"), PMCI, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Parent (the "Merger
Subsidiary"), Physicians' Online, Inc., a Delaware corporation (the "Company"),
and the persons named as "Principal Shareholders" on the signature pages of
this Agreement (each a "Principal Shareholder" and collectively, the "Principal
Shareholders").
WITNESSETH:
WHEREAS, the Parent desires to combine with the Company, and the Principal
Shareholders and the Company desire that the Parent combine with the Company,
all on the terms and conditions set forth in this Agreement;
WHEREAS, it is the intention of the parties that the Merger (as defined
below) shall qualify as: (i) a "pooling of interests" under generally accepted
accounting principles ("GAAP"); and (ii) a tax free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that this Agreement shall qualify as a "plan of reorganization" within the
meaning of Section 368 of the Code; and
WHEREAS, the Boards of Directors of the Company, the Parent and the Merger
Subsidiary have approved and adopted, at meetings of each of such Boards of
Directors, this Agreement and have authorized the execution hereof; and
WHEREAS, the Principal Shareholders have agreed to vote to adopt this
Agreement and to approve the Merger and are entitled to cast (i) at least a
majority of the votes entitled to be cast by the stockholders of the Company
("Shareholder Approval"), which is the minimum vote required to adopt this
Agreement under the General Corporation Law of the State of Delaware (the
"Delaware GCL") and (ii) at least 66 23% of the votes entitled to be cast by
the (x) holders of the outstanding shares of Company Preferred Stock (as
defined below) and (y) Steven Hochberg, Christian Mayaud, M.D., William
Greenberg, M.D., Jonathan Edelson, M.D., the Hochberg Family Limited
Partnership, the Edelson Investment Trust f/b/o Zachary Edelson, the Edelson
Investment Trust f/b/o Eli Edelson and the Mayaud Family Limited Partnership
(collectively, the "Founders"), as holders of Common Stock of the Company, par
value $.01 per share, voting as a single class calculated as if each share of
Company Preferred Stock had been fully converted into shares of Common Stock of
the Company, which is the minimum vote required to approve the Merger under the
Investors' Rights Agreement, dated as of November 21, 1997 (the "Investors
Rights Agreement"), among the Company and the other parties thereto (such
minimum votes, collectively, the "Required Votes");
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and the representations, warranties, conditions and promises
hereinafter contained, the parties to this Agreement hereby agree as follows:
A-6
<PAGE>
ARTICLE I
THE MERGER
1.1. The Merger.
(a) At the Effective Time (as defined in Section 1.1(b)), the Merger
Subsidiary shall be merged with and into the Company (the "Merger"), in
accordance with the General Corporation Law of the State of Delaware (the
"Delaware GCL"), whereupon the separate existence of the Merger Subsidiary
shall cease and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or waiver of all conditions
to the Merger, the Company and the Merger Subsidiary will file a certificate of
merger (which shall be in form and substance reasonably satisfactory to the
parties hereto) with the Secretary of State of the State of Delaware (the
"Secretary of State") in accordance with Section 251(c) of the Delaware GCL and
make all other filings or recordings required by the Delaware GCL in connection
with the Merger. The Merger shall become effective on such date as the
certificate of merger is duly filed with the Secretary of State or at such
later date as is specified in the certificate of merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities, liabilities and duties of the Company and
the Surviving Corporation as provided in the Delaware GCL.
1.2. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the Merger Subsidiary or the Company:
(a) Each common share of the Merger Subsidiary outstanding immediately
prior to the Effective Time shall be converted into and become the same number
of common shares of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted.
(b) Each share of Series A Convertible Preferred Stock of the Company, par
value $.01 per share, issued and outstanding immediately prior to the Effective
Time (the "Series A Shares") other than Dissenting Shares (as defined in
Section 1.3(d)) shall be converted into the right to receive that number of
fully paid and nonassessable shares of the common stock, $.001 par value per
share of the Parent (the "Parent Common Stock") equal to the quotient of (A)
$2.67 (the "Series A Liquidation Preference"), divided by (B) the Average
Closing Price (as hereinafter defined) per share of Parent Common Stock. As
used herein, "Average Closing Price" means the average of the closing prices
per share of Parent Common Stock on The NASDAQ Stock Market's National Market
(the "Exchange") for the ten trading days immediately prior to two days before
the Effective Time.
(ii) Each share of Series B Convertible Preferred Stock of the
Company, par value $.01 per share, issued and outstanding immediately prior
to the Effective Time (the "Series B Shares") other than Dissenting Shares
shall be converted into the right to receive that number of fully paid and
nonassessable shares of Parent Common Stock equal to the quotient of (A)
$8.91 (the "Series B Liquidation Preference"), divided by (B) the Average
Closing Price per share of Parent Common Stock.
(iii) Each share of Series C Convertible Preferred Stock of the
Company, par value $.01 per share, issued and outstanding immediately prior
to the Effective Time (the "Series C Shares") other than Dissenting Shares
shall be converted into the right to receive that number of fully paid and
nonassessable shares of Parent Common Stock equal to the quotient of (A)
$9.00 (the "Series C Liquidation Preference"), divided by (B) the Average
Closing Price per share of Parent Common Stock.
(iv) Each share of Series D Convertible Preferred Stock of the
Company, par value $.01 per share, issued and outstanding immediately prior
to the Effective Time (the "Series D Shares" and, together with the Series
A, B and C Shares, the "Company Preferred Stock" or "Company Preferred
Shares") other
A-7
<PAGE>
than Dissenting Shares shall be converted into the right to receive that
number of fully paid and nonassessable shares of Parent Common Stock equal
to the quotient of (A) $14.03 (the "Series D Liquidation Preference"),
divided by (B) the Average Closing Price per share of Parent Common Stock.
(v) Each share of common stock of the Company, $.01 par value per
share (the "Company Common Shares") issued and outstanding immediately
prior to the Effective Time other than Dissenting Shares shall be converted
into the right to receive that number of fully paid and nonassessable
shares of Parent Common Stock equal to the quotient of (A) $.01 (the
"Common Share Amount") divided by (B) the Average Closing Price per share
of Parent Common Stock.
(vi) In addition to, but after providing for the merger consideration
described in subsections (i) through (v) above, each Company Common Share
issued and outstanding immediately prior to the Effective Time and each
Company Common Share issuable upon conversion of each share of the Company
Preferred Stock (the "Company Shares") other than Dissenting Shares shall
be converted into the right to receive that number of fully paid and
nonassessable shares of Parent Common Stock determined as provided below:
AEP
---
20,000,000 - (ACAP + ACDE) + ACP
--------------------------------
ACSE
where:
<TABLE>
<C> <S>
ACAP = the quotient of (A) (x) the aggregate liquidation preferences (measured
by reference to the Series A Liquidation Preference, the Series B
Liquidation Preference, the Series C Liquidation Preference and the
Series D Liquidation Preference, as applicable) of all the Company
Preferred Stock issued and outstanding immediately prior to the
Effective Time (including Dissenting Shares) plus (y) the Common Share
Amount times the number of Company Common Shares issued and outstanding
immediately prior to the Effective Time (including Dissenting Shares)
divided by (B) the Average Closing Price per share of Parent Common
Stock;
ACDE = the quotient of (A) the aggregate Company Deal Expenses (as defined in
Section 8.2) divided by (B) the Average Closing Price per share of
Parent Common Stock;
AEP = the aggregate exercise price of Options (as defined in Section 1.2(e))
outstanding and unexercised immediately prior to the Effective Time;
ACP =the Average Closing Price per share of Parent Common Stock; and
ACSE = the aggregate number of Company Common Shares issued and outstanding
immediately prior to the Effective Time (including Dissenting Shares),
treating each Company Preferred Share issued and outstanding at such
time (including Dissenting Shares) as if it had been fully converted
into Company Common Shares at such time and treating each Company
Common Share issuable pursuant to a then outstanding Option, whether
vested or unvested and whether or not exercisable, as also issued and
outstanding at such time as if such Option had been fully exercised.
</TABLE>
(vii) If the number of shares of Parent Common Stock outstanding at
any time after the date hereof and before, or effective at, the Effective
Time, is increased by a stock dividend payable in shares of Parent Common
Stock or by a subdivision or split-up of shares of Parent Common Stock or
decreased by a combination of shares of Parent Common Stock, then the
number 20,000,000 in the formula above shall be appropriately increased or
decreased to reflect such dividend, subdivision, split-up or combination.
(viii) Notwithstanding the foregoing provisions of this Section
1.2(b), in the event the Merger Consideration payable as provided in
Section 1.2(b)(i)-(v) above is insufficient to permit payment of the full
liquidation preferences of the Company Preferred Stock, and the Common
Share Amount, the remaining balance of the Merger Consideration shall be
allocated among the Shares (as defined in Section 1.2(d) below) as provided
in Article IVB2 of the Restated Certificate of Incorporation of the
Company.
A-8
<PAGE>
(c) Immediately after the Effective Time, holders of the Company Shares
("Company Shareholders") shall be entitled to receive 90% of the shares of the
Parent Common Stock into which their Company Shares were converted pursuant to
this Section 1.2(b)(i)-(vi), and the remaining 10% of the shares of Parent
Common Stock into which the Company Shares were converted pursuant to this
Section 1.2(b)(i)-(vi) (the "Escrow Shares") shall be deposited in escrow
pursuant to Section 1.4 hereof and shall be held and disposed of in accordance
with the terms of the Escrow Agreement attached as Exhibit 1.2 hereto (the
"Escrow Agreement").
(d) Subject to Section 1.3(d), all of the Company Common Shares, Series A
Shares, Series B Shares, Series C Shares, Series D Shares outstanding
immediately prior to the Effective Time (collectively, the "Shares") shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist and each holder of a certificate representing any such
Shares (a "Certificate") other than Dissenting Shares shall cease to have any
rights with respect thereto, except the right to receive consideration (the
"Merger Consideration") consisting of the number of shares of Parent Common
Stock specified in Section 1.2(b)(i)-(vii), together with any cash in lieu of
fractional shares of Parent Common Stock to be paid pursuant to Section 1.3(c),
upon the surrender of such Certificate in accordance with Section 1.3(a),
without interest. Notwithstanding anything to the contrary contained herein (i)
Merger Consideration does not include the number of shares of Parent Common
Stock (based on the Average Closing Price per share) equal to the ACDE and (ii)
Merger Consideration is not to exceed the sum of 20,000,000 shares of Parent
Common Stock (as reduced by the number of shares of Parent Common Stock (based
on the Average Closing Price per share) equal to the ACDE), plus the number of
shares of Parent Common Stock expressed by the fraction AEP/ACP, as such number
of shares may be adjusted pursuant to Section 1.2(b)(vii).
(e) Effective as of the Effective Time, each option to purchase Company
Common Shares (an "Option"), whether vested or unvested and whether or not
exercisable, shall be converted into an option (a "Parent Option") to purchase,
for the same aggregate exercise price, that number of shares of Parent Common
Stock that such holder would have received had such holder exercised his
Options immediately prior to the Effective Time, with no change to the vesting
period of such Options and with no other changes to the terms thereof. If the
foregoing calculation results in an assumed Option being exercisable for a
fraction of a share of Parent Common Stock, then the number of shares of Parent
Common Stock subject to such Option shall be rounded to the nearest whole
number of shares, preserving, however, the overall intrinsic value of such
Option. Each Option that is a statutory option (an "ISO") that, at the
Effective Time and after giving effect to amendments, consents and acceleration
of vesting, meets the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") will be converted into a Parent Option that is
also an ISO.
1.3. Surrender of Certificates; Payment of Merger Consideration;
Dissenting Shares.
(a) From and after the Effective Time, subject to the Escrow Agreement,
each holder of a Company Common Share or Company Preferred Share that is issued
and outstanding immediately prior to the Effective Time that is not a
Dissenting Share shall be entitled to receive from the Parent, upon surrender
of the certificate formerly representing such Company Common Share or Company
Preferred Share and a duly executed and properly completed Transmittal Form (as
defined below), the Merger Consideration therefor, through delivery of one or
more certificates for Parent Common Stock (registered in the name of the holder
entitled thereto) and a check for any cash payable pursuant to Section 1.3(c)
with respect to fractional shares of Parent Common Stock. All of the shares of
Parent Common Stock issued in the Merger shall be, subject to Section 6.4 and
the Escrow Agreement, duly authorized, validly issued, fully paid and
nonassessable and, at the time of issuance, shall be free and clear of all
liens, claims, encumbrances, security interests and rights of redemption
(together, "Liens"). Promptly after the proxy statement/prospectus referred to
in Section 8.1(a) has been mailed to solicit Company Shareholder Approval, the
Parent agrees to deliver, or cause to be delivered, to each holder of Company
Common Shares or Company Preferred Shares issued and outstanding immediately
prior to the Effective Time that are not Dissenting Shares, the form (if any)
of transmittal materials that the Parent reasonably determines is necessary or
appropriate for use in paying the Merger Consideration pursuant to the Merger
(the "Transmittal Form"). From and after the Effective Time, each Certificate
which prior to the Effective Time represented Shares shall be
A-9
<PAGE>
deemed to represent only the right to receive the Merger Consideration, and
the holder of each such Certificate shall cease to have any rights with
respect to the Shares formerly represented thereby other than the right to
receive the Merger Consideration.
(b) All shares of Parent Common Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this Agreement
(including any cash paid pursuant to Section 1.3(c)) shall be deemed to have
been issued (or paid, as the case may be) at the Effective Time in full
satisfaction of all rights pertaining to the Shares represented thereby. From
and after the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporations of the Shares which were
outstanding immediately prior to the Effective Time.
(c) No certificate or scrip representing fractional shares of Parent
Common Stock will be issued in the Merger upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of the Parent. In lieu of
any such fractional shares, each holder of Shares, who would otherwise have
been entitled to a fraction of a share of Parent Common Stock in exchange for
Certificates pursuant to this Section 1.3 (which shall for purposes of this
section 1.3(c) include the escrow agent under the Escrow Agreement) shall
receive from the Surviving Corporation a cash payment in lieu of such
fractional share determined by multiplying (i) the Average Closing Price of a
whole share of Parent Common Stock by (ii) the fractional share interest to
which such holder would otherwise be entitled, rounded to the nearest whole
cent.
(d) Notwithstanding any provision of this Agreement to the contrary, each
Share the holder of which has not voted in favor of the Merger, has perfected
such holder's right to seek relief as a dissenting shareholder in accordance
with the applicable provisions of the Delaware GCL ("Appraisal") and has not
effectively withdrawn or lost such right to Appraisal (a "Dissenting Share")
shall not be converted into or represent a right to receive the Merger
Consideration, but the holder thereof shall be entitled only to such rights as
are granted by the applicable provisions of the Delaware GCL; provided,
however, that any Dissenting Share held by a person at the Effective Time who
shall, after the Effective Time, withdraw the demand for or lose the right of
Appraisal, in either case pursuant to the Delaware GCL, shall be deemed to be
converted into, as of the Effective Time, the right to receive the Merger
Consideration.
(ii) The Company shall give the Parent (x) prompt notice of any
written demands for Appraisal, withdrawals of demands for Appraisal and any
other instruments served pursuant to the applicable provisions of the
Delaware GCL relating to the Appraisal process received by the Company and
(y) the opportunity to direct all negotiations and proceedings with respect
to demands for Appraisal under the Delaware GCL. The Company will not
voluntarily make any payment with respect to any demands for Appraisal or,
except with the prior written consent of Parent, settle or offer to settle
any such demands. The Parent shall be responsible for all payments with
respect to Dissenting Shares, including, without limitation, all expenses
associated with any negotiations and proceedings with respect to demands
for Appraisal under the Delaware GCL.
1.4. Escrow. (a) On the Closing Date, the Parent shall deliver to the
Escrow Agent a certificate (issued in the name of the Escrow Agent or its
nominee) representing the Escrow Shares (the "Escrow Amount"), as described in
Section 1.2(c), for the purposes of securing the indemnification obligations
of the Company Shareholders set forth in this Agreement. The Escrow Amount
shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of the Escrow
Agreement. The adoption of this Agreement and the approval of the Merger by
the Company Shareholders and/or acceptance or receipt by them of any Merger
Consideration shall constitute approval of the Escrow Agreement and of all
arrangements relating to the foregoing.
(b) For all matters in connection with the Escrow Agreement, the imputed
rate of interest for federal income tax purposes will be the "Applicable
Federal Rate" at the Effective Time, as contemplated by Sections 483 and 1274
of the Code.
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1.5. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Howard, Smith &
Levin LLP, 1330 Avenue of the Americas, New York, New York, no later than the
second business day after satisfaction or waiver of the conditions set forth
in Articles IX and X, or at such other place or time as the parties may agree
(the "Closing Date").
1.6. Further Assurances. At the Closing and thereafter, each party hereto
will execute such further documents and instruments and take such further
actions as may reasonably be requested by one or more of the others to
consummate the Merger, to vest the Surviving Corporation with full title to
all assets, properties, rights, approvals, immunities and franchises of the
Company and to effect the other purposes of this Agreement.
ARTICLE II
THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Merger Subsidiary in effect at the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law, except that the name of the
Surviving Corporation shall initially be "Physicians' Online, Inc.".
2.2. By-Laws. At the Effective Time, the By-laws of the Merger Subsidiary
in effect at the Effective Time shall be the By-laws of the Surviving
Corporation until amended in accordance with applicable law.
2.3. Board of Directors. The Board of Directors of the Surviving
Corporation shall consist of the persons who are listed on Schedule 2.3
hereto. The Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Delaware and of the
Certificate of Incorporation and By-Laws of the Surviving Corporation.
2.4. Officers. The officers of the Company immediately prior to the
Effective Time shall continue as the officers of the Surviving Corporation in
the same capacity or capacities, each of such officers to serve, subject to
the provisions of the Certificate of Incorporation and By-Laws of the
Surviving Corporation, until his or her successor is duly elected and
qualified.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and the Merger
Subsidiary as follows:
3.1. Company's Organization and Good Standing. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority to
own, lease and operate its properties and to carry on its business as now
conducted. The Company is duly qualified to do business and in good standing
in each jurisdiction where the character of property owned or leased by it or
the nature of its activities makes such qualification necessary except for
those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Company Material Adverse Effect. As
used herein, a "Company Material Adverse Effect" means a material adverse
effect on the condition (financial or otherwise), business, assets or results
of operations of the Company or on the ability of the Company to consummate
the transactions contemplated by this Agreement; it being understood, however,
that the Company's continuing to incur losses, as long as such losses are in
the ordinary course of business and are comparable to those incurred by the
Company prior to the date hereof, shall not, alone, be deemed to be a Company
Material Adverse Effect. The Company has delivered to Parent complete and
correct copies of its Certificate of Incorporation and By-laws, in each case
as amended to the date of this Agreement.
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3.2. Power and Authority; Execution and Delivery. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
have been duly approved and authorized by all requisite corporate action of the
Company. Except for the filing of a certificate of Merger in accordance with
Section 1.1(b) and the Company Shareholder Approval in accordance with the
Delaware GCL, no further corporate actions or approvals on the part of the
Company are required under applicable law for the consummation of the Merger.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity (regardless of whether enforcement is sought in a
court of law or equity).
3.3. Capitalization. The authorized capital of the Company consists of:
(a) 3,978,690 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of which 722,850 shares have been designated Series A
Convertible Preferred Stock and are issued and outstanding as of the date
hereof, of which 448,932 shares have been designated Series B Convertible
Preferred Stock and are issued and outstanding as of the date hereof, of which
1,433,408 shares have been designated Series C Convertible Preferred Stock and
are issued and outstanding as of the date hereof, of which 623,500 shares have
been designated Series D Convertible Preferred Stock and are issued and
outstanding as of the date hereof, and of which 750,000 shares have been
designated Series E Convertible Preferred Stock none of which are issued and
outstanding as of the date hereof. The rights, privileges and preferences of
the Preferred Stock are as stated in the Certificate of Incorporation of the
Company. The shares of each series of Company Preferred Stock are convertible
into Company Common Shares in the ratios described on Schedule 3.3.
(b) 7,350,000 shares of Company Common Shares, of which 1,853,157 are
issued and outstanding and no shares are held by the Company as treasury
shares.
(c) Except for (i) the conversion privileges of the Series A Shares, the
Series B Shares, the Series C Shares and the Series D Shares and (ii) as
otherwise set forth on Schedule 3.3, (A) the Company is not a party or subject
to any agreement or understanding, and to the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects
or relates to the voting or giving of written consents with respect to any
security of the Company, (B) there is no agreement, understanding, security,
option, warrant, call, right or commitment of any kind to which the Company is
a party or by which it is bound obligating the Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of the Company or obligating the Company to
issue, grant, extend or enter into any such agreement, understanding, security,
option, warrant, call, right or commitment, (C) there are no bonds, debentures,
notes or other indebtedness or securities of the Company having the right to
vote, or convertible into, or exchangeable for, securities having the right to
vote, and (D) there are no outstanding rights, commitments, agreements,
arrangements or undertakings of any kind obligating the Company to repurchase,
redeem or otherwise acquire any shares of capital stock or other voting
securities of the Company or any securities of the type described in clause (B)
or (C) of this sentence. Attached as Schedule 3.3 is a true, correct and
complete list of each Option granted by the Company through the date of this
Agreement (other than Options which have terminated, expired or been
cancelled), setting forth for each such Option the name of the optionee, the
exercise price per share, the number of shares subject thereto and the vesting
schedule thereof. The Company has neither granted, nor agreed to grant, any
options other than the Options listed on Schedule 3.3.
3.4. Subsidiaries. The Company has no subsidiaries (as such term is
defined in Regulation S-X). The Company does not own or control, directly or
indirectly, any interest in any other corporation, association or other
business entity.
3.5. Valid Issuance of Preferred and Common Stock. The outstanding Shares
are, and all shares which may be issued pursuant to the Options or the other
arrangements described on Schedule 3.3 will be, when issued,
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duly and validly authorized and issued, fully paid and nonassessable and not
subject to preemptive rights. Except as set forth on Schedule 3.3, no shares
of capital stock or other voting securities of the Company are issued or
reserved for issuance.
3.6. Financial Statements. The Company has delivered to the Parent its
audited balance sheets as of December 31, 1998 and 1997, and the related
statements of operations, cash flows and shareholders' equity as of, and for
the 12 months ended, December 31, 1998 and 1997 (the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated. The Company has also provided the Parent
with its unaudited balance sheet as of July 31, 1999 and the related
statements of operations, cash flows and shareholders' equity as of, and for
the seven months ended, July 31, 1999 (the "Interim Financial Statements").
The Financial Statements and Interim Financial Statements fairly present the
financial condition, cash flows and results of operations of the Company as of
the dates and for the periods indicated therein, subject, in the case of the
Interim Financial Statements, to normal year-end audit adjustments which are
neither individually nor in the aggregate expected to be material. For the
purposes of this Agreement all financial statements referred to in this
Section shall include any notes and schedules to such financial statements.
There were no liabilities or obligations (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) in respect of the
Company which were required to be, in accordance with GAAP, and were not shown
or provided for on the balance sheets of the Company included in the Financial
Statements to which such liabilities or obligations related. Except as set
forth in Schedule 3.6, (i) since July 31, 1999 the Company has not incurred
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise, and whether due or to become due), except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice and (ii) all reserves established by the Company are reflected on the
balance sheets of the Company included in, or in the footnotes to, the
Financial Statements and Interim Financial Statements and are adequate and
there are no loss contingencies that are required to be accrued by Statement
of Financial Accounting Standard No. 5 of the Financial Accounting Standards
Boards which are not provided for on such balance sheets.
3.7. Changes. Except as set forth on Schedule 3.7, since December 31,
1998 there has not been:
(a) any adverse change in the assets, condition (financial or otherwise),
affairs, business, operations, properties, assets, liabilities or condition of
the Company, except for changes in the ordinary course of business consistent
with past practice which do not constitute, either individually or in the
aggregate, a Company Material Adverse Effect;
(b) any change in the liabilities or obligations of the Company,
contingent or otherwise, whether due or to become due, whether by way of
guaranty, endorsement, indemnity, warranty or otherwise, except for the
incurrence of current liabilities in the ordinary course of business,
consistent with past practice which do not constitute, individually or in the
aggregate, a Company Material Adverse Effect;
(c) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, operations or business of
the Company;
(d) any waiver, amendment or termination by or on behalf of the Company
of a valuable right or any waiver or cancellation or of a claim or debt owed
to it;
(e) any loans or extension of credit made by the Company other than
advances of expenses made in the ordinary course of business consistent with
past practice;
(f) any declaration, setting aside or payment of any dividend or other
distribution of the assets of the Company or any direct or indirect
redemption, purchase or acquisition of any securities of the Company;
(g) any incurrence of indebtedness for money borrowed or any other
liabilities individually in excess of $100,000 or, in the case of indebtedness
and/or liabilities individually less than $100,000, in excess of $200,000 in
the aggregate;
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(h) any sale, exchange, pledge, assignment, creation of any encumbrance
or other disposition of any of the Company's assets;
(i) any event or condition of any character which could reasonably be
expected to result in a Company Material Adverse Effect;
(j) any increase in compensation of any of its existing officers, or the
rate of pay of its employees as a group, except as part of regular
compensation increases in the ordinary course of business;
(k) any resignation or termination of employment of any officer or key
employee of the Company;
(l) any payment, discharge or satisfaction of any claim or obligations of
the Company except in the ordinary course of business, consistent with past
practice;
(m) any write-down of the value of any asset or inventory of the Company
or any write-off as uncollectable of any accounts or notes receivable or any
portion thereof, other than in the ordinary course of business consistent with
past practice;
(n) any capital expenditure or commitment or addition to property, plant
or equipment of the Company in excess of $100,000 individually or $300,000 in
the aggregate;
(o) other than as shown on Schedule 3.3, any issuance or sale, or any
contract entered into for the issuance or sale, of any shares of capital stock
or securities convertible into or exercisable for shares of capital stock of
the Company;
(p) any change in the independent public accountants or any change in
accounting methods or policies of the Company; or
(q) any agreements to do or enter into any of the foregoing.
3.8. Governmental Approvals and Filings. Except as set forth in Schedule
3.8 and for the filing of a certificate of merger in accordance with the
Delaware GCL, no approval, authorization, consent, license, clearance or order
of, declaration or notification to, or filing, registration or compliance
with, any governmental or regulatory authority, is required in order to permit
the Company to enter into this Agreement or to consummate the transactions
contemplated herein.
3.9. Litigation. Except as listed on Schedule 3.9,(a) (i) as of the date
hereof, there is no action, suit, proceeding or investigation pending or, to
the Company's knowledge, threatened against the Company and (ii) as of the
Closing, there will be no action, suit, proceeding or investigation pending,
or to the Company's knowledge, threatened which might reasonably be expected
to result, either individually or in the aggregate, in a Company Material
Adverse Effect, including without limitation, in either case, actions pending
or threatened involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers and
actions challenging the legality, validity of enforceability of any
Intellectual Property; and (b) the Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality, which remains unsatisfied. As used in
this Agreement, "knowledge of the Company" and "Company's knowledge" means the
actual knowledge, after reasonable inquiry of appropriate personnel, of David
Richards, Jean-Louis Ecochard or Kathi Fusco.
3.10. Patents and Trademarks. As used in this Agreement, "Intellectual
Property" means (i) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all
patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
re-examinations thereof, (ii) all trademarks, service marks, trade
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names, logos, corporate names and Internet domain names, including all
goodwill associated therewith, and all applications, registrations and
renewals in connection therewith, (iii) all copyrights and all applications,
registrations and renewals in connection therewith, (iv) all trade secrets and
confidential business information (including ideas, research and development,
copyrights, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information and business and
marketing plans and proposals), (v) all computer programs and software
(including data and related documents) and (vi) all other proprietary rights.
Schedule 3.10 contains a complete list of all Intellectual Property registered
in the Company's name and material to the Company's business as conducted as
of the date hereof (collectively, the "Registered Intellectual Property"),
which registrations are valid. The Company's use of Intellectual Property
(excluding use pursuant to "click wrap" or "shrink wrap" agreements or other
similar agreements for commercially available Other Intellectual Property)
does not constitute an infringement of any third party's rights that could
reasonably be expected to result in a Company Material Adverse Effect. Except
as set forth on Schedule 3.10, the Company owns, free and clear of any Lien,
all right, title and interest to the Registered Intellectual Property. With
respect to Intellectual Property (other than the Registered Intellectual
Property) used or held for use by the Company in its business as conducted as
of the date hereof (the "Other Intellectual Property"), the Company owns,
controls or has a right to use, to the extent necessary to conduct its
business in a manner generally consistent with its past practice, such Other
Intellectual Property which is material to the Company's business. Except as
set forth on Schedule 3.10, the Company is not a party to any outstanding
options, licenses or agreements of any kind relating to (i) any Other
Intellectual Property owned by any other person or entity (excluding "click
wrap" or "shrink wrap" agreements or agreements for commercially available
Other Intellectual Property), or (ii) the Registered Intellectual Property.
The Company has not during the preceding three years received any
communications or claims nor, to the Company's knowledge, is there any
threatened claim, alleging that the Company has infringed upon, or, by
conducting its business as proposed, would infringe upon the intellectual
property rights of any other person which such infringement would have a
Company Material Adverse Effect. Except as set forth on Schedule 3.10, to the
knowledge of the Company, no third party has interfered with, infringed upon
or misappropriated any of the Company's rights to the Registered Intellectual
Property or Other Intellectual Property which such interference, infringement
or misappropriation would constitute a Company Material Adverse Effect.
3.11. No Conflict. Except as set forth on Schedule 3.11, neither the
execution, delivery and performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby will (i)
conflict with, or result in a breach of any of the terms, conditions or
provisions of the Certificate of Incorporation or By-laws of the Company, (ii)
conflict with, result in a breach or violation of, give rise to a default
under, or result in the acceleration of performance under or create a
liability of the Company under any mortgage, lease, agreement, note, bond,
indenture, guarantees or any statute, regulation, ordinance, writ, injunction,
order, judgment or decree to which the Company or any of its assets may be
subject, which conflict, breach, default, violation, creation or acceleration
could reasonably be expected to have a Company Material Adverse Effect, or
(iii) give rise to an imposition of any Lien of any nature whatsoever upon any
of the assets of the Company.
3.12. Agreements.
(a) Except as set forth in Schedule 3.12(a), there are no agreements,
understandings or transactions (written or oral) between the Company and any
of its officers, directors, employees or shareholders or any affiliate
thereof.
(b) Except as set forth in Schedule 3.12(b), there are no agreements,
understandings or transactions (written or oral) to which the Company is a
party or by which it is bound which (i) involve obligations (contingent or
otherwise) of, or payments to, the Company in excess of $500,000, (ii) are
material to the conduct and operations of the Company's business or properties
(including, without limitation, the license of any Intellectual Property to or
from the Company), (iii) restrict or adversely affect the development,
manufacture, sale, marketing or distribution of the Company's products or
services, (iv) relating to the employment or compensation of any employee or
consultant, (v) of duration of six months or more and not cancelable without
penalty by the
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Company on 30 days or less notice or (vi) relating to the sale, lease, pledge
or other disposition of any assets of or to the Company.
3.13. Title to Property and Assets. Except as set forth on Schedule 3.13,
the Company has good title to, or a valid leasehold interest in, the property
and assets reflected in the Financial Statements dated December 31, 1998 or
acquired since the date thereof, free and clear of all Liens, except such
Liens which do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in substantial compliance with such leases, all leases to which the
Company is a party are in full force and effect and constitute valid and
binding obligations of the Company. True and complete copies of all such
leases have been made available to the Parent. The Company does not own any
real property. The Company's assets constitute all of the properties,
interests, assets and rights held for use or used in connection with the
business and operations of the Company and constitute all those necessary to
continue to operate the business of the Company consistent with current and
historical practice. All of the Company's properties and assets are, in all
material respects, in good operating condition, subject to normal wear and
tear.
3.14. Labor Agreements and Actions; Employee Benefits.
(a) The Company is not bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union
has requested or, to the knowledge of the Company, has sought to represent any
of the employees, representatives, or agents of the Company. There is no
strike or other labor dispute involving the Company pending or, to the
knowledge of the Company, threatened, nor is the Company aware of any labor
organization activity involving its employees.
(b) Each Company Plan (as hereinafter defined) is listed on Schedule
3.14(b). Except as would not have a Company Material Adverse Effect on the
Company, each Company Plan complies in all respects with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code, and
all other applicable statutes and governmental rules and regulations, and (i)
no "reportable event" (within the meaning of Section 4043 of ERISA) has
occurred with respect to any Company Plan that is likely to have, individually
or in the aggregate, a Company Material Adverse Effect. No Company Plan, nor
any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived. No Company Plan is or has been subject to Title IV of
ERISA for the past six years.
(c) With respect to the Company Plans, no event has occurred and there
exists no condition or set of circumstances in connection with which the
Company or any ERISA Affiliate or Company Plan fiduciary could be subject to
any liability under the terms of such Company Plans, ERISA, the Code or any
other applicable law, other than liabilities for benefits payable in the
normal course, which would have a Company Material Adverse Effect. All Company
Plans that are intended to be qualified under Section 401(a) of the Code have
been determined by the Internal Revenue Service ("IRS") to be so qualified, or
a timely application for such determination is now pending or a request for
such a determination filed within the remedial amendment period of Section
401(b) of the Code is pending, and the Company is not aware of any reason why
any such Company Plan is not so qualified in operation. Neither the Company
nor any entity which is treated as a single employer along with the Company
under Section 414(b), (c), (m) or (o) of the Code maintains or contributes to,
or has ever maintained or contributed to, or been required to contribute to or
has otherwise incurred any liability with respect to a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or any plan subject to Title IV
or ERISA. Except as disclosed on Schedule 3.14(c), neither the Company nor any
of its ERISA Affiliates has any liability or obligations under any welfare
plan to provide benefits after termination of employment of any employee or
dependent other than as required by Section 4980B of the Code. Each Company
Plan by its terms may be amended or terminated without material liability to
the Company at any time after the Effective Time. Except as disclosed on
Schedule 3.14(c), no employee of the Company will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any Company Plans or Employee Agreements as result of the
transactions contemplated by this Agreement. Except as disclosed on Schedule
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3.14(c), no amount payable to any employee of the Company as a result of the
transactions contemplated by this Agreement will fail to be deductible by
reason of Section 280G of the Code.
(d) As used herein (i) "Company Plan" means a "pension plan" (as defined
in Section 3(2) of ERISA), a "welfare plan" (as defined in Section 3(l) of
ERISA), or any bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
holiday pay, vacation, severance, death benefit, sick leave, fringe benefit,
personnel policy, insurance or other plan, arrangement or understanding, in
each case established or maintained by the Company or any of its ERISA
Affiliates or as to which the Company or any of its ERISA Affiliates has
contributed or otherwise may have any liability, and (ii) "ERISA Affiliate"
means any corporation or trade or business controlled by, controlling or under
common control with the Company within the meaning of Section 414 of the Code
or Section 4001(a)(14) or 4001(b) of ERISA.
(e) Schedule 3.14(e) contains a true and complete list of all (i)
severance and employment agreements with the current directors, officers,
employees, independent contractors and consultants of the Company and each
ERISA Affiliate containing any obligation or liability on or after the date of
this Agreement, (ii) severance programs and policies of the Company and each
ERISA Affiliate with or relating to its current directors, officers, employees,
independent contractors and consultants containing any obligation or liability
on or after the date of this Agreement, and (iii) plans, programs, agreements
and other arrangements of the Company and each ERISA Affiliate with or relating
to its current directors, officers, employees, independent contractors and
consultants containing change of control or similar provisions currently in
effect (collectively, the "Employee Agreements").
3.15. Tax Matters.
(a) For purposes of this Agreement, (i) "Taxes" shall mean all Federal,
state, local and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, excise, withholding and other taxes, duties
or assessments, together with all interest, penalties and additions imposed
with respect to such amounts; (ii) "Income Taxes" shall mean all franchise
Taxes and all Taxes imposed on or measured by net income or gross profits or
gross receipts or capital (but excluding sales, use, value added and property
Taxes), together with all interest, penalties and additions imposed with
respect to such amounts; and (iii) "Taxing Authority" shall mean any domestic,
foreign, Federal, national, state, county or municipal or other local
government, any subdivision, agency, commission or authority thereof, or any
quasi-governmental body exercising tax regulatory authority.
(b) The Company (i) has timely filed all tax returns that are required to
have been filed by it with all appropriate governmental agencies (and all such
returns are true and correct and fairly reflect in all material respects its
operations for tax purposes); and (ii) has timely paid all taxes shown as owing
on such returns or assessed against it (other than Taxes the validity of which
are being contested in good faith by appropriate proceedings). The assessment
of any additional taxes for periods for which returns have been filed is not
expected to exceed the reserves therefor reflected in the Financial Statements
and the Interim Financial Statements and, to the Company's knowledge, there are
no material unresolved questions or claims concerning the Company's tax
liability. The Company's tax returns have not been reviewed or audited by any
taxing authority. No liens exist for Taxes (other than liens for Taxes not yet
due and payable) with respect to any of the assets or properties of the
Company.
(c) The Company does not have outstanding any agreements or waivers
extending, or having the effect of extending, the statute of limitations with
respect to the assessment or collection of any Tax. The Tax returns of the
Company with respect to Federal income Taxes have been examined by the IRS, or
the statute of limitations with respect to the assessment or collection of the
relevant Tax liability has expired, for all taxable periods through and
including the year ended December 31, 1995.
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(d) The Company is not party to or bound by any tax-sharing agreement, tax
indemnity obligation or similar agreement, arrangement or practice with respect
to Taxes (including any advance pricing agreement, closing agreement or other
agreement relating to Taxes with any Taxing Authority).
(e) Except as set forth on Schedule 3.15, the Company shall not be
required to include in a taxable period ending after the Closing Date any
taxable income attributable to income that accrued in a prior taxable period
but was not recognized in any prior taxable period as a result of the
installment method of accounting, the long-term contract method of accounting,
the cash method of accounting or Section 481 of the Code or any comparable
provision of state, local or foreign Tax law, or for any other reason.
(f) Except as set forth on Schedule 3.15, neither the Company, nor any of
its affiliates, has made with respect to the Company any consent under Section
341 of the Code, no property of the Company is "tax exempt use property" within
the meaning of Section 168(h) of the Code, the Company is not a party to any
lease made pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954,
and none of the assets of the Company is subject to a lease under Section
7701(h) of the Code or under any predecessor section thereof.
(g) Except as set forth on Schedule 3.15, no power of attorney with
respect to any Taxes has been executed or filed with any Taxing Authority by or
on behalf of the Company.
(h) The Company has complied in all material respects with all applicable
laws relating to the payment and withholding of Taxes (including withholding of
Taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or any
comparable provision of any state, local or foreign laws) and has, within the
time and in the manner prescribed by applicable law, withheld from and paid
over to the proper Taxing Authorities all amounts required to be so withheld
and paid over under applicable laws.
(i) Any deficiency resulting from any audit or examination relating to
Taxes of the Company by any Taxing Authority has been timely paid.
3.16. Minute Books. The minutes books of the Company contain a complete
and accurate record of all meetings and all actions by written consent of
directors and stockholders (including committees thereof) since the date of
incorporation. The Company has made available to the Parent a true and complete
copy of such minute books.
3.17. Pooling of Interests. As of the date hereof, neither the Company
nor, to the knowledge of the Company, any of its affiliates has taken or agreed
to take any action or has knowledge of any fact or circumstance that, without
giving effect to any action taken or agreed to be taken by or any fact or
circumstance concerning the Parent, the Merger Subsidiary or their respective
affiliates, would prevent the Parent from accounting for the Merger as a
pooling of interests or as a reorganization within the meaning of Section 368
of the Code.
3.18. Certain Information. When the Registration Statement (as defined
below) or any post-effective amendment thereto shall become effective, and at
all times subsequent to such effectiveness up to and including the time of the
Company's Shareholder Meeting and the Parent's Shareholder Meeting (as defined
below) to vote upon the Merger, such Registration Statement and all amendments
or supplements thereto, solely with respect to all written information
furnished by the Company set forth therein relating to the Company (i) shall
comply in all material respects with the applicable provisions of the federal
securities laws, and (ii) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
3.19. Year 2000 Compliance. "Year 2000 Compliant" means that all software,
embedded microchips and other processing capabilities utilized by, and material
to the business, operations or financial condition of the Company are able to
interpret and manipulate data on and involving all calendar dates correctly,
including without limitation in relation to dates in and after the calendar
year 2000, and will do so after the calendar year 2000 without errors or
omissions provided such date data is validly input or received. The term
"Software and
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Systems" means all software and internal systems owned by, and not licensed
to, the Company which are material to the conduct of the Company's business.
Except as set forth on Schedule 3.19, based on the Company's assessment to
date, the Company believes that its Software and Systems are, or will be, Year
2000 Compliant prior to January 1, 2000 (excluding such instances of non-
compliance which are not likely individually or in the aggregate to have a
Company Material Adverse Effect). With respect to those systems set forth on
Schedule 3.19 which are not Year 2000 Compliant as of August 17, 1999, the
Company reasonably believes it has adequate contingency plans (as set forth on
Schedule 3.19) for addressing such non-compliance. The Company does not expect
the costs of such contingency plans to have a Company Material Adverse Effect.
The Company has initiated communications with, and has been gathering
information from, the service and content providers listed on the attached
Schedule 3.19 with respect to such providers' efforts to become Year 2000
Compliant. The Company has made available to the Parent all material
correspondence received by the Company in connection therewith.
3.20. Compliance with Laws. Except as set forth in Schedule 3.20, since
December 31, 1995 the Company has complied and is in compliance with all
Federal, state, local and foreign laws, ordinances, rules, regulations and
orders applicable to it or its business, except where the failure to so
comply, individually or in the aggregate, would not have a Company Material
Adverse Effect.
3.21. Related Party Transactions. Except as set forth in Schedule 3.21,
no current or former director, officer, employee or shareholder of the Company
or any associate or affiliate (as defined in the rules promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) thereof, or
any member of the immediate family of any of the foregoing, is presently, or
during the 12-month period ending on the date hereof has been, a party to any
transaction with the Company (including any contract, agreement or other
arrangement).
3.22. Insurance. Schedule 3.22 contains a true and complete list of all
policies of casualty, liability, theft, fidelity, life and other forms of
insurance held by the Company. True and complete copies of such policies have
been delivered to, or made available for inspection and copy by, the Parent.
All such insurance polices are in the name of the Company, and all premiums
with respect to such policies are currently paid. All such policies are in
full force and effect, and the Company has not received notice of cancellation
or termination of any policy. The Company has not been denied or had revoked
or rescinded any policy of insurance, nor borrowed against any such policies.
Except as set forth on Schedule 3.22, no claim under any such policy is
pending.
3.23. Trade Relations. Except as set forth on Schedule 3.23, the Company
has not received any written notice from any customer, consultant, contractor,
supplier or vendor indicating that it intends to terminate or modify its
business relationship with the Company, which termination or modification
could reasonably be expected to have a Company Material Adverse Effect.
3.24. Payables and Receivables. Except as set forth on Schedule 3.24, (i)
all unpaid accounts and notes receivable owing to the Company arose in the
ordinary course of the Company's business, consistent with past practice and
(ii) all payables owed by the Company were incurred in the ordinary course of
business, consistent with past practice.
3.25. Brokers and Finders. Except for J.P. Morgan & Co., neither the
Principal Shareholders, the Company, nor any of the officers, directors or
employees of the Company has employed or otherwise incurred in any manner any
liability for any brokerage fees, agents commissions or finder's fees
concerning the transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND THE MERGER SUBSIDIARY
The Parent and the Merger Subsidiary jointly and severally represent and
warrant to the Company and the Principal Shareholders as follows:
4.1. Parent's and Merger Subsidiary's Organization and Good Standing. The
Parent is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Merger Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own, lease
and operate its properties and carry on its business as it is now being
conducted. Each of the Parent and the Merger Subsidiary is duly qualified to do
business and in good standing in each jurisdiction where the character of
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Parent
Material Adverse Effect. As used herein, the term "Parent Material Adverse
Effect" means a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Parent and its
Subsidiaries as a whole, or on the ability of the Parent and the Merger
Subsidiary to consummate the transactions contemplated by this Agreement.
4.2. Power and Authority; Execution and Delivery. Each of the Parent and
the Merger Subsidiary has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly approved and authorized by
all requisite corporate action of the Parent and the Merger Subsidiary. Except
for the filing of a certificate of merger in accordance with Section 1.1(b) and
the approval of a majority of the outstanding Parent Common Stock held by the
Parent's Stockholders under the Delaware GCL ("Parent Shareholder Approval"),
no further corporate actions or approvals on the part of the Parent and the
Merger Subsidiary are required under applicable law for the consummation of the
Merger. The persons set forth on Schedule 4.2 own in the aggregate a majority
of the Parent Common Stock. This Agreement has been duly executed and delivered
by the Parent and the Merger Subsidiary and constitutes the legal, valid and
binding obligation of the Parent and the Merger Subsidiary, respectively,
enforceable against the Parent and the Merger Subsidiary, respectively, in
accordance with its terms except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally and subject to general principles of
equity (regardless of whether enforcement is sought in a court of law or
equity).
4.3. Governmental Approvals and Filings. Except as set forth in Schedule
4.3, and for the filing of a certificate of merger in accordance with the
Delaware GCL, no approval, authorization, consent, license, clearance or order
of, declaration or notification to, or filing, registration or compliance with,
any governmental or regulatory authority, is required in order to permit the
Parent and the Merger Subsidiary to enter into this Agreement, or to consummate
the transactions contemplated herein.
4.4. No Conflict. Neither the execution, delivery and performance of this
Agreement by the Parent and the Merger Subsidiary, nor the consummation by the
Parent and the Merger Subsidiary of the transactions contemplated hereby will
(i) conflict with, or result in a breach of any of the terms, conditions or
provisions of the Certificates of Incorporation or By-laws of the Parent and
the Merger Subsidiary, as the case may be, (ii) conflict with, result in a
breach or violation of, give rise to a default under or result in the
acceleration of performance under any mortgage, lease, agreement, note, bond,
indenture, guarantees or any statute, regulation, ordinance, writ, injunction,
order, judgment or decree to which the Parent or the Merger Subsidiary or any
of their respective assets may be subject, which conflict, breach, default,
violation or acceleration would have a
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Parent Material Adverse Effect, or (iii) give rise to an imposition of any
Lien, charge, security interest or encumbrance of any nature whatsoever upon
any of the assets of the Parent or the Merger Subsidiary.
4.5. Merger Consideration. When issued, the shares of Parent Common Stock
to be issued in the Merger will be duly authorized, validly issued, fully-paid
and nonassessable and, subject to Section 6.4 and the Escrow Agreement, free
and clear of all Liens and preemptive rights. The certificates representing
such shares will be in due and proper form.
4.6. Reports and Financial Statements. The Parent has previously
furnished to the Company true and complete copies of its (i) annual report on
Form 10-K for the fiscal year ended December 31, 1998 as filed with the
Securities and Exchange Commission (the "Commission" or the "SEC"); (ii)
quarterly report on Form 10-Q for the quarter ended June 30, 1999; (iii)
current reports on Forms 8-K filed since June 30, 1999; and (iv) the proxy
statement relating to the annual meeting of its shareholders for the fiscal
year ended December 31, 1998 (collectively, the "SEC Documents"). As of their
respective dates, the Parent's SEC Documents did not, when filed, contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in such reports or other filings have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position of the Parent and its subsidiaries as of the dates thereof and the
consolidated results of operations and changes in cash flow of the Parent and
its subsidiaries for the periods then ended, subject in the case of unaudited
interim financial statements, to normal year-end adjustments which are neither
individually nor in the aggregate expected to be material.
4.7. Capitalization of Parent; Ownership of Merger Subsidiary.
(a) The Parent's authorized capital stock consists of (i) 50,000,000 shares
of Parent Common Stock, 28,472,663 of which were outstanding as of July 9,
1999, and (ii) 1,000,000 shares of Junior Preferred Stock, none of which were
outstanding as of July 9, 1999.
(b) All of the issued and outstanding shares of capital stock of the Parent
are duly authorized and validly issued, fully-paid and nonassessable.
(c) All of the authorized capital stock of the Merger Subsidiary is owned
beneficially and of record by the Parent.
(d) The persons listed on Schedule 4.2 own at least a majority of the
outstanding shares of Parent Common Stock.
4.8. Certificates of Incorporation and By-laws.
(a) Each of the Parent and the Merger Subsidiary have delivered to the
Company copies of its Certificate of Incorporation and all amendments thereto,
which copies are complete and correct. Neither the Parent nor the Merger
Subsidiary is in default under, or in violation of, any provisions of its
Certificate of Incorporation. Neither the Parent's nor the Merger Subsidiary's
Certificate of Incorporation has been amended since the date of certification
delivered to the Company and no action has been taken for the purpose of
effecting any amendment thereto.
(b) Each of the Parent and the Merger Subsidiary have delivered to the
Company copies of its By-laws and all amendments thereto, which copies are
complete and correct. Neither the Parent nor the Merger Subsidiary is in
default under, or in violation of, any provision of its By-Laws. Neither the
Parent's nor the Merger Subsidiary's By-laws has been amended since the date
of certification delivered to the Company and no action has been taken for the
purpose of effecting any amendment thereto.
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4.9. No Prior Activities. The Merger Subsidiary has not incurred any
liabilities or obligations, except those incurred in connection with its
incorporation and with the consummation of this Agreement and the transactions
contemplated hereby. The Merger Subsidiary has not engaged in any business or
activities of any type or kind whatever, or entered into any agreements or
arrangements with any person or entity, and is not subject to or bound by any
obligation or undertaking which is not contemplated by this Agreement or
incurred in connection with its incorporation.
4.10. Pooling of Interests. As of the date hereof, neither the Parent nor
the Merger Subsidiary, nor, to the knowledge of the Parent and the Merger
Subsidiary, any of their affiliates, has taken or agreed to take any action or
has knowledge of any fact or circumstance that, without giving effect to any
action taken or agreed to be taken by or any fact or circumstance concerning
the Company or its affiliates, would prevent the Parent from accounting for the
Merger as a pooling of interests.
4.11. Opinion of Financial Advisor. The Board of Directors of Parent has
received the opinion of Warburg Dillon Read LLC, dated the date of this
Agreement, to the effect that, as of such date, the Merger Consideration is
fair to the Parent from a financial point of view.
4.12. Certain Information. When the Registration Statement or any post-
effective amendment thereto shall become effective, and at all times subsequent
to such effectiveness up to and including the time of the Parent's
stockholders' meeting to vote upon the Merger, such Registration Statement and
all amendments or supplements thereto, with respect to all information set
forth therein furnished by the Parent relating to the Parent and its
subsidiaries and affiliates (i) shall comply in all material respects with the
applicable provisions of the federal securities laws, and (ii) shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
contained therein not misleading.
4.13. Year 2000 Compliance. The Parent's SEC Documents accurately set
forth the Parent's preparedness with respect to the "Year 2000 issue."
4.14. Brokers and Finders. Except for McFarland Dewey Securities Company
and Warburg Dillon Read LLC, neither the Parent, the Merger Subsidiary, nor any
of their officers, directors or employees have employed or otherwise incurred
in any manner any liability for any brokerage fees, agents commissions or
finder's fees concerning the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS
Each of the Principal Shareholders hereby severally, but not jointly,
represents and warrants to the Parent and the Merger Subsidiary with respect to
itself as follows:
5.1. Capacity and Authority. Such Principal Shareholder has full legal
capacity and authority to execute, deliver and perform its obligations under
this Agreement. This Agreement has been duly executed and delivered by such
Principal Shareholder. This Agreement constitutes the legal, valid and binding
obligation of such Principal Shareholder, enforceable against it in accordance
with its terms except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of equity
(regardless of whether enforcement is sought in a court of law or equity).
5.2. Government Approvals and Filings. Except as set forth in Schedule
5.2, no approval, authorization, consent, license, clearance or order of,
declaration, or notification to, or filing, registration or compliance with any
governmental or regulatory authority is required to permit such Principal
Shareholder to enter into this Agreement or to consummate the transactions
contemplated herein.
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5.3. No Conflict. Neither the execution, delivery and performance of this
Agreement by such Principal Shareholder, nor the consummation by such
Principal Shareholder of the transactions contemplated hereby will conflict
with, result in a breach or violation of, give rise to a default under or
result in the acceleration of performance under any mortgage, lease,
agreement, note, bond, indenture, guarantees or any statute, regulation,
ordinance, writ, injunction, order, judgment or decree to which such Principal
Shareholder or any of its assets may be subject, or give rise to an imposition
of any Lien, charge, security interest or encumbrance on any Shares owned or
held by such Principal Shareholder.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
The Company and the Principal Shareholders (but, as to the Principal
Shareholders, only with respect to Sections 6.3(b) and (c), 6.4, 6.8 and 6.10)
severally covenant and agree that:
6.1. Regular Course of Business. Except as otherwise consented to in
writing by the Parent, from the date hereof until the Effective Time, the
Company will (i) conduct its business substantially in accordance with the
business plan (the "Business Plan") set forth on Schedule 6.1, (ii) carry on
its businesses only in the ordinary course and, subject to the Business Plan,
substantially in accordance with past practice, and (iii) use commercially
reasonable efforts to preserve its present business organization intact and
keep available the services of its present executive officers.
6.2. Restricted Activities and Transactions. Except as otherwise
consented to in writing by the Parent, contemplated by this Agreement or
resulting from the consummation of the transactions contemplated by this
Agreement, from the date hereof until the Effective Time of the Merger the
Company will not:
(a) amend its Certificate of Incorporation or By-laws;
(b) (i) borrow or agree to borrow any funds or mortgage or pledge any of
its assets, tangible or intangible, (ii) voluntarily incur, assume or become
subject to, whether directly or by way of guarantee or otherwise, any material
obligation or liability (absolute or contingent), (iii) cancel or agree to
cancel any material debts owed to the Company or any valuable claim or right,
or (iv) lease, sell, transfer, encumber or write down, agree to lease, sell,
transfer, encumber or write down, or grant or agree to grant any preferential
rights to lease or acquire, any of its assets, property or rights.
(c) except as set forth on Schedule 6.2, grant any increase in compensation
or benefits, or make, pay or accrue any bonuses, pension, profit sharing or
similar payment to any director, officer or employee of the Company;
(d) acquire any interest in any other corporation, association, joint
venture, partnership, business trust or other business entity, or in any of
the assets of any of the foregoing, or merge, consolidate or otherwise combine
with any other corporation or enter into any agreement providing for any of
the foregoing;
(e) hire any additional professional personnel or make any change in the
responsibilities or office of any officer of the Company;
(f) change the Company's independent public accountants or make any change
in accounting methods or policies;
(g) enter into any material contract or agreement or materially modify any
existing material agreement;
(h) declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock, or retire or redeem any of such capital stock,
or take any action which would have an effect equivalent to any of the
foregoing;
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(i) except as set forth in Schedule 3.3, issue or sell any shares of its
capital stock, any Options or any other securities convertible into or
exchangeable for, any capital stock;
(j) except as set forth in Schedule 6.2, pay, accrue or make any commitment
for, capital expenditures in excess of $100,000 individually or $300,000 in
the aggregate; or
(k) agree or commit to do any of the foregoing.
6.3. Approval of Shareholders.
(a) The Company shall through its Board of Directors duly call, give notice
of, convene and hold a meeting of its shareholders (the "Company Shareholder
Meeting") for the purpose of voting on the adoption of this Agreement and
obtaining the Shareholder Approval as soon as reasonably practicable following
the date the Registration Statement has been declared effective by the SEC and
the Proxy Statement (as defined below) has been mailed to the Company
Shareholders. Subject to complying with its fiduciary duties under Delaware
law, the Board of Directors of the Company shall recommend at the Shareholder
Meeting that the shareholders vote in favor of such approval; however, this
Agreement shall be submitted to the Company Shareholders at the Company
Shareholder Meeting for their approval and adoption, whether or not the Board
of Directors determines at any time subsequent to declaring its advisability
that the Agreement is no longer advisable and recommends that the Company
Shareholders reject it.
(b) Each of the Principal Shareholders severally agrees that it shall vote
all Shares owned by it and any shares subsequently acquired in favor of the
adoption of this Agreement at the Company Shareholder Meeting. Each Principal
Shareholder severally agrees to deliver to Parent upon request a proxy
substantially in the form attached hereto as Schedule 6.3, which proxy shall
be coupled with an interest and irrevocable to the extent permitted under
Delaware law, with the total number of such Principal Shareholder's Shares
correctly indicated thereon.
(c) Each Principal Shareholder severally waives, to the extent permitted by
applicable law, effective at the Effective Time, any rights (other than voting
rights and except as provided in Section 1.2 of this Agreement) arising as a
result of the Merger, the execution and delivery of this Agreement, or the
consummation of the transactions contemplated hereby, such Principal
Shareholder has with respect to such Principal Shareholder's Shares. Each
Principal Shareholder severally agrees that all contractual arrangements with
the Company or other Company Shareholders shall terminate effective at the
Effective Time. In addition, each Principal Shareholder severally waives
irrevocably any rights of Appraisal or rights to dissent in connection with
the Merger.
6.4. No-Sale Agreements. Immediately prior to the Effective Time, the
Company shall deliver to the Parent a certificate identifying all persons who
are, to the Company's knowledge, "affiliates" of the Company for purposes of
Rule 145 under the Securities Act or for purposes of the SEC's Accounting
Series Releases concerning "pooling of interests" treatment for business
combinations. The Company shall use its reasonable efforts to cause each such
person to deliver to the Parent on or before the Closing Date a written
agreement (an "Affiliates Agreement") substantially in the form of Exhibit
6.4. The Principal Shareholders who are "affiliates" agree to enter into such
Affiliate Agreements. The Parent shall be entitled to place appropriate
legends on the certificate evidencing any shares of Parent Common Stock to be
received by such persons and to issue appropriate stop transfer instructions
to the transfer agent for shares of Parent Common Stock consistent with the
terms of such Affiliates Agreements.
6.5. Consents, Approvals and Filings. The Company will use its
commercially reasonable efforts to obtain on or before the Closing Date all
necessary approvals, authorizations, registrations, consents, licenses,
clearances or orders of governmental and regulatory authorities referred to in
Section 3.8.
6.6. Access to Books, Records and Other Information. From the date hereof
until the earlier of the Closing Date or the termination of this Agreement,
the Company will afford to the Parent and its accountants, attorneys and
agents such information as the Parent may reasonably request (including such
copies of documents
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as the Parent may reasonably request) regarding the business, operations and
properties of the Company and reasonable access to the books and records of
the Company. Without limiting the foregoing, during such period the Company
shall keep the Parent informed as to the business and operations of the
Company and shall consult with the Parent with respect thereto as appropriate.
6.7. No Solicitation of Transactions. From the date hereof until the
earlier of termination of this Agreement or consummation of the Merger, the
Company will not, directly or indirectly, whether through any director,
officer, employee, financial advisor, legal counsel, accountant, other agent
or representative (as used in this Section 6.7 and Section 7.7,
"representatives") or otherwise, (A) initiate, solicit or encourage, or take
any other action to facilitate any inquiries or the making of any proposal
with respect to, or (B) engage or participate in negotiations concerning,
provide any nonpublic information or data to, or have any discussions with,
any person other than a party hereto or their representatives, relating to,
any (i) acquisition or disposition, (ii) tender offer (including a self-tender
offer), (ii) exchange offer, (iv) merger, (v) consolidation, (vi) acquisition
of beneficial ownership of (or the right to vote securities representing) 10%
or more of the total voting power of such entity or any of its subsidiaries,
(vii) dissolution, (viii) business combination, (ix) purchase of all or any
significant portion of the assets or any division of (or any equity interest
in) such entity or its subsidiary, or (x) any similar transaction other than
the Merger (such proposals, announcements, or transaction being referred to as
"Acquisition Proposals"). The Company shall notify the Parent of the identity
of any person who approaches the Company with respect to any Acquisition
Proposal. Nothing in this Section shall (x) permit the Company to terminate
this Agreement, (y) permit the Company to enter into any agreement with
respect to an Acquisition Proposal for as long as this Agreement remains in
effect (it being agreed that for as long as this Agreement remains in effect,
the Company shall not enter into any agreement with any person that provides
for, or in any way facilitates, an Acquisition Proposal), or (z) affect any
other obligation of the Company under this Agreement.
6.8. Shareholder Notes. Each Principal Stockholder severally hereby (i)
waives any and all defaults or events of default, or rights to prepayment or
acceleration of any amount owing, under any promissory note issued to it by
the Company (collectively, the "Shareholder Notes"), arising, directly or
indirectly, as a result of the execution or delivery of this Agreement by the
Company, the existence of a default under the promissory notes of the Company
issued to IDX Systems Corporation and Medical Manager Corporation on March 11,
1999 in the aggregate principal amount of $10,000,000 (the "IDX/Medical
Manager Notes") or the payment by the Company of any amounts due under such
Notes and (ii) agrees that its Shareholder Notes will be subordinated to the
Parent Loans (as defined in Section 7.8) on the same basis that such
Shareholder Notes are subordinate to the IDX/Medical Manager Notes and, at the
request of Parent, will enter into agreements with the Parent containing
provisions relating to such subordination.
6.9. Taxes. The Company (i) will not, and shall use all reasonable
efforts to cause its shareholders or affiliates not to, without the prior
written waiver by the Parent, knowingly take any action intended or reasonably
likely to prevent the Merger from qualifying as a tax-free reorganization
within the meaning of Section 368(a) of the Code and (ii) will use all
reasonable efforts to ensure that the tax opinion specified in Section 10.3 is
delivered including, without limitation, the delivery by the Company of
representation letters or certificates as to such matters as counsel may
reasonably request in order to render such opinions, including the standard
representations set forth in Revenue Procedure 86-42, 1986-2.
6.10. Confidentiality. The Company and each Principal Shareholder shall,
and shall cause its representatives (collectively, the "Company Recipients")
to, keep confidential, and not use or disclose to others, any proprietary or
confidential information of or obtained from the Parent or any of its
representatives to the extent that such proprietary or confidential
information is not or does not become readily available to the public other
than as a result of disclosure by the Company or a Principal Shareholder or is
not required to be disclosed by applicable law or court order. In the event of
termination of this Agreement without a Closing, the Company and each
Principal Shareholder hereby severally agrees to, and shall use all reasonable
efforts to cause each of the other Company Recipients to, promptly return to
the Parent all, and not retain any copies of, such written proprietary or
confidential information.
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ARTICLE VII
COVENANTS OF THE PARENT
7.1. Consents, Approvals and Filings. The Parent will use its commercially
reasonable efforts to obtain on or before the Closing Date all necessary
approvals, authorizations, registrations, consents, licenses, clearances or
orders of governmental and regulatory authorities referred to in Section 4.3.
7.2. Indemnification.
(a) None of the execution, delivery and performance of this Agreement, nor
the Merger will impair or diminish the obligation of the Surviving Corporation
to indemnify, defend and hold harmless the present and former officers,
directors, employees and agents of the Company in their capacities as such
(each a "Company Indemnified Party") after the Effective Time against all
losses, expenses, claims, damages or liabilities arising out of actions or
omissions occurring on or prior to the Effective Time which were committed by
such officers, directors, employees or agents in their capacity as such, to the
extent such persons are entitled to indemnification under the Delaware GCL, any
directors' and officers' liability insurance and the Company's Restated
Certificate of Incorporation and By-laws as in effect on the date hereof.
(b) The Parent shall cause the Surviving Corporation to purchase a "tail"
insurance policy with respect to the Company's current directors' and officers'
liability insurance, for a period of three years from the Closing Date.
(c) The provisions of this Section 7.2 are intended to be for the benefit
of and shall be enforceable by, each Company Indemnified Party and his or her
heirs and representatives.
7.3. Current Public Information. The Parent shall cause the requirements
of Rule 144(c) under the Securities Act of 1933, as amended (the "Securities
Act") to be met with respect to itself for so long as those requirements must
be met to enable sales by the stockholders who are affiliates of the Company to
meet the requirements of Rule 145(d) under the Securities Act.
7.4. Preservation of Tax-Free Merger. The Parent (i) will not, and shall
use all reasonable efforts to cause its shareholders or affiliates not to,
without the prior written waiver by the Company and the Principal Shareholders,
knowingly take any action intended or reasonably likely to prevent the Merger
from qualifying as a tax-free reorganization within the meaning of Section
368(a) of the Code and (ii) will use all reasonable efforts to deliver
representation letters or certificates as to such matters as counsel may
reasonably request in order to render the opinion specified in Section 10.3,
including the standard representations set forth in Revenue Procedure 86-42,
1986-2 C.B. 722.
7.5. Certain Employee Matters.
(a) The Parent covenants to the Company that the Parent will provide after
the Effective Time to continuing employees of the Company, including, without
limitation, those who become directors or officers of the Surviving
Corporation, employee benefit programs that in the aggregate are not less
favorable to such employees than those being provided to the Parent's employees
from time to time.
(b) The provisions of this Section 7.5 are intended to be for the benefit
of the persons covered hereby and shall be enforceable by such persons, their
heirs and representatives.
7.6. Approval of Shareholders.
(a) The Parent shall through its Board of Directors duly call, give notice
of, convene and hold a meeting of its shareholders (the "Parent Shareholder
Meeting") for the purpose of voting on the adoption of this Agreement (the
"Parent Shareholder Approval") on the same day the Company Shareholder Meeting
is held in accordance with Section 6.3. Subject to complying with its fiduciary
duties under applicable law as advised in
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writing by independent counsel, the Board of Directors of the Company shall
recommend at the Parent Shareholder Meeting that the shareholders vote in
favor of such approval.
(b) Shareholders of the Parent representing at least a majority of the
voting shares of the Parent shall execute on the date hereof a voting
agreement in the form of Exhibit 7.6 in which they agree to vote in favor of
the Merger.
7.7. Combinations. Subject to the exercise of the fiduciary duties of the
Board of Directors of the Parent, under applicable law as advised in writing
by independent counsel, from the date hereof until the earlier of the
termination of this Agreement or the consummation of the Merger, the Parent
will not directly or indirectly through any representative or otherwise
initiate, solicit, encourage or consummate (a) a merger or acquisition in
which the Parent is not the surviving entity or (b) the sale, transfer or
other disposition of all or substantially all of the assets of the Parent
unless, in either case, the surviving entity or transferee agrees in writing
(subject to consummation of such transaction) to assume, or cause the Parent
to perform, the obligations of the Parent under this Agreement.
Notwithstanding the foregoing, this Section 7.7 shall not prohibit the Board
of Directors of the Parent from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited bona fide proposal to consummate a transaction described in clause
(a) or (b) if (A) the Board of Directors of the Parent determines in good
faith that such action may be required by its fiduciary obligations under
applicable law as advised in writing by independent counsel, (B) the Parent
provides written notice to the Company to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity and (C) the Parent keeps the Company informed of the status and all
material information with respect to any such discussions or negotiations or
(ii) approving or recommending a transaction described in clause (a) or (b) in
which the surviving entity or transferee does not assume in writing the
Parent's obligations under this agreement if the Board of Directors of the
Parent determines in good faith that such action is required by its fiduciary
obligations under applicable law as advised in writing by independent counsel.
Nothing in this Section shall prohibit the Parent from making an election
under and complying with Section 14d-5 of the Exchange Act or prohibit the
Parent's Board of Directors from taking and disclosing to the Parent's
shareholders a position with respect to a tender offer pursuant to Rules 14d-9
and 14e-2 under the Exchange Act. Nothing in this Section shall permit the
Parent to terminate this Agreement or affect any other obligation of the
Parent under this Agreement.
7.8. Parent Loans. Until the termination of this Agreement pursuant to
Section 11.1, if requested by the Company, Parent agrees to (i) so long as the
Company is in substantial compliance with the Business Plan, commencing on the
date the Company's cash balances do not exceed $750,000, loan to the Company
on commercially reasonable terms (with the same security and seniority as the
IDX/Medical Manager Notes) from time to time upon reasonable prior notice such
funds as the Company reasonably requires to continue to operate its business
and (ii) loan to the Company any funds it requires to pay the IDX/Medical
Manager Notes if the lender thereunder requires such repayment as a result of
this Agreement (the loans described in clauses (i) and (ii), collectively, the
"Parent Loans"). Any Parent Loan made pursuant to clause (ii) shall be made at
the same interest rate, security and seniority as the IDX/Medical Manager
Notes and otherwise on commercially reasonable terms. Upon termination of this
Agreement pursuant to Section 11.1, the Parent Loans shall become due and
payable 180 days after the date of termination.
7.9. Board of Directors.
(a) The Parent shall take all action necessary so that, effective as of
the Effective Time, the size of the Board of Directors of Parent shall be
increased to ten and four persons nominated by the Principal Shareholders
shall be appointed to the Board of Directors of the Parent to fill the
vacancies created by such increase. Such persons shall serve until the next
annual meeting of shareholders of the Parent (the "Y2K Annual Meeting").
(b) The Parent shall take all action necessary to nominate for election
to the Board of Directors at the Y2K Annual Meeting one person for each 10% of
outstanding Parent Common Stock beneficially owned by the Principal
Shareholders and their affiliates (or nominees), as of the record date for
such Annual Meeting (rounded
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up to the next whole number) but in no event more than four persons, to serve
until the next succeeding annual meeting of shareholders of the Parent (the
"2001 Annual Meeting"). For purposes of clarification, if the Principal
Shareholders and their affiliates own 23% of the outstanding shares of Parent
Common Stock, they shall have the right to nominate three persons for election
at the Y2K Annual Meeting (each person serving as a director of the Parent in
accordance with Section 7.9(a) or (b) is hereinafter sometimes referred to as a
"POL Director").
(c) Until the 2001 Annual Meeting, the Parent shall not increase the
number of directors constituting the whole Board of Directors of the Parent
above ten, without the consent of a majority of the POL Directors serving as
such at the time of any such increase.
(d) In the event of any vacancy on the Board, whether caused by a
director's resignation, removal, death or otherwise, the Parent shall take all
action necessary to ensure that the successor to any POL director whose absence
from the Board caused such vacancy shall be a POL Director.
ARTICLE VIII
MUTUAL COVENANTS
8.1. Proxy Statement; Registration Statement.
(a) As promptly as practicable after the date hereof, the Parent and the
Company shall cooperate in the preparation of a joint proxy
statement/prospectus (or information statement or similar document) (the "Proxy
Statement") to be mailed to the shareholders of the Company and the Parent in
connection with the Merger and the transactions contemplated thereby and to be
filed by the Parent as part of the registration statement with respect to the
Parent Common Stock to be issued in connection with the Merger (the
"Registration Statement") (it being understood that the parties shall use
commercially reasonable efforts to file the Registration Statement and the
preliminary Proxy Statement with the SEC within 30 days of the date hereof).
(b) The Parent will advise the Company, promptly after it receives notice
thereof, of the time when the Registration Statement or any post-effective
amendment thereto has become effective or any supplement or amendment has been
filed, of the issuance of any stop order, of the suspension of qualification of
the Parent Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information. The Parent shall take
all commercial actions necessary (other than qualifying to do business in any
jurisdiction which it is not so qualified) to register or qualify the shares of
Parent Common Stock to be issued in the Merger pursuant to all applicable State
securities laws and shall maintain such registrations or qualifications in
effect for all purposes hereof. The Parent shall apply for approval to list the
shares of Parent Common Stock to be issued in the Merger on the NASDAQ Stock
Market's National Market, subject to official notice of issuance, prior to the
Effective Time.
(c) The Company shall use its commercially reasonable efforts to cause to
be delivered to the Parent letters addressed to the Parent and the Company of
Arthur Andersen, LLP, the Company's independent auditors, dated the date on
which the Registration Statement shall become effective, the date of the Parent
Shareholders Meeting and within two business days prior to the Closing Date, in
form and substance reasonably satisfactory to the Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statement similar to the Registration Statement.
8.2. Payment of Expenses. Each party to this Agreement shall be
responsible for its own costs and expenses incurred in connection with the
transactions contemplated by this Agreement, except that Parent shall bear and
pay all of the printing and mailing costs and filing fees associated with the
Registration Statement and the Proxy Statement. For purposes of this Agreement,
the "Company Deal Expenses" means all fees and expenses incurred by the Company
in connection with this Agreement and the transactions contemplated hereby,
including but not limited to the fees and expenses of J.P. Morgan & Co.
Incorporated (which shall be paid in
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shares of Parent Common Stock or Company Common Shares convertible into Parent
Common Stock at the Effective Time), Richards & O'Neil, LLP and the Company's
independent auditors. Within two business days prior to the Closing Date, the
Company shall provide to the Parent a certificate, signed by the chief
executive officer of the Company, setting forth an itemized list in reasonable
detail of the Company Deal Expenses.
8.3. Public Announcements. The Parent, the Principal Shareholders and the
Company shall confer with each other prior to the issuance of any reports,
public statements or releases pertaining to this Agreement or any transaction
contemplated hereby and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange or interdealer quotation
system.
8.4. Pooling of Interests and Reorganization. Each of the Company, the
Principal Shareholders, the Parent and the Merger Subsidiary severally agrees
that will it not take any action which, in the opinion of the Parent's
certified public accountants, would prevent the Merger from being eligible to
be accounted for as a pooling of interests. In furtherance of the foregoing,
the Company will not accelerate, amend or change the period of exercisability
or vesting of outstanding Options, including any discretionary acceleration of
the vesting or exercisability periods permitted under the terms of the Option
grant.
8.5. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using all reasonable efforts to obtain all necessary waivers,
consents and approvals, and to effect all necessary registrations and filings.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE PARENT
The obligations of the Parent and Merger Subsidiary to consummate the
transactions contemplated by this Agreement shall be subject to the
fulfillment of the following conditions:
9.1. Representations and Warranties True. Except as may be caused to be
untrue by the Parent's involvement in the Company's business between the date
hereof and the Effective Time, the representations and warranties of the
Company and the Principal Shareholders contained in this Agreement shall have
been true and correct when made and shall be true and correct in all material
respects as of the Closing (unless such representations and warranties are
qualified as to materiality, in which case, such representations and
warranties shall have been true and correct in all respects when made and
shall be true and correct in all respects as of the Closing), with the same
force and effect as if made as of the Closing, other than such representations
and warranties as are expressly made as of a specific date (which shall be
true and correct as of such specific date) and other than the representations
and warranties in Sections 3.3 and 3.5 which must be true and correct in all
respects; provided and notwithstanding anything to the contrary, this Section
9.1 shall be deemed to have been satisfied even if the representations and
warranties (except with respect to Section 3.3 and 3.5 which must be true and
correct in all respects) are not true and correct unless the failure to be so
true and correct has had or is reasonably likely to have a Company Material
Adverse Effect which for these purposes shall be qualified by the matters
listed in Section 9.3.
9.2. Performance of Covenants. The Company and the Principal Shareholders
shall have performed in all material respects all covenants required to be
performed by them under this Agreement prior to the Closing.
9.3. No Closing Material Adverse Effect. Since the date hereof, there has
not occurred a Company Material Adverse Effect. For purposes of the preceding
sentence and Section 9.1, the occurrence of any of the following events or
circumstances, in and of themselves and in combination with any of the others,
shall not constitute a Company Material Adverse Effect:
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(a) the termination or modification of any relationship with a
pharmaceutical sponsor and any corresponding loss of revenue or planned
revenue;
(b) the termination of the Company's contract with Merck-Medco Managed
Care, LLC or IMS Health Incorporated;
(c) a decrease of 25% or less in the four week average of the aggregate
number of physician users of the Company's services calculated with respect to
the number of users for the four week period ending August 28, 1999, provided,
however, any time period during which the Company experiences a service outage
shall not be included for purposes of this calculation;
(d) circumstance, changes in, or effects on the Company or its business
caused by (a) changes in its business plan or methods of operations made at the
request of the Parent or in accordance with the Business Plan or (b) actions
taken or decisions made by the Parent;
(e) any litigation or threat of litigation filed or made after the date
hereof challenging any of the transactions contemplated herein or any
shareholder litigation or threat of shareholder litigation filed or made after
the date hereof resulting from this Agreement or the transactions contemplated
herein;
(f) any adverse change, event or effect that is demonstrated to be caused
primarily by conditions generally affecting the United States economy;
(g) any adverse change, event or effect that is demonstrated to be caused
primarily by conditions generally affecting the healthcare, technology,
Internet or services industries; and
(h) any adverse change attributable primarily to the announcement or
discovery of this Agreement and the transaction contemplated hereby (including
employee attrition or any loss of business resulting from termination or
modification of any vendor, customer or other business relationships), unless
such change resulted from a breach by the Company of its obligations under this
Agreement.
9.4. Opinion of Counsel. The Company shall have delivered to the Parent an
opinion, dated the Closing Date and addressed to the Parent, of Richards &
O'Neil, LLP as to the matters set forth in Exhibit 9.4.
9.5. Shareholder Approvals. The Requisite Votes, the Shareholder Approval
and Parent Shareholder Approval shall have been obtained.
9.6. Other Approvals and Consents. The approvals and authorizations of
governmental and regulatory authorities referred to in Sections 3.8 and 4.3
shall have been obtained.
9.7. No Governmental or other Proceeding or Litigation. No order of any
court or administrative agency shall be in effect which restrains or prohibits
any transaction contemplated hereby or which would limit or otherwise affect in
any material respect the Merger or the Parent's ownership of the Company; and
no suit, action, or proceeding by any governmental body or other person or
entity shall be pending against the Parent, the Merger Subsidiary, any
Principal Shareholder or the Company, which challenges the validity or
legality, or seeks to restrain the consummation, of any transaction
contemplated hereby or which seeks to limit or otherwise affect the Merger or
the Parent's ownership of the Company; provided, however, such suit, action or
proceeding by any non-governmental body must be a Material Litigation (as
defined below) in the majority opinion of a panel of three attorneys (the
"Panel"). Each of the Company and Parent shall select one attorney as a member
of the Panel. The Company and the Parent shall select as the third attorney of
the Panel an independent attorney with no past or current business affiliations
with either party or Principal Shareholder, and if the Company and Parent
cannot agree on such independent attorney, such independent attorney shall be
selected in accordance with the commercial arbitration rules of the American
Arbitration Association. A "Material Litigation" is any material suit, action
or proceeding which could have a Parent Material Adverse Effect or a Company
Material Adverse Effect if the facts pleaded therein were proven to be true.
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9.8. Certificate of the Company. The Company and the Principal
Shareholders shall have furnished the Parent with a Certificate of the Company
signed by its principal executive officer and of such Shareholder to the effect
set forth in Section 9.1 and that each of the Company and such Shareholder,
respectively, has performed or complied in all material respects with all
terms, covenants and provisions of this Agreement required to be performed or
complied with by it prior to or at the Closing.
9.9. Dissenting Shares. The aggregate number of Dissenting Shares shall
not exceed 10% of the total number of Shares outstanding on the Closing Date.
9.10. Certificate of Merger. The Company shall have executed and delivered
to the Parent and the Merger Subsidiary the Certificate of Merger to be filed
with the Secretary of State of Delaware in connection with the Merger.
9.11. Registration Statement. The Registration Statement (including any
post-effective amendment thereto) shall be effective under the Securities Act,
and no proceeding shall be pending or to the knowledge of the Parent threatened
by the Commission to suspend the effectiveness of such Registration Statement.
9.12. Escrow Agreement. The Shareholder Representative shall have executed
and delivered the Escrow Agreement.
9.13. Affiliate Agreements. The Parent shall have received Affiliates
Agreements from the Principal Shareholders that are affiliates and each other
person identified by the Company in accordance with Section 6.4.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment of the following
conditions:
10.1. Representations and Warranties True. The representations and
warranties of the Parent and Merger Subsidiary contained in this Agreement
shall have been true and correct when made and shall be true and correct in all
material respects as of the Closing (unless such representations and warranties
are qualified as to materiality, in which case, such representations shall be
true and correct in all respects when made and shall be true and correct in all
respects as of the Closing) with the same force and effect as if made as of the
Closing, other than such representations and warranties as are expressly made
as of a specific date (which shall be true and correct as of such specific
date) and other than the representations and warranties of the Parent and
Merger Subsidiary set forth in Section 4.7(b) and (c) of this Agreement which
must be true and correct in all respects; provided and notwithstanding anything
to the contrary, this Section 10.1 shall be deemed to have been satisfied even
if the representations and warranties (except with respect to Section 4.7(b)
and (c) which must be true and correct in all material respects) are not true
and correct unless the failure to be so true and correct has had, or is
reasonably likely to have, a Parent Material Adverse Effect, which for these
purposes shall be qualified by the matters listed in Section 10.3.
10.2. Performance of Covenants. Each of the Parent and the Merger
Subsidiary shall have performed in all material respects all covenants required
to be performed by it under this Agreement prior to the Closing.
10.3. No Closing Material Adverse Effect. Since the date hereof, there has
not occurred a Parent Material Adverse Effect. For purposes of the preceding
sentence and Section 10.1, the occurrence of any of the following events or
circumstances, in and of themselves and in combination with any of the others,
shall not constitute a Parent Material Adverse Effect:
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(a) any litigation or threat of litigation filed or made after the date
hereof challenging any of the transactions contemplated herein or any
shareholder litigation or threat of shareholder litigation filed or made after
the date hereof resulting from this Agreement or the transactions contemplated
herein;
(b) any adverse change, event or effect that is demonstrated to be caused
primarily by conditions generally affecting the United States economy;
(c) any adverse change, event or effect that is demonstrated to be caused
primarily by conditions generally affecting the healthcare, technology,
Internet or services industries; and
(d) any adverse change attributable primarily to the announcement or
discovery of this Agreement and the transaction contemplated hereby (including
employee attrition or any loss of business resulting from termination or
modification of any vendor, customer or other business relationships), unless
such change resulted from a breach by the Parent of its obligations under this
Agreement.
10.4. Opinions of Counsel. The Parent and the Merger Subsidiary shall have
delivered to the Company and the Principal Shareholders an opinion, dated the
Closing Date and addressed to the Company and the Principal Shareholders, of
Howard, Smith & Levin LLP, as to the matters set forth in Exhibit 10.4. In
addition, Richards & O'Neil, LLP shall have delivered to the Company and the
Company Shareholders an opinion, dated the Closing Date and addressed to the
Company and the Company Shareholders, substantially to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion which
are consistent with the state of facts existing on the Closing Date, (i) the
Merger should be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and (ii) the gain, if any,
realized by the holders of the Parent Common Stock as a result of the Merger,
should be recognized by each such holder, but in the amount not in excess of
the amount of cash received. (In rendering the opinion described in this
Section 10.3, Richards & O'Neil, LLP will rely on representations, assumptions
and facts provided by the Parent and the Company, including without limitation
the standard representations set forth in Revenue Procedure 86-42, 1986-2 C.B.
722).
10.5. Shareholder Approvals. The Shareholder Approval, Requisite Votes and
Parent Shareholder Approval shall have been obtained.
10.6. Other Approvals and Consents. The approvals and authorizations of
governmental and regulatory authorities referred to in Sections 3.8 and 4.3
shall have been obtained.
10.7. No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency shall be in effect which restrains or prohibits
any transaction contemplated hereby or which would limit or otherwise affect in
any respect the Parent's ownership of the Company; and no suit, action, or
proceeding by any governmental body or other person or entity, shall be pending
against the Parent, the Merger Subsidiary, the Company or any Principal
Shareholder, which challenges the validity or legality, or seeks to restrain
the consummation, of any transaction contemplated hereby or which seeks to
limit or otherwise affect the Merger; provided, however, such suit, action or
proceeding by any non-governmental body must be a Material Litigation (as
defined in Section 9.7) in the majority opinion of the Panel (as defined and
described in Section 9.7).
10.8. Certificate of Parent and the Merger Subsidiary. The Parent shall
have furnished the Company with a Certificate of the Parent and the Merger
Subsidiary signed by its respective President or any Vice President to the
effect set forth in Section 10.1 and that each of the Parent and the Merger
Subsidiary has performed or complied in all material respects with all terms,
covenants and provisions of this Agreement required to be performed or complied
with by it prior to or at the Closing Date.
10.9. Parent Options. If necessary, the Parent shall have amended its
existing stock option plan to include, or adopted a new plan with respect to,
the Parent Options and such options shall have been registered under the
Securities Act and the shares of Parent Company Stock underlying the Parent
Options authorized for listing on the Exchange, subject to official notice of
issuance.
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10.10. Registration Statement. The Registration Statement (including any
post-effective amendment thereto) shall be effective under the Securities Act,
and no proceeding shall be pending or to the knowledge of the Parent threatened
by the Commission to suspend the effectiveness of such Registration Statement.
10.11. Certificate of Merger. The Parent and the Merger Subsidiary shall
have executed and delivered to the Company the certificate of merger to be
filed with the Secretary of State of the State of Delaware in connection with
the Merger.
10.12. Tax-Free Merger. No event outside the control of the Company shall
have occurred between the date of this Agreement and the Closing Date, so as to
jeopardize the treatment of the transactions contemplated by the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
10.13. Listing of Parent Shares. The shares of Parent Common Stock
issuable to the Company's Shareholders in the Merger and upon the exercise of
options pursuant to Section 1.2(e) hereof shall have been authorized for
listing on the Exchange, subject to official notice of issuance.
ARTICLE XI
TERMINATION
11.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
Shareholders of the Parent or the Company, (i) by the mutual consent of the
Parent and the Company; (ii) by the Parent or the Company at any time after
January 31, 2000 if for any reason the Merger shall not by such date have been
consummated and such failure to consummate the Merger is not caused by a breach
of this Agreement by the terminating party; (iii) by the Parent if there has
been a misrepresentation or breach on the part of the Company or the Principal
Shareholders in the representations, warranties or material covenants or
obligations of the Company or the Principal Shareholders set forth herein
which, if curable, has not been cured within 10 days of notice thereof by the
Parent and which breach, if not cured, would cause a failure of the conditions
set forth in Section 9.1 or 9.2; (iv) by the Company if there has been a
misrepresentation or breach on the part of the Parent or the Merger Subsidiary
in the representations, warranties or material covenants or obligations of the
Parent set forth herein which, if curable, has not been cured within 10 days of
notice thereof by Company and which breach, if not cured, would cause a failure
of the conditions set forth in Section 10.1 or 10.2; (v) by the Parent or the
Company if the Parent Shareholder Approval shall not have been obtained at the
Parent Shareholder Meeting duly convened therefor or at any adjournment or
postponement thereof; (vi) by the Parent or the Company if the Company
Shareholder Approval shall not have been obtained at the Company Shareholder
Meeting duly convened therefor or at any adjournment or postponement thereof;
and (vii) by the Parent or the Company if any court of competent jurisdiction
or other competent governmental or regulatory authority shall have issued an
order making illegal or otherwise restricting, preventing or prohibiting the
Merger and such order shall have become final and nonappealable.
11.2. Effect of Termination. If this Agreement is terminated by the Parent
or the Company pursuant to Section 11.1, this Agreement will forthwith become
null and void and there will be no liability or obligation on the part of the
Parent, the Merger Subsidiary, the Principal Shareholders or the Company (or
any of their respective representatives or affiliates), except (i) that the
provisions of Sections 6.10, 8.2, 8.3 and Article 14 will continue to apply
following any such termination; (ii) that nothing contained herein shall
relieve any party hereto from liability for breach of its representations,
warranties, covenants or agreements contained in this Agreement; and (iii) as
provided for in Section 11.3.
11.3. Termination Fee. (a) If this Agreement is terminated by the Company
pursuant to Section 11.1(iv) or transactions contemplated by this Agreement and
a termination fee equal to $7,500,000 as liquidated damages, and not as a
penalty, in full satisfaction of any and all claims the Company may have
against the Parent for Damages (as defined in Section 13.1); provided that
payment of such amount shall not impair the Company's
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rights to specific performance or any other remedy in equity. Any payment
pursuant to this Section 11.3(a) shall be made within five business days of
receipt of the Parent of a statement relating thereto.
(b) If this Agreement is terminated by the Parent pursuant to Section
11.1(iii) or (vi), the Company shall pay to the Parent a termination fee equal
to the sum of the Parent's out-of-pocket expenses incurred in connection with
the transactions contemplated by this Agreement and a termination fee equal to
$7,500,000 as liquidated damages and not as a penalty in full satisfaction of
any and all claims the Parent may have against the Company for Damages;
provided that payment of such amount shall not impair the Parent's rights to
specific performance or any other remedy in equity. Any payment pursuant to
this Section 11.3(b) shall be made within five business days of receipt of the
Company of a statement relating thereto.
ARTICLE XII
SHAREHOLDER REPRESENTATIVE
12.1. Designation. Subject to the terms and conditions of this Article
XII, Jason Fisherman is designated as the representative of the Company
Shareholders (the "Shareholder Representative") by the Company on behalf of
each of the shareholders (the "Company Shareholders") to serve, and the Parent
hereby acknowledges that the Shareholder Representative shall serve, as the
sole representative of the Company Shareholders from and after the Effective
Time with respect to the matters set forth in this Agreement and the Escrow
Agreement, such service to be without compensation except for the
reimbursement of out-of-pocket expenses and indemnification specifically
provided herein. The Shareholder Representative has accepted such designation
as of the date hereof. Notwithstanding anything to the contrary contained in
this Agreement, the Shareholder Representative shall have no duties or
responsibilities except those expressly set forth herein, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities on
behalf of any Company Shareholder shall otherwise exist against the
Shareholder Representative.
12.2. Authority. Each of the Company Shareholders, by voting in favor of
this Agreement at the Company Shareholder Meeting and/or by acceptance or
receipt of any portion of the consideration to be paid pursuant to Section 1.2
will and hereby does, effective as of the Effective Time, irrevocably appoint
the Shareholder Representative as the agent, proxy and attorney-in-fact for
such Company Shareholder for all purposes of this Agreement and the Escrow
Agreement, including full power and authority on such Company Shareholder's
behalf (i) to execute the Escrow Agreement and to take all actions which the
Company Shareholder Representative considers necessary or desirable in
connection with the defense, pursuit or settlement of any determinations
relating to the payment of the property held under the Escrow Agreement and
any claims for indemnification pursuant to Section 13.1, including to sue,
defend, negotiate, settle and compromise any such claims for indemnification
made by or against, and other disputes with, the Parent pursuant to this
Agreement or any of the agreements or transactions contemplated hereby; (ii)
to engage and employ agents and representatives (including accountants, legal
counsel and other professionals) and to incur such other expenses as he shall
deem necessary or prudent in connection with the administration of the
foregoing; (iii) to provide for all expenses incurred in connection with the
administration of the foregoing to be paid by directing the Escrow Agent to
reimburse the Shareholder Representative for such expenses; (iv) to accept and
receive notices to the Company Shareholders pursuant to this Agreement; and
(v) to take all other actions and exercise all other rights which the
Shareholder Representative (in his sole discretion) considers necessary or
appropriate in connection with this Agreement. Each of the Company
Shareholders, by voting in favor of this Agreement at the Company Shareholder
Meeting and/or by acceptance or receipt of any portion of the consideration to
be paid pursuant to Section 1.2, agrees that such agency and proxy are coupled
with an interest, and are therefore irrevocable without the consent of the
Shareholder Representative and shall survive the death, incapacity,
bankruptcy, dissolution or liquidation of any Company Shareholder. All
decisions and acts by the Shareholder Representative shall be binding upon all
of the Company Shareholders, and no Company Shareholder shall have the right
to object, dissent, protest or otherwise contest the same.
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12.3. Resignation. In the event that the Shareholder Representative shall
die, become incapacitated, resign or otherwise fail to act on behalf of the
Company Shareholders for any reason, the Shareholder Representative shall be
Bradford Burnham, or, in the event of a similar situation involving Bradford
Burnham, such other person as shall be selected by a majority of the persons
serving as directors of the Company immediately prior to the Closing, and such
substituted representative shall be deemed to be the Shareholder Representative
for all purposes of this Agreement.
12.4. Reliance by Third Parties on the Shareholder Representative's
Authority. The Shareholder Representative is authorized to act on the Company
Shareholders' behalf notwithstanding any dispute or disagreement among the
Company Shareholders and the other parties hereto shall be entitled to rely on
any and all action taken by the Shareholder Representative without any
liability to, or obligation to inquire of, any of the Company Shareholders even
if such party shall be aware of any actual or potential dispute or disagreement
among the Company Shareholders. Each of the other parties hereto is expressly
authorized to rely on the genuineness of the signature of the Shareholder
Representative and, upon receipt of any writing which reasonably appears to
have been signed by the Shareholder Representative, the other parties hereto
may act upon the same without any further duty of inquiry as to the genuineness
of the writing.
12.5. Exculpation and Indemnification. Neither the Shareholder
Representative nor any agent employed by him shall be liable to any Company
Shareholder relating to the performance of his duties under this Agreement for
any errors in judgment, negligence, oversight, breach of duty or otherwise
except to the extent it is finally determined in a court of competent
jurisdiction by clear and convincing evidence that the actions taken or not
taken by the Shareholder Representative constituted fraud or were taken or not
taken in bad faith. The Shareholder Representative shall be indemnified and
held harmless by the Company Shareholders against all Damages (as defined in
Section 13.1) paid or incurred in connection with any action, suit, proceeding
or claim to which the Shareholder Representative is made a party by reasons of
the fact that he was acting as the Shareholder Representative pursuant to this
Agreement; provided, however, that the Shareholder Representative shall not be
entitled to indemnification hereunder to the extent it is finally determined in
a court of competent jurisdiction that the actions taken or not taken by the
Shareholder Representative constituted fraud or were taken or not taken in bad
faith; and provided further, however, that the Shareholder Representative shall
have recourse only against the unpaid Escrow Amount (fully subordinated in
right of payment and otherwise to the Parent's claims thereto, whether or not
then existing or known), with respect to such Damages as provided in the next
two sentences of this Section 12.5. Any amount owing to the Shareholder
Representative from the Company Shareholders pursuant to this Section 12.5
shall be borne on a pro rata basis by the Company Shareholders by reducing the
next succeeding distribution(s) of the Escrow Amount otherwise distributable by
the Escrow Agent to the Company Shareholders, and shall be payable solely from
such source. The Shareholder Representative shall be protected in acting upon
any notice, statement or certificate believed by him to be genuine and to have
been furnished by the appropriate person and in acting or refusing to act in
good faith or any matter.
ARTICLE XIII
INDEMNIFICATION
13.1. Indemnification. Subject to the limitations set forth in this
Section 13.1 the parties hereto agree as follows:
(a) The Parent, Merger Subsidiary and their respective successors and
assigns shall be indemnified by the Company Shareholders and their successors
and assigns if the Closing shall occur, against any loss, claim, liability,
cost or expense or other damage of any kind or nature (including reasonable
attorneys' fees and expenses but excluding damages to the extent Parent or the
Surviving Company is made whole through receipt of proceeds from any insurance
policy maintained by the Company for the Surviving Company) (collectively,
"Damages") incurred by the Parent or the Surviving Corporation which is caused
by or arises out of (i) any breach of any representation or warranty of the
Company contained in this Agreement, (ii) the breach or other
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failure by the Company to perform any covenant, agreement or other obligation
of the Company contained in this Agreement, (iii) Company Deal Expenses
exceeding those set forth in the certificate referred to in Section 8.2, and
(iv) any and all actions, suits, proceedings, demands, judgments, costs and
legal and other expenses incident to any of the matters referred to in clauses
(i), (ii) and (iii) of this Section 13.1(a); provided, however, that in
connection with any claim for indemnification for Damages under this Section
13.1, (A) the Parent shall have no recourse against the Company's officers,
directors or agents other than in their capacities as Company Shareholders
otherwise entitled to receive property held under the Escrow Agreement, (B)
the Parent and the Surviving Corporation shall have recourse only against
property held under the Escrow Agreement with respect to such Damages and
shall not have recourse against any other assets of any Company Shareholder,
(C) indemnification owing from any Company Shareholder who is or was an
officer or director of the Company shall not be deemed for any purpose to be a
claim covered by indemnification owing to such Company Shareholder by the
Company under any law, by-law or agreement whatsoever, and (D) the Parent's
rights to indemnification under this Section 13.1 with respect to matters
covered by (i), (ii), (iii) or (iv) of this sentence shall not arise until
such Damages, in the aggregate, exceed $1,000,000, whereupon indemnification
shall arise with respect to the full amount of such Damages under this Section
13.1 except with respect to Damages for any breaches of representations and
warranties of the Company assessed as of the Closing Date, in which case the
Parent and the Surviving Corporation shall be entitled to indemnification only
with respect to the amount of such Damages in excess of $1,000,000. Any amount
owing to the Parent or the Surviving Corporation from the Company Shareholders
pursuant to this Section 13.1 shall be limited to and deducted from the
property held under the Escrow Agreement in the manner described in the Escrow
Agreement.
(b) Whenever any claim shall arise for indemnification hereunder, (i) the
Parent or the Surviving Corporation (the "Indemnified Party") shall provide
written notice to the Shareholder Representative, as representative of the
Shareholders (the "Indemnifying Party") within a reasonable period of becoming
aware of the right to indemnification and, as expeditiously as possible
thereafter, of the facts constituting the basis for such claim and (ii) the
Indemnifying Party and its agents shall be given access on reasonable prior
notice to all books and records in the possession or control of the
Indemnified Party which the Indemnifying Party reasonably determines to be
related to such claim; provided that any failure of the Indemnified Party to
so notify the Indemnifying Party within any such time period shall not waive
the Indemnified Party's indemnification rights hereunder except to the extent
that the Indemnifying Party has been materially damaged by such a failure.
(c) If any legal proceedings are instituted or any claim or demand is
asserted by any third party in respect of which the Indemnified Party
determines it may seek indemnification pursuant to the provisions of this
Section 13.1, the Indemnified Party shall promptly after such determination
cause written notice of the assertion of any such claim to be made to
Indemnifying Party; provided that any failure of the Indemnified Party to so
notify the Indemnifying Party within any such time period shall not waive the
Indemnified Party's indemnification rights hereunder except to the extent that
the Indemnifying Party has been materially damaged by such a failure. Upon the
Indemnifying Party's written agreement that such claim is indemnifiable
hereunder, if such claim can be satisfied by the payment of money only, the
Indemnifying Party shall have the right, at its option and expense with
counsel reasonably satisfactory to the Indemnified Party to defend against,
negotiate and, with the consent of the Indemnified Party, (which consent shall
not be unreasonably withheld or delayed) settle any such claim, and in such
case, the Indemnified Party shall have the right to participate in such
defense, negotiation or settlement at its own expense. The Indemnified Party
and the Indemnifying Party agree to cooperate fully in good faith with each
other in connection with the defense, negotiation or settlement of any such
legal proceeding, claim or demand. Upon the payment of any claim for
indemnity, the Indemnifying Party shall be subrogated to all rights and
remedies of the Indemnified Party against any third person with respect to the
amount so paid. If the Indemnifying Party does not so elect to defend any such
third party claim, legal proceeding or demand, or fails timely to defend,
contest or otherwise protect against such claim, legal proceeding or demand,
the Indemnified Party may (but shall have no obligation to) defend any such
third party claim, legal proceeding or demand in such manner as it may deem
appropriate including, but not limited to, settling such claim, legal
proceeding or demand, after giving notice of the same to the Indemnifying
Party, on such terms as the Indemnified Party may deem appropriate and no
action taken by the Indemified Party in accordance with such
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defense and settlement shall relieve the Indemnifying Party of its
indemnification obligations herein provided with respect to any Damages
resulting therefrom.
13.2. Survival. The representations and warranties contained herein and
in any certificate delivered pursuant to this Agreement shall survive the
Closing Date and the consummation of the transactions contemplated hereby
until the first anniversary of the Closing Date. The indemnification
obligations hereunder shall expire on the first anniversary of the Closing
Date, except as to any claims for, or any claims that may result in, any
liability, judgment, claim, settlement, loss, damage, fee, lien, tax, penalty,
obligation or expense for which indemnity may be sought hereunder of which the
Indemnifying Party has received written notice from the Indemnified Party on
or prior to the first anniversary of the Closing Date.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1. Notices, Etc. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, when delivered in person, or when mailed by certified or
registered mail, postage prepaid, or when given by confirmed facsimile
transmission, as follows:
(a) If to the Company:
Physicians' Online, Inc.
560 White Plains Road
Tarrytown, N.Y. 10591
Telephone: 914-332-6100
Facsimile: 914-332-6445
Attention: David Richards
with copies to:
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4873
Telephone: 212-207-1200
Facsimile: 212-750-9022
Attention: Ann F. Chamberlain, Esq.
(b) If to the Parent or the Merger Subsidiary:
Mediconsult.com, Inc.
1330 Avenue of the Americas, 17th Floor
New York, NY 10019
Attention: E. Michael Ingram
Telephone: 212-841-7311
Facsimile: 212-841-7310
with copies to:
Howard Smith Levin, LLP
1330 Avenue of the Americas
New York, NY 10019
Telephone: 212-841-1000
Facsimile: 212-841-1010
Attention: Kelly Vance, Esq.
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(c) If to the Shareholder Representative:
Jason Fisherman
Advent International Corporation
75 State Street
Boston, MA 02109
Telephone: 617-951-9416
Facsimile: 617-951-0566
or such other person as the person entitled to notice shall designate in
writing, such writing to be delivered to the other parties hereto in the manner
provided in this Section 14.1.
14.2. Entire Agreement; Amendment. This Agreement (including the various
Schedules and Exhibits hereto) sets forth the entire agreement and
understanding of the parties in respect of the transactions contemplated hereby
and supersedes all prior agreements, arrangements and understandings relating
to the subject matter hereof other than a certain confidentiality agreement
between the Parent and the Company executed by J.P. Morgan Securities, Inc. as
agent of the Company, dated July 10, 1999. This Agreement may be amended or
modified only by a written instrument executed by the Parent, the Merger
Subsidiary, and the Company and, if required by the Delaware GCL, approved by
the Company Shareholders and the Parent Shareholders. Any information disclosed
under any section number in the disclosure schedules attached to this Agreement
shall be deemed disclosed under and incorporated into any other section number
where such information would be appropriate.
14.3. Individual Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid and unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the legal, invalid or unenforceable
provision, and (iv) there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
14.4. Remedies. The parties agree that irreparable damage would result if
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is, accordingly, agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement to enforce specifically the terms and provisions of
this Agreement in any court of the United States located in the State of New
York, or in New York state court, this being in addition to any other remedy to
which the parties are entitled at law or in equity.
14.5. General. This Agreement: (i) shall inure to the benefit of the
parties hereto and their heirs, personal representatives, successors and
permitted assigns, nothing in this Agreement, expressed or implied, being
intended to confer upon any other person any rights or remedies hereunder; (ii)
may not be assigned by a party without the prior written consent of the other
parties; and (iii) may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. The Section, Schedule and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.6. Governing Law; Consent to Jurisdiction; Venue; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the law of the State of New York.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York State court or federal court of the United States of America sitting in
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New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any action or
proceeding may be heard and determined in any such New York State court or, to
the extent permitted by law, in such federal court. Such party agrees that a
final, nonappealable judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
(c) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State
or federal court. Such party hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(d) EACH OF THE PARTIES HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE
PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT
THEREOF.
[Remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.
PHYSICIANS' ONLINE, INC.
/s/ David D. Richards
By: _________________________________
Name: David D. Richards
Title:Chairman/CEO
MEDICONSULT.COM, INC.
/s/ Robert Jennings
By: _________________________________
Name: Robert Jennings
Title:Chairman & CEO
PMCI, INC.
/s/ Robert Jennings
By: _________________________________
Name: Robert Jennings
Title:President
PRINCIPAL SHAREHOLDERS:
ADVENT CROWN FUND C.V.
By: Advent International Limited
Partnership, General Partner
By: Advent International
Corporation,
General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title:Vice President
ADVENT PERFORMANCE MATERIALS LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International
Corporation,General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title:Vice President
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<PAGE>
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
By: Advent International
Corporation,General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title:Vice President
GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International
Corporation,General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title:Vice President
INVESCO GLOBAL HEALTH SCIENCES FUND
By: INVESCO Funds Group, Inc.
/s/ Glen A. Payne
By: _________________________________
Name: Glen A. Payne
Title:Secretary
FINANCIAL STRATEGIES PORTFOLIOS,
INC.--HEALTH SCIENCES PORTFOLIO
/s/ Glen A. Payne
By: _________________________________
Name: Glen A. Payne
Title:Secretary
VENTURE FUND I, LP
By: Venture Management I, General
Partner
/s/ Brad Burnham
By: _________________________________
Name: Brad Burnham
Title:General Partner
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<PAGE>
AT&T VENTURES FUND II, LP
By: Venture Management LLC, General
Partner
/s/ Brad Burnham
By: _________________________________
Name: Brad Burnham
Title:General Partner
21st CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: Infomedia Associates, Ltd., a
General Partner
/s/ Irwin Lieber
By: _________________________________
Name: Irwin Lieber
Title:Treasurer
21st CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: Infomedia Associates, Ltd., a
General Partner
/s/ Irwin Lieber
By: _________________________________
Name: Irwin Lieber
Title:Treasurer
21st CENTURY COMMUNICATIONS FOREIGN
PARTNERS, L.P.
By: Infomedia Associates, Ltd., a
General Partner
/s/ Irwin Lieber
By: _________________________________
Name: Irwin Lieber
Title:Treasurer
KLAS, INC.
/s/ Richard A. Fraim
By: _________________________________
Name: Richard A. Fraim
Title:President & GM
QUINTILES TRANSNATIONAL CORP.
/s/ James L. Bierman
By: _________________________________
Name: James L. Bierman
Title:Sr. Vice President,
Corporate Development
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<PAGE>
/s/ Steven Hochberg
-----------------------------------
STEVEN HOCHBERG, Individually
HOCHBERG FAMILY LIMITED PARTNERSHIP
/s/ Steven Hochberg
By: _________________________________
STEVEN HOCHBERG, General Partner
/s/ Christian Mayaud
-----------------------------------
CHRISTIAN MAYAUD, M.D.,
Individually
MAYAUD FAMILY LIMITED PARTNERSHIP
/s/ Christian Mayaud
By: _________________________________
Name: CHRISTIAN MAYAUD, M.D.
General Partner
/s/ William Greenberg
-----------------------------------
WILLIAM GREENBERG, M.D.,
Individually
/s/ Jonathan Edelson
-----------------------------------
JONATHAN EDELSON, M.D.,
Individually
EDELSON INVESTMENT TRUSTF/B/O
ZACHARY EDELSON
/s/ Rachel Edelson
By: _________________________________
RACHEL EDELSON, Trustee
/s/ Rachel Edelson
By: _________________________________
Name: Rebecca Edelson
REBECCA EDELSON, Trustee
EDELSON INVESTMENT TRUSTF/B/O ELI
EDELSON
/s/ Rachel Edelson
By: _________________________________
RACHEL EDELSON, Trustee
/s/ Rachel Edelson
By: _________________________________
REBECCA EDELSON, Trustee
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<PAGE>
AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER
This Amendment to the Agreement and Plan of Merger (the "Merger
Agreement") by and among Mediconsult.com, Inc. ("Parent"), PMCI, Inc. (the
"Merger Subsidiary"), Physicians' Online, Inc. (the "Company") and Certain
Shareholders Parties thereto (each a "Principal Shareholder" and collectively,
the "Principal Shareholders") dated as of September 7,1999, is made as of the
17th day of November 1999 (the "Amendment"). Capitalized terms used but not
defined herein shall have the meanings given such terms in the Merger
Agreement.
WHEREAS, the Parent, Merger Subsidiary, Company and Principal Shareholders
desire to amend the Merger Agreement as set forth below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, and intending to be legally bound, the undersigned
parties hereby agree as follows:
1. Authority. Section 12.2 of the Merger Agreement is hereby amended and
restated to read in its entirety as follows:
Each of the Company Shareholders, by voting in favor of this Agreement
at the Company Shareholder Meeting and/or by acceptance or receipt of any
portion of the consideration to be paid pursuant to Section 1.2 will and
hereby does, effective as of the Effective Time, irrevocably appoint the
Shareholder Representative as the agent, proxy and attorney-in-fact for
such Company Shareholder for all purposes of this Agreement and the Escrow
Agreement, including full power and authority on such Company Shareholder's
behalf (i) to execute the Escrow Agreement and to take all actions which
the Company Shareholder Representative considers necessary or desirable in
connection with the defense, pursuit or settlement of any determinations
relating to the payment of the property held under the Escrow Agreement and
any claims for indemnification pursuant to Section 13.1, including to sue,
defend, negotiate, settle and compromise any such claims for
indemnification made by or against, and other disputes with, the Parent
pursuant to this Agreement or any of the agreements or transactions
contemplated hereby; (ii) to engage and employ agents and representatives
(including accountants, legal counsel and other professionals) and to incur
such other expenses as he shall deem necessary or prudent in connection
with the administration of the foregoing; (iii) to provide for all expenses
incurred in connection with the administration of the foregoing to be paid
by directing the Escrow Agent to reimburse the Shareholder Representative
for such expenses; (iv) to accept and receive notices to the Company
Shareholders pursuant to this Agreement; (v) to vote the Escrow Shares as
directed by the Company Shareholders, it being understood that the
Representative shall not vote any Escrow Shares as to which the
Representative receives no voting instructions; and (vi) to take all other
actions and exercise all other rights which the Shareholder Representative
(in his sole discretion) considers necessary or appropriate in connection
with this Agreement. Each of the Company Shareholders, by voting in favor
of this Agreement at the Company Shareholder Meeting and/or by acceptance
or receipt of any portion of the consideration to be paid pursuant to
Section 1.2, agrees that such agency and proxy are coupled with an
interest, and are therefore irrevocable without the consent of the
Shareholder Representative and shall survive the death, incapacity,
bankruptcy, dissolution or liquidation of any Company Shareholder. All
decisions and acts by the Shareholder Representative shall be binding upon
all of the Company Shareholders, and no Company Shareholder shall have the
right to object, dissent, protest or otherwise contest the same.
2. Exculpation and Indemnification. Section 12.5 of the Merger Agreement
is hereby amended and restated to read in its entirety as follows:
12.5 Exculpation and Indemnification. (a) Neither the Shareholder
Representative nor any agent employed by him shall be liable to any Company
Shareholder relating to the performance of his duties under
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this Agreement for any errors in judgment, negligence, oversight, breach of
duty or otherwise except to the extent it is finally determined in a court
of competent jurisdiction by clear and convincing evidence that the
actions taken or not taken by the Shareholder Representative constituted
fraud or were taken or not taken in bad faith. The Shareholder
Representative shall be indemnified and held harmless by the Company
Shareholders against all Damages (as defined in Section 13.1) paid or
incurred in connection with (i) any action, suit, proceeding or claim to
which the Shareholder Representative is made a party by reasons of the fact
that he was acting as the Shareholder Representative pursuant to this
Agreement and (ii) all out-of-pocket costs and expenses incurred by the
Shareholder Representative in the performance of his duties under the
Merger Agreement and the Escrow Agreement, including, without limitation,
fees and expenses of attorneys, accountants and other agents incurred by
him in connection with the administration of the escrow, whether or not
arising out of any action, suit, proceeding or claim to which he is made a
party as provided in clause (i) above; provided, however, that the
Shareholder Representative shall not be entitled to indemnification
hereunder to the extent it is finally determined in a court of competent
jurisdiction that the actions taken or not taken by the Shareholder
Representative constituted fraud or were taken or not taken in bad faith;
and provided further, however, that the Shareholder Representative shall
have recourse only against the unpaid Escrow Amount (fully subordinated in
right of payment and otherwise to the Parent's claims thereto, whether or
not then existing or known), with respect to such Damages as provided in
this Section 12.5. The Shareholder Representative shall be protected in
acting upon any notice, statement or certificate believed by him to be
genuine and to have been furnished by the appropriate person and in acting
or refusing to act in good faith or any matter.
3. The Merger Agreement, as hereby amended, shall remain in full force
and effect.
4. This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.
PHYSICIANS' ONLINE, INC.
/s/ David Richards
By: _________________________________
Name: David Richards
Title: Chairman/CEO
MEDICONSULT.COM, INC.
/s/ Robert Jennings
By: _________________________________
Name: Robert Jennings
Title: Chairman/CEO
PMCI, INC.
/s/ Robert Jennings
By: _________________________________
Name: Robert Jennings
Title: Chairman/CEO
A-45
<PAGE>
PRINCIPAL SHAREHOLDERS:
ADVENT CROWN FUND C.V.
By: Advent International Limited
Partnership, General Partner
By: Advent International
Corporation, General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title: Vice President
ADVENT PERFORMANCE MATERIALS LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International
Corporation, General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title: Vice President
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
By: Advent International
Corporation, General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title: Vice President
GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International
Corporation, General Partner
/s/ Jason Fisherman
By: _________________________________
Name: Jason Fisherman
Title: Vice President
A-46
<PAGE>
INVESCO GLOBAL HEALTH SCIENCES FUND
By: INVESCO Funds Group, Inc.
By: /s/ Mark H. Williamson
----------------------------------
Name: Mark H. Williamson
Title: President/CEO
INVESCO SECTOR FUNDS, INC.--INVESCO
HEALTH SCIENCES (f/k/a Financial
Strategies Portfolios, Inc.--Health
Sciences Portfolio)
By: /s/ Mark H. Williamson
----------------------------------
Name: Mark H. Williamson
Title: President/CEO
VENTURE FUND I, LP
By: Venture Management I, General
Partner
By: /s/ Brad Burnham
----------------------------------
Name: Brad Burnham
Title: General Partner
AT&T VENTURES FUND II, LP
By: Venture Management LLC, General
Partner
By: /s/ Brad Burnham
----------------------------------
Name: Brad Burnham
Title: General Partner
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By: Infomedia Associates, Ltd., a
General Partner
By: /s/ Irwin Lieber
----------------------------------
Name: Irwin Lieber
Title: Treasurer
A-47
<PAGE>
21ST CENTURY COMMUNICATIONS T-E
PARTNERS, L.P.
By: Infomedia Associates, Ltd., a
General Partner
Irwin Lieber
By: _________________________________
Name: Irwin Lieber
Title: Treasurer
21ST CENTURY COMMUNICATIONS FOREIGN
PARTNERS, L.P.
By: Infomedia Associates, Ltd., a
General Partner
Irwin Lieber
By: _________________________________
Name: Irwin Lieber
Title: Treasurer
KLAS, INC.
Richard A. Fraim
By: _________________________________
Name: Richard A. Fraim
Title: President and General
Manager
QUINTILES TRANSNATIONAL CORP.
/s/ James L. Bierman
By: _________________________________
Name: James L. Bierman
Title: Senior Vice President
/s/ Steven Hochberg
----------------------------------
STEVEN HOCHBERG, Individually
HOCHBERG FAMILY LIMITED PARTNERSHIP
/s/ Steven Hochberg
By: _________________________________
STEVEN HOCHBERG, General Partner
/s/ Christian Mayaud
----------------------------------
CHRISTIAN MAYAUD, M.D.,
Individually
A-48
<PAGE>
MAYAUD FAMILY LIMITED PARTNERSHIP
/s/ Christian Mayaud
By: _________________________________
CHRISTIAN MAYAUD, M.D.,
General Partner
/s/ William Greenberg
----------------------------------
WILLIAM GREENBERG, M.D.,
Individually
/s/ Jonathan Edelson
----------------------------------
JONATHAN EDELSON, M.D.,
Individually
EDELSON INVESTMENT TRUST F/B/O
ZACHARY EDELSON
/s/ Rachel Edelson
By: _________________________________
RACHEL EDELSON, Trustee
/s/ Rebecca Edelson
By: _________________________________
REBECCA EDELSON, Trustee
EDELSON INVESTMENT TRUST F/B/O ELI
EDELSON
/s/ Rachel Edelson
By: _________________________________
RACHEL EDELSON, Trustee
/s/ Rebecca Edelson
By: _________________________________
REBECCA EDELSON, Trustee
A-49
<PAGE>
ANNEX B
[LETTERHEAD OF WARBURG DILLON READ LLC]
September 7, 1999
The Board of Directors
Mediconsult.com, Inc.
1330 Avenue of the Americas
New York, New York 10019
Dear Members of the Board:
We understand that Mediconsult.com, Inc. ("Mediconsult") is considering a
transaction whereby (i) PMCI, Inc., a wholly owned subsidiary of Mediconsult
("Merger Subsidiary"), will be merged with and into Physicians' Online, Inc.
("Physicians' Online" and, such transaction, the "Merger"), (ii) each
outstanding share of the common stock, par value $0.01 per share, of
Physicians' Online ("Physicians' Online Common Stock") will be converted into
the right to receive that number of shares of the common stock, par value
$0.001 per share, of Mediconsult ("Mediconsult Common Stock") equal to the
quotient of (x) $0.01 divided by (y) the average closing prices per share of
Mediconsult Common Stock on The Nasdaq Stock Market's National Market for the
ten trading days immediately prior to two days before the effective time of the
Merger (the "Average Closing Price"), plus an additional number of shares of
Mediconsult Common Stock determined in accordance with a formula more fully
described in the Merger Agreement, and (iii) each series of the outstanding
shares of the convertible preferred stock, par value $0.01 per share, of
Physicians' Online ("Physicians' Online Preferred Stock" and, together with the
Physicians' Online Common Stock, the "Physicians' Online Stock") will be
converted into that number of shares of Mediconsult Common Stock based on the
quotient of (x) the liquidation preference for such series divided by (y) the
Average Closing Price per share of Mediconsult Common Stock, subject to the
issuance by Mediconsult in the Merger of not more than an aggregate of
approximately 20,000,000 shares of Mediconsult Common Stock (the aggregate
number of shares of Mediconsult Common Stock into which such shares of
Physicians' Online Stock will be so converted in the Merger, the "Aggregate
Stock Consideration"). The terms and conditions of the Merger are more fully
set forth in the Agreement and Plan of Merger, dated as of September 7, 1999
(the "Merger Agreement"), among Mediconsult, Merger Subsidiary, Physicians'
Online and certain principal shareholders of Physicians' Online (the "Principal
Shareholders").
You have requested our opinion as to the fairness, from a financial point
of view, of the Aggregate Stock Consideration to Mediconsult.
Warburg Dillon Read LLC ("WDR") has acted as financial advisor to the
Board of Directors in connection with this opinion and will receive a fee for
its services, a significant portion of which is contingent upon the
consummation of the Merger and a portion of which is payable upon delivery of
this opinion. In the ordinary course of business, WDR, its successors and
affiliates may trade securities of Mediconsult for their own accounts and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion does not address Mediconsults's underlying business decision
to effect the Merger or constitute a recommendation to any stockholder of
Mediconsult as to how such stockholder should vote with respect to any matter
relating to the Merger. In connection with our engagement, we were not
requested to, and we did not, participate in the negotiation or structuring of
the Merger and, at your direction, we have not been asked to, nor do we, offer
any opinion as to the material terms of the Merger Agreement and the
obligations thereunder, or the form of the Merger. We express no opinion as to
what the value of Mediconsult Common Stock will be when issued pursuant to the
Merger or the price at which Mediconsult Common Stock will trade or otherwise
be transferable subsequent to the Merger. In rendering this opinion, we have
assumed, with your consent, that each
B-1
<PAGE>
The Board of Directors
Mediconsult.com, Inc.
September 7, 1999
Page 2
of Mediconsult, Merger Subsidiary, Physicians' Online and the Principal
Shareholders will comply with all material terms of the Merger Agreement, as
applicable, and that the Merger will be validly consummated in accordance with
its terms.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to Mediconsult; (ii) reviewed certain internal financial information
and other data relating to the businesses and financial prospects of
Mediconsult and Physicians' Online and the potential incremental revenues, cost
savings and other synergies anticipated to result from the Merger, including
estimates and financial forecasts prepared by the managements of Mediconsult
and Physicians' Online, that were provided to us by Mediconsult and Physicians'
Online and not publicly available; (iii) conducted discussions with members of
the senior managements of Mediconsult and Physicians' Online; (iv) reviewed
publicly available financial and stock market data with respect to certain
other companies in lines of business we believe to be generally comparable to
those of Mediconsult and Physicians' Online; (v) compared the financial terms
of the Merger with the publicly available financial terms of certain other
transactions which we believe to be generally relevant; (vi) reviewed the
Merger Agreement; and (vii) conducted such other financial studies, analyses,
and investigations, and considered such other information as we deemed
necessary or appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the information provided
to or reviewed by us for the purpose of this opinion and have, with your
consent, relied on its being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of
Mediconsult or Physicians' Online, nor have we been furnished with any such
evaluation or appraisal. With respect to the financial forecasts and estimates
referred to above, we have assumed, at your direction, that they have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgements of the managements of Mediconsult and Physicians'
Online as to the future performance of Mediconsult and Physicians' Online and
the potential incremental revenues, costs savings and other synergies
(including the amount, timing and achievability thereof) anticipated to result
from the Merger. Our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us,
as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as the
date hereof, the Aggregate Stock Consideration is fair, from a financial point
of view, to Mediconsult.
Very truly yours,
WARBURG DILLON READ LLC
B-2
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)251,
(S)252, (S)254, (S)257, (S)258, (S)263 and (S)264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
C-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders
C-2
<PAGE>
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder not entitled to appraisal rights under this section.
C-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
<PAGE>
ANNEX D
MEDICONSULT.COM, INC.
AMENDED AND RESTATED
1996 STOCK OPTION PLAN*
1. Definitions. Except as otherwise expressly provided in this Plan, the
following capitalized terms shall have the respective meanings hereafter
ascribed to them:
(a) "Board" shall mean the Board of Directors of the Corporation;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Compensation Committee" shall mean the Compensation Committee of the
board of directors, as established from time to time, and comprised solely
of two or more outside directors who shall also be Non-Employee Directors
(as such term is defined in Rule 16b-3(b)(3)(i) promulgated under the
Securities Exchange Act of 1934, as amended.
(d) "Consultant" shall mean a person who provides services to the
Corporation as an independent contractor.
(e) "Corporation" means Mediconsult.com, Inc. and each and all of any
present and future subsidiaries;
(f) "Date of Grant" shall mean, for each participant in the Plan, the
date on which the Board approves the specific grant of stock options to
that participant;
(g) "Employee" shall be an employee of the Corporation or any
subsidiary of the Corporation,
(h) "Grantee" shall mean the recipient of an Incentive Stock Option
under the Plan;
(i) "Incentive Stock Option" shall refer to a stock option which
qualifies under Section 422 of the Code.
(j) "Non-statutory Option" shall mean an option which is not an
Incentive Stock Option.
(k) "Shares" shall mean the Corporation's common stock, $.001 par
value;
(1) "Shareholders" shall mean owners of record of any Shares; and
2. Purpose. The purpose of this Stock Option Plan (the "Plan") is two-
fold. First, the Plan will further the interests of the Corporation and its
shareholders by providing incentives in the form of stock options to employees
who contribute materially to the success and profitability of the Corporation.
Such stock options will be granted to recognize and reward outstanding
individual performances and contributions and will give selected employees an
interest in the Corporation parallel to that of the shareholders, thus
enhancing their proprietary interest in the Corporation's continued success
and progress. This program also will enable the Corporation to attract and
retain experienced employees. Second, the Plan will provide the Corporation
flexibility and the means to reward directors and consultants who render
valuable contributions to the Corporation.
3. Administration. This Plan will be administered by the Board. The Board
has the exclusive power to select the participants in this Plan, fix the
awards to each participant, and make all other determinations necessary or
advisable under the Plan, to determine whether the performance of an eligible
employee warrants an award under this Plan, and to determine the amount and
duration of the award. The Board has full and exclusive power to construe and
interpret this Plan, to prescribe, amend and rescind rules and regulations
relating to this Plan, and to take all actions necessary or advisable for this
Plan's administration. The Board shall have full power and authority to
determine, and at the time such option is granted shall clearly set forth,
whether the option shall be an Incentive Stock Option or a Non-statutory
Option. Any such determination made by the Board will be final and binding on
all persons. A member of the Board will not be liable for performing any act
or making any determination required by or pursuant to the Plan, if such act
or determination is made in good faith.
- --------
* Amendment appears in bold
D-1
<PAGE>
4. Authority of the Compensation Committee. The Compensation Committee has
full and exclusive power to construe and interpret this Plan, to amend and
rescind rules and regulations relating to this Plan, and to take all actions
necessary or advisable for this Plan's administration to the extent any such
action relates to options granted to any senior officer of the Company. The
Compensation Committee shall have full and exclusive power and authority to
make grants of Options hereunder to executive officers of the Company.
5. Participants. Any employee, officer, director or consultant that the
Board, in its sole discretion, designates is eligible to participate in this
Plan. However, only key employees of the Corporation shall be eligible to
receive grants of Incentive Stock Options. The Board's designation of a person
as a participant in any year does not require the Board to designate that
person to receive an award under this Plan in any other year or, if so
designated, to receive the same award as any other participant in any year. The
Board may consider such factors as it deems pertinent in selecting participants
and in determining the amount of their respective awards, including, but
without being limited to: (a) the financial condition of the Corporation; (b)
expected profits for the current or future years; (c) the contributions of a
prospective participant to the profitability and success of the Corporation,
and (d) the adequacy of the prospective participant's other compensation. The
Board, in its discretion, may grant benefits to a participant under this Plan,
even though stock, stock options, stock appreciation rights or other benefits
previously were granted to him under this or another plan of the Corporation,
whether or not the previously granted benefits have been exercised, but the
participant may hold such options only on the terms and subject to the
restrictions hereafter set forth.
6. Kinds of Benefits. Awards under this Plan, if any, will be granted in
options to acquire Shares as described below.
7. Options; Expiration; Limitations. Any Incentive Stock Option granted
under this Plan shall automatically expire ten years after the Date of Grant or
at such earlier time as may be described in paragraph 11 or directed by the
Board in the grant of the option. Notwithstanding the preceding sentence, no
Incentive Stock Option granted to a Shareholder who owns, as of the Date of
Grant, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Corporation shall, in any event, be
exercisable after the expiration of five years from the Date of Grant. For the
purpose of determining under any provision of this Plan whether a shareholder
owns stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Corporation, such Shareholder shall be
considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors
and lineal descendants, and stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.
Upon the exercise of an option, the Corporation shall deliver to the
participant certificates representing authorized but unissued Shares. The
cumulative total number of shares which may be subject to options issued and
outstanding pursuant to this Plan is limited to 7,000,000 shares. This amount
automatically will be adjusted in accordance with Paragraph 22 of this Plan. If
an option is terminated, in whole or in part, for any reason other than its
exercise, the Board may reallocate the shares subject to that option (or to the
part thereof so terminated) to one or more other options to be granted under
this Plan.
8. Option Exercise Price. Each option shall state the option price, which
shall be not less than 100% of the fair market value of the Shares on the Date
of Grant or the par value thereof whichever is greater. Notwithstanding the
preceding sentence, in the case of a grant of an Incentive Stock Option to an
employee who, as of the Date of Grant, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or its Parent or Subsidiaries', the option price shall not be less
than 110% of the fair market value of the Shares on the Date of Grant or the
par value thereof, whichever is greater.
During such time as the Shares are not traded in any securities market,
the fair market value per share shall be determined by a good faith effort of
the Board, using its best efforts and judgment. During such time as the Shares
are traded in a securities market but not listed upon an established stock
exchange, the fair market value
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per share shall be the mean between dealer "bid" and "ask" prices in the
securities market in which it is traded on the Date of Grant, as reported by
the National Association of Securities Dealers, Inc. If the Shares are listed
upon an established stock exchange or exchanges such fair market value shall
be deemed to be the highest closing price on such stock exchange or exchanges
on the Date of Grant, or if no sale of any Shares shall have been made on any
stock exchange on that day, on the next preceding day on which there was such
a sale. Subject to the foregoing, the Board shall have full authority and
discretion in fixing the option price and shall be fully protected in doing
so.
9. Maximum Option Exercise. The aggregate fair market value (determined
as of the Date of Grant) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by a grantee during any calendar
year (under all such plans of the Corporation and its parent or subsidiary, if
any) shall not exceed $100,000. For purposes of this Paragraph 8, the value of
stock acquired through the exercise of Non-statutory Options shall not be
included in the computation of the aggregate fair market value.
10. Maximum Option Grant. The maximum option grant which may be made to
an employee or other participant in any calendar year shall not cover more
than 1,000,000 shares, subject to adjustment as provided in Paragraph 22. The
maximum option grant during the entire life of the plan to any one employee or
other participant shall not exceed 3,000,000.
11. Exercise of Options.
(a) No stock option granted under this Plan may be exercised before the
Grantee's completion of such period of services as may be specified by the
Board on the Date of Grant. Furthermore, the timing of the exercise of any
option granted under this Plan may be subject to a vesting schedule based upon
years of service or an expiration schedule as may be specified by the Board on
the Date of Grant. Thereafter, or if no such period is specified subject to
the provisions of subsections (e), (d), (e), (f) and (g) of this Paragraph 10,
the Grantee may exercise the option in full or in part at any time until
expiration of the option.
A Grantee cannot exercise an Incentive Stock Option granted under this
Plan unless, at the time of exercise, he has been continuously employed by the
Corporation since the date the option was granted. The Board may decide in
each case to what extent bona fide leaves of absence for illness, temporary
disability, government or military service, or other reasons will not be
deemed to interrupt continuous employment.
(b) Unless an Option specifically provides to the contrary, all options
granted under this Plan shall immediately become exercisable in full in the
event of the consummation of any of the following transactions:
(i) A merger or acquisition in which the Company is not the surviving
entity;
(ii) The sale, transfer or other disposition of all or substantially all
of the assets of the Company; or
(iii) Any merger in which the Company is the surviving entity but in
which fifty percent (50%) or more of the Company's outstanding voting stock is
issued to holders different from those who held the stock immediately prior to
such merger.
(c) Except as provided in subsections (d), (e) and (f) of this Paragraph
10, a Grantee cannot exercise an Incentive Stock Option after he ceases to be
an employee of the Corporation, unless the Board, in its sale discretion,
grants the recipient an extension of time to exercise the Incentive Stock
Option after cessation of employment. The extension of time of exercise that
may be granted by the Board under this subsection (c) shall not exceed three
months after the date on which the Grantee ceases to be an employee and in no
case shall extend beyond the stated expiration date of the option.
(d) If the employment of a Grantee is terminated by the Corporation for a
cause as defined in subsection (i) of this Paragraph 10, all rights to any
stock option granted under this Plan shall terminate, including but not
limited to the ability to exercise such stock options.
(e) If a Grantee ceases to be an employee as a result of retirement, he
may exercise the Incentive Stock Option within three months after the date on
which he ceases to be an employee (but no later than the stated expiration
date of the option) to the extent that the Incentive Stock Option was
exercisable when he ceased to be an employee. An employee shall be regarded as
retired if he terminates employment after his sixty-fifth birthday.
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(f) If a Grantee ceases to be an employee because of disability (within
the meaning of Section 105(d)(4) of the Code), or if a Grantee dies, and if at
the time of the Grantee's disability or death he was entitled to exercise an
Incentive Stock Option granted under this Plan, the Incentive Stock Option can
be exercised within 12 months after his death or termination of employment on
account of disability (but no later than the stated expiration date of the
option), by the Grantee in the case of disability or, in case of death, by his
personal representative, estate or the person who acquired by gift, bequest or
inheritance his right to exercise the Incentive Stock Option. Such options can
be exercised only as to the number of shares for which they could have been
exercised at the time the Grantee died or became disabled.
(g) With respect to Non-statutory Options granted to Board members, the
Board may provide on the Date of the Grant that such options will expire a
specified number of days after such Board member ceases to be a member of the
Board. In the absence of any such provision, the option will expire on the
stated expiration date of the option.
(h) Any stock option granted under the Plan will terminate, as a whole or
in part, to the extent that, in accordance with this Paragraph 10, it no longer
can be exercised.
(i) For purposes of this Paragraph 10, "cause" shall mean the following:
(1) Fraud or criminal misconduct;
(2) Gross negligence;
(3) Willful or continuing disregard for the safety or soundness of the
Corporation;
(4) Willful or continuing violation of the published rules of the
Corporation.
12. Method of Exercise. A stock option (or any part or installment
thereof) shal I be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Stock option being
exercised and specify the number of shares as to which such Stock option is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Board, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock option, or (c) at the discretion of the Board, by delivery
of the grantee's personal recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) in the discretion of the Board, by
delivery (including by telecopier) to the Company or its designated agent of an
executed irrevocable option exercise form together with irrevocable
instructions to a broker-dealer to sell (or margin) a sufficient portion of the
shares and deliver the sale (or margin loan) proceeds directly to the Company
to pay for the exercise price, or (e) at the discretion of the Board, by any
combination of (a), (b), (c) or (d) above. If the Board exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c), (d) or (e) of the preceding sentence,
such discretion shall be exercised in writing at the time of the grant of the
ISO in question. The holder of a Option shall not have the rights of a
shareholder with respect to the shares covered by his Stock option until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 10 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends
or similar rights for which the record date is before the date such stock
certificate is issued.
Any option granted under this Plan may be exercised as to any lesser
number of shares than the full amount for which such option has been granted. A
partial exercise of an option will not affect the Grantee's rights to exercise
the option from time to time in. accordance with this Plan as to the remaining
shares subject to the option.
13. Taxes; Compliance with Law; Approval of Regulatory Bodies. The
Corporation, if necessary or desirable, may pay or withhold the amount of any
tax attributable to any amount payable or shares deliverable under this Plan
and the Corporation may defer making payment on delivery until it is
indemnified to its
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satisfaction for that tax. Stock options are exercisable, and shares can be
delivered under this Plan, only in compliance with all applicable federal and
sate laws and regulations, including, without limitation, state and federal
securities laws, and the rules of all stock exchanges on which the
Corporation's shares are listed at any time. Any certificate issued pursuant
to options granted under this Plan shall bear such legends and statements as
the Board deems advisable to assure compliance with federal and state laws and
regulations. No option may be exercised, and shares may not be issued under
this Plan, until the Corporation has obtained the consent or approval of every
regulatory body, federal or state, having jurisdiction over such matters as
the Board deems advisable.
Specifically, in the event that the Corporation deems it necessary or
desirable to file a registration statement with the Securities and Exchange
Commission or any State Securities Commission, no option granted under the
Plan may be exercised, and shares may not be issued, until the Corporation has
obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate acquiring
by bequest or inheritance the right to exercise such option, the Board may
require reasonable evidence as to the ownership of the option and may require
such consents and releases of taxing authorities as the Board deems advisable.
14. Each option granted under this Plan is not transferable other than by
will or the laws of descent and distribution. Each option is exercisable
during the life of the Grantee only by him.
15. Tenure. A participant's right, if any, to continue to serve the
Corporation as an officer, employee or otherwise, will not be enlarged or
otherwise affected by his designation as a participant under this Plan, and
such designation will not in any way restrict the right of the Corporation to
terminate at any time the employment or affiliation of any participant for
cause or otherwise.
16. Amendment and Termination of Plan. The Board may alter, amend or
terminate this Plan from time to time without approval of the shareholders.
However, without the approval of the shareholders, no amendment will be
effective that:
(a) materially increases the benefits accruing to participants under
the Plan;
(b) increases the cumulative number of shares that may be delivered
upon the exercise of options granted under the Plan or the aggregate fair
market value of options which a participant may exercise in any calendar
year;
(c) materially modifies the eligibility requirements for participation
in the Plan: or
(d) amends the requirements of paragraphs (a)-(c) of this Paragraph
15,
Any amendment, whether with or without the approval of shareholders, that
alters the terms or provisions of an option granted before the amendment will
be effective only with the consent of the participant to whom the option was
granted or the holder currently entitled to exercise it, except for
adjustments expressly authorized by this Plan.
17. Expenses of Plan. The expenses of the Plan will be borne by the
Corporation.
18. Duration of Plan. Options may only be granted under this Plan during
the ten years immediately following the earlier of the adoption of the Plan or
its approval by the Shareholders. Options granted during that ten year period
will remain valid thereafter in accordance with their terms and the provisions
of this Plan.
19. Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions including, without limitation,
restrictions upon the exercise of the option, as the Board shall deem
advisable. Any such option agreements, which are intended to be "Incentive
Stock Options" shall contain such limitations and restrictions upon the
exercise of the option as shall be necessary in order that such option will be
an "Incentive Stock Option" as defined in Section 422 of the Code.
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20. Indemnification of the Board. In addition to such other rights of
indemnification as they may have as directors, the members of the Board shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such director is liable for
negligence or misconduct in the performance of his duties; provided that within
60 days after the institution of any such action, suit or proceeding a director
shall in writing offer the Corporation the opportunity, at its own expense, to
handle and defend the same.
21. Application of Funds. The proceeds received by the Corporation from
the sale of stock pursuant to options granted under this Plan will be used for
general corporate purposes.
22. No Obligation to Exercise Option. The granting of an option shall
impose no obligation upon the Grantee to exercise such option.
23. Adjustment Upon Change of Shares. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering, or other event affecting
shares of the Corporation occurs, then the number and class of shares to which
options are authorized to be granted under this Plan, the number and class of
shares then subject to options previously granted under this Plan, and the
price per share payable upon exercise of each option outstanding under this
Plan shall be equitably adjusted by the Board to reflect such chances.
24. Number and Gender. Unless otherwise clearly indicated in This Plan,
words in the singular or plural shall include the plural and singular,
respectively, where they would so apply, and words in the masculine or neuter
gender shall include the feminine, masculine or neuter gender where applicable.
25. Applicable Law. The validity, interpretation and enforcement of this
Plan are governed in all respects by the laws of Delaware.
26. Effective Date of Plan. This Plan shall not take effect until adopted
by the Board. This Plan shall terminate if it is not approved by the holders of
a majority of the outstanding shares of the capital stock of the Corporation,
which approval must occur within the period beginning twelve months before and
ending twelve months after the Plan is adopted by the Board.
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ANNEX E
MEDICONSULT.COM, INC.
AMENDED AND RESTATED
1994 STOCK OPTION PLAN*
1. Purpose, Assumption.
(a) The purpose of this plan (the "Plan") is to secure for
Mediconsult.com, Inc. (the "Company") and its shareholders the benefits arising
from capital stock ownership by employees, officers and directors of, and
consultants or advisors to, the Company and its subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include all present
and future subsidiaries of the Company as defined in Sections 424(e) and 424(f)
of the Internal Revenue Code of 1986, as amended or replaced from time to time
(the "Code"). Those provisions of the Plan which make express reference to
Section 422 shall apply only to Incentive Stock Options (as that term is
defined in the Plan).
(b) Effective on the first date on which the assumption of the Plan by
Mediconsult is approved by the Board and the stockholders of Mediconsult, the
Plan shall be the Mediconsult.com, Inc. Amended and Restated 1994 Stock Option
Plan.
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The Board of
Directors may in its sole discretion grant options to purchase shares of the
Company's Common Stock, $.01 par value per share ("Common Stock") and issue
shares upon exercise of such options as provided in the Plan. The Board shall
have authority, subject to the express provisions of the Plan, to construe the
respective option agreements and the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be
the sole and final judge of such expediency. No director or person acting
pursuant to authority delegated by the Board of Directors shall be liable for
any action or determination under the Plan made in good faith. Subject to
adjustment as provided in Section 15 below, the aggregate number of shares of
Common Stock that may be subject to Options granted to any person in a calendar
year shall not exceed 25% of the maximum number of shares which may be issued
and sold under the Plan, as set forth in Section 4 hereof, as such section may
be amended from time to time.
The Board of Directors may, to the full extent permitted by or consistent
with applicable laws or regulations (including, without limitation, applicable
state law and Rule 16b-3 promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"), or any successor rule ("Rule 16b-3")), delegate any or
all of its powers under the Plan to a committee (the "Committee") appointed by
the Board of Directors, and if the Committee is so appointed all references to
the Board of Directors in the Plan shall mean and relate to such Committee with
respect to the powers so delegated.
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* Amendments appear in bold.
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(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Exchange Act, subject to the
last sentence of Section 3(b), and then only to such persons as are required to
file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that Incentive Stock Options may only be granted to
individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board of Directors
shall so determine.
(b) Grant of Options to Reporting Persons. From and after the registration
of the Common Stock of the Company under the Exchange Act, the selection of a
director or an officer who is a Reporting Person (as the terms "director" and
"officer" are defined for purposes of Rule 16b-3) as a recipient of an option,
the timing of the option grant, the exercise price of the option and the number
of shares subject to the option shall be determined either (i) by the Board of
Directors, of which all members shall be "disinterested persons" (as
hereinafter defined), or (ii) by a committee consisting of two or more
directors having full authority to act in the matter, each of whom shall be a
"disinterested person." For the purposes of the Plan, a director shall be
deemed to be a "disinterested person" only if such person qualifies as a
"disinterested person" within the meaning of Rule 16b-3, as such term is
interpreted from time to time. If at least two of the members of the Board of
Directors do not qualify as a "disinterested person" within the meaning of Rule
16b-3, as such term is interpreted from time to time, then the granting of
options to officers and directors who are Reporting Persons under the Plan
shall not be determined in accordance with this Section 3(b) but shall be
determined in accordance with the other provisions of the Plan.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 1,375,000 shares. If
an option granted under the Plan shall expire, terminate or is cancelled for
any reason without having been exercised in full, the unpurchased shares
subject to such option shall again be available for subsequent option grants
under the Plan. As of the effective date of the assumption of the Plan by the
Company, subject to adjustment as provided in Section 15(a), the maximum
aggregate number of shares of Stock remaining to be issued under the Plan is
1,375,000 multiplied by the conversion factor used Merger. The "Merger" means
the merger of PMCI, Inc., a wholly owned subsidiary of the Company, with and
into Physicians' Online Inc. pursuant to which Physicians' Online, Inc. became
a wholly owned subsidiary of the Company.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors at the time
of grant of such option; provided, however, that in the case of an Incentive
Stock Option, the exercise price shall not be less than 100% of the Fair Market
Value (as hereinafter defined) of such stock, at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b). "Fair Market Value" of a share of Common Stock of
the Company as of a specified date for the purposes of the Plan shall mean the
closing price of a share of the Common Stock
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on the principal securities exchange on which such shares are traded on the
day immediately preceding the date as of which Fair Market Value is being
determined, or on the next preceding date on which such shares are traded if
no shares were traded on such immediately preceding day, or if the shares are
not traded on a securities exchange, Fair Market Value shall be deemed to be
the average of the high bid and low asked prices of the shares in the over-
the-counter market on the day immediately preceding the date as of which Fair
Market Value is being determined or on the next preceding date on which such
high bid and low asked prices were recorded. If the shares are not publicly
traded, Fair Market Value of a share of Common Stock (including, in the case
of any repurchase of shares, an distributions with respect thereto which would
be repurchased with the shares) shall be determined in good faith by the Board
of Directors. In no case shall Fair Market Value be determined with regard to
restrictions other than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company having a Fair Market
Value on the date of exercise equal in amount to the exercise price of the
options being exercised, (ii) by any other means which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable
laws and regulations (including, without limitation, the provisions of Rule
16b-3 and Regulation T promulgated by the Federal Reserve Board) or (iii) by
any combination of such methods of payment.
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and
all rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that
such date shall not be later than (10) ten years after the date on which the
option is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the
provisions of the Plan. Subject to the requirements in the immediately
preceding sentence, if an option is not at the time of grant immediately
exercisable, the Board of Directors may (i) in the agreement evidencing such
option, provide for the acceleration of the exercise date or dates of the
subject option upon the occurrence of specified events, and/or (ii) at any
time prior to the complete termination of an option, accelerate the exercise
date or dates of such option.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. An option may be exercised during the lifetime of the
optionee only by the optionee. In the event an optionee dies during his
employment by the Company or any of its subsidiaries, or during the three-
month period following the date of termination of such employment, his option
shall thereafter be exercisable, during the period specified in the option
agreement, by his executors or administrators to the full extent to which such
option was exercisable by the optionee at the time of his death during the
periods set forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options and except as otherwise determined by the Board of Directors at the
date of grant of an option, and subject to the provisions of the Plan, an
optionee may exercise an option at any time within three (3) months following
the termination of the optionee's employment or other relationship with the
Company or within one (1) year if such termination was due to the death or
disability of the optionee, but, except in the case of the optionee's death,
in no event later
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than the expiration date of the Option. If the termination of the optionee's
employment is for cause or is otherwise attributable to a breach by the
optionee of an employment or confidentiality or non-disclosure agreement, the
option shall expire immediately upon such termination. The Board of Directors
shall have the power to determine what constitutes a termination for cause or
a breach of an employment or confidentiality or non-disclosure agreement,
whether an optionee has been terminated for cause or has breached such an
agreement, and the date upon which such termination for cause or breach
occurs. Any such determinations shall be final and binding upon the optionee.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (after taking into
account the attribution of stock ownership rules of Section 424(d) of the
Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) the purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years from
the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive
stock option plans of the Company) which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options to the
extent that such options, in the aggregate, become exercisable for the
first time in any one calendar year for shares of Common Stock with an
aggregate Fair Market Value, as of the respective date or dates of grant,
of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee of
the Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect
to such option may designate a longer exercise period and that the
exercise after such three-month period shall be treated as the exercise
of a non-statutory option under the plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser
period as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of
the Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
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12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, rights of first refusal, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by
the Board of Directors; provided, that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such additional
provisions shall not cause any Incentive Stock Option granted under the Plan to
fail to qualify as an Incentive Stock Option within the meaning of Section 422
of the Code.
(b) Acceleration, Extension Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 (if applicable).
13. General Restrictions
(a) Investment Representations. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock, including any "lock-
up" or other restriction on transferability.
(b) Compliance With Securities Law. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange under any state or federal law, or the consent or
approval of any governmental or regulatory body, or that the disclosure of non-
public information or the satisfaction of any other condition is necessary as a
condition of, or in connection with the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company
to apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and Related
Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a result
of any recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, (i) the outstanding shares of Common
Stock are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or other
securities subject to any then outstanding options under the Plan, and (z) the
price for each share subject to any then outstanding options under the Plan,
without changing the
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aggregate purchase price as to which such options remain exercisable.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 15 if such adjustment (i) would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 or (ii) would be considered as the
adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. If the Company shall
be the surviving corporation in any reorganization, merger or consolidation of
the Company with one or more other corporations, any then outstanding option
granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Common Stock subject to such options
would have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the purchase
price as to which such options may be exercised so that the aggregate purchase
price as to which such options may be exercised shall be the same as the
aggregate purchase price as to which such options may be exercised for the
shares remaining subject to the options immediately prior to such
reorganization, merger, or consolidation.
(c) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger in which the
Company is not the surviving corporation, or sale of all or substantially all
of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company (collectively,
a "Corporate Transaction"), the Board of Directors of the Company, or the
board of directors of any corporation assuming the obligations of the Company,
may, in its discretion, take any one or more of the following actions, as to
outstanding options: (i) provide that such options hall be assumed, or
equivalent options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such options
substituted for Incentive Stock Options shall meet the requirements of Section
424(a) of the Code, (ii) upon written notice to the optionees, provide that
all unexercised options will terminate immediately prior to the consummation
of such transaction unless exercised by the optionee within a specified period
following the date of such notice, (iii) in the event of a Corporate
Transaction under the terms of which holders of the Common Stock of the
Company will receive upon consummation thereof a cash payment for each share
surrendered in the Corporate Transaction (the "Transaction Price"), make or
provide for a cash payment to the optionees equal to the difference between
(A) the Transaction Price times the number of shares of Common Stock subject
to such outstanding options (to the extent then exercisable at prices not in
excess of the Transaction Price) and (B) the aggregate exercise price of all
such outstanding options in exchange for the termination of such options, and
(iv) provide that all or any outstanding options shall become exercisable in
full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as a result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company,
or one of its subsidiaries, of property or stock of the employing corporation.
The Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the
circumstances.
(c) The Merger. Each outstanding option to purchase shares of Physicians'
Online common stock, whether vested or unvested and whether or not
exercisable, issued under this Plan before the effective time of the Merger
shall, at the effective time of the Merger, be exercisable, for the same
aggregate exercise price, for that number of shares of Mediconsult common
stock that the holder of such option would have received had such holder
exercised such option immediately prior to the effective time of the Merger,
with
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no change to the vesting period and with no other change to the terms of such
option. Any fractional shares of Mediconsult common stock resulting from such
adjustment will be rounded to the nearest whole number of shares.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company at any
time to terminate such employment or to increase or decrease the compensation
of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of
the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive
Stock Options granted under the Plan to the extent necessary to qualify any or
all such options for such favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock options
under Section 422 of the Code and (ii) the terms and provisions of the Plan
and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct form payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect
to satisfy such obligations, in whole or in part, (i) by causing the Company
to withhold shares of Common Stock otherwise issuable pursuant to the exercise
of an option or (ii) by delivering to the Company shares of Common Stock
already owned by the optionee. The shares so delivered or withheld shall have
a Fair Market Value equal to such withholding obligation as of the date that
the amount of tax to be withheld is to be determined. An optionee who has made
an election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the
optionee within two years from the date the option was granted or within one
year from the date the shares were issued to the optionee pursuant to the
exercise of the option, and (ii) if required by law, to remit to the Company,
at the time of and in the case of any such disposition, an amount sufficient
to satisfy the Company's federal, state and local withholding tax obligations
with respect to such disposition, whether or not, as to both (i) and (ii), the
optionee is in the employee of the Company at the time of such disposition.
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(c) Notwithstanding the foregoing, in the case of a Reporting Person whose
options have been granted in accordance with the provisions of Section 3(b)
herein, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled option or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate upon the earlier of (i) the close of business on the
day next preceding the tenth anniversary of the date of its adoption by the
Board of Directors, or (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise or cancellation
of options granted under the Plan. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments
evidencing such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws.
Adopted by the Board of Directors on February 27, 1996
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ANNEX F
ESCROW AGREEMENT (the "Agreement"), dated as of September ,
1999 among Mediconsult.com, Inc., a Delaware corporation (the
"Parent"), Jason Fisherman, as the representative (the
"Representative") of the shareholders of Physicians' Online,
Inc., a Delaware corporation (the "Company"), set forth on
Schedule I hereto (the "Shareholders"), and Wilmington Trust
Company, a Delaware banking corporation, as escrow agent (the
"Escrow Agent").
INTRODUCTION
On September 7, 1999, the Parent, a merger subsidiary of the Parent, the
Company and certain of the Shareholders entered into an Agreement and Plan of
Merger (the "Merger Agreement"), a copy of which has been furnished to the
Escrow Agent. As a condition to the consummation of the transactions
contemplated by the Merger Agreement, the Parent, the Representative (on behalf
of the Shareholders) and the Escrow Agent are entering into this Agreement to
provide a fund for indemnity payments that the Shareholders may become
obligated to make to the Parent and its officers, directors, employees, agents,
affiliates, representatives or subsidiaries (together, the "Indemnified
Parties") as and to the extent provided in the Merger Agreement. Capitalized
terms used and not otherwise defined herein have the meaning set forth in the
Merger Agreement.
The parties agree as follows:
1. Appointment of the Escrow Agent; Delivery of Escrow. Each of the Parent
and the Representative constitute and appoint the Escrow Agent as, and the
Escrow Agent agrees to assume and perform the duties of, the escrow agent under
and pursuant to this Agreement. The Escrow Agent acknowledges receipt (a) from
the Parent, of a stock certificate representing [ ] shares of Parent Common
Stock registered in the name of the Representative (the "Original Share
Certificate") and (b) from the Representative, of three stock powers executed
in blank. The stock powers, the Parent Common Stock represented by the Original
Share Certificate and any dividends or distributions in Parent Common Stock or
other securities on the Parent Common Stock shall constitute and be defined as
the "Escrow".
2. The Escrow; Acceptance and Undertaking of the Escrow Agent. The Escrow
Agent hereby acknowledges receipt of the foregoing documents and instruments
comprising the Escrow and covenants to hold all of the same in escrow, and
subsequently to release and distribute, or return, as the case may be, the
Escrow or any part thereof, only pursuant to and in strict accordance with all
of the terms and conditions of this Agreement.
3. Taxes. The Escrow Agent shall have no responsibility for any tax
reporting. Any cash dividend on the Escrow shall be paid directly to the
Representative.
4. Claims Against the Escrow.
(a) Concurrently with the delivery of a written notice (a "Claim Notice")
to the Representative of a claim for indemnification in accordance with Section
13.1(b) of the Merger Agreement, or within a reasonable period thereafter, the
Parent will deliver to the Escrow Agent a certificate in substantially the form
of Annex I attached to this Agreement (a "Certificate of Instruction"). In
accordance with Section 13.2 of the Merger Agreement, no Claim Notice may be
delivered by the Parent after the first anniversary of the Closing Date. No
Certificate of Instruction may be delivered without the prior or simultaneous
delivery of a Claim Notice. No Certificate of Instruction may be delivered by
the Parent after the close of business on the business day immediately
preceding the first anniversary of the Closing Date. The Escrow Agent shall
give written notice to the Representative of its receipt of a Certificate of
Instruction not later than the second business day next following receipt
thereof, together with a copy of such Certificate of Instruction.
(b) If the Escrow Agent (i) shall not, within 30 calendar days following
its receipt of a Certificate of Instruction (the "Objection Period"), have
received a certificate in substantially the form of Annex II attached to
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this Agreement (an "Objection Certificate"), or (ii) shall have received such
an Objection Certificate within the Objection Period and shall thereafter have
received either (x) a certificate substantially in the form of Annex III
attached to this Agreement (a "Resolution Certificate") or (y) a copy of
final, nonappealable order of a court of competent jurisdiction accompanied by
a certificate substantially in the form of Annex IV attached to this Agreement
(a "Litigation Certificate"), then the Escrow Agent shall, on or before the
fifth business day next following the expiration of the Objection Period or
the Escrow Agent's receipt of a Resolution Certificate or Litigation
Certificate, as applicable, deliver to the Parent the share certificate then
constituting the Escrow in exchange for the Replacement Share Certificate (if
any) (as defined below).
(c) If the number of shares having an aggregate value equal to the Owed
Amount (based on the Average Closing Price per share of the Parent Common
Stock) is less than all of the shares in the Escrow, then the Parent shall
deliver or cause to be delivered to the Escrow Agent, in exchange for the
Original Share Certificate, a new certificate registered in the name of the
Representative representing shares not being delivered pursuant to paragraph
(b) (the "Replacement Share Certificate"). The Replacement Share Certificate
and corresponding stock powers shall thereafter be the Escrow.
(d) The Escrow Agent shall give written notice to the Parent of its
receipt of an Objection Certificate not later than the second business day
next following receipt thereof, together with a copy of such Objection
Certificate. The Escrow Agent shall give written notice to the Representative
of its receipt of a Litigation Certificate not later than the second business
day next following receipt thereof, together with a copy of such Litigation
Certificate.
(e) Upon delivery by the Escrow Agent of the share certificate then
representing the Escrow to Parent in exchange for the Replacement Share
Certificate, if any, such Certificate of Instruction shall be deemed canceled.
Upon the receipt by the Escrow Agent of a Resolution Certificate or a
Litigation Certificate and the delivery by the Escrow Agent of share
certificate then representing the Escrow to Parent in exchange for the
Replacement Share Certificate, if any, the related Certificate of Instruction
shall be deemed canceled.
(f) Upon the Parent's determination that it has no claim or has released
its claim with respect to an Owed Amount referred to in a Certificate of
Instruction (or a specified portion thereof), the Parent will deliver to the
Escrow Agent prior to the expiration of the applicable Objection Period a
certificate substantially in the form of Annex V attached to this Agreement (a
"Parent Cancellation Certificate") canceling such Certificate of Instruction
(or such specified portion thereof, as the case may be), and such Certificate
of Instruction (or portion thereof) shall thereupon be deemed canceled. The
Escrow Agent shall give written notice to the Representative of its receipt of
a Parent Cancellation Certificate not later than the second business day next
following receipt thereof, together with a copy of such the Parent
Cancellation Certificate.
(g) Upon receipt of a final, nonappealable order of a court of competent
jurisdiction to the effect that none of the Owed Amount referred to in a
Certificate of Instruction is payable to any Indemnified Party by the
Shareholders, the Representative may, provided no Resolution Certificate or
Litigation Certificate shall have previously been received by the Escrow
Agent, deliver a copy of such order (accompanied by a certificate of the
Representative substantially in the form of Annex VI attached to this
Agreement (a "Shareholders Cancellation Certificate")) canceling such
Certificate of Instruction, and such Certificate of Instruction shall
thereupon be deemed canceled. The Escrow Agent shall give written notice to
the Parent of its receipt of a Shareholders Cancellation Certificate not later
than the second business day next following receipt thereof, together with a
copy of such Shareholders Cancellation Certificate.
(h) The Escrow Agent shall have no obligation to verify that the order
attached to a Litigation Certificate or Shareholders Cancellation Certificate
constitutes a final, nonappealable order of a court of competent jurisdiction,
and shall be entitled to rely upon the Parent's or the Representative's
statement to that effect.
(j) At any time after the risk-sharing period described in the Affiliates
Agreement, the Representative may request release of the shares from the
Escrow, provided that the Shareholders replace the released shares with
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such cash as is necessary to maintain the value of the Escrow at $[insert 10%
of Merger Consideration] less any Owed Amounts previously paid pursuant to any
Certificates of Instruction, Resolution Certificates or Litigation
Certificates. The cash substituted for the shares shall thereafter constitute
and be defined as the Escrow. In the event of such release and substitution,
all references in this Agreement to delivery of shares by the Escrow Agent
shall also mean payment of cash in Escrow by the Escrow Agent, as applicable.
All payments to Parent in respect of Certificates of Instruction, Resolution
Certificates or Litigation Certificates shall be paid in pro rata amounts of
cash and shares based on the amount of cash and the aggregate value of the
shares (based on the Average Closing Price per share of the Parent Common
Stock) then constituting the Escrow.
5. Termination Date. The Escrow Agent shall on the later of (x) the first
anniversary of the Closing Date (the "Termination Date") and (y) the date on
which all Certificates of Instruction received by the Escrow Agent in
accordance with the terms hereof have been canceled in accordance with
paragraph (e), (f) or (g) of Section 4, promptly deliver to the Representative
at a location of the Representative's designation (for the benefit of the
Shareholders) the Escrow, as it is then constituted, and this Agreement (other
than Sections 6, 7 and 8) shall automatically terminate. Parent shall, or
shall cause its transfer agent to, issue and deliver to the Representative in
exchange for the Escrow, and at the direction of the Representative,
certificates of Parent Common Stock representing each Shareholder's pro rata
share of the Escrow, as it is then constituted, based on each Shareholders
percentage interest in the Escrow as set forth on Schedule I hereto; provided,
however, that any Shareholder who has sold shares and replaced them with cash
as provided in Section 4 above, shall receive such cash (rather than shares)
upon distribution of his or her pro rata share of the Escrow. The Escrow Agent
shall be entitled to require payment of amounts owed to it under Section 8
before distributing the Escrow in accordance with this Section 5.
6. Duties and Obligations of the Escrow Agent. The duties and obligations
of the Escrow Agent shall be limited to and determined solely by the
provisions of this Agreement and the certificates delivered in accordance with
this Agreement, and the Escrow Agent is not charged with knowledge of or any
duties or responsibilities in respect of any other agreement or document. In
furtherance and not in limitation of the foregoing:
(i) the Escrow Agent shall be fully protected in relying in good faith
upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent reasonably
believes to be genuine and duly authorized, executed and delivered;
(ii) the Escrow Agent shall not be liable for any error of judgment,
or for any act done or omitted by it, or for any mistake in fact or law, or
for anything that it may do or refrain from doing in connection this
Agreement; provided, however, that notwithstanding any other provision in
this Agreement, the Escrow Agent shall be liable for its willful misconduct
or gross negligence;
(iii) the Escrow Agent may seek the advice of legal counsel selected
with reasonable care in the event of any dispute or question as to the
construction of any of the provisions of this Agreement or its duties under
this Agreement, which counsel shall not be attorneys of any of the
Shareholders or of the Indemnified Parties or their respective Affiliates,
and it shall incur no liability and shall be fully protected in respect of
any action taken, omitted or suffered by it in good faith in accordance
with the opinion of such counsel;
(iv) in the event that the Escrow Agent shall in any instance, after
seeking the advice of legal counsel pursuant to the immediately preceding
clause, in good faith be uncertain as to its duties or rights under this
Agreement, it shall be entitled to refrain from taking any action in that
instance and its sole obligation, in addition to those of its duties under
this Agreement as to which there is no such uncertainty, shall be to keep
safely all property held in the Escrow until it shall be directed otherwise
in writing by each of the parties to this Agreement or by a final,
nonappealable order of a court of competent jurisdiction; provided, that in
the event that the Escrow Agent has not received such written direction or
court order within 180 calendar days after requesting the same, it shall
interplead the Parent and the Shareholders in any court of competent
jurisdiction and request that such court determine its rights and duties
under this Agreement unless the parties to this Agreement otherwise agree;
(v) the Escrow Agent may execute any of its powers or responsibilities
under this Agreement and exercise any rights under this Agreement either
directly or by or through agents or attorneys selected with reasonable
care, which shall not be agents or the attorneys of any of the Shareholders
or the Indemnified
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Parties or their respective Affiliates, nothing in this Agreement shall be
deemed to impose upon the Escrow Agent any duty to qualify to do business
or to act as fiduciary or otherwise in any jurisdiction other than the
State of Delaware and the Escrow Agent shall not be responsible for and
shall not be under a duty to examine into or pass upon the validity,
binding effect, execution or sufficiency of any certificates or the shares
in the Escrow, this Agreement, the Merger Agreement, the Indemnification
Agreement or of any agreement amendatory or supplemental to this Agreement.
The Escrow Agent shall not be liable for any other party's failure to
comply with its covenants relating to the Merger, including without
limitation under applicable securities laws; and
(vi) other than the obligations as specifically set forth herein, the
Escrow Agent shall not be obligated to preserve or protect any rights with
respect to the shares in Escrow or to receive or give any notice with
respect thereto, all of which shall remain the sole responsibility of the
Shareholders or the Parent, as applicable.
(vii) the Escrow Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Escrow shall be to deal with
it in the same manner as the Escrow Agent deals with similar property for
its own account.
(viii) the Escrow Agent shall not be required to use its own funds in
the performance of its obligations or duties, or in the exercise of any
rights or powers, and shall not be required to take any action which, in
the Escrow Agent's sole judgment, could involve it in expense or liability
unless furnished with security and indemnity which the Escrow Agent deems,
in its sole discretion, to be satisfactory to it.
7. Cooperation. The Parent and the Representative (on behalf of the
Shareholders) shall provide to the Escrow Agent all instruments and documents
that are within their respective powers to provide and necessary for the
Escrow Agent to perform its duties and responsibilities under this Agreement.
Each of the Parent and the Representative have provided the Escrow Agent with
a certificate setting forth the names of officers authorized to deliver
instructions hereunder (in the case of the Parent) and a sample of the genuine
signature of such officers or the Representative (as the case may be) and the
Escrow Agent shall be entitled to rely upon such certificates until a
substitute certificate is delivered hereunder.
8. Fees and expenses; Indemnity. The Parent shall be liable for the fees
and out of pocket expenses of the Escrow Agent for its services under this
Agreement as and when billed to the Parent by the Escrow Agent, and each of
the Parent and the Shareholders shall be jointly and severally liable to
reimburse and indemnify the Escrow Agent, and its employees, officers,
directors and agents, for, and hold it harmless against, any loss,
liabilities, damages, cost or expense, including but not limited to reasonable
attorneys' fees, reasonably incurred by the Escrow Agent in connection with
the Escrow Agent's performance of its duties and obligations under this
Agreement, as well as the reasonable costs and expenses of defending against
any claim or liability relating to this Agreement; provided that
notwithstanding the foregoing, neither the Parent nor the Shareholders shall
be required to indemnify the Escrow Agent for any such loss, liability, cost
or expense arising as a result of the Escrow Agent's willful misconduct or
gross negligence. Escrow Agent shall be entitled to recover the full amount of
such losses, liabilities, damages, costs and expenses from the Parent or the
Representative (on behalf of any Shareholder); provided that in the event that
the Parent or the Representative (on behalf of any Shareholder) pays any such
amount hereunder, the Parent on the one hand, and such Shareholder, on the
other, shall be entitled to reimbursement of one-half such amount from any
such Shareholder or the Parent (as the case may be). Escrow Agent shall have a
lien on and right of setoff against the Escrow for unpaid amounts owed to it
hereunder.
9. Resignation and Removal of the Escrow Agent.
(a) The Escrow Agent may resign as such 30 calendar days following the
giving of prior written notice thereof to the Representative and the Parent.
In addition, the Escrow Agent may be removed and replaced on a date designated
in a written instrument signed by the Representative and the Parent and
delivered to the Escrow Agent. Notwithstanding the foregoing, no such
resignation or removal shall be effective until a successor escrow agent has
acknowledged its appointment as such as provided in paragraph (c) below. In
either event, upon the effective date of such resignation or removal, the
Escrow Agent shall deliver the property comprising the Escrow
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<PAGE>
to such successor escrow agent, together with such records maintained by the
Escrow Agent in connection with its duties under this Agreement and other
information with respect to the Escrow as such successor may reasonably
request.
(b) If a successor escrow agent shall not have acknowledged its
appointment as such as provided in paragraph (c) below, in the case of a
resignation, prior to the expiration of 30 calendar days following the date of
a notice of resignation or, in the case of a removal, on the date designated
for the Escrow Agent's removal, as the case may be, because the Representative
and the Parent are unable to agree on a successor escrow agent, or for any
other reason, the Escrow Agent may petition any appropriate court of law for
the appointment of a successor escrow agent and any such resulting appointment
shall be binding upon all of the parties to this Agreement.
(c) Upon written acknowledgment by a successor escrow agent appointed in
accordance with the foregoing provisions of this Section 9 of its agreement to
serve as escrow agent under this Agreement and the receipt of the property
then comprising the Escrow, the Escrow Agent shall be fully released and
relieved of all duties, responsibilities and obligations under this Agreement,
subject to the proviso contained in clause (iii) of Section 6 and subject to
survival of Section 8, and such successor escrow agent shall for all purposes
of this Agreement be the Escrow Agent.
10. Notices. All notices, requests and other communications under this
Agreement must be in writing and will be deemed to have been duly given if
delivered personally, by overnight courier or by facsimile transmission or
mailed (first class postage prepaid) to the parties at the following addresses
or facsimile numbers:
if to the Parent, to:
Mediconsult.com. Inc.
1330 Avenue of the Americas
17th Floor
New York, New York 10019
Attention: E. Michael Ingram
Telephone:(212) 841-7311
Facsimile:(212) 841-7310
with a copy to:
Howard, Smith & Levin
1330 Avenue of the Americas
New York, New York 10019
Telephone:(212) 841-1000
Facsimile:(212) 841-1010
Attention: Kelly Vance, Esq.
if to the Shareholders or the Representative, to:
Jason Fisherman
Advent International Corp.
75 State Street
Boston, Massachusetts 02109
Telephone:(617) 951-9416
Facsimile:(617) 951-0566
If to the Escrow Agent, to:
Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, Delaware 19890-0001
Telephone: (302) 651-8948
Facsimile: (302) 651-8882
Attention: Ted Hendrixson
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<PAGE>
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail or overnight courier in the manner described above to the
address as provided in this Section, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received
by any other Person to whom a copy of such notice is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties to this Agreement. Any
notice received on a Saturday, Sunday or holiday or after 5 p.m. in the time
zone of the recipient shall be deemed received the next regular business day.
11. Amendments, etc. This Agreement may be amended or modified, and any of
the terms of this Agreement may be waived, only by a written instrument duly
executed by or on behalf of the Parent, the Representative and the Escrow
Agent. No waiver by any party of any term or condition contained of this
Agreement, in any one or more instances, shall be deemed to be or construed as
a waiver of the same or any other term or condition of this Agreement on any
future occasion.
12. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to a
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof. THE PARTIES HERETO EACH HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT
SITTING IN THE CITY AND COUNTY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO EACH
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT SUCH PARTY MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT SUCH PARTY MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN
ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE OTHER PARTY IN ANY OTHER JURISDICTION.
13. Business Day. For all purposes of this Agreement, the term "business
day" shall mean a day other than Saturday, Sunday or any day on which banks
located in the States of Delaware and New York are authorized or obligated to
close.
14. Miscellaneous.
(a) This Agreement is binding upon and will inure to the benefit of the
parties to this Agreement and their respective successors and permitted
assigns. The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions of this Agreement.
This Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
(b) The parties agree that the shares in Escrow may not be sold, pledged
or otherwise transferred or disposed of during the term of this Agreement,
except as provided in Section 4(c), 4(j), 5 and 9(a) hereof.
(c) While the Parent Common Stock is in Escrow, the Representative shall
have the right to vote the shares in Escrow as directed by the Shareholders.
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<PAGE>
The parties to this Agreement have caused this Agreement to be executed as
of the date first above written.
Mediconsult.com, Inc.
By:
Name:
Title:
-------------------------------------
Jason Fisherman, as Representative
Wilmington Trust Company, as Escrow
Agent
By:
Name:
Title
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<PAGE>
Schedule I
[Shareholder] [Percentage Interest in Escrow]
F-8
<PAGE>
ANNEX I
CERTIFICATE OF INSTRUCTION
to
Wilmington Trust Company,
as Escrow Agent
The undersigned, Mediconsult.com, Inc. ("the Parent"), pursuant to Section
4(a) of the Escrow Agreement dated as of September , 1999 hereby:
(a) (a) certifies that (i) the Parent or another Indemnified Party has
sent to the Representative a Claim Notice a copy of which is attached
hereto, and (ii) the amount of $ (the "Owed Amount") is payable
to the Indemnified Parties by the Shareholders; and
(b) (b) instructs you to deliver to the Parent the share certificate
representing the Parent Common Stock now in Escrow (i) unless you receive
an Objection Certificate from the Representative prior to the expiration of
the Objection Period, within five business days following the expiration of
the Objection Period, or (ii) if you receive an Objection Certificate
within the Objection Period, within five business days following your
receipt of a Resolution Certificate or a Litigation Certificate.
MEDICONSULT.COM, INC.
By:
Name:
Title:
Dated: ,
F-9
<PAGE>
ANNEX II
OBJECTION CERTIFICATE
to
WILMINGTON TRUST COMPANY,
as Escrow Agent
The undersigned, Jason Fisherman (the "Representative"), pursuant to
Section 4(b) of the Escrow Agreement dated as of September , 1999, hereby:
(c) (c) disputes that the Owed Amount referred to in the Certificate
of Instruction dated , is payable to the Indemnified
Parties by the undersigned;
(d) (d) certifies that the undersigned has sent to the Parent a
written statement dated , of the undersigned, a copy of
which is attached hereto, disputing its liability to the Indemnified
Parties for the Owed Amount; and
(e) (e) objects to your delivery to the Parent of the share
certificate representing the Parent Common Stock now in Escrow as provided
in such Certificate of Instruction.
-------------------------------------
Jason Fisherman, as Representative
Dated: ,
F-10
<PAGE>
ANNEX III
RESOLUTION CERTIFICATE
to
WILMINGTON TRUST COMPANY,
as Escrow Agent
The undersigned, Mediconsult.com, Inc. ("the Parent"), and Jason
Fisherman, as the representative of the Shareholders (the "Representative") and
pursuant to Section 4(b) of the Escrow Agreement dated as of September , 1999
hereby:
(f) (f) certify that (i) the Parent and the Shareholders have resolved
their dispute as to the matter described in the Certificate of Instruction
dated , and the related Objection Certificate dated
, and (ii) the final Owed Amount with respect to the matter
described in such Certificates is $ ;
(g) (g) instruct you to deliver to the Parent the share certificate
representing the Parent Common Stock now in Escrow within five business
days following your receipt of this Certificate; and
(h) (h) agree that the Owed Amount designated in such Certificate of
Instruction, to the extent, if any, it exceeds the Owed Amount referred to
in clause (ii) of paragraph (a) above, shall be deemed not payable to the
Indemnified Parties and such Certificate of Instruction is hereby canceled.
MEDICONSULT.COM, INC.
By:
Name:
Title:
-------------------------------------
Jason Fisherman, as Representative
Dated: ,
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<PAGE>
ANNEX IV
LITIGATION CERTIFICATE
to
WILMINGTON TRUST COMPANY,
as Escrow Agent
The undersigned, Mediconsult.com, Inc. ("the Parent"), pursuant to Section
4(b) of the Escrow Agreement dated as of September , 1999, hereby:
(i) (i) certify that (i) attached hereto is a final, nonappealable
order of a court of competent jurisdiction resolving the dispute between
the Parent or other Indemnified Party and the Shareholders as to the matter
described in the Certificate of Instruction dated , and the
related Objection Certificate dated , and (ii) the final
Owed Amount with respect to the matter described in such Certificates, as
provided in such order, is $ ;
(j) (j) instructs you to deliver to the Parent the share certificate
representing the Parent Common Stock now in Escrow within five business
days following your receipt of this Certificate; and
(k) (k) agrees that the Owed Amount designated in such Certificate of
Instruction, to the extent, if any, it exceeds the Owed Amount referred to
in clause (ii) of paragraph (a) above, shall be deemed not payable to the
Indemnified Parties and such Certificate of Instruction is hereby canceled.
MEDICONSULT.COM, INC.
By:
Name:
Title:
Dated: ,
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<PAGE>
ANNEX V
PARENT CANCELLATION CERTIFICATE
to
WILMINGTON TRUST COMPANY,
as Escrow Agent
The undersigned, Mediconsult.com, Inc. ("the Parent"), pursuant to Section
4(f) of the Escrow Agreement dated as of September , 1999 hereby:
(l) (l) certifies that (i) it hereby releases its claim against the
Shareholders with respect to [all] [specify portion] of the Owed Amount
designated in the Certificate of Instruction dated , and
(ii) as a result the Owed Amount with respect to such Certificate of
Instruction is $ ; and
(m) (m) agrees that such Certificate of Instruction is, to the extent
released as provided in clause (i) of paragraph (a) above, canceled.
MEDICONSULT.COM, INC.
By:
Name:
Title:
Dated: ,
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<PAGE>
ANNEX VI
SHAREHOLDERS CANCELLATION CERTIFICATE
to
WILMINGTON TRUST COMPANY,
as Escrow Agent
The undersigned, Jason Fisherman (the "Representative"), pursuant to
Section 4(g) of the Escrow Agreement dated as of September , 1999, hereby:
certifies that (i) attached hereto is a final, nonappealable order of a
court of competent jurisdiction resolving the dispute between the Parent or
other Indemnified Party and the Shareholders as to the matter described in
the Certificate of Instruction dated , and the related
Objection Certificate dated , and (ii) as provided in such
order, there is [no] [specify amount] Owed Amount with respect to the
matter described in such Certificates.
-------------------------------------
Jason Fisherman, as the
Representative
Dated: ,
F-14
