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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 0-29282
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MEDICONSULT.COM, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1341886
(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
33 REID STREET, 4(TH) FLOOR
HAMILTON HM 12 BERMUDA
(Address of principal executive offices) (Zip Code)
(441) 292-0474
Issuer's telephone number, including are code
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12 (G) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes /X/ No
/ /
Check if the disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
Revenues of the issuer for the year ended December 31, 1998 were $1,030,434.
As of December 31, 1998, 18,519,950 shares of the issuer's common stock,
$.001 par value, were outstanding, and the aggregate market value of the shares
of common stock held by non-affiliates was approximately $59,258,259.
Transitional Small Business Disclosure Format: Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Mediconsult ("Mediconsult" or the "Company") is a leading provider of
patient-oriented healthcare information and services on the World Wide Web. The
Company's 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. The Company facilitates 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, the Company believes it creates significant
opportunities for pharmaceutical and other healthcare companies to reach a
highly-targeted consumer audience using Internet-based marketing and advertising
programs.
The address of the Company is 33 Reid Street, 4th Floor, Hamilton, Bermuda.
The Company's telephone number is (441) 292-0474. Its main Web site is
WWW.MEDICONSULT.COM. Information contained on its Web sites is not, and should
not be deemed to be, a part of this report.
INDUSTRY BACKGROUND
As consumers have become more proactive in their personal healthcare
decisions, they have increasingly searched for information about medical
conditions, treatment alternatives and medical outcomes. The Internet enables
consumers to access large quantities of this information quickly and easily.
THE RAPID GROWTH OF THE INTERNET. The growth of the Internet as a new means
of communicating, accessing information and engaging in commerce has been rapid
and is expected to accelerate. Jupiter Communications estimates that the number
of Internet users worldwide will grow from approximately 85 million at the end
of 1997 to approximately 250 million by the end of 2002. This growth is being
driven by a number of factors, including a growing base of personal computers in
the home and workplace, improvements in network infrastructure, more convenient,
faster and inexpensive Internet access, technological advances in PCs and
modems, increased quantity and quality of content available on the Internet and
the overall increased public awareness of the Internet. Due to its large
audience, the Internet represents a significant channel for advertisers. Jupiter
Communications estimates that the amount of Internet advertising in the United
States will grow from approximately $300 million in 1996 to approximately $7.7
billion by 2002.
THE INTERNET HEALTHCARE USER. Health and medical information is one of the
fastest growing areas of interest on the Internet. 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, an increase of 119%
since July 1996. 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 INTERACTIVE NATURE OF THE INTERNET. The Internet provides an effective
method for consumers to access large quantities of reliable and independent
information on medical conditions, treatment alternatives and medical outcomes.
Management believes 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
pharmaceutical protocols. The Internet also provides an attractive vehicle for
pharmaceutical and other healthcare companies to increase consumers' awareness
of diagnosed and undiagnosed medical conditions and treatment options. The
Internet allows pharmaceutical companies to easily provide information targeted
to visitors' needs, which may lead to improved patient compliance with
prescribed drug therapies. Consumer Health Information Corporation estimates
that 10% of prescriptions are never filled, 33% are not properly refilled and
50% are not taken as prescribed,
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resulting in poorer health outcomes for patients and increased expenditures to
the overall healthcare
system.
DIRECT-TO-CONSUMER ADVERTISING ON THE INTERNET. The Internet's interactive
nature, coupled with the demographics of the Internet healthcare user, makes the
Internet an attractive vehicle for direct-to-consumer ("DTC") advertising of
prescription pharmaceuticals. 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, DTC
advertising of prescription pharmaceuticals has increased from approximately
$590 million in 1996 to an estimated $1.8 billion in 1998 and is projected to
grow to $7.5 billion in 2005. The Company believes that the Internet will
capture an increasing portion of this market as pharmaceutical companies
recognize the value of this medium for their products.
THE SOLUTION
Through its Web sites, the Company addresses consumers' needs for healthcare
information and provides a targeted marketing and advertising platform for
pharmaceutical and other healthcare companies. Key elements of this solution
include:
HIGH QUALITY TRUSTED CONTENT; USER-FRIENDLY ENVIRONMENT. The Company
provides its visitors with high quality content on specific medical conditions
and health issues and an easy-to-navigate environment. The Company searches for
and reviews extensive amounts of health information and select relevant material
from a wide variety of sources, including medical journals, healthcare
association literature and general periodicals. For each medical topic covered
on its Web sites, the Company aggregates an average of 30 articles covering
current news, symptoms and treatment alternatives that are understandable to the
average consumer. MEDICONSULT.COM is constructed to enable a person interested
in any one of the 60 medical topics covered on the Company's Web sites to access
a broad range of information, including relevant information on other portions
of its Web sites. For example, a visitor to the diabetes page will be referred
to relevant information for diabetics on the nutrition section. The Company
frequently solicits visitor feedback through surveys and polls and uses this
information to refine further its content and expand its complementary
offerings.
STRONG SENSE OF ON-LINE COMMUNITY. The Company has developed a strong sense
of on-line community by organizing its Web sites into conditions of concern to
healthcare consumers and providing complementary services. The Company's Web
sites provide visitors with the ability to:
- share and search for information in consultation with healthcare
professionals on particular conditions;
- communicate (through chat groups, bulletin boards, and participation in
polls and surveys) with other visitors with similar health conditions,
interests or experiences;
- participate in moderated on-line support groups;
- participate in live, on-line events hosted by prominent physicians; and
- receive quick responses from its visitor support staff.
LARGE, HIGHLY TARGETED AUDIENCE. The Company's Web sites are designed to
attract a highly desirable target audience for pharmaceutical and other
healthcare advertisers. The Company has developed a sophisticated, integrated
database of demographic information about patients' needs, habits, preferences
and intentions. This database of information indicates that approximately 62% of
the visitors to MEDICONSULT.COM have been diagnosed with or believe they have a
chronic medical condition covered on this Web site, and that an additional 21%
are friends, family or caregivers. This data also indicates that 64% of the
visitors to MEDICONSULT.COM are female, the average age of its visitors is 39
and approximately 70% of its
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visitors are college educated. The Company is able to identify its visitor
traffic patterns by condition or health issue, which provides relevant
information for advertisers seeking to target an audience for a particular
pharmaceutical product or condition.
BROAD, SOPHISTICATED INTERNET HEALTHCARE MARKETING AND ADVERTISING
PROGRAMS. The Company designs, develops, and implements broad, sophisticated
Internet marketing and advertising programs for pharmaceutical and other
healthcare companies and provides ongoing support services as part of these
programs. The Company utilizes extensive knowledge of the Internet healthcare
user and its high quality content to effectively design and develop programs
focused on a particular product or health issue. These programs incorporate one
or more of a broad spectrum of advertising products ranging from banner
advertisements to customized Web sites containing relevant content from its Web
sites. In addition, the Company creates calls to action, through visitor polls,
surveys and coupons, to allow advertisers to gain more information about the
visitor. The Company designs its on-line marketing and advertising programs to
complement its clients' traditional off-line media campaigns.
VALUE TO ADVERTISERS. The Company designs its marketing and advertising
programs to address highly targeted audiences, enabling its clients to direct
their advertising dollars toward consumers most likely to use their products.
These programs are structured to provide the Company's advertisers with a
measurable return on investment by tracking the level of interest and
interactive responses of visitors.
COMPANY STRATEGY
The Company's 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 advertising programs for pharmaceutical and other
healthcare companies on the Web. The key elements of this strategy are to:
ENHANCE VISITOR EXPERIENCE AND SENSE OF ON-LINE COMMUNITY. The Company is
committed to continually improving the utility and perceived value of its Web
sites. The Company seeks to:
- broaden and deepen the content of its Web sites;
- improve the navigability of its Web site environment;
- expand and enhance its suite of complementary services;
- further segment medical topics into more specific ones; and
- tailor its Web sites to meet the needs and preferences of its visitors.
INCREASE TARGETED TRAFFIC THROUGH STRATEGIC ACQUISITIONS AND RELATIONSHIPS,
AND CONTENT LICENSING. The Company seeks to bolster its traffic and revenue
through strategic acquisitions and relationships. The Company believes that it
can increase the number of visitors to MEDICONSULT.COM by linking topic-specific
or condition-specific Web sites to its with "click throughs." The Company has
recently completed strategic initiatives to purchase, manage or sponsor three
significant Web sites to improve the depth and breadth of its medical content
and to increase visitor traffic.
- PHARMLNFO.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.
The Company believes that there will be significant opportunities to
continue to manage or acquire Web sites or content that will complement its
existing content offerings. The Company also increases its visitor traffic and
related revenue opportunities by licensing its content to other Web sites that
it manages.
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BROADEN RELATIONSHIPS WITH PHARMACEUTICAL ADVERTISERS. The Company seeks to
broaden its relationships with pharmaceutical advertisers in several ways. It
seeks to expand its relationships with its existing clients to broaden the
number of programs, both in terms of number of products and types of client
services, that it provides to them. For example, the Company's work with
Novartis Consumer Health Canada, in designing and developing a Web site for the
Habitrol smoking cessation product has led to a relationship with Novartis
Pharma, the pharmaceutical division of Novartis AG. The Company has a number of
projects and proposals with Novartis Pharma currently in process. The Company is
also actively pursuing a number of major pharmaceutical companies and other
healthcare advertisers with proposals tailored to their specific products and
marketing strategies. In addition, the Company is seeking to enter into
corporate partnering relationships to expand and enhance its client base. For
example, the Company's February 1999 memorandum of agreement with CommonHealth
is intended to broaden its marketing initiatives within the pharmaceutical
industry.
BUILD STRONG BRAND AWARENESS. Management believes that establishing brand
awareness is critical to attracting and retaining visitors and advertisers. The
Company seeks to build its brand by creating a superior visitor experience and
creating broad awareness of its name as the trusted on-line source for medical
information. The Company intends to achieve this goal by expanding its marketing
and educational efforts through both off-line and on-line marketing initiatives,
including collaborative events with patient associations such as the National
Stroke Association and the Arthritis Foundation, speeches and media coverage.
THE MEDICONSULT.COM WEB SITE
MEDICONSULT.COM serves as a gateway for access to a comprehensive source of
health-related information focused on the clinical and educational needs of the
general public, as well as practicing physicians and other healthcare
professionals. Since the Company's inception in 1996, it has focused on
developing its reputation as the leading independent provider of health
information to consumers on the Web. MEDICONSULT.COM, includes easy to
understand information on more than 60 chronic medical conditions and health
issues. Management believes that in the United States these medical conditions
affect more than 90 million people and represent a significant portion of
healthcare spending. The specific medical conditions and health issues covered
by the Company's Web sites include:
Acid Reflux
AIDS/HIV
Alzheimer's Disease
Anxiety
Arthritis
Asthma
Attention Deficit Disorder
Benign Prostatic Hypertrophy
Bladder Cancer Heartburn
Brain Tumor
Breast Cancer
Bronchitis
Cancer Support Group
Cervical Cancer Infertility
Children's Health
Chronic Fatigue Syndrome
Chronic Pain
Chronic Renal Failure
Cirrhosis
Colorectal Cancer
Colostomy
Contraception
Depression
Diabetes
Eating Disorders
Emphysema
Epilepsy
Erectile Dysfunction
Fitness
General
GERD (Heartburn/Acid Reflux)
Headache
Heart Disease
Herpes
Hypertension
Ileostomy
Incontinence
Inflammatory Bowel Disease
Kidney Cancer
Interstitial Cystitis
Leukemia
Liver Disease
Lung Cancer
Lymphoma
Melatonin
Menopause
Men's Health
Migraines
Multiple Sclerosis
Nutrition
Osteoporosis
Palliative Care
Parkinson's Disease
Peptic Ulcers
Pregnancy Complications
Prostate Cancer
Senior Health
Sexually Transmitted Diseases
Skin Cancer
Skin Disorder
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Smoking Cessation
Spinal Cord Injury
Stoma/Ileostomy/Colostomy
Stress
Strokes
Testicular Cancer
Travel Vaccinations
Urinary Stones
Vasectomy
Vitamins
Women's Health
Within this group of medical conditions, the Company provides specific
tools, resources, experts and information databases to assist visitors in
dealing with a variety of inquiries including those relating to a recent
diagnosis, general background information, and highly technical drug profiles.
These resources include:
- comprehensive and easy to understand independent medical information from
a variety of independent sources, including medical journals, healthcare
association literature and general periodicals;
- a community of visitors with an interest or experience in the topic;
- an on-line moderated support group;
- the Company's 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.
The MEDICONSULT.COM Web site has received awards from more than 30
independent organizations under the general categories of content, navigation
and overall design. Among the more recent awards and citations are those from
ENCYCLOPAEDIA BRITANNICA (one of 76 "Best of Web" sites out of 125,000
reviewed), THE LANCET ("An exceptionally well-designed, easy to navigate site
brimming with health news and patient-oriented information"), and POPULAR
SCIENCE (one of the "50 Best of the Web" for 1998). In January 1999, the
Company's MEDICONSULT.COM Web site was one of 110 Web sites nominated for a
"Webby" by the International Academy of Digital Arts and Science. Management
believes that these awards from independent companies and agencies help to build
awareness of, and visitor traffic to, the MEDICONSULT.COM Web site and provide
third party validation of the perceived thoroughness and quality of the Web site
and its content.
The Company's MediXpert service provides access to more than 45 medical
specialists. For a fee, a visitor can submit a case scenario including
background information and questions to physicians specializing in their medical
condition. The specialist reviews the information and responds with a detailed
report a few days later. The specialist's report is designed to be shared with
the visitor's primary physician, who can examine the report and incorporate it
into the patient's healthcare plan, as appropriate. The report clearly indicates
that it is not a diagnosis or specific medical advice, and advises the visitor
to discuss all material received in the case scenario report with the visitor's
healthcare provider before acting on the information in any way. The information
provided is not intended to constitute the practice of medicine. In order to
ensure security, encryption technology and/or password protection is employed at
every stage. Furthermore, the visitor's name is not made available to the
specialist and a visitor name and password, known only to the visitor who
submitted the information, are required to access the report.
The Company also provides its visitors with the ability to purchase the
following products on-line through its MEDICONSULT.COM Web site:
- MEDI-STORE. The Company operates an on-line store on MEDICONSULT.COM.
Through this store, visitors can purchase selected medical products,
vitamins and supplements categorized by medical condition.
- MEDI-BOOKS. Through an agreement with Amazon.com, the Company offers
visitors the opportunity to purchase healthcare-related books that have
been reviewed by its medical professionals. This offers the visitor a
pre-screened and targeted list of recommended books that are relevant to
their area of interest.
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The Company believes that visitor support services are important in order to
attract and retain visitors to the Company's Web sites. The Company provides
visitor support primarily through e-mail-based correspondence. Help and feedback
buttons are prominently displayed throughout the MEDICONSULT.COM Web site, and
the Company's visitor support staff responds to most e-mail queries within 24
hours. In addition, through the Company's support group activities, healthcare
professionals provide free e-mail support for a broad range of issues.
The Company has strict policies and practices to ensure privacy and
confidentiality of personal information posted on MEDICONSULT.COM. The Company
adheres to the Health on the Network (HON) code of conduct (WWW.HON.ORG) and the
Trusted Standards in Electronic Transactions, known as Truste, privacy and
disclosure requirements. The Truste program is intended to maximize the
Company's disclosure to consumers with regard to the collection of personally
identifiable information on Web sites in order to promote the Internet as a safe
and secure place to conduct business, education, communication and entertainment
activities. In accordance with the Company's commitment to Truste, it does not
display or make publicly available any personally identifiable information
without the prior written consent of the individual identified, and limits the
usage of personally identifiable information gathered on the site.
PRODUCTS AND SERVICES
MARKETING AND ADVERTISING PROGRAMS.
The Company designs, develops and implements sophisticated on-line marketing
and advertising programs for pharmaceutical and other healthcare companies.
These programs 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. The Company's programs include:
- 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.
To date, the Company has marketed its capabilities to large pharmaceutical
companies, and listed below is a sample of programs developed for clients.
NOVARTIS CONSUMER HEALTH. The Company designed, developed and implemented an
on-line marketing and advertising program for Novartis Consumer Health
Canada covering its smoking cessation product, Habitrol, which in Canada is
a non-prescription drug. The program is targeted to Canadian consumers and
is designed to increase usage of Habitrol among those individuals wishing to
quit smoking and to improve their overall continuing compliance with the
protocol for the use of the product. Prior to designing the HABITROL.COM Web
site, the Company conducted an analysis of its own visitor traffic across
all of its medical conditions covered on the MEDICONSULT.COM Web site to
determine which visitors were most interested in quitting smoking. The
Company then developed, and launched in June 1998, the Habitrol marketing
and advertising program, which was coordinated with Novartis' ongoing media
campaign. In addition to the creation of the HABITROL.COM Web site, the
program includes a number of other initiatives. Visitor traffic is generated
through the coordination of Habitrol banner advertisements on the Company's
MEDICONSULT.COM Web site with Novartis' off-line media campaign. Individuals
committing to the program are offered a number of on-line support
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mechanisms by Novartis, including daily e-mail reminders providing guidance
on physical and emotional expectations for the day, additional relevant
medical information and on-line "buddies" who had quit, or were themselves
quitting smoking. In addition, visitors are offered coupons for Habitrol and
can participate in on-line surveys. The Company has been receiving revenue
for maintaining and upgrading HABITROL.COM since its launch. The Company is
currently expanding the Habitrol program to provide French and professional
healthcare versions of the Web site.
NOVARTIS PHARMA. In October 1998, Novartis Pharma, the pharmaceutical
division of Novartis, engaged the Company to develop marketing and
advertising programs for several branded pharmaceutical products, including
currently approved products and products under clinical development. The
Company is currently developing these programs.
OTHER. The Company is working with a number of other pharmaceutical and
consumer health organizations to develop marketing and advertising programs.
During 1998, the Company completed assessment programs for Bristol Myers
Squibb, Glaxo Wellcome and Astra Merck.
CONTENT LICENSING AND WEB SITE SUPPORT.
The Company also seeks to increase its visitor traffic and generate
additional revenue by licensing its content to, and providing Web site support
for, Web sites established by healthcare organizations, including health
maintenance organizations, hospital chains and pharmacies. Under these
arrangements, the Company designs, develops and maintains individual Web sites
for its clients incorporating the content from the MEDICONSULT.COM Web site. In
addition, with certain clients the Company maintains the right to place
advertisements on these sites, sharing the revenue with the client on a
predetermined basis. Listed below is a sample of some of the Company's content
licensing and Web site support clients.
IBM. In January 1998, the Company entered into a content licensing agreement
with IBM. Under this agreement, the healthcare division of IBM markets
MEDICONSULT.COM'S medical content to IBM's clients.
GEOACCESS. In December 1998, the Company entered into a content licensing
agreement with GeoAccess, a healthcare information services company that
provides enterprise-wide software for managed care companies, authorizing
GeoAccess to market the Company's content to its managed care clients.
ONTARIO HOSPITAL ASSOCIATION. In October 1998, the Company entered into an
agreement with the Ontario Hospital Association, an association of
approximately 185 not-for-profit hospitals in Canada, to design, develop and
maintain a Web site template for use by their member hospitals for a monthly
fee. For each hospital that elects to participate, the Company will create a
customized home page that is integrated with the basic template. The
customized entry point allows each hospital to enhance the base Web site
with information about local services and support. The Company completed the
template in November 1998, and has recently developed pilot Web sites for
five of the member hospitals.
OTHER. The Company is licensing its content and providing consulting
services to pharmaceutical companies and is seeking to expand its client
base to include other service providers, such as hospital groups, managed
care companies and retail pharmacies.
JOINT VENTURES, STRATEGIC ACQUISITIONS AND RELATIONSHIPS
JOINT VENTURES.
In February 1999, the Company entered into a memorandum of agreement to form
a 50/50 joint venture with CommonHealth LLP ("CommonHealth") which will focus on
providing pharmaceutical and other healthcare companies with innovative
approaches to marketing their products in comprehensive
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marketing and advertising campaigns containing both significant Internet
components and traditional media such as, print, television and direct
marketing. The joint venture has the right of first refusal to provide services
for these campaigns using the Company's Internet expertise and CommonHealth's
experience in traditional forms of media. The Company and CommonHealth will each
charge the joint venture for work performed by it at its normal rates. Profits
of the joint venture will be shared equally by the parties, and the losses of
the joint venture will be shared in proportion to each party's billings. In
addition to the joint venture, CommonHealth and the Company, will each continue
to pursue their individual business plans. In connection with the formation of
the joint venture, the parties agreed that a representative of each party may
serve on the board of directors of the other.
STRATEGIC ACQUISITIONS.
The Company has grown in part through recent strategic acquisitions and
agreements. The Company plans to continue this strategy in order to increase
visitor traffic, increase revenue, gain access to human resources, and increase
the breadth and depth of the medical content provided on its Web sites.
Recently, the Company acquired or entered into Web site management or
sponsorship agreements with respect to three Web sites, each providing it with
high quality content in a particular niche:
- PHARMLNFO.COM, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers.
The Company acquired PHARMLNFO.COM in December 1998, in exchange for
100,000 shares of common stock.
- CYBERDIET.COM, a Web site providing tailored nutritional information and
programs. In February 1999, the Company entered into an agreement
outlining the principal terms of an exclusive management arrangement with
CyberDiet Inc. ("CyberDiet") related to CYBERDIET.COM and granting to the
Company the sole right to place advertisements on the Web site, to link
traffic, and manage the content on the Web site. The Company has an option
to purchase CyberDiet and its Web site which we expect to exercise, and
CyberDiet has under certain circumstances the right to cause the Company
to purchase it, in exchange for 400,000 shares of common stock.
- INCIID.ORG, a Web site providing information on infertility. In February
1999, the Company 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 to the
Company the sole right to place advertisements on the Web site, to link
traffic, and manage the content on the Web site.
STRATEGIC RELATIONSHIPS.
The Company has entered into strategic alliances with a number of patient
associations, including the Arthritis Foundation, Leukemia Society of America,
the National Stroke Association and the National Mental Health Association.
These alliances allow the Company to:
- gain access to condition-specific medical information;
- gain access to condition-specific visitor traffic;
- increase visibility of the Company on the Internet; and
- increase resources available to the Company regarding particular medical
conditions.
MARKETING, SALES AND PROGRAM DESIGN
As of January 1, 1999, the Company had a marketing, sales and program design
group of 14 professionals who consult regularly with clients and their
advertising agencies on how the Company can best apply its resources to meet
their DTC marketing, advertising and content licensing needs. The Company
generally seeks to hire individuals with significant experience in program
design, advertising
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sales and pre-existing relationships with advertisers in a variety of media. The
Company's marketing, sales and program design professionals have an average of
12 years of related experience.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The Company's operating infrastructure has been designed and implemented to
support the reliable and swift delivery of hundreds of thousands of page views a
day. The design of the Company's Web site allows for growth into millions of
page views per day. Web pages are generated and delivered, in response to
visitors' requests by any one of six Web servers. Key attributes of this
infrastructure include scalability, performance and service availability.
The Company has deployed a standard production and development server
environment utilizing standard software solutions running on generally available
server hardware platforms. The Company is currently transitioning from a core
production environment running on SGI hardware and Unix platform hosted at
TVisions of Cambridge, Massachusetts to an IBM Lotus Domino software environment
to be located in the United States, which the Company may manage from Toronto,
Canada. The Company's Web-based software systems use standard, off-the-shelf
software components. The Company's strategy is to license and integrate
"best-of-breed" commercially available technology from industry leaders such as
IBM, Sun Microsystems and Microsoft whenever possible. The Company believes this
architecture will allow it to increase rapidly the scale of its systems in a
cost-effective manner.
A number of other applications, such as client-developed application sites,
demonstration facilities for client projects and the Company's Intranet site,
are hosted at Internoded of Cambridge, Massachusetts. The Company's MediStore
electronic commerce applications are hosted at Entrevision, Inc. of Toronto,
Canada. The Company's production servers are currently hosted at Exodus in
Waltham, Massachusetts.
The Company's production data is copied to backup tapes each night and
stored at a third party, off-site storage facility. The Company is in the
process of developing a comprehensive disaster recovery plan to respond to
system failures. The Company keeps all of its production servers behind
firewalls for security purposes and does not allow outside access at the
operating systems level, except via special secure channels. Strict password
management and physical security measures are followed.
COMPETITION
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 the Company for advertisers, and Internet healthcare
companies also compete with us for visitor traffic. Management expects
competition to continue to increase as there are no substantial barriers to
entry in the Company's market. Increased competition could result in reductions
in the fees the Company receives for its marketing and advertising services,
lower margins, loss of clients, reduced visitor traffic to its Web sites, or
loss of market share. Any of these occurrences could materially and adversely
affect the Company's 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. The
Company's 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 online service providers, such as America Online
and Microsoft Network;
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- 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.
The Company's ability to compete depends on a number of factors, many of
which are outside of its 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 the Company's 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 the
Company does. This may allow them to devote greater resources than the Company
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 and alliance
partners. The Company's competitors may develop services that are equal or
superior to those provided by the Company or that achieve greater market
acceptance and brand recognition than the Company achieves. 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 advertisers. It is possible that new competitors may
emerge and rapidly acquire significant market share. The Company may not be able
to compete successfully or competitive pressures may have a material adverse
effect on the Company's business, results of operations and financial condition.
If advertisers perceive the Internet generally or the Company's 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 advertise on the Company's Web sites.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
The Company protects its intellectual property through a combination of
trademark and copyright law, trade secret protection and confidentiality with
its employees, customers, independent contractors and strategic partners. The
Company pursues the registration of its domain names, trademarks and service
marks in the United States, and has obtained trademark registration in the
United States of "MEDICONSULT.COM" and assert various other trademarks and
servicemarks. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which the Company's services
and products are made available on-line. The Company obtains a majority of its
content from the public domain. In addition, it creates some of its own content
and obtains rights to use the balance of its content from third parties. It is
possible that the Company could become subject to infringement actions based
upon the content obtained from these third parties. In addition, others may use
this content and the Company may be subject to claims from its licensors. The
Company currently has no patents or patents pending and does not anticipate that
patents will become significant part of its intellectual property in the future.
The Company seeks to enter into confidentiality agreements with its employees
and independent consultants and has instituted procedures to control access to
and distribution of its technology, documentation and other proprietary
information and the proprietary information of others from whom it licenses
content. The steps the Company takes to protect its proprietary rights may not
be adequate and third parties may infringe or misappropriate the Company's
copyrights, trademarks, service marks and similar proprietary rights. In
addition, other parties may assert claims of infringement of intellectual
property or alter proprietary rights against the Company. The legal status of
intellectual property on the Internet is currently subject to various
uncertainties.
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HUMAN RESOURCES
As of January 31, 1999, the Company employed 35 full-time employees, of whom
14 were in marketing, sales and program design, 12 were in product and content
development, four were in administration and corporate services, and five were
in operations and support. In addition, there were 10 part-time employees. As
the Company continues to grow and introduce more products, Management expects to
hire more personnel. Competition for personnel is intense and the Company may
not be able to retain its senior management or other key personnel in the
future. None of the Company's current employees is represented by a labor union
or is the subject of a collective bargaining agreement. The Company believes
that its relations with employees is good.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
GENERAL. There is an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, visitor privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws may have an adverse effect on the
Company's business. In addition to Internet regulation, the Company's Web sites
may be subject to numerous state and federal laws that govern the delivery of
healthcare services and goods in the United States. These laws range from laws
prohibiting the offer, payment or receipt of renumeration to induce referrals to
entities providing healthcare services and goods to licensure requirements as
well as special protection for healthcare data. These laws are complicated and
are under constant revision and interpretation. These laws and their active
enforcement, particularly in the area of healthcare fraud, affects the way all
healthcare providers structure their business relationships and deliver
healthcare services and goods. New developments in this area could affect the
structure and operation of the Company's business. In the event some state or
federal regulatory agency determined that the Company's relationship with one or
more or its advertisers that deliver healthcare services or goods violate any
such laws, then the Company could be subjected to fines and other costs and
could be required to revise or terminate that portion of its business.
LIABILITY FOR INFORMATION RETRIEVED FROM THE COMPANY'S WEB SITES AND FROM
THE INTERNET. Content may be accessed on the Company's Web sites and this
content may be downloaded by visitors and subsequently transmitted to others
over the Internet. This could result in claims against the Company based on a
variety of theories, including defamation, practicing medicine without a
license, malpractice, obscenity, negligence, copyright or trademark infringement
or other theories based on the nature, publication and distribution of this
content. Some of these types of claims have been brought, sometimes
successfully, against providers of Internet services in the past. The Company
could also be exposed to liability with respect to third-party content that may
be posted by visitors in chat rooms or bulletin boards offered on its Web sites.
It is also possible that if any information, including information deemed to
constitute professional medical advice provided by a specialist on MediXpert
contains errors or false or misleading information, third parties could make
claims against the Company for losses incurred in reliance on such information.
In addition, the Company may be subject to claims alleging that, by directly or
indirectly providing links to other Web sites, it is liable for copyright or
trademark infringement or the wrongful actions of third parties through their
respective Web sites. The Communications Decency Act of 1996 provides that,
under certain circumstances, a provider of Internet services shall not be
treated as a publisher or speaker of any information provided by a third-party
content provider. This safe harbor has been interpreted to exempt certain
activities of providers of Internet services. The Company's activities may
prevent it from being able to take advantage of this safe harbor provision.
While the Company
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attempts to reduce its exposure to such potential liability through, among other
things, visitor policies and disclaimers, the enforceability and effectiveness
of such measures are uncertain. Any claims brought against the Company in this
respect may have a material and adverse effect on the Company's business.
ON-LINE CONTENT REGULATIONS. While the Company does not believe the content
on its Web sites is obscene or indecent, its Web sites contain healthcare
content which is explicit in nature and is intended for a mature audience.
Several federal and state statutes prohibit the transmission of certain types of
indecent, obscene or offensive content over the Internet to certain persons. The
enforcement of these statutes and initiatives, and any future enforcement
activities, statutes and initiatives, may result in limitations on the type of
content and advertisements available on the Company's Web sites. Legislation
regulating online content could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as an advertising and
e-commerce medium, which could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company adheres to
the Health on the Network code of conduct which establishes guidelines for
health information on the Internet.
PRIVACY CONCERNS. The Federal Trade Commission ("FTC") is considering
adopting regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing Web sites, with particular
emphasis on access by minors. Such regulations may include requirements that
companies establish certain procedures to, among other things: (1) give adequate
notice to consumers regarding information collection and disclosure practices,
(2) provide consumers with the ability to have personal identifiable information
deleted from a company's database, (3) provide consumers with access to their
personal information and with the ability to rectify inaccurate information, (4)
clearly identify affiliations or a lack thereof with third parties that may
collect information or sponsor activities on a company's Web site and (5) obtain
express parental consent prior to collecting and using personal identifying
information obtained from children under 13 years of age. Such regulation may
also include enforcement and redress provisions. While the Company has
implemented or intends to implement programs designed to enhance the protection
of the privacy of its visitors, including children, there can be no assurance
that such programs will conform with any regulations adopted by the FTC. The
FTC's regulatory and enforcement efforts may adversely affect the ability to
collect demographic and personal information from visitors, which could have an
adverse effect on the Company's ability to provide highly targeted opportunities
for advertisers and e-commerce marketers.
It is also possible that "cookies" (information keyed to a specific server,
file pathway or directory location that is stored on a visitor's hard drive,
possibly without the visitor's knowledge) used to track demographic information
and to target advertising may become subject to laws limiting or prohibiting
their use. A number of Internet commentators, advocates and governmental bodies
in the United States and other countries have urged the passage of laws limiting
or abolishing the use of cookies. Limitations on or elimination of the Company's
use of cookies could limit the effectiveness of the its targeting of
advertisements, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
The European Union ("EU") has adopted a directive that imposes restrictions
on the collection and use of personal data. Under the Directive, EU citizens are
guaranteed certain rights, including the right of access to their data, the
right to know where the data originated, the right to have inaccurate data
rectified, the right to recourse in the event of unlawful processing and the
right to withhold permission to use their data for direct marketing. The
directive could, among other things, affect U.S. companies that collect
information over the Internet from individuals in EU member countries, and may
impose restrictions that are more stringent than current Internet privacy
standard in the United States. In particular, companies with offices located in
EU countries will not be allowed to send personal information to countries that
do not maintain adequate standards of privacy. The directive does not, however,
define what standards of privacy are adequate. As a result, there can be no
assurance that the directive will not adversely affect the activities of
entities such as the Company which engage in data collection from visitors in EU
member countries.
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DOMAIN NAMES. Domain names are Internet "addresses." The current system for
registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
The Company has registered as its URL, the domain name "MEDICONSULT.COM."
Although the Company has registered "MEDICONSULT.COM" as a trademark, third
parties may bring claims for infringement against the Company for the use of
this trademark. There can be no assurance that the Company's domain names will
not lose their value, or that the Company will not have to obtain entirely new
domain names in addition to or in lieu of its current domain names if reform
efforts result in a restructuring of the current system.
JURISDICTIONS. Due to the global nature of the Internet, it is possible
that, although transmissions by the Company over the Internet originate
primarily in the United States, the governments of other states and foreign
countries might attempt to regulate such transmissions or prosecute the Company
for violations of their laws. These laws may be modified, or new laws enacted,
in the future. Any of the foregoing developments could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, as the Company's service is available over the Internet in multiple
states and foreign countries, these jurisdictions may claim that the Company is
required to qualify to do business as a foreign corporation in each state or
foreign country. The Company has not qualified to do business as a foreign
corporation in any jurisdiction. This failure by the Company to qualify as a
foreign corporation in a jurisdiction where it is required to do so could
subject it to taxes and penalties and could result in its inability to enforce
contracts in such jurisdictions. Any new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to the Company's business, or the application of existing laws
and regulations to the Internet and other online services could have a material
adverse effect on the Company's business, financial condition and results of
operations.
ITEM 2. DESCRIPTION OF PROPERTY.
To date, the Company has operated without corporate office space for its
employees. The Company manages its operations through an internal computer
network that contains substantially all of its records, plans, projects in
process and other information and employees communicate principally via e-mail,
telephone and face-to-face meetings. The Company has no leases for office space,
as all employees are geographically disperse and work out of home offices or
independent or client offices. The Company is headquartered in Hamilton,
Bermuda, occupying space in the office of Robert A. Jennings, its Chairman and
Chief Executive Officer, at no cost to it. The Company manages its operations to
a large extent through telephonic, electronic and other forms of communication.
The Company currently anticipates that it will require office space to
accommodate growth and meet increasing client needs. In this regard, it is
contemplating opening an office in Parsippany, New Jersey, in conjunction with
the CommonHealth joint venture, and is evaluating the possibility of
establishing an office in Toronto, Canada.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings in which the Company is a party, and
the Company is not aware of any threatened legal proceedings involving it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 2, 1998, the Company's majority stockholder, The Mediconsult
Trust, an entity controlled by Robert A. Jennings, approved adoption of an
amendment to the Company's Certificate of Incorporation to change existing
references from "$10.00 Non-Cumulative Preferred Stock" to references to
"Preferred Stock" and to provide for a cumulative dividend on the Company's
junior preferred stock and to permit conversion of the Company's junior
preferred stock into common stock.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's common stock trades in the
over-the-counter market, under the symbol "MCNS". The following table sets forth
the high and low bid prices for the Company's common stock for the periods
indicated as reported by the OTC Bulletin Board. These prices are believed to be
inter-dealer quotations and do not include retail mark-ups, mark-downs, or other
fees or commissions, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH BID LOW BID
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
December 31, 1997........................................................ $ 1.70 $ 1.05
March 31, 1998........................................................... $ 2.10 $ 1.00
June 30, 1998............................................................ $ 1.92 $ 1.25
September 30, 1998....................................................... $ 1.68 $ 0.64
December 31, 1998........................................................ $ 9.56 $ 0.49
</TABLE>
(b) On February 26, 199 , the Company filed with the Securities and Exchange
Commission a registration statement on Form S-1 for a public offering of shares
of Common Stock. Since then, the Company's Common Stock has been approved for
quotation subject to notice of issuance, on the NASDAQ National Market.
(c) HOLDERS. As of December 31, 1998, the Company had approximately 145
shareholders of record. This does not include shareholders who hold stock in
accounts at broker/dealers.
(d) DIVIDENDS. The Company has not declared or paid any cash dividends on
its capital stock since inception and does not expect to pay any cash dividends
for the foreseeable future. The Company currently intends to retain future
earnings, if any, to finance the expansion of its business.
(e) RECENT SALES OF UNREGISTERED SECURITIES. Since April 1996, The
Mediconsult Trust (the "Trust") has advanced funds to the Company from time to
time on an interest free basis. Of these advances, $4.3 million were converted
into 430,000 shares of junior preferred stock on September 30, 1998. On August
1, 1998 the Company issued 100,000 shares of common stock and warrants to
purchase 400,000 shares of common stock to Arnhold and S. Bleichroeder, Inc. in
exchange for services rendered. On October 31, 1998, the Company granted options
to purchase 100,000 shares of common stock to each of Messrs. Barry Guld and
John Buchanan. The Company is party to a strategic consulting interim agreement
dated November 16, 1998 with Treacy & Co. and the Trust. The agreement provides
that in consideration for services rendered by Treacy & Co. to the Company, the
Company granted Treacy & Co. immediately exercisable options to purchase
2,000,000 shares of common stock, which expire on November 16, 2003. In
addition, the Trust granted Treacy & Co. an immediately exercisable option to
purchase 358,333 shares of common stock which expires on October 1, 1999. On
December 31, 1998, the Company issued 100,000 shares of common stock to
Pharmaceutical Information Associates, Ltd. and VirSci Corporation in exchange
for all of the assets of the PHARMINFO.COM Web site.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Mediconsult is a leading provider of patient-oriented healthcare information
and services on the World Wide Web. The Company's 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 Company's Web sites also provide a
destination on the Internet where visitors can interact with others in a
community environment. The Company facilitates 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
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communities centered around over 60 prevalent medical conditions and health
issues, management believes the Company 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 the Company's operations in April 1996
through January 1997, the Company's 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 formal launch
of MEDICONSULT.COM in 1997, the Company has focused on developing content,
organizing content in an easy to navigate format, and improving the
functionality of MEDICONSULT.COM. The Company continues to refine its strategy
of creating targeted on-line marketing and advertising programs for large
pharmaceutical and other healthcare organizations, and is developing and
implementing these types of programs for its clients. The Company structures its
programs to provide its advertisers with a measurable return on investment by
tracking the level of interest and interactive responses of visitors. The
Company's programs utilize a broad range of on-line strategies and resources to
deliver a message consistent with the advertisers' global marketing strategy.
REVENUE SOURCES
The Company's 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 the Company develops for its 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.
The Company also provides advertising services involving the sale of
advertising space on the Web sites it owns, manages or sponsors. 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 the
Company's Web sites. In these cases, the Company 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, the Company defers 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. The Company does not engage in barter transactions with respect to its
advertising services.
The Company also derives revenue form licensing its MEDICONSULT.COMcontent
and providing Web site support to healthcare and other organizations. These
organizations make the Company's 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, the Company designs
and develops 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, the Company derives additional revenue from the
management of the Web site or its content. Revenue from management services is
recognized ratably over the period the services are performed, generally on a
monthly basis. The Company also may retain the right to place advertising on a
Web site that hosts its content.
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Although the Company has certain electronic commerce alliances with
merchants of healthcare-oriented books and products, revenue from these
revenue-sharing arrangements has not been material. Revenue from the Company's
share of the proceeds from its electronic commerce partners' sales is recognized
by the Company upon notification from its commerce partners of sales
attributable to the Company's Web sites.
MARKETING AND SALES INITIATIVES
In late 1997, the Company initiated its 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. The Company developed the Web site for
this program during early 1998, for which it received payment as services were
performed. The Company received revenue for maintaining and upgrading this
program (beginning with its launch in June 1998), and receives monthly
advertising revenue for referring visitor traffic to the Habitrol Web site. The
Company is currently expanding the Habitrol program to provide French and
professional healthcare versions of the Web site.
The Company has also generated revenue from developing programs for a number
of branded pharmaceutical products for Novartis Pharma, the worldwide
pharmaceutical division of Novartis. The Company is developing the Web sites for
these programs and receiving payment as the services are performed. In 1998,
revenue from Novartis represented $0.7 million or 65% of the Company's total
revenue. The Company has also completed assessment programs for Bristol Myers
Squibb, Glaxo Wellcome and Astra Merck. The loss of Novartis as a customer or
any changes to the existing relationship that are less favorable to the Company,
or any significant reduction in traffic on or through the Novartis Web sites
that the Company manages, will materially and adversely affect the Company's
business, financial condition and results of operations.
To date, the Company's revenue has been generated primarily by its internal
sales organization and, to a lesser extent, by third party advertising
representatives. As of December 31, 1998, the Company had an internal marketing,
sales and program design organization of 14 professionals. The Company believes
that it needs to significantly increase the size of its internal marketing and
sales organization to execute successfully its growth strategy and, accordingly,
the Company intends to hire additional marketing and sales professionals in
1999.
To complement its direct sales force, in February 1999, the 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. The
joint venture is being formed to offer innovative multimedia solutions to
pharmaceutical and other healthcare companies, based on the Company's Internet
expertise and CommonHealth's experience in traditional media. It is currently
contemplated that each party will perform services on behalf of the joint
venture, and will each charge the joint venture for work performed by it at its
normal rates. The joint venture may also recruit its own employees, some of whom
may come from Mediconsult and some of whom may come from CommonHealth. Profits
of the joint venture will be shared equally by the parties, and losses of the
joint venture will be shared in proportion to each party's billings to the joint
venture.
In order to enhance its content licensing initiatives and generate
additional revenue, the Company has 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.
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VISITOR TRAFFIC
To improve the depth and breadth of the Company's medical content and to
increase visitor traffic, the Company has recently completed strategic
initiatives to purchase, mange 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.
The Company acquired PHARMINFO.COM in December 1998, in exchange for
100,000 shares of its common stock. The fair value of these shares of
common stock was $0.8 million, which was capitalized and will be amortized
over two years.
- CYBERDIET.COM, a Web site providing tailored nutritional information and
programs. In February 1999, the Company entered into a memorandum of
agreement outlining the principal terms of an exclusive management
arrangement with CyberDiet Inc., the owner of CYBERDIET.COM, granting to
Mediconsult the sole right to place advertisements on the Web site, to
link traffic, and to manage the content on the Web site. The Company has
an option to purchase CyberDiet Inc., and this company 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. The Company expects to
exercise this option.
- INCID.ORG, a Web site providing information on infertility. In February
1999, the Company entered into an exclusive sponsorship agreement with the
InterNational Counsel of Infertility Information Dissemination, a
not-for-profit organization, relating to INCID.ORG and granting to
Mediconsult 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 has committed to pay INCID $0.5 million
per year beginning in 1999, for three years in equal quarterly
installments, in cash or common stock as the Company determines with
respect to each quarter.
Management believes that the Company's 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), the Company's owned, managed and
sponsored Web sites had more than 1.3 million visitors viewing over 9.2 million
pages of information.
CORPORATE
Mediconsult 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. In December 1996, the Company consummated a
reincorporation merger pursuant to which it became a Delaware corporation.
Mediconsult conducts its business primarily through MCL, its Bermudian
subsidiary. In addition to MCL, Mediconsult has established subsidiaries in the
United States, Canada and the United Kingdom. The Company's operations are
conducted by MCL, which has obtained an exemption from all Bermudian income
taxes until the year 2016. MCL has, however, entered into service agreements
with other subsidiaries of Mediconsult for their employees to provide services
to MCL. These subsidiaries will be subject to income taxes in their
jurisdictions.
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," the
Company has recorded compensation expense in connection with the vesting of
stock options during the years ended December 31, 1997 and 1998, as well as
deferred compensation expense for the value of options granted that were not
vested as of such dates. The Company currently expects to amortize
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$0.9 million in 1999 and $27,693 in 2000 as deferred compensation expense in
respect of options outstanding at December 31, 1998. In addition, pursuant to an
agreement with Arnhold and S. Bleichroeder, Inc. to provide the Company with
investment advisory services, the Company has issued to this firm 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 the Company's common stock on
the contract date. Of this amount, warrants for 200,000 shares of Common Stock
were delivered upon the filing of a prospectus for secondary public offering in
February 1999 and warrants for 200,000 shares of Common Stock are deliverable in
2000, if certain conditions are met. Delivery of the warrants will result in the
recognition of an expense in the statement of operation equal to the fair market
value of the warrants on the date of delivery.
RESULTS OF OPERATIONS
REVENUE. Revenue consists of fees received for the design, development and
implementation of online marketing and advertising programs, including Web site
development and implementation, advertising services, licensing the Company's
content and Web site support. The Company did not have any revenue for the
period from April 23, 1996 (the initial launch of MEDICONSULT.COM) to December
31, 1996. Revenue was $0.3 million for the year ended December 31, 1997 and $1.0
million for the year ended December 31, 1998. The period-to-period growth in
revenue was primarily attributable to an increase in the number of clients and
the number of marketing and advertising programs developed and implemented for
those clients.
PRODUCT AND CONTENT DEVELOPMENT. Product and content development costs
include expenses incurred by the Company to develop, enhance, manage, monitor
and operate its Web sites. These costs have consisted primarily of salaries and
fees paid to employees and consultants to develop and maintain the software and
information contained on the MEDICONSULT.COM Web site. For the period ended
December 31, 1996, these costs consisted primarily of third party software
development expenses, which were deferred and amortized over the years ended
December 31, 1997 and 1998. For the year ended December 31, 1997, these costs
were $0.8 million and for the year ended December 31, 1998, these costs were
$1.3 million. For 1997 and 1998, these costs related primarily to the
development of healthcare content.
MARKETING, SALES AND CLIENT SERVICES. Marketing, sales and client services
costs include expenses incurred by the Company to obtain and maintain client
relationships. These costs included salaries and fees paid to employees and
consultants, and programming costs. In 1996, the marketing, sales and client
services costs were $0.4 million. In 1997, the Company began a process of
developing prototype marketing and advertising programs, and in the fourth
quarter of 1997 began the development of its first client marketing program. For
the year ended December 31, 1997, marketing, sales and client services costs
were $1.1 million. For the year ended December 31, 1998, these costs were $1.8
million, consisting primarily of costs associated with the development and
implementation of specific client marketing programs and of new prototype
marketing and advertising programs.
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 year ended December 31, 1996, general and
administrative expenses were $0.4 million. These expenses were $0.9 million for
the year ended December 31, 1997, and $1.2 million for the year ended December
31, 1998. 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 the Company's operations.
FAIR VALUE OF OPTIONS GRANTED TO EMPLOYEES AND CONSULTANTS. The Company has
recorded compensation expense in connection with the vesting of employee stock
options of $40,235 during the year ended December 31, 1997, and $0.3 million
during the year ended December 31, 1998. In addition, for the year ended
December 31, 1998, the Company recorded compensation expense of $1.4 million for
a stock option
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granted to a consultant. 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. Compensation expense in respect of the options granted to a consultant
is related to an option for 2,000,000 shares of common stock granted pursuant to
a Strategic Consulting Interim Agreement with Treacy & Co., LLC, a company
controlled by Michael Treacy, a director of the Company, as payment for
marketing consulting services. These services included marketing, sales and
client services advice, strategic planning and seconding Mr. Swanson to act in
the capacity of Vice President, Sales. The Company has recorded deferred
compensation for the value of the options granted that are not yet vested of
$0.1 million as of December 31, 1997 and $0.9 million as of December 31, 1998.
QUARTERLY RESULTS OF OPERATIONS DATA
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the eight quarters ended December 31,
1998. In the opinion of management, this data has been prepared substantially on
same basis as the audited financial statements appearing elsewhere in this
report and includes all necessary adjustments, consisting only of normal
recurring adjustments necessary for fair presentation of this data. The
quarterly data should be read in conjunction with the financial statements and
the notes to these statements appearing elsewhere in this report. The results of
operations for any quarter are not necessarily indicative of the results of
operations for any future period.
The Company has limited operating history upon which to evaluate its
business and predict revenue and planned operating expenses. The Company's
quarterly operating results may vary significantly in the foreseeable future due
to a variety of factors, many of which are outside of the Company's control. The
timing of the Company's 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 nine months for larger
agreements. These contracts are also subject to delays over which the Company
has little or no control, including customers budgetary constraints, their
internal acceptance reviews whether or when regulatory approval of their
products is given by the Food and Drug Administration ("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, the Company
may expend substantial funds and management resources and yet not obtain
adequate advertising revenue. Once a contract is executed, a significant portion
of the Company's revenue is derived from customized Web site development and
implementation projects, rather than from recurring fees. As a result, the
Company cannot predict with certainty when it 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
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during year-end and holiday periods, and the Company could experience a decrease
in visitor traffic to its Web sites during these periods.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC.31, MAR. 31, JUN, 30, SEP. 30,
1997 1997 1997 1997 1998 1998 1998
----------- ----------- ----------- --------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 16 $ 88 $ 69 $ 84 $ 206 $ 215 $ 238
Operating expenses:
Product and content development........... 235 141 178 212 250 260 401
Marketing, sales and client services...... 232 236 284 379 189 492 234
General and administrative................ 210 211 257 247 210 263 228
Fair value of options granted to
employees............................... -- -- -- 40 39 30 26
Fair value of options granted to
consultants............................. -- -- -- -- -- -- --
----- ----- ----- --------- ----------- ----- ---------
Total operating expenses................ 677 588 719 878 688 1,045 889 3,317
Loss from operations........................ (661) (501) (649) (794) (482) (830) (651)
Interest income (expense), net.............. (10) (10) -- -- -- -- --
----- ----- ----- --------- ----------- ----- ---------
Net loss.................................... $ (671) $ (511) $ (649) $ (794) $ (482) $ (830) $ (651)
----- ----- ----- --------- ----------- ----- ---------
----- ----- ----- --------- ----------- ----- ---------
<CAPTION>
DEC. 31,
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 372
Operating expenses:
Product and content development........... 405
Marketing, sales and client services...... 896
General and administrative................ 481
Fair value of options granted to
employees............................... 180
Fair value of options granted to
consultants............................. 1,354
---------
Total operating expenses................
Loss from operations........................ (2,945)
Interest income (expense), net.............. --
---------
Net loss.................................... $ (2,945)
---------
---------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
the private placement of equity securities and advances from its principal
stockholder. As of December 31, 1998, the Company had $0.1 million in cash and
cash equivalents. In February 1999, the Company received $3.2 million in
proceeds from a private placement of equity securities to certain unrelated
investors.
The Company has incurred substantial costs to design, develop and implement
Internet-based marketing and advertising programs for its clients, to build
brand awareness and to grow its business. As a result, the Company has incurred
operating losses and negative cash flows from operations in each quarter since
commencing operations. As of December 31, 1998, the Company had an accumulated
deficit of $8.4 million. These losses have been funded primarily through
advances by its majority stockholder, an entity controlled by Robert A.
Jennings, the Company's Chairman and Chief Executive Officer. These advances
aggregated $4.8 million as of December 31, 1998. Of this amount, $4.3 million is
evidenced by junior preferred stock of the Company. The balance constitutes an
interest free advance of $0.5 million repayable upon demand.
To date, the Company has experienced negative cash flows from operating
activities. For the period ended December 31, 1996, net cash used in operating
activities was $1.0 million. For the year ended December 31, 1997, net cash used
in operating activities was $2.5 million. For the year ended December 31, 1998,
net cash used in operating activities was $2.7 million. Net cash used in
operating activities for these periods was primarily attributable to net losses
during these periods. Net cash used reflected several factors, including (1)
increased operating expenses as the Company's business volume increased; (2) a
higher level of accounts receivable due to growth of marketing and advertising
program revenue; and (3) increases in accounts payable, accrued expenses and
deferred revenues, which partially offset the increases. For the year ended
December 31, 1998, the increase in net cash used in operating activities was
primarily attributable to a net operating loss of $4.9 million. The net loss for
1998 was offset by certain non-cash items of $1.7 million in the aggregate. This
amount was comprised of deferred compensation expense of $1.6 million related
stock options granted to consultants and employees and the value of services
received in exchange for common stock of $0.1 million.
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<PAGE>
For the period ended December 31, 1996, net cash used in investing
activities was $0.2 million. For the year ended December 31, 1997, net cash used
in investing activities was $0.1 million. For the year ended December 31, 1998,
net cash used in investing activities was $30,225. All net cash used in
investing activities related to capital expenditures, primarily the acquisition
of equipment.
For the period ended December 31, 1996, net cash provided by financing
activities was $1.6 million. For the year ended December 31, 1997, net cash
provided by financing activities was $2.6 million. For the year ended December
31, 1998, net cash provided by financing activities was $2.4 million. Net cash
proceeds from financing activities in 1996 was primarily attributable to the
issuance of common stock and to a lesser extent from unsecured advances from the
Company's majority stockholder. Net cash proceeds from financing activities in
1997 and 1998 was primarily attributable to net proceeds received from unsecured
advances from the majority stockholder in the aggregate amount of $2.6 million
in 1997 and $2.2 million in 1998. By September 30, 1998, $4.3 million of the
cash advances from the majority stockholder made prior to that date had been
converted into junior preferred stock.
As of December 31, 1998, the Company had no principal capital commitments
outstanding. The Company has spent $0.4 million on capital expenditures since
inception. It is estimated that the Company's capital expenditures will be $0.7
million for 1999, principally for improvements to its technical infrastructure,
including the transfer of its main production and development equipment
operations from a third party to the Company's own facility.
In connection with the Company's planned 50/50 joint venture with
CommonHealth, it expects to advance approximately $0.3 million to the joint
venture as its share of the venture's initial capitalization. Under the
Company's agreement with CommonHealth, the Company may borrow this amount from
CommonHealth. If the Company does borrow this amount, it must repay it from 25%
of its half 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.
On February 26, 1999, the Company sold in a private placement an aggregate
of 506,329 shares of newly designated senior preferred stock and warrants
exercisable for five years to purchase 224,000 shares of such 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 was, and the
conversion price of the senior preferred stock and exercise price of the
warrants is, $6.32 per share, an amount equal to 85% of the average bid and ask
price of the shares of Common Stock on the OTC Bulletin Board for the relevant
30-day period preceding the closing. The shares of 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 the closing of
this offering. The senior preferred stock has voting rights on an as-converted
basis. In connection with such private placement, the Company agreed to provide
the holders of senior preferred stock or common stock issuable upon the
conversion of senior preferred stock demand and piggy back registration rights,
the right to tag-along with founders of the Company in certain sales of their
shares, and the right to nominate a member of the board of directors of the
Company so long as they maintain at least 50% of their original share position.
If the Company offers its common stock to the public at a price below $6.32 per
share, the conversion price of the senior preferred stock and the exercise price
of the warrants will be lowered to a price equal to 85% of the price of the
public in such offering. In connection with this investment, and for as long as
the investors hold at least 50% of their original shares position, the Company
agreed not to effect any material change in the direction of its business unless
approved by at least two-thirds of the board of directors and then only after
consultation with the investors.
In March 1999, the Company entered into an exclusive source code license
agreement with TVisions, relating to the proprietary software that the Company
uses to operate MEDICONSULT.COM and certain other of
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<PAGE>
the Company's Web Sites. The Company paid TVisions the sum of $260,000 as
payment in full for this license.
In connection with the Company's sponsorship and management of INCIID.ORG,
it has committed to pay INCIID $0.5 million per year beginning in 1999 for three
years in equal quarterly installments, in cash or common stock as it determines
with respect to each quarter.
The Company's ability to generate significant revenue is uncertain. The
Company incurred net losses of approximately $0.9 million for the year ended
December 31, 1996, $2.6 million for the year ended December 31, 1997 and $4.9
million for the year ended December 31, 1998. The Company expects losses from
operations and negative cash flow to continue for the foreseeable future and at
least through the year 2000 as a result of its expansion plans and management's
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 the Company has experienced revenue growth in recent
periods, its revenue may not remain at its current level or increase in the
future. If the Company's revenue does not increase and if its spending levels
are not adjusted accordingly, it may not generate sufficient revenue to achieve
profitability, which would have a material adverse effect on the Company's
business, financial condition and results of operations. Even if the Company
achieves profitability, it may not sustain or increase profitability on a
quarterly or annual basis in the future.
The Company's working capital requirements depend on numerous factors. The
Company has experienced a substantial increase in its expenditures since
inception consistent with growth in its operations and staffing, and anticipate
that this will continue for the foreseeable future. The Company anticipates
incurring additional expenses to increase its marketing and sales efforts, for
content development and for technology and infrastructure development.
Additionally, the Company will continue to evaluate possible investments in
businesses, products and technologies, the expansion of its marketing and sales
programs and more aggressive brand promotions. If the Company experiences a
shortfall in revenue in relation to its expenses, or if its expenses precede
increased revenue, the Company's business, financial condition and results of
operation and could be materially and adversely affected.
The Company currently anticipates that its available cash resources combined
with the net proceeds from an offering expected to take place in 1999 will be
sufficient to meet its anticipated needs for working capital and capital
expenditures through at least the year 2000. The Company 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 in terms
favorable to the Company, or at all. If additional funds are raised by the
issuance of the Company's 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 by the Company, it may be subject to certain limitations on its
operations, including limitations on the payment of dividends. If adequate funds
are not available or not available on acceptable terms, the Company may be
unable to fund its expansion, successfully promote its 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
the Company's business, financial condition and results of operations.
Although a significant portion of the Company's revenue is derived from
activities conducted outside the United States, fees paid to the Company have
been and are expected to continue to be paid in U.S. dollars. However, a
substantial portion of the Company's 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 the Company's financial results
are reported in U.S. dollars, they are affected by changes in the value of the
various foreign currencies in which the Company makes payments in relation to
the U.S. dollar. The Company does not cover known or anticipated operating
exposures through foreign currency
22
<PAGE>
exchange option or forward contracts. The primary currency for which the Company
has foreign currency exchange rate exposure is the Canadian dollar. 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.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AeSEC") 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 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 COST OF START-UP ACTIVITIES," effective for
fiscal years beginning after December 15, 1998, requires costs of start-up
activities and organization costs to be expensed as incurred. Currently, the
Company expenses these 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.
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. The Company believes that it has identified
substantially all of the major computers, software applications and related
equipment used in connection with its internal operations to determine if they
will be year 2000 compliant. Based on the Company's assessment to date, it
presently believes that its internal computer systems are year 2000 compliant.
Nevertheless, the Company continues to test its internal systems, on a system by
system basis, as it completes its 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 the Company's 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. The Company has completed the assessment of potential effect of, and
costs of remediating, any year 2000 problem related to this equipment. The
Company does not have extensive facilities and office equipment at this time.
The Company estimates that the total cost of completing any required
modifications, upgrades or replacements of these internal systems will not be
material.
SUPPLIERS. The Company has been gathering information from and has
initiated communications with its service and content providers to identify and,
to the extent possible, resolve issues involving the year 2000 problem. However,
the Company has limited or no control over the actions of its service and
content providers. Thus, while management expects that it will be able to
resolve any significant year 2000 problems with the Company's systems, the
Company cannot guarantee that its service and content providers will resolve any
or all year 2000 problems with their systems before the occurrence of a material
23
<PAGE>
disruption to the Company's 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 the Company's business, financial condition and
results of operations.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company expects to
identify and resolve all year 2000 problems that could materially adversely
affect its business, financial condition or operating results. However, the
Company believes that it is not possible to determine with complete certainty
that all year 2000 problems affecting the Company 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, the Company 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, the Company expects that it could possibly suffer the following
consequences:
- a significant number of operational inconveniences and inefficiencies for
the Company, its service and content providers and its visitors that may
divide management's time and attention and financial and human resources
from the Company's ordinary business activities; and
- a lesser number of serious system failures that may require significant
efforts by the Company, its service and content providers or its visitors
to prevent 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 the Company's control will be year 2000 compliant. The failure of
these entities to be year 2000 compliant could result in a systemic failure
beyond the Company's control, such as a prolonged Internet, telecommunications
or electrical failure, which could also prevent the Company from operating its
business, prevent visitors from accessing its Web sites or change the behavior
of consumers accessing its Web sites, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
CONTINGENCY PLANS. As discussed above, the Company is engaged in an ongoing
year 2000 assessment and has not yet developed any contingency plans. The
results of the Company's 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 contingency plans.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-KSB contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include, among other factors
noted herein, the following:
THE COMPANY HAS ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, SO BASIS FOR
EVALUATION IS LIMITED.
The Company began operations in April 1996 when it launched a limited,
initial Web site. The Company launched a more extensive Web site in September
1996. As a result, there is a limited history of operations for evaluating the
Company's business. 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 must be considered. Some of
these risks and uncertainties relate to the Company's ability to:
- design, develop and implement effective marketing and advertising programs
for existing clients and new clients;
- maintain and expand its relationship with Novartis;
24
<PAGE>
- attract additional pharmaceutical and other healthcare advertisers in
order to generate significant revenue;
- build its organizational and technical infrastructures to manage its
growth effectively;
- maintain its current strategic relationships and develop new ones;
- respond effectively to actions taken by its competitors;
- attract a larger audience to its Web sites;
- increase awareness of its brand and continue to develop visitor loyalty;
- integrate acquired and managed businesses, technologies and services; and
- attract, retain and motivate qualified personnel.
If the Company is unsuccessful in addressing these risks and uncertainties,
its business, financial condition and results of operations will be materially
and adversely affected.
THE COMPANY HAS LOST MONEY IN EVERY QUARTER IN EVERY YEAR, AND THESE LOSSES ARE
EXPECTED TO CONTINUE IN THE FUTURE.
Since it began operations in 1996, the Company has lost money in every
quarter and year. As of December 31, 1998, the Company had an accumulated
deficit of approximately $8.4 million. The Company intends to increase the
amount of its expenses significantly in the future in order to expand its
operations and employee base. It is not expected that the Company will generate
sufficient revenue to cover these expenses through at least the year 2000. If
the Company's revenue does not increase and it cannot adjust its level of
spending adequately, it may not generate sufficient revenue to become
profitable. Even if the Company does become profitable, it may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
The Company's ability to generate revenue depends primarily upon its ability to
attract visitors to its Web sites and to attract pharmaceutical and other
healthcare advertisers as clients.
THE COMPANY IS DEPENDENT ON NOVARTIS FOR A SIGNIFICANT PORTION OF ITS REVENUE.
Approximately 55% of the Company's revenue for the year ended December 31,
1997 and 65% of its revenue for the year ended December 31, 1998 resulted from
engagements by various independent divisions of Novartis. It is anticipated that
these and other divisions will account for a substantial portion of the
Company's revenue for the foreseeable future. The Company currently has an
agreement with one division of Novartis, Novartis Consumer Health Canada, to
manage its Habitrol smoking cessation Web site, which the Company designed,
developed and implemented. The Company is evaluating and working with Novartis
Pharma to design, develop and manage additional Web sites. The Company is also
discussing also discussing with Novartis other possible marketing and
advertising programs. It cannot be predicted whether the Company will be engaged
to perform any services as a result of these discussions. Novartis may elect to
terminate its agreements or engagements with the Company or it may demand
changes to the terms of these agreements or engagements that are less favorable
to the Company than existing terms. The Company does not have written agreements
with Novartis for most of these engagements. If the Company loses Novartis as a
customer or the relationship becomes less favorable to the Company, its
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 the Company's Web sites. If it does, this change could
materially and adversely impact the Company's advertising revenue. In addition,
the Company's 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.
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<PAGE>
THE COMPANY MAY HAVE DIFFICULTY MANAGING ITS EXPANDING OPERATIONS.
The Company is currently engaged in a significant expansion of its
operations. Also to date, a portion of the Company's software development and
all of its technical support, networks and hardware operations have been
outsourced to a third party. The Company's network and technical support are
currently being transferred to another third party and management is in the
process of evaluating the establishment of a facility in Toronto, Canada where
the Company's software development and technical and network support would be
located. In addition, the Company is considering establishing an office in
Parsippany, New Jersey in the near future, in connection with the Company's
proposed joint venture with CommonHealth.
As part of the Company's expansion, it will have to implement additional
operational and financial systems, procedures and controls to maintain
appropriate coordination among its technical, accounting finance, marketing,
sales and editorial staffs. If these systems and controls are not adequate,
management will have significant difficulty managing the various business
functions of the Company's operations from multiple locations. The Company 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 background are in high demand and management
is not certain that the Company will be able to attract the staff it needs. In
addition, many of the Company's senior management personnel have recently joined
the Company and have not yet become integrated into and experienced with the
Company's operations, policies, personnel and advertising clients. In connection
with the transition of the Company's technical operations, difficulties may
arise that could cause disruptions in the operation of its Web sites. Any of the
risks described above could have a material and adverse effect on the Company's
business, financial condition and results of operations.
BECAUSE THE COMPANY'S BUSINESS MODEL IS UNPROVEN, IT 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. The Company's business depends upon the sale of in depth
Internet-based marketing and advertising programs to 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, management believes, requires
the Company to establish a closer relationship with the client than in the case
of banner advertisements. Based on the Company's experience, it typically takes
six weeks to nine months to finalize an agreement with a potential customer. In
addition, the Company's business depends upon its ability to design, develop and
implement customized marketing and advertising programs calculated to achieve a
specific client's marketing objectives. The Company's business, financial
condition and results of operations will be materially and adversely affected if
the business model it has adopted is not attractive to advertisers and if it is
unable to adapt to other business models for generating Internet advertising
revenue.
The Company currently intends to sell advertising on its Web sites solely to
pharmaceutical and other healthcare companies. Accordingly, its target customer
base is limited. Most of the Company's current or potential advertising clients
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 required the acceptance of a new away 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, there
can be no assurance that it will increase, generally or through the Internet.
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THE COMPANY WILL NOT BE SUCCESSFUL IF THE USE OF THE INTERNET FOR ADVERTISING
DOES NOT CONTINUE TO INCREASE.
A significant percentage of the Company's revenue will be derived from
Internet marketing and advertising for the foreseeable future. Since the
Internet advertising market is new and rapidly evolving, management cannot yet
gauge its acceptance by advertisers as an effective media. The Company's
business, financial condition and results of operations will be materially and
adversely affected if the Internet advertising market develops more slowly than
expected. 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 the
Company's business, financial condition and results of operations.
Advertisers may choose not to advertise on the Company's Web sites or may
pay less for advertising on its Web sites if they do not perceive the visitor
measurements of its Web sites to be reliable. No standard has been widely
accepted to measure the effectiveness of Internet advertising or to measure the
demographics of the Company's visitor base. Third parties currently provide
these measurement services for the Company. If such third parties are unable to
provide these services in the future, the Company would be required to perform
them itself or obtain them from another provider. This could cause the Company
to incur additional costs or cause interruptions in its business while these
services are replaced. In addition, the Company is implementing additional
systems designed to record demographic data of visitors. If these systems are
not implemented successfully, the Company may not be able to accurately evaluate
the demographic characteristics of the visitors.
THE COMPANY DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET FOR ITS SERVICES.
The Internet is relatively new and is rapidly evolving. The Company's
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 such as 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.
The Company must adapt as the Internet continues to evolve. To be
successful, the Company must adapt to the changing technologies in its rapidly
evolving market by continually enhancing its Web sites and introducing new
services to address its customers' changing demands. This will entail a
continuous level of development and capital spending and the Company could incur
substantial additional costs if it needs to modify its services or
infrastructure. The Company's business, financial condition and results of
operations will be materially and adversely affected if significant costs are
incurred to adapt, or if the Company cannot adapt, to these changes.
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DO NOT RELY ON THE COMPANY'S QUARTERLY RESULTS AS AN INDICATION OF HOW WELL IT
WILL DO IN THE FUTURE.
The Company's quarterly operating results may vary significantly in the
foreseeable future due to a number of factors that could affect its 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 the Company's Web sites in particular;
- visitor traffic levels on the Company's Web sites;
- the Company's ability to retain its significant clients, particularly
Novartis;
- the Company's ability to attract and retain other advertisers 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 the Company's Web sites;
- the amount and timing of the Company's costs related to its marketing and
sales efforts;
- costs the Company may incur as it expands its operations;
- seasonality in advertising sales and Internet usage;
- the Company's ability to price its marketing and advertising 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 the Company's 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 the
Company has little or no control, including customers' budgetary constraints,
their internal acceptance review, 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, the Company may expend substantial funds and
management resources and yet not obtain adequate advertising revenue. Once a
contract is executed, a significant portion of the Company's revenue is derived
from customized Web site development and implementation projects, rather than
from recurring fees. As a result, the Company cannot predict with certainty when
it will perform the work necessary to receive payment for these projects.
In any given quarter, the Company may not be able to adjust spending in a
timely manner to compensate for any unexpected shortfall in its revenue. Any
significant shortfall would have an immediate material and adverse effect on the
Company's business, financial condition and results of operations. Because the
Company has a limited operating history, it cannot yet determine whether
seasonal factors will affect the Company's 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 the Company's 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, do not rely on quarter-to-quarter comparisons of the Company's
results of operations as an indication of future performance. It is possible
that in some future periods the Company's operating results will be below the
expectations of public market analysts and investors. In this event, the price
of the Company's common stock would likely fall.
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THERE ARE MANY COMPETITORS IN THE HEALTHCARE SEGMENT OF THE INTERNET MARKET AND
THE COMPANY 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 the Company for advertisers, and Internet healthcare
companies also compete with the Company for visitor traffic. Management expects
competition to continue to increase as there are no substantial barriers to
entry into the Company's market. Increased competition could result in
reductions in the fees the Company receives for its marketing and advertising
services, lower margins, loss of clients, reduced visitor traffic to the
Company's Web sites, or loss of market share. Any of these occurrences could
materially and adversely affect the Company's 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. The Company's 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.
The Company's ability to compete depends on a number of factors, many of
which are outside of its 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 the Company's 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 the
Company does. This may allow them to devote greater resources than the Company
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 and alliance
partners. The Company's competitors may develop services that are equal or
superior to those provided by the Company or that achieve greater market
acceptance and brand recognition than the Company achieves. 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 advertisers. It is possible that new competitors may
emerge and rapidly acquire significant market share. The Company may not be able
to compete successfully or competitive pressures may have a material adverse
effect on its business, results of operations and financial condition. If
advertisers perceive the Internet generally or the Company's 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 advertise on its Web sites.
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THE COMPANY MUST CONTINUALLY ENHANCE AND DEVELOP THE CONTENT AND FEATURES OF ITS
WEB SITES TO ATTRACT VISITOR TRAFFIC AND ADVERTISERS.
The Company produces only a portion of the editorial content available on
its Web sites and relies on third-party firms and organizations for most of its
content. Much of the information on the Company's Web sites is easily available
from other sources. Other Web sites may present the same or similar content in a
superior manner to the Company's Web sites, which would adversely affect its
visitor traffic. To remain competitive, the Company must continue to enhance and
improve its content. In addition, the Company must continually improve the
responsiveness, functionality and features of its Web sites and develop other
products and services attractive to visitors and advertisers. Changes to the
Company's 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 the Company's brand
name. The Company plans to develop and introduce new features, functions,
content, products and services that will require the development or licensing of
increasingly complex technologies. The Company may not succeed in developing or
introducing features, functions, products and services that will attract
visitors and advertisers, which would be likely to materially and adversely
affect the Company's business, financial condition and results of operations.
THE COMPANY NEEDS TO CREATE A MEDICONSULT BRAND IDENTITY TO BE SUCCESSFUL.
In order to build and align brand awareness of the Company, the Company must
succeed in its marketing efforts, provide high-quality services and increase the
number of visitors to its Web sites. In addition, healthcare consumers must,
among other things, perceive the Company as offering relevant, reliable
healthcare information from trustworthy sources. The Company intends to increase
significantly its marketing expenditures as part of its brand-building efforts.
If these efforts are unsuccessful and the Company cannot increase its brand
identity and increase revenue, its business, financial condition and results of
operations will be materially and adversely effected.
THE COMPANY IS SUBJECT TO THE RISKS OF INTEGRATING AND SUCCESSFULLY FUNDING ITS
JOINT VENTURES AND ACQUISITIONS.
The Company has 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, the Company 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. The Company 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. 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 management and require
significant Company 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.
The Company recently acquired PHARMINFO.COM, a Web site providing
information on pharmaceutical products and clinical trials for pharmacists,
physicians and consumers. The Company also entered in agreements to manage
CYBERDIET.COM, a Web site providing tailored nutritional information and
programs, and sponsor INCIID.ORG, a Web site providing information on
infertility. In addition, the Company has an option to acquire CYBERDIET.COM.
The Company may not receive a positive return on its investment in these Web
sites and may not realize other benefits anticipated from these transactions.
The Company may have difficulty assimilating these Web sites and their
operations with its existing Web sites, which could result in a loss of visitor
traffic and revenue.
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The Company may not be able to identify suitable acquisition candidates or
joint venture and alliance partners in the future. Even if suitable candidates
are identified, the Company may not be able to enter into transactions with
these candidates on commercially acceptable terms. If the Company makes other
acquisitions or enters into these other arrangements, it could have difficulty
in integrating the acquired products, services or technologies into its
operations. These difficulties could disrupt ongoing business, distract
management and employees, increase the Company's expenses and materially and
adversely affect its business, financial condition and results of operations.
The Company may incur significant amortization charges from the goodwill
resulting from acquisitions. The Company may also incur indebtedness or issue
equity securities to pay for future acquisitions or management or sponsorship
rights. The issuance of equity securities could be dilutive to the Company's
existing stockholders.
ASPECTS OF THE COMPANY'S WEB SITES MAY SUBJECT IT TO REGULATORY OVERSIGHT AND
OTHER CONCERNS.
Under the "MediXpert" services offered by the Company through
MEDICONSULT.COM, visitors pay a fee and ask a licensed physician particular
medical questions. A number of states have enacted laws that prohibit what is
known as the corporate practice of medicine. These laws are designed to prevent
interferences in the medical decision-making process from anyone who is not
licensed in that state. Although the Company has 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
the Company may be forced to cease providing the "MediXpert" service. In
addition, if the Company's specialists are deemed to be practicing medicine
without a license, the Company may be subject to a lawsuit alleging the aiding
or abetting of the unlicensed practice of medicine or potentially a medical
malpractice lawsuit. The Company has attempted to design the "MediXpert" service
to avoid claims that it or its 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. The specialists are instructed to recommend that a
visitor consult with his or her physician, and state that all information
provided is for educational purposes only. Based on these limitations,
management believes that the services provided by the Company's specialists do
not constitute the practice of medicine. In the event that some state or other
regulatory agency determines that the Company or its specialists is practicing
medicine without a license, the Company will be required to revise or terminate
that portion of its business and it could be subject to potential liability.
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 referral 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 the Company's relationship with one or more of
its advertisers that deliver healthcare services or goods violate any such laws,
then the Company could be subjected to fines and other costs and could be
required to revise or terminate that portion of its business. The Company's
pharmaceutical clients are also subject to review by the FDA for compliance with
regulations governing the information provided to consumers about a
pharmaceutical product. For example, these regulations limit recommended uses to
the specific uses approved by the FDA. The FDA also monitors compliance with DTC
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, the Company's existing marketing and
advertising programs for clients and future opportunities could be materially
and adversely affected.
THE COMPANY'S KEY PERSONNEL ARE VERY IMPORTANT TO ITS SUCCESS.
The future success of the Company depends on the services of its senior
management personnel. The Company does not have key person life insurance on any
of its personnel. Loss of any one or more of the Company's senior management
personnel would have a material adverse effect on its business, financial
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condition and results of operations. To be successful, the Company 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 the Company's planned in-house programming operations will depend on the
Company's ability to attract and retain qualified employees. Although the
Company does not currently have a full-time Chief Financial Officer, it is in
the process of recruiting for this position. There is no assurance as to when
the Company will engage a Chief Financial Officer. 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 the Company's activities, would materially and adversely affect
its business, financial condition and results of operations.
THE COMPANY IS CONTROLLED BY ONE OF ITS EXISTING STOCKHOLDERS, WHOSE INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS.
Mr. Robert A. Jennings, the Company's Chief Executive Officer, owned at
December 31, 1998 as an individual and through affiliated entities controls
61.5% of the outstanding shares of common stock. Accordingly, pursuant to
Delaware corporate law, Mr. Jennings controls the election of all of the
Company's directors and, in general, has sufficient voting power to determine
(without the consent of other Company 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 the
Company's assets, and also the power to prevent or cause a change in control.
The interests of Mr. Jennings may differ from the interests of other
stockholders.
THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
The Company's business is conducted through operations and employees in
Bermuda, Canada and the United States. The Company's international operations
and activities subject it 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 account
receivables. In addition, the Company receives most of its revenue in U.S.
dollars, but a substantial portion of its payroll and other expenses are paid in
the currency of the country where its employees reside or its operations are
located. Because the Company's financial results are reported in U.S. dollars,
they are affected by changes in the value of the various foreign currencies that
the Company uses to make payments in relation to the U.S. dollar. The Company
does 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 THE
COMPANY'S 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 the Company's Web sites. This could decrease the demand for the
Company's services, increase its cost of doing business or otherwise have a
material adverse effect on its business, financial condition or results of
operations.
THE COMPANY MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT IT PROVIDES ON THE
INTERNET.
Because visitors to the Company's Web sites may distribute its content to
other people, third parties might sue the Company for defamation, negligence,
product liability, copyright or trademark infringement,
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or other matters. These types of claims have been brought, sometimes
successfully, against other on-line services in the past. The Company may also
incur liability for the content on other Web sites that are linked to its Web
sites or for content and materials that may be posted by visitors in chat rooms
or bulletin boards. The Company's e-mail services may also subject it 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. The Company also enters into agreements with commerce partners
that entitle it to receive a share of any revenue from the purchase of goods and
services through direct links from the Company's Web sites to their Web sites.
These arrangements may subject the Company to additional claims, including
product liability or personal injury related to these products and services,
because the Company provides access to these products or services, even if it
does not provide the products or services itself.
SATISFACTORY PERFORMANCE OF THE COMPANY'S WEB SITES IS CRITICAL TO ITS BUSINESS
AND REPUTATION.
The performance of the Company's Web sites is critical to its business and
reputation and to its ability to attract visitors and advertisers to its Web
sites. The Company is 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, the Company could experience a decrease
in traffic and revenue. The Company does not presently have any back up
"off-site" systems or a formal disaster recovery plan, nor does it have
insurance coverage for business interruption. Substantially all of the Company's
communications hardware and some of its other computer hardware operations are
located in Cambridge, Massachusetts and 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 the Company's Web
sites.
The Company's Web sites must accommodate a high volume of traffic and
deliver information that is updated frequently. The Company's 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, visitors to the Company's Web
sites depend on Internet service providers, online service providers and other
Web site operators for access to its 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 the Company's systems in the
future.
The on-going enhancement of the Company's 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 effort are delayed or
unsuccessful, the Company will incur additional development expenses and may not
remain competitive in the design and use of its Web sites.
A LACK OF SECURITY OVER THE INTERNET MAY IMPACT THE COMPANY'S 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. The Company 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 the Company's
network security. Programmers who are able to penetrate the Company's network
security could misappropriate proprietary information or cause interruptions in
the Company's services, and the Company 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 the Company's
business, results of operation and financial condition.
THE COMPANY IS DEPENDENT ON ITS INTELLECTUAL PROPERTY.
Trademarks, copyrights and other proprietary rights are important to the
Company's success and its competitive position. Third parties may infringe or
misappropriate the Company's trademarks, copyrights and other proprietary
rights, which could have a material and adverse effect on the Company's
business,
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financial condition and results of operations. In addition, management does not
know how extensive the Company's intellectual property protection is since the
validity, enforceability and scope of protection of proprietary rights in
Internet-related industries is uncertain and still evolving.
The Company licenses some of its content from third parties. It is possible
that the Company could become subject to infringement actions based upon the
content obtained from these third parties. In addition, others may use this
content and the Company may be subject to claims from its licensors. These
claims, with or without merit, could subject the Company to costly litigation
and the diversion of its financial resources and technical and management
personnel. The Company has entered into confidentiality agreements with its key
employees and independent consultants and has instituted procedures to control
access to and distribution of its technology, documentation and other
proprietary information and the proprietary information of others from which it
has licensed content or technology. Despite the Company's efforts to protect its
proprietary rights, parties may attempt to disclose, obtain or use the Company's
content or technologies. There can be no assurance that the steps the Company
has taken will prevent misappropriation of its content or technologies.
YEAR 2000 PROBLEMS MAY DISRUPT THE COMPANY'S 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 the Company's business, financial
condition and results of operations. Based on management's assessment to date,
it is believed that the Company's internal systems are year 2000 compliant and
will not produce erroneous results, fail to function, or interrupt performance.
Despite testing, the Company's systems may contain undetectable errors or
defects associated with the year 2000 and operational difficulties may result.
To the extent that management's assessment is finalized without identifying any
additional material non-compliant information technology systems or
non-information technology systems that the Company operates or that are
operated by third parties, the most reasonably likely worst case year 2000
scenario is a systemic failure beyond the Company's control, such as a prolonged
Internet, telecommunications or electrical failure. Such a failure could prevent
the Company from operating its business, prevent visitors from accessing its Web
sites, or change the behavior of consumers accessing its Web sites. Management
believes that the primary business risks, in the event of such a failure, would
include loss of advertising revenue, increased operating costs, loss of visitors
to the Company's 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 the Company's business,
results of operations and financial condition. The Company has no contingency
plans to address such risks.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE THE COMPANY.
Provisions of the Company's certificate of incorporation, its by-laws and
Delaware law could make it more difficult for a third party to acquire it, even
if it would be beneficial to the Company's stockholders.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-16 attached
hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth, as of December 31, 1998, the name, age and
position of the Company's directors, executive officers and other significant
employees.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------------------------------------------------- --- ------------------------------------------
<S> <C> <C>
Robert A. Jennings.............................................. 41 Chairman andChief Executive Officer
Ian Sutcliffe................................................... 46 President and Director
David J. Austin................................................. 42 Chief Operating Officer
Michel Bazinet, M.D............................................. 42 Medical Director
Debora A. Falk.................................................. 39 Vice President, ClientServices
Michael Swanson................................................. 30 Vice President,Sales
Bruce Tilden.................................................... 45 Vice President, Administration
Michael Treacy, Ph.D............................................ 42 Director
John Buchanan................................................... 42 Director
Barry Guld...................................................... 42 Director
</TABLE>
ROBERT A. JENNINGS has served as Chairman and Chief Executive Officer of the
Company since its inception in 1996. From 1993 to 1997, Mr. Jennings acted as an
advisor to a number of companies on general business matters. 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 President and a Director of the Company since
1996. He has 17 of years 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, and remained at BDO Dunwoody until
1993. 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 Chief Operating Officer of the Company 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.
MICHEL BAZINET, M.D. has served as Medical Director of the Company since
1996. He is a urologist specializing in uro-oncology and has been practicing
medicine at McGill University in Montreal since 1987. His responsibilities with
Mediconsult include the supervision of the overall medical content of the
Company's 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.
DEBORA FALK has served as Vice President for Client Services of the Company
since 1996. From 1985 until 1996, she was employed by IBM Canada in several
technical and marketing positions, including Canadian Market Management Process
Manager.
MICHAEL SWANSON has served as Vice President for Sales of the Company since
1998 when he was seconded from Treacy & Co., which provides strategic consulting
services in a variety of industries. Prior to joining the Company, Mr. Swanson
had been a Principal of Treacy & Co. since 1995. From 1993 to 1995, Mr. Swanson
was President of Now!Food, a company focused on healthy living through nutrition
and diet.
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BRUCE TILDEN has served as Vice President for Administration of the Company
since 1998. From 1996 to 1998 he was Vice President and General Manager of
Hepworth & Company, a leading customer satisfaction measurement and contact
management consultancy. From 1990 to 1996 he was Vice President, Corporate and
Business Development of Tilden Car Rental.
MICHAEL TREACY, PH.D. has been a Director of the Company since 1998. He is
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.
JOHN BUCHANAN has been a Director of the Company since 1998. Since 1993, he
has been President & CEO of Retek Information Systems Inc. ("Retek"), a wholly
owned subsidiary of HNC Software Inc. Retek develops, markets and supports
predictive software solutions to the enterprise software industry.
BARRY GULD has been a Director of the Company since 1998. Mr. Guld
co-founded and served as President of Zadall Systems Group, a leading vendor of
pharmacy software systems from 1980 to 1996, which was sold to National Data
Corporation. He is currently a consultant to National Data Corporation and a
director of Client Technology Inc., a director of Mood Sciences Inc., and a
director of Velocity Computer Solutions.
The Company is in the process of recruiting a Chief Financial Officer. There
is no assurance as to when the Company will engage a Chief Financial Officer.
There is no family relationship between any director or executive officer of
the Company.
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 recommendations of the
Company's independent auditors, the scope of annual audits, fees to be paid to
the Company's independent auditors, the performance of the Company's independent
auditors and the Company's accounting practices. The members of the Audit
Committee as of December 31, 1998 were Messrs. Guld, Sutcliffe and Buchanan.
The Compensation Committee of the board of directors was established in
October 1998 and determines the salaries and benefits for the Company's
employees, consultants, directors and other individuals the Company compensates.
The Compensation Committee also administers its compensation plans. The members
of the Compensation Committee as of December 31, 1998 were Messrs. Jennings,
Guld and Treacy.
As of December 31, 1998, the Company had no nominating committee.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. (i) The Mediconsult
Trust, an owner of in excess of 10% of the outstanding securities of the
Company, failed to timely file Form 4s to report a donation of 250,000 shares of
common stock to a charitable organization in December 1998, and an amendment to
the Company's Certificate of Incorporation in October 1998 which made the shares
of preferred stock held by it convertible into common stock, (ii) Debora Falk,
an executive officer, failed to timely file a Form 4 to report a sale of shares
of common stock on the open market in December 1998 and failed to timely file a
Form 5 to report a grant of an option to purchase shares of common stock by the
Company in October 1996, (iii) Barry Guld and John Buchanan, each a director,
each failed to timely file a Form 5 to report grants of options to purchase
shares of common stock by the Company in October 1998 and each failed to timely
file a Form 3 to report their appointment to the board of directors and (iv)
each of David Austin, Michael Swanson and Michael Treacy each failed to timely
file a Form 3 to report their respective appointments during 1998 as executive
officers and, in the case of Michael Treacy, as a director of the Company.
36
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and its 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 year
ended December 31, 1998, for services rendered in all capacities in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
LONG-TERM COMPENSATION
----------------------- -----------------------------
NAME AND PRINCIPAL POSITION SALARY BONUS SHARES UNDERLYING OPTIONS
- ------------------------------------------------------------------- ---------- ----------- -----------------------------
<S> <C> <C> <C>
Robert A. Jennings
Chief Executive Officer.......................................... $ -- -- --
Ian Sutcliffe
President........................................................ 240,000 -- --
Debora A. Falk
Vice President, Client Services.................................. 100,200 -- --
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR
None of the Named Executive Officers received options to purchase common
stock in the year ended December 31, 1998.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31,
1998 OPTION VALUES
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.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED OPTIONS MONEY
AT OPTIONS AT DECEMBER 31, 1998
DECEMBER 31, 1998 (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.
DIRECTOR COMPENSATION
Directors of the Company 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 the Company entered into a services agreement with Treacy
& Co., an entity of which Michael Treacy, one of the directors of the Company,
is a principal, under which the Company received various services from Treacy &
Co. in consideration of the grant of options to acquire 2,000,000
37
<PAGE>
shares of common stock at an exercise price of $.003 per share. All of the
options have vested and expire on November 16, 2003. In addition, the Company's
majority stockholder granted Treacy & Co. an option to acquire 358,333 shares of
common stock owned by such stockholder, at an exercise price of $1.20 per share.
The services provided included marketing, sales and client services advice,
strategic planning as well as seconding Mr. Swanson to act in the capacity of
the Company's Vice President, Sales. The Company has 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 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
31, 1998 for their services on the Board of Directors.
STOCK OPTION PLAN
In April 1996, the Company's board of directors adopted the Company's 1996
Stock Option Plan. The plan was approved by the Company's stockholders during
May 1996. The plan allows the board to grant stock options from time to time to
employees, officers, directors and consultants. The board has the power to
determine at the time the option is granted whether the option will be and
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. However, Incentive Stock Options will only be granted to persons who are
employees of the Company. Vesting provisions are determined by the board at the
time options are granted. As originally adopted, the total number of shares of
common stock subject to options under the plan was not to exceed 1,000,000,
subject to adjustment in the event of certain recapitalizations, reorganizations
and similar transactions. The plan provides that all outstanding options will
vest upon a change of control. The exercise price is payable in cash, stock or
any other means as determined by the board. On December 31, 1997, the shares
eligible under the plan were increased to 2,500,000 shares.
The board of directors may amend the 1996 Plan at any time, provided that
the board may not amend the plan to materially increase the number of shares
available under the plan, materially increase the benefits accruing to
participants under the plan, or materially change the eligible class of
employees without first obtaining stockholder approval.
There have been a total of 2,353,050 options granted under the plan, of
which 1,626,550 have been exercised as of December 31, 1998. There were 716,000
options outstanding as of December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the common stock as of December 31, 1998, by (1) each
person (or group of affiliated persons) who are known by the Company to
beneficially own 5% or more of the Company's common stock, (2) each of the
Company's directors and Named Executive Officers and (3) all of the Company's
directors and executive officers as a group.
38
<PAGE>
SHARES BENEFICIALLY OWNED (1)
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER PERCENT BENEFICIALLY OWNED
- ------------------------------------------------------------------------- ------------ ---------------------------
<S> <C> <C>
Robert A. Jennings (2)................................................... 13,644,999 61.5%
33 Reid Street, 4(th) Floor
Hamilton HM 12 Bermuda
Michael Treacy (3)....................................................... 2,358,333 11.5
1184 South Street
Needham, Massachusetts 02492
Michel Bazinet........................................................... 1,000,000 5.4
343 Brookfield Avenue
Mount-Royal, Quebec, Canada H3P 2A7
Ian Sutcliffe............................................................ 290,000 1.6
16 Stonehedge Hollow
Unionville, Ontario, Canada L3R 3Y9
David J. Austin (4)...................................................... 26,000 *
4608 Woodgreen Drive
West Vancouver, British Columbia
Canada V7S 2V2
Debora A. Falk (5)....................................................... 96,000 *
53 Elizabeth Street
Tavistock, Ontario, Canada N0B 2R0
Michael Swanson.......................................................... -- *
45 Milk Street, 2(nd) Floor
Boston, Massachusetts 02109
Bruce Tilden (6)......................................................... 27,300 *
4 Stonehedge Hollow
Unionville, Ontario, Canada L3R 3Y9
John Buchanan (7)........................................................ 20,000 *
7 Rose Glen
Warwick WK 06 Bermuda
Barry Guld (8)........................................................... 20,000 *
4345 Erwin Drive
West Vancouver, British Columbia
Canada V7V 1H7
The Mediconsult Trust (9)................................................ 12,854,999 58.0
51 Pitts Bay Road
Pembroke HM 12 Bermuda
All Directors and Officers as a group (10 persons)....................... 17,124,299 70.3
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Under the rules of the Securities and Exchange Commission, 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
39
<PAGE>
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 by footnote, the named entities or
individuals have sole voting and investment power with respect to the shares
of common stock beneficially owned.
(2) Includes 12,783,333 shares owned by the Trust, 71,666 shares of common stock
issuable in respect of the 8% payable in kind dividend which has accrued on
the junior preferred stock through December 31, 1998 and 790,000 shares
owned by Mr. Jennings. Mr. Jennings controls the Trust. The 12,783,333
shares owned by the Trust includes 3,583,333 shares of common stock to be
issued upon the conversion of 430,000 shares of junior preferred stock, but
does not include shares issuable in respect of cumulative payable in kind
dividends on the junior preferred stock after December 31, 1998.
(3) Includes 2,000,000 shares of common stock issuable upon the exercise of a
currently exercisable option granted to Treacy &Co., LLC, a limited
liability company of which Mr. Treacy is a principal, on November 16, 1998,
with an exercise price of $.003 per share, and 358,333 shares of common
stock issuable upon the exercise of a currently exercisable option granted
to Treacy & Co. on the same date by the Trust with an exercise price of
$1.20 per share.
(4) Represents currently exerciseable options and options which vest within 60
days at an exercise price of $3.50 per share
(5) Represents currently exerciseable options at an exercise price of $0.05 per
share.
(6) Includes currently exerciseable options and options which vest within 60
days at an exercise price of $1.05 per share.
(7) Represents currently exerciseable options and options which vest within 60
days at an exercise price of $1.50 per share.
(8) Represents currently exerciseable options and options which vest within 60
days at an exercise price of $1.50 per share.
(9) Includes 3,583,333 shares of common stock to be issued upon the conversion
of 430,000 shares of junior preferred stock, but does not include shares
issuable in respect of cumulative payable in kind dividends.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Recently, the Mediconsult Trust, which has been the Company's majority
stockholder and is controlled by Robert Jennings, Chairman and Chief Executive
Officer of the Company, transferred its interest in the Company to JHC Limited,
a Bermuda corporation also controlled by Mr. Jennings. As a result, JHC Limited
is the majority stockholder of the Company. The Mediconsult Trust has from time
to time advanced funds to the Company on an interest-free basis. On September
30, 1998, the Board of Directors approved the conversion of the advances made by
the Trust to the Company up to that date into shares of junior preferred stock
with a $10 liquidation preference. In connection with this conversion, the
Company's certificate of incorporation was amended to provide, among other
things, that the outstanding junior preferred stock will be automatically
convertible into 8.33 shares of common stock, subject to adjustment, upon the
occurrence of a "Conversion Event." A "Conversion Event" includes the closing of
the public offering currently contemplated by the Company's registration
statement on Form S-1 filed on February 26, 1999.
The Company is a party to a Strategic Consulting Interim Agreement dated
November 16, 1998, with Treacy & Co. and the Trust. The agreement provides that
in consideration for consulting services rendered by Treacy to the Company in
connection with marketing, sales and client services advice, strategic planning
and the seconding of Mr. Swanson to act in the capacity of Vice President,
Sales, the Company granted
40
<PAGE>
Treacy & Co. options to purchase 2,000,000 shares of common stock at an exercise
price of $.003 per share, which expire on November 16, 2003. In addition, the
Trust granted Treacy & Co. an option to purchase 358,333 shares of Common stock
at an exercise price of $1.20 per share, which expires on October 1, 1999. The
agreement gives Treacy & Co. certain registration rights in the event of a
public offering.
The Company granted options to purchase 100,000 shares of common stock to
Messrs. Guld and Buchanan on October 31, 1998 for their services on the
Company's Board of Directors.
On February 26, 1999, the Company sold in a private placement an aggregate
of 506,329 shares of its newly designated senior preferred stock and warrants
exercisable for five years to purchase 224,000 shares of such 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 was, and the
conversion price of the senior preferred stock and exercise price of the
warrants is, $6.32 per share, an amount equal to 85% of the average bid and ask
price of the shares of Common Stock on the OTC Bulletin Board for the relevant
30-day period preceding the closing. The shares of 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 the closing of
this offering. The holders of the senior preferred stock have the right to
nominate a member of the Company's board of directors so long as they maintain
at least 50% of their original share position. The senior preferred stock has
voting rights on an as-converted basis. In connection with such private
placement, the Company agreed to provide the holders of senior preferred stock
or common stock issuable upon the conversion of senior preferred stock demand
and piggyback registration rights, the right to tag-along with founders of the
Company in certain sales of their shares. In connection with this investment,
and for as long as the investors hold at least 50% of their original shares
position, the Company agreed not to effect any material change in the direction
of its business unless approved by at least two-thirds of the board of directors
and then only after consultation with the investors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation (1)
3.2 By-laws (2)
4.1 Form of Investor Preferred Stock Warrant (5)
10.1 1996 Stock Option Plan, as amended (3)
10.2 Agreement Concerning the Exchange of common stock between the Company and Mediconsult.com Limited
(2)
10.3 Articles of Merger with Mediconsult.com Limited (2)
10.4 Worldwide Web Server Agreement dated November 6, 1996 between TVisions, Inc. and
10.5 Mediconsult.com Limited (2)
10.6 Marketing Partnership Proposal between the Company and Electric Entertainment dated April 8,
1997(4)
10.7 Form of Consulting Agreement between the Company and Physician Specialist (4)
10.8 Consulting Agreement dated March 3, 1997 between the Company and IBM Canada(4)
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.9 Strategic Consulting Interim Agreement dated November 16, 1998 between the Company and Treacy &
Co., LLC, as amended February 25, 1999 (3)
10.10 Letter Agreement dated December 30, 1998 among the Company, Pharmaceutical Information
Associates, Ltd., VirSci Corporation and Pharmaceutical Information.net, Inc. (3)
10.11 Memorandum of Agreement dated February 23, 1999 between Mediconsult.com Limited and CommonHealth
LLP (3)
10.12 Memorandum of Agreement dated February 25, 1999 between Timi Gustafson, Cynthia Fink, Mark
Gustafson and Mediconsult(5)
10.13 Exclusive Sponsorship Agreement dated as of January 15, 1999 between InterNational Council on
Infertility Information Dissemination and Mediconsult.com Limited(5)
10.14 Employment Agreement effective as of January 1, 1999 between 3542491 Canada Inc. and Bruce Tilden
(3)
10.15 Employment Agreement effective as of January 1, 1999 between 3542491 Canada Inc. and Debora A.
Falk (3)
10.16 Employment Agreement effective as of January 1, 1999 between 3542491 Canada Inc. and David J.
Austin (3)
10.17 Employment Agreement effective as of January 1, 1999 between 3542491 Canada Inc. and Robert A.
Jennings (3)
10.18 Employment Agreement effective as of January 1, 1999 between 3542491 Canada Inc. and Ian
Sutcliffe (3)
10.19 Source Code License Agreement dated February 26, 1999 between TVisions, Inc. and the Company (5)
10.20 Stock Purchase Agreement dated as of February 26, 1999 between the Company and the investors
named therein (5)
10.21 Registration Rights Agreement dated February 26, 1999 among the Company and the Investors named
therein (5)
10.22 Stockholders' Agreement dated February 26, 1999 among the Company, the Founders identified
therein and the Investors identified on Schedule 1 thereto (5)
21.1 Subsidiaries of the Company (5)
</TABLE>
- ------------------------
(1) Filed herewith electronically
(2) Incorporated by reference from the Company's Registration Statement on Form
10-SB (File No. 333-21883) filed December 16, 1996
(3) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-73059) filed February 26, 1999
(4) Incorporated by reference from the Company's Registration Statement on Form
10-SB filed June 6, 1997
(5) Incorporated by reference from the Company's Registration Statement on Form
S-1, as amended (File No. 333- 73059), filed March 15, 1999
(B) REPORTS ON FORM 8-K. None.
42
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C> <C>
MEDICONSULT.COM, INC.
By: /s/ ROBERT A. JENNINGS
-----------------------------------------
Robert A. Jennings,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: March 18, 1999
</TABLE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------------------ -------------------
<S> <C>
/s/ ROBERT A. JENNINGS
- ------------------------------
Robert A. Jennings
CHAIRMAN AND CHIEF EXECUTIVE March 18, 1999
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
/s/ IAN SUTCLIFFE
- ------------------------------
Ian Sutcliffe March 18, 1999
DIRECTOR, PRESIDENT (PRINCIPAL
FINANCIAL OFFICER)
/s/ MICHAEL TREACY
- ------------------------------
Michael Treacy March 2, 1999
DIRECTOR
/s/ BARRY GULD
- ------------------------------
Barry Guld March 4, 1999
DIRECTOR
/s/ JOHN BUCHANAN
- ------------------------------
John Buchanan March 3, 1999
DIRECTOR
</TABLE>
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
MEDICONSULT.COM, INC.
Report of PricewaterhouseCoopers, Independent Accountants.................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1997 and
1998..................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND STOCKHOLDERS 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 generally accepted
accounting principles 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
generally accepted auditing standards 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.
PricewaterhouseCoopers
Hamilton, Bermuda
February 26, 1999
F-2
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
ASSETS
Current assets:
Cash............................................................................ $ 400,949 $ 135,053
Accounts receivable............................................................. 157,810 135,790
------------- -------------
Total current assets........................................................ 558,759 270,843
------------- -------------
Non-current assets:
Tangible fixed assets........................................................... 193,004 52,790
Intangible fixed assets......................................................... -- 818,750
------------- -------------
Total non-current assets.................................................... 193,004 871,540
------------- -------------
Total assets................................................................ $ 751,763 $ 1,142,383
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................................ $ 42,399 $ 243,413
Advances from Stockholder....................................................... 143,838 513,589
Unearned revenue................................................................ -- 107,000
------------- -------------
Total current liabilities................................................... 186,237 864,002
------------- -------------
Stockholders' equity:
Preferred stock 5,000,000 authorized, 1,000,000 shares designated, 250,000 and
430,000 shares issued and outstanding at December 31, 1997 and 1998,
respectively.................................................................. 2,500,000 4,300,000
Common stock, $.001 par value, 50,000,000 shares authorized, 17,291,400 and
18,519,950 shares issued and outstanding at December 31, 1997 and 1998,
respectively.................................................................. 17,291 18,520
Additional paid-in capital...................................................... 1,651,256 5,242,981
Deferred compensation........................................................... (113,277) (884,109)
Retained deficit................................................................ (3,489,744) (8,399,011)
------------- -------------
Total stockholders' equity.................................................. 565,526 278,381
------------- -------------
Total liabilities and stockholders' equity.................................. $ 751,763 $ 1,142,383
------------- -------------
------------- -------------
</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, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------- -------------
Revenues.............................................................. $ -- $ 256,374 $ 1,030,934
Operating expenses:
Product and content development..................................... -- 765,864 1,316,188
Marketing, sales and client services................................ 435,637 1,130,340 1,811,710
General and administrative.......................................... 403,794 792,213 1,012,719
Depreciation........................................................ -- 132,768 170,439
Fair value of options granted to employees.......................... -- 40,235 275,145
Fair value of options granted to consultants........................ -- -- 1,354,000
------------ ------------- -------------
Total operating expenses........................................ 839,431 2,861,420 5,940,201
------------ ------------- -------------
Loss from operations.................................................. (839,431) (2,605,046) (4,909,267)
Interest income (expense), net........................................ (22,667) (20,000) --
------------ ------------- -------------
Net loss.............................................................. $ (862,098) $ (2,625,046) $ (4,909,267)
------------ ------------- -------------
------------ ------------- -------------
Net loss per share
Basic and diluted..................................................... $ (0.08) $ (0.16) $ (0.27)
Weighted average shares - basic....................................... 11,137,662 16,729,900 17,910,898
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED PAID IN DEFERRED
STOCK COMMON STOCK CAPITAL COMPENSATION DEFICIT TOTAL
---------- -------------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at 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 at 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 at 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 at December 31, 1998.......... $4,300,000 $ 18,520 $5,242,981 $ (884,109) $(8,399,011) $ 278,381
---------- -------------- ---------- ------------- ----------- ----------
---------- -------------- ---------- ------------- ----------- ----------
</TABLE>
F-5
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................................... $ (862,098) $ (2,625,046) $ (4,909,267)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation of fixed assets......................................... -- 132,768 170,439
Services received in exchange for common stock....................... -- -- 120,000
Fair value of options granted........................................ -- 40,235 1,629,144
Changes in assets and liabilities:
Accounts receivable................................................ -- (157,810) 22,020
Deferred medical content costs..................................... (161,600) 161,600 --
Accounts payable and accrued liabilities........................... 39,033 3,366 201,014
Unearned revenue................................................... -- -- 107,000
Interest payable................................................... 22,667 (22,667) --
----------- ------------- -------------
Net cash used in operating activities.................................. (961,998) (2,467,554) (2,659,650)
----------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed assets purchases............................................... (205,298) (120,474) (30,225)
----------- ------------- -------------
Net cash used in investing activities.................................. (205,298) (120,474) (30,225)
----------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholder............................................ 51,841 2,591,997 2,169,751
Issuance of common stock............................................. 1,008,585 3,850 254,228
Issuance of notes payable............................................ 500,000 -- --
----------- ------------- -------------
Net cash provided by financing activities.............................. 1,560,426 2,595,847 2,423,979
----------- ------------- -------------
(Decrease) increase in cash............................................ 393,130 7,819 (265,896)
Cash-Beginning of year................................................. -- 393,130 400,949
----------- ------------- -------------
Cash-End of year....................................................... $ 393,130 $ 400,949 $ 135,053
----------- ------------- -------------
----------- ------------- -------------
Non-cash financing activities (note 3)
</TABLE>
F-6
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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. As of 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 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)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 on-line 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, on-line 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 minimum number of "impressions", or times that an advertisement
appears in pages viewed by users of the Company's on-line 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 is recorded at cost and depreciated using the straight-line
method over their estimated useful lifes 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
operation.
F-8
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
I) PRODUCT AND CONTENT DEVELOPMENT COSTS
The cost of development and enhancement of the technology used in the
Company's Web sites are 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 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 their 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 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.
F-9
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 130, "REPORTING COMPREHENSIVE INCOME." SFAS 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 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 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 131 will
be effective for the year ending December 31, 1998 consolidated financial
statements. The Company believes that it does not operate in more than
one segment.
N) FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 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") issued 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 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.
F-10
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 the 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,
1997 and 1998, $2.5 million and $1.8 million of advances from shareholder,
respectively, were converted to 250,000 and 180,000 shares of Preferred Stock.
6. FIXED ASSETS
Fixed assets comprise:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
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>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
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
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
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, 1997 and 1998, 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,
F-11
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK (CONTINUED)
among other things, change the $10 Non-Cumulative Preferred Stock to a
cumulative preferred stock and change the name to "Preferred Stock."
As of December 31, 1998 and 1997 authorized capital stock comprises:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
LIQUIDATION LIQUIDATION
NUMBER OF SHARES VALUE NUMBER OF SHARES VALUE
---------------- ---------------- ---------------- ----------------
Preferred stock
$.001 par value preferred stock......... 4,750,000 $ 4,750 4,000,000 $ 4,000
Preferred stock......................... 250,000 2,500,000 1,000,000 10,000,000
---------------- ---------------- ---------------- ----------------
Total preferred stock................... 5,000,000 2,504,750 5,000,000 10,004,000
---------------- ---------------- ---------------- ----------------
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 adjustment, upon certain occurrences. The conversion rate of
the Preferred Stock has 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 years 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 86,000 shares which were converted to
71,666 common shares.
F-12
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK (CONTINUED)
C) ISSUED CAPITAL STOCK
On April 23, 1996, 55,000 shares of 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 common
stock were exercised for $12,500. On November 20, 1996, the Company
issued 970,000 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 Preferred Stock were issued on conversion of advances from
shareholder of $1.8 million and $2.5 million, respectively.
As of December 31, 1997 and 1998 issued capital stock comprises:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
------------ ------------ ------------ ------------
Preferred stock, $10 liquidation value................... 250,000 $ 2,500,000 430,000 $ 4,300,000
Common stock, $.001 par value............................ 17,291,400 1,512,435 18,519,950 2,854,424
------------ ------------
Total capital stock...................................... $ 4,012,424 $ 7,154,424
------------ ------------
------------ ------------
</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-13
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
Stock options for common stock comprise:
<TABLE>
<CAPTION>
1997 1998
------------------------ -------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
------------- --------- ------------- ----------
Outstanding--Beginning of year............................... 980,000 $ 0.03 1,150,000 $ 0.25
Granted during the year...................................... 252,000 1.03 2,605,050 0.38
Exercised during the year.................................... (82,000) 0.05 (1,028,550) 0.23
Cancelled during the year.................................... -- -- (10,500) 0.29
------------- --------- ------------- ----------
Outstanding--End of year..................................... 1,150,000 $ 0.25 2,716,000 $ 0.37
------------- --------- ------------- ----------
Exercisable--End of year..................................... 967,000 $ 0.28 2,318,800 $ 0.12
------------- --------- ------------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RANGE OF EXERCISE PRICES
-----------------------------------------------------------
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
RANGE OF EXERCISE PRICES
-----------------------------------------------------------
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, 1997 and 1998 the fair values of the
options granted to employees were $153,572 and $1,045,976, 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, 1996 and 1997, and 1998 the Company
incurred approximately $0, $252,400 and $314,400 in advertising expenses,
respectively.
F-14
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1998, advances from
shareholders of $2,591,997 and $2,169,751, respectively, were made to the
Company, of which $2,500,000 and $1,800,000, respectively, were converted to
common stock and $0 and $30,000, respectively, were repaid.
On October 1, 1998, options to acquire over 2 million 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
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 July
28, 2003 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 sole right to
place advertisements on the Web site, to link traffic, and to manage the content
on 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
F-15
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS (CONTINUED)
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.
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-16
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
MEDICONSULT.COM, INC.
1. Name. The name of the Corporation shall be: Mediconsult.com, Inc.
2. Registered Office and Agent. The address of the corporation's registered
office in the State of Delaware is: 1013 Centre Road, Wilmington, Delaware
19805, New Castle County. The name of the Corporation's registered agent at such
address is: The Corporation Service Company.
3. Purpose. The nature of the business or purposes to be conducted or
promoted is: to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
4. Duration. The corporation is to have perpetual existence.
5. Capital Stock.
5.01 Authorized Shares. The aggregate number of shares which the Company
shall have authority to issue is Fifty-five Million (55,000,000). Fifty million
(50,000,000) shares shall be designated "Common Stock" and shall have a par
value of $.001. Five Million (5,000,000) shares shall be designated "Preferred
Stock" and shall have a par value of $.001. All shares of the Company shall be
issued for such consideration, expressed in dollars, as the Board of Directors
may, from time to time, determine.
5.02 Consideration for Stock. Shares of Common and Preferred Stock
issued shall be fully paid and nonassessable if (a) the entire amount of
consideration has been received by the Company in the form of cash, services
rendered, personal property, real property, leases of real property, or a
combination thereof; or (b) not less than the amount of the consideration
determined to be capital pursuant to Section 154 of the General Corporation Law
of Delaware has been received by the Company in the form specified in clause (a)
and the Company has received a binding obligation of the subscriber to pay the
balance of the consideration due. The Board of Directors shall have sole
authority to determine the consideration to be received for the Company's stock
and treasury stock, which shall not be less than the par value thereof.
5.03 Common Stock. The Common Stock may be issued from time to time in
one or more classes or series in any manner permitted by law, as determined by
the Board of Directors and stated in the resolution or resolutions providing for
issuance thereof. Each class or series shall be appropriately designated, prior
to issuance of any shares thereof, by some distinguishing letter, number or
title. All shares of each class or series of Common Stock shall be alike in
every particular and shall be of equal rank and have the same power, preferences
and rights, and shall be subject to the same qualifications, limitations and
restrictions, if any. The Common Stock may have such voting powers (full,
limited, contingent or no voting powers), such designations, preferences and
relative, participating, optional or other special rights, and be subject to
such qualifications, limitations and
<PAGE>
restrictions, as the Board of Directors shall determine by resolution or
resolutions. Unless otherwise resolved by the Board of Directors, each Common
Stock share shall be of the same class and carry such voting rights as
elsewhere provided for in this Charter, without any designation, preference
or relative, participating, optional or other special rights, and subject to
no qualification, limitation or restriction.
5.04 Preferred Stock. The Preferred Stock may be issued from time to
time in series as determined by the Board of Directors and stated in the
resolution or resolutions providing for issuance thereof. The Board of
Directors is further authorized to fix and determine the variations in the
relative rights and preferences as between series. Each such series shall be
appropriately designated, prior to the issuance of any shares thereof, by
some distinguishing letter, number, or title. The Preferred Stock may have
limited, contingent or no voting powers, may have such designations,
preferences, and relative, participating, optional or other special rights,
and be subject to such qualifications, limitations and restrictions, as the
Board of Directors shall determine by resolution or resolutions. The
Preferred Stock further may be made subject to redemption by the Company at
its option or at the options of the holders thereof and may be convertible
into Common Stock or exchangeable for other securities of the Company.
5.05 Amendment of Shareholder Rights. 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.
5.06 Shares Reacquired by the Company. Shares of the Company's Common
Stock or Preferred Stock redeemed or otherwise reacquired by the Company shall
not be canceled and retired, unless the Board of Directors specifically so
resolves at the time issuance thereof is authorized, but shall be given the
status of authorized and unissued shares.
5.07 Dividends. Dividends in cash, property or shares of the Company may
be paid upon the Preferred and Common Stock, as and when declared by the Board
of Directors, out of funds of the Company to the extent and in the manner
permitted by law. If at any time the Company 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 shareholders of the class in which the payment is to
be made.
5.08 Voting Rights; Cumulative Voting. Each outstanding share of Common
Stock shall be entitled to one vote and each fractional share of Common stock
shall be entitled to a corresponding fractional vote on each matter submitted to
a vote of shareholders. The voting rights of Preferred Stock, if any, shall be
established by the Board of Directors at the time such stock is issued in
series. Cumulative voting shall not be allowed in the election of directors of
the Company.
5.09 Voting Rights of Debt Holders. Holders of debentures, bonds or
other obligations of the Company may, at the time of issuance thereof, be given
the right to vote in the election of Directors or other voting rights. Any such
voting rights may be fixed or contingent.
<PAGE>
5.10 Denial of Pre-emptive Rights. No holder of any shares of the
Company, whether now or hereafter authorized, shall have any pre-emptive or
preferential right to acquire any shares or securities of the Company, including
shares or securities held in the treasury of the Company.
5.11 Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Company, and after paying or adequately providing for the
payment of all its obligations, including any preferences granted to Preferred
Stock, the remainder of the Company, a portion of its assets, in cash or
property, subject to the limitations contained in the General Corporation Law of
Delaware. Any such partial liquidation may be made without the vote or approval
of shareholders. The Company 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 shareholders.
6. Quorum. One-third (1/3) of the total voting power, or where a separate
vote by class or series is required, one-third (1/3) of the shares of each such
class or series, represented in person or by proxy, shall constitute a quorum at
any meeting of the Company's shareholders.
7. Vote Required. Any action to be taken by the Company's shareholders may
be taken by a majority of the voting power present, in person or by proxy,
except where this Charter or the Company's Bylaws then in effect require a
higher proportion of the voting power present, a proportion of the total voting
power, or both. Nothing contained in this Article 7 shall affect the voting
rights of holders of any class or series of shares entitled to vote as a class
or by series.
8. Action Without Meeting. Notwithstanding any other provision of this
Charter, any action by the shareholders may be taken by written consent in lieu
of a meeting, without prior notice or vote, of the holders of that portion of
the total voting power necessary to authorize such action. The manner of
obtaining any such written consent shall be governed by the Company's Bylaws.
9. Initial Director. The name of the person who is to serve as the
director until the first annual meeting of shareholders or until his successor
is elected and qualified is Robert E. Jennings.
10. Exclusion of Liability. As authorized by Section 102(b)(7) of the
General Corporation Law of Delaware, no Director of the Company shall be
personally liable to the Company or any shareholder thereof for monetary damages
for breach of his fiduciary duty as a Director, except for liability (i) for any
breach of a Director's duty of loyalty to the Company or its shareholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) for acts in violation of Section 174 of the
General Corporation Law of Delaware, as it now exists or may hereafter be
amended, or (iv) for any transaction from which a Director derives an improper
personal benefit. This Article 10 shall apply to a person who has ceased to be a
Director of the Company with respect to any breach of fiduciary duty which
occurred when such person was serving as a Director. This Article 10 shall not
be construed to limit or modify in any
<PAGE>
way any director's right to indemnification or other right whatsoever under this
Charter, the Company's Bylaws or the General Corporation Law of Delaware. If the
General Corporation Law of Delaware hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of the Company's Directors, in addition to the limitation on personal
liability provided herein, shall be limited to the fullest extent permitted by
the General Corporation law of Delaware as so amended. Any repeal or
modification of this Article 10 by the shareholders shall be prospective only
and shall not adversely affect any limitation on the personal liability of any
Director existing at the time of such repeal or modification. The affirmative
vote of at least two-thirds (2/3) of the total voting power shall be required to
amend or repeal, or adopt any provision inconsistent with, this Article 10.
11. Indemnification.
11.1 Actions, Suits or Proceedings other than by or in the Right of
the Company. The Company shall 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
(other than an action by or in the right of the Company), by reason of the fact
that he is or was or has agreed to become a director or officer of the Company,
or is or was serving or has agreed to serve at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges, expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company.
11.2. Actions or Suits by or in the Right of the Company. The Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was or has agreed to become a director or officer of the Company, or is or
was serving or has agreed to serve at the request of the Company as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorney's fees)
actually and reasonably incurred by him or on his behalf in connection with the
defense or settlement of such action or suit and any appear therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that tho Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon
<PAGE>
application that, despite the adjudication of such liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such costs, charges and expenses which the Court of Chancery or
such other court shall deem proper.
11.3. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Article, to the
extent that a director or officer of the Company has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred to in
Sections 11.1 and 11.2 of this Article, or in defense of any claim, issue or
matter therein, he shall be indemnified against all costs, charges and expenses
(including attorney's fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
11.4. Determination of Right to Indemnification.. Any
indemnification under Sections 11.1 and 11.2 of this Article (unless ordered by
a court) shall be paid by the Company unless a determination is made (i) by a
disinterested majority of the Board of Directors who were not parties to such
action, suit or proceeding, or (ii) if such disinterested majority of the Board
of Directors so directs, by independent legal counsel in a written opinion, or
(iii) by the shareholders, that indemnification of the director or officer is
not proper in the circumstances because he has not met the applicable standard
of conduct set forth in Sections 11.1 and 11.2 of this Article.
11.5. Advances of Costs, Charges and Expenses. Costs, charges and
expenses (including attorney's fees) incurred by a person referred to in
Sections 11.1 or 11.2 of this Article in defending a civil or criminal action,
suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Company as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the majority of the Directors deems appropriate. The
majority of the Directors may, in the manner set forth above, and upon approval
of such director, officer, employee or agent of the Company, authorize the
Company's counsel to represent such person, in any action, suit or proceeding,
whether or not the Company is a party to such action, suit or proceeding.
11.6 Procedure for Indemnification. Any indemnification under
Sections 11.1, 11.2 and 11.3, or advance of costs, charges and expenses under
Section 11.5 of this Article, shall be made promptly, and in any event within 60
days, upon the written request of the director or officer. The right to
indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction if the company
denies such request, in whole or in part, or if no disposition thereof is made
<PAGE>
within 60 days. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Company. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Section 11.5 of this Article where
the required undertaking, if any, has been received by the Company) that the
claimant has not met the standard of conduct set forth in Sections 11.1 or 11.2
of this Article, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Company (including its Board of
Directors, its independent legal counsel and its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 11.1 or 11.2 of this Article, nor the
fact that there has been an actual determination by the Company (including its
Board of Directors, its independent legal counsel and its shareholders) that the
claimant has not net such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
11.7. Settlement. If in any action, suit or proceeding, including
any appeal, within the scope of Sections 11.1 or 11.2 of this Article, the
person to be indemnified shall have unreasonably failed to enter into a
settlement thereof, then, notwithstanding any other provision hereof, the
indemnification obligation of the Company to such person in connection with such
action, suit or proceeding shall not exceed the total of the amount at which
settlement could have been made and the expenses by such person prior to the
time such settlement could reasonably have been effected.
11.8. Other Rights, Continuation of Right of Indemnification. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which any director, officer, employee or agent seeking
indemnification rnay be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office or while employed by or acting as agent for the Company, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. All rights to indemnification under this Article
shall be deemed to be a contract between the Company and each director or
officer of the Company who serves or served in such capacity at any time while
this Article is in effect. Any repeal or modification of this Article or any
repeal or modification of relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall not in any way diminish any rights
to indemnification of such director, officer, employee or agent or the
obligations of the Company arising hereunder. This Article shall be binding upon
any successor corporation to this Company, whether by way of acquisition,
merger, consolidation or otherwise.
11.9. Insurance. The Company may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
<PAGE>
against any liability asserted against him and incurred by him or on his behalf
in any such capacity, or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability under the
provisions of this Article; provided, however, that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the Directors.
11.10. Savings Clause. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Company (i) shall nevertheless indemnify each director and officer of the
Company and (ii) may nevertheless indemnify each employee and agent of the
Company, a to any cost, charge and expense (including attorney's fees),
judgment, fine and amount paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Company, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the full extent permitted by applicable law.
11.11. Amendment. The affirmative vote of at least two-thirds
(2/3) of the total voting power shall be required to amend, repeal, or adopt any
provision inconsistent with, this Article. No amendment, termination or repeal
of this Article shall affect or impair in any way the rights of any director or
officer of the company to indemnification under the provisions hereof with
respect to any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or appeal.
11.12. Subsequent Legislation. If the General Corporation Law of
Delaware is amended after approval by the shareholders of this Article to
further expand the indemnification permitted to directors, officers, employees
or agents of the Company, then the Company shall indemnify such persons to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
12. Powers. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
(a) To make, alter or repeal the bylaws of the corporation;
(b) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the corporation;
(c) To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created;
(d) By a majority of the whole board of directors, to designate one or
more committees, each committee to consist of one or more of the directors of
the corporation. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The bylaws may provide that in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint
<PAGE>
another member of the board of directors to act at the meeting in the place of
any such agent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors, or in the bylaws of the
corporation, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or bylaws expressly so provide, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock;
(e) When and as authorized by the stockholders in accordance with
statute, to sell, lease or exchange all or substantially all of the property and
assets of the corporation, including its goodwill and its corporate franchise,
upon such terms and conditions and for such consideration, which may consist in
whole or in part of money or property, including shares of stock in, and/or
other securities of, any other corporation or corporations, as its board of
directors shall deem expedient and for the best interests of the corporation.
13. Compromise and Reorganization. Whenever a compromise or arrangement is
proposed between the Company and its creditors or any class of them and/or
between the Company and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Company or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Company under the
provisions of Section 29l of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Company under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Company, as the case may be, to be
summoned in such manner as the said Court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Company, as the case
may be, agree to any compromise or arrangement to any reorganization of the
Company as consequences of such compromise or arrangement, the said compromise
or arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders of
the Company, as the case may be, and also on the Company.
14. Bylaws. The initial Bylaws of the Company shall be adopted by its Board
of Directors. The power to alter, amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the Board of Directors, subject to the right of the
shareholders to alter, amend or repeal such Bylaws or adopt new Bylaws by the
affirmative vote of at least two-thirds (2/3) of the total voting power. The
Bylaws may contain any provisions for the regulation and management of the
affairs of the Company not inconsistent with law or this Charter.
<PAGE>
15. Amend Certificate of Incorporation. The Corporation reserves the right
to amend its Certificate of Incorporation from time to time in accordance with
the General Corporation Law of Delaware.
16. Incorporator. The mailing address of the corporation's incorporator is:
Jon D. Sawyer, Krys Boyle Freedman Scott & Sawyer, P.C., 600 - - 17th Street,
Suite 2700, Denver, Colorado 80202.
THE UNDERSIGNED, being the incorporator named hereinbefore, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this Certificate of Incorporation, hereby declaring and
certifying that this is his act and deed and the facts herein stated are true,
and, accordingly, has hereunto set his hand this 2nd day of December, l996.
/s/ Jon D. Sawyer
--------------------------------
Jon D. Sawyer
<PAGE>
CERTIFICATE OF MERGER
MERGING
MEDICONSULT.COM INC.
(A COLORADO CORPORATION) INTO
MEDICONSULT.COM, INC.
(A DELAWARE CORPORATION)
CERTIFICATE OF MERGER entered into this 4th day of December, 1996 by
and between MEDICONSULT.COM INC., a Colorado corporation and MEDICONSULT.COM,
INC., a Delaware corporation.
THIS IS TO CERTIFY:
FIRST: MEDICONSULT.COM, INC., a corporation organized and existing
under the laws of the State of Delaware (hereinafter sometimes referred to as
"MEDICONSULT-DE"), and MEDICONSULT.COM INC., a corporation organized and
existing under the laws of the State of Colorado (hereinafter sometimes referred
to as "MEDICONSULT-CO"), agree that MEDICONSULT-CO shall be merged into
MEDICONSULT-DE. The terms and conditions of the merger and the mode of carrying
the same into effect are as herein set forth in these Articles of Merger.
SECOND: MEDICONSULT-DE shall survive the merger and shall continue
under the name of MEDICONSULT.COM, INC.
THIRD: The parties to the Articles of Merger are MEDICONSULT.COM, INC.,
a corporation organized under the General Corporation Law of the State of
Delaware and MEDICONSULT.COM INC., a corporation organized and existing under
the laws of the State of Colorado.
FOURTH: No amendment is made to the Articles of Incorporation of
MEDICONSULT-DE, the surviving corporation, as part of the merger.
<PAGE>
FIFTH: The Plan of Merger is as set forth in the Agreement and the Plan
of Merger dated December 4, 1996, which is attached hereto and incorporated
herein by this reference.
SIXTH: The Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations.
SEVENTH: The Agreement and Plan of Merger was duly advised, authorized
and approved in the manner required by the Articles of Incorporation of
MEDICONSULT-CO and the laws of the State of Colorado, and the number of shares
voted for the Agreement and Plan of Merger was sufficient for approval. On the
date of the vote of the stockholders of MEDICONSULT-CO, the number and
designation of shares of MEDICONSULT-CO outstanding were 14,739,400 shares of
Common Stock, $.001 par value, of which 11,000,000 shares voted in favor of the
Agreement and Plan of Merger. No shares of any other class of stock were
outstanding.
EIGHTH: MEDICONSULT-DE hereby agrees that it may be served with process
in the State of Colorado in any proceeding for the enforcement of any obligation
of it arising from the merger, including the rights of any dissenting
stockholders thereof, and hereby irrevocably appoints the Secretary of State of
Colorado as its agent to accept service of process in any such suit or other
proceedings and agrees that service of any such process may be made by
personally delivering to and leaving with such Secretary of State of Colorado,
duplicate copies of such process, and hereby authorizes the Secretary of State
of Colorado to send forthwith by registered mail one of such duplicate copies of
such process addressed to it c/o Jon D. Sawyer, P.C., at 600- 17th Street, Suite
2700, Denver, Colorado 80202, unless MEDICONSULT-DE shall hereafter designate in
writing to such Secretary of State of Colorado a different address for such
process, in which case the duplicate copy of such process shall be mailed to the
last address so designated.
<PAGE>
IN WITNESS WHEREOF, the parties to the merger have caused this
Certificate of Merger to be signed in their respective corporate names and on
their behalf by the respective presidents and witnessed or attested by their
respective secretaries as of the 4th day of December, 1996.
ATTEST MEDICONSULT.COM, INC.
(a Delaware Corporation)
/s/ Robert A. Jennings /s/ Robert A. Jennings
- --------------------------- -----------------------------
Robert E. Jennings, Secretary Robert E. Jennings, President
ATTEST MEDICONSULT.COM INC.
/s/ Robert A. Jennings /s/ Robert A. Jennings
- --------------------------- ------------------------------
Robert E. Jennings, Secretary Robert E. Jennings, President
THE UNDERSIGNED, President of MEDICONSULT.COM, INC., a Delaware
corporation, who executed on behalf of said corporation the foregoing
Certificate of Merger, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Certificate of Merger to be the corporate act of said corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ Robert A. Jennings
------------------------------
Robert E. Jennings, President
THE UNDERSIGNED, President of MEDICONSULT.COM INC., a Colorado
corporation, who executed on behalf of said corporation the foregoing
Certificate of Merger, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Certificate of Merger to be the corporate act of said corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/ Robert A. Jennings
------------------------------
Robert E. Jennings, President
<PAGE>
STATE OF COLORADO )
)ss.
COUNTY OF DENVER )
Robert E. Jennings, President of MEDICONSULT.COM, INC., a Delaware
corporation, personally appeared before me on the 4th day of December, 1996,
and, under oath, signed the foregoing Certificate of Merger and stated that the
facts contained therein are true to the best of his knowledge and belief.
Witness my hand and official seal.
(NOTARIAL SEAL)
/s/ Robert A. Jennings
------------------------------
My commission expires: Address: 600-17th Street, Suite 2700
-------------- Denver, Colorado 80202
<PAGE>
AGREEMENT AND PLAN OF MERGER BETWEEN
MEDICONSULT.COM INC. (A Colorado Corporation)
AND
MEDICONSULT.COM, INC.(A Delaware Corporation)
AGREEMENT AND PLAN OF MERGER made this 4th day of December, 1996, between
MEDICONSULT.COM INC., a Colorado corporation (hereinafter called
"MEDICONSULT-CO"), and MEDICONSULT.COM, INC., a Delaware corporation
(hereinafter called "MEDICONSULT-DE").
WHEREAS, MEDICONSULT-CO is a corporation organized and existing under the
laws of the state of Colorado, its Certificate of Incorporation having been
filed in the Office of the Secretary of State of Colorado on October 31, 1996
with its registered office located at 1401 17th Street, Suite 460, Denver,
Colorado 80202, and the registered agent in charge thereof being Jon D. Sawyer;
and
WHEREAS, MEDICONSULT-DE is a corporation organized and existing under the
laws of the state of Delaware, its Certificate of Incorporation having been
filed in the Office of the Secretary of State of Delaware on December 3rd, 1996,
with its registered office located at 1013 Centre Road, Wilmington, Delaware
19805, and the registered agent in charge thereof being The Corporation Service
Company (New Castle County); and
WHEREAS, MEDICONSULT-CO has an authorized capital stock consisting of Seven
Hundred Million (700,000,000) shares of Common Stock, no par value, of which
14,739,400 shares have been issued and are now outstanding, and Ten Million
(10,000,000) shares of Preferred Stock, $.10 par value, of which no shares have
been issued; and
WHEREAS, MEDICONSULT-DE has an authorized capital stock consisting of Fifty
Million (50,000,000) shares of Common Stock, $.001 par value, of which 100
shares have been issued and are now outstanding, and Five Million (5,000,000)
shares of Preferred Stock, $.001 par value, of which no shares have been issued;
and
WHEREAS, the Boards of Directors of MEDICONSULT-CO and of MEDICONSULT-DE,
respectively, deem it advisable and to the advantage and welfare of the two
corporate parties and their respective shareholders that MEDICONSULT-CO merge
with MEDICONSULT-DE under and pursuant to the provisions of the Colorado
Business Corporation Act and the General Corporation Law of Delaware; and
WHEREAS, the shareholders of MEDICONSULT-CO and MEDICONSULT-DE,
respectively, have approved the merger as required by the Colorado Business
Corporation Act and the General Corporation Law of Delaware.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and of the mutual benefits hereby provided, it is
agreed by and between the parties hereto as follows:
25. Merger. MEDICONSULT-CO shall be, and it hereby is, merged into
MEDICONSULT-DE, which shall be the surviving corporation.
26. Effective Date. This Agreement and Plan of Merger shall become
<PAGE>
effective immediately upon compliance with the laws of the States of Colorado
and Delaware, the time of such effectiveness being hereinafter called the
Effective Date.
27. Surviving Corporation. MEDICONSULT-DE shall survive the merger herein
contemplated and shall continue to be governed by the laws of the State of
Delaware, but the separate corporate existence of MEDICONSULT-CO shall cease
forthwith upon the Effective Date.
28. Articles of Incorporation. The present Articles of Incorporation of
MEDICONSULT-DE shall be the Articles of Incorporation of MEDICONSULT-DE
following the Effective Date unless and until the same shall be amended or
repealed in accordance with the provisions thereof and the laws of the State of
Delaware.
29. Bylaws. The present Bylaws of MEDICONSULT-DE shall be the Bylaws of
MEDICONSULT-DE following the Effective Date unless and until the same shall be
amended or repealed in accordance with the provisions thereof.
30. Further Assurance of Title. If at any time MEDICONSULT-CO shall
consider or be advised that any acknowledgments or assurances in law or other
similar actions are necessary or desirable in order to acknowledge or confirm in
and to MEDICONSULT-DE any right, title or interest of MEDICONSULT-CO held
immediately prior to the Effective Date, MEDICONSULT-CO and its proper officers
and directors shall and will execute and deliver all such acknowledgments or
assurances in law and do all things necessary or proper to acknowledge or
confirm such right, title or interest in MEDICONSULT-DE as shall be necessary to
carry out the purposes of this Agreement and Plan of Merger, and MEDICONSULT-DE
and the proper officers and directors thereof are fully authorized to take any
and all such action in the name of the Company or otherwise.
31. Retirement of Outstanding Stock. Forthwith upon the Effective Date,
each of the 100 shares of the Common Stock of MEDICONSULT-DE presently issued,
outstanding and owned by MEDICONSULT-CO shall be retired.
8. Conversion of Outstanding Stock. Forthwith upon the Effective Date, each
of the issued and outstanding shares of Common Stock of MEDICONSULT-CO shall be
converted into one (1) fully paid and nonassessable share of Common Stock of
MEDICONSULT-DE, and each certificate nominally representing shares of Common
Stock of MEDICONSULT-CO shall be forthwith surrendered for cancellation and
reissuance of share certificates in MEDICONSULT-DE.
9. Book Entries. The merger contemplated hereby shall be treated as a
pooling of interests and as of the Effective Date entries shall be made upon the
books of MEDICONSULT-DE in accordance with the following:
(a) The assets and liabilities of MEDICONSULT-CO shall be recorded at
the amounts at which they are carried on the books of MEDICONSULT-CO immediately
prior to the Effective Date with appropriate adjustment to reflect the
retirement of the 100 shares of Common Stock of MEDICONSULT-DE presently issued
and outstanding.
<PAGE>
(b) There shall be credited to the Capital Account the aggregate
amount of the par value per share of all of the Common Stock of MEDICONSULT-CO
resulting from the conversion of the outstanding common Stock of MEDICONSULT-CO.
(c) There shall be credited to Capital Surplus Account an amount equal
to that carried on the Capital Surplus Account of MEDICONSULT-CO immediately
prior to the Effective Date.
(d) There shall be credited to Earned Surplus Account an amount equal
to that carried on the Earned Surplus Account of MEDICONSULT-CO immediately
prior to the Effective Date.
10. Termination. This Agreement and Plan of Merger may be terminated and
abandoned by action of the Board of Directors of MEDICONSULT-CO at any time
prior to the Effective Date, whether before or after approval by the
shareholders of the two corporate parties hereto.
11. Expenses of Merger. MEDICONSULT-DE shall pay all expenses of carrying
this Agreement and Plan of Merger into effect and accomplishing the merger
herein provided for.
12. Lawful Corporate Action. The undersigned warrant and represent that the
execution of this Agreement and Plan of Merger is the lawful corporate act of
each Company.
IN WITNESS WHEREOF, each of the parties hereto pursuant to authority duly
granted by the Board of Directors has caused this Agreement and Plan of Merger
to be executed on the date and year first above written.
MEDICONSULT.COM INC. MEDICONSULT.COM, INC.
(a Colorado corporation) (a Delaware corporation)
By /s/ Robert E. Jennings By /s/ Robert E. Jennings
--------------------------- -----------------------------
Robert E. Jennings, President Robert E. Jennings, President
By /s/ Robert E. Jennings By /s/ Robert E. Jennings
--------------------------- -----------------------------
Robert E. Jennings, Secretary Robert E. Jennings, Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
$10.00 NON-CUMULATIVE PREFERRED STOCK
OF
MEDICONSULT.COM, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Medioconsult.com, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article 5 of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its $.001
par value Preferred Stock designated as Non-Cumulative Preferred Stock:
RESOLUTION ESTABLISHING AND DESIGNATING
$10.00 NON-CUMULATIVE PREFERRED STOCK
WHEREAS, the Articles of Incorporation of the Corporation provide for a
class of shares of stock designated "Preferred Stock," and vests in the Board of
Directors the authority to specify the number of shares of Preferred Stock to be
issued, to divide the Preferred Stock into one or more series within any class
thereof, and to fix the number of Shares in such series, and the preferences,
rights and restrictions thereof; and
WHEREAS, the Corporation now desires to designate a $10.00
Non-Cumulative Preferred Stock.
NOW, THEREFORE, be it resolved that there shall be one series of
Preferred Stock of the Corporation designated "$10.00 Non-Cumulative Preferred
Stock." The number of shares of this series of $10.00 Non-Cumulative Preferred
Stock shall be 190,000 shares. The powers, designations, preferences and
relative, participating, optional or other special right of the shares of this
series of $10.00 Non-Cumulative Preferred Stock and the qualifications,
limitations and restrictions of such preferences and rights shall be as follows:
1. DIVIDEND PROVISIONS. Each issued and outstanding share of $10.00
Non-Cumulative Preferred Stock shall entitle the holder of record thereof to
receive out of funds legally available therefor, when and as declared by the
Board of Directors, dividends in cash at the rate of eight percent (8%) of the
liquidation preference of Ten Dollars ($10.00) per annum, which shall be payable
semi-annually on the 30th day of June and the 31st day of December in each
calendar year, and which shall be declared and set apart or paid before
dividends of any kind may be declared upon the common shares and before
distributions of any kind may be made upon the issued and outstanding common
shares. The right as aforesaid to semi-annual dividends upon the issued and
outstanding $10.00 Non-Cumulative Preferred Stock shall be non-cumulative and
shall not be deemed to accrue, whether dividends are earned or whether there be
funds legally available therefor, unless and until said dividends shall have
been declared by the Board of Directors. Whenever full dividends upon the issued
and outstanding shares of $10.00 Non-Cumulative Preferred Stock as aforesaid for
the then current semi-annual dividend period shall have been declared and either
paid or a sum sufficient for the payment thereof set aside in full, without
interest, the Board of Directors may declare, set aside or pay additional cash
dividends, and/or may make share distributions of the authorized but unissued
common shares of the Corporation and/or of its treasury common shares, if any.
2. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of each
share of $10.00 Non-Cumulative Preferred Stock shall be entitled to receive, out
of the assets of the Corporation available for distribution to its stockholders,
before any payment or distribution shall be made on the Common Stock, an amount
per share equal to $10.00. If the assets and funds to be distributed among the
holders of the $10.00 Non-Cumulative Preferred Stock shall be insufficient to
permit the payment of the full aforesaid preferential amount to such holders,
then the entire assets and funds of the Corporation legally available for the
distribution shall be distributed among the holders of the $10.00 Non-Cumulative
Preferred Stock in proportion to the aggregate preferential amount of all shares
of $10.00 Non-Cumulative Preferred Stock
<PAGE>
held by them. After payment has been made to the holders of the $10.00
Non-Cumulative Preferred Stock, the holders of the Common Stock shall be
entitled to share ratably in the remaining assets on the basis of the number of
shares of Common Stock held by them at the time of such liquidation.
(b) For purposes of this Section 2, a merger or consolidation
of the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, or the
sale of any other corporate reorganization, in which shareholders of the
Corporation receive distributions as a result of such consolidation, merger,
sale of assets or reorganization, shall be treated as a liquidation, dissolution
or winding up of the Corporation, unless the stockholders of the Corporation
held more than fifty percent (50%) for the voting equity securities of the
successor or surviving corporation immediately following such consolidation,
merger, sale of assets or reorganization in which event such consolidation,
merger, sale of assets, or reorganization shall not be treated as a liquidation,
dissolution or winding up.
3. CONVERSION. The $10.00 Non-Cumulative Preferred Stock shall not be
convertible into Common Stock.
4. VOTING RIGHTS. Each share of $10.00 Non-Cumulative Preferred Stock
shall entitle the holder to one (1) vote and with respect to each such vote, a
holder of shares of $10.00 Non-Cumulative Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of a holder of shares of
Common Stock, share for share, and shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote with holders of Common Stock together as a single
class.
5. REDEMPTION PROVISIONS. To the extent permitted under the General
Corporation Law of the State of Delaware, shares of the $10.00 Non-Cumulative
Preferred Stock are redeemable as follows:
(a) REDEMPTION AT OPTION OF CORPORATION. Shares of $10.00
Non-Cumulative Preferred Stock may be redeemed, in whole or in part, at any time
and from time to time after the date of issuance at the option of the
Corporation. If fewer than all of the outstanding shares of $10.00
Non-Cumulative Preferred Stock are to be redeemed, the Corporation will select
those to be redeemed pro rata or by lot or in such other manner as the Board of
Directors may determine. In the event that the Corporation has failed to pay
dividends which have been declared on the $10.00 Non-Cumulative Preferred stock,
it may not redeem any of the then outstanding shares of the $10.00
Non-Cumulative Preferred Stock until all such declared and unpaid dividends have
been paid in full.
(b) REDEMPTION PRICE. The redemption price per share under this
Section 5 shall be Ten Dollars ($10.00) per share, plus an amount equal to
declared and unpaid dividends, pro rate to the date of redemption, whether or
not such date of redemption is a regular semi-annual dividend payment date.
(c) NOTICE OF REDEMPTION. Notice to the holders of shares of $10.00
Non-Cumulative Preferred Stock to be redeemed shall be given not earlier than 30
days nor later than 10 days before the date fixed for redemption. The notice of
redemption to each stockholder whose shares of $10.00 Non-Cumulative Preferred
Stock are to be redeemed shall specify the number of $10.00 Non-Cumulative
Preferred Stock of such stockholder to be redeemed, the date fixed for
redemption and the redemption price at which shares of $10.00 Non-Cumulative
Preferred Stock are to be redeemed, and shall specify where payment of the
redemption price is to be made upon surrender of such share and shall state that
accrued dividends to the date fixed for redemption will be paid as specified in
said notice, that from and after said date dividends thereon will cease to
accrue.
6. NOTICES. Any notice required to be given to holders of shares of
$10.00 Non-Cumulative Preferred Stock shall be deemed given upon deposit in the
United States mail, postage prepaid, addressed to such holder of record at his
address appearing on the books of the Corporation, or upon personal delivery of
the aforementioned address.
IN WITNESS WHEREOF, said Mediconsult.com, Inc. has caused this
Certificate of Designations, Preferences and Rights of $10.00 Non-Cumulative
Preferred Stock to be duly executed by its President and its Secretary this 30th
day of June 1997.
<PAGE>
MEDICONSULT.COM, INC.
By /s/ Robert A. Jennings
-------------------------------------------
Robert E. Jennings, President and Secretary
[CORPORATE SEAL]
<PAGE>
CERTIFICATE OF INCREASE IN NUMBER OF
SHARES DESIGNATED AS
$10.00 NON-CUMULATIVE PREFERRED STOCK
OF
MEDICONSULT.COM,INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, MEDICONSULT.COM,INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article 5 of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution increasing the number of shares
included in a series of its $.001 per value Preferred Stock designated as $10.00
Non-Cumulative Preferred Stock.
WHEREAS, the Articles of Incorporation of the Corporation provide for a
class of shares of stock designated "Preferred Stock," and vests in the Board of
Directors the authority to specify the number of shares of Preferred Stock to be
issued, to divide the Preferred Stock into one or more series within any class
thereof, and to fix the number of Shares in such series, and the preferences,
rights and restrictions thereof, and
WHEREAS, on June 30, 1997, the Board of Directors adopted resolutions
designating 190,000 shares as "10.00 Non-Cumulative Preferred Stock" and a
Certificate of Designations, Preferences and Rights of such series of preferred
stock was filed with the Secretary of State of the State of Delaware on July 9,
19997; and
WHEREAS, the Board of Directors now desires to designate additional
shares as $10.00 Non-Cumulative Preferred Stock.
NOW, THEREFORE, be it resolved that the number of shares of the
Corporation's Preferred Stock designated as "$10.00 Non-Cumulative Preferred
Stock" shall be increased to 1,000,000 shares. The powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of the $10.00 Non-Cumulative Preferred Stock and the qualifications,
limitations and restrictions of such preferences and rights shall continue to be
as adopted by the Board of Directors on June 30, 1997, as set forth in the
Certificate of Designations, Preferences and Rights of $10.00 Non-Cumulative
Preferred Stock filed with the Secretary of State of the State of Delaware on
July 9, 1997.
IN WITNESS WHEREOF, said Mediconsult.com,Inc. has caused this
Certificate of Increase in Number of Shares Designated as $10.00 Non-Cumulative
Preferred Stock to be duly executed by its President and its Secretary this 31st
day of March 1998.
<PAGE>
MEDICONSULT.COM,INC.
By: /S/ROBERT JENNINGS
------------------
Robert E. Jennings, President and Secretary
[CORPORATE SEAL]
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF $10.00 NON-CUMULATIVE PREFERRED STOCK OF
MEDICONSULT.COM, INC.
MEDICONSULT.COM, INC., a corporation organized under the General
Corporation Law of the State of Delaware (hereinafter called the "Corporation"),
does hereby certify as follows:
1. That the Board of Directors of the Corporation adopted a
resolution setting forth and declaring advisable the following amendment to the
Certificate of Designations, Preferences and Rights of $10.00 Non-Cumulative
Preferred Stock of the Corporation (the "Certificate").
2. That in lieu of a meeting and vote of the stockholders, a
majority of the stockholders of the Corporation has given their written consent
to such amendment in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
3. That paragraph 1 of the Certificate of the Corporation is
hereby deleted in its entirety and is hereby amended to read as follows:
"1. DIVIDEND PROVISIONS. Each issued and outstanding share of Preferred Stock
shall entitle the holder of record thereof to receive out of funds legally
available therefor, when and as declared by the Board of Directors, dividends at
the rate of eight percent (8%) of the liquidation preference of Ten Dollars
($10.00) per annum, which shall be payable semi-annually on the 30th day of June
and the 31st day of December in each calendar year, and which shall be declared
and set apart or paid before dividends of any kind may be declared upon the
common shares and before distributions of any kind may be made upon the issued
and outstanding common shares. The right as aforesaid to semi-annual dividends
upon the issued and outstanding Preferred Stock shall be cumulative and shall be
deemed to accrue, whether dividends are earned or whether there be funds legally
available therefor, or whether said dividends shall have been declared by the
Board of Directors. Whenever full dividends upon the issued and outstanding
shares of Preferred Stock as aforesaid for all past semi-annual dividend periods
shall have been paid, without interest, and whenever full dividends upon the
issued and outstanding shares of Preferred Stock as aforesaid for the then
current semi-annual dividend period shall have been declared and either paid or
a sum sufficient for the payment thereof set aside in full, without interest,
the Board of Directors may declare, set aside or pay additional cash dividends,
and/or may make share distributions of the authorized but unissued shares of the
Corporation and/or of its treasury common shares, if any. All dividends payable
on or in respect of the Preferred Stock shall be payable in shares of Preferred
Stock of the Corporation. No later than the time immediately prior to the
occurrence of a Conversion Event (defined below), the Corporation shall issue
and deliver or, failing such actual issuance and delivery, shall be deemed to
have issued and delivered, to each holder of record of Preferred Stock that
number of fully paid and non-assessable shares of Preferred Stock as shall be
equal to the aggregate amount payable in respect of each semi-annual dividend
payment not theretofore paid, divided by the Original Issue Price (defined
below). The Conversion Price (defined below) of such shares of Preferred Stock
issued in respect of dividends shall be the same as the Conversion Price of the
shares of Preferred Stock then outstanding. Upon the occurrence of a Conversion
Event, all such shares of Preferred Stock accrued as a dividend shall convert
into Common Stock, whether or not formally issued or whether earned or whether
said dividends shall have been declared, on the same basis as the Preferred
Stock theretofore outstanding."
<PAGE>
4. That paragraph 3 of the Certificate of the Corporation,
which establishes the Preferred Stock, is hereby deleted in its entirety and is
hereby amended to read as follows:
"3. CONVERSION. The holders of the Preferred Stock shall have conversion rights
as follows (the "Conversion Rights"):
(a) AUTOMATIC CONVERSION. Each share of Preferred Stock
shall automatically be converted into the number of fully-paid and
non-assessable shares of Common Stock as is determined by dividing the Original
Issue Price of such series by the Conversion Price in effect for such series at
the time of conversion, without any action by the holder of such shares and
whether or not a certificate representing such shares is surrendered to the
Corporation or its transfer agent, upon the occurrence of a Conversion Event (as
defined below). The number of shares of Common Stock into which each share of
Preferred Stock is convertible is hereinafter referred to as the "Conversion
Rate" for such series. The initial Conversion Price per share for shares of
Preferred Stock shall be $1.20 and the Original Issue Price for the Preferred
Stock shall be $10.00 per share; provided, however, that the Conversion Price
for the Preferred Stock of any series shall be subject to adjustment as set
forth in subsection (c) of this Section 3. "Conversion Event" means any of the
following: (i) the merger, combination, reorganization or consolidation of the
Corporation with or into another corporation with respect to which less than a
majority of the outstanding voting power of the surviving, combined or
consolidated corporation shall be held by stockholders of the Corporation
immediately prior to such event, (ii) the sale, transfer or other disposition
(including by exclusive license) of all or substantially all of the properties
and assets of the Corporation which shall beneficially own five percent (5%) or
more of the combined voting power of the Corporation, or a profit sharing or
other employee benefit plan) of securities of the Corporation such that such
person or entity or group of person or entities shall as a result of such
purchase or purchases beneficially own, directly or indirectly securities of the
Corporation representing more than forty percent (40%) of the combined voting
power of the Corporation=s then outstanding securities or have the right to
designate a majority of the members of the Board of Directors of the
Corporation, (iv) the closing of an underwritten public offering by the
Corporation of shares of its Common Stock (which may be included within units)
registered under the Securities Act of 1933, as amended, on Form S-1, S-3 or
other appropriate form for the general registration of securities (other than in
connection with the registration of securities issues under an employee benefit
plan of the Corporation) and resulting in gross proceeds to the Corporation
(before deducting underwriting discounts, commissions and expenses) of at least
$10,000,000.
(b) MECHANICS OF CONVERSION. Upon the conversion of the
Preferred Stock pursuant to subsection (a) above, all certificates evidencing
the shares of Preferred Stock which are converted in accordance with the
provision thereof shall, from and after the date such shares are so converted,
be deemed to have been retired and canceled and the shares of Preferred Stock
represented thereby converted into Common Stock for all purposes, regardless of
whether the holder or holders thereof shall have surrendered such certificates
on or prior to such date. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of the date of the
Conversion Event. If the conversion is in connection with an offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion shall be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price of the Preferred Stock shall be subject to adjustment from time
to time as set forth below.
<PAGE>
(i)In the event the Corporation should at any time or
from time to time after the issuance of a series of Preferred Stock fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
each holder of the Preferred Stock shall thereafter be entitled upon the
conversion of each share thereof held by such holder to receive for each share
the number of such Common Stock Equivalents which such holder would have owned
or have been entitled to receive after the happening of that one of the events
described above which shall have happened had such Preferred Stock been
converted immediately prior to the happening of such event, the adjustment to
become effective immediately after the opening of business on (x) the day next
following the record date for determination of holders of Common Stock entitled
to receive such dividend or (y) the day upon which such split or subdivision
shall become effective.
(ii) If the number of shares of Common Stock
outstanding at any time after is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares, so that the
holder of Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities
which such holder would have owned after the happening of combination described
above if such shares of Preferred Stock had been converted immediately prior to
the happening of such combination on the day upon which such combination become
effective.
(d) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights, then, in each such case for the purpose of this
subsection 3(d), the holders of the Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(e) MERGERS, ETC. In case the Corporation shall effect a
reorganization, shall merge with or consolidate into another corporation, or
shall sell, transfer or otherwise dispose of all or substantially all of its
property, assets or business and, pursuant to the terms of such reorganization,
merger, consolidation or disposition of assets, shares of stock or other
securities, property or assets of the Corporation, successor or transferee or an
affiliate thereof or cash are to be received by or distributed to the holders of
Common Stock, then each holder of Preferred Stock shall be given a written
notice from the Corporation informing each holder of Preferred Stock of the
terms of such reorganization, merger, consolidation, or disposition of assets
and of the record date thereof for any distribution pursuant thereto, at least
ten days in advance of such record date, and each holder of Preferred Stock
shall have, in addition to the rights provided for, the right thereafter to
receive, at the holder's election, either (A) upon conversion of such Preferred
Stock, the kind and amount of shares of stock or other securities, property or
assets of the Corporation, successor or transferee or affiliate thereof or cash
receivable upon or as a result of such reorganization, merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock equal
to the number of shares of Preferred Stock as may be converted divided by the
Conversion Price in effect for such series immediately prior to such event, or
(B) the securities into which such shares of Preferred Stock are converted into,
upon, or as a result of such reorganization, merger, consolidation, or
disposition of assets. The provisions of this subsection (e) shall similarly
apply to successive reorganizations, mergers, consolidations or dispositions of
assets.
<PAGE>
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3), provision shall be made so that the holders of the Preferred
Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 3
(including adjustment of the Conversion Price then in effect and the number of
shares issuable upon conversion) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) CERTAIN TENDERS AND EXCHANGES. If a purchase,
tender or exchange offering is made to and accepted by the holders or more than
50% of the outstanding shares of Common Stock, the Corporation shall not effect
any consolidation, merger or sale with the person having made such offer or with
any affiliate of such person, unless prior to the consummation thereof each
holder of shares of Preferred Stock shall have been given not less than fifteen
days to elect to receive, upon conversion of the shares of Preferred Stock then
held by such holder, either the stock, securities, cash or assets then issuable
with respect to the Common Stock in accordance with such offer, or the
equivalent thereof.
(h) OTHER STATE OF FACTS. If a state of facts shall
occur which, without being specifically controlled by the provisions of this
Section 3, would not fairly protect the conversion rights of the Preferred Stock
in accordance with the essential intent and principles of such provisions, then
the Board of Directors of the Corporation shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights.
(i) NO IMPAIRMENT. The Corporation will not, by
amendment of its certificate of incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(j) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS. (i) No fractional shares shall be issued upon the conversion of any
share or shares of the Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Preferred Stock pursuant to this Section
3, the Corporation, at its expense, shall promptly cause the Corporation's
regularly retained auditor to compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in reasonable detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment (B)
the Conversion Price for the Preferred Stock at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Preferred Stock.
<PAGE>
(k) NOTICES OF RECORD DATE. In the event of any taking
by the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution-or right,
and the amount and character of such dividend, distribution or right.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to these provisions.
(m) NOTICES. Any notice required by the provisions of
this Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given on the date it is sent if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his, her or its
address appearing on the books of the Corporation.
(n) TAXES. The Corporation shall pay all documentary,
stamp or other transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any shares of
Preferred Stock; PROVIDED, HOWEVER, that the Corporation shall not be required
to pay any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Preferred Stock in respect of which such
shares are being issued.
(o) STATUS OF CONVERTED STOCK. In the event any shares
of Preferred Stock shall be converted pursuant to this Section 3, the shares so
converted shall be canceled and shall not be issuable by the Corporation, and
all accrued and unpaid dividends (whether or not declared) with respect to such
converted shares shall be canceled. The certificate of incorporation of the
Corporation may be appropriately amended from time to time to effect the
corresponding reduction in the Corporation's authorized capital stock."
5. That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by the undersigned this 13th day of January 1999.
MEDICONSULT.COM, INC.
/s/ROBERT E. JENNINGS
---------------------
Name: Robert E. Jennings
Title: Chief Executive Officer
<PAGE>
CERTIFICATE OF DESIGNATION
OF
CERTIFICATE OF INCORPORATION
OF
MEDICONSULT.COM, INC.
MEDICONSULT.COM, INC., a Delaware corporation (the
"Corporation"), acting pursuant to Section 141 of the Delaware General
Corporation Law, does hereby submit the following Certificate of Designation of
Series and Determination of Rights and Preferences of its Senior Preferred
Stock.
FIRST: The name of the Corporation is Mediconsult.com, Inc.
SECOND: By unanimous consent of the Board of Directors of the
Corporation dated February 25, 1999, the following resolutions were duly
adopted:
WHEREAS the Certificate of Incorporation of the Corporation
authorizes Preferred Stock consisting of 5,000,000 shares, par value $.001 per
share, issuable from time to time in one or more series; and
WHEREAS the Board of Directors of the Corporation is
authorized, subject to limitations prescribed by law and by the provisions of
Section 5.04 of the Corporation's Certificate of Incorporation to establish and
fix the number of shares to be included in any series of Preferred Stock and the
designation, rights, preferences and limitations of the shares of such series;
and
WHEREAS it is the desire of the Board of Directors to
establish and fix the number of shares to be included in a new series of
Preferred Stock and the designation, rights, preferences and limitations of the
shares of such new series.
NOW, THEREFORE, BE IT RESOLVED that pursuant to Section 5.04
of the Corporation's Certificate of Incorporation, there is hereby established a
new series of 1,000,000 shares of Preferred Stock of the Corporation (the
"Senior Preferred Stock") to have the designation, rights, preferences, powers,
restrictions and limitations set forth in a supplement of Section 5.04 as
follows:
1. DIVIDENDS.
(a) The holder of each share of Senior Preferred Stock shall be
entitled to receive out of funds legally available therefor, when and as
declared by the Board of Directors of the Corporation, dividends at the rate of
eight percent (8%) of the Original Issuance Price per annum (the "Senior
Preferred Dividends"), which shall be payable semi-annually on the 30th day of
June and the 31st day of December in each calendar year, and which shall be
declared and set apart or paid before dividends of any kind may be declared upon
the shares of Common Stock, $.001 par value of the Corporation (the "Common
Stock") or shares of Preferred Stock, $.001 par value of the Corporation (the
"Junior Preferred Stock") and before distributions of any kind may be made upon
the issued and outstanding shares of Common Stock or shares of Junior Preferred
Stock (other than the payment of Junior PIK Dividends (as defined below) in the
event of a Qualified Offering). The right to Senior Preferred Dividends shall be
cumulative and shall be deemed to accrue, whether dividends are earned or
whether there be funds
<PAGE>
legally available therefor, or whether said Senior Preferred Dividends shall
have been declared by the Board of Directors of the Corporation; PROVIDED,
HOWEVER, the right to Senior Preferred Dividends shall not begin to accrue
unless (i) a Qualified Offering does not occur on or prior to June 30, 1999 or
(ii) a Corporate Transaction occurs, in which case the right to Senior Preferred
Dividends shall have been deemed to accrue as of the Original Issuance Date.
Except with respect to the Junior PIK Dividends, the declaration and accrual of
which may occur prior to a payment, declaration or reservation of Senior
Preferred Dividends, whenever the full amount of Senior Preferred Dividends for
all past and current semi-annual dividend periods shall have been paid, without
interest, declared or a sum sufficient for the payment thereof set aside in
full, without interest (as the case may be), the Board of Directors may declare,
set aside or pay additional cash dividends, and/or may make share distributions
of the authorized but unissued shares of the Corporation and/or of its treasury
shares of Common Stock, if any. All Senior Preferred Dividends shall be payable
in shares of Senior Preferred Stock of the Corporation. On or prior to the date
of a conversion of the Senior Preferred Stock into Common Stock pursuant to
Section 4, the Corporation shall issue and deliver or, failing such actual
issuance and delivery, shall be deemed to have issued and delivered, to each
holder of record of Senior Preferred Stock that number of fully paid and
non-assessable shares of Senior Preferred Stock as shall be equal to the
aggregate amount payable in respect of each semi-annual Senior Preferred
Dividend payment not previously paid, divided by the Original Issuance Price. In
addition, the holder of each share of Senior Preferred Stock shall be entitled
to share in any dividends declared or paid upon or set aside for the Common
Stock or Junior Preferred Stock (other than the payment in the form of shares of
Junior Preferred Stock ("Junior PIK Dividends") of cumulative dividends to the
Junior Preferred Stock as set forth in the Certificate of Designations,
Preferences and Rights of Junior Preferred Stock, as amended and in effect on
the Original Issuance Date), pro rata in accordance with the number of shares of
Common Stock into which such shares of Senior Preferred Stock are then
convertible pursuant to Section 4. No dividend shall be paid on the shares of
the Common Stock or Junior Preferred Stock (other than the payment of Junior PIK
Dividends) unless dividends are paid PRO RATA to the holders of outstanding
shares of Senior Preferred Stock in accordance with the number of shares of
Common Stock into which such shares of Senior Preferred Stock are then
convertible pursuant to Section 4.
2. LIQUIDATION.
(a) Upon a Liquidation (as defined below), after payment or provision
for payment of the debts and other liabilities of the Corporation:
(i) the holders of Senior Preferred Stock shall be entitled to
receive, prior and in preference to the holders of Common Stock and Junior
Preferred Stock, out of the remaining assets of the Corporation available for
distribution to its stockholders with respect to each share of Senior
Preferred Stock, an amount (the "Senior Preference Amount") per share of
Senior Preferred equal to the sum of (A) $6.32 (the "Original Issuance Price"
of the Senior Preferred Stock) and (B) all unpaid Senior Preferred Dividends
and other dividends payable with respect to such share under Section 1. If
upon any Liquidation the assets of the Corporation available for distribution
to its
<PAGE>
stockholders shall be insufficient to pay the holders of Senior Preferred
Stock the full respective Senior Preference Amounts to which they shall be
entitled, the holders of Senior Preferred Stock shall share ratably in any
distribution of assets based on the amounts which would be payable to them on
or with respect to the shares of Senior Preferred Stock held by them upon
such distribution pursuant to this Section 2 as if all amounts payable on or
with respect to such shares were paid in full.
(ii) After distribution to the holders of Senior Preferred Stock
of the full Senior Preference Amount set forth in Section 2(a)(i), the holders
of Junior Preferred Stock shall be entitled to receive, prior and in preference
to the holders of Common Stock, out of the remaining assets of the Corporation
available for distribution to its Stockholders with respect to each share of
Junior Preferred Stock an amount per share of Junior Preferred Stock equal to
$10.00 plus accrued and unpaid Junior PIK Dividends (the "Junior Preference
Amount" and the Senior Preference Amount and the Junior Preferred Amount
collectively the "Preferred Amount"). If upon any Liquidation the assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of Junior Preferred Stock the full respective Junior
Preference Amounts to which they shall be entitled, the holders of Junior
Preferred Stock shall share ratably in any distribution of assets based on the
amounts which would be payable to them on or with respect to the shares of
Junior Preferred Stock held by them upon such distribution pursuant to this
Section 2 as if all amounts payable on or with respect to such shares were paid
in full.
(iii) After distribution to the holders of Senior Preferred Stock
of the full Senior Preference Amount set forth in Section 2(a)(i) and
distribution to the holders of Junior Preferred Stock of the full Junior
Preference Amount set forth in Section 2(a)(ii), the holders of Common Stock
shall be entitled to receive, on a PRO RATA basis, the remaining assets of the
Corporation available for distribution to its stockholders.
(b) For purposes of this Section 2, a Corporate Transaction (as
defined below) shall be treated as a Liquidation and shall entitle the holders
of Preferred Stock to receive, upon the consummation of such Corporate
Transaction, consideration in the same form as is to be provided in such
Corporate Transaction (whether cash, securities, other property or any
combination thereof), having a fair market value (determined in good faith by
the board of directors of the Corporation) equivalent to the amounts to which
such holders of Junior Preferred Stock and Senior Preferred Stock would
otherwise have been entitled pursuant to Section 2(a) assuming such Corporate
Transaction had constituted a Liquidation within the meaning of said
Section 2(a).
(c) As used herein, the following terms shall have the following
respective meanings:
(i) "Corporate Transaction" means (A) any consolidation or merger
of the Corporation, other than any merger or consolidation resulting in the
holders of the capital stock of the Corporation entitled to vote for the
election of directors holding a majority of the capital stock of the surviving
or resulting entity entitled to vote for the
<PAGE>
election of directors, (B) any person or entity (including any affiliates
thereof) becoming the holder of a majority of the capital stock of the
Corporation entitled to vote for the election of directors, or (C) any sale or
other disposition by the Corporation of all or substantially all of its assets.
(ii) "Liquidation" means any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, other
than any dissolution, liquidation or winding up in connection with any
reincorporation of the Corporation in another jurisdiction.
(iii) "Original Issuance Date" means the date of original
issuance of the first share of Senior Preferred Stock.
3. VOTING RIGHTS.
(a) In addition to the rights provided by law or in the
Corporation's By-laws, each share of Senior Preferred Stock shall entitle the
holder thereof to such number of votes as shall equal the nearest whole number
of shares of Common Stock into which such share of Senior Preferred Stock is
then convertible pursuant to Section 4. Except as provided in paragraph (b)
below or as otherwise provided by law, the holders of Senior Preferred Stock,
shall be entitled to vote on all matters as to which holders of Common Stock
shall be entitled to vote, in the same manner and with the same effect as such
holders of Common Stock, voting together with the holders of Common Stock as one
class.
(b) The Corporation shall not, without the affirmative consent or
approval of the holders of at least a majority of the shares of Senior Preferred
Stock then outstanding, voting as a separate class:
(1) authorize, create, designate or establish any class or
series of capital stock or other security or other instrument convertible
into or exercisable exchangeable for any security having any right,
preference or privilege ranking senior to or PARI PASSU with the Senior
Preferred Stock or reclassify any shares of Common Stock into shares having
any right, preference or privilege ranking superior to any such right,
preference or privilege of the Senior Preferred Stock;
(2) in any other manner amend or modify the powers, privileges,
preferences, or rights, or qualifications, limitations or restrictions of the
Senior Preferred Stock as to adversely affect the holders thereof;
(3) amend the Certificate of Incorporation of the Corporation
so as to materially adversely affect the powers, preferences or rights, or
qualification, limitations or restrictions, of the shares of Senior Preferred
Stock;
(4) amend the By-laws of the Corporation in any manner that
would materially adversely affect the powers, preferences or rights, or
qualifications, limitations or restrictions of the Senior Preferred Stock;
<PAGE>
(5) consummate any Corporate Transaction;
(6) effect a Liquidation; or
(7) directly or indirectly pay or declare any dividend (other
than payment of a Junior PIK Dividend or the Senior Preferred Dividends) or make
any distribution upon, or redeem, retire or repurchase or otherwise acquire, any
shares of capital stock or other securities of the Corporation (other than the
repurchase of Common Stock at cost or fair market value from employees upon
termination of employment which is approved of the board of directors of the
Corporation).
4. OPTIONAL CONVERSION.
(a) Upon the terms set forth in this Section 4, the holder of shares
of Senior Preferred Stock shall have the right, at the holder's option, at any
time and from time to time, to convert any of such shares into the number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (i) the Original Issuance Price of the Senior Preferred
Stock by (ii) the Conversion Price (as defined below) therefor, as last adjusted
and then in effect, by surrender of the certificates representing the shares of
Senior Preferred Stock to be converted. The conversion price per share at which
shares of Common Stock shall be issuable upon conversion of shares of Senior
Preferred Stock shall initially be the Original Issuance Price for the Senior
Preferred Stock (the "Conversion Price"), subject to adjustment as set forth in
paragraph (d) below.
(b) The holder of the shares of Senior Preferred Stock may exercise
the conversion right pursuant to paragraph (a) above by delivering to the
Corporation the certificate or certificates for the shares to be converted, duly
endorsed or assigned in blank or to the Corporation (if required by it),
accompanied by written notice stating that the holder elects to convert such
shares and stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued. Conversion shall
be deemed to have been effected on the date when such delivery is made (the
"Conversion Date"). As promptly as practicable thereafter, the Corporation shall
issue and deliver to at such holder's address appearing on the Corporation's
records or upon the written order of such holder, to the place designated by
such holder, a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled, and a cash amount in respect of
any fractional interest in a share of Common Stock as provided in paragraph (c)
below. The person in whose name the certificate or certificates for Common Stock
are to be issued shall be deemed to have become a stockholder of record on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event such person shall be deemed to have become a
stockholder of record on the next succeeding date on which the transfer books
are open, but the Conversion Price shall be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Senior Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the written order
of the holder of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering
<PAGE>
the number of shares of Senior Preferred Stock representing the unconverted
portion of the certificate so surrendered.
(c) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Senior Preferred Stock. The number of full shares
of Common Stock issuable upon conversion of Senior Preferred Stock shall be
computed on the basis of the aggregate number of shares of Senior Preferred
Stock to be converted. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any shares of Senior Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the product of (i) the price of one share of
Common Stock as determined in good faith by the Board of Directors and (ii) such
fractional interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such fractional
interests.
(d) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Subject to clause (iv) below, if the Corporation shall at
any time or from time to time after the Original Issuance Date issue any shares
of Common Stock (including shares of Common Stock deemed to be issued pursuant
to subdivision (3) of clause (ii) below) other than Excluded Stock (as defined
in clause (iii) below) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to the issuance of
such Common Stock, then the Conversion Price in effect immediately prior to each
such issuance shall forthwith be lowered to a price equal to the quotient
obtained by dividing:
(1) an amount equal to the sum of (x) the total number of
shares of Common Stock outstanding (including any shares of Common Stock deemed
to have been issued pursuant to subdivision (3) of clause (ii) below)
immediately prior to such issuance, multiplied by the applicable Conversion
Price in effect immediately prior to such issuance, and (y) the consideration
received by the Corporation upon such issuance; by
(2) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant to
subdivision (3) of clause (ii) below) immediately after the issuance of such
Common Stock.
(ii) For the purposes of any adjustment of the Conversion Price
pursuant to clause (i) above, the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor after
deducting therefrom any discounts, commissions or placement fees payable by the
Corporation to any underwriter or placement agent in connection with the
issuance and sale thereof.
<PAGE>
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the board of directors of the Corporation, irrespective of any
accounting treatment.
(3) The issuance after the Original Issuance Date of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities, in each
case the right to exercise which are not subject to forfeiture and that have an
exercise price less than the Conversion Price last adjusted and then in effect,
shall be deemed to be an issuance of Common Stock for purposes of clause (i)
above. In the case of any such issuance of such options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities:
a. the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (1) and (2) above), if any,
received by the Corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby;
b. the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities, options, or rights were issued and for a consideration equal to
the consideration received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each case
to be determined in the manner provided in subdivisions (1) and (2) above);
c. on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of any such options or rights or
conversions of or exchange for such securities, other than a change resulting
from the antidilution provisions thereof, the applicable Conversion Price shall
forthwith be readjusted to such Conversion Price as would have been obtained had
the adjustment made upon the issuance of such options, rights or securities not
converted prior to such change or options or rights related to such securities
not converted prior to such change been made upon the basis of such change; and
d. on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
<PAGE>
options or rights related to such convertible or exchangeable securities, the
applicable Conversion Price shall forthwith be readjusted to such Conversion
Price as would have been obtained had the adjustment made upon the issuance of
such options, rights, securities or options or rights related to such securities
been made upon the basis of the issuance of only the number of shares of Common
Stock actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities, or upon the exercise of the options
or rights related to such securities and subsequent conversion or exchange
thereof.
(iii) "Excluded Stock" means (A) up to 2,500,000 shares
of Common Stock, and options therefor, issued or granted from time to time to
employees, directors and officers of and consultants to the Corporation pursuant
to agreements, plans or arrangements approved by the Board of Directors; (B)
shares of Common Stock issued by the Corporation as a stock dividend or upon any
subdivision, split-up or combination of shares of Common Stock; (C) shares
offered in the Qualified Offering or (D) shares of Common Stock issued or
issuable to satisfy conversion, option or other rights granted by the
Corporation as of the Original Issuance Date.
(iv) Notwithstanding clause (i) above, (A) if Common
Stock is issued by the Corporation in the Qualified Offering for a consideration
per share (determined in accordance with the provisions of clause (ii) above,
except that the price per share shall be determined before deducting any
underwriter commissions) (the "Qualified Offering Price") less than the
Conversion Price in effect immediately prior to the issuance of such Common
Stock, then the Conversion Price in effect immediately prior to such issuance
shall forthwith be lowered to a price equal to eighty five percent (85%) of the
Qualified Offering Price; and (B) if a Qualified Offering does not occur on or
prior to June 30, 1999 or is earlier withdrawn unless refiled (no more than one
time) within 30 days thereafter or terminated (the "Outside Date"), then the
Conversion Price then in effect shall, immediately following the Determination
Date (as hereinafter defined), be lowered (but in no event increased) to a price
equal to the greater of (A) the average bid and ask price per share of the
Common Stock as reported on the OTC Bulletin Board for the twenty (20) trading
days period following the earlier of (x) the Outside Date or (y) such time as
the Qualified Offering shall have been withdrawn unless refiled (no more than
one time) within 30 days thereafter abandoned (the "Determination Date") and (B)
fifty percent (50%) of the Original Issuance Price
(and in each case such adjusted Conversion Price shall thereafter be subject to
subsequent adjustment pursuant to clause (ii) above (in addition to any other
applicable provision of this Section 4)).
(v) If, at any time after the Original Issuance Date,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, following the record date for the determination of
holder of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on
<PAGE>
conversion of each share of Preferred Stock shall be increased in proportion to
such increase in outstanding shares.
(vi) If, at any time after the Original Issuance Date, the number
of shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.
(vii) In the event of any capital reorganization of the
Corporation, any reclassification of the stock of the Corporation (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or any consolidation or merger of the Corporation (other
than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any change in the Common Stock), each
share of Senior Preferred Stock shall after such reorganization,
reclassification, consolidation or merger (unless, in the case of a
consolidation or merger, payment shall have been made to the holders of Senior
Preferred Stock of the full amount to which they shall have been entitled
pursuant to Section 2 hereof) be convertible into the kind and number of shares
of stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such merger to which
the holder of the number of shares of Common Stock deliverable (immediately
prior to the time of such reorganization, reclassification, consolidation or
merger) upon conversion of such share of Senior Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation or merger.
The provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations or mergers.
(viii) All calculations under this paragraph shall be made to the
nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10) of a
share, as the case may be.
(ix) In any case in which the provisions of this paragraph (d)
shall require that an adjustment shall become effective immediately after a
record date of an event, the Corporation may defer until the occurrence of such
event (A) issuing to the holder of any share of Preferred Stock converted after
such record date and before the occurrence of such event the shares of capital
stock issuable upon such conversion by reason of the adjustment required by such
event in addition to the shares of capital stock issuable upon such conversion
before giving effect to such adjustments, and (B) paying to such holder any
amount in cash in lieu of a fractional share of capital stock pursuant to
paragraph (c) above; PROVIDED, HOWEVER, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares and such cash.
(e) Whenever the Conversion Price shall be adjusted as provided in
paragraph (d), the Corporation shall make available for inspection during
regular business
<PAGE>
hours, at its principal executive offices or at such other place as may be
designated by the Corporation, a statement, signed by its chief executive
officer, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each holder of Senior
Preferred Stock as to which the Conversion Price shall be so adjusted at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of any notice required
to be mailed under the provisions of paragraph (f) below.
(f) If the Corporation shall propose to take any action of the types
described in clauses (v), (vi) or (vii) of paragraph (d) above, the Corporation
shall give notice to each holder of shares of Senior Preferred Stock, in the
manner set forth in paragraph (e) above, which notice shall specify the record
date, if any, with respect to any such action and the date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such action
(to the extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Senior Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least 20 days prior to the date so fixed, and in case
of all other action, such notice shall be given at least 30 days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(g) The Corporation shall reserve, and at all times from and after
the date of Original Issuance Date keep reserved, free from preemptive rights,
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Senior Preferred Stock,
sufficient shares of Common Stock to provide for the conversion of all
outstanding shares of Senior Preferred Stock.
(h) At any time the Corporation makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Corporation other than shares of
Common Stock, provision shall be made so that each holder of shares of Senior
Preferred Stock shall receive upon conversion thereof, in addition to the shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which it would have received had its shares of Senior Preferred
Stock been converted into shares of Common Stock on the date of such event and
had such holder thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable by it
pursuant to this paragraph during such period, subject to the sum of all other
adjustments called for during such period under this Section 4 with respect to
the rights of such holder of shares of Senior Preferred Stock.
5. MANDATORY CONVERSION.
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(a) (i) Upon the consummation of an underwritten public offering for
the account of the Corporation of its Common Stock first occurring after the
Original Issuance Date pursuant to a registration statement filed under the
Securities Act of 1933, as amended, with aggregate cash proceeds to the
Corporation of not less than $20,000,000 (a "Qualified Offering"), and so long
as all shares of Junior Preferred Stock have been converted into shares of
Common Stock upon the consummation such of the Qualified Offering, each share of
Senior Preferred Stock then outstanding shall, by virtue of and simultaneously
with such Qualified Public Offering, be deemed automatically converted into the
number of fully paid and nonassessable shares of Common Stock equal to the
quotient obtained by dividing (i) the Original Issuance Price of the Senior
Preferred Stock by (ii) the Conversion Price, as last adjusted and then in
effect.
(b) As promptly as practicable after the date of consummation of any
Qualified Offering and the delivery to the Corporation of the certificate or
certificates for the shares of Senior Preferred Stock which have been converted,
duly endorsed or assigned in blank to the Corporation (if required by it), the
Corporation shall issue and deliver to or upon the written order of each holder
of Senior Preferred Stock, to the place designated by such holder, a certificate
or certificates for the number of full shares of Common Stock to which such
holder is entitled, and a cash amount in respect of any fractional interest in a
share of Common Stock as provided in paragraph (c) below. The person in whose
name the certificate or certificates for Common Stock are to be issued shall be
deemed to have become a stockholder of record on the date of such Qualified
Public Offering and on such date the shares of Senior Preferred Stock shall
cease to be outstanding, whether or not the certificates representing such
shares have been received by the Corporation.
(c) The provisions set forth in Sections 5(a) and (b) shall apply to
the conversion of Senior Preferred Stock pursuant to this Section in the same
manner as they apply to the conversion of Senior Preferred Stock pursuant to
Section 4.
6. OPTIONAL REDEMPTION.
(a) Subject to Section 6(c), each holder of Senior Preferred Stock
shall have the option, exercisable on or after the fourth anniversary of the
Original Issuance Date upon request by the holders of 51% of the outstanding
shares of Senior Preferred Stock at any time after the Original Issuance Date to
cause the Corporation to redeem any or all, and the Corporation shall (unless
prohibited by law), within thirty (30) days of receipt of a Notice of Exercise
(as defined in Section 6(b)) (the "Optional Redemption Period") so redeem any or
all (the "Optional Redemption"), of the number of shares of Senior Preferred
Stock requested by such holder to be redeemed, at a redemption price per share
(the "Optional Redemption Price") equal to the Original Issuance Price (subject
to equitable adjustment to reflect stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences), plus declared and unpaid
dividends, if any, through the date of Optional Redemption.
(b) Notice of the exercise of the redemption option (the "Notice of
Exercise") pursuant to Section 6(a) shall be sent by first-class certified mail,
postage
<PAGE>
prepaid and return receipt requested, or by overnight courier to the
Corporation. At all times from an after the commencement of the Optional
Redemption Period, the holders of record of shares of Senior Preferred Stock
shall, as to the shares of Senior Preferred Stock to be redeemed, be entitled to
receive payment in cash in full of the Optional Redemption Price with respect to
such Senior Preferred Stock. If the Corporation is prohibited by law from
effecting any such redemption, then such redemption shall be effected as soon as
such prohibition is eliminated or removed (and the Corporation shall use its
best efforts to eliminate or remove such prohibition).
(c) Anything contained herein to the contrary notwithstanding, the
holders of shares of Senior Preferred Stock exercising their Optional Redemption
right under this Section 6 shall have the right, exercisable at any time until
payment in full of the Optional Redemption Price is made with respect to such
shares, to convert all or any part of such shares into shares of Common Stock
pursuant to Section 5 hereof.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation has been
signed by the Chief Executive Officer of the Corporation this 25th day of
February, 1999.
MEDICONSULT, INC.
By: /s/ Robert E. Jennings
-----------------------------------
Robert E. Jennings
Chief Executive Officer
