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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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. 000-29282
MEDICONSULT.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1341886
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1330 Avenue of the Americas
New York, NY 10019
(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (212) 841-7300
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12 (G) OF THE EXCHANGE ACT:
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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-K 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-K
or any amendment to this Form 10-K. / /
Revenues of the issuer for the year ended December 31, 1999 were $6,362,226.
As of December 31, 1999, 49,633,275 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 $215 million using
beneficial ownership of stock rules adopted pursuant to Section 13 of the
Securities Exchange Act of 1934 to exclude voting stock owned by all directors
and officers of the registrant, some of whom may not be held to be affiliates
upon judicial determination.
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MEDICONSULT.COM, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I.
Item 1. Description of Business.............................................................. 1
Item 2. Description of Property.............................................................. 12
Item 3. Legal Proceedings.................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................................. 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............................. 14
Item 6. Selected Financial Data.............................................................. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data.......................................... 37
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 37
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section
16(A) of the Exchange Act............................................................ 38
Item 11. Executive Compensation............................................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and Management ...................... 44
Item 13. Certain Relationships and Related Transactions....................................... 45
PART IV
Item 14. EXHIBITS, financial Statement Schedules and Reports on Form 8-K ..................... 45
Signatures ............................................................................................. 48
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Unless otherwise noted, references to "we," "our," and "us" refer to Mediconsult
and its subsidiaries.
Mediconsult.com, Inc. ("Mediconsult" or the "Company") solves medical problems
using the Internet to educate and connect doctors and patients. Our web sites
and Internet services educate physicians, empower chronic patients and enable
more effective doctor-patient relationships. We provide relevant communities,
reliable tools and quality medical information that save doctors time and
improve health outcomes for their patients.
Our focus is on the chronic medical conditions that are responsible for the
majority of healthcare spending. By fostering communities centered on prevalent
medical conditions and health issues, we believe we create significant
opportunities for pharmaceutical and other healthcare companies to effectively
reach physician and patient audiences using Internet-based marketing and
sponsorship programs.
On December 16, 1999, we completed the acquisition of Physicians' Online, Inc.
("Physicians' Online"), a physicians-only Internet service that provides doctors
with clinically oriented services, tools, and information. It is a secure,
physicians-only environment featuring access to clinical discussion groups,
medical databases, daily medical news, continuing medical education credits,
clinical symposia, e-mail accounts, Internet access, secure prescription
transactions, market research and recruiting services, among other services.
Membership is free so long as the member does not use Physicians' Online as its
Internet Service Provider. Physicians' Online's services historically were
principally supported by pharmaceutical and direct-to-physician advertising
sponsors as well as subscription fees from its members using it as an Internet
Service Provider and MDDirect, a physician recruitment business.
Our address is 1330 Avenue of the Americas, 17th Floor, New York, NY 10019.
The Company's telephone number is (212) 841-7300 and our principal 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.
With this growth in healthcare information available online, and the ubiquity of
the Internet, physicians and other healthcare professionals have begun to accept
the Internet as a tool enabling them to more effectively and efficiently provide
healthcare to their patients.
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.
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
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outcomes. We believe that access to this information, together with support
groups and interaction with medical experts on-line, leads to a greater
understanding of health issues and improved patient compliance with
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 estimated
that 10% of prescriptions are never filled, 33% are not properly refilled and
50% are not taken as prescribed, 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. 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 our Web sites, we address physicians and consumers' needs for
healthcare information and provide 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. We provide our
visitors with high quality content on specific medical conditions and health
issues and an easy-to-navigate environment. Our staff 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 our Web
sites, we aggregate an average of 30 articles covering current news, symptoms
and treatment alternatives that are understandable to the average consumer. Our
primary Web site at www.mediconsult.com is constructed to enable a person
interested in any one of the 60 medical topics covered on our Web sites to
access a broad range of information, including relevant information on other
portions of our Web sites. For example, a visitor to the diabetes page will be
referred to relevant information for diabetics on the nutrition section. We
frequently solicit visitor feedback through surveys and polls and uses this
information to refine further its content and expand our 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 our visitor support staff.
LARGE, HIGHLY TARGETED AUDIENCE. Our Web sites are designed to attract a
highly desirable target audience for pharmaceutical manufacturers and other
healthcare companies. We have developed a sophisticated, integrated database of
demographic information about patients' needs, habits, preferences and
intentions. We are able to identify our visitor traffic patterns by condition or
health issue, which provides relevant information for clients seeking to target
an audience for a particular pharmaceutical product or condition.
BROAD, SOPHISTICATED INTERNET HEALTHCARE MARKETING AND ADVERTISING PROGRAMS.
Mediconsult designs, develops, and implements broad, sophisticated Internet
compliance, launch, marketing and direct-to-consumer advertising programs for
pharmaceutical and other healthcare companies and provides ongoing support
services as part of these programs. We utilize our extensive knowledge of the
Internet healthcare user and our high quality, focused content to effectively
design and develop programs focused on a particular product or health issue.
These programs
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incorporate one or more of a broad spectrum of Internet-based tools and products
ranging from condition diagnosis tools, to targeted site sponsorships, to
customized Web sites containing relevant content from our Web sites. In
addition, we create calls to action, through visitor polls, surveys and coupons,
to allow clients to gain more information about the visitor. Mediconsult designs
its on-line marketing and advertising programs to complement our clients'
traditional off-line marketing, compliance and media campaigns.
COMPANY STRATEGY
Effective upon our announcement of the agreement to acquire Physicians' Online,
we officially changed our strategy and announced that we would no longer be
selling banner advertisements on our patient-focused websites. We are now
primarily focused on physicians as the driving force of most healthcare
spending, Mediconsult operates the first and most active online network of
physicians -- Physicians' Online. POL has been operating since 1992. The POL
network offers a number of services and tools for physicians that focus on the
physician's on-line clinical needs, including:
- journal articles;
- medical associations;
- medical news;
- practice management tools;
- continuing medical education;
- discussion forums;
- e-mail;
- Internet access;
- recruitment services;
- build-a-website;
- phone-answering/paging service;
- Rx sample ordering; and
- e-commerce (books and supplies).
The POL network is accessible only by members that have been authenticated as
practicing U.S.-based physicians prior to their entering the site. The
authentication process requires the physician to provide personal information
(ME number) that is then matched to the American Medical Association database,
or to provide other appropriate documentation (medical license, for example) via
fax. Once the physician has been authenticated, we provide him or her with a
username and password to use each time they visit the network.
POL operates as an Internet Service Provider (ISP) as an additional service to
its members. Approximately half of POL's active members access the service
through the POL ISP. The POL ISP is one of the largest virtual private networks
in the U.S. Regardless of whether a physician uses the POL ISP, all members are
provided a POL e-mail account.
The most popular features of the POL site are the clinical discussion forums,
medical literature searches and e-mail. There are more than 35,000 active
discussion `threads' on POL. Members can post clinical information about a
difficult case and receive advice from their colleagues.
With the merger with POL, we now have a combination of the largest
authenticated, physicians-only audience, combined with one of the largest
patient audiences. These two key strategic assets now allow us to focus more
intently on the opportunities in areas such as electronic medical education, as
evidenced by our recently announced agreement with Bristol-Myers Squibb, and
physician programs such as the Mydoctor.com initiative which allows a POL-member
physician create his or her own custom Web site in only minutes.
In the patient healthcare arena, our primary focus is the design, development
and implementation of interactive solutions that educate physicians, empower
patients and enable a more effective physician/patient relationship. We create
and maintain communities of doctors and patients and specialize in enabling
communication between members of these two distinct communities.
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ENHANCE THE VISITOR EXPERIENCE AND SENSE OF ON-LINE COMMUNITY. We are
committed to continually improving the utility and perceived value of our Web
sites. Mediconsult seeks to:
- broaden and deepen the content of our Web sites;
- improve the navigability of our Web site environment;
- expand and enhance our suite of complementary services;
- further segment medical topics into more specific ones;
- enhance the depth of content relating to the clinical conditions that most
frequently affect our visitors; and
- tailor our Web sites to meet the needs and preferences of the visitor.
INCREASE TARGETED TRAFFIC THROUGH STRATEGIC ACQUISITIONS AND RELATIONSHIPS,
AND CONTENT LICENSING. We seek to bolster traffic and revenue through strategic
acquisitions and relationships. We have recently completed strategic
initiatives to purchase, manage or sponsor several significant Web sites to
improve the depth and breadth of our medical content and to increase visitor
traffic. These include:
- Pharminfo.com, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers;
- Cyberdiet.com, a Web site providing tailored nutritional information and
programs;
- INCIID.org, a Web site providing information on infertility;
- Heartinfo.org, the leading site for patients and professionals seeking
information on heart disease and hypertension;
- Mood Sciences, a developer of a Web-based software tool for the screening
and monitoring of 12 mood related disorders; and
- Storknet.org, a leading website for pregnancy and parenting issues.
We believe that there will continue to be significant opportunities to manage
or acquire Web sites or content that will complement our existing offerings. We
also expect to increase our visitor traffic and related revenue opportunities by
licensing content to other Web sites.
BROADEN RELATIONSHIPS WITH PHARMACEUTICAL COMPANIES. We seek to broaden
relationships with pharmaceutical companies in several ways. We attempt to
expand relationships with existing clients to broaden the number of programs,
both in terms of number of products and types of client services, provided to
them. For example, our work with Novartis Consumer Health Canada, in designing
and developing a Web site for the Habitrol smoking cessation product led to a
relationship with Novartis Pharma, the pharmaceutical division of Novartis AG.
We expanded this relationship to include a French language version of the
Habitrol Web site. We have numerous other projects and proposals with Novartis
Pharma currently in process. We also continue to actively pursue a number of
additional major pharmaceutical companies and other healthcare clients with
proposals tailored to their specific products and marketing strategies.
BUILD STRONG BRAND AWARENESS. We believe 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. We
intend to achieve this goal by expanding our 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 FAMILY OF WEB SITES
Our family of Web sites serves as a gateway for access to a comprehensive
source of health-related information focused on the clinical and educational
needs of patients, as well as practicing physicians and other healthcare
professionals. Since inception of Mediconsult in 1996, we have focused on
developing our reputation as the leading independent provider of
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health information to consumers on the Web. Mediconsult.com, includes easy to
understand information on more than 60 chronic medical conditions and health
issues. We believe that in the United States these medical conditions affect
more than 90 million people and represent a significant portion of healthcare
spending. The major medical conditions and health issues covered by the
Company's Web sites include:
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Acid Reflux Emphysema Osteoporosis
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AIDS/HIV Epilepsy Palliative Care
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Alzheimer's Disease Erectile Dysfunction Parkinson's Disease
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Anxiety Fitness Peptic Ulcers
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Arthritis General Pregnancy Complications
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Asthma GERD (Heartburn/Acid Reflux) Prostate Cancer
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Attention Deficit Disorder Headache Senior Health
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Benign Prostatic Hypertrophy Heart Disease Sexually Transmitted Diseases
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Bladder Cancer Heartburn Herpes Skin Cancer
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Brain Tumor Hypertension Skin Disorder
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Breast Cancer Ileostomy Smoking Cessation
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Bronchitis Incontinence Spinal Cord Injury
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Cancer Support Group Inflammatory Bowel Disease Stoma/Ileostomy/Colostomy
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Cervical Cancer Infertility Kidney Cancer Stress
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Children's Health Interstitial Cystitis Strokes
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Chronic Fatigue Syndrome Leukemia Testicular Cancer
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Chronic Pain Liver Disease Travel Vaccinations
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Chronic Renal Failure Lung Cancer Urinary Stones
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Cirrhosis Lymphoma Vasectomy
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Colorectal Cancer Melatonin Vitamins
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Colostomy Menopause Women's Health
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Contraception Men's Health
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Depression Migraines
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Diabetes Multiple Sclerosis
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Eating Disorders Nutrition
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The other sites included among our family of sites are:
- heartinfo.org - Heart health for patients and physicians;
- pharminfo.com - Current and in-depth drug information;
- cyberdiet.com - Fitness and nutrition resource and community; and
- inciid.org - Infertility information and support.
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Within this group of medical conditions, Mediconsult 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;
- on-line moderated support groups; and
- a selection of recommended books and other healthcare products for purchase
on-line.
The www.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
ENCYCLOPEDIA 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 1999). 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. We believe
that these awards from independent companies and agencies help to build
awareness of, and visitor traffic to, our Web sites and provide independent
validation of the perceived thoroughness and quality of our Web sites and their
content. More recently, we were named an Impact Award 2000 recipient by INTERNET
WORLD, a Valuable Reference by CITELINE, a HEALTH EXPLORER Best Site, an ABC'S
OF PARENTING 4-Star site and a HEALTH A-Z 5-Star site.
We also provide visitors with the ability to purchase the following products
on-line through our various sites:
- MEDI-STORE. We operate an on-line store on www.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, we offer visitors the
opportunity to purchase healthcare-related books that have been reviewed by
our medical professionals. This offers the visitor a pre-screened and
targeted list of recommended books that are relevant to their area of
interest.
We believe that visitor support services are important in order to attract and
retain visitors to our Web sites. We provide visitor support primarily through
e-mail-based correspondence. Help and feedback buttons are prominently displayed
throughout the Mediconsult family of Web sites, and visitor support staff
responds to most e-mail queries within 24 hours. In addition, through support
group activities, healthcare professionals provide free e-mail support for a
broad range of issues.
Mediconsult has strict policies and practices to ensure privacy and
confidentiality of personal information posted on the Mediconsult family of Web
sites. We adhere 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 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 our commitment to Truste, we do not display or
make publicly available any personally identifiable information without the
prior written consent of the individual identified, and we limit the usage of
personally identifiable information gathered on our sites.
PRODUCTS AND SERVICES
PHYSICIAN-ORIENTED PRODUCTS AND SERVICES
We design and develop physician-oriented programs. These include programs such
as electronic medical education, the medical education planner, the Mydoctor.com
suite of products and ISP services to physicians. Through POL we also offer
secure physician-only communities that allow medical professionals to openly
discuss clinical issues and outcomes, and other services designed to facilitate
the physician/patient relationship.
MARKETING AND ADVERTISING PROGRAMS.
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We design, develop and implement 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:
- condition-specific site sponsorships, 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.
CONTENT LICENSING AND WEB SITE SUPPORT.
We also seek to increase visitor traffic and generate additional revenue by
licensing content to, and providing Web site support for, Web sites established
by healthcare organizations, including health maintenance organizations, and
other payers, and pharmaceutical companies. Under these arrangements, we design,
develop and maintain individual Web sites for clients incorporating content from
the Mediconsult family of Web sites. In addition, with certain clients we
maintain the right to place advertisements on client sites, sharing revenue 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.
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, we entered into a memorandum of agreement to form a 50/50
joint venture with CommonHealth LLP ("CommonHealth"). The venture was intended
to focus on providing pharmaceutical and other healthcare companies with
innovative approaches to marketing their products in comprehensive marketing and
advertising campaigns containing both significant Internet components and
traditional media such as, print, television and direct marketing. Based upon
changed strategic focus, the documentation to finalize the venture was not
completed, and during 1999, CommonHealth and Mediconsult agreed to terminate the
relationship.
STRATEGIC ACQUISITIONS.
Mediconsult has grown in part through strategic acquisitions and agreements.
We plan 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 our Web sites. During 1999, we acquired or
entered into Web site management or sponsorship agreements as follows:
INCIID.ORG, a Web site providing information on infertility. In February
1999, we entered into an exclusive sponsorship agreement with the
InterNational Counsel of Infertility Information Dissemination, a not-for-
profit organization, relating to INCIID.ORG and granting us the sole right
to place advertisements on the Web site, to link traffic, and manage the
content on the Web site.
CYBERDIET.COM, a Web site providing tailored nutritional information and
programs. On May 11, 1999, we completed the acquisition of CyberDiet, Inc.,
the owner of Cyberdiet.com which provides tailored
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nutritional information and programs, in exchange for 400,000 shares of our
common stock issued to the former shareholders of CyberDiet, Inc. The total
purchase price, including acquisition costs and assumption of net
liabilities, was $2.8 million. The fair value of shares provided as
consideration was determined by the market price of the shares at the
announcement date (February 25, 1999). The excess of the purchase price
over net assets acquired was recorded as goodwill and is being amortized on
a straight-line basis over five years.
CYBER-TECH, INC, a company that has developed and provides high quality
content and tools focused on heart disease and related areas that have
attracted a large and growing number of visitors to the www.heartinfo.com
Web site ("Cyber-Tech"). On June 14, 1999, we acquired all of the capital
stock of Cyber-Tech, Inc. ("Cyber-Tech"). The consideration paid to Cyber-
Tech shareholders consisted of $3,765,000 in cash and 267,732 shares of our
common stock. Mediconsult and the shareholders of Cyber-Tech also entered
into an Escrow Agreement with respect to certain of the shares of
Mediconsult common stock issued to the former Cyber-Tech shareholders. The
total transaction value, including acquisition costs, was $7.6 million. The
fair value of shares provided as consideration was determined by the market
price of the shares at the transaction date. The excess of the purchase
price over net assets acquired was allocated to goodwill and other
intangible assets. Goodwill and other intangible assets are being amortized
on a straight-line basis over an estimated useful life of three to five
years.
MOOD SCIENCES, INC., a company that specializes in mental health disease
management innovations, ("Mood Sciences"). Mood Sciences was acquired on
October 27, 1999, in exchange for 215,000 shares of Mediconsult common
stock. The total purchase price, including acquisition costs of $0.2
million and assumption of net liabilities of $0.2 million, was $1.9
million. The fair value of shares provided as consideration was determined
by the market price of the shares at the transaction date. The excess of
the purchase price over net assets acquired was recorded as goodwill and is
being amortized on a straight-line basis over five years.
PHYSICIANS' ONLINE INC., a company with more authenticated doctor-users
than any other medical Web site, ("Physicians' Online"). On December 16,
1999, we acquired the shares of Physicians' Online, Inc. ("POL"), a
provider of an exclusive network for physicians in addition to on-line
medical information and communications. POL operates a secure, physicians-
only environment featuring access to medical databases, daily medical news,
continuing medical education credits, clinical symposia, e-mail accounts,
Internet access, and other services. As consideration for the acquisition,
we issued approximately 18.5 million shares of Mediconsult common stock.
The total value of consideration was $183.1 million, including the
assumption of debt and acquisition costs. Identifiable intangible assets
resulting from the transaction are amortized over periods ranging from
three to five years.
STRATEGIC RELATIONSHIPS.
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We have entered into strategic alliances with a number of patient and
professional associations, including the Arthritis Foundation, Leukemia Society
of America, the National Stroke Association and the National Mental Health
Association. These alliances allow us 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.
SALES AND MARKETING
Until September of 1999, our sales and marketing was managed entirely by
Mediconsult employees. In September, 1999 we entered into a relationship with
Pharma Marketing, LLC under which responsibility for sales and marketing of
certain aspects of our business to pharmaceutical companies is managed by this
newly formed company. Marketing and program design continue to be managed by our
own employees.
Pharma Marketing, LLC, is a newly formed marketing company which will conduct
sales and marketing activities on behalf of the Company ("Pharma Marketing"). On
September 7, 1999 we entered into a membership investment agreement for the
purchase 35% of the aggregate membership interests of Pharma Marketing for
$1,250,000 and 200,000 shares of Mediconsult common stock. The remaining 65% of
Pharma Marketing is owned by a certain individual ("Individual"). Under the
terms of an operating agreement with and among Mediconsult, Pharma Marketing and
the Individual, the $1,250,000 contributed by Mediconsult and 100,000 of the
200,000 shares that we issued to Pharma Marketing, were distributed to the
Individual in September 1999.
We generally seek to hire individuals with significant experience in program
design, marketing and from the Internet and healthcare industries.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Our 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 our Web sites 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 multiple Web servers. Key attributes of this infrastructure include
scalability, performance and service availability.
Mediconsult has deployed a standard production and development server
environment utilizing standard software solutions running on generally available
server hardware platforms. We are currently transitioning our systems hosted at
various offsite facilities to an in-house software environment to be located in
the United States in its Tarrytown, NY facilities, which the Company will manage
from Toronto, Canada and Tarrytown. Our Web-based software systems use standard,
off-the-shelf software components. Our strategy is to license and integrate
"best-of-breed" commercially available technology from industry leaders such as
IBM, Sun Microsystems and Microsoft whenever possible. We believe this
architecture will allow us to increase rapidly the scale of our systems in a
cost-effective manner.
Our production data is copied to backup tapes each night and stored at a third
party, off-site storage facility. We do not have a comprehensive disaster
recovery plan, but we are in the process of developing such a plan to respond to
system failures. We have engaged International Computer Security Associates to
conduct a security audit of our systems. Strict password management and
physical security measures are followed.
COMPETITION
There are many companies that provide Internet and non-Internet based
education, content, marketing and advertising services to the healthcare
industry. All of these companies compete with Mediconsult for clients, and
Internet healthcare companies also compete with us for visitor traffic. We
expect competition to continue to increase as there are no substantial barriers
to entry in our markets. Increased competition could result in reductions in the
fees we receive for our 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 our business, financial
condition and results of operations. Competition is also likely to increase
significantly, not only as new entities enter the market, but also as current
competitors expand their services. Our principal competitors include:
- advertising agencies and consulting firms, such as Young & Rubicam and
Agency.com, that develop marketing and advertising programs for
pharmaceutical and other healthcare companies;
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- Web sites that deliver consumer and professional 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,
Healtheon/WebMD, CareInsite, and Medscape;
- Other, larger companies that either have entered the Internet healthcare
markets or have announced an intention to do so, such as IMS Health,
McKesson HBOC, Quintiles Transnational, and National Data;
- general purpose consumer online 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 FOX,
CBS, Disney, NBC and Time Warner.
Our ability to compete depends on a number of factors, many of which are
outside of our control. These factors include quality of content, ease of use,
timing and market acceptance of new and enhanced services, and level of sales
and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, existing
relationships with pharmaceutical and other healthcare companies and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than us 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. Our competitors may
develop services that are equal or superior to those provided by Mediconsult or
that achieve greater market acceptance and brand recognition than we achieve. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address the needs of advertisers. It is possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully or competitive pressures may have a material
adverse effect on our business, results of operations and financial condition.
If clients perceive the Internet generally or our Web sites to be a relatively
limited or ineffective medium, clients may be reluctant to devote a significant
portion of their budgets to Internet advertising or to advertise on our Web
sites.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
We protect our intellectual property through a combination of trademark and
copyright law, trade secret protection and confidentiality with employees,
customers, independent contractors and strategic partners. We pursue the
registration of its domain names, trademarks and service marks in the United
States, and has obtained trademark registration in the United States of the
"MEDICONSULT.COM" mark 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 our services and products are made
available on-line. We obtain a majority of our content from the public domain.
In addition, we create some of our own content and obtain rights to use the
balance of our content from third parties. It is possible that we could become
subject to infringement actions based upon the content obtained from these third
parties. In addition, others may use this content and we may be subject to
claims from licensors. We currently have no patents; however, we have one patent
pending which was acquired in the Mood Sciences transaction. We do not
anticipate that patents will become significant part of our intellectual
property in the future. We seek to enter into confidentiality agreements with
our employees and independent consultants and have instituted procedures to
control access to and distribution of our technology, documentation and other
proprietary information and the proprietary information of others. The steps we
take to protect our proprietary rights may not be adequate and third parties may
infringe or misappropriate our copyrights, trademarks, service marks and similar
proprietary rights. In addition, other parties may assert claims of infringement
of intellectual property or other proprietary rights against the Company. The
legal status of intellectual property on the Internet is currently subject to
various uncertainties.
HUMAN RESOURCES
As of December 31, 1999, we employed 284 full-time employees, of whom 32 were
in marketing, sales and program design, 117 were in product and content
development, 33 were in administration and corporate services, and 102 were in
operations and support. In addition, there were 10 part-time employees. As we
continue to grow and introduce more products, we expect to hire more personnel.
Competition for personnel is intense and we may not be able to retain our senior
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management or other key personnel in the future. None of our current employees
is represented by a labor union or is the subject of a collective bargaining
agreement. We believe that our relations with employees are 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 our
business. In addition to Internet regulation, our 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 remuneration 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 our business. In the event some state or federal regulatory agency
determined that our relationship with one or more of our clients that deliver
healthcare services or goods violate any such laws, then we could be subjected
to fines and other costs and could be required to revise or terminate that
portion of its business.
LIABILITY FOR INFORMATION RETRIEVED FROM THE COMPANY'S WEB SITES AND FROM THE
INTERNET. Content may be accessed on our Web sites and this content may be
downloaded by visitors and subsequently transmitted to others over the Internet.
This could result in claims against Mediconsult 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. We 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 our Web sites. It is also possible that if any
information contains errors or false or misleading information, third parties
could make claims against us for losses incurred in reliance on such
information. In addition, we may be subject to claims alleging that, by directly
or indirectly providing links to other Web sites, we are 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. Our activities may prevent us from
being able to take advantage of this safe harbor provision. While we attempt to
reduce our 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 us in this respect may have a
material and adverse effect on our business.
ON-LINE CONTENT REGULATIONS. While we do not believe the content on our Web
sites is obscene or indecent, our 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 our 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 our business, results of operations and
financial condition. We adhere 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)
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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 we have implemented or
intend to implement programs designed to enhance the protection of the privacy
of our 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 our ability to provide highly targeted opportunities for clients,
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 our use of
cookies could limit the effectiveness of our targeting of advertisements, which
could have a material adverse effect on our 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 Mediconsult, which engage in data collection from visitors in
EU member countries.
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.
We have registered as its URL, the domain name "mediconsult.com." Although we
have registered "MEDICONSULT.COM" as a trademark, third parties may bring claims
for infringement against us for the use of this trademark. There can be no
assurance that our domain names will not lose their value, or that we will not
have to obtain entirely new domain names in addition to or in lieu of our
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 Mediconsult 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 Mediconsult 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 our
business, results of operations and financial condition. In addition, as our
service is available over the Internet in multiple states and foreign countries,
these jurisdictions may claim that we are required to qualify to do business as
a foreign corporation in each state or foreign country. We have not qualified to
do business as a foreign corporation in any jurisdiction. This failure to
qualify as a foreign corporation in a jurisdiction where it is required to do so
could subject us to taxes and penalties and could result in our 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 our business, or the application of existing laws and
regulations to the Internet and other online services could have a material
adverse effect on our business, financial condition and results of operations.
ITEM 2. DESCRIPTION OF PROPERTY.
We maintain executive offices in Hamilton, Bermuda, as well as corporate
headquarters in New York, New York. The New York lease agreement for
approximately 9,200 square feet of corporate headquarters space expires in 2003,
but is subject to early termination at any time upon ninety days written notice.
We operate out of offices in nine separate locations
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throughout the United States and Canada. We also have employees geographically
dispersed who work out of home offices, independent or client offices.
We own or lease a variety of computers and other computer equipment for our
operational needs. This year we significantly upgraded and expanded our
computers and related equipment in order to increase efficiency, enhance
reliability, and provide the necessary base for business expansion.
We believe that our facilities and equipment are suitable and adequate for our
business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS.
Our wholly owned subsidiary, POL is a defendant in a lawsuit in which a former
officer and director of POL alleges, among other things, that POL violated
securities laws in selling stock to the former officer and that POL breached its
employment agreement with the former officer. This action is currently in the
United States District Court in New York. POL has made a motion in the United
States District Court action seeking dismissal of the action. By Order dated
August 14, 1997, United States District Court Judge for the Southern District of
New York (a) dismissed the first two counts of the former officer's Amended
Complaint alleging violation of certain provisions of the Securities Act of 1933
with prejudice, and (b) dismissed the third, fourth and sixth counts of the
former officer's Amended Complaint alleging securities fraud, common law fraud
and negligent misrepresentation; with leave to replead. By letter dated November
4, 1997, the former officer notified the Court of the former officer's decision
not to replead the former officer's third, fourth and sixth counts at this time.
We are also party to a number of other claims and lawsuits incidental to our
business.
Management, based on the advice of counsel, believes that the ultimate outcome
of these matters, individually or in the aggregate, will not have a material
adverse effect on our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A majority of our stockholders approved the following actions by written
consent on November 19, 1999:
1. the merger transaction with Physicians' Online, Inc. pursuant to the terms
of the merger agreement, as amended, including the necessary issuance of up
to 20,500,000 shares of Mediconsult common stock;
2. an amendment to the Mediconsult certificate of incorporation to increase the
authorized common stock of Mediconsult from 50,000,000 shares to 100,000,000
shares;
3. an amendment to the Mediconsult 1996 Stock Option Plan to authorize an
additional 3,500,000 shares of Mediconsult common stock for issuance
thereunder and to provide for an independent compensation committee to
administer certain option grants;
4. the assumption and adoption of the Physicians' Online, Inc. stock option
plan, with certain amendments providing for the issuance of Mediconsult
common stock, in accordance with the conversion ratio, upon exercise of the
outstanding Physicians' Online, Inc. options; and
5. the ratification of an amendment to the Mediconsult bylaws increasing the
size of the company's board to 10 to facilitate the placement of four
Physicians' Online nominees on the Mediconsult Board as required by the
merger agreement.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. Until April 5, 1999, the Company's common stock traded
on the over-the-counter market, under the symbol "MCNS". On April 6, 1999,
the Company's stock was quoted on the NASDAQ National Market. The following
table sets forth the high and low sale prices for our common stock for the
periods indicated as reported by the OTC Bulletin Board or NASDAQ, as
applicable. 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 SALE LOW SALE
-------------------------------------------------------
<S> <C> <C>
December 31, 1997 $ 1.6875 $1.046875
-------------------------------------------------------
March 31, 1998 $2.09375 $ 1.00
-------------------------------------------------------
June 30, 1998 $1.90625 $ 1.25
-------------------------------------------------------
September 30, 1998 $ 1.6875 $ 0.635
-------------------------------------------------------
December 31, 1998 $ 9.5625 $ 0.49
-------------------------------------------------------
March 31, 1999 $ 22.625 $ 6.1875
-------------------------------------------------------
June 30, 1999 $19.6875 $ 9.6875
-------------------------------------------------------
September 30, 1999 $ 13.75 $ 6.25
-------------------------------------------------------
December 31, 1999 $ 9.938 $ 5.25
-------------------------------------------------------
</TABLE>
(b) HOLDERS. As of December 31, 1999, the Company had approximately 300
shareholders of record. This does not include shareholders who hold stock
in accounts at broker/dealers.
(c) 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.
RECENT SALES OF UNREGISTERED SECURITIES. On February 26, 1999, we sold in a
private placement an aggregate of 506,329 shares of our newly designated senior
preferred stock and warrants exercisable for five years to purchase 224,000
shares of senior preferred stock to Nazem & Company IV, L.P., Transatlantic
Venture Fund C.V. (a joint venture of Nazem & Company and Banque Nationale de
Paris) and other individual investors, for an aggregate of $3.2 million. On May
11, 1999, we completed the acquisition of CyberDiet in exchange for 400,000
shares of Mediconsult common shares issued to the former stockholders of
CyberDiet. Effective June 1, 1999, we completed the acquisition of Cyber-Tech,
Inc. in exchange for cash and 267,732 shares of our common stock. On September
7, 1999, we acquired a 35% interest in Pharma Marketing, LLC in exchange for
cash of $3.3 million of which $1.65 million was reinvested in Mediconsult in
exchange for the issuance of 200,000 of our common shares. Effective October
27, 1999 we acquired Mood Sciences, Inc. in exchange for 215,000 shares of our
common stock.
ITEM 6. SELECTED FINANCIAL DATA
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The selected consolidated financial data should be read in conjunction with
the consolidated financial statements and the notes thereto presented under
Item 8.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
Income Statement Data: 1999 1998 1997 1996
(Partial Year)
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues 6,362,226 1,030,934 256,374 --
----------------- ----------------- ----------------- ------------------
Operating expenses
Product and content development 7,574,171 1,316,188 765,864 --
Marketing, sales and client service 11,934,645 1,811,710 1,130,340 435,637
General and administrative 7,055,865 1,012,719 792,213 403,794
Depreciation and amortization 3,758,210 170,439 132,768 --
Fair value of options granted to
employees 2,031,251 275,145 40,235 --
Fair value of options and warrants
granted to consultants and third
parties 1,834,175 1,354,000 -- --
----------------- ----------------- ----------------- ------------------
Total operating expenses 34,188,317 5,940,201 2,861,420 839,431
----------------- ----------------- ----------------- ------------------
Loss from operations (27,826,091) (4,909,267) (2,605,046) (839,431)
Interest income (expense), net 1,542,185 -- (20,000) (22,667)
----------------- ----------------- ----------------- ------------------
Net loss (26,283,906) (4,909,267) (2,625,046) (862,098)
----------------- ----------------- ----------------- ------------------
Dividends on preferred stock (945,505) -- -- --
----------------- ----------------- ----------------- ------------------
Net loss attributable to common
stockholders (27,229,411) (4,909,267) (2,625,046) (862,098)
----------------- ----------------- ----------------- ------------------
Per common share data:
Basic and diluted net loss per share $(1.02) $(0.27) $(0.16) $(0.08)
Weighted average shares - basic 26,711,890 17,910,898 16,729,900 11,137,662
Balance Sheet Data:
(unaudited)
Cash 22,320,814 135,053 400,949 393,130
Working Capital 11,171,076 (593,159) 372,522 (58,811)
Total Assets 222,780,950 1,142,383 751,763 760,028
Stockholders' Equity 206,578,329 278,381 565,526 146,487
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Unless otherwise noted, references to "we," "our," and "us" refer to
Mediconsult and its subsidiaries.
OVERVIEW
Mediconsult is a leading provider of physician and patient-oriented healthcare
information and services on the World Wide Web. Our Web sites provide a trusted
source of comprehensive and easy to understand medical information and are
designed to empower professionals and consumers through increased education
related to medical conditions and treatment alternatives. The Web sites also
provide a destination on the Internet where visitors, both professionals and
patients, can interact with others in a community environment. We facilitate
this environment through a well-organized, easy to navigate format and an array
of complementary services, including
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moderated on-line support groups and discussion forums. By fostering communities
centered around over 60 prevalent chronic medical conditions and health issues,
we believe that Mediconsult creates significant opportunities for pharmaceutical
and other healthcare companies to reach highly targeted physician and consumer
audiences using Internet-based marketing and advertising programs.
BACKGROUND
For the period from the inception of our operations in April 1996 through
January 1997, our operating activities related primarily to the initial
development of the mediconsult.com Web site and operating infrastructure, and
also the recruitment of employees. Since the launch of mediconsult.com in 1996,
we have focused on developing and organizing content in an easy to navigate
format, and improving the functionality of mediconsult.com. We have added new
sites through subsequent acquisitions including cyberdiet.com and heartinfo.com,
and new Internet-based healthcare tools through the acquisition of Mood
Sciences. We continue to refine our strategy of creating targeted on-line
marketing and advertising programs for large pharmaceutical and other healthcare
organizations. We continue to develop and implement these types of programs for
our clients. We structure programs to provide clients with a measurable return
on their investment by tracking the level of interest and interactive responses
of visitors. Our programs utilize a broad range of on-line strategies and
resources to deliver a message consistent with the advertisers' global marketing
strategy.
In the third quarter we expanded our focus on long-term strategic
relationships with major pharmaceutical manufacturers to include other Internet-
based initiatives in addition to marketing programs. The initial relationship in
this new strategic direction was entered into with Bristol-Myers Squibb Company
in which we are working with Bristol-Myers to develop innovative new approaches
to electronic medical education.
In the fourth quarter we expanded our focus to include a secure physicians-
only service through the acquisition of Physicians' Online, Inc. Physicians'
Online is an Internet online service that provides medical information,
communications, and a transactions network for physicians. It is a secure,
physicians-only environment featuring access to medical databases, daily medical
news, continuing medical education credits, clinical symposia, e-mail accounts,
Internet, discussions with colleagues, secure prescription transactions, market
research and recruiting services, among other services. Membership is free.
REVENUE SOURCES
Our main source of revenue has historically been through client services
related to the development and support of on-line marketing and advertising
programs for pharmaceutical and other healthcare companies. These services
continue to be a source of revenue and typically include the design, development
and management of customized Web sites relating to a particular pharmaceutical
or other health-related products. Client services also include marketing
research, focus group testing and on-line testing of visitors' preferences.
Revenue from client services is recognized on the basis of contractual
commitments over the period of each engagement using the percentage-of-
completion method, based on labor hours and costs incurred as the measure of
progress towards completion. Revenue from support services, principally the
management of Web sites that we develop for our clients, is recognized ratably
over the period services are provided, generally on a monthly basis. Payments
received from clients prior to the performance of client services are recorded
as unearned revenue.
We also provide advertising services involving the sale of advertising space
on certain Web sites we own, manage or sponsor. These services can be provided
separately or as part of a more comprehensive suite of client services.
Advertising services include banner advertisements, polls, surveys, registration
programs, coupons and other interactive forms of advertising. Revenue from
advertising sales is recognized ratably over the period in which the
advertisement is displayed, if no significant obligations remain. In certain
cases, advertising revenue from the sale of advertising space is related to the
delivery of impressions or
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click-throughs from pages viewed by visitors to our Web sites. In these cases,
we may guarantee a minimum number of impressions or click-throughs by visitors
over a specific period of time. To the extent that revenue is related to the
number of impressions or click-throughs, we defer recognition of this revenue
until the required impressions or click-throughs are achieved. Payments received
from advertisers prior to displaying their advertisements are recorded as
deferred revenue. Mediconsult does not recognize revenue from barter
transactions with respect to its advertising services. We recently announced
that effective October 1, 1999 we will no longer sell banner advertising on our
consumer Web sites. As a result, this source of revenue may decline in future
periods even though we will continue to sell such advertising on our
professional sites such as Physicians' Online.
As noted above, in the third quarter we expanded our focus on long term
strategic relationships with major pharmaceutical manufacturers to include other
Internet-based initiatives in addition to marketing programs. The initial
relationship in this new strategic direction was entered into with Bristol-Myers
Squibb Company in which we are working with Bristol-Myers to develop innovative
new approaches to electronic medical education. We are currently in the
proposal stages for similar relationships with additional major pharmaceutical
companies.
We also derive revenue from licensing our mediconsult.com content and
providing Web site support to healthcare and other organizations. These client
organizations make our content available to visitors to their Web sites or to
Web sites of their clients. Revenue from content licensing is recognized over
the period of the license. In certain cases, we design and develop these Web
sites. The portion of licensing revenue related to up-front customized design
work is recognized over the period that the work is performed. In certain cases,
we realize additional revenue from management of the Web site or its content.
Revenue from management services is recognized ratably over the period the
services are performed, generally on a monthly basis. We may also retain the
right to place advertising on a Web site that hosts our content.
Although we have certain electronic commerce alliances with merchants of
healthcare-oriented books and products, revenue from these revenue-sharing
arrangements has not been material. Revenue from our share of the proceeds from
electronic commerce partners' sales is recognized by us upon notification from
our commerce partners of sales attributable to our Web sites.
MARKETING AND SALES INITIATIVES
In late 1997, we initiated our first significant marketing and advertising
program. The Company was engaged by Novartis Consumer Health Canada to develop a
comprehensive on-line smoking cessation program for its Habitrol brand, focused
on Canadian consumers. We developed the Web site for this program during early
1998, for which we received payment as services were performed. We receive
revenue for maintaining and upgrading this program (beginning with its launch in
June 1998), and receive monthly advertising revenue for referring visitor
traffic to the Habitrol Web site. We recently expanded the Habitrol program to
provide French and professional healthcare versions of the Web site.
We have also generated revenue from developing programs for a number of
branded pharmaceutical products for Novartis Pharma, the worldwide
pharmaceutical division of Novartis. We are developing the Web sites for these
programs and receiving payment as services are performed. We are developing a
custom version of an electronic medical education product for Bristol-Myers
Squibb. In 1998, revenue from Novartis and Bristol-Myers Squibb represented $0.7
million or 65% of the Company's total revenue. In the twelve months ended
December 31, 1999, revenue from Novartis and Bristol-Myers Squibb represented
$5.0 million or 76% of the Company's total revenue. We have also completed
assessment programs for Glaxo Wellcome and Astra Merck. The loss of Novartis or
Bristol-Myers Squibb as a customer or any changes to the existing relationships
that are less favorable to us, or any significant reduction in traffic on or
through the Web sites that we manage, will materially and adversely affect our
business, financial condition and results of operations.
To date, our revenue has been generated primarily by our own internal sales
organization, Pharma Marketing, LLC and, to a lesser extent, by third party
advertising representatives. As of December 31, 1999, we had an internal
marketing, sales, program design and product development organization of 149
professionals, compared
17
<PAGE>
to 28 at June 30, 1999. We believe that we need to increase further the size of
our internal marketing and sales organization in order for us to execute
successfully our growth strategy and, accordingly, we intend to hire additional
marketing and sales professionals in 2000.
VISITOR TRAFFIC
To improve the depth and breadth of our medical content and to increase visitor
traffic, in 1998 and 1999 we completed strategic initiatives to purchase, manage
or sponsor the following Web sites and companies:
. PharmInfo.com, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers.
. INCIID.org, a Web site providing information on infertility.
. Cyberdiet.com, a Web site providing tailored nutritional information and
programs.
. Heartinfo.org, a leading Web site that provides high quality content and
tools focused on heart disease and related areas that have attracted a large
and growing number of visitors to the www.heartinfo.com Web site.
. Mood Sciences, Inc., a company that specializes in mental health disease
management innovations.
. POL.net, the flagship site of Physicians' Online Inc., a company with more
authenticated doctor-users than any other medical Web site, ("Physicians'
Online").
We believe that Mediconsult's Web sites together represent the most highly
trafficked physicians-only Web site and one of the most highly trafficked
consumer healthcare information sites on the Internet. During the fourth quarter
of 1999, our Web sites attracted 10.5 million visitors who viewed 58.5 million
pages. On average, viewers spent approximately 22 minutes per session on our Web
sites.
CORPORATE
Mediconsult was originally incorporated under the laws of the State of
Colorado in October 1989. In April 1996, we purchased Mediconsult.com Limited, a
Bermuda corporation ("MCL"), through a merger in which MCL became a wholly-owned
subsidiary. In December 1996, Mediconsult consummated a reincorporation merger
pursuant to which it became a Delaware corporation. Mediconsult conducts
business primarily through MCL, its Bermudan subsidiary. In addition to MCL,
Mediconsult has established subsidiaries in the United States, Canada and the
United Kingdom. Mediconsult's operations are conducted by MCL, which has
obtained an exemption from all Bermudan 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. MCL may be deemed to be
doing business in the United States and thereby become subject to US taxation.
STOCK OPTIONS AND WARRANTS
We expense stock options granted to employees 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." The fair
value of options and warrants granted to non-employees for services provided are
expensed over the period the services are performed in accordance with EITF 96-
18, "Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services."
18
<PAGE>
Pursuant to an agreement with Arnhold and S. Bleichroeder, Inc. to provide us
with investment advisory services, we have warrants to this firm to purchase an
aggregate of 400,000 shares of common stock with an exercise price of $1.22 per
share, which was the closing price of our common stock on the contract date. Of
this amount, we delivered warrants for 200,000 shares of Common Stock upon the
filing of a prospectus for secondary public offering in February 1999, and have
been exercised. We delivered warrants for 100,000 shares of common stock on
March 15, 2000, and we are obligated to deliver the remaining 100,000 warrants
on September 15, 2000, subject to certain conditions.
As more fully described below in "Results of Operations," we have recorded
compensation expense in connection with the vesting of stock options and
warrants during the years ended December 31, 1999 and 1998, as well as deferred
compensation expense for the value of options and warrants granted that were not
vested as of such dates.
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 our content and
Web site support. Revenue was $0.3 million for the year ended December 31, 1997,
$1.0 million for the year ended December 31, 1998 (an increase of 233% over the
prior year) and $6.4 million for the year ended December 31, 1999 (an increase
of 540% over the prior year). The period-to-period growth in revenue was
primarily attributable to acquisitions, an increase in the number of clients,
the number of marketing and advertising programs developed and implemented for
those clients and our newly introduced initiatives focused on the delivery of
electronic medical education over the Internet.
PRODUCT AND CONTENT DEVELOPMENT. Product and content development costs
include expenses incurred by us to develop, enhance, manage, monitor and operate
its Web sites and to develop new products such as electronic medical education
and related products. Prior to 1997, these costs consisted primarily of third
party software development expenses, which were deferred and amortized over the
years ended December 31, 1997 and 1998. From 1997 onwards, these costs have
consisted primarily of salaries and fees paid to employees and consultants to
develop and maintain the software and information contained on our Web sites.
For the year ended December 31, 1997, these costs were $0.8 million, for the
year ended December 31, 1998, these costs were $1.3 million (an increase of 63%
over the prior year) and for the year ended December 31, 1999 these costs were
$7.6 million (an increase of 485% over the prior year). For 1997 and 1998, these
costs related primarily to the development of healthcare content. In 1999 these
activities were supplemented by both internal and third party expenses incurred
for the development of new products, such as electronic medical education as
well as costs incurred relating to acquisitions.
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 1997, marketing, sales and client
services costs were $1.1 million and for the year ended December 31, 1998,
marketing, sales and client services costs were $1.8 million (an increase of 64%
over the prior year). For the year ended December 31, 1999, these costs were
$11.9 million (an increase of 561% over the prior year), consisting primarily of
costs associated with the development and implementation of specific client
marketing programs and of new prototype marketing and advertising programs. A
substantial portion of the increase was attributable to acquisitions and a
marketing agreement entered into with Pharma Marketing, LLC which resulted in
sales and marketing efforts being significantly increased.
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
19
<PAGE>
fees for other professional services. For the year ended December 31, 1997,
general and administrative expenses were $0.8 million. These expenses were $1.0
million for the year ended December 31, 1998 (an increase of 25% over the prior
year), and $7.1 million for the year ended December 31, 1999 (an increase of
610% over the prior year). The increase in general and administrative expenses
was attributable to increased salaries and related expenses associated with
acquired companies and hiring additional personnel to support the growth of our
operations. In addition, we opened offices in New York and Toronto in 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense includes
depreciation of tangible assets and software, using the straight line method,
over the estimated useful lives of the assets. Amortization expense includes
intangible assets such as goodwill. For the year ended December 31, 1997,
depreciation and amortization expense was $0.1 million. These expenses were $0.2
million for the year ended December 31, 1998 (an increase of 100% over the prior
year), and $3.8 million for the year ended December 31, 1999 (an increase of
1800% over the prior year). The increases are primarily due to the growth of the
Company, and the acquisitions completed in 1999, principally the amortization of
intangibles from the Physician's Online transaction.
FAIR VALUE OF OPTIONS GRANTED TO EMPLOYEES. We recorded compensation expense
in connection with the vesting of employee stock options of $40,235 during the
year ended December 31, 1997, $0.3 million during the year ended December 31,
1998 (an increase of 646% over the prior year) and $2.0 million during the year
ended December 31, 1999 (an increase of 567% over the prior year). The increase
is attributable to an increase in the number of employees and the number of
options being granted to employees and an increase in the value of each stock
option granted.
FAIR VALUE OF OPTIONS GRANTED TO CONSULTANTS AND WARRANTS GRANTED TO THIRD
PARTIES. The fair value of options and warrants granted to non-employees for
services provided are expensed over the period the services are performed in
accordance with EITF 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." We recorded compensation expense in connection with stock options and
warrants granted to consultants and third parties of $nil during the year ended
December 31, 1997, $1.4 million in the year ended December 31, 1998, and $1.8
million during the year ended December 31, 1999 (an increase of 29% over the
prior year).
Compensation expense represents the amortization of deferred compensation that
is measured based on the fair value of the options and warrants granted to
employees, consultants and third parties. These amounts are amortized over the
vesting period of the applicable options. We have recorded deferred compensation
for the value of the options granted that have not yet vested of $0.9 million as
of December 31, 1998 and $16.1 million as of December 31, 1999.
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,
1999. In our opinion, 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.
We have limited operating history upon which to evaluate our business and
predict revenue and planned operating expenses. Our quarterly operating results
may vary significantly in the foreseeable future due to a variety of factors,
many of which are outside our control. The timing of our marketing program and
electronic medical education product sales are two of the most significant
factors affecting quarterly results. The time between the date of initial
contact with a potential client and the execution of a contract with the client
typically ranges from six weeks for smaller agreements nine months for larger
agreements. These contracts are also subject to delays over which we have little
or no control, including customers budgetary constraints, their internal
acceptance reviews whether or when regulatory approval of their products is
given by the Food and Drug Administration ("FDA") or other regulatory authority,
the possibility of cancellation or delay of projects by clients and any post-
approval actions taken by the FDA or other regulatory authority, including
product recalls. During the selling process, we may expend substantial funds and
management resources and yet not obtain adequate revenue. Once a contract is
executed, a significant portion of our revenue may be derived from custom
development efforts and implementation projects, rather than from recurring
fees. As a result, we cannot predict
20
<PAGE>
with certainty when we will perform the work necessary to receive payment for
these projects. In addition, traffic levels on Web sites have typically
fluctuated during the summer, and during year-end and holiday periods, and we
could experience a decrease in visitor traffic to our Web sites during these
periods.
<TABLE>
<CAPTION>
QUARTER ENDED
(UNAUDITED)
Mar. 31, Jun. 30, Sept. 30, Dec.31,
1998 1998 1998 1998
(in thousands)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 206 $ 215 $ 238 $ 372
------ ------ ------ -------
Operating Expenses:
Product and content development 250 260 401 405
Marketing, sales and client services 189 492 234 896
General and administrative 171 137 183 435
Depreciation and amortization 39 126 45 46
Fair value of options granted to employees 39 30 26 180
Fair value of warrants granted to third -- -- -- 1,354
parties ------ ------ ------ -------
Total operating expenses 688 1,045 889 3,317
------ ------ ------ -------
Loss from operations (482) (830) (651) (2,945)
Interest income -- -- -- --
------ ------ ------ -------
Net loss $ (482) $ (830) $ (651) $(2,945)
------ ------ ------ -------
Net loss per share $(0.03) $(0.05) $(0.04) $ (0.16)
</TABLE>
In 1999, due to various factors, the quarters ended March 31, June 30, and
September 30, 1999, were revised after the initial filings were made. The
following tables provide the Quarterly Results of Operations Data for each
quarter of 1999, as originally filed and as revised, including the effect of
the revisions.
<TABLE>
<CAPTION>
QUARTER ENDED
(UNAUDITED)
Mar. 31, Mar. 31,
1999 1999
(as reported) (revised)
(in thousands)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues $ 700 $ 487
Operating Expenses:
Product and content development 752 905
Marketing, sales and client services 738 738
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
General and administrative 825 656
Depreciation and amortization 119 119
Fair value of options granted to employees 191 152
Fair value of warrants granted to third parties -- --
------- -------
Total operating expenses 2,625 2,570
------- -------
Loss from operations (1,924) (2,083)
Interest income -- --
------- -------
Net loss (1,924) (2,083)
Dividends on preferred stock -- 945
------- -------
Net loss attributable to common stockholders $(1,924) $(3,028)
Net loss per share $(0.10) $(0.16)
</TABLE>
The effect of the revisions in the quarter ended March 31, 1999 was as
follows:
<TABLE>
<CAPTION>
Effect on Net
Loss
(in thousands)
-------------------
<S> <C>
Reduction of Revenue $ (214)
Reflect dividends on preferred stock (1) (946)
Fair value of options granted to employees $ 40
Other net decrease in operating expenses $ 16
-------------------
Total effect $(1,104)
-------------------
</TABLE>
(1) Amount is reflected as an increase to net loss attributable to common
shareholders.
<TABLE>
<CAPTION>
QUARTER ENDED
(UNAUDITED)
Jun. 30, Jun. 30,
1999 1999
(as reported) (revised)
(in thousands)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 1,203 $ 812
Operating Expenses:
Product and content development 1,368 1,368
Marketing, sales and client services 837 837
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
General and administrative 649 830
Depreciation and amortization 388 388
Fair value of options granted to employees 384 391
Fair value of warrants granted to third 2,269 1,498
parties ------- -------
Total operating expenses 5,896 5,312
------- -------
Loss from operations (4,693) (4,500)
Interest income 576 576
------- -------
Net loss (4,117) (3,924)
Dividends on preferred stock -- --
-----------------------------------
Net loss attributable to common stockholders $(4,117) $(3,924)
Net loss per share $(0.15) $(0.14)
</TABLE>
The effect of the revisions in the quarter ended June 30, 1999 was as
follows:
Effect on Net
Loss
-------------------
Quarter Ended
06/30/99
(in thousands)
-------------------
Reduction of Revenue $(391)
Fair value of options granted to employees (7)
Fair value of warrants granted to consultants 771
Other net decrease in operating expenses (180)
-------------------
Total effect $ 193
-------------------
<TABLE>
<CAPTION>
QUARTER ENDED
(UNAUDITED)
Sep. 30, Sep. 30,
1999 1999
(as reported) (revised)
<S> <C> <C>
(in thousands)
STATEMENT OF OPERATIONS DATA:
Revenues $ 1,984 $ 2,416
------- -------
Operating Expenses:
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Product and content development 2,369 2,369
Marketing, sales and client services 2,764 6,087
General and administrative 1,225 1,847
Depreciation and amortization 885 885
Fair value of options granted to employees 1,120 517
Fair value of warrants granted to third -- 210
parties ------- -------
Total operating expenses 8,364 11,915
------- -------
Loss from operations (6,379) (9,499)
Interest income 592 592
------- -------
Net loss (5,787) (8,907)
Dividends on preferred stock -- --
------------------------------
Net loss attributable to common stockholders $(5,787) $(8,907)
Net loss per share $(0.20) $(0.31)
------- -------
</TABLE>
The effect of the revisions in the quarter ended September 30, 1999 was as
follows:
<TABLE>
<CAPTION>
Effect on Net
Loss
-------------------
Quarter Ended
09/30/99
(in thousands)
-------------------
<S> <C>
Increase in (reduction of) revenue $ 432
Fair value of options granted to employees 603
Fair value of warrants granted to consultants (210)
Expense amounts related to Pharma Marketing LLC (3,323)
Other net decrease in operating expenses (622)
-------------------
Total effect $(3,120)
-------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
(UNAUDITED)
Dec. 31,
1999
(in thousands)
STATEMENT OF OPERATIONS DATA:
<S> <C>
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 2,647
--------
Product and content development 2,933
Marketing, sales and client services 4,273
General and administrative 3,723
Depreciation and amortization 2,366
Fair value of options granted to employees 970
Fair value of warrants granted to third 126
parties --------
Total operating expenses 14,391
--------
Loss from operations (11,744)
Interest income 374
--------
Net loss (11,370)
Dividends on preferred stock --
------------------------
Net loss attributable to common stockholders $(11,370)
Net loss per share $(0.35)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed operations primarily through the public and
private placement of equity securities and advances from our principal
stockholder. Our most significant financing transaction was a public offering
completed in April 1999 which raised net proceeds to Mediconsult of $57 million.
As of December 31, 1999, we had $22.3 million in cash and cash equivalents
compared to $0.1 million at December 31, 1998.
We have incurred substantial costs to design, develop and implement Internet-
based marketing and advertising programs for clients, to build brand awareness
and to grow our business. As a result, we have incurred operating losses and
negative cash flows from operations in each quarter since commencing operations.
As of December 31, 1999, we had an accumulated deficit of $34.7 million. These
losses have been primarily funded through the public offering referred to above
and by advances aggregating $5.1 million by a stockholder, an entity controlled
by Robert A. Jennings, our Chairman and Chief Executive Officer. Approximately
$0.5 million of these advances were repaid and $4.3 million converted to equity
in 1999. The balance constitutes an interest free advance of $0.3 million.
To date, we have experienced negative cash flows from operating activities.
For the period 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. For the year ended December 31, 1999, net
cash used in operating activities was $14.4 million. Net cash used in operating
activities for these periods was primarily attributable to net losses during
these periods offset by certain non-cash expenses. For the year ended December
31, 1999, the increase in net cash used in operating activities was attributable
to a net operating loss of $26.3 million, offset by certain non-cash items of
$11.9 million in the aggregate. This amount was comprised of deferred
compensation expense of $3.9 million related to stock options and warrants
granted to employees and consultants, depreciation of $0.6 million, amortization
of intangibles of $3.1 million, amortization of deferred compensation related to
shares issued for
25
<PAGE>
services and membership in Pharma Marketing LLC of $1.5 million and net changes
in operating working capital of $2.8 million.
For the period 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. For the year ended December 31, 1999, net cash
used in investing activities was $23.7 million. Cash used in investing
activities during 1997 and 1998 related to capital expenditures, primarily the
acquisition of equipment. In 1999, the balance was comprised of $2.4 million of
capital expenditures and $21.3 million on acquisition of subsidiaries, net of
cash acquired of $.2 million.
For the period 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. For the year ended December
31, 1999, net cash provided by financing activities was $60.3 million. Net cash
proceeds from financing activities in 1997 and 1998 were primarily attributable
to net proceeds received from unsecured advances from a stockholder in the
aggregate amount of $2.6 million in 1997 and $2.2 million in 1998. By December
31, 1999, $4.3 million of the cash advances from a stockholder made prior to
that date had been converted into junior preferred stock. Net cash provided by
financing activities in 1999 comprised $57 million from the issuance of common
stock and $3.2 million from the issuance of senior preferred stock that was
subsequently converted to common stock. We also had net repayments of $0.2
million to a stockholder in 1999 and realized $0.3 million from the exercise of
stock options.
As of December 31, 1999, we had no principal capital commitments outstanding.
During 2000 we expect to repay $5.0 million of notes payable. In addition, at
December 31, 1999 we had lease obligations totaling $1,266,000, as more
specifically set forth below:
<TABLE>
<CAPTION>
Year Lease
Obligations
<S> <C>
2000 $ 434,000
2001 227,000
2002 227,000
2003 218,000
2004 160,000
------------------
Total lease obligations $1,266,000
</TABLE>
Subsequent to December 31, 1999, we have entered into additional lease
agreements which will increase our lease obligations in 2000, 2001, 2002, 2003,
and 2004, by $801,567, $915,156, $915,156, $228,789, and $nil, respectively.
In connection with our sponsorship and management of INCIID.ORG, we have
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 we determine with
respect to each quarter.
Our ability to generate significant revenue is uncertain. We incurred net
losses of approximately $2.6 million for the year ended December 31, 1997, $4.9
million for the year ended December 31, 1998 and $26.3 million for the year
ended December 31, 1999. We expect losses from operations and negative cash flow
to continue for the foreseeable future and at least through the year 2000 as a
result of our expansion plans and expectations that operating expenses will
increase in the next several years. The rate at which these losses will be
incurred may increase from current levels. Although we have experienced revenue
growth in recent periods, our revenue may not remain at current levels or
increase in the future. If our revenue does not increase and if spending levels
are not adjusted accordingly, we may not generate sufficient revenue to achieve
profitability, which would have a
26
<PAGE>
material adverse effect on our business, financial condition and results of
operations. Even if we achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
Our working capital requirements depend on numerous factors. We have
experienced a substantial increase in expenditures since inception consistent
with growth in our operations and staffing, and anticipate that this will
continue for the foreseeable future. We anticipate incurring additional expenses
to increase our marketing and sales efforts, for new product and content
development and for technology and infrastructure development. Additionally, we
will continue to evaluate possible investments in businesses, products and
technologies, the expansion of our marketing and sales programs and more
aggressive brand promotions. If we experience a shortfall in revenue in relation
to expenses, or if our expenses precede increased revenue, our business,
financial condition and results of operation and could be materially and
adversely affected.
We currently anticipate that available cash resources, including revenue
generated from clients, will be sufficient to meet anticipated needs for working
capital and capital expenditures through at least the year 2000. We may need to
raise additional funds, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies.
There can be no assurance that any required additional financing will be
available on terms favorable to us, or at all. If additional funds are raised by
the issuance of equity securities stockholders will 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, it may subject us to certain limitations on our operations, including
limitations on the payment of dividends. If adequate funds are not available or
not available on acceptable terms, we may be unable to fund our expansion,
successfully promote our brand name, take advantage of acquisition
opportunities, develop or enhance services or respond to competitive pressures,
any of which could have a material adverse effect on our business, financial
condition and results of operations.
Although a significant portion of our revenue is derived from activities
conducted outside the United States, fees paid to us have been and are expected
to continue to be paid in U.S. dollars. However, a substantial portion of our
payroll is paid, and it is expected that rent under leases of office facilities
outside the United States will be paid, in currencies other than U.S. dollars.
Because our financial results are reported in U.S. dollars, they are affected by
changes in the value of the various foreign currencies in which we make payments
in relation to the U.S. dollar. We do not cover known or anticipated operating
exposures through foreign currency exchange option or forward contracts. The
primary currency for which we have foreign currency exchange rate exposure is
the Canadian dollar. Our financial instruments, including cash and cash
equivalents, 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
Management believes that the future adoption of recently issued accounting
standards will not have a material impact on the Company's financial statements,
except that the Company is currently evaluating the future impact that Staff
Accounting Bulletin 101, Revenue Recognition", issued in December 1999 by the
Securities and Exchange Commission, will have on its financial statements.
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. We have not
encountered any significant Year 2000 problems to date and do not expect that
any will arise.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
27
<PAGE>
This Form 10-K 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. Our 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:
We Have Only Been In Business For A Short Period Of Time, So The Basis For
Evaluation Is Limited.
We began operations in April 1996 when we launched a limited, initial Web
site. We launched a more extensive Web site in September 1996. As a result,
there is a limited history of operations for evaluating our business. 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 our ability to:
- design, develop and implement effective electronic medical education and
marketing and advertising programs for existing clients and new clients;
- gain acceptance of new products and services, including electronic medical
education, by our existing clients and prospective new clients;
- maintain and expand our relationship with Bristol-Myers Squibb and Novartis;
- attract additional pharmaceutical and other healthcare advertisers in order
to generate significant revenue;
- build our organizational and technical infrastructures to manage growth
effectively;
- maintain our current strategic relationships and develop new ones;
- respond effectively to actions taken by competitors;
- attract a larger audience to our Web sites;
- increase awareness of our brand and continue to develop visitor loyalty;
- integrate acquired and managed businesses, technologies and services; and
- attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
We Have Lost Money in Every Quarter and Year, And We Expect these Losses to
Continue in The Future.
Since we began operations in 1996, we have lost money in every quarter and
year. As of December 31, 1999, we had an accumulated deficit of approximately
$34.7 million. We intend to increase the amount of our expenses in the future in
order to expand our operations and our employee base. We do not expect that we
will generate sufficient revenue to cover these expenses through at least the
year 2000. If our revenue does not increase and we cannot adjust our level of
spending adequately, we may not generate sufficient revenue to become
profitable. Even if we do become profitable, we may not be able to sustain or
increase profitability on a quarterly or annual basis in the future. Our ability
to generate revenue depends primarily upon our ability to attract visitors to
our Web sites and to successfully gain acceptance of our new physician-oriented
products such as electronic medical education and Mydoctor.com.
We Are Dependent On Novartis and Bristol-Myers Squibb For a Significant Portion
of Our Revenue.
Approximately 65% of our revenue for the year ended December 31, 1998 and 78%
of our revenue for the year ended December 31, 1999 resulted from engagements by
various independent divisions of Novartis AG and Bristol-Myers Squibb. We expect
that these and other divisions of these companies will account for a substantial
portion of our revenue for the foreseeable future. Our existing agreement with
Bristol-Myers Squibb includes a
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minimum commitment of $5 million, and contains expansion and renewal provisions
that we believe have the potential to increase the total revenue from the
relationship to $50 million over the term of the agreement, including renewals
through December 31, 2004.
Novartis and Bristol-Myers Squibb may also choose to change or limit our
products that they utilize, including electronic medical education, or the
products that they advertise on the Internet or on our Web sites. If they do,
this change could materially and adversely impact our revenue. In addition, our
relationship with Novartis or Bristol-Myers Squibb could be negatively affected
by any business or financial developments that impact those companies, 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 their direct-to-consumer
advertising budgets.
We May Have Difficulty Managing our Expanding Operations.
We are currently engaged in a significant expansion of our operations. We are
transitioning our systems hosted at various offsite facilities to an in-house
software environment to be located in the United States in our Tarrytown, NY
facilities, which we will manage from Toronto, Canada and Tarrytown. We have
acquired or agreed to fund a number of web sites and operations that must be
integrated into our operations including:
- pharminfo.com, a Web site providing information on pharmaceutical products
and clinical trials for pharmacists, physicians and consumers,
- Cyberdiet, Inc. which operates cyberdiet.com, a Web site providing tailored
nutritional information and programs,
- Cyber-Tech, Inc., which operates Heartinfo.org,
- inciid.org, a Web site providing information on infertility,
- Mood Sciences, which operates moodsciences.com, a mental health, oriented
web site that utilizes a proprietary tool to diagnose and track states of
depression online, and
- Physicians' Online, Inc., a company with more authenticated doctor-users
than any other medical web site.
As part of our expansion, we will have to implement additional operational and
financial systems, procedures and controls to maintain appropriate coordination
among our technical, accounting, finance, marketing, sales and editorial staffs.
If these systems and controls are not adequate, we will have significant
difficulty managing the various business functions of our operations from
multiple locations. We will also need to recruit, train and retain a significant
number of employees, particularly employees with technical, marketing, sales and
healthcare backgrounds. Individuals with these backgrounds are in high demand
and we are not certain that we will be able to attract the staff we need. In
addition, many of our senior management personnel have recently joined
Mediconsult and have not yet become integrated into and experienced with our
operations, policies, personnel and clients. In connection with the transition
of our technical operations, difficulties may arise that could cause disruptions
in the operation of our Web sites. Any of the risks described above could have a
material and adverse effect on our business, financial condition and results of
operations.
Because Our Business Model Is Unproven, We May Not Be Successful.
There are various ways to sell advertising on the Internet, the most common
means being through simple advertisements on Web sites, known as banner
advertisements. Our business depends upon the sale of in depth Internet-based
marketing programs to, and developing sponsorship relationships with,
pharmaceutical and other healthcare companies. Sales of these programs usually
depend upon a prospective client first deciding to engage in direct-to-consumer
advertising, then deciding to adopt an Internet-based marketing or advertising
strategy and finally implementing that strategy by developing a marketing
program for a particular drug or other healthcare product. This typically
involves a significant commitment of time and money from the client and, we
believe,
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requires us to establish a closer relationship with the client than in
the case of banner advertisements. Based on our experience, it typically takes
six weeks to nine months to finalize an agreement with a potential customer. In
addition, our business depends upon our ability to design, develop and implement
a customized marketing and advertising program calculated to achieve the
specific client's marketing objectives. Our business, financial condition and
results of operations will be materially and adversely affected if the business
model we have adopted is not attractive to our prospective clients and if we are
unable to adapt to other business models for generating Internet
advertiser/sponsorship revenue.
We currently intend to develop relationships for our Web sites and Internet-
based services, such as electronic medical education, solely with pharmaceutical
and other healthcare companies. Accordingly, our target customer base is
limited. Most of our current or potential clients have little or no experience
using the Internet for medical education, marketing and advertising and have
allocated only a limited portion of their budgets to the Internet. The adoption
of Internet marketing and advertising by entities that have historically relied
upon traditional media for marketing and advertising requires the acceptance of
a new way of conducting business, exchanging information and advertising
products and services. These customers may find Internet advertising to be less
effective than traditional advertising media for promoting their products and
services. In addition, direct-to-consumer pharmaceutical advertising is a
relatively new concept and, as a result, we cannot assure you that it will
increase, or if so, to what extent it will increase, generally or through the
Internet.
We Will Not Be Successful if the Use of the Internet for Advertising Does Not
Continue to Increase.
A significant percentage of our revenue will be derived from Internet
marketing and sponsorship relationships for the foreseeable future. Since the
Internet advertising market is new and rapidly evolving, we cannot yet gauge its
acceptance as an effective media by advertisers. Our business, financial
condition and results of operations will be materially and adversely affected if
the Internet advertising market develops more slowly than we expect. Moreover,
"filter" software programs that limit or prevent advertising from being
delivered to an Internet visitor's computer are available. Widespread adoption
of this software could adversely affect the commercial viability of Internet
advertising and as a result would materially and adversely affect our business,
financial condition and results of operations.
Advertisers may choose not to sponsor our Web sites or may pay less for
advertising on our Web sites if they do not perceive the visitor measurements of
our Web sites to be reliable. No standards have been widely accepted to measure
the effectiveness of Internet advertising or to measure the demographics of our
visitor base. Third parties currently provide these measurement services for us.
If they are unable to provide these services in the future, we would be required
to perform them ourselves or obtain them from another provider. This could cause
us to incur additional costs or cause interruptions in our business while we
replace these services. In addition, we are implementing additional systems
designed to record demographic data of visitors. If we do not implement these
systems successfully, we may not be able to accurately evaluate the demographic
characteristics of the visitors.
We Depend on the Continued Growth of the Internet for our Services.
The Internet is relatively new and is rapidly evolving. Our business,
financial condition and results of operations will be materially and adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited for a number of reasons:
- demands placed on the Internet infrastructure and the potential decline in
performance and reliability as usage grows;
- security and authentication concerns with respect to the transmission over
the Internet of confidential information, like credit card numbers and
medical information, and attempts by unauthorized computer visitors, known
as hackers, to penetrate online security systems; and
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- privacy concerns, including those related to the placement by Web sites of
certain information to gather visitor information, known as cookies, on a
visitor's hard drive without the visitor's knowledge or consent.
We must adapt as the Internet continues to evolve. To be successful, we must
adapt to the changing technologies in our rapidly evolving market by continually
enhancing our Web sites and introducing new services to address our customers'
changing demands. This will entail a continuous level of development and capital
spending and we could incur substantial additional costs if we need to modify
our services or infrastructure. Our business, financial condition and results of
operations will be materially and adversely affected if we incur significant
costs to adapt, or cannot adapt, to these changes.
You Should Not Rely on our Quarterly Operating Results as an Indication of How
we will Do in the Future.
Our quarterly operating results may vary significantly in the foreseeable
future due to a number of factors that could affect our revenue, expenses or
prospects during any particular quarter. These factors include:
- demand for direct-to-consumer healthcare advertising and medical education
on the Internet in general and on our Web sites in particular;
- visitor traffic levels on our Web sites;
- our ability to retain our significant clients, particularly Novartis and
Bristol-Myers Squibb;
- our ability to attract and retain other sponsors that are seeking in-depth
Internet-based marketing and advertising programs;
- changes in rates paid for Internet advertising resulting from competition or
other factors;
- technical difficulties or system downtime affecting the Internet or the
operation of our Web sites;
- the amount and timing of our costs related to our marketing and sales
efforts;
- costs we may incur as we expand our operations;
- seasonality in sponsorship agreements and Internet usage;
- our ability to price our marketing and sponsorship programs profitably;
- costs related to the acquisition and integration of other businesses,
technologies and services; and
- economic conditions specific to the healthcare and pharmaceutical industries
and to the Internet.
The timing of our ability to develop client relationships is one of the most
significant factors affecting quarterly results. The time between the date of
initial contact with a potential client and the execution of a contract
typically ranges from six weeks for smaller agreements to nine months for larger
agreements. These contracts are also subject to delays over which we have little
or no control, including customers' budgetary constraints, their internal
acceptance reviews, whether or when regulatory approval of their products is
given by the FDA or other regulatory authority, the possibility of cancellation
or delay of projects by advertisers and any post-approval actions taken by the
FDA or other regulatory authority, including product recalls. During the selling
process, we may expend substantial funds and management resources and yet not
obtain adequate sponsorship revenue. Once a contract is executed, a significant
portion of our revenue is derived from customized Web site development and
implementation projects, rather than from recurring fees. As a result, we cannot
predict with certainty when we will perform the work necessary to receive
payment for these projects.
In any given quarter, we may not be able to adjust spending in a timely manner
to compensate for any unexpected shortfall in our revenue. Any significant
shortfall would have an immediate material and adverse effect on our business,
financial condition and results of operations. Since we have a limited operating
history, we
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cannot yet determine whether seasonal factors will affect our quarterly
operating results. Traffic levels on Web sites have typically fluctuated during
the summer and year-end vacation and holiday periods, and this could result in a
decrease in user traffic on our Web sites during these periods.
Similar seasonal or other patterns may develop in the Internet healthcare
industry. Due to all of the foregoing factors, and the other risks discussed in
this section, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of future performance. It is possible
that in some future periods our operating results will be below the expectations
of public market analysts and investors. In this event, the price of our common
stock would likely fall.
There Are Many Competitors in the Healthcare Segment of the Internet Market and
We May Not be Able to Compete Effectively Against Them.
There are many companies that provide Internet and non-Internet based
marketing and advertising services to the healthcare industry. All of these
companies compete with us for advertisers, and Internet healthcare companies
also compete with us. We expect competition to continue to increase as there are
no substantial barriers to entry in our market. Increased competition could
result in reductions in the fees we receive for our marketing and sponsorship
relationships, lower margins, loss of clients, reduced visitor traffic to our
Web sites, or loss of market share. Any of these occurrences could materially
and adversely affect our business, financial condition and results of
operations. Competition is also likely to increase significantly, not only as
new entities enter the market, but also as current competitors expand their
services. Our principal competitors include:
- advertising agencies and consulting firms, such as Young & Rubicam and
Agency.com, that develop marketing and advertising programs for
pharmaceutical and other healthcare companies;
- Web sites that deliver consumer and professional healthcare information,
either as their sole focus or as part of a more broadly-based site, such as
DrKoop, InteliHealth, Healtheon/WebMD, and Medscape;
- Other, larger companies that either have entered the Internet healthcare
markets or have announced an intention to do so, such as IMS Health,
McKesson HBOC, Quintiles Transnational, and National Data;
- general purpose consumer online 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 FOX,
CBS, Disney, NBC and Time Warner.
Our ability to compete depends on a number of factors, many of which are
outside of our control. These factors include quality of content, ease of use,
timing and market acceptance of new and enhanced services, and level of sales
and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, existing
relationships with pharmaceutical and other healthcare companies and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive development efforts, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, sponsors and alliance partners. Our
competitors may develop services that are equal or superior to those we provide
or that achieve greater market acceptance and brand recognition than we achieve.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address the needs of sponsors. It is possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully or competitive pressures may have
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a material adverse effect on our business, results of operations and financial
condition. If advertisers perceive the Internet generally or our Web sites to be
a relatively limited or ineffective advertising medium, advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising or to become sponsors of our Web sites.
We Must Continually Enhance and Develop the Content and Features of our Web
Sites to Attract Visitor Traffic and Sponsors.
We produce only a portion of the editorial content available on our Web sites
and rely on third-party firms and organizations for most of our content. Much of
the information on our Web sites is easily available from other sources. Other
Web sites may present the same or similar content in a superior manner to our
Web sites, which would adversely affect our visitor traffic. To remain
competitive, we must continue to enhance and improve our content. In addition,
we must continually improve the responsiveness, functionality and features of
our Web sites and develop other products and services attractive to visitors and
sponsors. Changes to our Web sites may contain undetected programming errors
that require significant design modifications, which may result in a loss of
consumer confidence and user support and a decrease in the value of our brand
name. We plan to develop and introduce new features, functions, content,
products and services that will require the development or licensing of
increasingly complex technologies. We may not succeed in developing or
introducing features, functions, products and services that will attract
visitors and sponsors, which would be likely to materially and adversely affect
our business, financial condition and results of operations.
We May Need to Create a Mediconsult Brand Identity to Be Successful.
In order to build and align our brand awareness, we must succeed in our
marketing efforts, provide high-quality services and increase the number of
visitors to our Web sites. In addition, healthcare consumers and physicians
must, among other things, perceive us as offering relevant, reliable healthcare
information from trustworthy sources. We intend to increase our marketing
expenditures as part of our brand-building efforts. If these efforts are
unsuccessful and we cannot increase our brand identity and increase revenue, our
business, financial condition and results of operations could be materially and
adversely affected.
We Are Subject to the Risks of Integrating and Successfully Funding Our Joint
Ventures and Acquisitions.
We have in the past developed joint ventures with and acquired complementary
businesses, technologies, services or products, including topic-specific Web
sites, and may continue to do so in the future.
We recently acquired CyberDiet, Inc., which operates a Web site providing
tailored nutritional information and programs, Cyber-Tech, Inc., which operates
Heartinfo.org., acquired Mood Sciences, a mental health oriented web site that
utilizes a proprietary tool to diagnose and track states of depression online,
and acquired Physicians' Online, Inc., the largest, secure physicians-only
community on the Internet. We may not receive a positive return on our
investments in these companies and may not realize other benefits anticipated
from them. We may have difficulty assimilating these entities and their
operations with our existing operations, and this could result in a loss of
visitor traffic and revenue.
We may not be able to identify suitable acquisition candidates or joint
venture and alliance partners in the future. Even if we do identify suitable
candidates, we may not be able to enter into transactions with these candidates
on commercially acceptable terms. If we make other acquisitions or enter into
these other arrangements, we could have difficulty in integrating the acquired
products, services or technologies into our operations. These difficulties could
disrupt ongoing business, distract management and employees, increase our
expenses and materially and adversely affect our business, financial condition
and results of operations. We may incur significant amortization charges from
the goodwill resulting from acquisitions. We may also incur indebtedness or
issue equity securities to pay for future acquisitions or management or
sponsorship rights. The
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issuance of equity securities would be dilutive to our existing stockholders.
The issuance of the Mediconsult stock in connection with the merger will result
in immediate and substantial dilution to existing Mediconsult stockholders.
Aspects of our Web Sites May Subject us to Regulatory Oversight and Other
Concerns
Numerous state and federal laws also govern the delivery of healthcare
services and goods. Healthcare licensing laws and laws prohibiting the offer,
payment or receipt of remuneration to induce referrals to entities providing
healthcare services or goods, many of which are being actively enforced, apply
to Internet healthcare applications as well. In the event some state or federal
regulatory agency determined that our relationship with one or more of our
advertisers that deliver healthcare services or goods violate any such laws,
then we could be subjected to fines and other costs and could be required to
revise or terminate that portion of our business. Our pharmaceutical clients are
also subject to review by the FDA for compliance with regulations governing the
information that can be provided to consumers on a pharmaceutical product. These
regulations, for example, limit recommended uses to the specific uses approved
by the FDA. The FDA also monitors compliance with direct-to-consumer advertising
regulations. If the FDA adopts regulations specifically aimed at pharmaceutical
advertising on the Internet or takes action with respect to a particular
client's advertising program, our existing marketing and advertising programs
for clients and future opportunities could be materially and adversely affected.
Our Key Personnel are Very Important to Our Success.
Our future success depends on the services of our senior management personnel.
We do not have key person life insurance on any of our personnel. Loss of any
one or more of our senior management personnel would have a material adverse
effect on our business, financial condition and results of operations. To be
successful, we will also need to attract and retain individuals with expertise
in the areas of marketing and sales and technology. In addition, the successful
staffing and integration of our in-house programming operations will depend on
our ability to attract and retain qualified employees. Competition for qualified
personnel is intense, and the loss of key personnel, or the inability to
attract, train and retain the additional highly skilled personnel required for
the expansion of our activities, would materially and adversely affect our
business, financial condition and results of operations.
We are Controlled By Management Stockholders Whose Interests May Differ From
Other Stockholders.
Mr. Robert A. Jennings, our Chief Executive Officer, currently owns as an
individual and through affiliated entities controls approximately 26.4% of the
outstanding shares of our common stock. Together with Mr. Jennings, the
management stockholders of Mediconsult own or control approximately 30.8% of
Mediconsult's outstanding common stock. Accordingly, pursuant to Delaware
corporate law, the Mediconsult management stockholders effectively control the
election of all of our directors and, in general, have sufficient voting power
to determine (without the consent of our other stockholders) the outcome of any
corporate transaction or other matter submitted to the stockholders for
approval. These include mergers, consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or cause a change
in control. The interests of the management stockholders may differ from the
interests of other stockholders.
We Are Subject to Risks Associated with International Operations.
Our business is conducted through operations and employees in Bermuda, Canada,
the European Community and the United States. Our international operations and
activities subject us to a number of risks, which include the risk of complying
with multiple complex regulatory requirements, like European Community
regulations affecting Internet operations, and the risks of political and
economic instability, difficulty in managing foreign operations, potentially
adverse taxes, higher expenses and difficulty in collection of accounts
receivable. In addition, we receive most of our revenue in U.S. dollars, but a
substantial portion of our payroll and other
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expenses are paid in the currency of the country where our employees reside or
operations are located. Because our financial results are reported in U.S.
dollars, they are affected by changes in the value of the various foreign
currencies that we use to make payments in relation to the U.S. dollar. We do
not cover known or anticipated operating exposures through foreign currency
exchange option or forward contracts.
The Internet is Subject to Many Governmental Regulations that May Impact our
Ability to Conduct Business.
There is, and will be, an increasing number of laws and regulations pertaining
to the Internet. These laws or regulations may relate to liability for
information received from or transmitted over the Internet, online content
regulation, user privacy, taxation and quality of products and services. In
addition, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. Any new law or regulation, or the adverse application
or interpretation of existing laws, may decrease the growth in the use of the
Internet or our Web sites. This could decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, financial condition or results of operations.
We May Be Subject to Claims Based on the Content We Provide on the Internet.
Because visitors to our Web sites may distribute our content to other people,
third parties might sue us for defamation, negligence, product liability,
copyright, or trademark infringement, or other matters. These types of claims
have been brought, sometimes successfully, against other on-line services in the
past. We may also incur liability for the content on other Web sites that are
linked to our Web sites or for content and materials that may be posted by
visitors in chat rooms or bulletin boards. Our e-mail services may also subject
us to potential claims resulting from unsolicited e-mail, lost or misdirected
messages, illegal or fraudulent use of e-mail or interruptions or delays in e-
mail service. We also enter into agreements with commerce partners that entitle
us to receive a share of any revenue from the purchase of goods and services
through direct links from our Web sites to their Web sites. These arrangements
may subject us to additional claims, including product liability or personal
injury related to these products and services, because we provide access to
these products or services, even if we do not provide the products or services
ourselves.
Satisfactory Performance of our Web Sites is Critical to our Business and
Reputation.
The performance of our Web sites is critical to our business and reputation
and to our ability to attract visitors and sponsors to our Web sites. We are
dependent upon the continuous, reliable and secure operation of Internet servers
and related hardware and software. To the extent that service is interrupted or
delayed, we could experience a decrease in traffic and revenue. We do not at
present have any back up "off-site" systems or a formal disaster recovery plan,
nor do we have insurance coverage for business interruption. Substantially all
of our communications hardware and some of our other computer hardware
operations are located in Toronto, Canada. Fire, floods, earthquakes, power
loss, telecommunications failures, break-ins and similar events could damage
these systems. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our Web sites.
Our Web sites must accommodate a high volume of traffic and deliver
information that is updated frequently. Our Web sites have in the past and may
in the future experience slower response times or decreased traffic for a
variety of reasons. In addition, our visitors depend on Internet Service
Providers, online service providers and other Web site operators for access to
our Web sites. Many of them have experienced significant outages in the past and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems in the future.
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The on-going enhancement of our Web sites is dependent upon the success of
development efforts that will be performed by in-house employees and by
contractors. To the extent that these development efforts are delayed or
unsuccessful, we will incur additional development expenses and may not remain
competitive in the design and use of our Web sites.
A Lack of Security Over the Internet May Impact our Business.
A significant barrier to electronic commerce and confidential communications
over the Internet has been the need for secure transmission of confidential
information. Internet usage could decline if any well-publicized compromise of
security occurred. We may incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by such breaches.
Experienced programmers could attempt to penetrate our network security.
Programmers who are able to penetrate our network security could misappropriate
proprietary information or cause interruptions in our services, and we could be
required to expand capital and resources to protect against or to alleviate
problems caused. Purposeful security breaches could have a material adverse
effect on our business, results of operation and financial condition.
We Are Dependent on our Intellectual Property.
Trademarks, copyrights and other proprietary rights are important to our
success and our competitive position. Third parties may infringe or
misappropriate our trademarks, copyrights and other proprietary rights, which
could have a material and adverse effect on our business, financial condition
and results of operations. In addition, we do not know how extensive our
intellectual property protection is since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries is uncertain
and still evolving.
We license some of our content from third parties. It is possible that we
could become subject to infringement actions based upon the content obtained
from these third parties. In addition, others may use this content and we may be
subject to claims from our licensors. These claims, with or without merit, could
subject us to costly litigation and the diversion of our financial resources and
technical and management personnel. We have entered into confidentiality
agreements with our key employees and independent consultants and we have
instituted procedures to control access to and distribution of our technology,
documentation and other proprietary information and the proprietary information
of others from which we have licensed content or technology. Despite our efforts
to protect our proprietary rights, parties may attempt to disclose, obtain or
use our content or technologies. There can be no assurance that the steps we
have taken will prevent misappropriation of our content or technologies.
Future Sales of our Common Stock by our Existing Stockholders could have an
Adverse Effect on the Market Price of our Common Stock.
The market price of our common stock could decline as a result of sales by our
existing stockholders and the former stockholders of Physicians' Online of a
large number of shares of common stock in the market after the merger, or the
perception that these sales may occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. In addition, certain holders of our common stock
and certain holders of warrants exercisable for shares of our common stock have
registration rights. If these shares are registered, sales of the shares also
could adversely affect our stock price.
Our Stock Price is Volatile and Could continue to be Volatile.
Investment interest in Mediconsult may not sustain an active or liquid trading
market. The market price of our common stock has fluctuated in the past and is
likely to continue to be volatile and subject to wide fluctuations. In addition,
the stock market has experienced extreme price and volume fluctuations. The
stock prices and trading volumes for many Internet companies fluctuate widely
for reasons that may be unrelated to their business or
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results of operations. General economic, market and political conditions could
also materially and adversely affect the market price of our common stock.
Forward Looking Statements; Market Data
A number of statements made in this Annual Report on Form 10-K, are forward-
looking statements. These forward-looking statements are not historical facts.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
This Annual Report on Form 10-K also contains market data related to
Mediconsult and the Internet. This data has been included in the studies
prepared by the Internet market research firms of Cyber Dialogue, Jupiter
Communications and Media Metrix. This market data includes projections that are
based on a number of assumptions. The assumptions include that: (1) no
catastrophic failure of the Internet will occur; (2) the number of people who
use the Internet and the total number of hours spent online will increase
significantly over the next five years; (3) the value of online sponsorship
dollars spent for each hour a visitor is online will increase; (4) the speed at
which content can be downloaded from the Internet will increase dramatically;
and (5) Internet security and privacy concerns will be adequately addressed.
This Annual Report on Form 10-K also contains market data related to direct-
to-consumer advertising. This data has been included in the studies prepared by
Consumer Health Information Corporation and Med Ad News. This market data
includes projections that are based on a number of assumptions. The assumptions
include that: (1) there will be no adverse changes in existing direct-to-
consumer advertising regulations; (2) direct-to-consumer advertising spending
will continue to be accepted by pharmaceutical companies as an attractive
vehicle for advertising; (3) the number of pharmaceutical products covered by
direct- to-consumer advertising will continue to increase; and (4) advertisers
will increasingly use the Internet as a forum for direct-to-consumer
advertising.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ from the projections given by these firms. These markets may
not grow at the rates projected by the firms named above or at all. The failure
of these markets to grow at such projected rates could have a material adverse
effect on our business, financial condition and results of operations, and the
market price of our common stock.
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements are set forth on pages F-1 through F-21 attached
hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. 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, 1999, the name, age and
position of the Company's directors, executive officers and other significant
employees.
NAME AGE POSITIONS
---- --- ---------
Robert A. Jennings 42 Chairman and Chief Executive Officer
David J. Austin 43 Chief Web Officer
Michel Bazinet, M.D 43 Medical Director
David M. Haselwood 24 Vice President, Business Development
E. Michael Ingram 47 General Counsel and Chief Financial Officer
Louis Leonardelli 48 Controller and Principal Accounting Officer
Timothy J. McIntyre 44 President of Pharma Marketing, LCC
Ian Sutcliffe 47 President and Director
James L. Bierman 47 Director
John Buchanan 43 Director
R. Bradford Burnham 45 Director
Jason S. Fisherman 43 Director
Barry Guld 43 Director
Fred F. Nazem 59 Director
David D. Richards 40 Director
ROBERT A. JENNINGS has served as Chairman and Chief Executive Officer of the
Company since its inception in 1996. From 1993 to 1998, Mr. Jennings acted as an
advisor to a number of companies on general business matters. Beginning in 1998,
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.
DAVID J. AUSTIN has served as Chief Web Officer of the Company since February,
1999 and served as Chief Operating Officer of the Company from 1998 until
February, 1999. He has 18 years of experience in developing and executing
strategies for high-tech business development. From 1995 to 1999, 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.
38
<PAGE>
DAVID M. HASELWOOD has served as our Vice President, Business Development
since July 1999. From September 1997 to July 1999, he was in the corporate
finance group of Volpe Brown Whelan & Co., LLC, an investment bank. From January
1996 to September 1997, he was a research analyst at Santa Barbara Cottage
Health System, a multi-hospital health system. Mr. Haselwood earned his B.A. in
Natural Sciences in 1995 from The Johns Hopkins University.
E. MICHAEL INGRAM has served as our General Counsel since April 1999 and has
served as our Chief Financial Officer and Secretary since May 1999. Prior to
joining us and since 1980, Mr. Ingram held several legal positions with National
Data Corporation. Most recently since 1988, he was Senior Vice President,
General Counsel and Secretary of National Data Corporation. Mr. Ingram earned
his J.D. degree from the University of Georgia School of Law and his L.L.M. in
taxation from Emory University School of Law.
LOUIS LEONARDELLI has served as our Controller and principal accounting
officer since September 1, 1999. From January 1985 to August 1999 he held
several accounting positions with Katz Media Group, Inc. His final position
upon leaving Katz was Vice President of Financial Services. Mr. Leonardelli
earned his B.A. in accounting in 1976 from Bernard Baruch College.
TIMOTHY J. MCINTYRE has served as President of Pharma Marketing, LLC since
September of 1999. He has over 20 years of experience in marketing and
advertising, primarily in the healthcare sector. From 1997 until 1999, he held
several executive positions, including President and Chief Operating Officer,
with Boron Lepore & Associates, a pharmaceutical marketing company. From 1994
until 1997, Mr. McIntyre was President and Chief Executive Officer of McIntyre &
McIntyre, Inc., another pharmaceutical marketing company.
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.
JAMES L. BIERMAN has served as a Director of Mediconsult since December 1999
and served as a director on the board of Physicians' Online since April 1999.
Mr. Bierman currently serves as Senior Vice President of Corporate Development
at Quintiles Transnational Corp. where he directs all merger and acquisition
activity. Prior to joining Quintiles Transnational Corp. in June 1998, Mr.
Bierman spent 22 years with Arthur Andersen L.L.P. where, as a partner of this
international professional services organization, he worked with a diversified
broad-base of companies solving complex business problems. Mr. Bierman received
a B.A. in Economics and History from Dickinson College and a M.B.A. from Cornell
University's Johnson Graduate School of Management. Mr. Bierman is a Certified
Public Accountant and a member of the American Institute of Certified Public
Accountants and the North Carolina Association of Certified Public Accountants.
JOHN BUCHANAN has been a Director of the Company since 1999. Since 1993, he
has been President & CEO of Retek Information Systems Inc. ("Retek"), a publicly
traded subsidiary of HNC Software Inc. Retek develops, markets and supports
predictive software solutions to the enterprise software industry.
R. BRADFORD BURNHAM has served as a Director of Mediconsult since December
1999 and served as a director on the board of Physicians' Online since April
1996. Mr. Burnham is currently a General Partner at AT&T Ventures, where he
invests in early stage companies that are building businesses in electronic
commerce, Internet infrastructure, and communications services. Prior to joining
AT&T Ventures in September of 1993, Mr. Burnham was founder and, for three
years, Chief Executive Officer of Echo Logic, a software development firm. From
January of 1979 to May of 1990, Mr. Burnham held a variety of sales and
marketing positions at AT&T. In
39
<PAGE>
addition to serving on the Physicians' Online board, Mr. Burnham is currently a
director of one public company, Audible (ADBL), and several private companies.
Mr. Burnham holds a B.A. in Political Science from Wesleyan University.
JASON S. FISHERMAN, MD has served as a Director of Mediconsult since December
1999 and served as a director on the board of Physicians Online since February
1996. Dr. Fisherman is also a director of one public company, ILEX Oncology. He
also serves as a director of a number of private healthcare and bio-
pharmaceutical companies. Dr. Fisherman is currently a Partner at Advent
International Corp., a global private equity and venture capital investment
firm. Prior to joining Advent in March of 1994, Dr. Fisherman served as Senior
Director of Medical Research for Enzon, Inc. from 1991 to 1994. Dr. Fisherman
received a B.A. in Molecular Biophysics and Biochemistry from Yale University, a
M.D. from the University of Pennsylvania and a M.B.A. from the Wharton Graduate
School of Business.
BARRY GULD has been a Director of the Company since 1999. 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
Velocity Computer Solutions.
FRED F. NAZEM has served as a Director of Mediconsult since December 1999.
Since 1981, Mr. Nazem has been President of Nazem, Inc. and Managing General
Partner of the general partner of several Nazem & Company limited partnerships
that are affiliated venture capital funds. Mr. Nazem is a director of three
public companies in addition to Mediconsult: Tegal Corporation, Oxford Health
Plans, Inc. and Spatial Technologies, Inc., as well as a number of privately
held firms.
DAVID D. RICHARDS has served as a Director of Mediconsult since December 1999
and served as a director on the board of Physicians' Online since February 1998,
and prior to that from 1994 to 1995. Mr. Richards also currently serves as the
Chairman of the Board of Directors and the Chief Executive Officer of
Physicians' Online. Mr. Richards was a Vice President of Landmark Communications
from June 1997 to April 1998 as well as from June 1993 to May 1995 where he was
responsible for new media investments at this privately held media and
communications company. From 1995 to 1997, Mr. Richards served as the Chief
Executive Officer and President of InfiNet, an Internet services company
providing a broad array of Internet Service Provider, hosting and software
development for United States based media companies. While at InfiNet, Mr.
Richards focused on developing the strategic direction of the company and
overseeing its execution. Mr. Richards received a B.A. in Political Science from
Williams College and a M.B.A. from the Darden Graduate School of Business at the
University of Virginia .
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 recommendation of our
independent auditors, the scope of annual audits, fees to be paid to the
independent auditors, the performance of our independent auditors and our
accounting practices. The current members of our Audit Committee are Messrs.
Buchanan and Nazem.
The Compensation Committee of the board of directors was established in
October 1998 and determines the salaries and benefits for our employees,
consultants, directors and other individuals we compensate. The Compensation
Committee also administers our compensation plans. The current members of the
Compensation Committee are Messrs. Guld and Burnham.
40
<PAGE>
The Nominating Committee of the board of directors was established in January
1999, and recommends individuals for director positions. The members of the
Nominating Committee are Messrs. Jennings, Sutcliffe and Nazem.
The Executive Committee of the board of directors was established in December
1999, and acts on matters delegated to it by the full board of directors. The
members of the Executive Committee are Messrs. Jennings, Buchanan, Guld, Nazem
and Fisherman.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
During 1999 Forms 3 Initial Statements of Beneficial Ownership of Securities
were late filed by Messrs. David D. Richards, Bradford Burnham and Fred F.
Nazem.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded to, earned by or paid
to the Company's Chief Executive Officer and its next four most highly
compensated executive officers (the "Named Executive Officers") whose total
annual salary and bonus exceeded $100,000 for the year ended December 31, 1999,
for services rendered in all capacities in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
- ------------------------------------------------------------------------------------------------------------------
Name and Principal Position Salary Bonus Other Annual Shares Underlying
Compensation Options
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert A. Jennings $275,000 $250,000 $ -- --
Chief Executive Officer
- ------------------------------------------------------------------------------------------------------------------
Ian Sutcliffe $240,000 $175,000 $ -- --
President
- ------------------------------------------------------------------------------------------------------------------
E. Michael Ingram $150,000 $ 30,000 $ -- 250,000
Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------
David J. Austin $149,000 $ 23,000 $ -- --
Chief Operating Officer
- ------------------------------------------------------------------------------------------------------------------
Timothy J. McIntyre $675,300 $ -- $649,000(1) --
President of Pharma
Marketing LLC
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Represents payments for certain taxes payable by Mr. McIntyre with
respect to cash and stock distributions in 1999. This also excludes certain
amounts received by Mr. McIntyre in respect of the Company's purchase of its 35%
membership interest in Pharma Marketing, LLC.
OPTION GRANTS IN THE LAST FISCAL YEAR
In the year ended December 31, 1999, Mr. Ingram received options to purchase
250,000 shares of our common stock. Mr. Leonardelli received options to
purchase 21,300 shares of our common stock. These options vest in four equal
annual installments.
41
<PAGE>
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND DECEMBER 31,
1999 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, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised in the Money
Unexercised Options at December 31, 1999 Options at December 31, 1999 (1)
- ----------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert A. Jennings -- -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
Ian Sutcliffe -- -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
E. Michael Ingram -- 250,000 $ -- $21,850
- ----------------------------------------------------------------------------------------------------------------------
David Austin 100,000 -- $275,000 $ --
- ----------------------------------------------------------------------------------------------------------------------
Timothy McIntyre -- -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
</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, 1999, of $6.25 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 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.
EMPLOYMENT AGREEMENTS
Robert Jennings, Ian Sutcliffe and David Austin each has an employment
agreement with Mediconsult or one of our subsidiaries. Each agreement is
effective as of January 1, 1999, and expires on December 31, 2001, and will be
automatically renewed for 12 month periods after that date unless either party
gives the other written notice of termination at least three months prior to the
expiration of the initial or any subsequent term. The annual salary for each of
these executives is as follows: Robert Jennings, $275,000, which was increased
to $325,000 in December 1999; Ian Sutcliffe, $240,000, which was increased to
$300,000 in December 1999; and David Austin, $136,000. E. Michael Ingram has an
employment agreement with Mediconsult, effective as of April 1, 1999 and
expiring on March 31, 2003. This agreement will be automatically renewed for 12
month periods after that date unless either party gives the other written notice
of termination at least three months prior to the expiration of the initial or
any subsequent term. The annual salary for Mr. Ingram is $200,000. In addition,
Mr. Ingram is entitled to a non-accountable expense allowance of $50,000 per
year for the first two years of his employment.
Pharma Marketing, LLC ("Pharma") has entered into an employment agreement with
Timothy McIntyre for an initial term beginning September 7, 1999 and ending
December 31, 2003, renewable on a yearly basis thereafter. Under his employment
agreement, Mr. McIntyre is principally responsible for performing the services
under Pharma's service agreement with Mediconsult.com, Limited. Under his
employment agreement, Mr. McIntyre is entitled to receive a salary of $250,000
per year through December 31, 2000 and $350,000 per year
42
<PAGE>
thereafter. Among other benefits, Mr. McIntyre is entitled to receive a non-
accountable expense allowance of $100,000 per year through September 7, 2001 and
an amount equal to up to 100% of the commissions paid under the Mediconsult.com,
Limited agreement, with a minimum of $200,000 per year through September 7,
2001. Pharma has the right to terminate the employment agreement for cause, for
the failure to have a minimum level of contracts in place under the
Mediconsult.com, Limited service agreement or without cause. Depending on the
grounds on which his employment is terminated, Mr. McIntyre has the right to
receive certain ongoing payments from Pharma.
In addition, David Austin has received options to purchase 100,000 shares of
our common stock which have vested. Mr. Austin is entitled to receive a cash
equivalent of 12% of his base salary until he joins the applicable employee
benefit plans and programs. Also, each of these executives is entitled to
participate in a team-based performance bonus plan, with awards based upon
predetermined deliverables being developed by Mediconsult and may receive
options to purchase shares of our common stock in the future. The employment
agreements can be terminated upon delivery of written notice from us, with or
without cause. Upon termination without cause, Robert Jennings, Ian Sutcliffe,
David Austin and Debora Falk are each entitled to 12 months salary and any bonus
earned in the preceding 12 months. Mr. Ingram received options to purchase
200,000 shares of our common stock at an exercise price of $13.00 per share. Mr.
Ingram's options vest at the rate of 50,000 option shares per year beginning on
the first anniversary of the date of grant. Upon termination without cause, Mr.
Ingram is entitled to 12 months salary and any bonus earned in the preceding 12
months, except that upon termination by Mediconsult without cause or by Mr.
Ingram for good reason within 12 months after a change of control of
Mediconsult, Mr. Ingram is entitled to 24 months salary and any bonus earned in
the preceding 24 months.
Each of the executives with an employment agreement has agreed not to compete
or solicit clients or other employees during their severance period. Each of the
executives is also bound by a nondisclosure and invention assignment agreement,
which prohibits such executive from, among other things, disseminating or using
confidential information about our business or clients in any way that would be
adverse to Mediconsult.
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, 1998, the shares
eligible under the plan were increased to 2,500,000; on June 15, 1999 the shares
eligible under the plan were increased to 3,500,000, and on November 19,1999 the
shares eligible under the plan were increased to 7,000,000.
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 5,980,901 options granted under the plan, of which
3,346,950 have been exercised and 109,300 canceled as of December 31, 1999.
There were 4,008,651 options outstanding as of December 31, 1999.
43
<PAGE>
ITEM 12. 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, 1999, 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PERCENT
NAME OF BENEFICIAL -------
------------------ NUMBER BENEFICIALLY
OWNER (1) ------ ------------
--------- OWNED (2)
---------
<S> <C> <C>
Robert A. Jennings (3) 13,097,752 26.4%
Michel Bazinet 775,000 1.6
Ian Sutcliffe 250,000 *
Timothy McIntyre (4) 200,000 *
David J. Austin (5) 100,000 *
Louis Leonardelli -- *
John Buchanan (6) 70,000 *
Barry Guld (7) 70,000 *
James L. Bierman -- --
R. Bradford Burnham -- --
Jason S. Fisherman -- --
David M. Haselwood -- --
E. Michael Ingram (8) 50,000 *
David D. Richards (9) 324,000 *
JHC Limited (10) 12,307,752 24.8
Fred F. Nazem (11) (12) 348,430 *
All Directors and Officers
as a group (15 persons) 15,285,182 30.8%
</TABLE>
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Under the rules of the SEC, a person is deemed to be the beneficial owner
of a security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. Unless otherwise indicated, the
address for each person listed in the table is in the care of
Mediconsult.com, Inc., 1330 Avenue of the Americas, New York, New York
10019.
(2) Applicable percentage of ownership is based on an estimated 49,618,275
shares outstanding on December 31, 1999.
(3) Includes 12,307,752 shares owned by JHC Limited and 790,000 shares owned by
Mr. Jennings. Mr. Jennings controls JHC Limited.
44
<PAGE>
(4) Includes 100,000 shares owned by Pharma Marketing, LLC, which is controlled
by Mr. McIntyre.
(5) Represents currently exercisable options and options which vest within 60
days at an exercise price of $3.50 per share.
(6) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share.
(7) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share.
(8) Represents options which vest within 60 days at an exercise price of $13.00
per share.
(9) Mr. Richards has the option to purchase 300,000 shares of common stock of
Physicians' Online, of which 135,000 shares are currently vested,
convertible into approximately 324,000 shares of Mediconsult common stock
after the merger. This estimate is based on an estimated conversion ratio
of 2.4 shares of Mediconsult common stock for each share of Physicians'
Online common stock.
(10) Mr. Jennings controls JHC Limited, a Bermuda company.
(11) Mr. Nazem is a general partner of Nazem Associates IV, L.P. and may be
deemed to be the beneficial owner of 158,557 shares owned by Nazem &
Associates IV, L.P., however, Mr. Nazem disclaims beneficial ownership as
to any such shares.
(12) Mr. Nazem is a general partner of Nazem Associates Transatlantic, L.P. and
may be deemed to be the beneficial owner of 158,557 shares owned by Nazem &
Associates Transatlantic, L.P., however, Mr. Nazem disclaims beneficial
ownership as to any such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective December 9, 1999, we entered into an agreement with Treacy & Co.,
LLC, ("Treacy") under which the Strategic Consulting Interim Agreement, dated as
of November 16, 1998, as amended (the "Consulting Agreement"), by and among
Treacy, The Mediconsult Trust ("The Trust") and Mediconsult was terminated. In
relation to this termination we agreed to register 2,000,000 of our common
shares obtained by Treacy pursuant to the exercise of a stock option. In the
agreement Treacy also agreed to certain restrictions on its ability to sell the
shares so registered.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
Number -----------
-------
<C> <S>
2.1 Physicians' Online Merger Agreement including Amendment No. 1
thereto (1)
2.2 Cyber-Tech Merger Agreement and Plan of Reorganization (2)
3.1 Amended and Restated Certificate of Incorporation *
3.2 Amended and Restated By-laws*
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
4.1 Specimen common stock certificate(3)
4.2 Form of Investor Senior Preferred Stock Warrant (3)
4.3 Form of Warrant issued to Arnhold and S. Bleichroeder, Inc. (3)
10.1 Amended and Restated Mediconsult 1996 Stock Option Plan (1)
10.2 Amended and Restated Physicians' Online 1994 Stock Option Plan (1)
10.3 Escrow Agreement, dated June 14, 1999, among Mediconsult.com, Inc., Cyber-Tech,
Inc., Andre Pilevsky, Daniel Rader, M.D and SunTrust Bank (2)
10.4 Escrow Agreement, dated December 16, 1999, among Mediconsult.com, Inc., Physicians'
Online, Inc., Jason Fisherman as representative, and The Wilmington Trust Company
(1)
10.5 Worldwide Web Server Agreement dated November 6, 1996 between Tvisions, Inc. and
Mediconsult.com Limited (4)
10.6 Operating Agreement of Pharma Marketing, LLC, Dated September 7, 1999*
10.7 Service Agreement, dated September 7, 1999, between Pharma Marketing, LLC and
Mediconsult.com., Inc.*
10.8 Membership Investment Agreement, dated September 7, 1999, between Pharma Marketing,
LLC and Mediconsult.com, Inc.*
10.9 Letter agreement dated December 30, 1998 among the Company, Pharmaceutical
Information Associates, Ltd., VirSci Corporation and Pharmaceutical
Information.Net, Inc. (3)
10.10 Consulting Agreement dated March 3, 1997 between the Company and IBM Canada
10.11 Source Code License Agreement dated February 26, 1999 between Tvisions, Inc. and
Mediconsult.com Limited (3)
10.12 Agreement between Brystol-Meyers Squibb Company and Mediconsult.com Limited, dated
as of September 30, 1999 *
10.13 Agreement between the Company and Novartis Pharma AG (3)
10.14 Exclusive Sponsorship Agreement dated as of January 15, 1999 between InterNational
Council on Infertility Information Dissemination and Mediconsult.com Limited (3)
10.15 Employment Agreement effective as of January 1, 1999, between 3542491 Canada Inc.
and David J. Austin (3)
10.16 Employment Agreement effective as of January 1, 1999, between Mediconsult.com
Limited and Robert A. Jennings (3)
10.17 Employment Agreement effective as of January 1, 1999, between 3542491 Canada Inc.
and Ian Sutcliffe (3)
10.18 Employment Agreement dated as of April 1, 1999 between the Company and E. Michael
Ingram (3)
10.19 Employment Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Andre Pilevsky (2)
10.20 Employment Agreement, dated September 7, 1999, between Pharma Marketing, LLC
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
and Timothy J. McIntyre.*
10.21 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd.
and Andre Pilevsky (2)
10.22 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd.
and Sharon Weinberg (2)
10.23 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd.
and Daniel Rader, M.D(2)
10.24 Stock Purchase Agreement dated as of February 26, 1999 between the Company and the
Investors named therein (3)
10.25 Registration Rights Agreement dated February 26, 1999, among the Company and the
Investors named therein (3)
10.26 Stockholders' Agreement dated February 26, 1999 among the Company, the Founders
identified therein and the Investors identified on Schedule 1 thereto (3)
10.27 Registration Rights Agreement dated as of February 26, 1999 between the Company and
Arnhold and S. Bleichroeder, Inc. (3)
21.1 Subsidiaries of the Company*
23.1 Consent of PricewaterhouseCoopers*
27.1 Financial Data Schedule*
</TABLE>
___________
* Filed electronically herewith.
(1) Exhibits are incorporated by reference to the Annexes to Mediconsult's
joint information/proxy statement/prospectus on Schedule 14C (File No. 000-
29282) filed November 19, 1999.
(2) Exhibits are incorporated by reference to Mediconsult's Current Report on
Form 8-K (File No. 333-73059) filed June 29, 1999.
(3) Exhibits are incorporated by reference to Mediconsult's Registration
Statement on Form S-1 (Registration No. 333-73059) filed April 2, 1999.
(4) Exhibits are incorporated by reference to Mediconsult's Registration
Statement on Form 10-SB (File No. 333-21883) filed December 16, 1996.
(B) REPORTS ON FORM 8-K.
We filed a current report on Form 8-K on December 20, 1999, reporting the
issuance, and attaching as an exhibit, a press release announcing the completion
of the Physicians' Online merger.
47
<PAGE>
SIGNATURES
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
----------------------------- March 30, 2000
Robert A. Jennings
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
/s/ E. Michael Ingram
----------------------------- March 30, 2000
E. Michael Ingram
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
/s/ Ian D. Sutcliffe
----------------------------- March 30, 2000
Ian Sutcliffe
DIRECTOR, PRESIDENT
----------------------------- March 30, 2000
Fred Nazem
DIRECTOR
/S/ Jason Fisherman
----------------------------- March 30, 2000
Jason Fisherman
DIRECTOR
/s/ David Richards
----------------------------- March 30, 2000
David Richards
DIRECTOR
/s/ Bradford Burnham
----------------------------- March 30, 2000
Bradford Burnham
DIRECTOR
/s/ Barry Guld
----------------------------- March 30, 2000
Barry Guld
DIRECTOR
----------------------------- March __, 2000
John Buchanan
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DIRECTOR
/s/ James L. Bierman
----------------------------- March 30, 2000
James L. Bierman
DIRECTOR
</TABLE>
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MEDICONSULT.COM, INC. PAGE
----
<S> <C>
Report of Independent Accountants.................................................................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998....................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997......................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1999, 1998
and 1997........................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997......................... F-7
Notes to Consolidated Financial Statements......................................................................... F-8
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Mediconsult.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers
Hamilton, Bermuda
March 20, 2000, except for footnote 20 which is dated as of March 31, 2000.
F-2
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,320,814 $ 135,053
Accounts receivable, net of allowance for doubtful accounts of 1,062,574 135,790
$31,875 and $0 at December 31, 1999 and 1998, respectively (Note 3)
Unbilled Revenue 3,433,663
Prepaid expenses and other current assets 556,646 --
------------ ----------
Total current assets 27,373,697 270,843
Fixed assets, net (Note 7) 2,291,772 52,790
Intangible assets, net (Note 8) 193,115,481 818,750
------------ ----------
Total assets $222,780,950 $1,142,383
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,591,054 $ 243,413
Advances from shareholder (Note 10) 314,979 513,589
Deferred revenue 322,488 107,000
Notes payable (Note 9) 4,974,100 --
-------------- -------------
Total current liabilities 16,202,621 864,002
-------------- -------------
Commitments and contingencies (Note 17) -- --
Mandatorily redeemable
Senior preferred stock, $0.001 par value, 5,000,000 shares authorized, -- --
1,000,000 shares designated, no shares issued and outstanding at
December 31, 1999 and 1998
Stockholders' equity:
Junior preferred stock $0.001 par value, 4,000,000 shares designated, -- 4,300,000
none and 430,000 shares issued and outstanding at December 31, 1999
and 1998, respectively
Common stock, $.001 par value, 100,000,000 shares authorized, 49,634 18,520
49,633,275 and 18,519,950 shares issued and outstanding at December
31, 1999 and 1998, respectively
Additional paid-in capital 257,263,537 5,242,981
Deferred compensation (16,051,925) (884,109)
Accumulated deficit (34,682,917) (8,399,011)
-------------- -------------
Total stockholders' equity 206,578,329 278,381
-------------- -------------
Total liabilities and stockholders' equity $ 222,780,950 $ 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
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues $ 6,362,226 $ 1,030,934 $ 256,374
------------ ----------- -----------
Operating expenses:
Product and content development 7,574,171 1,316,188 765,864
Marketing, sales and client services (Note 5) 11,934,645 1,811,710 1,130,340
General and administrative 7,055,865 1,012,719 792,213
Depreciation and amortization 3,758,210 170,439 132,768
Fair value of options granted to employees 2,031,251 275,145 40,235
Fair value of options and warrants granted to 1,834,175 1,354,000 ---
consultants and third parties ------------ ----------- -----------
Total operating expenses 34,188,317 5,940,201 2,861,420
------------ ----------- -----------
Loss from operations (27,826,091) (4,909,267) (2,605,046)
Interest income (expense), net 1,542,185 --- (20,000)
------------ ----------- -----------
Net loss (26,283,906) (4,909,267) (2,625,046)
Dividends on preferred stock (945,505) --- ---
------------ ----------- -----------
Net loss attributable to common stockholders $(27,229,411) $(4,909,267) $(2,625,046)
Per common share data:
Basic and diluted net loss per share $ (1.02) $ (0.27) $ (0.16)
============ =========== ===========
Weighted average shares of common stock 26,711,890 17,910,898 16,729,900
outstanding used in computing basic and ============ =========== ===========
diluted net loss per share
</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, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
JUNIOR PREFERRED ADDITIONAL
STOCK COMMON STOCK PAID IN DEFFERED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 --- $ --- 16,209,400 $ 16,209 $ 994,976 $ --- $ (864,698) $ 146,487
Conversion of --- --- 1,000,000 1,000 499,000 --- --- 500,000
debentures
Options exercised --- --- 82,000 82 3,768 --- --- 3,850
Stockholder advances 50,000 2,500,000 --- --- --- --- 2,500,000
converted to shares
Issuance of --- --- --- 153,512 (153,512) --- ---
compensatory stock
options
Amortization of --- --- --- --- 40,235 --- 40,235
deferred compensation
Net loss --- --- --- --- --- --- (2,625,046) (2,625,046)
------------------------------------------------------------------------------------------------------
Balance at December 31 250,000 2,500,000 17,291,400 17,291 1,651,256 (113,277) (3,489,744) 565,526
1997
Shares issued in --- --- 100,000 100 119,900 --- --- 120,000
exchange for services
Shares issued for --- --- 100,000 100 818,650 --- --- 818,750
acquisition of
PharmInfoNet
Stockholder advances 180,000 1,800,000 --- --- --- --- 1,800,000
converted to shares
Stock options exercised --- --- 1,028,550 1,029 253,199 --- --- 254,228
Compensation to non- --- --- --- 1,354,000 --- --- 1,354,000
employees
Issuance of --- --- 1,045,976 (1,045,976) --- ---
compensatory stock
options
Amortization of --- --- --- 275,144 --- 275,144
deferred compensation
Net loss --- --- --- --- --- --- (4,909,267) (4,909,267)
------------------------------------------------------------------------------------------------------
Balance at December 31 430,000 4,300,000 18,519,950 18,520 5,242,981 (884,109) (8,399,011) 278,381
1998
Issuance of common --- 200,000 200 1,649,800 (1,650,000) --- ---
stock in exchange for
services and
membership interest in
PharmaMarketing
Shares issued for --- 19,446,571 19,447 166,732,938 --- --- 166,752,385
acquisition of
subsidiaries
Beneficial conversion --- --- 859,505 --- --- 859,505
of Senior Redeemable
Preferred Stock
Issuance of common --- 4,800,000 4,800 56,983,992 --- --- 56,988,792
stock in secondary
public offering, net of
issuance costs of
$5,411,208.
Accretion of Senior --- --- (859,505) --- --- (859,505)
Preferred redeemable
dividend
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accretion of Junior 8,600 86,000 --- (86,000) --- --- ---
Preferred dividend
Conversion of Senior --- 506,329 506 3,159,494 --- --- 3,160,000
Preferred Stock to
Common Stock
Junior preferred shares (438,600) (4,386,000) 3,732,752 3,733 4,382,267 --- --- ---
converted to common stock
Stock options exercised 2,236,400 2,237 249,361 --- --- 251,598
Amortization of --- --- --- 1,454,300 --- 1,454,300
deferred compensation
related to shares issued
to Pharma Marketing LLC
Issuance of --- --- 13,162,053 (13,162,053) --- ---
compensatory stock options
Deferred compensation 3,841,314 (3,841,314) --- ---
associated with options
issued to in connection
with acquisitions
Issuance of stock upon 91,273 91 111,262 111,353
warrants exercise
Issuance of stock upon 100,000 100 (100) ---
cash-less exercise of
warrants
Issuance of warrants to --- --- 1,834,175 (1,834,175) --- ---
consultants for services
Amortization of --- --- --- 2,031,251 --- 2,031,251
deferred compensation
Amortization of --- --- --- 1,834,175 --- 1,834,175
deferred compensaton
to third parties
Net loss --- --- --- --- --- (26,283,906) (26,283,906)
-------------------------------------------------------------------------------------------------------
Balance at December 31, --- $ --- 49,633,275 $ 49,634 $ 257,263,537 $(16,051,925) $(34,682,917) $206,578,329
1999
-------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (26,283,906) $ (4,909,267) $ (2,625,046)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation of fixed assets 626,440 170,439 132,768
Amortization of intangible assets 3,131,770 --- ---
Services received in exchange for common stock --- 120,000 ---
Amortization of deferred compensation related to shares 1,454,300 --- ---
issued for services and membership interest in Pharma
marketing
Fair value of options and warrants granted to consultants 3,865,426 1,629,144 40,235
and employees
Changes in assets and liabilities:
Accounts receivable (618,499) 22,020 (157,810)
Deferred medical content costs --- --- 161,600
Unbilled revenue (3,433,663) --- ---
Prepaid expenses and other current assets (401,322) --- ---
Accounts payable and accrued expenses 7,374,835 201,014 (19,301)
Deferred revenue (107,000) 107,000 ---
------------- ------------ ------------
Net cash used in operating activities (14,391,619) (2,659,650) (2,467,554)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed assets purchases (2,405,857) (30,225) (120,474)
Acquisition of subsidiaries, net of cash acquired of (21,329,896) --- ---
$166,220 ------------- ------------ ------------
Net cash used in investing activities (23,735,753) (30,225) (120,474)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of advances from shareholder 629,989 2,169,751 2,591,997
Repayment of advances from shareholder (828,599) --- ---
Proceeds from issuance of senior redeemable preferred shares,
net of offering costs of $40,000 3,160,000 --- ---
Proceeds from exercise of warrants 111,353 --- ---
Proceeds from issuance of common stock in a secondary 56,988,792 ---- ----
offering, net of issuance costs of $5,411,208
Proceeds from exercise of stock options 251,598 254,228 3,850
------------- ------------ ------------
Net cash provided by financing activities 60,313,133 2,423,979 2,595,847
------------- ------------ ------------
Increase (decrease) in cash 22,185,761 (265,896) 7,819
Cash and cash equivalents at beginning of year 135,053 400,949 393,130
------------- ------------ ------------
Cash and cash equivalents at end of year $ 22,320,814 $ 135,053 $ 400,949
============= ============ ============
Non-cash financing and investing activities (Notes 4, 5 and 6)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
1. ORGANIZATION
Mediconsult.com, Inc. ("Mediconsult" or the "Company") is a provider of
physician and 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 physicians and consumers through increased professional and
consumer education regarding medical conditions and treatment alternatives.
These 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. The Company operates in an environment of rapid change in
technology and is dependent upon the continued services of its current
employees, consultants and subcontractors.
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 of the Company. In December 1996, the Company
consummated a reincorporation merger pursuant to which Mediconsult became a
Delaware corporation.
In April 1999 the Company sold 4,800,000 shares of common stock in a
secondary public offering for $13 per share. The Company raised $56,988,792, net
of offering expenses.
2. NEED FOR FUTURE CAPITAL
The Company has sustained losses and negative cash flows from operations
since inception and expect these conditions to continue for the foreseeable
future. At December 31, 1999 and 1998, the Company had an accumulated deficit of
$34,682,917 and $8,399,011 respectively and working capital (deficit) of
$11,171,076 and $(593,159), respectively. Management expects that available cash
resources as of December 31, 1999, in addition to future revenue generated from
clients, will be sufficient to meet anticipated needs for working capital and
capital expenditures through at least the end of the first quarter of fiscal
2001. Although the Company believes it has sufficient resources to support its
operations, it may need to raise additional funds in order to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures, to acquire complementary products, businesses or
technologies and to execute its long term business strategy. There can be no
assurance that any required additional financing will be available on terms
favorable to the Company if at all. If additional funds are raised by the
issuance of equity securities, stockholders will 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 or preferred stock, it may subject the Company to certain limitations of
its operations, including limitations on the payment of dividends. If adequate
funds are not available or not available on acceptable terms, the Company may
need to scale back or discontinue operations, including our inability to fund
its expansion, successfully promote its brand name, take advantage of
acquisition opportunities, develop or enhance services or respond to competitive
pressures or execute its business strategy, any of which could have a material
adverse effect on our business, financial condition and results of operations.
3. SIGNIFICANT ACCOUNTING POLICIES
A) 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
F-8
<PAGE>
period. Significant estimates made by management include allowance for
doubtful accounts, valuation of intangibles, estimated useful lives of
tangible and intangible assets, contingencies, percentage of completion
contracts, fair value of options and warrants and accruals. Actual
results could differ from those estimates.
B) BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of
Mediconsult and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated on consolidation.
C) REVENUE RECOGNITION
The Company's revenues are derived primarily from the development and
implementation of on-line marketing and advertising programs for
pharmaceutical and other healthcare companies. Development work could
include marketing research, focus-group testing, on-line testing of
visitor preferences, and development of customized client Web sites.
Such revenues are recognized on the basis of contractual commitments
over the period of each engagement using the percentage-of-completion
method based on labor hours and costs incurred as the measure of
progress towards completion. Provisions for contract adjustments and
losses are recorded in the period that such items are identified.
Deferred revenue represents amounts billed in advance of services being
performed. Unbilled revenue represents revenue recognized but not
billed. At December 31, 1999, unbilled revenue primarily relates to one
client, Bristol-Myers Squibb. The Company has billed and collected $2
million of such unbilled revenue subsequent to December 31, 1999.
Revenue from the sale of banner advertisements is recognized ratably in
the period in which the advertisement is displayed, provided that no
significant Company obligations remain and collection is probable.
Company obligations typically include guarantees of minimum number of
"impressions", or times that an advertisement appears in pages viewed
by users of our 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.
Other revenues include licensing, Internet Service Provider
subscriptions in connection with Physicians' Online, and electronic
commerce. Revenues from the licensing of content are recognized ratably
over the period of the license agreement. Subscription service revenues
are recognized over the period that services are provided.
D) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash and
cash equivalents, and accounts receivable. Cash and cash equivalents
are held at six institutions. Accounts receivable are typically
uncollateralized and are derived from revenues earned from
pharmaceutical customers primarily located in the United States and
Europe. Management performs ongoing credit evaluations of the Company's
customers and maintains reserves for potential credit losses. One
customer accounted for 75% of the accounts receivable and unbilled
revenue balance at December 31, 1999. Another customer accounted for
53% of the accounts receivable and unbilled revenue balance at December
31, 1998. During 1999 and 1998, two customers accounted for 76% and 65%
of total revenues, respectively.
F-9
<PAGE>
E) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments which have original
maturities of three months or less, when acquired, to be cash
equivalents. The carrying amount reported in the balance sheet for cash
and cash equivalents approximates its fair value.
F) SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development in accordance with
Statement of Financial Accounting Standards No. 86 "Accounting for
Costs of Computer Software to Be Sold, Leased or Marketed" which
requires that certain software product development costs incurred after
establishment of technological feasibility has been established, be
capitalized and amortized, commencing the general release of the
software to the public, over the economic life of the product. To date,
the Company did not incur such costs.
Software acquired from third parties or obtained in business
combinations is depreciated over its useful lives.
G) FIXED ASSETS
Property and equipment, mainly comprised of purchased computer
equipment and software is recorded at cost and depreciated using the
straight-line method over their estimated useful lives of two years.
The carrying amounts and accumulated depreciation for fixed assets sold
or retired are eliminated from the respective accounts and gains or
losses realized on disposition are reflected in the accompanying
consolidated statements of operations.
H) INTANGIBLE ASSETS
Intangible assets are comprised mainly of software, customer lists,
goodwill and the content and design of certain web sites. Intangible
assets are amortized on a straight-line basis over the estimated future
periods to be benefited ranging from three to five years.
Intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to future
undiscounted cash flows of the businesses acquired. If the assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
estimated fair value of the assets. To date, no impairment loss has
occurred.
I) MARKETING, SALES AND CLIENT SERVICES
Advertising costs are recorded as expense the first time an
advertisement appears. All other advertising costs are expensed as
incurred. The Company does not incur any direct-response advertising
costs.
F-10
<PAGE>
J) EMPLOYEE STOCK OPTION COMPENSATION
The Company accounts for employee stock-based compensation in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 123 "Accounting For Stock-Based Compensation." The Company
recognizes as an expense the fair value of options granted to
employees, on the date of the grant, and amortizes such expense over
the vesting period. The fair value of stock options is estimated using
the Black-Scholes option-pricing model that takes into account the
exercise price, expected life of the options, current market price of
the common stock and its expected volatility, expected dividends on the
common stock, and the risk-free interest rate based on zero-coupon U.S.
government issues with a remaining term equal to the expected life of
the options.
K) CONSULTANT STOCK OPTION AND THIRD PARTY WARRANT COMPENSATION
The fair value of options and warrants granted to non-employees for
services rendered is recognized as an expense in accordance with EITF
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
L) INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of SFAS 109, "Accounting for Income Taxes." SFAS 109 requires that the
Company recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined on the basis of the difference
between the tax basis of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at the enacted
tax rates in effect for the years in which the temporary differences
are expected to reverse. A valuation allowance is established for any
deferred tax assets not expected to be recoverable.
M) BASIC AND DILUTED NET LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing the net loss
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss)
per share gives effect to all dilutive potential common shares
outstanding during a period, consisting primarily 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. Loss available to common shareholders is
computed by increasing net loss for dividends declared in the period on
preferred stock and the dividends accumulated for the period on
cumulative preferred stock from net loss.
N) 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 (loss) and its components
in a financial statement. Comprehensive income (loss) as defined
includes all changes in equity (net assets) during a period from non-
owner sources. For all years presented, the Company's comprehensive
loss was equal to net loss.
F-11
<PAGE>
O) SEGMENTS
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments Of
An Enterprise And Related Information." This statement establishes
standards for reporting 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 Company operates in a single segment and therefore, the
adoption of SFAS 131 has had no impact on the financial statements of
the Company.
P) 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 and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities, notes payable and advances from shareholder are carried at
cost which approximates their fair value because of the short-term
maturity of these instruments.
Q) RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform
to the 1999 consolidated financial statement presentation.
R) RECENT PRONOUNCEMENTS
Management believes that the future adoption of recently issued
accounting standards will not have a material impact on the Company's
financial statements, except that the Company is currently evaluating
the future impact that Staff Accounting Bulletin 101, "Revenue
Recognition," issued in December 1999 by the Securities and Exchange
Commission, may have on the Company's financial statements in the
future.
4. ACQUISITIONS
All acquisitions were accounted for as purchased business combinations
under APB 16 "Business Combinations."
A) 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
Mediconsult common stock. The total purchase price was $0.8 million,
equivalent to the quoted market price of the Company's shares on the
date of close, which was recorded as goodwill. The goodwill is being
amortized on a straight-line basis over an estimated useful life of
three years
B) CYBERDIET, INC.
On May 11, 1999, the Company completed the acquisition of CyberDiet,
LLC, which provides tailored nutritional information and programs, in
exchange for 400,000 shares of Mediconsult common stock. The total
purchase price, including acquisition costs and assumption of net
liabilities, was $2.8 million. The fair value of shares provided as
consideration was determined by the market price of the shares at the
announcement date (February 25, 1999). The excess of the purchase price
over net assets acquired was recorded as goodwill and is being
amortized on a straight-line basis over five years.
F-12
<PAGE>
C) CYBER-TECH, INC.
On June 14, 1999, the Company acquired all of the capital stock of
Cyber-Tech, Inc. ("Cyber-Tech"), a company that has developed on-line
content and tools focused on heart disease and related areas. The
consideration paid to Cyber-Tech shareholders consisted of $3,765,000
in cash and 267,732 shares of Mediconsult common stock. Mediconsult and
the shareholders of Cyber-Tech also entered into an Escrow Agreement
with respect to certain of the shares of Mediconsult Common Stock
issued to the former Cyber-Tech shareholders. The total transaction
value, including acquisition costs, was $7.6 million. The fair value of
shares provided as consideration was determined by the market price of
the shares at the transaction date. The excess of the purchase price
over net assets acquired was allocated to goodwill and other intangible
assets. Goodwill and other intangible assets are being amortized on a
straight-line basis over an estimated useful life of three to five
years.
A summary of the total purchase price for the acquisition of Cyber-Tech
is as follows:
Cash $ 3,765,000
Mediconsult Common Stock 3,750,000
Other direct acquisition costs 99,219
-------------
$ 7,614,219
=============
A summary of the allocation of the total purchase price is as follows:
Tangible net assets acquired $ 4,403
Other intangible assets 500,000
Goodwill 7,109,816
-------------
$ 7,614,219
=============
D) MOOD SCIENCES, INC.
Mood Sciences, a company that specializes in mental health disease
management innovations, was acquired on October 27, 1999, in exchange
for 215,000 shares of Mediconsult common stock. The total purchase
price, including acquisition costs of $0.2 million and assumption of
net liabilities of $0.2 million, was $1.9 million. The fair value of
shares provided as consideration was determined by the market price of
the shares at the transaction date. The excess of the purchase price
over net assets acquired was recorded as goodwill and is being
amortized on a straight-line basis over five years.
E) PHYSICIANS' ONLINE, INC.
On December 16, 1999, the Company acquired the shares of Physicians'
Online, Inc. ("POL"), a provider of an exclusive network for physicians
in addition to on-line medical information and communications. POL
operates a secure, physicians-only environment featuring access to
medical databases, daily medical news, continuing medical education
credits, clinical symposia, e-mail accounts, Internet access, and other
services. As consideration for the acquisition, the Company issued
approximately 18.5 million shares of Mediconsult common stock. The
total value of consideration was $183.1 million, including the
assumption of debt and acquisition costs. The fair value of shares
provided as consideration to the previous shareholders was determined
by the market price of the shares at the announcement date (September
7, 1999). The effect on the purchase price of the POL vested options
was computed in accordance with SFAS 123, the value of which was not
material. Identifiable intangible assets resulting from the transaction
are amortized over periods ranging from three to five years.
F-13
<PAGE>
A summary of the total purchase price for the acquisition of
Physicians' Online, Inc. is as follows:
Mediconsult common stock issued to POL stockholders $156,779,105
Other direct acquisition costs 6,885,346
Assumption of liabilities 20,333,786
-------------
$183,998,237
=============
A summary of the allocation of the total purchase price is as follows:
Current Assets $ 419,483
Fixed Assets 430,779
Customer list 6,206,000
Software 7,730,000
Work force 2,142,000
Trademark 6,152,000
Goodwill 160,917,975
-------------
$183,998,237
=============
The fair value assigned to intangible assets acquired was based on an
appraisal of such assets as of the date of acquisition and the assets
are being amortized on a straight-line basis over their respective
useful lives. The estimated useful life of software is three years,
work force is four years, and all other intangible assets, including
goodwill, have an estimated useful life of five years. Goodwill
represents the excess of the purchase price over the fair value of
identifiable tangible and intangible assets acquired.
F) UNAUDITED PRO FORMA RESULTS OF OPERATIONS
Had the acquisitions of Pharminfo.com, CyberDiet, Cyber-Tech, and Mood
Sciences occurred on January 1, 1998, the unaudited pro forma revenue,
net loss and related basic and diluted net loss per share for the years
ended December 31, 1999 and 1998 would have been $7.0 million and $2.2
million, $29.5 million and $7.4 million, and $1.12 and $0.39,
respectively. Had the acquisition of Physicians' Online, Inc. occurred
on January 1, 1998, the unaudited pro forma revenue, net loss and
related basic and diluted net loss per share for the years ended
December 31, 1999 and 1998 would have been $12.0 million and $7.1
million, $74.7 million and $52.9 million, and $1.68 and $1.45,
respectively. Had all acquisitions occurred on January 1, 1998, the
unaudited pro forma revenue, net loss and related basic and diluted net
loss per share for the years ended December 31, 1999 and 1998 would
have been $12.6 million and $8.2 million, $77.0 million and $37.4
million, and $1.72 and $1.48, respectively. Note that the per share
data was adjusted to reflect the weighted average number of shares of
common stock as a result of the acquisitions. These unaudited pro forma
results are based on various assumptions and are not necessarily
indicative of what would have occurred had the acquisitions been
consummated on January 1, 1998.
5. PHARMA MARKETING, LLC
On September 7, 1999 the Company entered into various agreements
(collectively "Agreements") whereby, among other things, the Company
purchased a 35% membership interests of Pharma Marketing LLC ("Pharma"), an
entity organized to perform certain sales and marketing operations of the
Company and operate solely on behalf of the Company, for $1,250,000 and
200,000 shares of Mediconsult common stock. The remaining 65% of Pharma is
owned by a certain individual ("Individual"). Under the terms of the
Agreements, Pharma distributed to the individual the $1,250,000 contributed
by the Company and 100,000 of the 200,000 shares contributed by the
Company. The remaining 100,000 shares will be distributed to the individual
in the future. For financial reporting purposes, the cash contributed to
Pharma have been deemed to be cost of services provided by the Individual
F-14
<PAGE>
and as such have been expensed. Total expense, which includes the cash
contributed, other expenses, and the fair value of Company common stock
issued to the Individual, recorded in connection with these agreements for
the year ended December 31, 1999 approximated $3,730,000. The remaining
100,000 shares of the Company's common stock to be issued to the Individual
are being accounted for in accordance with EITF 96-18. Accordingly, the
Company will be required to recognize as an expense the fair value of the
shares of common stock over the vesting period.
Mediconsult.com, Limited, a subsidiary of the Company, has entered into a
service agreement with Pharma under which Pharma agrees to provide
pharmaceutical sales and marketing services to Mediconsult.com, Limited and
its affiliates. Under this service agreement, Pharma is entitled to receive
a monthly retainer and commissions based on revenues generated under
contracts that Pharma assists in obtaining. Pharma entered into an
employment agreement with the Individual, under which, the Individual is
principally responsible for performing the services under Pharma's service
agreement with Mediconsult.com, Limited.
Subject to certain conditions described in the operating agreement, the
members of Pharma, other than Mediconsult, have the right to put their
Pharma membership interests to the Company in exchange for shares of the
Company's common stock.
6. NON-CASH FINANCING and INVESTING ACTIVITIES
Non-cash financing activities include, on April 6, 1999, in conjunction
with a public offering of the Company's common stock, $3.2 million of the
senior preferred stock and $4.3 million of the junior preferred stock were
converted to common stock. In addition, the Company assumed debt in the
amount of $5.3 million of which $4.7 million was outstanding at December
31, 1999 (Note 9). Non-cash investing activities included the acquisitions
noted in Notes 4 and 5. These resulted in a total of 19,446,569 shares
being issued with a deemed value of $166.8 million.
7. FIXED ASSETS
Fixed assets consist of the following:
December 31,
----------------------------
1999 1998
------------ -----------
Computer equipment $1,935,382 $ 132,626
Computer programming 1,019,440 223,371
Furniture and equipment 242,335 --
Leasehold improvements 24,262 --
3,221,419 355,997
Accumulated depreciation and amortization (929,647) (303,207)
------------ -----------
$2,291,772 $ 52,790
============ ===========
8. Intangible Assets
The Company's intangible assets consist of the following:
December 31,
------------------------------
1999 1998
-------------- -------------
Goodwill $ 173,517,251 $ 818,750
Other intangible assets 500,000 ---
Software 7,730,000 ---
Customer lists 6,206,000 ---
Trademarks 6,152,000 ---
Work force 2,142,000 ---
F-15
<PAGE>
-------------- -------------
196,247,251 818,750
Accumulated amortization (3,131,770) --
-------------- -------------
$ 193,115,481 $ 818,750
============== ============
9. NOTES PAYABLE
Notes payable consist of advances from POL's shareholders made to provide
POL with working capital prior to the acquisition by Mediconsult. The notes
bear interest at 11% and are repayable as follows:
February 29, 2000 $ 2,639,551
October 31, 2000 2,334,549
-----------
Total $ 4,974,100
===========
Accrued interest payable at December 31, 1999 in the amount of $477,276 is
included in accounts payable and accrued liabilities. Subsequent to
December 31, 1999, the Company had repaid the notes payable which were due
on February 29, 2000.
10. ADVANCES FROM SHAREHOLDER
Advances from shareholder are interest free and repayable on demand.
11. CAPITAL STOCK
SENIOR PREFERRED STOCK
On February 26, 1999, the Company sold in a private placement an aggregate
of 506,329 shares of newly designated voting senior preferred stock at
$6.32 per share and warrants exercisable for five years to purchase 224,000
shares of the senior preferred stock at $6.32 per share 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 senior preferred stock
contains a redemption provision whereby the holder has the option to
receive $6.32 per share, plus declared and unpaid dividends, at any time
after February 25, 2003. In addition, the Company has recognized a senior
preferred stock dividend of approximately $859,000. Such amount represents
the intrinsic value of the beneficial conversion feature using the
conversion terms that are most beneficial to the holders. During April
1999, all shares of senior preferred stock and accumulated dividends were
converted into an equal number of common shares. As of December 31, 1999
the 224,000 warrants remain outstanding, however such warrants are
exercisable into an equal number of shares of common stock.
JUNIOR 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,
F-16
<PAGE>
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
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 prior to September 30, 1998,
when dividends on such shares became cumulative. During April 1999, all
shares of junior preferred stock and accumulated dividends were converted
into 3,732,752 common shares.
12. STOCK OPTIONS
The Company maintains its 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, 1999, the number of shares of common
stock covered by the Plan was increased from 2,500,000 to 7,000,000.
Stock options for common stock comprise:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------------ ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number of -------- Number of -------- Number of --------
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding - Beginning of year 2,716,000 $0.37 1,150,000 $0.25 980,000 $0.03
Granted during the year 3,627,851 5.30 2,605,050 0.38 252,000 1.03
Exercised during the year (2,236,400) 0.11 (1,028,550) 0.23 (82,000) 0.05
Canceled during the year (98,800) 4.33 (10,500) 0.29 --- ---
------------- ------------- -------------
Outstanding - End of year 4,008,651 4.50 2,716,000 $0.37 1,150,000 0.25
============= ============= =============
Exercisable - End of year 1,564,285 1.84 2,318,800 $0.12 967,000 $0.28
============= ============= =============
</TABLE>
The options granted during the year include 1,465,151 Physicians' Online
options converted to options to acquire the Company's common stock upon the
closing of the acquisition. The weighted-average exercise price of these
options after conversion was $1.53. The number of converted shares exercisable
at December 31, 1999 was 1,050,770.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- ------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Exercisable
- ------------------ ------------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
Price Price
- ------------------ ------------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C>
$0.50 - $3.50 1,956,151 8.11 $ 1.53 1,492,785 $ 1.53
$5.63 - $6.97 351,700 9.79 $ 6.05 9,000 $ 6.50
$7.00 - $7.97 932,500 9.71 $ 7.16 -- $--
$8.00 - $9.94 502,300 9.76 $ 8.55 58,000 $ 8.26
$11.12 - $17.25 266,000 9.28 $12.58 4,500 $11.19
</TABLE>
During the years ended December 31, 1999 and 1998 the fair values of the
options granted to employees, recognized as deferred expense, excluding options
converted from Physicians' Online in 1999, were $13,162,050 and $1,045,976
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 1999 were $11.43 and $8.71, respectively. The weighted average
exercise price and weighted average fair value of options whose exercise price
was equal to the market value at the grant date during 1999 were $7.30 and
$5.85, respectively. The fair value of unvested options issued in exchange for
POL options was valued at $3,841,314. Such amount will be expensed over the
remaining vesting period.
The fair values of each option granted was estimated using the Black-
Scholes option-pricing model. The following assumptions were used in computing
the fair value of the option grants in 1999: expected volatility of the common
stock ranging between 110% and 133%; expected lives ranging from one to five
years; zero dividend yield and weighted average risk-free interest rates ranging
between 4.63% and 6.45%.
13. WARRANTS
In addition to the warrants issued in connection with the Senior preferred
stock as discussed in Note 11A, the Company issued warrants to purchase 400,000
shares of common stock at an exercise price of $1.22 per share to Arnhold and S.
Bleichroeder, Inc. in consideration of investment advisory services. These
warrants have been delivered or are being held in escrow and are deliverable as
follows: 200,000 were delivered upon initial filing of Mediconsult's secondary
offering prospectus in April 1999 and have been exercised; 100,000 were
delivered on March 15, 2000; and 100,000 will be delivered on September 15,
2000. The delivery of the remaining 100,000 warrants is subject to the continued
performance of financial advisory services for the Company by a particular
individual on behalf of this firm. Such remaining 100,000 warrants deliverable
in 2000, are being accounted for in accordance with EITF 96-18. Accordingly, the
Company will be required to recognize as an expense the fair value of the
warrants over the vesting period. These warrants, which expire on March 1,
2004, have net issue election and anti-dilution provisions comparable to the
senior preferred stock warrants. These warrants do not confer upon the holder
any voting or any other right of a stockholder. Total expense associated with
these warrants was $1.8 million during 1999.
14. Earnings per share
For each of the years ended December 31, 1999, 1998 and 1997, the Company
reported net losses and, therefore, common stock equivalents were not included
in the calculation of diluted earnings per share since such inclusion would have
been anti-dilutive. The following common stock equivalents have been excluded
from diluted per share amounts because their effect would have been anti-
dilutive:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options 4,008,651 2,716,000 1,150,000
Warrants 424,000 -- --
Convertible preferred stock -- 4,300,000 2,500,000
--------------------------------------------------------------------
4,432,651 7,016,000 3,650,000
====================================================================
</TABLE>
15. INCOME TAXES
The Company's operations are conducted by its U.S., Bermudan and Canadian
subsidiaries. The Bermuda 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, however, there can be no assurance that the Bermuda subsidiary will not
be deemed to be transacting business in the U.S. by regulatory authorities and
therefore become subject to U.S. taxation. The Company and its U.S. subsidiary
are Delaware companies and the Canadian subsidiary is incorporated under the
laws of that country. The Company and its U.S. and Canadian subsidiaries are
subject to income tax, however no income tax provision has been recorded for the
years ended December 31, 1999, 1998 or 1997 as the Company has experienced net
operating losses in each year for both U.S. and foreign income tax purposes.
The primary difference between the Company's effective income tax rate and
the Federal statutory tax rate is attributable to the valuation allowance
recorded on all deferred tax assets and the difference between the U.S. and
foreign income tax rates.
The tax effect of temporary differences, net operating losses and tax
credit carryforwards as of December 31, 1999 and 1998 are as follows:
1999 1998
---------------------------------
U.S. Deferred tax assets 3,530,011 -----
Foreign Deferred tax assets 2,884,139 580,060
Valuation allowance (6,414,150) (580,060)
---------------------------------
-- --
---------------------------------
The Company has recorded a valuation allowance against all deferred tax
assets considering its history of net operating losses and uncertainty regarding
the Company's ability to generate sufficient taxable income in the future to
utilize these deferred tax assets.
As of December 31, 1999 and December 31, 1998, the Company has available,
for U.S. and Canadian tax reporting purposes, net operating loss carryforwards
of approximately $16.6 million and $1.3 million respectively which will expire
in various years through 2019. In addition, at December 31, 1999 and 1998 the
Company has no undistributed foreign earnings.
16. DEFINED CONTRIBUTION BENEFIT PLANS
Beginning in 1999, through a professional organization, NELCO Companies,
Mediconsult made available a 401K employee savings plan to the United States
based employees. The plan is not contributed to by Mediconsult. Employee
contributions are limited to the lesser of 15% of each employee's annual
compensation and the statutory limit on such contributions.
F-19
<PAGE>
Physicians' Online established a 401K employee savings plan on January 1,
1995, which was amended on April 1, 1998. The plan is not contributed to by
Physicians' Online. Employee contributions are limited to the lesser of 15% of
each employee's annual compensation and the statutory limit on such
contributions. The Physicians' Online 401K employee savings plan was adopted by
the Company in connection with the acquisition of POL.
17. Commitments and contingencies
The Company has various operating leases in effect for corporate and
operating activities. The operating leases expire over the next one to five
years. Certain leases contain escalation charges for real estate taxes and
electricity. Rent expense for the year ended December 31, 1999 was
$497,340. Future minimum lease payments under non cancelable operating
leases are as follows:
2000............................... $ 434,000
2001............................... 227,000
2002............................... 227,000
2003............................... 218,000
2004............................... 160,000
18. Litigation
The Company's wholly owned subsidiary, POL is a defendant in a lawsuit in
which a former officer and director of POL alleges, among other things,
that POL violated securities laws in selling stock to the former officer
and that POL breached its employment agreement with the former officer.
This action is currently in the United States District Court in New York.
POL has made a motion in the United States District Court action seeking
dismissal of the action. By Order dated August 14, 1997, United States
District Court Judge for the Southern District of New York (a) dismissed
the first two counts of the former officer's Amended Complaint alleging
violation of certain provisions of the Securities Act of 1933 with
prejudice, and (b) dismissed the third, fourth and sixth counts of the
former officer's Amended Complaint alleging securities fraud, common law
fraud and negligent misrepresentation; with leave to replead. By letter
dated November 4, 1997, the former officer notified the Court of the former
officer's decision not to replead the former officer's third, fourth and
sixth counts at this time.
Management, based on the advice of its legal counsel, believes that the
ultimate outcome of this action will not have a material adverse effect
on the Company's financial position or results of operations.
The Company is also party to a number of other claims and lawsuits that are
incidental to the ordinary course of business. Management, based on the
advice of its legal counsel, believes that the outcome of any such claims
and lawsuits will not have a material adverse effect on the Company's
results of operations.
19. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1999, advances from
shareholders of $2,169,751 and $315,000, respectively, were made to the Company,
of which $1,800,000 and $0 were converted to common stock respectively and
$30,000 and $513,610, respectively, were repaid.
The Company has an office in Hamilton, Bermuda, occupying space in the
office of Robert A. Jennings, Chief Executive Officer and shareholder, at no
cost.
F-20
<PAGE>
20. SUBSEQUENT EVENTS
On February 11, 2000, the Company acquired Web North Star Interactive Corp.
("NIC"), an entity engaged in the development and marketing of certain market
research software and services, in exchange for 435,161 shares of the Company's
common stock in addition to cash consideration which will be determined based on
the collection of NIC accounts receivable. For the purpose of the acquisition,
the Company established Northstar Acquisition Inc., ("NAI") a wholly owned
subsidiary of the Company. On February 11, 2000, NIC merged with and into NAI.
The Company intends to amortize the intangible assets associated with the
acquisition over the estimated useful live periods ranging from three to five
years.
On March 21, 2000, the Company acquired certain assets of Doerr Consulting,
including the storknet.com URL, customer lists and other intangible and tangible
assets for a total consideration of $200,000 payable in 33,676 shares of the
Company's common stock. The Company intends to amortize the intangible assets
over their estimated useful live periods ranging from three to five years.
On March 23, 2000 the Company and Andersen Consulting LLP ("Andersen")
entered into a two years marketing alliance agreement for the joint marketing of
certain products and services to the pharmaceutical industry by the Company and
Andersen. Under the terms of the agreement, the Company will pay Andersen
marketing assistance fees calculated on the basis of revenues generated from the
sale of such products and services. The Company and Andersen also entered into a
warrant agreement under which the Company issued Andersen warrants to purchase
1,503,425 shares of the Company's common stock at an exercise price of $3.8125
per share in connection with consulting services rendered by Andersen to the
Company under a consulting services agreement signed on September 10, 1999. The
warrants have a term of five-years and vest over time, based upon consulting
services performed by Andersen on the Company's behalf. In connection with the
issuance of these warrants the Company reserved 1,503,425 shares of common stock
issuable upon exercising of these warrants. The Company will account for these
warrants in accordance with EITF 96-18 and accordingly, the fair value of the
warrants will be expenses over the respective vesting period.
On March 24, 2000, the Company entered into a non-cancelable operating
lease for office space in Philadelphia. The lease commences on April 1, 2000 and
will expire in three years. The minimum annual rent payable is $454,356.
On March 28, 2000, the Company entered into a non-cancelable operating
lease for office space in Tarrytown, NY. The lease commences on April 1, 2000
and will expire in five years. The minimum annual rent payable is $460,800.
F-21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<C> <S>
2.1 Physicians' Online Merger Agreement including Amendment No. 1 thereto (1)
2.2 Cyber-Tech Merger Agreement and Plan of Reorganization (2)
3.1 Amended and Restated Certificate of Incorporation *
3.2 Amended and Restated By-laws*
4.1 Specimen common stock certificate(3)
4.2 Form of Investor Senior Preferred Stock Warrant (3)
4.3 Form of Warrant issued to Arnhold and S. Bleichroeder, Inc. (3)
10.1 Amended and Restated Mediconsult 1996 Stock Option Plan (1)
10.2 Amended and Restated Physicians' Online 1994 Stock Option Plan (1)
10.3 Escrow Agreement, dated June 14, 1999, among Mediconsult.com, Inc.,
Cyber-Tech, Inc., Andre Pilevsky, Daniel Rader, M.D and SunTrust Bank (2)
10.4 Escrow Agreement, dated December 16, 1999, among Mediconsult.com, Inc., Physicians' Online,
Inc., Jason Fisherman as representative, and The Wilmington Trust Company (1)
10.5 Worldwide Web Server Agreement dated November 6, 1996 between Tvisions, Inc. and
Mediconsult.com Limited (4)
10.6 Operating Agreement of Pharma Marketing, LLC, Dated September 7, 1999*
10.7 Service Agreement, dated September 7, 1999, between Pharma Marketing, LLC and
Mediconsult.com., Inc.*
10.8 Membership Investment Agreement, dated September 7, 1999, between Pharma Marketing, LLC and
Mediconsult.com, Inc.*
10.9 Letter agreement dated December 30, 1998 among the Company, Pharmaceutical Information
Associates, Ltd., VirSci Corporation and Pharmaceutical Information.Net, Inc. (3)
10.10 Consulting Agreement dated March 3, 1997 between the Company and IBM Canada
10.11 Source Code License Agreement dated February 26, 1999 between Tvisions, Inc. and
Mediconsult.com Limited (3)
10.12 Agreement between Brystol-Meyers Squibb Company and Mediconsult.com Limited, dated as of
September 30, 1999 *
10.13 Agreement between the Company and Novartis Pharma AG (3)
10.14 Exclusive Sponsorship Agreement dated as of January 15, 1999 between InterNational Council
on Infertility Information Dissemination and Mediconsult.com Limited (3)
10.15 Employment Agreement effective as of January 1, 1999, between 3542491 Canada Inc. and David
J. Austin (3)
10.16 Employment Agreement effective as of January 1, 1999, between Mediconsult.com Limited and
Robert A. Jennings (3)
10.17 Employment Agreement effective as of January 1, 1999, between 3542491 Canada Inc. and Ian
Sutcliffe (3)
10.18 Employment Agreement dated as of April 1, 1999 between the Company and E. Michael Ingram (3)
10.19 Employment Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd. and Andre Pilevsky (2)
10.20 Employment Agreement, dated September 7, 1999, between Pharma Marketing, LLC and Timothy J.
McIntyre.*
10.21 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd. and Andre
Pilevsky (2)
10.22 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd. and
Sharon Weinberg (2)
10.23 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com (US), Ltd. and
Daniel Rader, M.D(2)
10.24 Stock Purchase Agreement dated as of February 26, 1999 between the Company and the
Investors named therein (3)
10.25 Registration Rights Agreement dated February 26, 1999, among the Company and the Investors
named therein (3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.26 Stockholders' Agreement dated February 26, 1999 among the Company, the Founders identified
therein and the Investors identified on Schedule 1 thereto (3)
10.27 Registration Rights Agreement dated as of February 26, 1999 between the Company and Arnhold
and S. Bleichroeder, Inc. (3)
21.1 Subsidiaries of the Company*
23.1 Consent of PricewaterhouseCoopers*
27.1 Financial Data Schedule*
</TABLE>
- ----------
* Filed electronically herewith.
(1) Exhibits are incorporated by reference to the Annexes to Mediconsult's
joint information/proxy statement/prospectus on Schedule 14C (File No. 000-
29282) filed November 19, 1999
(2) Exhibits are incorporated by reference to Mediconsult's Current Report on
Form 8-K (File No. 333-73059) filed June 29, 1999
(3) Exhibits are incorporated by reference to Mediconsult's Registration
Statement on Form S-1 (Registration No. 333-73059) filed April 2, 1999
(4) Exhibits are incorporated by reference to Mediconsult's Registration
Statement on Form 10-SB (File No. 333-21883) filed December 16, 1996
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
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: 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 One Hundred and Five Million. One Hundred
Million 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 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.
<PAGE>
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.
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.
<PAGE>
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 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.
---------------
11.01. 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
<PAGE>
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.
11.02. 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 the Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon 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.
11.03. 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.
11.04. 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.
11.05. 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.
<PAGE>
11.06. 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
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.
11.07. 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.
11.08. 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 may 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.
11.09. 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 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.
<PAGE>
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 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;
<PAGE>
(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.
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.
<PAGE>
Exhibit 3.2
AMENDED & RESTATED
BYLAWS OF MEDICONSULT.COM, INC.
ARTICLE I
OFFICES
1.1 Business Office. The principal office and place of business of the
----------------
corporation shall be at 25 Church Street, 3rd Floor, Hamilton HM12, Bermuda. The
Corporation will not maintain a principal office or place of business in the
State of Delaware. Other offices and places of business may be established from
time to time by resolution of the Board of Directors or as the business of the
corporation may require.
1.2 Registered Office. The registered office of the corporation, required by
------------------
the Delaware Corporation Law to be maintained in the State of Delaware, need not
be identical with the principal office of the Corporation, and the address of
the registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation. The Board of Directors may make such rules and regulations
-----------
as it may deem appropriate concerning the issuance, transfer and registration of
certificates for shares of the corporation, including the appointment of
transfer agents and registrars.
2.2 Certificates for Shares. Certificates representing shares of the
------------------------
corporation shall be respectively numbered serially for each class of shares, or
series thereof, as they are issued, shall be impressed with the corporate seal
or a facsimile thereof, and shall be signed by the Chairman or Vice Chairman of
the Board of Directors or by the President or a Vice-President and by the
Treasurer or an Assistant Treasurer or by the Secretary or an Assistant
Secretary; provided that any or all of the signatures may be facsimiles if the
certificate is countersigned by a transfer agent, or registered by a registrar,
other than the corporation itself or its employee. Each certificate shall state
the name of the corporation, the fact that the corporation is organized or
incorporated under the laws of the State of Delaware, the name of the person to
whom issued, the date of issue, the class (or series of any class), the number
of shares represented thereby and the par value of the shares represented
thereby or a statement that such shares are without par value. A statement of
the designations, preferences, qualifications, limitations, restrictions and
special or relative rights of the shares of each class shall be set forth in
full or summarized on the face or back of the certificates which the corporation
shall issue, or in lieu thereof, the certificate may set forth that such a
statement or summary will be furnished to any shareholder upon request without
charge. Each certificate shall be otherwise in such form as may be prescribed
by the Board of Directors and as shall conform to the rules of any stock
exchange on which the shares may be listed. The corporation shall not issue
certificates representing fractional shares and shall not be obligated to make
any transfers creating a fractional interest in a share of stock. The
<PAGE>
corporation may issue scrip in lieu of any fractional shares, such scrip to have
terms and conditions specified by the Board of Directors.
2.3 Cancellation of Certificates. All certificates surrendered to the
-----------------------------
corporation for transfer shall be cancelled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of shares
shall have been surrendered and cancelled, except as herein provided with
respect to lost, stolen or destroyed certificates.
2.4 Lost, Stolen or Destroyed Certificates. Any shareholder claiming that
---------------------------------------
his certificate for shares is lost, stolen or destroyed may make an affidavit or
affirmation of the fact and lodge the same with the Secretary of the
corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the corporation), a
new certificate may be issued of the same tenor and representing the same
number, class and series of shares as were represented by the certificate
alleged to be lost, stolen or destroyed.
2.5 Transfer of Shares. Subject to the terms of any shareholder agreement
-------------------
relating to the transfer of shares or other transfer restrictions contained in
the Certificate of Incorporation or authorized therein, shares of the
corporation shall be transferable on the books of the corporation by the holder
thereof in person or by his duly authorized attorney, upon the surrender and
cancellation of a certificate or certificates for a like number of shares. Upon
presentation and surrender of a certificate for shares properly endorsed and
payment of all taxes therefor, the transferee shall be entitled to a new
certificate or certificates in lieu thereof. As against the corporation, a
transfer of shares can be made only on the books of the corporation and in the
manner hereinabove provided, and the corporation shall be entitled to treat the
holder of record of any share as the owner thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by the statutes of the State of Delaware.
2.6 Transfer Agent. Unless otherwise specified by the Board of Directors by
---------------
resolution, the Secretary of the corporation shall act as transfer agent of the
certificates representing the shares of stock of the corporation. He shall
maintain a stock transfer book, the stubs in which shall set forth among other
things, the names and addresses of the holders of all issued shares of the
corporation, the number of shares held by each, the certificate numbers
representing such shares, the date of issue of the certificates representing
such shares, and whether or not such shares originate from original issue or
from transfer. Subject to Section 3.7, the names and addresses of the
shareholders as they appear on the stubs of the stock transfer book shall be
conclusive evidence as to who are the shareholders of record and as such
entitled to receive notice of the meetings of shareholders; to vote at such
meetings; to examine the list of the shareholders entitled to vote at meetings;
to receive dividends; and to own, enjoy and exercise any other property or
rights deriving from such shares against the corporation. Each shareholder
shall be
<PAGE>
responsible for notifying the Secretary in writing of any change in his name or
address and failure so to do will relieve the corporation, its directors,
officers and agents, from liability for failure to direct notices or other
documents, or pay over or transfer dividends or other property or rights, to a
name or address other than the name and address appearing on the stub of the
stock transfer book.
2.7 Close of Transfer Book and Record Date. For the purpose of determining
---------------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may provide that the stock transfer books shall be closed for
a stated period, but not to exceed, in any case, fifty days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of, or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than fifty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
ARTICLE III
SHAREHOLDERS AND MEETINGS THEREOF
3.1 Shareholders of Record. Only shareholders of record on the books of the
-----------------------
corporation shall be entitled to be treated by the corporation as holders in
fact of the shares standing in their respective names, and the corporation shall
not be bound to recognize any equitable or other claim to, or interest in, any
shares on the part of any other person, firm or corporation, whether or not it
shall have express or other notice thereof, except as expressly provided by the
laws of Delaware.
3.2 Meetings. Meetings of shareholders shall be held at the principal office
---------
of the corporation, or at such other place as specified from time to time by the
Board of Directors. If the Board of Directors shall specify another location
such change in location shall be recorded on the notice calling such meeting.
3.3 Annual Meeting. In the absence of a resolution of the Board of Directors
---------------
providing otherwise, the annual meeting of shareholders of the corporation for
the election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held at such time as may be
determined by Board of
<PAGE>
Directors by resolution in conformance with Delaware law. If the election of
Directors shall not be held on the day so designated for any annual meeting of
the shareholders, the Board of Directors shall cause the election to be held at
a special meeting of the shareholders as soon thereafter as may be convenient.
3.4 Special Meetings. Special meetings of shareholders, for any purpose or
-----------------
purposes, unless otherwise prescribed by statute, may be called by the
President, the Board of Directors, the holders of not less than one-tenth of all
the shares entitled to vote at the meeting, or legal counsel of the corporation
as last designated by resolution of the Board of Directors.
3.5 Notice. Written notice stating the place, day and hour of the meeting
-------
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered unless otherwise prescribed by statute not less
than ten days nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting to each shareholder of record
entitled to vote at such meeting. Any shareholder may waive notice of any
meeting. Notice to shareholders of record, if mailed, shall be deemed given as
to any shareholder of record, when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid, but if three successive
letters mailed to the last-known address of any shareholder of record are
returned as undeliverable, no further notices to such shareholder shall be
necessary, until another address for such shareholder is made known to the
corporation.
3.6 Meeting of All Shareholders. If all of the shareholders shall meet at
---------------------------
any time and place, either within or without the State of Delaware, and consent
to the holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting any corporate action may be taken.
3.7 Voting Record. The officer or agent having charge of the stock transfer
--------------
books for shares of the corporation shall make, at least ten days before such
meeting of shareholders, a complete record of the shareholders entitled to vote
at each meeting of shareholders or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. The
record, for a period of ten days prior to such meeting, shall be kept on file
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held, whether within or without the State of
Delaware, and shall be subject to inspection by any shareholder for any purpose
germane to the meeting at any time during usual business hours. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder for any purpose germane to the
meeting during the whole time of the meeting for the purposes thereof. The
original stock transfer books shall be the prima facie evidence as to who are
the shareholders entitled to examine the record or transfer books or to vote at
any meeting of shareholders.
<PAGE>
3.8 Quorum. A majority of the outstanding shares of the corporation entitled
-------
to vote, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders, except as otherwise provided by the Delaware
Corporation Law and the Certificate of Incorporation. In the absence of a
quorum at any such meeting, a majority of the shares so represented may adjourn
the meeting from time to time. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
3.9 Manner of Acting. If a quorum is present, the affirmative vote of the
-----------------
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater proportion or number or voting by classes is otherwise required by
statute or by the Certificate of Incorporation or these Bylaws.
3.10 Proxies. At all meetings of shareholders a shareholder may vote in
--------
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
three years from the date of its execution, unless otherwise provided in the
proxy.
3.11 Voting of Shares. Unless otherwise provided by these Bylaws or the
-----------------
Certificate of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, and each fractional share shall be entitled to a corresponding
fractional vote on each such matter.
3.12 Voting of Shares by Certain Holders. Shares standing in the name of
------------------------------------
another corporation may be voted by such officer, agent or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such other corporation may determine. Shares standing in
the name of a deceased person, a minor ward or an incompetent person, may be
voted by his administrator, executor, court appointed guardian or conservator,
either in person or by proxy without a transfer of such shares into the name of
such administrator, executor, court appointed guardian or conservator. Shares
held by a trustee may be voted by him, either in person or by proxy. Shares
standing in the name of a receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his name if authority so to do be contained in an
appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this corporation, nor shares of its
own stock held by it in a fiduciary
<PAGE>
capacity, nor shares of its own stock held by another corporation if the
majority of shares entitled to vote for the election of directors of such
corporation is held by this corporation may be voted, directly or indirectly, at
any meeting and shall not be counted in determining the total number of
outstanding shares at any given time. Redeemable shares which have been called
for redemption shall not be entitled to vote on any matter and shall not be
deemed outstanding shares on and after the date on which written notice of
redemption has been mailed to shareholders and a sum sufficient to redeem such
shares has been irrevocably deposited or set aside to pay the redemption price
to the holders of the shares upon surrender of certificates therefor.
3.13 Voting by Ballot. Voting on any question or in any election may be by
-----------------
voice vote unless the presiding officer shall order or any shareholder shall
demand that voting be by ballot.
3.14 Cumulative Voting. No shareholder shall be permitted to cumulate his
------------------
votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares shall equal, or by distributing such
votes on the same principal among any number of candidates.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors. The business and affairs of the corporation shall be
-------------------
managed by a board of not less than one nor more than ten directors. Directors
need not be shareholders of the corporation or residents of the State of
Delaware and shall be elected at the annual meeting of shareholders or some
adjournment thereof. Directors shall hold office until the next succeeding
meeting of shareholders and until their successors shall have been elected and
shall qualify. The Board of Directors may increase or decrease, to not less
than one except as provided above, the number of directors by resolution.
4.2 Regular Meetings. A regular, annual meeting of the Board of Directors
-----------------
shall be held at the same place as, and immediately after, the annual meeting of
shareholders, and no notice shall be required in connection therewith. The
annual meeting of the Board of Directors shall be for the purpose of electing
officers and the transaction of such other business as may come before the
meeting. The Board of Directors may provide, by resolution, the time and place,
either within or without the State of Delaware, for the holding of additional
regular meetings without other notice than such resolution.
4.3 Special Meetings. Special meetings of the Board of Directors may be
-----------------
called by or at the request of the President or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Delaware, as the place for
holding any special meeting of the Board of Directors called by them.
<PAGE>
4.4 Written notice of any special meeting of directors shall be given as
follows:
(a) By mail to each director at his business address at least three days
prior to the meeting; or
(b) By personal delivery or telegram at least twenty-four hours prior to
the meeting to the business address of each director, or in the event such
notice is given on a Saturday, Sunday or holiday, to the residence address of
each director. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, so addressed, with postage thereon prepaid.
If notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Any director may waive
notice of any meeting. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
4.5 Participation by Electronic Means. Except as may be otherwise provided
----------------------------------
by the Certificate of Incorporation or Bylaws, members of the Board of Directors
or any committee designated by such Board may participate in a meeting of the
Board or committee by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other
at the same time. Such participation shall constitute presence in person at the
meeting.
4.6 Quorum and Manner of Acting. A quorum at all meetings of the Board of
----------------------------
Directors shall consist of a majority of the number of directors then holding
office, but a smaller number may adjourn from time to time without further
notice, until a quorum is secured. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by the laws of the
State of Delaware or by the Certificate of Incorporation or these Bylaws.
4.7 Organization. The Board of Directors shall elect a chairman to preside
-------------
at each meeting of the Board of Directors. The Board of Directors shall elect a
Secretary to record the discussions and resolutions of each meeting.
4.8 Presumption of Assent. A director of the corporation who is present at a
----------------------
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
<PAGE>
4.9 Informal Action By Directors. Any action required or permitted to be
-----------------------------
taken by the Board of Directors, or a committee thereof, at a meeting may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors or all the committee members
entitled to vote with respect to the subject matter thereof.
4.10 Vacancies. Any vacancy occurring in the Board of Directors may be
---------
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and shall hold such office until his successor is duly elected and shall
qualify. Any directorship to be filled by reason of an increase in the number of
directors shall be filled by the affirmative vote of a majority of the directors
then in office or by an election at an annual meeting, or at a special meeting
of shareholders called for that purpose. A director chosen to fill a position
resulting from an increase in the number of directors shall hold office only
until the next election of directors by the shareholders.
4.11 Compensation. By resolution of the Board of Directors and irrespective
-------------
of any personal interest of any of the members, each director may be paid his
expenses, if any, of attendance at each meeting of the Board of Directors, and
may be paid a stated salary as director or a fixed sum for attendance at each
meeting of the Board of Directors or both. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
4.12 Removal of Directors. Any director or directors of the corporation may
---------------------
be removed at any time, with or without cause, in the manner provided in the
Delaware Corporation Law.
4.13 Resignations. A director of the corporation may resign at any time by
-------------
giving written notice to the Board of Directors, President or Secretary of the
corporation. The resignation shall take effect upon the date of receipt of such
notice, or at any later period of time specified therein. The acceptance of such
resignation shall not be necessary to make it effective, unless the resignation
requires it to be effective as such.
4.14 General Powers. The business and affairs of the corporation shall be
---------------
managed by the Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders. The directors shall pass upon any and
all bills or claims of officers for salaries or other compensation and, if
deemed advisable, shall contract with officers, employees, directors, attorneys,
accountants, and other persons to render services to the corporation.
<PAGE>
ARTICLE V
OFFICERS
5.1 Term and Compensation. The elective officers of the corporation shall
----------------------
consist of at least a President, a Secretary and a Treasurer, each of whom shall
be eighteen years or older and who shall be elected by the Board of Directors at
its annual meeting. Unless removed in accordance with procedures established by
law and these Bylaws, the said officers shall serve until the next succeeding
annual meeting of the Board of Directors and until their respective successors
are elected and shall qualify. Any number of offices, but not more than two,
may be held by the same person at the same time, except that one person may not
simultaneously hold the offices of President and Secretary. The Board may elect
or appoint such other officers and agents as it may deem advisable, who shall
hold office during the pleasure of the Board.
5.2 The officers of the corporation shall exercise and perform the respective
powers, duties and functions as are stated below, and as may be assigned to them
by the Board of Directors.
(a) The President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside, when present, at all meetings of the shareholders
and of the Board of Directors unless a different chairman of such meetings is
elected by the Board of Directors.
(b) In the absence or disability of the President, the Vice-President or
Vice-Presidents, if any, in order of their rank as fixed by the Board of
Directors, and if not ranked, the Vice-Presidents in the order designated by the
Board of Directors, shall perform all the duties of the President, and when so
acting shall have all the powers of, and be subject to all the restrictions on
the President. Each Vice-President shall have such other powers and perform such
other duties as may from time to time be assigned to him by the President or the
Board of Directors.
(c) The Secretary shall keep accurate minutes of all meetings of the
shareholders and the Board of Directors unless a different Secretary of such
meetings is elected by the Board of Directors. He shall keep, or cause to be
kept a record of the shareholders of the corporation and shall be responsible
for the giving of notice of meetings of the shareholders or the Board of
Directors. The Secretary shall be custodian of the records and of the seal of
the corporation and shall attest the affixing of the seal of the corporation
when so authorized. The Secretary or Assistant Secretary shall sign all stock
certificates. The Secretary shall perform all duties commonly incident to his
office and such other duties as may from time to time be assigned to him by the
President or the Board of Directors.
(d) An Assistant Secretary may, at the request of the Secretary, or in
the absence or disability of the Secretary, perform all of the duties of the
Secretary. He shall perform such other duties as may be assigned to him by the
President or by the Secretary.
<PAGE>
(e) The Treasurer, subject to the order of the Board of Directors, shall
have the care and custody of the money, funds, valuable papers and documents of
the corporation. He shall keep accurate books of accounts of the corporation's
transactions, which shall be the property of the corporation, and shall render
financial reports and statements of condition of the corporation when so
requested by the Board of Directors or President. The Treasurer shall perform
all duties commonly incident to his office and such other duties as may from
time to time be assigned to him by the President or the Board of Directors. In
the absence or disability of the President and Vice-President or Vice-
Presidents, the Treasurer shall perform the duties of the President.
(f) An Assistant Treasurer may, at the request of the Treasurer, or in
the absence or disability of the Treasurer, perform all of the duties of the
Treasurer. He shall perform such other duties as may be assigned to him by the
President or by the Treasurer.
5.3 Compensation. All officers of the corporation may receive salaries or
-------------
other compensation if so ordered and fixed by the Board of Directors. The Board
of Directors shall have authority to fix salaries in advance for stated periods
or render the same retroactive as the Board may deem advisable.
5.4 Delegation of Duties. In the event of absence or inability of any
---------------------
officer to act, the Board of Directors may delegate the powers or duties of such
officer to any other officer, director or person whom it may select.
5.5 Bonds. If the Board of Directors by resolution shall so require, any
------
officer or agent of the corporation shall give bond to the corporation in such
amount and with such surety as the Board of Directors may deem sufficient,
conditioned upon the faithful performance of their respective duties and
offices.
5.6 Removal. Any officer or agent may be removed by the Board of Directors
--------
or by the executive committee, if any, whenever in its judgment the best
interest of the corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not, of itself, create
contract rights.
ARTICLE VI
FINANCE
6.1 Reserve Funds. The Board of Directors, in its uncontrolled discretion,
--------------
may set aside from time to time, out of the net profits or earned surplus of the
corporation, such sum or sums as it deems expedient as a reserve fund to meet
contingencies, for equalizing dividends, for maintaining any property of the
corporation, and for any other purpose.
6.2 The moneys of the corporation shall be deposited in the name of the
corporation in such bank or banks or trust company or trust companies, as the
Board of Directors shall designate, and may be drawn out only on checks signed
in the name of the corporation by such person or persons as the Board of
Directors, by appropriate resolution, may direct. Notes and commercial paper,
when authorized by the Board, shall
<PAGE>
be signed in the name of the corporation by such officer or officers or agent or
agents as shall thereunto be authorized from time to time.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and the laws
of the State of Delaware, the Board of Directors may declare dividends whenever,
and in such amounts, as in the Board's opinion the condition of the affairs of
the corporation shall render such advisable.
ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts. Except as otherwise provided by statute or by
-----------------------
these Bylaws, the Board of Directors may authorize any officer or agent of the
corporation to enter into any contract, or execute and deliver any instrument in
the name of, and on behalf of the corporation. Such authority may he general or
confined to specific instances and, unless so authorized, no officer, agent or
employee shall have any power to bind the corporation for any purpose, except as
may be necessary to enable the corporation to carry on its normal and ordinary
course of business.
8.2 No loans shall be contracted on behalf of the corporation and no
negotiable paper shall be issued in its name unless authorized by the Board of
Directors. When so authorized, any officer or agent of the corporation may
effect loans and advances at any time for the corporation from any bank, trust
company or institution, firm, corporation or individual. An agent so authorized
may make and deliver promissory notes or other evidence of indebtedness of the
corporation and may mortgage, pledge, hypothecate or transfer any real or
personal property held by the corporation as security for the payment of such
loans. Such authority, in the Board of Directors' discretion, may be general or
confined to specific instances.
8.3 Checks. Checks, notes, drafts and demands for money or other evidence of
-------
indebtedness issued in the name of the corporation shall be signed by such
person or persons as designated by the Board of Directors and in the manner the
Board of Directors prescribes.
8.4 Deposits. All funds of the corporation not otherwise employed shall be
---------
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be the year adopted by resolution
of the Board of Directors.
<PAGE>
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the Directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
12.1 Appointment. The Board of Directors by resolution adopted by a majority
------------
of the full Board, may designate two or more of its members to constitute an
executive committee. The designation of such committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed by law.
12.2 Authority. The executive committee, when the Board of Directors is not
----------
in session shall have and may exercise all of the authority of the Board of
Directors except to the extent, if any, that such authority shall be limited by
the resolution appointing the executive committee and except also that the
executive committee shall not have the authority of the Board of Directors in
reference to amending the Certificate of Incorporation, adopting a plan of
merger or consolidation, recommending to the shareholders the sale, lease or
other disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, or amending the Bylaws of the corporation.
12.3 Tenure and Qualifications. Each member of the executive committee shall
--------------------------
hold office until the next regular annual meeting of the Board of Directors
following his designation.
12.4 Meetings. Regular meetings of the executive committee may be held
---------
without notice at such time and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral, and if
mailed, shall be deemed to be delivered when deposited in the United States mail
addressed to the member of the executive committee at his business address. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
<PAGE>
12.5 Quorum. A majority of the members of the executive committee shall
-------
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
12.6 Informal Action by Executive Committee. Any action required or
---------------------------------------
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the committee entitled to vote with
respect to the subject matter thereof.
12.7 Vacancies. Any vacancy in the executive committee may be filled by a
----------
resolution adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of the executive committee may be
------------------------
removed at any time with or without cause by resolution adopted by a majority of
the full Board of Directors. Any member of the executive committee may resign
from the executive committee at any time by giving written notice to the
President or Secretary of the corporation, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
12.9 Procedure. The executive committee shall elect a presiding officer from
---------
its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting thereof held next after the proceedings shall have been taken.
ARTICLE XIII
EMERGENCY BYLAWS
The Emergency Bylaws provided for in this Article shall be operative during
any emergency in the conduct of the business of the corporation resulting from
an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding articles of the Bylaws
or in the Certificate of Incorporation of the corporation or in the Delaware
Corporation Law. To the extent not inconsistent with the provisions of this
Article, the Bylaws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency Bylaws shall cease
to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any officer or
director of the corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the directors as it may be
feasible to reach by any available means of communication. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
<PAGE>
(b) At any such meeting of the Board of Directors, a quorum shall
consist of the number of directors in attendance at such meeting.
(c) The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the principal office or designate
several alternative principal offices or regional offices, or authorize the
officers so to do.
(d) The Board of Directors, either before or during any such emergency,
may provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the corporation shall
for any reason be rendered incapable of discharging their duties.
(e) No officer, director or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
(f) These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders, but
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action taken prior to the time of such repeal or
change. Any amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
CERTIFICATE
I hereby certify that the foregoing Amended and Restated Bylaws, consisting
of 12 pages, including this page, constitute the Bylaws of Mediconsult.com, Inc.
approved by the Board of Directors of the corporation as of the 19th day of
November, 1999.
/s/ E. Michael Ingram
----------------------------------
E. Michael Ingram, Chief Financial
Officer and Secretary
<PAGE>
Exhibit 10.6
Operating Agreement (the "Agreement") of Pharma Marketing, LLC, a
Delaware limited liability company (the "Company"), dated as of
September 7, 1998 (the "Effective Date"), by and among the Company and
the persons who have executed the signature pages hereto as members
and who from time to time hereafter execute this Agreement as members
(collectively, the "Members").
The parties hereto have agreed to organize and operate a limited
liability company in accordance with the terms and subject to the conditions set
forth in this Agreement.
The parties agree as follows:
1. Formation. The Company was formed as a limited liability company
pursuant to the Delaware Limited Liability Company Act (the "Act") by the
execution and filing of the Certificate of Formation of Pharma Marketing, LLC
(the "Certificate of Formation"), with the Delaware Secretary of State (the
"Secretary of State") on August 18, 1999. The actions of Scott H Rosenblatt,
Esq. of Howard, Smith & Levin LLP, as authorized person, in connection with the
execution and filing of the Certificate of Formation are hereby authorized,
approved and ratified by the Members. The Members shall execute such further
documents and take such further actions as shall be necessary or appropriate to
comply with the requirements of law for the operation of a limited liability
company in any other jurisdiction in which the Company elects to conduct its
business.
2. Name; Trade Name; Foreign Qualification. The name of the Company
shall be Pharma Marketing, LLC. The Company will file such trade name or
fictitious name affidavits and other certificates as may be necessary or
desirable in connection with the formation, existence and operation of the
Company (including those filings required in any jurisdiction where the Company
owns property). The Company will apply for authority to transact business in
those jurisdictions where it is required to do so. The Company will file such
other certificates and instruments as may be necessary or desirable in
connection with its formation, existence and operation.
3. Purpose; Powers. The purpose of the Company is to (i) provide
services (the "Business") to Mediconsult.com, Ltd., a Bermuda corporation
("Limited"), pursuant to the terms of the Service Agreement, dated as of
September 7, 1999 (the "Service Agreement"), between Limited and the Company and
(ii) engage in any other lawful act or activity for which limited liability
companies may be formed under the Act and which has been specifically approved
by the Members pursuant to Section 11(a)(ix) hereof and (iii) engage in any and
all activities necessary or incidental thereto. The Company shall have all the
powers permitted to a limited liability company under the Act and which are
necessary, convenient or advisable in order for it to conduct the Business.
4. Principal Office; Registered Office; Registered Agent. The
Company's principal place of business shall be located at 1735 York Avenue,
Suite 35C, New York, New York 10128. The Company may have such other business
offices within or without the State of Delaware
<PAGE>
as determined from time to time. The registered office of the Company required
by the Act to be maintained in the State of Delaware shall be in the office of
the initial registered agent named in the Certificate of Formation or such other
office (which need not be a place of business of the Company) as the Managing
Members may designate from time to time in the manner provided by law. The
registered agent of the Company in the State of Delaware shall be the initial
registered agent named in the Certificate or such other person or persons as the
Managing Members may designate from time to time in the manner provided by law.
5. Term. The term of the Company began on the date of the filing of
the Certificate of Formation with the Secretary of State and shall continue
until dissolved in accordance with this Agreement.
6. Members; Interests.
(a) The name, present mailing address, facsimile number,
percentage interest in the Company's outstanding equity (as to each Member, its
"Membership Interest", and in the aggregate, the "Membership Interests") and the
amount of the capital contribution of each Member, as of the date hereof, are
set forth on a separate schedule (collectively, the "Member Schedule") held by
the Managing Members as records of the Company. A current and complete copy
of the Member Schedule is attached hereto as Schedule I and shall be held and
----------
maintained by the Managing Members as part of the records of the Company. The
Member Schedule shall be adjusted, revised and updated by the Managing Members,
or its designee, to reflect any changes in the Membership Interests.
(b) Whenever a new Member is admitted, the Member Schedule shall
be amended to give effect to any changes in the Member Schedule for succeeding
periods determined on the basis of the terms upon which the new Member is
admitted.
(c) Whenever a Member withdraws, the Member Schedule shall be
amended to give effect to the changes in the Member Schedule for succeeding
periods resulting from the withdrawal.
7. Capital Contributions; Capital Accounts.
(a) Capital Contributions. Each of the Members has agreed to
purchase the Membership Interest set forth opposite such Member's name on the
Membership Schedule attached hereto in exchange for the consideration set forth
opposite such Member's name on the Membership Schedule (a "Capital
Contribution"). Except as otherwise provided in Section 7(e) hereof or by
applicable law, no Member shall be required to make additional capital
contributions without such Member's consent. Except with the consent of the
Managing Members, no Member shall be entitled to make any additional capital
contribution or to make any capital contribution in property other than cash.
(b) Capital Accounts. There shall be established and maintained
for each Member a separate capital account ("Capital Account"). There shall be
added to the Capital Account of each Member (i) the amount of any money, and the
fair market value of any other property, contributed by the Member to the
Company as capital and (ii) income and gain allocated to the Member by the
Company in accordance with Section 8(a), and there shall be subtracted from such
Capital Account (x) the amount of any money, and the fair market value of any
other property,
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distributed to the Member and (y) losses and expenses allocated to the Member by
the Company in accordance with Section 8(a). If property other than cash is
distributed to the Members (whether in liquidation of the Company or otherwise),
for purposes of computing Capital Accounts the property will be deemed to have
been sold by the Company for its fair market value and the income, gain, loss or
expense from the deemed sale will be allocated in accordance with Section 8. All
capital, whenever contributed, shall be subject in all respects to the risks of
the business and subordinate in right of payment to the claims of present or
future creditors of the Company and of any successor firm in accordance with
this Agreement.
(c) Interest. No interest shall be allowed to any Member by reason
of the amount of such Member's capital contribution or Capital Account.
(d) Withdrawal of Capital. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all, or any part of, such
Member's Capital Contribution or Capital Account from the Company prior to the
Company's dissolution and liquidation. When such withdrawal is permitted, except
as specifically provided in this Agreement, no Member will be entitled to demand
a distribution of property other than money.
(e) Unreimbursed Expenses. For so long as Mediconsult.com, Inc., a
Delaware corporation ("Mediconsult"), is a Member, promptly upon receiving an
invoice therefor from the Company, Mediconsult shall reimburse the Company for
any expenses of the Company for meals, entertainment expenses, club dues and
similar unreimbursed expenses that have been incurred in good faith by the
Company in connection with carrying out the services under the Service
Agreement. Any such payment shall be treated as an additional capital
contribution by Mediconsult to the Company.
8. Allocations.
(a) In General. Except as otherwise provided in this Section 8,
each item of income, gain, loss or expense of the Company for any period shall
be allocated to the Capital Accounts of the Members in a manner consistent with
the corresponding distributions made or to be made pursuant to Section 9 herein.
In particular, allocations of income, profit, gain or loss shall be made in such
a manner that if the Company were wound up and its assets distributed pursuant
to Section 19 immediately after such allocation, such distributions would, as
nearly as possible, be equal to the distributions that would be made pursuant to
Section 9. Income, gain, loss and expense shall be determined for this purpose
in the same manner used in determining the Company's taxable income or loss for
federal income tax purposes, except that:
(i) there shall be added any income exempt from federal income
tax;
(ii) there shall be subtracted any expenditures that are neither
deductible nor chargeable to the Capital Accounts;
(iii) in the case of any property contributed as capital, fair
market value (as of the most recent such valuation and adjusted pursuant
to this clause (iii)) rather than adjusted tax basis shall be used to
compute gain or loss resulting from any disposition of the property and
depreciation, amortization and other cost recovery deductions and
similar items of income or deduction in respect of
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such property shall be calculated as if the unadjusted tax basis of the asset
were such fair market value;
(iv) unrealized gain or loss attributable to any property
distributed to Members shall be deemed realized immediately prior to the
distribution; and
(v) appropriate adjustments shall be made to reflect any deemed
sale or purchase of assets and deemed realization of items of income, gain, loss
or expense as a result of a revaluation of assets upon the admission, withdrawal
or expulsion of a Member as provided for herein.
(b) Allocation Periods. Allocations under paragraph (a) of this
Section 8 shall be made for each period (an "Allocation Period") commencing with
the day after an Allocation Event (or, in the case of the first Allocation
Period, commencing with the date of the filing of the Certificate of Formation
with the Secretary of State) and ending on the date of the next succeeding
Allocation Event. An "Allocation Event" shall mean any one of the following:
(i) the end of a fiscal year;
(ii) the admission or withdrawal of a Member;
(iii) the termination of the Company for federal income tax
purposes;
(iv) the dissolution of the Company; and
(v) any other event which the Managing Members, in their
discretion, designate as an "Allocation Event."
(c) Admissions and Withdrawals. In the discretion of the Managing
Members, in case any person shall be admitted as a new Member to the Company, or
any Member shall withdraw from the Company or shall die, the Company shall be
deemed to have sold its assets for their respective fair market values, as
determined in good faith by the Managing Members, and concurrently repurchased
such assets, on the date of such event for the same consideration.
(d) Tax Allocations. (i) Except as otherwise provided in this
subsection (d), as of the end of each fiscal year of the Company, the Company's
income and expense and capital gain or loss, all as determined for federal
income tax purposes, shall be allocated among the Members in a manner consistent
with the economic allocations of Section 8(a) above and giving effect to Section
704(b) and (c) of the Internal Revenue Code of 1986, as amended (such Code, as
amended from time to time or any successor federal income tax legislation, the
"Code") and the Treasury Regulations thereunder and Section 706(c)(i) of the
Code as determined by the Managing Members.
(ii) If a Member shall make additional capital contributions
to the Company as of a date other than the first day of a fiscal year, withdraw
from the Company or make a withdrawal from such Member's Capital Account as of a
date other than the last day of a fiscal year, the Managing Members shall make
such adjustments in the determination and allocation among the Members of
income, gain, loss, deduction or credit for tax purposes as the Managing Members
shall
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deem necessary in their reasonable judgment to equitably take into account
such interim event and applicable provisions of law, and the determination
thereof by the Managing Members shall be conclusive as to all Members.
(e) Guaranteed Payments. Notwithstanding any provision to the
contrary contained herein, the special distributions to Timothy J. McIntyre
("McIntyre") pursuant to Sections 9(b) and (c) herein (the "Guaranteed
Payments") shall be characterized as guaranteed payments for services made to
McIntyre acting in the capacity of a nonpartner. Any Company deductions
attributable to such Guaranteed Payments shall be allocated 100% to Mediconsult.
(f) Allocation of Reimbursed Expenses. Expenses of the Company
reimbursed by Mediconsult pursuant to Section 7(e) shall be allocated 100% to
Mediconsult.
9. Distributions.
(a) Deemed Tax Distributions. To the extent the Company is required
by law to make tax payments on behalf of a Member (e.g. backup withholding or
withholding with respect to Members who are neither citizens nor residents of
the United States), such payments shall be treated as distributions to the
Member on whose behalf the payment is made.
(b) Initial McIntyre Distributions. Within two business days after
the receipt of all initial Capital Contributions from the Members hereof, the
Company shall distribute to McIntyre $1,250,000 in cash and 100,000 shares of
common stock, par value $0.001 per shares (the "Common Stock") of Mediconsult.
(c) Subsequent Distributions of the Common Stock. Upon the occurrence
of the following events and if, and only if, a Breaching Event with respect to
McIntyre has not occurred and is continuing, the Company shall distribute to
McIntyre up to 100,000 shares of Common Stock as follows:
(i) 25,000 shares upon the recognition by Limited on or before
the first anniversary of the Effective Date of an aggregate cumulative
amount of US$10,000,000 in revenue from third parties arising from the
provision of services by the Company pursuant to the Service Agreement;
(ii) 25,000 shares upon the recognition by Limited on or before
the first anniversary of the Effective Date of an aggregate cumulative
amount of US$20,000,000 in revenue from third parties arising from the
provision of services by the Company pursuant to the Service Agreement;
(iii) 25,000 shares upon the recognition by Limited on or before
the first anniversary of the Effective Date of an aggregate cumulative
amount of US$30,000,000 in revenue from third parties arising from the
provision of services by the Company pursuant to the Service Agreement;
(iv) 25,000 shares upon the recognition by Limited on or before
the first anniversary of the Effective Date of an aggregate cumulative
amount of US$40,000,000 in revenue from third parties arising from the
provision of services by the Company pursuant to the Service Agreement; and
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<PAGE>
(v) on the first anniversary of the Effective Date, the lesser of
(A) 100,000 shares and (B) a number of shares equal to 100,000 minus the
number of shares distributed to McIntyre pursuant to clauses (i), (ii),
(iii) and (iv) of this Section 9(c).
For purposes of this Section 9(c), the term "Breaching Event" shall mean, with
respect to any Member other than Mediconsult or any transferee of Mediconsult
(each a "Non-Mediconsult Member"), (I) any event giving the Company "cause" to
terminate any written employment agreement entered into between such Non-
Mediconsult Member and the Company (each an "Employment Agreement") has occurred
which has not been cured, if curable, within the time specified in, or waived by
the Company in writing pursuant to the terms of, such Employment Agreement or
(II) the Employment Agreement has been terminated by the Company based on such
event; provided that none of a termination "without cause" by the Company as
described in any Employment Agreement, a termination due to a Nonperformance
Event (as defined in Section 12(b)(i)), nor a termination of an Employment
Agreement due to the death or disability of such Non-Mediconsult Member shall be
a Breaching Event. Any shares of Common Stock that are not distributed to
McIntyre pursuant to this Section 9(c) on or before the first anniversary of the
Effective Date due to the occurrence of a Breaching Event with respect to
McIntyre shall be immediately distributed in full to Mediconsult.
(d) Service Agreement. All profits of, or recoveries under, the
Service Agreement actually received by the Company (after payment of all related
expenses of the Company, including all obligations of the Company under any
Employment Agreement), shall be distributed, with respect to profits, on an
annual basis and, with respect to recoveries, promptly upon receipt to the Non-
Mediconsult Members on a pro rata basis.
(e) Additional McIntyre Distributions. With respect to each
distribution made pursuant to Sections 9(b) and 9(c), the Company shall
distribute to McIntyre an additional distribution (the "Additional
Distribution") in an amount that will place McIntyre in the same economic
position net of applicable federal, state, and local income taxes (including
such taxes on the Additional Distribution) as if the relevant distribution
pursuant to Sections 9(b) or 9(c) had been treated for federal income tax
purposes as an item of long-term capital gain to McIntyre; provided, however,
that the Additional Distribution with respect to the distribution pursuant to
Section 9(b) shall not exceed $717,000 and the aggregate amount of Additional
Distributions with respect to distributions pursuant to Section 9(c) shall not
exceed $300,000. With respect to any distribution made pursuant to Sections
9(b) or 9(c), the Additional Distribution will be payable on the later of (i)
five days before the due date for individual estimated income taxes for the
period that includes the date of payment of such distribution pursuant to
Sections 9(b) or 9(c) and (ii) 15 days after receipt by Mediconsult of a written
explanation from McIntyre's certified public accountant or attorney setting out
in reasonable detail the calculation of the Additional Distribution. In the
event that the Company or any person guaranteeing the Company's liability to pay
Additional Distributions in good faith disputes the amount of the Additional
Distribution, the Company (or such guarantor) and McIntyre will jointly select
an arbitrator (who must be an attorney or certified public accountant) whose
decision will be final and the expense of such arbitration will be borne equally
by the parties.
(f) Other Distributions. Except as otherwise provided in paragraphs
(a), (b), (c), (d) and (e) of this Section 9 or as otherwise required by the
Act, distributions to Members shall be made at such time and in such form and
amounts as the Managing Members shall from time to time determine; provided,
that unless otherwise unanimously agreed to by the Managing
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Members, all cash and securities received shall be distributed upon receipt in
accordance with the Membership Interests as set forth on the Member Schedule.
10. Management.
(a) Managing Members; Unlimited Term Office. Mediconsult and
McIntyre shall each be a managing member (each, a "Managing Member" and
collectively, the "Managing Members") of the Company. The term of office of each
Managing Member shall be unlimited.
(b) Management by Managing Members. The property, business and
affairs of the Company shall be managed by its Managing Members. Except where
the Members' approval is expressly required by this Agreement or by the Act, the
Managing Members shall have full authority, power and discretion to make all
decisions with respect to the Company's business and to perform such other
services and activities as set forth in this Agreement. Except as provided in
Section 10(k) hereof, each Managing Member shall be an agent of the Company for
its business purposes and, with the authorization of the Managing Members, may
bind the Company in the ordinary course; provided that no Managing Member shall
bind the Company to any act for which the approval or consent of the Members is
specifically required pursuant to the terms of this Agreement or the Act until
such approval or consent has been obtained and any such attempt to bind in
absence of such approval or consent shall be null and void and shall not bind
the Company thereto.
(c) No Management by Members. Except as otherwise expressly
provided by this Agreement or the Act, the Members shall have no right to
control or manage, and shall not take part in the control or management of, the
property, business or affairs of the Company.
(d) Act of Managing Members. (i) Except as provided in Section
10(k) hereof, the vote of Managing Members holding a majority of Membership
Interests held by all Managing Members shall determine the act of the Managing
Members.
(e) Written Consent. In lieu of holding a meeting, the Managing
Members may vote or otherwise take action by a written instrument indicating the
consent of the Managing Members.
(f) Execution and Delivery of Instruments. Except as provided in
Section 10(k) hereof, each Managing Member shall have the full power to execute
and deliver, for and on behalf of the Company, any and all documents and
instruments which may be necessary or desirable to carry on the business of the
Company, including, any and all deeds, contracts, leases, mortgages, deeds of
trust, promissory notes, security agreements and financing statements pertaining
to the Company's assets or obligations, and to authorize the confession of
judgment against the Company, and no other signature shall be required for any
such instrument or document to bind the Company; provided that the execution or
delivery of the document or instrument is an authorized act of the Managing
Members taken in accordance with this Section 10 and any approval or consent
required to be obtained from the Members pursuant to this Agreement has been
obtained.
(g) Resignation or Removal of Managing Members. (i) Each Managing
Member shall hold office until his earlier resignation or removal. Each Managing
Member may resign at any time by giving written notice to the Company. Each
Managing Member may be
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replaced or removed from office by the other Managing Member only (x) for Cause
(as defined below) or (y) in the case of any Managing Member that is an
individual, on account of such Managing Member's death or Disability (as defined
below). In the case of the death of a Managing Member, such Member shall be
automatically removed from office on the date of his death. In the case of the
removal of a Managing Member for Cause or on account of Disability, the
remaining Managing Members shall notify such Member that the Managing Member
subject to such condition is being removed as a Managing Member, and such
Managing Member shall cease to be, and cease to have any of the rights or
obligations of, a Managing Member effective on the date specified in the notice,
or if no date is so specified, effective immediately; provided that such removal
shall not affect the rights or obligations of such Member as a Member of the
Company. A vacancy occurring for any reason in the office of the Managing
Member, whether resulting from the resignation or removal of the Managing Member
or otherwise, may be filled only by the affirmative vote of Members holding at
least 75% of the Membership Interests. Any vacancy shall not prevent any
remaining Managing Member from managing the business and affairs of the Company
and taking all actions permitted to be taken by the Managing Members under this
Agreement.
(ii) "Cause" means, with respect to a Managing Member, any of the
following: (x) in the case of an individual, conviction of, or plea of guilty or
nolo contendere to, either a felony or a crime for which a term of imprisonment
of more than one year may be imposed and which involves a fraudulent act, (y) in
the case of any individual, a breach or violation of any material provision of
any Employment Agreement to which such Managing Member is a party, or (z) in the
case of a corporation, partnership, limited liability company or similar entity,
bankruptcy, dissolution, liquidation, wind-up, appointment of a receiver or an
assignment for the benefit of creditors.
(iii) "Disability" means, with respect to a Managing Member that
is an individual, the inability of such Managing Member to perform his duties as
a Managing Member for 120 days in any calendar year due to a physical or mental
disability.
(h) Participation in Meetings by Telephone and Other Equipment. The
Managing Members may participate in a meeting by conference telephone or similar
communications equipment, by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
(i) Certificate of Managing Member. Any third person dealing with
the Company or Members may rely upon a certificate signed by a Managing Member
as to (i) the identity of the Members, (ii) acts by the Members, (iii) any act
or failure to act by the Company, or (iv) any other matter involving the Company
or any Member.
(j) Appointment of Officers, etc. The Managing Members may delegate
functions relating to the day-to-day operations of the Company to such officers,
agents, consultants or employees as they may from time to time designate,
subject to the approval of the Members in accordance with Section 11(a) hereof.
Such officers, agents, consultants and employees need not be Members, and shall
have such duties, powers, responsibilities and authority as may from time to
time be prescribed by the Managing Members (in accordance with this Agreement),
and may be removed at any time, with or without cause, by the Managing Members,
subject to the approval of the Members in accordance with Section 11(a) hereof.
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(k) Employment Agreements and Service Agreement. Notwithstanding
anything to the contrary herein, (i) Mediconsult shall be the sole Managing
Member that may, on behalf of the Company: (A) bind the Company to, or renew,
any Employment Agreement or the Service Agreement, (B) give instructions in
connection with any Employment Agreement, (C) amend, modify or waive any terms
of any Employment Agreement, (D) terminate or extend the term of any Employment
Agreement or (E) enforce the Company's rights (in the case of any breach or
otherwise) under, commence any action (in law or in equity) in connection with,
or defend any action asserted against the Company in connection with, any
Employment Agreements and (ii) McIntyre shall be the sole Managing Member that
may, on behalf of the Company: (A) give instructions in connection with the
Service Agreement, (B) amend, modify or waive any terms of the Service
Agreement, (C) work in good faith with Limited to agree on pricing for each
Service Provider Contract (as defined in the Service Agreement) and adjustments
(if any) to the monthly retainer payable under the Service Agreement to reflect
increases in expenses incurred by the Company in providing the Services (as
defined in the Service Agreement) or (D) enforce the Company's rights (in the
case of any breach or otherwise) under, commence any action (in law or in
equity) in connection with, or defend any action asserted against the Company in
connection with, the Service Agreement.
11. Voting Rights of Members; Meetings of Members.
(a) Voting Rights of Members: In General. Except as specifically
provided by this Agreement or required by the Act, Members shall not be entitled
to vote on any matter, other than the following actions which may not be
undertaken or agreed to by the Company or its Managing Members without the
affirmative vote of Members holding at least 75% of the outstanding Membership
Interests:
(i) the issuance or sale of any additional Membership Interests,
including any options, warrants or other rights to purchase Membership
Interests and any other securities convertible into Membership Interests or
the admission of any other Members to the Company;
(ii) the declaration or payment of an distribution with respect
to any Membership Interest in the Company (other than distribution pursuant
to clauses (a) through (e) of Section 9 hereof)) or the incurrence of any
obligation (whether directly or pursuant to any guarantee or similar
obligation) with respect to indebtedness that would, in accordance with
generally accepted accounting principles, be characterized as long-term
indebtedness on the consolidated balance sheet of the Company;
(iii) the sale, conveyance, lease or other disposition or
encumbrance of all or substantially all of the Company's or any
subsidiaries, property or business, or the merger into or consolidation
with any other corporation or other entity (other than a wholly-owned
subsidiary corporation), in each case in one or a series of related
transactions;
(iv) the sale, conveyance, lease or other disposition of any of
the Company's or any of its subsidiaries' property or assets (including any
shares of Common Stock not yet distributed in accordance with Section 9(c)
hereof) or the pledging of assets other than for operating purposes and in
the ordinary course of business;
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(v) except as provided in Section 12(a)(iv), the transfer or
other disposition of any Membership Interest in the Company owned by any
Member, including the pledge of, or the creation of any other encumbrance
against, any Membership Interest by any Member;
(vi) an acquisition by the Company or any of its subsidiaries or
any assets, business, securities or other property for consideration (in
cash or otherwise) in excess of US$50,000, or the making in any fiscal year
of other expenditures by the Company or any of its subsidiaries in excess
of US$50,000 for a single transaction or US$50,000 in the aggregate;
(vii) any change in the Company's accounting policies or methods
or in its principal accountants;
(viii) any material change in the terms and provisions of the
Company's Certificate of Formation or this Operating Agreement (or such
other document or rules that may from time to time govern the Company's
conduct of business, the conduct of the Managing Members or the rights and
privileges of the Members);
(ix) any change or amendment to the terms or conditions of the
Service Agreement or in the performance by the Company thereunder;
(x) the entering into of any written or oral agreement or
arrangement with any employee, consultant or other agent of the Company or
any amendment to the terms or conditions of any agreement or arrangement
previously entered into by the Company with any employee, consultant or
other agent of the Company;
(xi) any change in the terms of this Section 11(a); and
(xii) the appointment or removal of any officer or any
delegation of any rights otherwise vested in the Managing Members to any
officer.
(b) Meetings of Members. A meeting of the Members may be called at
any time by a Managing Member or by Members owning at least 25% of the
Membership Interests. Meetings of the Members shall be held at the Company's
principal place of business or at any other place agreed to by the Members. Not
less than two nor more than sixty days before each meeting, the person or
persons calling the meeting shall give written notice of the meeting to each
Member, stating the place, date, hour and purpose of the meeting.
Notwithstanding the foregoing provisions, each Member waives notice if before or
after the meeting the Member signs a waiver of the notice which is filed with
the records of meetings of the Members, or is present at the meeting in person
or by proxy without objecting to the lack of notice. Unless this Agreement
provides otherwise, the presence in person or by proxy of Members holding not
less than a majority of each class of Membership Interest (as set forth on the
Member Schedule) then held by Members of each class constitutes a quorum. A
Member may vote either in person or by written proxy signed by the Member or by
the Member's duly authorized attorney in fact.
(c) Act of Members. Except as specifically provided by this Agreement
or required by the Act, the affirmative vote of Members holding a majority of
the Member Interests shall be the act of the Members.
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(d) No Annual Meetings. A meeting of the Members need not be held at
any time, except as called pursuant to paragraph (b) of this Section 11.
(e) Written Consent. In lieu of holding a meeting, the Members may
vote or otherwise take action (including pursuant to Section 11(a) hereof) by a
written instrument indicating the consent of Members holding such Membership
Interests as would be required for Members to take action under this Agreement.
If such consent is not unanimous, notice shall be given to those Members who
have not consented in writing.
(f) Participation in Meetings by Telephone and Other Equipment.
Members may participate in a meeting by conference telephone or similar
communications equipment, by means of which all persons in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
(g) Performance by Members; Other Interests. The Members may have
other business interests and may engage in other activities in addition to those
relating to the Company; provided that any such business interests or activities
shall not breach or violate any agreement entered into between the Company and
such Member. Neither the Company nor any Member shall have any right, by virtue
of this Agreement, to share or participate in such other investments or
activities of any Member or any Member, as the case may be, or in any income or
revenues derived therefrom.
12. Assignments; Put Rights.
(a) General Transfer Restrictions.
(i) In General. Except as provided in paragraph (ii) of this
Section 12(a), a Member may sell, assign or otherwise transfer in whole or
in part his or its Membership Interest in the Company only upon
satisfaction of the following conditions:
(A) presentation to the Managing Members of an opinion of
counsel, in a form satisfactory to the Managing Members, opining that
such transfer is subject to an effective registration under, or exempt
from the registration requirements of, the applicable state and
federal securities laws;
(B) all Managing Members shall have approved the transfer
of such Membership Interest or such transfer is permitted pursuant to
Section 11(a)(v) hereof; and
(C) the transferee must agree to be bound by the terms
hereof and evidence such agreement by executing a counterpart
signature page of this Agreement.
(ii) Deceased Members. The restrictions set forth in
paragraph (a)(i) of this Section 12 (and Section 11(a)(v)) shall not apply
to the transfer of a Membership Interest, excluding any voting rights in
connection therewith, from a deceased Member to his or her personal
representative or estate.
(iii) Compliance with Section 14. Any sale, assignment or
other transfer that is not in compliance with this Section 12(a) shall be
null and void. All buyers,
-11-
<PAGE>
assignees and other transferees shall be subject to the requirements of
admission as an additional Member pursuant to Section 14.
(iv) Transfers by Mediconsult. Notwithstanding anything to
the contrary in this Agreement, Mediconsult may transfer its Membership
Interest to any of its affiliates, pledge or assign its interest as
collateral to a party providing secured financing to Mediconsult or any of
its affiliates or transfer its interest in connection with a sale or other
disposition of all or substantially all of its assets, in each case,
without the consent or approval of any Managing Member. Notwithstanding
Section 14 hereof, any such transferee shall be admitted as a Member and
may replace Mediconsult as a Managing Member (and be entitled to all rights
of a Member and a Managing Member hereunder); provided that Mediconsult
shall remaining obligated under Section 12(b) hereof.
(b) Put Rights.
(i) Initial Put Right. Unless a Breaching Event has occurred
and is continuing with respect to such Non-Mediconsult Member, the
Employment Agreement of such Non-Mediconsult Member has been terminated due
to the death or disability of such Non-Mediconsult Member (a "Health
Event") or the Nonperformance Event has occurred at or before the date a
Non-Mediconsult Member otherwise could exercise his rights under this
Section, each Non-Mediconsult Member shall be entitled to sell to
Mediconsult, and Mediconsult shall be required to purchase, up to an
aggregate of 84.6% (the "Eligible Amount") of such Non-Mediconsult Member's
Membership Interests in accordance with the terms of this Section 12(b), on
the following dates and in the following amounts:
(A) on each of the first four anniversaries of the
Effective Date, 25% of the portion of the Eligible Amount (as
determined on the Effective Date or, in the case of any Non-
Mediconsult Member that acquires a Membership Interest after the
Effective Date, as of the date of such acquisition); provided that as
to any anniversary with respect to which such right is not exercised
within 60 days of such anniversary, such right shall terminate; and
(B) for each US$10,000,000 recognized by Limited in
revenue from third parties arising from the provision of services by
the Company pursuant to the Service Agreement, 25% of the portion of
the Eligible Amount then held by such Non-Mediconsult Member; provided
that such right shall terminate to the extent not exercised within 60
days of the delivery to the Holders (as defined in the Membership
Investment Agreement, dated as of September 7, 1999, between the
Company and Mediconsult (the "Investment Agreement")) of a certificate
from Limited, in accordance with Section 6.15 of the Investment
Agreement, indicating that such revenue goal has been attained.
The purchase price (the Initial Put Price") for each portion of the
Eligible Amount shall be paid in shares of Common Stock and shall equal the
product of
Y
600,000 x ---------
X
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<PAGE>
where:
"Y" equals the portion of the Non-Mediconsult Member's
Eligible Amount being sold; and
"X" equals 84.6% of the Non-Mediconsult Member's Membership
Interests.
No fractional shares of Common Stock shall be issued, and fractional shares
shall be rounded upward or downward to the nearest whole share. The Non-
Mediconsult Members' rights hereunder may be exercised by a Non-Mediconsult
Member, within 60 days of the applicable anniversary, pursuant to Section
12(b)(i)(A), or the delivery of the relevant certificate pursuant to
Section 12(b)(i)(B), whichever is later, by (i) providing Mediconsult with
written notice of the exercise of the Initial Put Right setting forth the
current Eligible Amount of such Non-Mediconsult Member's Membership
Interest to which the right may be exercised and the Membership Interest to
which it is being exercised, (ii) the payment by such Non-Mediconsult
Member of the applicable Initial Put Exercise Price, (iii) the execution
and delivery of a subscription agreement, in a form satisfactory to
Mediconsult, containing appropriate securities law transfer restrictions
and representations of such Member for purposes of establishing any
applicable exemptions from the securities laws, and (iv) the execution and
delivery of any other agreement, documents or other instruments of sale,
transfer, conveyance or assignment as Mediconsult may reasonably deem
necessary or desirable in order more effectively to transfer, convey and
assign to Mediconsult, and to confirm Mediconsult's title to, the
Membership Interest purchased by Mediconsult from such Non-Mediconsult
Member hereunder. The term "Initial Put Exercise Price" shall mean that
number of shares of Common Stock being issued to the Non-Mediconsult Member
pursuant to the exercise of such Member's rights hereunder multiplied by
the average closing price of shares of Common Stock over the 30 trading
days ending 3 days prior to the Effective Date. All Members agree that the
provisions of the Initial Put Right shall be proportionately adjusted if
Mediconsult acquires any additional Membership Interests (either from a
Member or through purchase from the Company of additional Membership
Interests) and that the Managing Members shall unanimously agree as to such
modifications.
"Nonperformance Event" means the termination of the Service
Agreement by Limited due to the failure of Limited to have in effect as of
(i) September 30, 2000, duly executed and enforceable Service Provider
Contracts (as defined in the Service Agreement) pursuant to which Limited
will recognize at least $5,000,000 in revenue during the term of such
contracts or (ii) January 1, 2002, duly executed and enforceable Service
Provider Contracts pursuant to which Limited will recognize at least
$20,000,000 in revenue during the term of such contracts.
(ii) Additional Put Rights. If the rights set forth in
Section 12(b)(i) have been exercised in full and, after giving effect to
the full exercise of the such rights, Mediconsult's Membership Interest
represents 90% of the total Membership Interests, then, unless a Breaching
Event has occurred and is continuing with respect to such Non-Mediconsult
Member, a Health Event has occurred with respect to such Non-Mediconsult
Member or the Nonperformance Event has occurred at or before the date a
Non-Mediconsult Member otherwise could exercise his rights under this
Section, during the period from December 31, 2001 to, but not including,
December 31, 2002, each Non-Mediconsult
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<PAGE>
Member shall have the right to sell to Mediconsult, and Mediconsult shall
be required to purchase, such Non-Mediconsult Member's entire, but not less
than the entire, remaining Membership Interest (the "Remaining Interests")
for the Additional Put Purchase Price. The purchase price (the "Additional
Put Purchase Price"), shall be paid in shares of Common Stock and shall
equal to the product of 500,000 multiplied by the fraction created by
dividing (x) the total Membership Interest held by such Remaining Minority
Member ("Pro Rata Additional Put Interests") by (y) the total Membership
Interests held by all Remaining Minority Members (collectively, the
"Aggregate Additional Put Interests").
An Additional Put Right may be exercised by a Non-
Mediconsult Member, during the period from December 31, 2001 to, but not
including December 31, 2002, by (i) providing Mediconsult with written
notice of the exercise of the Additional Put Right and certifying that the
rights of all Non-Mediconsult Members under Section 12(b)(i) hereof have
been exercised in full, (ii) the payment by such Non-Mediconsult Member of
US$12,500,000 multiplied by the fraction created by dividing such Non-
Mediconsult Member's Membership Interest by the total Membership Interests
held by all Non-Mediconsult Members, (iii) the execution and delivery of a
subscription agreement, in a form satisfactory to Mediconsult, containing
appropriate securities law transfer restrictions and representations of
such Member for purposes of establishing any applicable exemptions from the
securities laws and (iv) the execution and delivery of any agreement,
documents or other instruments of sale, transfer, conveyance or assignment
as Mediconsult may reasonably deem necessary or desirable in order more
effectively to transfer, convey and assign to Mediconsult, and to confirm
Mediconsult's title to, the Membership Interest purchased by Mediconsult
from such Non-Mediconsult Member hereunder.
(iii) Payment of Put Exercise Price. Each exercise price
for each of the Initial Put Rights and the Additional Put Rights shall be
paid to Mediconsult by the Members exercising such put right (i) in cash or
(ii) by the issuance to Mediconsult of a non-recourse promissory note, in a
form satisfactory to Mediconsult, (x) secured by a duly perfected, first
priority security interest in all shares of Common Stock issued by
Mediconsult to such Member as payment for the Membership Interests so
purchased upon the exercise of such put right (which may be in form of a
pledge of such shares of Common Stock), (y) maturing on the second
anniversary of the date of issuance of such note, with mandatory principal
prepayments to be paid in cash to Mediconsult to the extent, and upon
receipt, of proceeds from the sale of any shares of Common Stock securing
such note, and (z) accruing interest on the unpaid principal balance of
such note (and any accrued but unpaid interest) at the Applicable Federal
Rate as determined in accordance with Section 1274(d) of the Code, payable
in arrears on a semi-annual basis on the first day of January and July of
each year.
(iv) Acceleration of Put Rights. Unless a Breaching Event
has occurred and is continuing with respect to such Non-Mediconsult Member,
a Health Event has occurred with respect to such Non-Mediconsult Member or
the Nonperformance Event has occurred, the rights of the Non-Mediconsult
Members to sell to Mediconsult their Membership Interests, pursuant to
clauses (i) and (ii) of this Section 12(b), shall immediately become
exercisable in full as follows:
(A) if the Company or Mediconsult consummates any of the
following transactions:
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<PAGE>
(I) a merger or acquisition in which the Company or
Mediconsult is not the surviving entity;
(II) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or Mediconsult; or
(III) any merger in which the Company or Mediconsult is the
surviving entity but in which fifty percent (50%) or more of the
Company's or Mediconsult's outstanding equity (Membership Interests,
Common Stock or such other equity securities as may at the time
represent the voting rights of the holders of the outstanding equity
of the Company or Mediconsult, as the case may be) is issued to
holders different from those who held the Membership Interests or
Common Stock, as the case may be, prior to such merger; or
(B) with respect to Membership Interests held by McIntyre, if
McIntyre has not held, and continues not to hold, for a period of at least
three consecutive calendar months, the primary responsibility, directly or
indirectly through the Service Agreement and/or his Employment Agreement,
to conduct the sales and marketing efforts of Mediconsult and Limited and
their respective affiliates with respect to pharmaceutical companies.
Notwithstanding the acceleration of the time at which the Non-Mediconsult
Members may exercise their rights pursuant to clauses (i) and (ii) of this
Section 12(b), all other terms and conditions set forth in this Section
12(b) shall apply to the exercise of such rights (including the payment in
full of the applicable exercise price as set forth in clauses (i) and (ii)
of this Section 12(b)).
(v) Retention of Membership Rights. With respect to the Initial
Put Right and the Additional Put Right, until such time as the Initial Put
Purchase Price or Additional Put Purchase Price, respectively, has been
paid to the Members exercising such put rights, the holder of such
unpurchased Membership Interest shall be entitled to retain legal and
beneficial ownership of such unpurchased Membership Interest and to
exercise all rights with respect to such unpurchased Membership Interest
under the Agreement.
(vi) Adjustment Upon Change of Shares. If a reorganization,
merger, consolidation, reclassification, recapitalization, combination or
exchange of shares, stock split, stock dividend, rights offering, or other
event affecting shares of Common Stock occurs, then the number and class of
the securities to be received by each Non-Mediconsult Member exercising
rights pursuant to clauses (i) or (ii) of this Section 12(b) and the price
per share payable upon exercise of such rights shall be equitably adjusted
to reflect such changes.
13. Withdrawal. A member (including a Managing Member) may
voluntarily withdraw from the Company only with the consent of, and subject to
the terms and conditions approved by, the Managing Members, such withdrawal to
become effective upon the date fixed by the Managing Members. Promptly upon
giving consent to the withdrawal of a Member, the Managing Members shall give
the other Members written notice of such withdrawal. Until such withdrawal
becomes effective, such Member shall in all respects continue to be a Member
hereunder.
-15-
<PAGE>
14. Admission of Additional Members. Each new Member approved in
accordance with (S) 11(a)(i) shall be required to execute an agreement pursuant
to which such Member becomes bound by the terms of this Agreement (as may be
amended from time to time pursuant to Section 24 hereof).
15. Dissolution.
(a) Events of Dissolution. The Company shall be dissolved upon:
(i) the affirmative vote of all Managing Members;
(ii) at any time there are no Members, provided that, the
Company is not dissolved and is not required to be wound up if,
within 90 days after the occurrence of the event that terminated
the continued membership of the last remaining Member, the
personal representative of the last remaining Member agrees in
writing to continue the Company and to the admission of the
personal representative of such Member or its nominee or designee
to the Company as a Member, effective as of the occurrence of the
event that terminated the continued membership of the last
remaining Member; or
(iii) the entry of a decree of judicial dissolution pursuant
to Section 702 of the Act.
(b) Continuation without Dissolution. The bankruptcy, death,
dissolution, expulsion, incapacity or withdrawal or any Member or the occurrence
of any other event that terminates the continued membership of any Member (other
than the affirmative vote of the Managing Members to dissolve the Company) shall
not cause the Company to be dissolved or its affairs to be wound up, and, upon
the occurrence of any such event, the Members hereby agree that the Company
shall be continued without dissolution, unless such event results in the Company
having no Members, in which case the provisions of Section 15(a)(ii) shall
apply.
16. Liability of Members. The Members shall not have any liability
(personal or otherwise) for the obligations or liabilities of the Company except
to the extent provided in the Act.
17. Exculpation of Managers. No Managing Member shall have liability
(personal or otherwise) to the Company or its Members for damages for any breach
of duty in such capacity; provided that nothing in this Section 17 shall
eliminate or limit the liability of any Managing Member if a judgment or other
final adjudication adverse to the Managing Members establishes that his or her
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that the Managing Members personally gained in fact
a financial profit or other advantage to which he or she was not legally
entitled or that with respect to a distribution to Members the acts of the
Managing Members were not performed in accordance with the Act.
18. Indemnification. To the fullest extent permitted by law, the
Company shall indemnify and hold harmless the Managing Members and Members and
their respective affiliates, directors, members, shareholders, officers,
employees and agents (collectively, the "Indemnitees") from and against any and
all liabilities, judgments, claims, settlements, losses, damages, fees, liens,
taxes, penalties, obligations and expenses, including reasonable attorneys' fees
(collectively, "Losses") paid or incurred by any such Indemnitee in connection
with the conduct of the Company's
-16-
<PAGE>
business in accordance with this Agreement and the Act, except that no
Indemnitee shall be entitled to indemnification in respect of any Loss incurred
by the Indemnitee by reason of the Indemnitee's gross negligence or willful
misconduct. Any indemnity under this Section 18 shall be provided out of and to
the extent of Company assets only and no Member shall have any personal
liability on account thereof. All rights of an Indemnitee under this Section 18
shall survive the dissolution of the Company and the withdrawal of the
Indemnitee from membership in the Company and shall inure to the benefit of its
heirs, personal representatives, successors and assigns.
19. Liquidation.
(a) In General. Upon dissolution of the Company, the Managing
Members or other persons selected by the Managing Members shall be the
liquidators of the Company (collectively, the "Liquidators"). The Liquidators
shall liquidate the assets of the Company and apply and distribute the proceeds
of such liquidation in the following order of priority, unless otherwise
required by mandatory provisions of applicable law:
(i) to creditors of the Company (including Members); and
(ii) to the Members and their permitted transferees, in
proportion to the balances in their respective Capital Accounts, after
adjustment to reflect (x) any income, gain, loss or expense for the fiscal
year in which such liquidation occurs and (y) any reallocation of shares of
Common Stock from the Capital Account of McIntyre to the Capital Account of
Mediconsult due to the occurrence and continuation of a Breaching Event
prior to the termination or expiration of the Service Agreement.
(b) Reserve for Contingent Liabilities. Notwithstanding paragraph
(a) of this Section 19, the Liquidators may place in escrow a reserve of cash or
other assets of the Company for contingent liabilities in an amount determined
by the Liquidators to be appropriate for such purposes.
(c) Distributions in Kind. If the Liquidators determine that an
immediate sale, for purposes of the liquidation contemplated in Section 19(a),
of any one or more of the Company's assets would be financially inadvisable, the
sale of such assets of the Company may be deferred for a reasonable time, or
such assets may be distributed in kind to the Members in accordance with the
order of priorities set forth in Section 19(a).
20. Tax Matters. The Members and the Company intend that the Company
will be treated as a partnership for United States federal income tax purposes
and will file such forms as may be necessary or appropriate in furtherance
thereof. The Company's fiscal and taxable year shall be the calendar year.
Mediconsult shall be the tax Member partner authorized to prepare, execute and
file tax returns on behalf of the Company and to represent the Company before
the Internal Revenue Service and any state or local taxing authority. The
Members and permitted transferees and former Members shall, on each such
person's tax return, treat each item of income, gain, loss or expense in a
manner consistent with the treatment of such item on the Company's tax returns
and reports.
21. Confidentiality.
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<PAGE>
(a) The Members agree that all financial and other information
about the Company, or other information of a proprietary nature, disclosed to
the members at any time in connection with this Agreement or otherwise shall be
kept confidential by the Members and shall not be disclosed to any person or
used by the Member (other than to its agents, employees or lenders) except: (i)
with the prior written consent of the Company; (ii) as may be required by
applicable law, court process or other obligations pursuant to any listing
agreement with any national securities exchange; or (iii) such information which
is or becomes generally available other than as a result of a violation of this
provision. The foregoing restrictions shall expire three years after the
dissolution of the Company. Mediconsult may disclose information as part of its
public filings with the United States Securities and Exchange Commission, any
regulatory or self-regulatory body or as it otherwise deems appropriate or
necessary.
(b) In the event of a breach or a threatened breach by any Member
of the provisions of Section 21(a), the Company shall be entitled to an
injunction restraining such Member from such breach. Nothing contained in this
Section 21(b) or elsewhere in this Agreement shall be construed as prohibiting
the Company from pursuing any other remedies available at law or equity for such
breach or threatened breach of this Agreement nor limiting the amount of damages
recoverable in the event of a breach or a threatened breach by any Member of the
provisions of Section 21(a).
(c) The obligations set forth in this Section shall be continuing
and shall survive the termination of this Agreement or the Company and the
withdrawal of a Member from the Company.
22. Mediconsult Guarantee. Mediconsult hereby unilaterally and
unconditionally guarantees the full payment and performance of all obligations
of the Company under the Employment Agreements and under Section 9(e) and
Section 18 of this Agreement. If any claim for payment is made against the
Company with respect to any obligation of the Company under Section 18
guaranteed by Mediconsult pursuant to the immediately preceding sentence, the
Company shall promptly provide to Mediconsult notice of such claim and
Mediconsult shall be entitled to direct the defense of any claim at its expense
and to settle and compromise any such claim.
23. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO CONFLICTS OF LAW PRINCIPLES.
24. Amendments.
(a) In General. Except as otherwise provided by this Agreement or
the Act, this Agreement may be amended only by the vote of the Managing Members
with the consent of Members holding at least 75% of the Membership Interests.
(b) Consent in Certain Cases. Notwithstanding anything to the
contrary contained in this Section 24, any amendment to this Agreement (i) that
would adversely affect the liabilities of a Member solely by virtue of being a
member of the Company, or (ii) which would otherwise change the method of
calculating allocations or distributions under Sections 8 or 9 (other than
changes to allocations or distributions permitted under this Agreement and the
determination by
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<PAGE>
the Managing Members of the occurrence of an Allocation Event pursuant to
Section 8(b)(v)), shall require the consent of each Member affected.
25. Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart hereof shall together be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
26. Power of Attorney. Each Member hereby constitutes and appoints
each of the Managing Members, jointly and severally, or if one or more
Liquidators shall have been selected pursuant to Section 19, the Liquidators of
the Company as such Member's true and lawful agent and attorney in fact
("Agent"), with full power of substitution, with full power and authority in
such Member's name, place and stead to execute, acknowledge, deliver and file
all such documents which the Agents deem necessary or appropriate (i) to
continue the existence or qualification of the Company as a limited liability
company under the laws of any state or jurisdiction, (ii) to reflect amendments
to this Agreement or the Certificate of Formation made pursuant hereto, (iii) to
reflect the conversion of the Company to another form of organization, (iv) to
reflect the dissolution or liquidation of the Company pursuant to the terms
hereof, or (v) to reflect the admission, withdrawal or expulsion of any Member
pursuant to the terms hereof. The foregoing power of attorney is hereby
declared irrevocable and a power coupled with an interest and shall survive the
death or incapacity of any Member and shall extend to such Member's successors
and assigns, heirs or representatives.
27. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the transactions contemplated by this
Agreement and supersedes all prior agreements and understandings among the
parties.
28. Descriptive Headings; Certain Interpretations.
(a) Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of the provisions of this
Agreement.
(b) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) a word importing
the masculine gender includes the feminine or neuter; (ii) the singular includes
the plural and the plural includes the singular; (iii) "or" and "any" are not
exclusive and "include" and "including" are not limiting; (iv) a reference to
any agreement or other contract includes permitted supplements and amendments;
(v) a reference to a law includes any amendment or modification to such law and
any rules or regulations issued thereafter; (vi) any reference to a person
includes its permitted successors and assigns; and (vii) a reference in this
Agreement to a Section is to the Section of this Agreement.
29. Notice. All notices, requests and other communications to any
party hereunder shall be in writing and sufficient if delivered personally or
sent by telecopy (with confirmation of receipt) or by registered mail, postage
prepaid, return receipt requested, addressed as follows:
If to the Company, to:
Timothy J. McIntyre
1735 York Avenue, Apt. 35C
New York, NY 10128
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<PAGE>
and
Mediconsult.com, Inc.
1330 Avenue of the Americas
17th Floor
New York, NY 10019
Attn: E. Michael Ingram
Telecopier (212) 841-7310
with a copy to:
Bruno W. Tabis, Jr., Esq.
c/o Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago IL 60611
Telecopier (312) 222-0818
and
Kelly Vance, Esq.
Howard, Smith & Levin
1330 Avenue of the Americas
New York, NY 10019
Telecopier (212) 841-1010
If to a Member, to such Member's mailing
address or facsimile number set forth on
the Member Schedule or otherwise listed
in the books or records of the Company
or to such other address or telecopy number as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Each such notice, request or communication shall be effective when received or,
if given by mail, when delivered at the address specified in this Section or on
the fifth business day following the date on which such communication is posted,
whichever occurs first.
30. Benefits of the Agreement. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and, to the extent permitted by this Agreement, their respective
successors and permitted assigns. This Agreement is for the sole benefit of the
parties hereto and not for the benefit of any third party.
31. Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or
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<PAGE>
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made.
32. Waivers; Rights and Remedies Cumulative. The failure of any
party to pursue any remedy for breach, or to insist upon the strict performance,
of any covenant or condition contained in this Agreement shall not constitute a
waiver thereof or of any other right with respect to any subsequent breach.
Except as otherwise expressly set forth herein, rights and remedies under this
Agreement are cumulative, and the pursuit of any one right or remedy by any
party shall not preclude, or constitute a waiver of, the right to pursue any or
all other remedies. All rights and remedies provided under this Agreement are
in addition to any other rights the parties may have by law, in equity or
otherwise.
33. Further Assurances. Each Member hereby agrees to execute and
delivery all such other and additional instruments and documents and do all such
other acts and things as may be necessary more fully to effectuate this
Agreement and carry on the business contemplated herein.
34. Effective Date. The parties have executed this Agreement on
August 20, 1999, to take effect on September 7, 1999. Except for this Section
34, no other provision of this Agreement shall be effective until September 7,
1999.
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<PAGE>
In Witness Whereof, the parties have executed this Agreement as
described in Section 34.
Company:
PHARMA MARKETING, LLC
by: /s/ Timothy J. McIntyre
----------------------------
Timothy J. McIntyre,
Managing Member
Members:
/s/ Timothy J. McIntyre
----------------------------
Timothy J. McIntyre
MEDICONSULT.COM, INC.
by: /s/ E. Michael Ingram
-------------------------------
E. Michael Ingram, Chief Financial Officer
and General Counsel
[Operating Agreement]
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<PAGE>
Schedule I
----------
Member Schedule
(as of September 7, 1999)
<TABLE>
<CAPTION>
Membership
Name Address Capital Contribution Interest/1/
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy J. McIntyre 1735 York Avenue $100 65.00%
Apt. 35C
New York, New York 10128
Mediconsult.com, Inc. 1330 Avenue of the Americas $1,250,000 plus subscription price equal 35.00%
17th Floor to closing price of Mediconsult.com, Inc.
New York, NY 10019 common stock on September 7, 1999
Attn: E. Michael Ingram multiplied by 200,000
total 100.00%
</TABLE>
- ------------------------------
/1/ Each Member's Membership Interest in the Company is expressed as a
percentage of all Membership Interests in the Company owned by all Members
of the Company.
Member Schedule
Page 1 of 1
<PAGE>
EXHIBIT 10.7
Service Agreement, dated as of September 7, 1999, between Pharma
Marketing, LLC, a Delaware limited liability company ("Service Provider"), and
Mediconsult.com, Ltd, a Bermuda corporation ("Customer").
Background
Customer wishes to retain the services of Service Provider in
connection with dealings with certain healthcare segments.
Service Provider desires to provide Customer the services described in
this Agreement on an exclusive basis and to the exclusion of all other activity
in which Service Provider might otherwise engage.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Customer and Service Provider agree
as follows:
1. Services
1.1 Scope of Services. (a) During the Term (as defined), Service
Provider shall provide Customer (including entities ("Affiliates") controlled
by, controlling or under common control with Customer), on an exclusive,
worldwide basis, with those services described on Exhibit A (the "Services").
During the Term, Service Provider will undertake no activities other than
providing the Services to Customer (and Affiliates). Service Provider and
Customer may from time to time mutually agree to expand the services provided by
Service Provider hereunder.
(b) In performing the Services, Service Provider shall act in a
professional manner and in the best interests of Customer and shall not, without
the prior consent of Customer, take any action that could reasonably be expected
to lead to any liability of Customer. Without limiting the generality of the
foregoing, Service Provider shall comply with all laws, statutes, regulations,
rules, ordinances, orders or other legal requirements.
(c) Customer and Service Provider will work together in good faith
to agree on the pricing (including gross margin determination) for all Service
Provider Contracts (as defined). Service Provider shall prepare and present
preliminary pricing models and schedules to Customer, and the parties shall work
in good faith to agree on final pricing models prior to presentation of
contracts to potential clients. If such an agreement cannot be reached with
respect to any Service Provider Contract, the pricing for such contract shall be
as reasonably determined in good faith by Customer.
1.2 Term. Unless earlier terminated in accordance with this
Agreement, this Agreement shall be in effect for an initial term commencing on
the date hereof and ending on December 31, 2003, and thereafter will be
automatically extended for successive periods of one year (the initial term and
all such successive periods being referred to herein as the "Term"), each on the
same terms and conditions as expressed herein, unless either party gives the
other
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party written notice of termination at least 270 days prior to the next
scheduled expiration of the term.
1.3 Personnel. Service Provider agrees that Timothy J. McIntyre
("McIntyre") shall be the individual principally responsible for providing the
Services on its behalf to Customer. The individuals listed in Exhibit B also
shall assist, on or about the commencement of the Term, in providing the
Services. During the Term, Service Provider (through Timothy J. McIntyre) shall
have the right to identify other people, reasonably acceptable to Customer, in
addition to or in lieu of the personnel listed in Exhibit B to assist in
providing the Services. Service Provider shall promptly give notice to Customer
when any of McIntyre or such other individuals shall not be available to provide
the Services or when McIntyre or any of such other individuals plans to be away
from his office for a period exceeding five business days.
2. Compensation
2.1 Retainer. On the last business day of each calendar month during
the Term, Customer shall pay Service Provider a monthly fee for its performance
of the Services in an amount equal to $95,384 plus, for the first two years of
the Term, $100,000 per annum. Payments for partial months shall be prorated
accordingly. At Customer's or Service Provider's request, Customer and Service
Provider may agree on adjustments in the amount of the monthly retainer fee
payable under this Section 2.1, based on Service Provider's actual costs (but
exclusive of meals, entertainment expenses, club dues and similar expenses)
incurred in performing the Services. The monthly retainer payable under this
Section 2.1 shall be in addition to amounts payable under Section 2.2.
2.2 Commissions. (a) Customer shall pay Service Provider a
commission equal to 20% of gross revenue recognized by Customer (or its
Affiliates) during the Term under each contract (a "Service Provider Contract")
entered into during the Term with a client that Service Provider is principally
responsible for obtaining as a client of Customer (or its Affiliates); provided,
that the gross margin under such Service Provider Contract shall equal at least
60% (before commissions). The parties acknowledge that Service Provider is
primarily responsible for all clients of the Company and its Affiliates in the
pharmaceutical industry. As used in this Agreement (i) "gross revenue" means,
with respect to any Service Provider Contract, the amount of revenue recognized
by Customer (or its Affiliates) under such contract during the Term and (ii)
"gross margin" means, with respect to any Service Provider Contract, gross
revenue on such contract less the cost of revenue associated with such contract,
expressed as a percentage. "Cost of revenue" means (i) sales commissions and
finders fees paid with respect to such contract (other than to Employee), (ii)
direct labor costs for development of web sites and content associated with
completing such contract, including customary employee benefits, (iii) fees paid
to contractors (including applicable non-recoverable taxes), (iv) travel,
entertainment and professional costs incurred to implement and maintain such
contract, (v) travel, entertainment and professional costs incurred to obtain
such contract, exclusive of expenses related to general selling and marketing
activities, and (vi) other disbursements made specifically to secure or carry
out such contract. Customer shall pay such commission within 60
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days of the end of the quarter in which the revenue to which such commission
relates is recognized by Customer. Such payment shall be accompanied by a
certificate, signed by an officer of Customer, certifying the amount of gross
revenue recognized and attributable to Service Provider Contracts for such
quarter.
(b) Customer shall pay Service Provider a commission equal to 10% of
the gross profit realized by Customer (or its Affiliates) during the Term under
each contract (a "Renewal Contract") entered into during the Term that renews a
Service Provider Contract. A Renewal Contract may not also be a Service
Provider Contract. As used in this Agreement "gross profit" means, with respect
to any Renewal Contract, the amount of revenue recognized and collected by
Customer (or its Affiliates) under such contract during the Term, less
Customer's (or its Affiliates') costs with respect to such Renewal Contract.
Customer shall pay such commission within 60 days of the end of the quarter in
which the revenue to which such commission relates is recognized and collected
by Customer. Such payment shall be accompanied by a certificate, signed by an
officer of Customer, certifying the amount of gross profit recognized and
attributable to Renewal Contracts for such quarter.
(c) For any Service Provider Contract providing a gross margin less
than 60% (before commissions), Customer shall pay Service Provider a commission
with respect to gross revenue recognized by Customer (or its Affiliates) during
the Term under such Service Provider Contract. The commission payable under
this Section 2.2(c) shall equal the product of (i) the quotient of the gross
margin under such Service Provider Contract divided by 60 multiplied by (ii) 20.
Customer shall pay such commission within 60 days of the end of the quarter in
which the revenue to which such commission relates is recognized by Customer.
Such payment shall be accompanied by a certificate, signed by an officer of
Customer, certifying the amount of gross revenue recognized and attributable to
Service Provider Contracts for such quarter.
(d) Service Provider and Customer acknowledge that the gross margin
under any Service Provider Contract may vary from time to time, and Service
Provider and Customer agree to work in good faith to make such adjustments to
the commissions payable under this Section 2.2 as are appropriate to reflect
such variances from time to time, which may include reimbursing or crediting
Customer for overpayments.
(e) The fees and commissions described in Sections 2.1 and 2.2 shall
be the sole compensation payable to Service Provider for the Services, and
Service Provider shall not be entitled to receive any additional compensation or
reimbursement for any other charges or expenses, including out-of-pocket
expenses, incurred in connection with the performance of the Services.
2.3 Interest on Overdue Amounts. Any amounts owed to Service
Provider hereunder and not paid when due shall bear interest at an annual rate
of 7.0% from and including the date due until and including the date paid.
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3. Representations and Warranties
3.1 Representations and Warranties of Service Provider. Service
Provider represents and warrants to Customer that:
(a) Service Provider has full power and authority to enter into and
perform its obligations under this Agreement. This Agreement has been
duly and validly executed and delivered by Service Provider. This
Agreement constitutes a legal, valid and binding obligation of Service
Provider, enforceable against Service Provider in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization and other laws of general applicability relating to or
affecting creditors' rights.
(b) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate or
breach, result in the termination or require the modification,
amendment or renegotiation, of any agreement or obligation to which
Service Provider is a party or by which Service Provider or any of
Service Provider's assets are bound. Service Provider will perform its
obligations under this Agreement in a manner that complies with
applicable laws, orders, judgments, regulations and rules.
(c) No consent, waiver, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with,
any federal, state or local government authority, instrumentality,
agency or commission, or any third party on the part of Service
Provider is required in connection with the consummation of the
transactions contemplated by this Agreement.
3.2 Representations and Warranties of Customer. Customer
represents and warrants to Service Provider that:
(a) Customer has full power and authority to enter into and perform
its obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by Customer. This Agreement constitutes a legal, valid
and binding obligation of Customer, enforceable against Customer in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization and other laws of general applicability relating to or affecting
creditors' rights.
(b) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate or breach,
result in the termination or require the modification, amendment or
renegotiation, of any agreement or obligation to which Customer is a party or by
which Customer or any of Customer's assets are bound. Customer will perform its
obligations under this Agreement in a manner that complies with applicable laws,
orders, judgments, regulations and rules.
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(c) No consent, waiver, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local government authority, instrumentality, agency or
commission, or any third party on the part of Customer is required in connection
with the consummation of the transactions contemplated by this Agreement.
4. Proprietary Matters
4.1 Non-Disclosure. Service Provider shall not disclose any
proprietary information to any person, firm, corporation or other entity for any
reason or purpose whatsoever, nor shall Service Provider make use of any such
proprietary information for its own purpose or for the benefit of any person,
firm corporation or other entity, except Consultant; provided that Service
Provider shall be entitled to disclose such proprietary information to McIntyre
and the individuals listed on Exhibit B as necessary to enable them to perform
the Services on Service Provider's behalf, so long as such individuals are
informed of the proprietary nature of such information and agree to be bound by
the provisions of this Section 4.1 with respect thereto. For purposes of this
Agreement, "proprietary information" means all information which is or becomes
known to Service Provider or to employees, consultants or others in a
confidential relationship with Service Provider from Customer, its Affiliates or
the representatives or agents of Customer or its Affiliates and relates to
matters such as trade secrets, research and development activities, draft or
final contracts, books and records, budgets, cost estimates, pro forma
calculations, client or prospective client lists, suppliers, vendors, pricing
information and private processes as they may exist from time to time. Service
Provider's obligations under this Section 4.1 shall not apply to any information
(a) that was known to Service Provider prior to the disclosure by Customer, (b)
that is or becomes generally available to the public other than by breach of
this Agreement, (c) that otherwise becomes lawfully available on a non-
confidential basis from a third party who is not under an obligation of
confidence to Customer, (d) that is independently developed by Service Provider
or (e) to the extent Service Provider is required by applicable law or court
process to disclose such information. For purposes of this Section 4.1, any
knowledge or action of Mediconsult.com, Inc. shall not, by virtue of its being a
member of Service Provider, be attributed to Service Provider.
4.2 Non-Competition. (a) Competitive Business. In view of the fact
that activity of Service Provider in violation of the terms hereof is likely to
adversely affect Customer and its subsidiaries and Affiliates and would deprive
Customer of the benefits of its bargain hereunder, and to preserve the goodwill
associated with Customer's business, Service Provider hereby agrees that during
the period commencing on the date hereof and ending on the third (3rd)
anniversary of the date on which this Agreement terminates for any reason (the
"Non-Compete Period"), Service Provider will not, without the express written
consent of Customer, directly or indirectly, anywhere in the United States or
Canada, engage in any activity which is, or participate or invest in, or provide
or facilitate the provision of financing to, or assist (whether as owner, part-
owner, shareholder, member, partner, director, officer, trustee, employee, agent
or consultant, or in any other capacity), any business, organization or person
other than Customer (or
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any of its subsidiaries or Affiliates), whose business, activities, products or
services are competitive with any of the business, activities, products or
services conducted by Customer (or any of its subsidiaries or Affiliates) on the
date this Agreement terminates and which are in Customer's Field of Interest
(each a "Competitive Business"); provided that, subject to Section 1.1(a),
Service Provider shall be permitted to provide services to an entity which
operates an ancillary business in Customer's Field of Interest so long as
Service Provider is not involved in such ancillary business. For purposes of
this Section 4.2, Customer's "Field of Interest" shall include, without
limitation, the development, implementation, sale or maintenance of on-line
marketing or advertising programs to pharmaceutical and other healthcare
organizations, the acquisition, preparation or display of content relating to
pharmaceutical or other healthcare information on the Internet and any other
business activity engaged in, or conducted by Customer or its subsidiaries or
Affiliates on the date this Agreement terminates. Notwithstanding anything in
this Section 4.2 to the contrary, subject to Section 1.1(a), Service Provider
shall not be prohibited from participating, directly or indirectly, in any
activity or business with Internet operations, including companies providing
goods or services through or providing e-commerce and content or otherwise, that
is not a Competitive Business. The activities of Mediconsult.com, Inc. shall
not, by virtue of its being a member of Service Provider, cause Service Provider
to be in violation of this Section.
(b) Non-Solicitation. In addition to the restrictions in Section
4.2(a), Service Provider also agrees that it will not during the Non-Compete
Period: (i) hire, attempt to hire, or participate in any way in any effort by
any person or entity (other than Customer or any of its direct and/or indirect
subsidiaries or Affiliates) to hire or attempt to hire any person who is at the
time (or was within the immediately preceding six (6) months) an officer or
employee of Customer or its direct and/or indirect subsidiaries or Affiliates;
(ii) encourage any officer or employee of Customer or its direct or indirect
subsidiaries or Affiliates to terminate his or her relationship or employment
with such entity; or (iii) on behalf of himself or any persons or entity, other
than Customer or any of its direct or indirect subsidiaries or Affiliates,
solicit or accept business from any client of Customer or its direct or indirect
subsidiaries or Affiliates in the Consultant's Field of Interest; provided, that
the foregoing provision will not prevent Service Provider from employing or
offering to employ any such person who has been terminated by Customer or its
subsidiaries or Affiliates prior to the commencement of employment discussions
between Service Provider and such employee, and Service Provider will be
permitted to hire and offer to hire employees of Customer or its subsidiaries or
Affiliates who are contacted as a result of the use of general newspaper or
electronic advertisement and other general non-targeted recruitment techniques
in the ordinary course of business and consistent with past practices as opposed
to targeted solicitations of any one or more of the employees of Customer or its
subsidiaries or Affiliates. The activities of Mediconsult.com, Inc. shall not,
by virtue of its being a member of Service Provider, cause Service Provider to
be in violation of this Section.
(c) Scope of Agreement. The parties acknowledge that the time,
scope, geographic area and other provisions of this Section 4.2 have been
specifically negotiated by the sophisticated commercial parties and agree that
(i) all such provisions are reasonable under the circumstances of this
Agreement, (ii) are given as an integral and essential part of this Agreement
and (iii) but for the covenants of Service Provider contained in this Section
4.2, Customer would not have entered into this Agreement. Service Provider has
independently consulted with its counsel and has been advised in all respects
concerning the reasonableness and propriety of the
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covenants contained herein, with specific regard to the business to be conducted
by Customer and its Affiliates, and represents that this Agreement is intended
to be, and shall be, fully enforceable and effective in accordance with its
terms.
(d) Severability. If any covenant contained in this Agreement shall
be determined by any court of competent jurisdiction to be unenforceable by
reason of its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other respect,
it shall be interpreted to extend only over the maximum period of time for which
it may be enforceable and/or over the maximum geographical area as to which it
may be enforceable and/or to the maximum extent in all other respects as to
which it may be enforceable, all as determined by such court in such action.
4.3 Materials. Service Provider shall promptly disclose to Customer
and provide copies to Customer of all written or other materials, including
reports, brochures, manuals, tapes, listings and other documentation, created or
composed by Service Provider or by Service Provider's employees or affiliates in
connection with the Services, and all such materials shall be deemed to be the
property of Customer, to the exclusion of Service Provider. Customer shall have
the sole right to obtain and hold in its own name and for its sole benefit any
copyrights, trademarks, registrations or other similar protections with respect
to any such materials. Service Provider agrees to give Customer all assistance
reasonably required to give effect to Customer's rights described in this
Section 4.3.
5. Termination
5.1 Termination by Customer. (a) Customer shall have the right to
terminate this Agreement (i) upon Service Provider's failure to perform, in any
material respect, its obligations under this Agreement, if (and only if) such
failure is primarily attributable to McIntyre's failure (for any reason or no
reason) to perform, or cause to be performed, such obligations and such failure
shall have continued for at least 30 days after notice thereof to Service
Provider or (ii) if McIntyre commits a felony or offense involving moral
turpitude, engages in theft, embezzlement, fraud, obtaining funds or property of
Customer or any of its employees, stockholders, Affiliates, customers,
licensees, licensers or suppliers. In conjunction with a termination of this
Agreement pursuant to this Section 5.1(a), Customer shall have the right (but
not the obligation) to purchase all or a portion of the shares of common stock,
par value $.001 per share, of Mediconsult.com, Inc. (the "Common Stock") issued
to Service Provider (whether or not held by Service Provider at the time of such
termination) pursuant to the Membership Investment Agreement dated as of
September 7, 1999 between Service Provider and Mediconsult.com, Inc. that have
not, as of such termination date, been registered pursuant to a registration
statement declared effective under the Securities Act of 1933, as amended, or
sold pursuant to Rule 144 under such Act; provided that if such termination
arises from McIntyre's disability or death, an event described in Section 5.1(b)
or the termination "without cause" by Service Provider of McIntyre's employment,
Customer shall not have such right to purchase the Common Stock. Any such
purchase shall be made at a price per share equal to the lower of (A) the
average closing sale price of the Common Stock as reported by the Nasdaq Market
for the 30 trading days ending three days before such termination date (or, if
the Common Stock no longer
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is traded on such Market, the average closing price or average high/low price as
reported by such market on which the Common Stock may then be traded for the 30
trading days ending three days before such termination date) and (B) the last
reported sale price for the Common Stock as reported by the Nasdaq Market on the
last trading day preceding the date of this Agreement. Service Provider agrees
to cause any transferee of any such shares (other than a transferee pursuant to
a sale under an effective registration statement or pursuant to Rule 144) to
acknowledge Customer's rights under this Section and to agree, in a writing
addressed to Customer, to be bound by the provisions of this Section 5.1.
(b) Customer shall have the right to terminate this Agreement if (i)
at September 30, 2000 it does not have in effect at such date duly executed and
enforceable Service Provider Contracts pursuant to which Customer will recognize
at least $5,000,000 in revenue during the term of such contracts or (ii) at
January 1, 2002 it does not have in effect duly executed and enforceable Service
Provider Contracts pursuant to which Customer will recognize at least
$20,000,000 in revenue during the term of such contracts. Customer shall give
Service Provider at least 10 business days' notice of such termination at any
time within the six-month period immediately succeeding September 30, 2000 or
January 1, 2002, as the case may be. Upon such a termination, Customer shall
pay to Service Provider, in addition to the amounts payable under Section
5.3(a), monthly cash payments (each, a "Termination Payment") equal to the
amount payable under Section 2.1 for the month ended immediately prior to such
termination; provided that on and after the second anniversary of this
Agreement, such amount shall be reduced by $8,333 per month. The Termination
Payment shall be paid to Service Provider each month through the end of the
then-scheduled Term on the fifteenth day of each calendar month commencing
during the month next following such termination. If the failure to have in
effect such contracts arises principally from the death or disability of any
employee of Service Provider, Customer shall not be obligated to make any
Termination Payment to the Service Provider. Without limiting any other rights
or remedies which the Company may have, it is understood that the Customer shall
be under no further obligation to make any Termination Payment and shall be
entitled to be reimbursed therefor by the Service Provider if the Service
Provider violates any of the covenants set forth in Section 4 of this Agreement.
5.2 Termination by Service Provider. Service Provider shall have the
right to terminate this Agreement upon at least 30 days' notice to Customer if
Customer shall have failed to pay any fees due in accordance with Section 2 and
such failure shall have continued for 30 days after notice thereof to Customer.
5.3 Effect of Termination. (a) Upon any termination of this
Agreement, all rights and obligations of the parties hereunder shall terminate,
except (i) Service Provider shall be entitled to all fees accrued and unpaid
prior to such termination date (except Service Provider shall not be entitled to
commissions otherwise payable under Section 2.2 upon a termination under Section
5.1 (unless such termination is attributable to a termination "without cause" of
McIntyre's employment with Service Provider)), (ii) in the case of a termination
under Section 5.1(b), Service Provider shall be entitled to receive the
Termination Payments, (iii) Service Provider's obligations under Section 4 shall
continue in full force and effect, and (iv) Customer
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shall be entitled to purchase (if it so elects), and Service Provider shall be
obligated to sell (or cause to be sold) to Customer (if Customer so elects), the
shares described in Section 5.1(a).
(b) In addition to its rights under Section 5.3(a), if this
Agreement terminates upon expiration of its then-scheduled Term, Service
Provider shall have the right to receive, and Customer shall pay to Service
Provider, with respect to gross revenue and gross profit recognized by Customer
during the three years following such termination of the Term on Service
Provider Contracts and Renewal Contracts entered into more than 18 months prior
to such termination, a commission equal to 75%, 50% and 25%, respectively, for
the first, second and third years following such termination, of the amount of
commissions that would have been payable under Section 2.2 with respect to such
gross revenue or gross profit if this Agreement had not been terminated.
Customer shall pay such commission within 60 days of the end of the quarter in
which the revenue or profit to which such commission relates is recognized by
Customer. Such payment shall be accompanied by a certificate, signed by an
officer of Customer, certifying the amount of gross revenue or gross profit, as
the case may be, attributable to Service Provider Contracts or Renewal Contracts
for such quarter. No commissions shall be payable after the expiration of the
Term with respect to Service Provider Contracts or Renewal Contracts entered
into less than 18 months prior to such expiration.
(c) In addition to its rights under Section 5.3(a), if the
termination of this Agreement is attributable to the termination "without cause"
by Service Provider of McIntyre's employment, Service Provider shall be entitled
to receive, and Customer shall pay Service Provider, the following (the "Service
Agreement Severance Amount"):
(i) with respect to gross revenue and gross profit recognized
by Customer following such termination on Service Provider Contracts
and Renewal Contracts entered into prior to such termination, the
amount of commissions that would have been payable under Section 2.2
with respect to such gross revenue or gross profit if this Agreement
had not been so terminated; and
(ii) with respect to gross revenue recognized by Customer on
Service Provider Contracts entered into within six months following
such termination based on written pricing proposals that had been
submitted to the respective clients prior to such termination, the
amount of commissions that would have been payable under Section 2.2
with respect to such gross revenue if this Agreement had not been so
terminated.
Customer shall pay the commissions payable under this Section 5.3(c) within 60
days of the end of the quarter in which the revenue or profit to which such
commission relates is recognized by Customer. Such payment shall be accompanied
by a certificate, signed by an officer of Customer, certifying the amount of
gross revenue or gross profit, as the case may be, attributable to such Service
Provider Contracts or Renewal Contracts for such quarter.
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6. Miscellaneous
6.1 Service Provider Not Employee. For all purposes, including tax
law, labor law and otherwise, Service Provider shall be an independent
contractor and shall not, whether by virtue of this Agreement or any Services
performed by it or any compensation paid to it hereunder or otherwise, be an
employee, partner or joint-venturer of, or have any other relationship with,
Customer.
6.2 Assignments. Neither party may assign this Agreement without the
prior written consent of the other; provided, that either party may assign this
Agreement to a successor corporation or partnership, a parent company or a
wholly-owned subsidiary corporation of such party; and provided further, that
Customer may assign this Agreement to any of its Affiliates or in connection
with the sale or other disposition of all or substantially all of its assets.
Each permitted assignee of this Agreement shall agree in writing personally to
assume, perform and be bound by all of the terms, covenants, conditions and
agreements contained in this Agreement, and thereafter the assignor of this
Agreement shall be relieved of all obligations under this Agreement, except
those which accrued before the effectiveness of such assignment.
6.3 Notices. All notices, requests, demands, and determinations under
this Agreement will be in writing and will be deemed duly given (i) when
delivered by hand, (ii) two business days after being given to an express
courier with a reliable system for tracking delivery and (iii) when sent by
facsimile or electronic mail (confirmed by the specific individual to whom the
facsimile or electronic mail is transmitted) with a copy sent by another means
specified in this Section 6.3, and addressed as follows:
if to Service Provider:
Pharma Marketing, LLC
c/o Timothy J. McIntyre
1735 York Avenue, Apt. 35C
New York, New York 10128
with a copy to:
Bruno W. Tabis, Esq.
Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago, Illinois 60611
Telecopier: (312) 222-0818
if to Customer:
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Mediconsult.com, Ltd.
4th Floor, 33 Reid Street
Hamilton, Bermuda
HM 12
Attention: Robert Jennings, Chief Executive Officer
Telecopier: (441) 295-0560
with a copy to:
Mediconsult.com, Inc.
1330 Avenue of the Americas
New York, New York 10019
Attention: E. Michael Ingram, General Counsel and
Chief Financial Officer
Telecopier: (212) 841-7310
A party may from time to time change its address or designee for notification
purposes by giving the other party prior written notice in accordance with this
Section of the new address or designee and the date upon which it will be
effective.
6.4 Interpretation. The following rules of interpretation shall apply
to this Agreement:
(a) All references in this Agreement to "Sections" and other
subdivisions, unless otherwise expressly stated, are to the designated Sections
and other subdivisions of this Agreement.
(b) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement and not to any particular Section or
other subdivision.
(c) All references to "including" in this Agreement will mean
including without limitation and all references to "or" will not be exclusive.
(d) A reference to a law in this Agreement includes any amendment or
modification to such law and any rules or regulations issued thereunder as of
the time such reference is made.
(e) A reference to an entity in this Agreement includes its
successors and permitted assigns (if any).
(f) The singular includes the plural and vice versa; and the
masculine, feminine and neuter terms include each of the other forms.
6.5 Remedies; Waivers. Except as expressly stated herein, all
remedies available to either party for breach of this Agreement are cumulative
and may be exercised concurrently or separately, and the exercise of one remedy
will not be deemed an election of such
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remedy to the exclusion of other remedies. The parties agree that money damages
would not be a sufficient remedy for any breach of this Agreement by a party,
and that in addition to all other remedies the parties shall be entitled to
specific performance and injunctive or other equitable relief as a remedy for
any such breach, and the parties further agree to waive any requirement for the
securing or posting of any bond in connection with such remedy. A waiver of any
provision or any breach of a provision of this Agreement will not be binding
upon either party unless the waiver is in writing, signed by a duly authorized
representative of the party, as applicable, and such waiver will not affect the
rights of the party not in breach with respect to any other or future breach. No
course of conduct by a party will constitute a waiver of any provision or any
breach of a provision of this Agreement unless a written waiver is executed in
accordance with the provisions of this Section.
6.6 Entire Agreement; Amendments. This Agreement, as may only be
amended by written instrument of subsequent date signed by the duly authorized
representatives of Customer and Service Provider, together with all Exhibits
hereto, represents the full agreement of the parties and supersedes all
communications, negotiations, and agreements made prior to the date of this
Agreement.
6.7 Severability. It is the desire and intent of the parties that
the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of such provision in the particular jurisdiction in which such
adjudication is made.
6.8 Expenses. Irrespective of whether the transactions contemplated
by this Agreement are consummated, each party shall pay all costs and expenses
that such party incurs with respect to the negotiation, execution, delivery and
performance of this Agreement.
6.9 Governing Law. The construction, validity and performance of
this Agreement will be governed by, and construed in accordance with, the
substantive laws of the State of New York, without regard to choice of law
rules. In the case of any dispute or litigation arising out of, related to, or
regarding the validity of, this Agreement, the parties agree to submit to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York sitting in Manhattan and the nonexclusive jurisdiction of
the New York Supreme Court for New York County sitting in Manhattan, and to
waive all objections to venue therein.
6.10 No Third Party Beneficiaries. This Agreement is entered into
solely between, and may be enforced only by, Customer and Service Provider and
their permitted assigns, and this Agreement will not be deemed to create any
rights in third parties, including suppliers and clients of Customer or Service
Provider, or to create any obligations of Customer or Service Provider to any
such third parties.
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6.11 Headings. The Section headings are for convenience of reference
only and will not be considered in interpreting the text of this Agreement.
6.12 Counterparts. This Agreement may be executed in two or more
counterparts, which taken together constitute one single contract between the
parties hereto.
6.13 Effective Date. The parties have executed this Agreement on
August 20, 1999, to take effect on September 7, 1999. Except for this Section
6.13, no other provision of this Agreement shall be effective until September 7,
1999.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
described in Section 6.13.
MEDICONSULT.COM, LTD. PHARMA MARKETING, LLC
By: /s/ Robert A. Jennings By: /s/ Timothy J. McIntyre
--------------------------------- ---------------------------------
Robert A. Jennings Timothy J. McIntyre
Chief Executive Officer Managing Member
[Service Agreement]
<PAGE>
Exhibit A
Services
Service Provider shall be primarily responsible for all marketing and sales
services for Customer in the pharmaceutical industry, including strategic
direction, product offerings, sales planning, presentations and client servicing
in the pharmaceutical industry.
To facilitate Service Provider in providing the Services, Timothy J. McIntyre
will hold the function of chief marketing and sales officer of Customer and
Customer will permit Service Provider (through Mr. McIntyre) full access to the
pharmaceutical industry.
<PAGE>
Exhibit B
Additional Personnel
James T. McIntyre
Dave M. McCarty
<PAGE>
Exhibit 10.8
Membership Investment Agreement (the "Agreement"), dated as
of September 7, 1999, by and among Pharma Marketing, LLC, a
Delaware limited liability company (the "Company") and
Mediconsult.com, Inc., a Delaware corporation ("Investor").
-----------------------------------------------------------
Investor desires to purchase from the Company, and the Company desires to
sell and issue to Investor, a membership interest in the Company constituting
35% of the aggregate membership interests in the Company (the "Purchased
Interest"), on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements herein contained, and of other good and
valuable consideration now contributed by Investor to the Company (the receipt
and sufficiency of which is hereby acknowledged), the parties hereto covenant
and agree as follows:
ARTICLE I
---------
INVESTMENT
----------
1.1. Investment. On the terms and subject to the conditions set forth
----------
herein at the Closing (as defined below), the Company shall issue to Investor,
and Investor shall purchase from the Company, the Purchased Interest.
1.2. Contribution. In exchange for the Purchased Interest, Investor shall
------------
contribute to the Company (i) US$1,250,000 (the "Cash Contribution") and (ii)
cash equal to 200,000 multiplied by the closing price of the common stock of
Mediconsult.com, Inc. on September 7, 1999, as reported on the Nasdaq Market
System (the "Additional Cash Contribution").
1.3. Membership Interest. The rights and obligations of Investor as a
-------------------
member of the Company and the owner of the Purchased Interest shall be as set
forth in the Operating Agreement of the Company in, the form of Exhibit A
---------
attached hereto (the "Operating Agreement").
ARTICLE II
----------
CLOSING; DELIVERIES; CONDITIONS PRECEDENT
2.1. Closing.
-------
(a) The Closing. The Closing under this Agreement (the "Closing")
-----------
shall take place at the offices of Investor's counsel, Howard, Smith & Levin,
LLP, 1330 Avenue of the Americas, New York, New York, at 10:00 a.m., local time,
on September 7, 1999, or such other date, place or time as the parties hereto
shall mutually agree upon (the date of the Closing being called the "Closing
Date").
<PAGE>
(b) Proceedings. All proceedings to be taken and all documents to be
-----------
executed and delivered by the parties at the Closing shall be deemed to have
been taken and executed simultaneously and no proceedings shall be deemed taken
nor any documents executed or delivered until all have been taken, executed and
delivered.
2.2. The Company's Deliveries. At the Closing, the Company shall deliver
------------------------
to Investor:
(a) Operating Agreement. The Operating Agreement duly executed by
-------------------
each member party thereto (other than Investor);
(b) Service Agreement. The Service Agreement, in the form of
-----------------
Exhibit B attached hereto, duly executed by the Company (the "Service
- ---------
Agreement");
(c) Employment Agreements. The employment agreement between the
---------------------
Company and Timothy J. McIntyre (the "Employee"), in substantially the form of
Exhibit C attached hereto (the "Employment Agreement"), executed by the Company
- ---------
and the Employee;
(d) Subscription Agreement. The Subscription Agreement, in the
----------------------
form of Exhibit D attached hereto (the "Subscription Agreement"), duly executed
by the Company, subscribing to 200,000 shares (the "Investor Shares") of common
stock, par value $0.001 per share, of Investor (the "Common Stock");
(e) Formation. Certified copy of the Certificate of Formation for
---------
the Company, as filed with the appropriate officials of the State of Delaware;
(f) Other. All other documents required by the terms of this
-----
Agreement to be delivered to Investor at the Closing.
2.3. Investor's Deliveries. At the Closing, Investor will deliver to the
---------------------
Company:
(a) Cash Contribution. The Cash Contribution and the Additional Cash
-----------------
Contribution in immediately available funds by certified check or wire transfer
to an account specified by the Company, in writing, at least two days prior to
the Closing;
(b) Service Agreement. The Service Agreement duly executed by
-----------------
Mediconsult.com, Ltd. ("Limited");
(c) Other. All other documents required by the terms of this
-----
Agreement to be delivered to the Company at the Closing.
2.4. Further Assurances. At any time and from time to time after the
------------------
Closing, at Investor's request, and without further consideration, the Company
will execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation, and take such actions, as Investor may reasonably
deem necessary or desirable in order more effectively to transfer, convey and
assign to Investor, and to confirm Investor's title to the Purchased Interest,
and to assist Investor in exercising all rights with respect thereto.
2.5. Investor's Conditions Precedent. The obligations of Investor under
-------------------------------
this Agreement to proceed with the transactions contemplated hereby are, at the
option of Investor
2
<PAGE>
(unless waived in writing by Investor), in its sole discretion, subject to the
fulfillment of the following conditions at or prior to the Closing, and the
Company shall use commercially reasonable efforts to cause each such condition
to be fulfilled:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement, any Schedules and
Exhibits hereto and/or any certificates or documents delivered in connection
with this Agreement shall be true and correct when made, and shall also be true
and correct at the time of Closing with the same force and effect as though such
representations and warranties were made at that time, except for changes
expressly permitted by this Agreement;
(b) Covenants. Each covenant, agreement, delivery (including,
---------
without limitation, all deliveries required to be made by the Company pursuant
to Section 2.2) and obligation required by the terms of this Agreement to be
complied with and performed by the Company at or prior to the Closing shall have
been duly and properly complied with and performed; and
(c) Consents. All consents necessary in connection with the
--------
consummation of the transactions contemplated herein, or which have been
reasonably requested by Investor to be obtained prior to the Closing, shall have
been obtained by the Company, and there shall have been delivered to Investor
executed counterparts reasonably satisfactory in form and substance to Investor
of such consents.
2.6. The Company's Conditions Precedent. The obligations of the Company
----------------------------------
under this Agreement to proceed with the transactions contemplated hereby are,
at the option of the Company, subject to the fulfillment of each of the
following conditions at or prior to the Closing, and Investor shall use
commercially reasonable efforts to cause each such condition to be fulfilled:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Investor contained in this Agreement or any certificates or
documents delivered by it to the Company in connection with this Agreement shall
be true and correct when made, and shall also be true and correct at the time of
the Closing with the same force and effect as though such representations and
warranties were made at that time, except for changes expressly permitted by
this Agreement; and
(b) Covenants. Each covenant, agreement, delivery (including,
---------
without limitation, all deliveries required to be made by the Company pursuant
to Section 2.3) and obligation required by the terms of this Agreement to be
complied with and performed by Investor at or prior to the Closing shall have
been duly and properly complied with and performed.
2.7. Conditions Antecedent. The obligations of Investor under this
---------------------
Agreement are, at the option of Investor (unless waived in writing by Investor),
in its sole discretion, subject to the payment by the Company of the
subscription price for the Investor Shares in accordance with the terms of the
Subscription Agreement. The obligations of the Company under this Agreement
are, at the option of the Company (unless waived in writing by the Company), in
its sole discretion, subject to the issuance to the Company of a certificate or
certificates representing the Investor Shares; provided that the Company shall
have paid the subscription price therefor in accordance with the Subscription
Agreement. If either party's condition antecedent has not
3
<PAGE>
occurred by the close of business on the second business day following the
Closing Date, such party shall have the right to terminate this Agreement upon
notice to the other, in which event the Cash Contribution and (if the
subscription price has not been paid) the Additional Cash Contribution shall be
returned to the Investor and neither party shall have any further obligation
with respect to the Company Agreements (as defined).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to Investor as follows:
3.1. Organization; Standing and Power. The Company is a limited
--------------------------------
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted.
3.2. Authority. The Company has all requisite company power and authority
---------
to enter into this Agreement (including each Exhibit and Schedule to this
Agreement), the Operating Agreement, the Employment Agreements and the Service
Agreement (collectively, the "Company Agreement") and to carry out the
transactions contemplated hereby and thereby. The execution and delivery of the
Company Agreements, the performance by the Company of its obligations under such
agreements, and the issuance to Investor of the Purchased Interest have each
been duly and validly authorized by all necessary company action and no other
proceedings on the part of the Company are necessary to authorize the execution,
delivery or performance by the Company of the Company Agreements. This
Agreement constitutes, and, when executed and delivered at the Closing, each
other Company Agreement, will constitute, the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
3.3. No Conflicts. The execution, delivery and performance of the Company
------------
Agreements, the issuance of the Purchased Interest and the consummation of the
transactions contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time, or both, (a) result in a breach of, or
violate, or be in conflict with, or constitute a default under, or permit the
termination of, or cause or permit acceleration under, any agreement or
instrument or any debt or obligation to which the Company is a party or to or by
which the Company or any of its assets or property is subject or bound, (b)
require the consent, authorization or approval of any other person or any party
to any agreement or commitment to which such the Company is a party, or to or by
which the Company is subject or bound, (c) result in the creation or imposition
of any security interests, liens, pledges, charges, escrows, options, rights of
first refusal, encumbrances, agreements, arrangements, commitments or other
claims of any kind or character (collectively, "Liens") upon the Company or any
asset of the Company, (d) violate any law, rule or regulation or any order,
judgment, decree or award of any court, governmental authority or arbitrator to
or by which the Company is subject or bound or (e) violate the Articles of
Organization of the Company, the Operating Agreement or any other governing or
organizational document of the Company.
4
<PAGE>
3.4. Subsidiaries and Other Ventures. The Company does not own, directly
-------------------------------
or indirectly, any equity interest in any corporation, partnership, joint
venture, limited liability company, association or other entity.
3.5. Indebtedness of the Company. The Company has no indebtedness or
---------------------------
liability other than as contemplated by the Company Agreements.
3.6. Business Activities. The Company has not engaged in any business,
-------------------
other than as contemplated by the Company Agreements.
3.7. Status of Purchased Interest. The Purchased Interest has been duly
----------------------------
authorized by all necessary company action on the part of the Company and upon
issuance and sale thereof to Investor and payment of the Purchase Price therefor
in accordance with this Agreement, will be validly issued, fully paid and non-
assessable. Upon payment of the Purchase Price, Investor shall acquire good and
valid title in and to the Purchase Interest, free and clear of all Liens.
3.8. Capitalization. As of the Closing and upon due execution by all
--------------
members of the Operating Agreement, (i) the Purchased Interest shall represent
35% of the aggregate membership interests in the Company, (ii) Timothy McIntyre
shall own the remaining 65% of the membership interests in the Company and (iii)
the Company shall have no other members.
3.9. Employees. As of the Closing, the Company will not have any employees
---------
other than the Employee.
3.10. Title to Assets. As of the Closing, the Company will have good and
---------------
marketable title to its assets, free and clear of all Liens, except as
contemplated in the Company Agreements.
3.11. Purchase of Membership Interest by McIntyre. Prior to or at the
-------------------------------------------
Closing, Timothy McIntyre has purchased from the Company, and the Company has
issued to him, a 65% membership interest therein.
3.12. Investment Representation.
-------------------------
(a) Each of the Company and its members (other than Investor) has such
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in the Investor Shares to
be issued and delivered in connection herewith. Each of the Company and its
members (other than Investor) is capable of bearing the economic risks of such
investment, has no present intention of distributing or selling any of the
Investor Shares in any manner inconsistent with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and is aware that the
Investor Shares have not been registered under the Securities Act and that
offers, sales, transfers or other dispositions of the Investor Shares are
restricted by the Securities Act, applicable state securities laws and this
Agreement. In this regard, each of the Company and its members are familiar
with Securities and Exchange Commission Rule 144 ("Rule 144"), as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
(b) Each of the Company's members (other than Investor) is an
"accredited investor" as defined for purposes of Regulation D under the
Securities Act.
5
<PAGE>
(c) The Investor Shares being acquired are being acquired by the
Company in good faith, solely for the Company's own account, for investment
purposes only, and are not being purchased with a view to or for resale,
distribution, subdivision or fractionalization thereof (other than by way of
distribution to its members); other than as provided in the Company Agreements,
the Company has no contract, undertaking, understanding, agreement or
arrangement, formal or informal, with any person or persons to sell, transfer or
pledge or to hold for any persons the Investor Shares, or any part thereof, and
the Company has no present plans to enter into any such contract, undertaking,
agreement or arrangement; and the Company understands that no federal or state
agency has passed upon or made any recommendation or endorsement of Investor or
its stock and that Investor is relying on the truth and accuracy of the
representations, declarations and warranties made herein by the Company in
offering the Investor Shares to the Company without having first registered the
same under the Securities Act;
(d) Each of the Company and its members (other than Investor) has
received copies of Investor's recent filings with the United States Securities
and Exchange Commission (the "SEC"), including its annual report on Form 10-K
last filed with the SEC and quarterly reports on Form 10-Q filed thereafter.
The Company, its members or the Company's representative has had access to
information concerning Investor, and has had the opportunity to ask questions of
and receive answers from Investor and its appropriate officers concerning the
terms and conditions of the transactions contemplated hereby, including the
business and financial conditions of Investor and other matters pertaining to
the Investor Shares, and to obtain therefrom any additional information
necessary to make an informed decisions regarding investment in the Investor
Shares.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF INVESTOR
------------------------------------------
4.1. Representations and Warranties. Investor hereby warrants and
-------------------------------
represents to the Company as follows:
(a) Organization. Investor is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority and is entitled to own, lease and operate its
properties and to carry on its business as and in the places such properties are
now owned, leased or operated and where such business is presently conducted.
(b) Authority. Investor has full corporate power and corporate
---------
authority to enter into this Agreement, this Agreement has been duly authorized,
executed and delivered by Investor, and constitutes the legal, valid and binding
obligation of Investor, enforceable in accordance with its terms.
(c) No Conflicts. The execution, delivery and performance by
------------
Investor of this Agreement and the consummation of the transactions contemplated
hereby will not conflict with or violate any provision of the Certificate of
Incorporation or By-Laws of Investor, with or without the giving of notice or
the passage of time, or both, result in a breach of, or violate, or be in
conflict with, or constitute a default under, or permit the termination of, or
cause or permit acceleration under, any agreement or instrument or any debt or
obligation to which Investor is a party or to or by which it or any of its
assets is subject or bound, or result in the loss or adverse
6
<PAGE>
modification of any lease, license, franchise, or other authorization granted to
or otherwise held by Investor, require the consent of any party to any agreement
or commitment to which Investor is a party, or to or by which it is subject or
bound, result in the creation or imposition of any Lien upon any of the assets
of Investor, or violate any law, rule or regulation or any order, judgment,
decree or award of any court, governmental authority or arbitrator to or by
which Investor is subject or bound.
(d) Shares. The Investor Shares have been duly authorized and, when
------
issued and delivered to the Company as provided in this Agreement at the time of
the Closing, will be validly issued and outstanding and fully paid and non-
assessable, free and clear of all Liens and restrictions on transfer, other than
the resale restrictions described in Article VI of this Agreement and in the
other Company Agreements, and arising under the securities laws and will have
been issued in compliance with all applicable federal and state securities laws;
ARTICLE V
INDEMNIFICATION
---------------
5.1. Obligation to Indemnify.
-----------------------
(a) On the terms and subject to the limitations set forth herein,
Investor hereby assumes and agrees to save, indemnify, defend and hold harmless
the Company and its affiliates, members, managers, officers, employees and other
agents and representatives (collectively the "Company Indemnified Parties") from
and against, and shall on demand reimburse the Company Indemnified Parties for:
(i) any and all loss, liability, damage or deficiency suffered or
incurred by the Company Indemnified Parties by reason of any misrepresentation
or breach of warranty by Investor or nonfulfillment of any covenant or agreement
to be performed or complied with by Investor under this Agreement or in any
agreement, certificate, document or instrument executed by Investor and
delivered to the Company pursuant to or in connection with this Agreement; and
(ii) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable attorneys'
fees, incident to any of the foregoing, or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing any of the obligations under this Section 5.1(a).
(b) On the terms and subject to the limitations set forth herein, the
Company hereby assumes and agrees to save, indemnify and hold harmless Investor
and its affiliates, directors, officers, employees and other agents and
representatives (collectively, the "Investor Indemnified Parties") from, against
and in respect of, and shall on demand reimburse Investor Indemnified Parties
for:
(i) any and all loss, liability, damage or deficiency suffered or
incurred by the Investor Indemnified Parties or by reason of any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement to be performed or complied with by the Company (other than any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement arising solely from the act or omission of Investor) or any of its
members (other than
7
<PAGE>
Investor) under this Agreement or any agreement, certificate, document or
instrument executed by any Company and delivered to Investor pursuant to or in
connection with this Agreement; and
(ii) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable attorneys' fees, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing any of the obligations under this Section 5.1(b).
5.2. Limitations.
-----------
(a) No party hereto shall have an indemnification obligation pursuant
to this Article V in respect of any representation, warranty or covenant unless
such party shall have received from the party seeking indemnification written
notice of the existence of the claim for or in respect of which indemnification
in respect of such representation, warranty or covenant is sought. Such notice
shall set forth with reasonable specificity the basis under this Agreement, and
the facts that otherwise form the basis, of such claim, an estimate of the
amount of such claim (which estimate shall not be conclusive of the final amount
of such claim) and an explanation of the calculation of such estimate, including
a statement of any significant assumptions employed therein, and the date on and
manner in which the party delivering such notice became aware of the existence
of such claim.
(b) Any payment under this Article V required to be made by the
Company may, in the discretion of the Company, be made at the option of the
Company in either cash or in Common Stock. For purposes of making such payment,
the Common Stock shall be valued at the closing price on the Closing Date.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no party shall be required hereunder to indemnify or hold harmless
any other party against damages or other losses until such time as the aggregate
amount of all damages, or other losses shall exceed $50,000 (the "Liability
Threshold"), at which time the indemnifying party shall be responsible without
regard to such threshold; provided, further, however, that the maximum aggregate
liability of either party under this Agreement shall not exceed the total amount
of the initial investment. All damage and losses shall be calculated on an
actual out-of-pocket basis net of actual insurance reimbursements, condemnation
proceeds, tax benefits and other offsetting payments or benefits associated with
the specific loss, liability or damage asserted with respect to such claim,
actually received by Investor, whether such receipt occurs before or after the
date the indemnification claim is made. No party shall unreasonably refuse to
seek such insurance reimbursements or other offsetting payments or benefits.
5.3. Investor's Option to Purchase Investor Shares. Upon the Company's
---------------------------------------------
failure to pay in full, in cash or in shares of Common Stock pursuant to Section
5.2(b), any obligation owed to any Investor Indemnified Party pursuant to
Section 5.1(b), which failure shall not have been cured by the Company within 10
days' written notice thereof, Investor shall have the option to purchase (each
an "Investor Option") from the Company, any party to whom the Company has
transferred any of the Investor Shares and any transferee therefrom, a number of
Investor Shares equal to the amount owed by the Company under Section 5.1(b) for
a purchase price of $0.001 per share of such Common Stock. For purposes of
calculating the number of shares that Investor is entitled to so purchase, the
Investor Shares shall be valued at the last reported sale price as reported by
the Nasdaq Market of the Common Stock on the Closing Date. Upon the exercise of
a Investor Option, each holder of such Investor Shares shall have the obligation
to sell, or to
8
<PAGE>
cause any transferee thereof to sell, the requisite number of Investor Shares to
Investor at the purchase price specified above; provided that Investor shall use
commercially reasonable efforts to exercise the Investor Option on a pro rata
--- ----
basis as among all holders such that the proportion of Common Stock so
purchased by Investor is proportionate to such holder's percentage of the total
Investor Shares. The Investor Option shall not apply to any Investor Shares that
are transferred by any holder pursuant to Sections 6.3(b), 6.4 or 6.15 hereof.
Prior to its transfer of any Investor Shares, the Company shall inform any
transferee (and any transferee shall be obligated to notify any successor
transferee) of Investor's rights under this Section 5.3.
ARTICLE VI
----------
RESTRICTIONS ON TRANSFER; REGISTRATION UNDER THE SECURITIES ACT
---------------------------------------------------------------
6.1. Restrictions on Transfer. The Investor Shares delivered pursuant
------------------------
hereto shall not be transferable except (a) pursuant to Section 5.4 hereof, (b)
by the Company as a distribution to a member of the Company or by a member of
the Company to another member, in each case pursuant to the terms of the
Operating Agreement and so long as such distribution or other transfer does not
require registration under the Securities Act, (c) pursuant to Rule 144, (d)
pursuant to an effective registration statement filed in accordance with this
Agreement, (e) to Limited pursuant to the Service Agreement and (f) as to not
more than 100,000 Investor Shares, provided that the events have occurred that
would permit the registration of such Investor Shares pursuant to Section 6.15,
and that the Company is in compliance with its obligations under the Service
Agreement and such agreement is in full force and effect, in a transaction not
requiring registration under the Securities Act. Except as otherwise provided
therein, each transfer permitted under this Section 6.1 shall satisfy the
conditions specified in Section 6.3, which conditions are intended to ensure
compliance with the provisions of the Securities Act. The Company and each
permitted transferee of any Investor Shares, other than a transferee (an "Exempt
Transferee") who purchases (i) in accordance with the provisions of Section 6.4
or 6.15 pursuant to an effective registration statement satisfying the
requirements of the Securities Act or (ii) pursuant to Rule 144 under the
Securities Act, (the Company and each such transferee being referred to herein
as a "Holder") will cause any proposed transferee (other than an Exempt
Transferee) of any Investor Shares held by such Holder to agree to take and hold
such Investor Shares subject to the provisions and upon the conditions specified
in this Article.
6.2. Restrictive Legend. Each certificate for the Investor Shares
------------------
delivered pursuant hereto to the Company or as may be transferred by a Holder
pursuant to the terms hereof to a subsequent transferee shall (unless otherwise
permitted by the provisions of Section 6.3, 6.4 or 6.15) include a legend in
substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND THE RULES AND REGULATION THEREUNDER.
BY ITS ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE AGREES TO COMPLY
IN ALL RESPECTS WITH SECTION 5.3 AND ARTICLE VI OF THE MEMBERSHIP
INVESTMENT AGREEMENT DATED AS OF SEPTEMBER 7, 1999, IN RELATION TO WHICH
THESE SHARES WERE ISSUED. COPIES OF SUCH PROVISIONS MAY BE
9
<PAGE>
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THIS COMPANY AT ITS PRINCIPAL EXECUTIVE
OFFICES.
6.3. Notice of Proposed Transfers; Rule 144.
--------------------------------------
(a) Each holder of Investor Shares agrees to comply in all respects
with the provisions of this Section. Prior to any proposed sale, transfer or
other disposition of Investor Shares delivered pursuant hereto (except for
transfers by holders to their spouse or descendants or to trusts or
custodianships solely for the benefit of their spouse or descendants so long as
such transferee agrees to be bound by the provisions of this Article VI, and
other than under the circumstances described in subsection (b) below with
respect to termination of restrictions or transfer pursuant to Rule 144(k) under
the Securities Act, as amended from time to time ("Rule 144(k)") or in Section
6.4 or Section 6.15), the affected holder shall give written notice to Investor
of such holder's intention to effect such sale, transfer or other disposition.
Each such notice shall describe the manner and circumstances of the proposed
sale, transfer or other disposition in reasonable detail, and shall be
accompanied by either (i) an opinion of counsel, in form and substance
reasonably acceptable to Investor, addressed to Investor, to the effect that the
proposed sale, transfer or other disposition of such Investor Shares may be
effected without registration under the Securities Act, or (ii) a "no action"
letter, in form and substance reasonably acceptable to Investor, from the SEC to
the effect that such sale, transfer or other disposition of such Investor Shares
without registration will not result in a recommendation by the staff of the SEC
that action be taken with respect thereto, whereupon the holder of such Investor
Shares shall be entitled to transfer such Investor Shares in accordance with the
terms of the notice delivered by the holders to Investor; provided, however,
-------- -------
that no such notice or opinion of counsel shall be required for a transfer by
will or intestate succession from any holder to his spouse or family members, if
the transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were an original holder hereunder.
(b) Notwithstanding the foregoing, no opinion of counsel shall be
required for any sale, transfer or other disposition of such Common Stock or the
removal of the above legend based upon the termination of restrictions on sales
of such stock pursuant to Rule 144(k), if the holder holding such shares of
Common Stock shall deliver to Investor in its stead a certificate stating that
such shares are (i) eligible for sale pursuant to Rule 144, as amended from time
to time, under the Securities Act and representing and warranting to Investor
that such sale will be made in accordance with such Rule, or (ii) eligible for
termination of restrictions on sale pursuant to Rule 144(k), as amended from
time to time, under the Securities Act and representing and warranting to
Investor that such shares are so eligible in accordance with such Rule, in each
case together with a summary of the basis for such statements, unless within
fifteen days after receipt of such a certificate Investor shall reasonably
determine in good faith that an opinion of counsel is required by the transfer
agent to ensure compliance with the Securities Act and shall so notify such
holders.
6.4. Registration of Stock; Restriction on Sales.
-------------------------------------------
(a) Investor agrees to prepare and, subject to the Company and each
other Holder providing the requisite information pursuant to Section 6.6, file
on or before October 31, 1999 (the "Filing Date"), a registration statement (the
"Registration Statement"), including a prospectus (the "Prospectus"), with the
SEC under the Securities Act and satisfy such filing, registration and
qualification requirements of the relevant state securities (blue sky) laws of
such
10
<PAGE>
states as the Holders may reasonably request, covering the sale of 100,000
Investor Shares; provided that Investor will not be required to (x) qualify
generally to do business in any such jurisdiction where it would not otherwise
be required to qualify but for this Agreement, (y) subject itself to taxation in
any such jurisdiction or (z) consent to general service of process in any such
jurisdiction (unless Investor is already subject to service of process in such
jurisdiction). Investor further agrees to use its best efforts to cause the
Registration Statement and such registration and qualification to become
effective as soon as practicable after filing. The Registration Statement shall
be on form S-3; provided that, if such form ceases at any time to be available
--------
to Investor, the Registration Statement shall be on such other form for the
general registration of securities as Investor may deem appropriate. Investor
shall furnish the Holders with an initial draft of the Registration Statement
not later than 25 days prior to the Filing Date, and prior to filing such
Registration Statement or any amendment or supplement thereto (other than any
documents incorporated by reference therein), furnish to the Holders copies
thereof.
(b) If (but without any obligation to do so) at any time after the
date hereof Investor proposes to register (including for this purpose a
registration effected by Investor for stockholders other than the holders of the
Investor Shares) any of its stock or other securities under the Securities Act
in connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Investor stock plan, or a registration relating to shares to be issued in
connection with the acquisition of another company, or a registration on any
form that does not include substantially the same information as would be
required to be included in a registration of the Investor Shares), Investor
shall, at such time, promptly give each holder of Investor Shares written notice
of such registration. Upon the written request of each holder of Investor
Shares given within twenty (20) days after the effectiveness of such notice by
Investor, Investor shall, subject to the provisions of Section 6.8, cause to be
registered under the Securities Act all of the Investor Shares that each such
holder of Investor Shares has requested to be registered. Notwithstanding the
foregoing, Investor shall not be obligated to register the Investor Shares
described in Section 6.15 unless and until the events described in Section 6.15
have occurred with respect to such shares.
(c) Except as provided in subsections (d) and (e), at any time during
the period the Registration Statement is effective, prior to any proposed sale,
transfer or other disposition of any Investor Shares delivered pursuant hereto,
the affected Holder shall give at least seven days' written notice to Investor
of such Holder's intention to effect such sale, transfer or other disposition.
Such notice shall state that such sale, transfer or other disposition is
intended to be made pursuant to such Registration Statement and the Prospectus
and that such Holder has a bona fide intention of making such sale, transfer or
other disposition. Subject to the provisions of subsections (d) and (e) below,
such Holder shall be permitted to effect such sale, transfer or other
disposition without further notice to Investor during the fourteen-day period
following the expiration of such seven-day period.
(d) Notwithstanding anything contained in subsection (c), if at any
time after receipt of any such notice from any Holder and prior to such sale,
transfer or other disposition, Investor shall furnish to such Holder a
certificate signed by its Chairman, Chief Executive Officer, President, Chief
Financial Officer or General Counsel stating that in his good faith judgment it
would be seriously detrimental to Investor or its shareholders for such sale,
transfer or other disposition to be made at such time (including, without
limitation, by reason of any disclosure which Investor may be required to make
for such purpose), such Holder shall not effect such sale, transfer or other
disposition except during the fourteen-day period following the expiration of
the sooner of (i) a period of 90 days from the date of receipt of such written
notice
11
<PAGE>
from such officer of Investor or (ii) the receipt of written notice from
Investor stating that such Holder is permitted to effect such sale, transfer or
other disposition. If prior to such 90-day period there shall no longer be any
basis for such a certificate to be issued, Investor shall promptly under the
circumstances notify such Holder to the effect provided in clause (ii) above.
Investor shall not be entitled to defer any such Holder sales during any such
fourteen-day period. Each other Holder shall also be entitled to sell, transfer
or otherwise dispose of Investor Shares during any fourteen-day period referred
to in this subsection if such selling Holder gives notice to Investor of such
intended sale prior to the expiration of such fourteen-day period.
(e) Notwithstanding anything contained in subsection (c) and (d), the
Holders shall be permitted, without notice to Investor and free from any right
of Investor to defer such sales as herein provided, to sell, transfer or
otherwise dispose of Investor Shares pursuant to the Registration Statement and
the Prospectus during the 60 days following the date the Registration Statement
first becomes effective.
(f) Investor will, upon delivery to it or its agent of certificates
for the Investor Shares containing the legend set forth in Section 6.2 hereof by
a Holder for registration of the transfer of such stock in accordance with the
provisions of this Section, cause certificates without such legend representing
the number of shares of Investor Shares being transferred and new certificates
with such legend representing the number of remaining shares not being so
transferred, if any, to be issued in exchange for such legend certificates.
(g) To the extent that 100,000 Investor Shares have not been
registered pursuant to a registration statement declared effective under the
Securities Act on or before December 31, 1999 (the shortfall in the number of
such Investor Shares that have not been registered being referred to herein as
the "Unregistered Shares"), then the Holders may elect (which election must be
unanimous) to (i) require Investor to use its reasonable efforts to cause one or
more registration statements covering the Unregistered Shares to be declared
effective under the Securities Act as soon as possible or (ii) require Investor
to repurchase the Unregistered Shares; provided that the Company shall be in
--------
compliance with its obligations under the Service Agreement and such agreement
shall be in full force and effect at the time of such election. Any such
repurchase shall be made at a price per share equal to the average closing price
of the Common Stock as reported by the Nasdaq Market for the 30 trading days
ending three days before the last business day of December 1999. The Holders
shall give notice to Investor of their election (if any) on or before March 31,
2000. In the case of an election under clause (ii), Investor shall repurchase
the Unregistered Shares within 30 days of its receipt of such notice.
6.5. Registration Procedures and Expenses. Investor agrees that after
------------------------------------
the filing of the Registration Statement it will:
(a) prepare and file with the SEC such amendments and supplements to
the Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective until the Investor Shares so registered and
qualified is no longer owned by any Holder or until the expiration of a period
of 12 months after the Closing Date, whichever is earlier; provided that, if as
result of the exercise by Investor of its rights pursuant to the first sentence
of Section 6.4(d), any such fourteen-day period shall end at anytime after such
12-month period, the period during which the Registration Statement shall remain
effective shall be extended to the end of such fourteen-day period;
12
<PAGE>
(b) if the Registration Statement ceases for any reason to be
effective during the period referred to in clause (a), take all reasonable
action to either make such Registration statement effective or to file another
registration statement (which for purposes of this Agreement shall be the
"Registration Statement" and the related prospectus shall be the "Prospectus")
and use reasonable efforts to cause such registration statement to become
effective as soon as practicable and remain effective for the period referred to
in clause (a);
(c) deliver to each Holder, as soon as it is available, a conformed
copy of the Registration Statement (including any preliminary prospectus) as
originally filed and of each amendment thereto (including exhibits and documents
incorporated by reference therein);
(d) furnish to each Holder selling Investor Shares so registered under
the Securities Act such number of copies of the Prospectus and any amendments or
supplements thereto (including all Exhibits thereto and all documents
incorporated by reference therein) and the Prospectus included in such
Registration Statement (including each preliminary prospectus) as the Holders
may reasonably request in order to effect the offering and sale of the shares of
Common Stock to be offered and sold);
(e) pay all fees and expenses (including without limitation
registration and filing fees and legal, accounting and printing fees and
expenses but excluding selling fees, discounts and commissions with respect to
the sale of Investor Shares and any out-of-pocket expenses of the Holders) in
connection with such registration or qualification; and
(f) if during the period that the Registration Statement is required
to be kept effective, any other shares of Common Stock shall be issued in
respect of the Common Stock delivered pursuant hereto (by reason of any stock
split, stock dividend, reclassification, recapitalization or similar event),
Investor agrees to use reasonable efforts to cause such additional shares of
Common Stock to be registered pursuant to the Registration Statement or another
registration statement (which other Registration Statement shall be deemed for
purposes of this Agreement to be a "Registration Statement" and the related
prospectus shall be a "Prospectus") and, except as provided in clauses (x), (y)
and (z) of Section 6.4(a), registered or qualified under the relevant state
securities laws.
6.6. Accuracy of Information Relating to Holders. Investor may
-------------------------------------------
require each Holder promptly to furnish in writing to Investor such information
regarding such Holder, the plan of distribution of the Investor Shares and other
information as Investor may from time to time reasonably request or as may be
legally required in connection with such registration.
6.7. Certain Notifications. During the period of effectiveness of the
---------------------
Registration Statement, Investor shall promptly notify each Holder of:
(a) the effectiveness of the Registration Statement, the receipt of
any comments from the SEC relating to statements set forth in the Registration
Statement that relate to the Holders, and the issuance (or any threatened
issuance of which Investor shall be aware) by the SEC of any stop order
suspending the effectiveness of the Registration Statement or of any amendment
thereto (in which case, the Holders will not sell, transfer or otherwise dispose
of any Investor Shares during the pendency of such stop order), and Investor
shall take all reasonable actions required to prevent the entry of such stop
order or to remove it if entered; and
13
<PAGE>
(b) its intention to file any amendment to the Registration Statement
(other than documents incorporated by reference therein) which shall amend the
statements referred to in Section 6.6.
6.8. Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by Investor, Investor shall not
be required under Section 6.4(b) to include any of the Holders' Investor Shares
in such underwriting unless the Holders accept the terms of the underwriting as
agreed upon between Investor and the underwriters selected by it, and then only
in such quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by Investor. If the total amount of securities,
including Investor Shares, requested by stockholders to be included in an
offering exceeds the amount of securities sold other than by Investor that the
underwriters reasonably believe compatible with the success of the offering,
then Investor shall be required to include in the offering only that number of
such securities, including Investor Shares, that the underwriters believe will
not jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders). The underwriters, pursuant to the preceding sentence,
may completely exclude the Investor Shares from such underwriting if no other
selling stockholders' securities are so included. Further, the Investor Shares
are subject to cutback as a result of the superior and equal demand and piggy-
back registration rights granted to other holders of Common Stock and securities
of Investor convertible and exchangeable into Common Stock; provided however,
under no circumstances shall the Investor Shares be subject to cutback with
respect to the Registration Statement to be filed on or before October 31, 1999.
If any person does not agree to the terms of any such underwriting,
such Holder shall be excluded therefrom by written notice from Investor or the
underwriter. Any Investor Shares excluded or withdrawn from such underwriting
shall be withdrawn from such registration. If shares are so withdrawn from the
registration, Investor shall then offer to all persons who have retained the
right to include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
shares so withdrawn, with such shares to be allocated among the persons
requesting additional inclusion pro rata according to the total amount of
securities entitled to be included in such registration owned by each such
person or in such other proportions as shall be mutually agreed by such selling
stockholders.
For purposes of the immediately preceding provisions concerning
apportionment, in the case of any selling stockholder that is a partnership or
corporation, the partners, retired partners or stockholders, as the case may be,
of such Holder, or the estates and family members of any such partners and
retired partners, and any trusts for the benefit of any of the foregoing persons
shall be deemed to be a single "selling stockholder," and any pro rata reduction
with respect to such "selling stockholder" shall be based upon the aggregate
amount of shares carrying registration rights owned by all entities and
individuals included in such "selling stockholder," as defined in this sentence.
6.9. Indemnification by Investor. Investor shall indemnify, defend
---------------------------
and hold harmless each Holder from and against any and all losses, claims
expenses, damages and liabilities, joint or several, caused by (a) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if Investor
shall have furnished any amendments or supplements thereto) or any preliminary
prospectus, (b) any omission or alleged omission to state therein a material
fact required to be
14
<PAGE>
stated therein or necessary to make the statements therein not misleading, or
(c) any violation by Investor of the Securities Act, the Exchange Act, any state
securities laws or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities laws, in each case, except insofar as
such losses, claims, expenses, damages or liabilities (i) are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information, relating to the Holders, the plan of distribution or any other
matter furnished in writing to Investor by or on behalf of any Holder expressly
for use therein and (ii) relate to any sale, transfer or other disposition that
is effected at a time or in any manner that is inconsistent with the provisions
of Section 6.4 or any applicable law, rule or regulation; provided that the
foregoing indemnity agreement with respect to any prospectus or preliminary
prospectus shall not inure to the benefit of a Holder if a copy of the most
current prospectus at the time of the delivery of the Common Stock was not
provided to the purchaser thereof and such current prospectus would have cured
the defect giving rise to such loss, claim, damage or liability.
6.10. Indemnification by the Holders. The Company and each other
------------------------------
Holder shall indemnify and hold harmless Investor, its officers, directors,
affiliates, employees, agents and each person, if any, who controls Investor
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from Investor to
the Holders, but only with reference to (i) information relating to the Company
and such Holder, the plan of distribution or any other matter furnished in
writing by or on behalf of the Company and such Holder expressly for use in the
Registration Statement or Prospectus, or any amendment or supplement thereto, or
any preliminary prospectus and (ii) any sale, transfer or other disposition by
the Company and such Holder that is effected at a time or in a manner that is
inconsistent with the provisions of Section 6.4.
6.11. Conduct of Indemnification Proceedings. In case any proceeding
--------------------------------------
or claim (including any governmental investigation ) shall be instituted or
asserted involving any person in respect of which indemnity may be sought
pursuant to Section 6.9 or Section 6.10, such person (the "Indemnified Party")
shall promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party, upon the request of
the Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflict between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnified Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
15
<PAGE>
6.12. Contribution. If the indemnification provided for in Section
------------
6.9 or Section 6.10 is unavailable to an Indemnified Party in respect of any
losses, claims, expenses, damages or liabilities referred to herein, then each
such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative benefits received by Investor and each
Holder from the offering of the securities and the relative fault of Investor
and the Holder in connection with the statements, omissions or transactions
that resulted in such losses, claims, expenses, damages or liabilities, as well
as any other relevant equitable considerations (including, without limitation,
the failure of any Holder to comply with the provisions of Section 6.4). The
relative benefits received by Investor and each Holder shall be deemed to be in
the same respective proportions as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by Investor and each Holder bear to the aggregate public offering price of the
securities. The relative fault of Investor and each Holder shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission and the observance of the provisions of this
Agreement.
Investor and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
6.13. Availability of Rule 144. Notwithstanding anything contained
------------------------
in this Article VI to the contrary, Investor shall have no obligations pursuant
to Article VI for the registration of shares of Common Stock held by any Holder
(i) where such Holder would then be entitled to sell under Rule 144 within any
three-month period (or such other unitary period prescribed under Rule 144 as
may be provided by amendment thereof) all of the shares of Common Stock then
held by such Holder, and (ii) the number of shares of Common Stock held by such
Holder is within the volume limitations under paragraph (e) of Rule 144
(calculated as if such Holder were an affiliate within the meaning of Rule 144).
6.14. Reports Under Exchange Act. With a view to making available to
--------------------------
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit the Holders
to sell securities of Investor to the public without registration, Investor
agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of Investor under the Securities Act and the Exchange Act;
and
16
<PAGE>
(c) furnish to the Holders, so long as they own any Investor Shares,
forthwith upon request (i) a written statement by Investor that it has complied
with the reporting requirements of SEC Rule 144, the Securities Act and the
Exchange Act, and (ii) a copy of the most recent annual or quarterly report of
Investor and such other reports and documents so filed by Investor.
6.15. Additional Investor Shares Subject to Registration Rights.
---------------------------------------------------------
Investor agrees that, if requested by the Holders thereof, Investor will prepare
and, subject to the Holders providing the requisite information pursuant to
Section 6.6, file a Registration Statement with the SEC under the Securities Act
and satisfy such filing, registration and qualification requirements of the
relevant state securities (blue sky) laws of such states as the Holders may
reasonably request, covering the sale of the remaining 100,000 Investor Shares
(collectively, the "Remaining Shares"), in the amounts specified below and with
respect to the occurrence of the following events:
(a) 25,000 shares upon Limited's recognition of an aggregate
cumulative amount of US$10,000,000 in revenue from third parties arising from
the provision of services by the Company pursuant to the Service Agreement;
(b) 25,000 shares upon Limited's recognition of an aggregate
cumulative amount of US$20,000,000 in revenue from third parties arising from
the provision of services by the Company pursuant to the Service Agreement;
(c) 25,000 shares upon Limited's recognition of an aggregate
cumulative amount of US$30,000,000 in revenue from third parties arising from
the provision of services by the Company pursuant to the Service Agreement; and
(d) 25,000 shares upon Limited's recognition of an aggregate
cumulative amount of US$40,000,000 in revenue from third parties arising from
the provision of services by the Company pursuant to the Service Agreement.
Investor will cause to be delivered to the Holders a certificate from Limited
within 45 days after each fiscal quarter of Limited, certifying the cumulative
amount of revenue actually received by Limited through the end of such quarter
from third parties arising from the provision of services by the Company to
Investor pursuant to the Service Agreement. The additional rights provided to
the Holders pursuant to this Section 6.15 shall (i) terminate upon the
termination or expiration of the Service Agreement (whichever occurs first) and
(ii) be subject to all Holders' obligations, and all conditions and limitations
applicable to the registration of the Investor Shares, as provided in Sections
6.4 through 6.14 hereof.
ARTICLE VII
MISCELLANEOUS
-------------
7.1. Binding Agreement; Assignment. All the terms and provisions of
-----------------------------
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective heirs, legal
representatives, successors and assigns. This Agreement may not be assigned by
a party without the prior written consent of the other parties hereto.
17
<PAGE>
7.2. Law To Govern. Except as to matters governing the issuance of the
-------------
Purchased Interest (which matters shall be governed by the internal laws of the
State of Delaware), this Agreement shall be construed and enforced in accordance
with the internal laws of the State of New York, in each case without regard to
principles of conflict of laws. In the case of any dispute or litigation
arising out of, related to, or regarding the validity of, this Agreement, the
parties agree to submit to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York sitting in Manhattan and
the nonexclusive jurisdiction of the New York Supreme Court for New York County
sitting in Manhattan, and to waive all objections to venue therein.
7.3. Notices. All notices shall be in writing and shall be deemed to
-------
have been duly given if delivered personally, sent by facsimile or three days
after being deposited in the mail if mailed via registered or certified mail,
return receipt requested, postage prepaid to the other party hereto at the
following addresses:
(a) if to the Company, to:
Timothy J. McIntyre
1735 York Avenue
Apt. 35C
New York, NY 10128
with a copy to:
Bruno W. Tabis, Jr., Esq.
Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago IL 60611
Telecopier: (312) 222-0818
18
<PAGE>
(b) if to Investor, to:
Mediconsult.com, Inc.
1330 Avenue of the Americas
New York, New York 10019
Attention: E. Michael Ingram, General Counsel
and Chief Financial Officer
Telecopier: (212) 841-7310
with a copy to:
Kelly Vance, Esq.
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Telecopier: (212) 841-1010
or to such other address as any such party may designate in writing in
accordance with this Section.
7.4. Fees and Expenses. Each of the parties shall pay its own fees
-----------------
and expenses with respect to the transactions contemplated hereby.
7.5. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties hereto in respect of the subject matter hereof and
may not be modified, amended or terminated except by a written agreement
specifically referring to this Agreement signed by all of the parties hereto.
This Agreement supersedes all prior agreements and understandings among the
parties with respect to such subject matter.
7.6. Waivers. Any failure by any party to this Agreement to comply
-------
with any of its obligations hereunder may be waived by the Company in the case
of a default by Investor and by Investor in case of a default by the Company.
No waiver shall be effective unless in writing and signed by the party granting
such waiver, and no such waiver shall be deemed a waiver of any subsequent
breach or default of the same or similar nature.
7.7. No Third-Party Beneficiaries. Except to the extent Article VI
----------------------------
provides certain registration rights to Holders, nothing herein, express or
implied, is intended or shall be construed to confer upon or give to any person,
firm, corporation or legal entity, other than the parties hereto, any rights,
remedies or other benefits under or by reason of this Agreement or any documents
executed in connection with this Agreement.
7.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement.
7.9. Headings. The Section and paragraph headings contained herein
--------
are for the purposes of convenience only and are not intended to define or limit
the contents of said Sections and paragraphs.
19
<PAGE>
7.10. Legal and Tax Advice. Each of the parties hereto covenants,
--------------------
agrees and acknowledges that each of them was fully and plainly instructed to
seek and obtain independent legal and tax advice regarding the terms and
conditions and execution of this Agreement and each of them has sought and
obtained such legal and tax advice and acknowledges that each has executed this
Agreement voluntarily understanding the nature and effect of this Agreement
after receiving such advice.
7.11. Interpretation. The following rules of interpretation apply to
--------------
this Agreement:
(a) All references in this Agreement to "Sections" and other
subdivisions, unless otherwise expressly stated, are to the designated Sections
and other subdivisions of this Agreement .
(b) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement and not to any particular Section or
other subdivision.
(c) All references to "including" in this Agreement will mean
including without limitation and all references to "or" will not be exclusive.
(d) A reference to a law in this Agreement includes any amendment or
modification to such law and any rules or regulations issued thereunder as of
the time such reference is made.
(e) A reference to an entity in this Agreement includes its
successors and permitted assigns (if any).
(f) The singular includes the plural and vice versa; and the
masculine, feminine and neuter terms include each of the other forms.
7.12. Effective Date. The parties have executed this Agreement on
--------------
August 20, 1999, to take effect on September 7, 1999. Except for this Section
7.12, no other provision of this Agreement shall be effective until September 7,
1999.
20
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as described in
Section 7.12.
<TABLE>
<CAPTION>
<S> <C>
Investor:
MEDICONSULT.COM, INC.,
a Delaware corporation
By: /s/ E. Michael Ingram
-------------------------
E. Michael Ingram
Chief Financial Officer and General Counsel
Company:
PHARMA MARKETING, LLC,
a Delaware limited liability company
By: /s/ Timothy J. McIntyre
-------------------------
Timothy J. McIntyre, President
</TABLE>
[Membership Investment Agreement]
<PAGE>
Exhibit 10.12
MEDICAL EDUCATION SERVICES AGREEMENT
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THIS AGREEMENT, effective on September 30, 1999, (the "Effective Date"), is
between Bristol-Myers Squibb Company, having its offices at 345 Park Avenue, New
York, New York ("B-MS"), and Mediconsult.com Limited, with its head office at
Jardine House, 4th Floor, 33-35 Reid Street, Hamilton, Bermuda HM 12,
("Company").
WHEREAS, B-MS is engaged in the development, distribution and sale of
pharmaceutical products supported by innovative, serial, interactive medical
education programs delivered via the internet and facilitated by BMS
representatives;
WHEREAS, Company is engaged in providing internet-based solutions to
pharmaceutical companies, physicians and patients as well as other services to
third parties; and
WHEREAS, the parties desire that Company provide management and logistical
coordination services related to the delivery of live, interactive, B-MS
sponsored opinion leader led, internet delivered programs in conjunction with a
B-MS representative (facilitator) to B-MS in accordance with the terms and
conditions hereinafter specified.
NOW, THEREFORE, in consideration of the promises contained herein and intending
to be legally bound hereby, the parties hereto agree as follows:
1. Definitions When used in this Agreement, the following terms shall,
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except where the context requires otherwise, have the meanings
identified below:
1.1. Attendee - Any person or persons participating in a medical
education Program or Meeting.
1.2. B-MS Relationship Reconciliation - A written summary of the
status of all Projects performed during the previous contract
year, as well as all active, ongoing Projects in the current
contract year, using the forms provided in Schedule E of this
Agreement.
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1.3. B-MS Relationship Review - A meeting between a designated Company
representative, as specified in a Project Order, and the
appropriate representative from B-MS, the purpose of which is the
review of the status of all Projects being performed, and those
completed, under this Agreement. All meetings required hereunder
shall be conducted in person, unless the Company's primary
offices are more than 200 miles from B-MS's Plainsboro/Princeton
area offices. In such event, teleconference or videoconference
meetings are an acceptable substitute.
1.4. Concierge - An employee of the Company assigned to manage all
logistics for executing a Program. The concierge will
specifically manage communications and logistics related to the
B-MS opinion leader.
1.5. Co-Pilot - An individual either from B-MS or the Company who will
co-facilitate the production of individual Programs.
1.6. extraNet Website - An internet site which will allow employees
from B-MS and the Company to access project management tools, a
calendar of past and planned Programs, promotional information,
training tools, and archived Programs.
1.7. Initial Term - The period of time commencing on the Effective
Date and terminating December 31, 2000, unless or until
terminated by either party in accordance with the terms of this
Agreement. This period is also referred to as "Stage One".
1.8. Management Fee - The fee payable by B-MS to Company for the
Services performed by Company related to any Meeting, Program or
Project, assigned to Company under this Agreement.
1.9. Meeting - A live, interactive B-MS opinion leader led, internet
delivered program in conjunction with a B-MS representative
(facilitator) participation for which Services are provided by
the Company hereunder. A Meeting may also be archived or
transferred to cd-rom or any comparable format for subsequent
viewing by a healthcare provider with or without a B-MS
representative.
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1.10. Milestone - A day set forth in each completed Project Order that
represents a critical step in the completion of a project or
service as defined in the project timeline.
1.11. Pass-Through Expenses - Those third party, and/or all other
expenses not included in the Management Fee incurred by the
Company on behalf of B-MS according to the procedures set forth
herein, either paid by the Company and reimbursable by B-MS or
directly billed to B-MS through preferred suppliers on behalf of
the Company.
1.12. Program - A live, interactive B-MS opinion leader led, internet
delivered program in conjunction with a B-MS representative
(facilitator) participation for which Services are provided by
the Company hereunder. A Program may also be archived or
transferred to cd-rolm or any comparable format for subsequent
viewing by a healthcare provider with or without a B-MS
representative.
1.13. Project - Any Program or Meeting, or series of thereof, assigned
to Company by BMS for the performance of Services related
thereto, under the terms of a Project Order attached hereto as
Schedule D, and hereby made a part hereof.
1.14. Project Reconciliation - A written summary of the status of each
Project including, without limitation, fees paid to Company for
each Project, and all expenses incurred by Company related to the
Project.
1.15. Project Review - A person to person meeting between a designated
Company representative, as specified in a Project Order, and the
appropriate representative from B-MS, the purpose of which is the
review of the status of any open Project or upon final completion
of a Project.
1.16. Ramp Down Costs - Costs associated with this Agreement or
Services provided pursuant to an active Project Order. These
costs will be partially reimbursed in the event the Agreement
expires after Stage One or Stage Two, terminates or is suspended.
Such costs may include, but are not limited to, the salaries,
fringe
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benefits and directly allocated overhead costs related to
the 3 month ramp down period for any employees who have spent
more than 80% of the prior 3 months working on B-MS projects
under this Agreement. The amounts and payment methodologies for
such Ramp Down Costs are to be negotiated within 30 days of the
decision to allow the Agreement to expire after Stage One or
Stage Two, or within 30 days after notification of early
termination or suspension of this Agreement.
1.17. Services - The Meeting or Program services performed in
accordance with a Project Order, subject to the performance
standards set forth in Schedule A or as modified in a specific
Project Order, to be provided by the Company to B-MS during the
term of this Agreement.
1.18. Speaker - Any person requested to speak or present at any
Meeting, Project or Program
1.19. Stage Two - A potential two-year renewal period from January 1,
2001 through December 31, 2002.
1.20. Stage Three - A potential two-year renewal period from January 1,
2003 through December 31, 2004.
2. Agreement Term
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2.1. The term of this Agreement shall commence on the Effective Date
and will continue in effect until December 31, 2000, unless or
until terminated by either party in accordance with the terms of
this Agreement. This initial term is also called Stage One of the
Agreement.
2.2. Based on acceptable performance levels by the Company during
Stage One as determined by B-MS, B-MS and the Company will enter
into discussions regarding a two year renewal of this Agreement,
Stage Two (January 1, 2001 through December 31, 2002), by
September 1, 2000 with final agreement on contract language,
exclusivity and payment methodologies for additional Programs by
October 31, 2000. Subject to the parties reaching agreement on
Stage
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Two, B-MS will employ reasonable best efforts to deploy
3,000 Programs during Stage Two of the Agreement. Activity scale
up in Stage Two will be contingent on anticipated reductions in
the price per program to be provided by the Company. Exclusive of
quality and/or technology issues and subject to B-MS's rights to
terminate under Section 14.1., if the parties do not reach an
agreement related to Stage 2 by October 31, 2000, Stage 1 and all
open Project Orders will be extended to April 1, 2001 or Project
completion whichever occurs last. Negotiations of any final Ramp
Down Costs and related Company service utilization will be
conducted and finalized between November 1, 2000 and November 30,
2000.
2.3. Based on acceptable performance levels by the Company during
Stage Two as determined by B-MS, B-MS and the Company will enter
into discussions regarding a two year renewal of this Agreement,
Stage Three (January 1, 2003 through December 31, 2004), by
September 1, 2002 with final agreement on contract language,
exclusivity and payment methodologies for additional programs by
October 31, 2002. Exclusive of quality and/or technology issues
and subject to B-MS's rights to terminate under Section 14.1., if
the parties do not reach an agreement related to Stage 2 by
October 31, 2002, Stage 2 and all open Project Orders will be
extended to April 1, 2003 or Project completion whichever occurs
last. Negotiations of any final Ramp Down Costs and related
Company service utilization will be conducted and finalized
between November 1, 2002 and November 30, 2002.
3. Services
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3.1. B-MS agrees to engage the Company in a minimum of three (3)
Project Orders during Stage One of this Agreement. Subject to the
initiation and successful completion, as determined by B-MS, of
the Services set forth in each Project Order, B-MS agrees to
compensate the Company up to a maximum of Five Million Dollars
($5,000,000) for Services provided under Project Orders 1 and 2.
It is anticipated that Project Order 3 will cover Services
provided by the Company
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in the preparation and facilitation of activities related to the
initial 240 broadcasts to begin July 1, 2000. The detailed
services, pricing and payment methodologies for Project Order 3
will be negotiated no later than March 31, 2000 and this
Agreement will be amended to include services, pricing and
payment methodologies for Project Order 3.
3.1.1. Project Order 1 will include, at a minimum, and require
the delivery of full documentation to support the
development of the initial business model concept for
B-MS requested services, development of B-MS directed
customization of the initial business plan, development
of initial high level processes, work plans, required
components for the initial 240 Programs and all
presentations to B-MS and related consulting services.
In addition, Project Order 1 will cover all consulting
services and processes developed to date. The payment
schedule, complete scope of services and activities
will be specified in Project Order 1, which shall be
submitted by the Company, and if acceptable to B-MS,
approved in writing by B-MS prior to the final
execution of this Agreement. The maximum payment for
Project Order 1 will be One Million Dollars
($1,000,000).
3.1.2. Project Order 2 will include, at a minimum, and require
delivery of documentation and prototypes for the design
and approval by B-MS of detailed process, work plans,
systems and organization structures for the opinion
leader recruitment and management system, the broadcast
scheduling and logistics system and the extranet
website. In addition, Project Order 2 will include and
provide full documentation of the design of detailed
processes and work plans for broadcast execution,
content management, training plans and curriculum
design for B-MS sales force, Co-Pilots, Concierges and
other necessary personnel related to the initial 240
programs, delivery of the database cross-match of the
POL membership to B-MS's T2001 database, services in
preparation and support for Neuroscience Opinion Leader
training and services related to the Plan of Action
meetings for the Neuroscience/Infectious
Disease/Dermatology (NID) sales force, as well as,
detailed work plans for
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all activities related to the 240 programs and
execution of activities related to retaining staff to
implement the 240 Program roll-out. The payment
schedule, complete scope of Services and related
activities will be specified in Project Order 1, which
shall be submitted by the Company and if acceptable to
B-MS approved in writing by B-MS prior to the final
execution of this Agreement. The maximum payment for
Project Order 2 will be Four Million Dollars
($4,000,000).
3.1.3. It is anticipated that Project Order 3 will cover
Services provided by the Company in the preparation and
facilitation of the initial 240 Programs to begin July
1, 2000. The detailed services, pricing and payment
methodologies for Project Order 3 will be negotiated no
later than March 31, 2000 and this Agreement will be
amended to include services, pricing and payment
methodologies for Project Order 3.
3.2. In addition to the initial 3 Project Orders, B-MS may, from time-
to-time, engage the Company to provide additional services by
submitting to the Company a written request for services which
shall set forth, in sufficient detail, the specifications and
such other project information as B-MS shall deem appropriate
("Additional services"). All Additional services performed by the
Company for B-MS shall be governed by the terms of this
Agreement.
3.3. Promptly after receipt of such request for Additional services,
the Company will provide a written proposal containing a
description of services and associated pricing for performance of
the Additional services in accordance with said description and
in accordance with Schedule C. The pricing for, and description
of services, which shall include the specifications, scope and
deliverables of the respective project, shall be submitted with a
completed Project Order, in the format attached hereto as
Schedule D.
3.4. In the event B-MS elects to have the Company perform such
Additional services for a Project, B-MS shall accept such
proposal in writing, signified by a completed Project Order,
signed by a duly authorized representative of each of the
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parties, whereupon the Company shall perform the Additional
services in accordance with the specifications for that project.
3.5. Any changes in specifications, deliverables, scope, or other
aspects of a Project specified in any Project Order must be
submitted in writing in a revised Project Order, approved and
executed by the Company and B-MS prior to the commencement of any
work related thereto, in accordance with Schedule C. Any
additional work not directly related to such changes is not
billable to B-MS.
3.6. For the purposes of this Agreement, scope changes include, but
are not limited to, additions to, reductions in or changes in the
type of work required for the Services set forth on the original
Project Order. Additional work required as a result of such scope
changes shall include hours that the Company will incur as a
result of such scope changes, provided the additional work is
approved by B-MS, in writing. Company will promptly submit the
necessary Project Order schedule(s), attached as Schedules D.1,
D.2 and D.3, to B-MS when there is a change of scope. The Project
Order schedules will include costs applicable to each scope
change, and shall reflect the new, total cost of the Project.
3.6.1. Additional work not resulting from scope changes
includes, among other things, (i) work required in
order to complete deliverables as outlined in the
Agreement or Project Order schedules, except where such
work is required due to the delay or failure of B-MS to
perform as required hereunder or in a Project Order and
(ii) work required in B-MS's reasonable discretion as a
result of poor quality, ineffective, incorrect, or
unsatisfactory work on the part of the Company.
3.7. Schedule D.1-D.3 will be attached to each completed Project
Order, as necessary, and submitted for all Services performed by
the Company. Estimated costs and hours for each Project will be
submitted on a separate form (one form per Project). For all
other Projects, pricing will be submitted in the Company's own
format, unless B-MS chooses to supply a form for such Projects.
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3.8. The Company represents and warrants that (i) it has sufficient
experience and expertise to perform all Services and Projects to
be performed hereunder, (ii) its personnel will perform all such
Services and Projects in accordance with the provisions of this
Agreement including the Confidentiality provisions, and (iii) it
shall utilize only individuals with suitable professional
training to perform such Services and Projects. The Company
shall, at no cost to B-MS, re-perform any work in compliance with
this warranty. In addition, all Services performed pursuant to
this Agreement shall be rendered in accordance with all
applicable industry standards and practices generally applicable
to the Company's and B-MS' industry, including, without
limitation, all relevant regulations, laws, guidelines and
standards including those set forth by the American Medical
Association ("AMA"), the U.S. Food and Drug Administration
("FDA"), the Accreditation Council for Continuing Medical
Education (the "ACCME") and the performance standards specified
in Schedule A.
3.8.1. Company agrees to provide logistical support consistent
with AMA, FDA and ACCME guidance for any medical
education program being developed by an independent
third party institution under an educational grant from
B-MS. The third party institution retains and is
responsible for exercising full control over the
structure and the content of any activity funded
through the grant by B-MS, including the selection of
instructors and presenters for any programs or
presentations. Generation of participants or audience
attendance for the funded independent medical education
program will be the responsibility of the third party
institution, however, Company may provide limited
assistance at the specific direction or request of the
third party institution.
3.9. Except as otherwise agreed in a Project Order the Company shall
furnish all personnel, facilities, equipment, material, supplies,
know-how and otherwise do all things necessary for, or incident
to, the performance of Services related to each Project. In
addition, the Company shall not charge B-MS for any Services
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including any Additional services performed by the Company's
employees under this Agreement if said employees are (i)
currently performing services for B-MS under a separate
agreement, and (ii) Company is charging B-MS a full time rate for
said employees under that separate agreement.
3.10. B-MS may, in its reasonable discretion, either reject personnel
assigned by Company to a Project, or request the Company to
remove an employee from any Project assigned to the Company
hereunder. Such requests will be reviewed by the parties in
advance of any personnel changes and will be considered under
nondiscriminatory conditions. In the event of such rejection or
removal, Company shall promptly identify a new person for
assignment to the Project. To the extent reasonably possible, the
Company must gain approval from B-MS at least two (2) months
prior to adding or removing any employee from any Project
assigned to the Company hereunder.
4. Payment
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4.1. For Services
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4.1.1. B-MS will pay the Company, as full and complete
compensation for satisfactorily providing the Services
and assuming all duties, responsibilities, and
obligations under this Agreement, a management fee and
pass through expenses in accordance with the rates and
pricing as specified in each Project Order as
negotiated and subject to the maximum amount set forth
in the Section 3 Services of this Agreement or as
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amended. The Company shall not incur any expenses to be
billed to B-MS for any Services without the prior
written approval by an authorized representative of
B-MS.
4.1.2. For Services requested by B-MS of the Company, effected
through a Project Order and matching the service
description, B-MS will pay the Company, as full and
complete compensation for satisfactorily providing the
Services and assuming all duties, responsibilities, and
obligations
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under this Agreement, a Management Fee not to exceed
that specified in each Project Order as negotiated.
4.1.3. Upon written approval by B-MS of each Project and the
related expenses, B-MS shall pay the Company a
Management Fee in accordance with the following
schedule UNLESS a separate payment schedule is
described as part of a completed Project Order:
4.1.3.1. One-third of the estimated budget net fifty-
five (55) days following B-MS' receipt of the
Company's invoice, in accordance with Section
4.2 below;
4.1.3.2. One-third of the estimated budget net fifty
five (55) days following B-MS' receipt of the
Company's second invoice, in accordance with
Section 4.2 below; and,
4.1.3.3. The remaining balance of actual costs related
to the Management Fee incurred for the Project
net fifty-five (55) days following receipt of
the Company's final invoice for such costs.
4.2. Billing Procedure: Company shall bill B-MS for fees in
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accordance with the Invoicing Guidelines in Schedule F. If a
separate payment schedule is NOT described in a specific Project
Order, the billing shall occur as follows:
4.2.1. The Company shall bill B-MS, promptly upon commencement
of the Project, for an amount equal to one-third of the
Project Management Fee set forth in the Project Order
for the respective Project.
4.2.2. At the Midpoint of a Project or Program, the Company
shall bill B-MS for an amount equal to one-third of the
Project Management Fee set forth in the Project Order
for the respective Project.
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4.2.3. Within thirty (30) days of completion of the proposed
Services and acceptance of deliverables for each
Project, the Company shall (i) submit to B-MS
reconciliation reports for the Project or Program,
which shall contain the information set forth in, and
in a form similar to those set forth on Schedule E, and
(ii) bill B-MS the remaining balance of the actual
charges, including Management Fee and Pass Through
Expenses, incurred for each Project.
4.2.4. Invoices shall be payable net fifty-five (55) days
following the receipt thereof by B-MS, provided Company
submits the reconciliation reports required above.
4.3. Pass-Through Expenses: In addition to the agreed upon
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Management Fee for Services and excluding any Pass-Through
Expenses which may be directly billed to B-MS by a third party
on behalf of the Company, B-MS shall reimburse the Company for
reasonable Pass-Through Expenses incurred in connection with a
Project and specified in the estimate included within a proposal
for such Project. Any individual Pass-Through Expense which is
expected to, is budgeted to, or is likely to exceed $20,000 must
be submitted to three (3) vendors for bids on the related work,
or, when less than three (3) vendors are available, to the
maximum number of vendors reasonably possible.
4.3.1. With the exception of expenses that are directly billed
to B-MS, Company may bill B-MS an amount equal to no
more than 50% of the estimate for Pass-Through Expenses
upon commencement of the Project. Company will reconcile
these expenses and make appropriate adjustments on the
final project invoice presented to B-MS. Invoicing for
Pass-Through Expenses will be submitted in accordance
with Schedule F.
4.3.2. B-MS shall reimburse the Company for the following
Pass-Through Expenses:
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4.3.2.1. All approved, actual project expenses,
reasonable travel expenses (including
transportation at coach class and hotels and
meals of Company personnel in connection with
necessary and customary servicing of the B-MS
account), the production of materials (with
prior written approval of B-MS) and special
requests by B-MS. Travel to and from B-MS
facilities in the Plainsboro/Princeton area
will be at the Company expense, and time spent
by employees of the Company for such travel
will not be billed to B-MS. All travel outside
the Company's offices directly related to B-MS
Projects requested and approved by B-MS in
advance of the travel period will be paid as
an out-of-pocket expense. All travel
arrangements for Company employees will comply
with the B-MS Travel Policy for Medical
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Education Vendors.
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4.3.2.2. Facsimile, telexes, long-distance telephone,
telegrams and similar means of communications,
storing, customs, duties, sales and excise
taxes and the like specifically related to
Program Services.
4.3.3. The following are not reimbursable Pass-Through
Expenses: (i) Company employees' breakfast, snacks,
lunches and dinners during the course of normal work
days, excluding days in attendance at a Meeting or
Program; (ii) Company presentations for additional B-MS
products not previously incorporated into this Agreement
(unless with prior written approval of B-MS); (iii)
handling costs or commissions on honoraria charged by
the Company or third parties; and, (iv) Company hours
spent in Project Review or B-MS Relationship Review
meetings.
4.3.4. In no event shall the Company incur total Pass-Through
Expenses for any Project which exceed the estimates set
forth in the relevant Project Order by five percent
(5%), without prior written approval by B-MS. B-MS
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shall not be obligated to pay Company for any such
excess expenses incurred without such prior written
approval.
4.3.5. Company will not submit an invoice to B-MS for
Pass-Through Expenses that will be directly billed to
B-MS through preferred suppliers.
4.3.5.1. All documents and packages requiring shipping
service shall be shipped by UPS or Fed Ex in
accordance with the requirements specified in
Schedule G.1.
4.3.5.2. All printed materials, excluding reprographics
and work with a cost under $1,000, shall be
produced by a B-MS preferred printer in
accordance with the requirements specified in
Schedule G.2.
4.4. Subject to a specific Project Order, the Company may be
responsible for handling payment of speaker honoraria and for
all tax record preparation and reporting associated with Speaker
honoraria. In addition, honoraria shall be paid to Speakers
within ten (10) working days of the conclusion of the respective
Program or Meeting. For the purposes of this Agreement,
honoraria are considered to be Pass-Through Expenses.
4.5. The parties acknowledge that, from time to time, as Project,
Program or Meeting logistics may require, the Company may
request and B-MS shall make certain payments directly to a third
party payee. All such requests by the Company must be submitted
to B-MS in writing.
4.6. No commission. The Company shall bill B-MS its actual costs
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for any Pass-Through Expenses set out in Articles 4.4 and 4.5,
net of any commissions.
4.7. During the term of this Agreement, and for a period of two (2)
years thereafter, upon reasonable notice and at reasonable
times, B-MS shall have the right to audit
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and examine all contracts, third party bids, documents,
correspondence, time sheets, account records, and other material
(except for individual payroll and personnel records) which
relate to the B-MS account. Without limiting the generality of
the foregoing, some examples of documents that may be requested
include Fee Spending Summary by Project, Fee Spending Summary by
Employee, Fee Spending Detail by Project, Fee Reconciliation,
and receipts for expenses. This right may be exercised by any
employee, agent, representative, attorney or accountant duly
authorized by B-MS. The expense of such audit or examination
shall be borne by B-MS.
4.8. Notwithstanding anything contained herein to the contrary, B-MS
shall not be obligated to pay for, and the Company shall not
invoice B-MS for, any time spent traveling in connection with
this Agreement or management of employees of the Company with
regard to such issues as skills, level of proficiency, work
habits and other items necessary to ensure the high level of job
performance required in connection with the rendering of
Services to B-MS but not solely directed to the management or
conduct of a Project.
5. Company Performance Review/Reconciliation
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5.1. B-MS acknowledges and agrees that B-MS's performance of its
obligations under this Agreement and cooperation with the
Company are essential to the Company's ability to provide
Services in the manner and within the time periods specified in
the Project Orders, and each party agrees to cooperate in good
faith and maintain an appropriately high level of effort to meet
the timetables outlined in the Project Orders and ensure
effective communication and coordination in all matters
requiring the joint efforts of B-MS and the Company. To this
end, during the term of this Agreement B-MS and Company will
hold monthly meetings on the third Tuesday of each month, or
such other day as B-MS and Company may agree, attended by
designated senior managers of both B-MS an Company. The purpose
of such meetings will be to mutually assess the respective
parties' level of activity and performance quality as measured
by a predetermined reporting mechanism
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(Progress/QA/QC/Report Card) hereunder and to coordinate each
party's role in achieving the goals of this Agreement.
5.2. From time to time during the term of this Agreement, but in no
event less than once per year, B-MS may request, and the Company
agrees to participate in, a performance evaluation with respect
to the Company's performance of the Services, the working
relationship between the Company and B-MS, and the
implementation of this Agreement.
5.3. Within thirty (30) days after the end of each Program or
Project, the Company will provide B-MS with a Project
Reconciliation, and promptly thereafter, but no sooner than five
(5) days after B-MS' receipt of the Project Reconciliation, the
parties shall meet for a Project Review.
5.4. On an annual basis the Company will provide B-MS with the B-MS
Relationship Reconciliation and promptly thereafter, but no
sooner than five (5) days after B-MS' receipt of the B-MS
Relationship Reconciliation, the parties shall meet for a B-MS
Relationship Review.
6. Confidential Information
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6.1. Company acknowledges and agrees that, while providing Services
hereunder it may have access to, or become acquainted with,
certain information that B-MS considers confidential and
proprietary. For the purposes of this Agreement, "Confidential
Information" shall include, without limitation, all information
relating to B-MS' products, B-MS' past, present and future sales
and marketing information, commercial and financial trade
secrets, intellectual property, written documents, depictions,
oral statements, art work, answer prints, and other similar
information, which is revealed to Company as a result of
entering into or performing its obligations under this
Agreement. Confidential Information shall not include any
information that:
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6.1.1. was known to Company prior to the date of this Agreement,
as evidenced by its written records;
6.1.2. was lawfully obtained by Company from a third party
without any obligation of confidentiality;
6.1.3. is or becomes part of the public domain except by
breach of this Agreement;
6.1.4. is possessed or developed by Company independently and
apart from this Agreement; or
6.1.5. is required to be disclosed pursuant to any statutory,
regulatory or judicial requirement or other legal
compulsion. In the event Company is compelled to disclose
Confidential Information as contemplated herein, Company
will provide advance written notice to B-MS prior to
making such disclosure, shall inform the receiving party
of the confidentiality requirements of this Agreement
prior to disclosing any such Confidential Information,
and limit any such disclosure to the scope required by
the statutory, regulatory, judicial or other legal
compulsion.
6.2. For a period of five (5) years from the expiration or
termination of this Agreement, Company shall keep all
Confidential Information in confidence and use the Confidential
Information only in connection with the performance of its
obligations hereunder and for no other purpose, and shall not
disclose or otherwise make available, directly or indirectly,
any item of Confidential Information to anyone other than
Company employees and agents of Company who need to know the
same in the performance of the Services. Company will require
all its employees and/or agents having access to B-MS
Confidential Information to treat such Confidential Information
in the same manner as they treat Company Confidential
Information and shall take all such necessary precautions to
prevent unauthorized disclosure of such Confidential Information
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by its employees, directors, officers or agents. Company shall
not duplicate any material containing Confidential Information,
except in the direct performance of the Services under this
Agreement. Upon request of B-MS, Company shall either return or
destroy, at B-MS' sole discretion, all Confidential Information
in its or its agents' possession within thirty (30) days
following the expiration or termination of this Agreement.
6.3. The Company acknowledges that the unauthorized use or disclosure
of Confidential Information by Company's employees or agents may
give rise to irreparable injury and that such injury may not be
adequately compensated by damages, and that, accordingly, B-MS
may seek and obtain injunctive relief against the Company or any
individual furnished Confidential Information by B-MS hereunder
to prevent the breach or threatened breach of any promise made
in this Agreement, in addition to any other legal remedies which
may be available to B-MS. The rights of B-MS stated in this
paragraph shall remain in full force and effect after
termination of this Agreement.
6.4. To the extent B-MS is provided access to or becomes acquainted
with Confidential Information of Company in connection with this
Agreement, the foregoing provisions of this Article shall apply
in a reciprocal manner to the Confidential Information of
Company and the related obligations of B-MS. However, B-MS's
obligation herein to the Company is limited to Confidential
Information specifically identified by the Company as
confidential, and the Company must reduce to writing and provide
to B-MS marked as confidential a description of any Confidential
Information disclosed to B-MS up through the date of execution
of the Agreement within thirty (30) days of said execution.
Moreover, all subsequent disclosures of Confidential Information
by the Company to B-MS must be marked confidential or where oral
or visual reduced to writing and provided to B-MS within thirty
(30) days of such disclosure.
6.5. Any public announcements or similar publicity with respect to
the existence and/or terms of this Agreement or any announcement
or disclosure relating to the
18
<PAGE>
Services provided hereunder shall be made only upon prior
written approval by Authorized representatives of the parties.
Nothing herein shall prevent either party from making such
disclosures as may be required pursuant to any statutory,
regulatory or judicial requirement or other legal compulsion
provided, however, the disclosing party will provide advance
written notice to the other party prior to making such
disclosure and limit any such disclosure to the scope required
by statutory, regulatory or legal compulsion. B-MS acknowledges
and agrees that the Company: (a) will be required to file this
Agreement as a "material contract" with the U.S. Securities and
Exchange Commission ("SEC"), and that the Company will request
confidential treatment with respect to the Schedules to the
Agreement and any other parts of the Agreement reasonably
requested by B-MS; and (b) may include in its filings, reports
and discussions with the SEC, its stockholders and other persons
information regarding the Agreement upon written prior approval
of B-MS. B-MS agrees to consider in good faith any request by
the Company for consent to include in such filings and reports
other information regarding the Agreement reasonably requested
by the Company.
7. Indemnification
---------------
7.1. Indemnification by the Company. The Company shall defend,
------------------------------
indemnify and hold harmless B-MS, its directors, officers,
employees and agents, and any person or entity which controls
any of them, from and against any and all claims, suits,
actions, damages, liabilities, assessments, interest charges,
penalties, costs or expenses (whether or not arising out of
third-party claims and including all amounts owed by the parties
in accordance with the terms of this Agreement), including
reasonable attorney's fees (collectively, "Liabilities"),
arising out of (i) the breach by the Company of any of its
covenants or obligations under this Agreement and (ii) the
Company's negligence or willful acts or omissions, (iii) libel,
slander, or defamation, (iv) infringement of copyright or other
intellectual property right of any kind whatsoever, (v) piracy,
plagiarism, unfair competition or item misappropriation under
any implied contract, and (vi) invasion of rights of privacy
committed or alleged to have been committed in any work prepared
by,
19
<PAGE>
for, or on behalf of B-MS hereunder. Indemnification under this
provision shall survive termination of this Agreement.
7.2. Indemnification by B-MS. B-MS shall defend, indemnify and hold
------------------------
harmless the Company, its directors, officers, employees and
agents, and any person or entity which controls any of them,
from and against any and all liabilities arising out of (i) the
breach by B-MS of any of its covenants or obligations under this
Agreement; (ii) B-MS' negligence or willful acts or omissions;
(iii) the manufacture, distribution, use, or sale of any
products by B-MS or any product liability claim relating to
products presented at a Meeting; (iv) material created by B-MS
and provided to Company for the performance of services
hereunder; (v) infringement of copyright or other intellectual
property right arising from design requirements or product
specifications provided in written instructions or materials
from B-MS; and (vi) B-MS' failure to pay Pass-Through Expenses
in accordance with Schedule G and Article 4. Indemnification
under this provision shall survive termination of this
Agreement.
7.3. Indemnification Procedures. A person or entity (the
--------------------------
"Indemnitee") which intends to claim indemnification under this
Article shall promptly notify the other party (the "Indemnitor")
in writing, by Certified Mail, return receipt requested, of any
action, claim or liability in respect of which the Indemnitee
intends to claim such indemnification. Indemnitor shall
diligently defend any such third-party action, claim or
liability. Subject to Indemnitor's agreement to hold the
Indemnitee harmless therefore and Indemnitor's compliance with
indemnification obligations, the Indemnitee shall: (i) at the
Indemnitor's expense, cooperate fully with the Indemnitor and
its legal representatives in the investigation and defense of
any action, claim or liability covered by this Agreement; and
(ii) permit the Indemnitor to settle any such action, claim or
liability and agrees to the control of such settlement by the
Indemnitor (provided that such settlement does not adversely
affect the Indemnitee's rights hereunder or impose any
obligations on the Indemnitee in addition to those set forth
herein). No action, claim or liability which does adversely
affect the Indemnitee's rights hereunder or impose any
20
<PAGE>
obligations on the Indemnitee in addition to those set forth
herein shall be settled without the prior written consent of the
Indemnitee and the Indemnitor. The Indemnitee shall have the
right, but not the obligation, to be represented by counsel of
its own selection and at its own expense; provided, however,
------------------
that if the named parties to the action or proceeding include
both the Indemnitor and the Indemnitee and representation of
both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of
separate counsel for the Indemnitee shall be paid by the
Indemnitor.
8. Additional Products and Projects
--------------------------------
8.1. Additional costs and fees, if any, incurred in connection with
brands or products not assigned to the Company by B-MS pursuant
to this Agreement, but included in a subsequent Project Order,
shall be agreed upon by the parties in writing prior to the
commencement of any Services related thereto, and shall be
included in this Agreement as such.
8.2. B-MS is under no obligation to employ the Company in connection
with any projects other than the Projects incorporated herein by
way of an executed Schedule D.
8.3. During the term of this Agreement and for a period of one (1)
year after any expiration or termination hereof, Company shall
not provide the same Services to any pharmaceutical, health care
or biotechnology company, including its affiliates, subsidiaries
and related companies. Prior to commencing work on any Program,
Project or Meeting, Company shall inform B-MS of any current
work it is performing which may be in violation of the foregoing
terms and discontinue such work immediately.
21
<PAGE>
9. Change of Ownership
-------------------
9.1. The Company must inform B-MS of any significant change in (i)
Company ownership and (ii) Company's upper level management
within five (5) days of such change in ownership by Certified
Mail, return receipt requested.
10. Ownership/Trademarks/Copyrights/Inventions
------------------------------------------
10.1. Intellectual Property/Ownership. Subject to the rights of
-------------------------------
third parties in interest, which rights are disclosed in advance
in writing to B-MS, and further subject to all applicable laws,
regulations and guidances, all trademarks and trade names,
logos, slogans, creative ideas, reports, speeches, computer
programs and databases, advertisements, layouts, scripts,
artwork, photographs, designs, slides, copyrights, inventions,
trademarks or other works designed, compiled, developed or
created by Company its agents, third party vendors or
subcontractors for B-MS in connection with this Agreement or
resulting in whole or in part from Services provided under this
Agreement ("Intellectual Property"), shall be the sole and
exclusive property of B-MS. B-MS shall have the full and free
right to use any and all Intellectual Property wherever and
whenever it chooses, in any way it deems necessary or advisable,
without any additional payment of any compensation to Company.
This Agreement shall be deemed a transfer of copyright of any
copyrightable subject matter created by Company. Company shall
execute any and all documents necessary to demonstrate or
perfect such transfer. Company shall not at any time, in any
manner, during or after this Agreement, under any circumstances,
be entitled to or claim any right, title or interest herein or
any commission, fee or other direct or indirect benefit from
B-MS or B-MS' parent, subsidiary or affiliate companies, in
respect of such Intellectual Property created by the Company
hereunder.
22
<PAGE>
10.2. The Company shall immediately (within 5 days) disclose to B-MS,
in writing, any methodologies, modifications, enhancements,
programs, tools, technologies, software (including source code,
object code and documentation related thereto) other materials
or inventions (each an "Invention") developed by the Company,
any agents, third party vendors or subcontractors retained by
the Company in the performance of any activities or services
related to any Project Order hereunder. Title and license rights
to all such Inventions shall be the exclusive property of B-MS.
The Company shall assign, and shall take appropriate steps to
ensure that all Company personnel and third party vendors are
obligated to assign to B-MS all right, title and interest each
may have in any such invention and will cooperate with the
foregoing.
10.3. The Company represents and warrants that it shall execute, or
cause its agents, third party vendors and/or subcontractors to
execute any documents necessary or desirable to secure or
perfect B-MS' legal rights and worldwide ownership in such
Intellectual Property and Inventions, including, but not limited
to documents relating to patent, trademark and copyright
applications. B-MS may, in its sole determination, apply for
registration of any patent(s), trademark(s), and copyright(s)
worldwide. B-MS shall pay for any out-of-pocket expenses
incurred in connection with such cooperation.
10.4. Any and all artwork, logos, graphics, video, text, data,
images, audio, slides, trademarks, tradenames, copyrights,
patents, intellectual property, proprietary property, and/or
other materials supplied by or through B-MS to Company in
connection with this Agreement, as well as the HTML formatting
code of and domain name or names assigned to the web site, if
any, shall remain the sole and exclusive property of B-MS (the
"B-MS Content"). No rights shall be transferred from B-MS to
Company with respect to any of the B-MS Content or any other
copyrights, trademarks, trade secrets, patents or other
intellectual property or proprietary rights provided hereunder,
except to the extent necessary to perform the activities or
services under any completed Project Order.
23
<PAGE>
10.5. Intellectual Property/Company Duties. The Company shall not
------------------------------------
adopt, suggest, or recommend the use of any Intellectual
Property of which the Company has actual knowledge or reason to
know is identical, nearly identical to, or confusingly similar
to that owned by or being used by a third party.
10.6. The Company agrees that any and all telephone lines, telephone
numbers, or telephone access acquired by the Company for B-MS,
under the terms of this Agreement, shall be the sole property of
B-MS.
11. Releases
--------
11.1. Subject to all applicable laws, regulations and guidances, B-MS
shall be responsible for obtaining all properly executed
releases in connection with scientific or medical papers or
scientific consultation required in connection with the services
rendered by the Company, unless such papers and consultation are
secured directly by the Company.
11.2. Any materials furnished by Company pursuant to this Agreement,
which have not been created for B-MS and are subject to the
rights of third parties shall be specifically identified to B-MS
in writing in advance of their proposed use. The Company shall
obtain (and deliver upon request to B-MS) releases for all
names, photographs, illustrations, testimonials, and any and all
other materials used in works which the Company prepares or
uses. All such releases shall run to B-MS, its agents and
employees where appropriate and customary. Except for works that
have been secured by permission, the Company warrants and
covenants that all works provided by the Company shall be
original and shall not infringe any copyright or violate any
rights of any persons or entities whatsoever, except that the
Company shall not be responsible for any claim arising solely
from the Company's adherence to B-MS' written instructions or
directions which do not involve items of the Company's origin,
design or selection. The rights and obligations of the parties
under this paragraph shall at all times be subject to all
applicable laws, regulations and guidances.
24
<PAGE>
11.3. The Company shall secure from Speakers, a signed release which
shall run to B-MS, and which Company will provide to B-MS upon
request.
12. Insurance
---------
12.1. Insurance. The Company will at all times during the term of
---------
this Agreement maintain appropriate insurance coverage with
responsible carriers. The Company shall provide B-MS proof of
such coverage within ten (10) days of the execution of this
Agreement.
12.2. Required Coverage. The Company shall maintain general liability
-----------------
insurance coverage that includes property damage and personal
injury components. Such insurance coverage, at a minimum, shall
include the following types and amounts:
12.2.1. Workers compensation and employers liability meeting
the statutory minimum in the states in which Services
are to be performed by Company employees;
12.2.2. Commercial general liability insurance including
premises and operations coverage with limits of not
less than $1,000,000 per occurrence and $2,000,000 per
accident; and,
12.2.3. Property damage liability insurance with limits of
not less than $500,000 per occurrence and $500,000 per
accident.
12.3. In the event a policy required by this Agreement is canceled
or reduced to a level below the minimum liability limits
prescribed hereinabove, the Company shall give B-MS fifteen (15)
days prior written notice of such termination or reduction. In
that event, B-MS shall have the right to terminate this
Agreement if the Company is unable to secure the necessary
coverage within fifteen (15) days of such notice.
25
<PAGE>
13. Force Majeure
-------------
13.1. If either party shall be delayed, interrupted or prevented from
the performance of any obligation hereunder by reason of an Act
of God, fire, flood, war (declared or undeclared), public
disaster, strike or labor dispute, governmental enactment, rule
or regulation, or any other cause beyond such party's control,
such party shall not be liable to the other and the time for
performance of such obligation shall be extended for a period
equal to the duration of the contingency which occasioned the
delay, interruption or prevention. In relation to any specific
Project relating to the Product, if such interruption lasts more
than twenty (20) consecutive days, either party may terminate
such Project in accordance with the provisions of Article 14.
14. Termination
-----------
14.1. With or Without Cause
---------------------
14.1.1. B-MS shall have the right to terminate this Agreement
in its entirety, at any time, without cause, upon
ninety (90) days' prior written notice, sent Certified
Mail, return receipt requested, to the Company. In
such event, the Company shall be paid the reasonable
and necessary Ramp Down Costs during a wind-down
period as mutually agreed by the parties.
14.1.2. Either party shall have the right to terminate this
Agreement in its entirety, effective immediately, at
any time, if the other party fails to perform any
material obligation or to cure a material breach,
subject to the breaching party receiving written
notice of the breach and provided further that such
breach is not cured, or (in the event the breach is
such that it cannot be cured within thirty (30) days)
the breaching party has not commenced to cure the
breach within thirty (30) days after written notice,
sent Certified Mail, return receipt requested. In such
event, the Company
26
<PAGE>
shall be paid the reasonable and necessary Ramp Down
Costs during a wind-down period as mutually agreed by
the parties.
14.1.3. In the event B-MS determines that there are regulatory
or legal issues related to any Product such that
termination of the Agreement or a Project is
advisable, B-MS may cancel the Company's Services
relating to the Product upon written notice to the
Company. In such event, the Company shall be paid the
reasonable and necessary Ramp Down Costs during a
wind-down period as mutually agreed by the parties.
The Company shall not commence any new work upon
receipt of notice.
14.1.4. Either party shall notify the other in writing or by
telefax (confirmed by certified mail) of its intention
to terminate. All notices required by this Agreement
shall be made, or confirmed, by certified mail, return
receipt requested.
14.2. Duties of the Parties After Termination
---------------------------------------
14.2.1. Upon receipt of notice of termination for any reason,
the Company shall cease work on all Projects and shall
submit to B-MS a written report of the status of all
Services within 10 days of receipt of notice to
terminate. B-MS shall specify which Projects are to be
completed.
14.2.2. Upon receipt of notice of termination, the Company
shall not commence work on any new Projects, but it
shall, only upon B-MS' written direction, complete all
work previously approved by B-MS. If either the Company
or B-MS desires to terminate all or any portion of work
in progress on Projects commenced before receipt of
notice of termination, it may do so only upon the
parties' mutual determination of the compensation to be
received by the Company for partially completed work.
27
<PAGE>
14.2.3. If any Project is terminated B-MS will pay the Company
the portion of the Management Fee equal in amount to
the proportion of work completed for that Project
through the effective date of such termination compared
to full completion of all work for said Project.
14.2.4. Upon termination of this Agreement and upon consent
of third party contractors, the Company shall assign to
B-MS all of its rights in contracts, agreements,
arrangements, or other transactions made with third
parties for B-MS' account, effective on the date of
termination or on such other date as may be agreed upon
by the parties. B-MS shall assume all obligations and
indemnify and hold the Company harmless from all
liability thereunder. If any contract is non-assignable
and consent to assignment is refused, or the Company
cannot obtain a release from its obligations, the
Company shall continue performance, and B-MS shall meet
its obligations, as to the unassigned or unreleased
contracts only, as though this Agreement had not been
terminated.
14.2.5. After the later of expiration of the period of notice
or upon completion of all Projects, all rights, duties
and responsibilities of both parties arising from this
Agreement shall cease, with the following exceptions:
14.2.5.1. B-MS shall assume Company liability under,
indemnify and hold Company harmless with
respect to all outstanding contracts made by
Company on behalf of B-MS pursuant to this
Agreement, through the effective date of any
such termination.
14.2.5.2. All Intellectual Property, Inventions,
B-MS Content and any electronic databases,
property and/or materials either (a) in the
possession or control of the Company, (b)
previously paid for by B-MS, or (c) owned by
B-MS, shall be transferred to B-MS in the
form and in the method
28
<PAGE>
reasonably requested by B-MS, within 30 days
of expiration or termination.
14.2.5.3. All proposed marketing and publication
plans and ideas prepared by and submitted by
the Company and not paid for by B-MS shall
remain in the possession of the Company
unless and until B-MS pays the actual cost
to the Company of such proposed marketing
and publication plans and ideas.
14.2.5.4. The Company agrees to give all reasonable
cooperation toward transferring with
approval of third parties in interest all
reservations, contracts and arrangements
with third parties for materials yet to be
used and all rights and claims thereto and
therein, upon being duly released from the
obligation thereof.
14.2.5.5. The obligation of the parties relating to
Confidential Information shall continue for
a period of five (5) years after any
expiration or termination of this Agreement.
14.2.6. For a two (2) year period after termination, the
Company shall maintain complete records relating to
Services by individual and by project. Such records
shall be made available for audit or review by B-MS, at
B-MS' expense.
15. Suspension
----------
15.1. B-MS shall have the right to suspend all or part of the Services
by giving the Company ten (10) days prior written notice for
legal or regulatory issues or thirty (30) days prior written
notice for other issues, provided that B-MS pays the Company
for all unavoidable Pass-Through Expenses and Ramp Down Costs
and
29
<PAGE>
any uncancellable contracts entered into by the Company,
pursuant to this Agreement, on behalf of B-MS prior to such
notice of suspension and actually incurred by the Company during
such suspension period. The Company shall use its best efforts
to mitigate B-MS' liability for and shall set forth all such
unavoidable Pass-Through Expenses and other costs in an
estimated cost budget prepared by the Company and consented to
in writing by B-MS. The Company and B-MS shall immediately
confer concerning all matters related to said suspension. The
Company shall use its best efforts to reassign Project team
members and it shall obtain B-MS' written approval prior to
reassigning any such members. All costs for any Company
personnel whom the Company is not able to reassign shall be
borne by B-MS during the term of suspension. Except as otherwise
set forth in this paragraph, B-MS shall pay Company that portion
of the Management Fee for suspended Services applicable to the
work completed thereto. In the event B-MS has paid Company
Management Fees and, as of the effective date of any such
suspension, the Company has not performed Services to warrant
such fees, Company shall promptly reimburse B-MS for such
portion of the Management Fees attributable to such incomplete
work.
16. Assignability
-------------
16.1. This Agreement is a personal service contract and is not
assignable by the Company. This Agreement is assignable by B-MS
in whole or in part with the Company's written consent, which
shall not be unreasonably withheld.
17. Governing Law
-------------
17.1. This Agreement shall be construed in accordance with the laws
of the State of New Jersey.
30
<PAGE>
18. Severability
------------
18.1. If any provision of this Agreement is declared legally invalid,
such provision is to that extent omitted but the remainder of
this Agreement shall continue to be binding upon both parties.
19. No Waiver
---------
19.1. No covenant or condition of this Agreement shall be waived
except by written consent of B-MS and the Company.
19.2. Forbearance or indulgence by either party in any regard
whatsoever shall not constitute a waiver of any covenant or
condition to be performed by the other party. Until complete
performance of such covenant or condition, either party shall be
entitled to invoke any remedy available to it, under this
Agreement or in equity despite its forbearance or indulgence.
20. Equal Opportunity Compliance
----------------------------
20.1. Equal Opportunity: When applicable, the Company agrees to
------------------
comply with the provision of Executive Order 11246 of September
24, 1965, and all rules, regulations and relevant orders of the
Secretary of Labor, the provision of the Rehabilitation Act of
1973, as amended, 29 U.S.C. 701 et seq., and the provision of the
-- ----
Vietnam Era Veterans Readjustment Assistance Act of 1974, as
amended, 38 U.S.C. 2012.
21. Year 2000 Compliance
--------------------
21.1. Definition of "Year 2000 Compliant." For purposes of this
----------------------------------
Agreement, the phrase "Year 2000 Compliant" shall describe
hardware, software, and/or firmware on chips, including
manufacturing process control systems, such as PLC's and bar
coding devices (collectively, "Computer Systems") which
consistently
31
<PAGE>
and reliably have and demonstrate all of the following capabilities and
operating functionality:
21.1.1. To handle information in date fields so as to distinguish dates
in the century beginning in 2000 from the same dates in the
century beginning in 1900, and also to recognize that the year
2000 is a leap year containing the date February 29;
21.1.2. To manipulate dates from more than one century without invalid
or incorrect results or abnormal program ending, whether the
time such manipulation occurs is prior to the year 2000 or
after the year 1999;
21.1.3. To accommodate and inter-operate adequately with the format or
formats of critical date data which the Computer Systems
customarily receive as input, and which the Computer Systems
customarily make available to other systems as output.
21.1.4. Regardless of the content or accuracy of the foregoing
disclosures, the Company further represents and warrants to B-
MS that there shall be no material and adverse effect upon the
Company's timely provision of quality goods and services to B-
MS which is attributable to the failure of the Company to
achieve Year 2000 Compliance for all of the Company's Systems;
21.1.5. In the event any of the goods and/or services provided by the
Company to B-MS consists of a license, sale or other transfer
of the right to use any items of hardware, software and/or
firmware in chips ("Computer System Supplied Item"), all such
Computer System Supplied Items are now, and will remain Year
2000 Compliant continuously, from the date hereof until June
30, 2000, in such a manner that the Computer System Supplied
Items will operate between January 1, 2000 and April 1, 2000
with substantially
32
<PAGE>
the same functionality and performance as such items
operated prior to January 1, 2000.
21.2. Extension of Warranty Periods. Notwithstanding any earlier
------------------------------
expiration of warranty period provided hereunder or in any other
applicable agreement between the parties, the warranty period and
the period within which B-MS may submit warranty claims with
respect to breach of the Year 2000 Warranties hereby provided
shall begin on the date hereof and extend until July 1, 2000.
22. Headings
--------
Article headings used in this Agreement are for convenience only and
shall not affect the construction of this Agreement.
23. Entire Agreement
----------------
23.1. This Agreement, any Schedules attached hereto, and any subsequent
Project Orders attached hereto, represent the entire agreement
between the parties with respect to the subject matter thereof,
and shall not be altered by any oral agreement or representation.
The terms of this Agreement supersede any existing agreement B-MS
has with the Company related to the Services, any Projects,
Programs or Meetings, and any prior or contemporaneous
communications between the parties with respect to the subject
matter of this Agreement. Any modification to this Agreement, the
Schedules, and any future Project Order, must be in writing and
executed by a duly authorized representative of each party.
24. Notices
-------
24.1. All notices required or permitted to be given under this
Agreement shall be in writing and given pursuant to the
provisions of Article 14.1.4 at the following address:
Bristol-Myers Squibb Company
777 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Andrew Abbott
Mediconsult.com Limited
Jardine House, 4th Floor
33
<PAGE>
33-35 Reid Street
Hamilton, Bermuda HM LX
Attention: President
With a copy to:
Mediconsult.com, Limited
1330 Avenue of the Americas
17th Floor
New York, New York 10019
Attention: General Counsel
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement and
caused it to be executed by their duly authorized representatives.
Mediconsult.com,Limited Bristol-Myers Squibb Company
By: /s/ Robert A. Jennings By: /s/ Peter R. Dolan
--------------------------- ---------------------------
Name: Robert A. Jennings Name: Peter R. Dolan
--------------------------- ---------------------------
Title: Chairman & CEO Title: President - BMS
--------------------------- ---------------------------
Date: 2-8-00 Date: 2-15-00
--------------------------- ---------------------------
By: By: /s/ Brian A. Markison
--------------------------- ---------------------------
Name: Name: Brian A. Markison
--------------------------- ---------------------------
Title: Title: President - NID
--------------------------- ---------------------------
Date: Date: 2-15-00
--------------------------- ---------------------------
35
<PAGE>
Exhibit 10.20
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of September 7, 1999, by and between Pharma
Marketing, LLC, a Delaware limited liability company (the "Company"), and
Timothy J. McIntyre (the "Employee").
W I T N E S S E T H:
--------------------
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, the parties hereto hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Employee in an Employee
----------
capacity, and the Employee hereby accepts and agrees to such employment,
commencing as of the date hereof, upon the terms and conditions hereinafter set
forth.
2. Term. The term of the Employee's employment under this Agreement shall
----
commence as of the date hereof and shall continue until the close of business on
December 31, 2003 and shall automatically be renewed for twelve (12)-month
periods thereafter unless either party gives the other written notice of
termination at least 270 days prior to the expiration of the initial or any
renewal term, unless sooner terminated as provided elsewhere in this Agreement
(the "Term").
3. Duties and Services. (a) The Employee agrees to serve the Company as
-------------------
President of the Company and shall also serve such of its subsidiaries and
affiliated companies as may be designated by the Company, faithfully, diligently
and to the best of his ability, subject to and under the direction and control
of the Managing Member of the Company appointed to supervise the Employee (the
"Managing Member"), devoting his entire business time, energy and skill to such
employment, and to perform from time to time such Employee services, advisory or
otherwise, as the President, as shall be requested, and to act in such
capacities or other offices for the Company and for any of its subsidiaries or
affiliated companies as the Managing Member shall request without further
compensation other than that for which provision is made in this Agreement. The
Employee acknowledges that his duties shall encompass being principally
responsible for the services to be performed by the Company pursuant to the
Service Agreement, dated September 7, 1999, between Mediconsult.com, Ltd. And
the Company (as amended from time to time, the "Service Agreement"). The
Employee further acknowledges that while there are no strict guidelines
pertaining to work hours, he shall be expected to work a longer than average
week, and spend the necessary time and effort to consistently deliver high
quality results in a time sensitive manner. The Employee acknowledges that his
position with the Company will require significant business trips, much of which
will involve travel during off-peak and non-business hours.
<PAGE>
(b) The principal place of employment of the Employee shall be in New York, New
York, or such other offices of the Company as shall be determined by the
Managing Member.
4. Compensation. (a) Salary. The Company agrees to pay to the Employee, and
------------ ------
the Employee agrees to accept, a basic salary for all his services (the
"Salary") at the rate of $250,000 per annum, through December 31, 2000, and
$300,000 per annum from January 1, 2001 through the end of the Term, in each
case payable in accordance with the Company's standard payroll policies from
time to time, and pro rated for partial years.
(b) Bonus. In addition to the Salary, the Company shall pay the
-----
Employee, within five business days' of the Company's receipt of the commissions
(the "Commissions") received by the Company under the Service Agreement with
respect to Service Provider Contracts and Renewal Contracts (as defined in the
Service Agreement), 100% of the Commissions, less such amount (if any) of the
Commissions that shall be payable to other employees of the Company pursuant to
employment agreements entered into (with the Employee's consent) between the
Company and such other employees (the percentage of the Commissions payable to
the Employee pursuant to this Section 4(b) being referred to herein as the
"Bonus Percentage"). Such payments shall continue beyond expiration of the Term
to the extent payments of Commissions are made to the Company under the Service
Agreement after expiration of the term of such agreement. In no event shall the
bonus payable under this Section 4(b) be less than $200,000 for any 12-month
period during the first two years of the Term, which minimum will be payable in
equal monthly installments; provided that to the extent the bonus payable
pursuant to the first sentence of this Section 4(b) for any 12-month period
during the first two years of the Term does not exceed $200,000, but the
Employee has received in excess of $200,000 pursuant to the operation of this
Section 4(b) for such period, the Company shall be entitled to offset any future
payment under this Agreement by the amount of such excess or to require the
Employee to reimburse the Company for such excess.
(c) Expense Allowance. The Company shall provide the Employee with a non-
-----------------
accountable expense allowance of $100,000 for each of the first two years during
the Term, payable in accordance with the Company's standard non-accountable
expense policies from time to time. The Company also shall provide the expense
reimbursements to Employee described in Exhibit A to this Agreement, which
---------
reimbursements shall be made in accordance with the procedures described in
Section 5.
(d) Insurance. For so long as he is insurable at normal rates for a
---------
person of similar age in good health, the Company shall provide the Employee
with life insurance that provides a death benefit of $2,500,000 payable to such
person(s) as the Employee may direct. The Employee agrees to assist the Company,
at the Company's expense, in obtaining any such insurance by, among other
things, submitting to customary examinations and correctly preparing, signing
and delivering such applications and other documents as reasonably may be
required.
5. Employee Benefits. (a) Business. In addition to the expense allowance and
----------------- --------
reimbursements under Section 4(c), the Company shall reimburse the Employee for
the
<PAGE>
reasonable business expenses incurred by him for, or on behalf of, the
Company in furtherance of the performance of his duties hereunder. Such
reimbursement shall be subject to receipt by the Company from the Employee of
such expense statements and such vouchers and other reasonable verifications as
the Company shall require to satisfactorily evidence such expenses, and shall
also be subject to such policies as the Company shall establish from time to
time.
(b) Benefit Programs. The Employee shall be entitled to participate, in
----------------
accordance with the terms thereof, in employee benefit plans and programs
maintained for the Employees of the Company, including, without limitation, any
health, hospitalization and medical insurance programs and in any pension or
retirement or other similar plans or programs. The foregoing shall not be
construed to require the Company to establish any such plans or programs, or to
prevent the Company from modifying or terminating any such plans or programs
once established.
(c) Vacation. The Employee shall be entitled to four weeks of vacation each
--------
employment year during the Term, taken consecutively or in segments, subject to
the effective discharge of the duties of the Employee hereunder. Vacation not
taken during any such year cannot be rolled over to the following or any
subsequent year.
(d) Indemnity. The Company shall indemnify the Employee, to the fullest extent
---------
permitted by applicable law, from and against any and all liabilities,
judgments, claims, settlements, losses, damages, fees, liens, taxes, penalties,
obligations and expenses (including reasonable attorneys' fees) paid or incurred
by the Employee in connection with the performance of his duties under this
Agreement, including as such duties may involve the Employee in a representative
capacity for Mediconsult.com, Inc. or its affiliates; provided that such
indemnity shall not extend to any such losses incurred by the Employee as a
result of his gross negligence or willful misconduct.
6. Termination of Benefits. (a) Termination. Notwithstanding anything to the
----------------------- -----------
contrary contained herein, the Employee's employment with the Company shall
terminate upon the earliest to occur of the following events:
(i) the death or disability (as defined below) of the Employee,
(ii) the expiration of the scheduled Term of this Agreement,
(iii) upon delivery of written notice, with "cause" (as defined below), to the
Employee from the Company of such termination, or
(iv) upon delivery of written notice, upon the occurrence of a "Nonperformance
Event" (as defined below), to the Employee from the Company of such termination.
(b) Certain Definitions. For the purpose of this Section 6, (i) the term
-------------------
"cause" is defined as (A) the commission by the Employee of a felony or an
offense involving moral turpitude, the Employee's engaging in theft,
embezzlement, fraud, obtaining funds or property under false pretenses, or
similar acts of misconduct with respect to the property of the Company or its
employees, stockholders, affiliates, customers, licensees,
<PAGE>
licensers or suppliers, (B) the repeated failure by the Employee to perform his
duties hereunder or comply with reasonable policies or directives of the
Managing Member, (C) misfeasance or malfeasance, or (D) the breach of this
Agreement by the Employee in any material respect, which breach is not cured
within thirty (30) days after Employee's receipt of written notice of the
breach; (ii) the Employee shall be deemed "disabled" if, at the Company's
option, it gives notice to the Employee or his representative that due to a
disabling mental or physical condition, he has been prevented, for a continuous
period of 90 days during the Term or for an aggregate of 120 days during any six
month period during the Term, from substantially performing those duties which
he was required to perform pursuant to the provisions of this Agreement prior to
incurring such disability; and (iii) "Nonperformance Event" means a termination
of the Service Agreement pursuant to Section 5.1(b) thereof.
(c) Effect of Termination. Except in the case of a termination of this
---------------------
Agreement described in Section 6(a)(ii) or 6(a)(iv), upon a termination of this
Agreement, the Employee's right to any compensation which thereafter would
accrue to him under this Agreement or in connection herewith shall expire. If
this Agreement terminates upon expiration of the scheduled Term, the Employee
shall be entitled to receive bonus payments as provided in Section 4(b). If
this Agreement terminates upon the occurrence of a Nonperformance Event, the
Employee shall be entitled to receive, within five business days' of the
Company's receipt thereof, 100% of all Termination Payments (as defined in the
Service Agreement).
(d) Severance; Release. Notwithstanding anything to the contrary contained
------------------
herein, the Company shall have the right, at any time after December 31, 2000,
to terminate the employment of the Employee under this Agreement "without
cause". In the event of such a termination, in addition to the Salary and other
compensation (including accrued vacation and cash bonuses) earned hereunder and
unpaid or not delivered through the date of termination and any benefits
referred to in Sections 4(b), 4(c), 4(d) and 5(b) hereof in which the Employee
has a vested right under the terms and conditions of the plan or program
pursuant to which such benefits were granted (without regard to such
termination), the Company shall pay the Employee the following (the "Severance
Payment"):
a cash payment equal to the aggregate amount of Salary that the Employee would
have been entitled to under this Agreement, from the date of such termination to
the end of the scheduled Term, which shall be payable in consecutive, equal
monthly installments, on the fifteenth day of each calendar month commencing
during the month next following the month in which the Employee is no longer
employed by the Company;
if such termination occurs during the first two years of the Term, the amount of
any non-accountable expense allowance otherwise payable under Section 4(c) that
would have accrued after such termination in accordance with such Section, which
shall be paid in full on or before the second anniversary of the date of this
Agreement in accordance with the Company's standard non-accountable expense
policies;
<PAGE>
commencing seven months after such termination, a monthly amount equal to the
quotient of (A) the sum of (1) the aggregate bonus that was payable to the
Employee under Section 4(b) for the six months immediately preceding such
termination, plus (2) the Bonus Percentage multiplied by the aggregate amount of
Service Agreement Severance Amounts (as defined in the Service Agreement)
payable to the Company (without regard to when actually received by the Company)
for the six months immediately succeeding such termination divided by (B) 12,
which amount shall be paid to Employee on the fifteenth day of each calendar
month commencing during the seventh month next following the month in which the
Employee is no longer employed by the Company and continuing through the end of
the scheduled Term; and an amount equal to the Bonus Percentage of all Service
Agreement Severance Amounts (as defined in the Service Agreement) received by
the Company, which shall be paid to the Employee as and when received by the
Company under the Service Agreement.
Notwithstanding anything to the contrary contained above, payments under this
Section 6(d) shall not be due unless the Company shall have received a general
release from the Employee in customary form for such circumstances (which shall
not release the Company from its obligation to make the Severance Payment to the
Employee). In the event of termination of this Agreement by the Company by
reason of the death or disability of the Employee, the Company shall not be
obligated to make the Severance Payment to the Employee. The Severance Payment
shall be in lieu of any other claim for compensation under this Agreement, any
wage continuation law or at common law, or any claim to severance or similar
payments or benefits which the Employee may otherwise have or make. Without
limiting any other rights or remedies which the Company may have, it is
understood that the Company shall be under no further obligation to make any
such severance payments and shall be entitled to be reimbursed therefor by the
Employee or his estate if the Employee violates any of the covenants set forth
in this Agreement. In the event that the Severance Payment shall become payable
to the Employee, the Employee shall not be required, either in mitigation of
damages or by the terms of any provisions of this Agreement or otherwise, to
seek or accept other employment, and if the Employee does accept other
employment, any benefits or payments under this Agreement shall not be reduced
by any compensation earned or other benefits received as a result of such
employment. Further, in the event that the Severance Payment shall become
payable to the Employee, the Company shall continue to provide during such
period coverage to Employee under the Company's health, hospitalization and
medical programs, to the same extent and at the same cost to the Employee as
provided during the term of Employee's employment with the Company (the "Health
Benefit").
7. Non-Solicitation, Restrictive Covenants, Confidentiality and Injunctive
-----------------------------------------------------------------------
Relief.
- ------
(a) The Employee agrees to the following to and for the benefit of the Company:
(i) Non-Competition. In view of the fact that activity of the Employee in
---------------
violation of the terms hereof is likely to adversely affect the Company and
its subsidiaries and affiliates and would deprive the Company of the
benefits of its bargain hereunder, and to
<PAGE>
preserve the goodwill associated with the Company's business, the Employee
hereby agrees that during the period commencing on the date hereof and ending on
the third (3rd) anniversary of the date on which the Employee's employment with
the Company and its subsidiaries and affiliates terminates for any reason (the
"Non-Compete Period"), he will not, without the express written consent of the
Company, directly or indirectly, anywhere in the United States or Canada, engage
in any activity which is, or participate or invest in, or provide or facilitate
the provision of financing to, or assist (whether as owner, part-owner,
shareholder, member, partner, director, officer, trustee, employee, agent or
consultant, or in any other capacity), any business, organization or person
other than the Company (or any subsidiary or affiliate of the Company), whose
business, activities, products or services are competitive with any of the
business, activities, products or services conducted by the Company (or any
subsidiary or affiliate of the Company) on the date the Employee's employment
with the Company terminates and which are in the Company's Field of Interest
(each a "Competitive Business"); provided that the Employee shall be permitted
to be employed by an entity which operates an ancillary business in the
Company's Field of Interest so long as the Employee is not involved in such
ancillary business. For purposes of this Section 7(a)(i), the Company's "Field
of Interest" shall include, without limitation, the development, implementation,
sale or maintenance of on-line marketing or advertising programs to
pharmaceutical and other healthcare organizations, the acquisition, preparation
or display of content relating to pharmaceutical or other healthcare information
on the Internet and any other business activity engaged in, or conducted by the
Company or its subsidiaries or affiliates on the date the Employee's employment
with the Company terminates. For the avoidance of doubt, for purposes of this
Agreement, the Company's affiliates shall include Mediconsult.com, Inc. and
Mediconsult.com, Ltd. and their respective subsidiaries and affiliates.
Notwithstanding anything in this Section 7(a)(i) to the contrary, the Employee
shall not be prohibited from participating, directly or indirectly, in any
activity or business with Internet operations, including companies providing
goods or services through or providing e-commerce and content or otherwise, that
is not a Competitive Business.
Notwithstanding anything herein to the contrary, the Employee may make passive
investments in any enterprise the shares of which are publicly traded if such
investment constitutes less than one percent (1%) of the equity of such
enterprise.
(ii) Non-Solicitation. In addition to the restrictions in Section 7(a)(i)
----------------
above, the Employee also agrees that he will not during the Non-Compete Period:
(1) hire, attempt to hire, or participate in any way in any effort by any person
or entity (other than the Company or any of its direct and/or indirect
subsidiaries and affiliates) to hire or attempt to hire any person who is at the
time (or was within the immediately preceding six (6) months) an officer or
employee of the Company or its direct and/or indirect subsidiaries or
affiliates; (2) encourage any officer or employee of the Company or its direct
or indirect subsidiaries or affiliates to terminate his or her relationship or
employment with such entity; or (3) on behalf of himself or any persons or
entity, other than the Company or any of its direct or indirect subsidiaries and
affiliates, solicit or accept business from any client of the Company or its
direct or indirect subsidiaries or affiliates in the Company's Field of
Interest; provided, however, that the foregoing provision will not
<PAGE>
prevent the Employee from employing or offering to employ any such person who
has been terminated by the Company or a subsidiary or affiliate prior to the
commencement of employment discussions between the Employee and such employee,
and the Employee will be permitted to hire and offer to hire employees of the
Company or its subsidiaries or affiliates who are contacted as a result of the
use of general newspaper or electronic advertisement and other general non-
targeted recruitment techniques in the ordinary course of business and
consistent with past practices as opposed to targeted solicitations of any one
or more of the employees of the Company or its subsidiaries or affiliates.
(iii) Scope of Agreement. The parties acknowledge that the time, scope,
------------------
geographic area and other provisions of this Section 7 have been specifically
negotiated by the sophisticated commercial parties and agree that (1) all such
provisions are reasonable under the circumstances of this Agreement, (2) are
given as an integral and essential part of this Agreement and (3) but for the
covenants of the Employee contained in this Section 7, the Company would not
have entered into this Agreement. The Employee has independently consulted with
his counsel and has been advised in all respects concerning the reasonableness
and propriety of the covenants contained herein, with specific regard to the
business to be conducted by the Company and its subsidiaries and affiliates, and
represents that this Agreement is intended to be, and shall be, fully
enforceable and effective in accordance with its terms.
(iv) Severability. In the event that any covenant contained in this Agreement
------------
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other respect,
it shall be interpreted to extend only over the maximum period of time for which
it may be enforceable and/or over the maximum geographical area as to which it
may be enforceable and/or to the maximum extent in all other respects as to
which it may be enforceable, all as determined by such court in such action.
(v) Confidential Information. As used in this Agreement, "Confidential
------------------------
Information" means information belonging to the Company which is of value to the
Company in the course of conducting its business and the disclosure of which is
reasonably likely to result in a competitive or other disadvantage to the
Company. Confidential Information includes, without limitation, financial
information, reports, and forecasts; inventions, improvements and other
intellectual property; trade secrets; know-how; designs, processes or formulae,
software; market or sales information or plans; customer lists; and business
plans, prospects and opportunities (such as possible acquisitions or
dispositions of businesses or facilities) which have been discussed or
considered by the management of the Company. Confidential Information includes
information developed by the Employee in the course of the Employee's employment
by the Company, as well as other information to which the Employee may have
access in connection with the Employee's employment. Confidential Information
also includes the confidential information (as described above) of others with
which the Company has a business relationship, including Mediconsult.com, Inc.
and Mediconsult.com, Ltd. Notwithstanding the foregoing, Confidential
Information does not include information in the public domain,
<PAGE>
unless due to breach of the Employee's duties under Section 7(a)(vi) or
information known to the Employee prior to his employment by the Company.
(vi) Confidentiality. The Employee understands and agrees that the Employee's
---------------
employment creates a relationship of confidence and trust between the Employee
and the Company with respect to all Confidential Information. At all times, both
during the Employee's employment with the Company and after his termination, the
Employee will keep in confidence and trust all such Confidential Information,
and will not use or disclose any such Confidential Information without the
written consent of the Company, except as may be necessary in the ordinary
course of performing the Employee's duties to the Company.
(vii) Inventions. The Employee recognizes that the Company possesses a
----------
proprietary interest in all of the Confidential Information and has the
exclusive right and privilege to use, protect by copyright, patent or trademark,
or otherwise exploit the processes, ideas and concepts described therein to the
exclusion of the Employee, except as otherwise agreed between the Company and
the Employee in writing. The Employee expressly agrees that any products,
inventions, discoveries or improvements made by the Employee or his agents in
the course of the Employee's employment or during any period that the Employee
has heretofore been a consultant to the Company, including any of the foregoing
which is based on or arises out of the Confidential Information, shall be the
property of and inure to the exclusive benefit of the Company. The Employee
further agrees that any and all products, inventions, discoveries or
improvements developed by the Employee (whether or not able to be protected by
copyright, patent or trademark) during the course of his employment or during
any period that the Employee has heretofore been a consultant to the Company, or
involving the use of the time, materials or other resources of the Company or
any of its subsidiaries or affiliates, shall be promptly disclosed to the
Company and shall become the exclusive property of the Company and the Employee
shall execute and deliver any and all documents necessary or appropriate to
implement the foregoing.
(viii) Business Opportunities. The Employee agrees, while he is employed by
----------------------
the Company, to offer or otherwise make known or available to it, as directed by
the Board of Directors of the Company and without additional compensation or
consideration, any business prospects, contracts or other business opportunities
that he may discover, find, develop or otherwise have available to him in the
Company's Field of Interest, and further agrees that any such prospects,
contacts or other business opportunities shall be the property of the Company.
(ix) Documents, Records, etc. All documents, records, data, apparatus,
------------------------
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Employee by the Company or are produced
by the Employee in connection with the Employee's employment will be and remain
the sole property of the Company. The Employee will return to the Company all
such materials and property as and when requested by the Company. In any event,
the Employee will return all such materials and property immediately upon
termination of the Employee's employment for
<PAGE>
any reason. The Employee will not retain with the Employee any such material
property or any copies thereof after such termination.
(x) Third-Party Agreements and Rights. The Employee hereby confirms that the
---------------------------------
Employee is not bound by the terms of any agreement with any previous employer
or other party which restricts in any way the Employee's use or disclosure of
information reasonably likely to be useful or necessary to the performance by
the Employee of his services hereunder, or the Employee's engagement in any
business. The Employee represents to the Company that the Employee's execution
of this Agreement, the Employee's employment with the Company and the
performance of the Employee's proposed duties for the Company will not violate
any obligations the Employee may have to any such previous employer or other
party. In the Employee's work for the Company, the Employee will not disclose or
make use of any information in violation of any agreements with or right of any
such previous employer or other party, and the Employee will not bring to the
premises of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other
party.
(xi) Litigation and Regulatory Cooperation. During and after the Employee's
-------------------------------------
employment, the Employee shall cooperate fully with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while the Employee was employed by the Company. The
Employee's full cooperation in connection with such claims or actions shall
include, but not be limited to, being available to meet with counsel to prepare
for discovery or trial and to act as a witness on behalf of the Company at
mutually convenient times. During and after the Employee's employment, the
Employee also shall cooperate fully with the Company in connection with any such
investigation or review of any federal, state or local regulatory authority as
any such investigation or review relates to events or occurrences that
transpired while the Employee was employed by the Company. The Company shall
reimburse the Employee for any reasonable out-of-pocket expenses incurred in
connection with the Employee's performance of obligations pursuant to this
subsection (xi). The performance by the Employee under this subsection (xi)
after the termination of the Employee's employment with the Company shall be
subject to his other employment obligations.
(b) The provisions of this Section 7 shall survive the termination or
expiration of this Agreement, irrespective of the reason therefor, including
under circumstances in which the Employee continues thereafter in the employ of
the Company.
8. Certain Meanings. For purposes of this Agreement, (a) any reference to the
----------------
subsidiaries of the Company shall be deemed to include all entities directly or
indirectly controlled by it through an ownership of more than fifty percent
(50%) of the voting interests, (b) the term "affiliate" shall mean, with respect
to any person or entity, any person or entity which directly or indirectly
controls, is controlled by or is under common control with such person or
entity, except that in the case of the Company, "affiliate" also shall include
Mediconsult.com, Inc., Mediconsult.com, Ltd. and their respective
<PAGE>
affiliates, and (c) the term "person" shall mean an individual, a corporation,
an association, a partnership, a limited liability company, an estate, a trust,
and any other entity or organization.
9. Insurance. The Employee agrees that the Company may from time to time and
---------
for the Company's own benefit apply for and take out life insurance covering the
Employee, either independently or together with others, in any amount and form
which the Company may deem to be in its best interests. The Company shall own
all rights in such insurance and in the cash values and proceeds thereof and the
Employee shall not have any right, title or interest therein. The Employee
agrees to assist the Company, at the Company's expense, in obtaining any such
insurance by, among things, submitting to customary examinations and correctly
preparing, signing and delivering such applications and other documents as
reasonably may be required. Nothing contained in this Section 9 shall be
construed as a limitation on the Employee's right to procure any life insurance
for his own personal needs.
10. Notices. All notices shall be in writing and shall be deemed to have been
-------
duly given to a party hereto on the date of such delivery, if delivered
personally, or on the third day after being deposited in the mail if mailed via
registered or certified mail, return receipt requested, postage prepaid, or on
the next business day after being sent by recognized national overnight courier
service, in the case of the Employee at his current address as set forth in the
Company's records, and in the case of the Company, at it address set forth
above.
11. Assignability and Binding Effect. This Agreement shall inure to the
--------------------------------
benefit of and shall be binding upon the heirs, executors, administrators,
successors and legal representatives of the Employee, and shall inure to the
benefit of and be binding upon the Company and its successors and assigns. The
Employee may not assign, transfer, pledge, encumber, hypothecate or otherwise
dispose of this Agreement, or any of his rights or obligations hereunder, and
any such attempted delegation or disposition shall be null and void and without
effect.
12. Severability. In the event that any provisions of this Agreement would be
------------
held to be invalid, prohibited or unenforceable in any jurisdiction for any
reason (including, but not limited to, any provisions which would be held to be
unenforceable because of the scope, duration or area of its applicability),
unless narrowed by construction, this Agreement shall, as to such jurisdiction
only, be construed as if such invalid, prohibited or unenforceable provision had
been more narrowly drawn so as not to be invalid, prohibited or unenforceable
(or if such language cannot be drawn narrowly enough, the court making any such
determination shall have the power to modify such scope, duration or area or all
of them, but only to the extent necessary to make such provision or provisions
enforceable in such jurisdiction, and such provision shall then be applicable in
such modified form). If, notwithstanding the foregoing, any provision of this
Agreement would be held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision shall be ineffective to the extent of such
invalidity, prohibition or unenforceability, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
<PAGE>
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York, without regard to
principles of conflict of laws and regardless of where actually executed,
delivered or performed.
14. Complete Understanding; Counterparts. This Agreement constitutes the
------------------------------------
complete understanding and supersedes any and all prior agreements and
understandings between the parties with respect to its subject matter, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement shall
not be altered, modified, amended or terminated except by written instrument
signed by each of the parties hereto. The Section and paragraph headings
contained herein are for convenience only, and are not part of and are not
intended to define or limit the contents of said Sections and paragraphs. This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which, when taken together, shall constitute one and the
same agreement.
15. Effective Date. The parties have executed this Agreement on August 20,
--------------
1999, to take effect on September 7, 1999. Except for this Section 15, no other
provision of this Agreement shall be effective until September 7, 1999.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
PHARMA MARKETING, LLC
By MEDICONSULT.COM, INC.,
a Managing Member
By: /s/ E. Michael Ingram
-------------------------------
E. Michael Ingram
Chief Financial Officer and
General Counsel
/s/ Timothy J. McIntyre
- ----------------------------------
Employee: Timothy J. McIntyre
<PAGE>
Exhibit A
---------
Additional Benefits
-------------------
Car Allowance. Employee will be entitled to receive a car allowance of up to
- -------------
$900 per month, for an automobile suitable for an employee with duties and
responsibilities similar in nature and stature to Employee's under this
Agreement.
Annual Club Dues. Employee will be entitled to receive reimbursement of club
- ----------------
dues of up to $7,500 per year, for membership in sporting or social clubs
suitable for an employee with duties and responsibilities similar in nature and
stature to Employee's under this Agreement.
Financial Planning Reimbursement. Employee will be entitled to receive
- --------------------------------
reimbursement of financial planning services of up to $12,000.
<PAGE>
Exhibit 21.1
Subsidiaries of the Company Jurisdiction of Incorporation
- --------------------------- -----------------------------
Mediconsult.com (UK) Ltd. Northern Ireland
Mediconsult.com (US), Ltd. Delaware
Mediconsult.com Limited Bermuda
3542491 Canada Inc. Canada
Pharminfonet Delaware
iHealth Inc. Delaware
Cyberdiet, Inc. California
Cyber-Tech, Inc. New Jersey
Mood Sciences, Inc. California
Physicians' Online, Inc. Delaware
Web North Star Interactive, Corp New York
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Commission File Nos. 333-92563) and Forms S-8
(Commission File Nos. 333-92867 and 333-92869) of Mediconsult.com, Inc. of our
report dated March 20, 2000, except for Note 20, which is dated March 31, 2000,
relating to the financial statements, which appears in this Form 10-K.
PricewaterhouseCoopers
Hamilton, Bermuda
April 7, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
0
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</TABLE>
